<PAGE> 1
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-36595
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 20, 1997)
<TABLE>
<S> <C> <C>
2,000,000 SHARES
POST PROPERTIES, INC.
7 5/8% SERIES B CUMULATIVE REDEEMABLE PREFERRED SHARES
(PAR VALUE $0.01 PER SHARE)
[POST PROPERTIES LOGO] (LIQUIDATION PREFERENCE EQUIVALENT TO $25.00 PER SHARE)
</TABLE>
------------------------
Dividends on the 7 5/8% Series B Cumulative Redeemable Preferred Shares,
$.01 par value per share (the "Series B Preferred Shares"), of Post Properties,
Inc. (the "Company") will be cumulative from the date of original issue and will
be payable quarterly on or about the last day of March, June, September and
December of each year, commencing December 31, 1997, at the rate of 7 5/8% of
the liquidation preference per annum (equivalent to $1.90625 per annum per
share).
The Series B Preferred Shares are not redeemable prior to October 28, 2007.
On or after October 28, 2007, the Series B Preferred Shares may be redeemed for
cash at the option of the Company in whole or in part, at a redemption price of
$25.00 per share, plus accrued and unpaid dividends, if any, thereon. The
redemption price (other than the portion thereof consisting of accrued and
unpaid dividends) is payable solely out of the sale proceeds of other capital
stock of the Company, which may include other series of preferred shares. The
Series B Preferred Shares have no stated maturity and will not be subject to any
sinking fund or mandatory redemption and will not be convertible into any other
securities of the Company. See "Description of Series B Preferred
Shares -- Redemption." In order to maintain its qualification as a real estate
investment trust for federal income tax purposes, the Company's Amended and
Restated Articles of Incorporation impose limitations on the number of shares of
capital stock, including Series B Preferred Shares, that may be owned by any
single person or affiliated groups. See "Description of Series B Preferred
Shares -- Restrictions on Transfer."
Application will be made to list the Series B Preferred Shares on the New
York Stock Exchange ("NYSE"). If such application is approved, trading of the
Series B Preferred Shares on the NYSE is expected to commence within a 30-day
period after the date of initial delivery of the Series B Preferred Shares.
While the Underwriters have advised the Company that they intend to make a
market in the Series B Preferred Shares prior to commencement of trading on the
NYSE, they are under no obligation to do so and no assurance can be given that a
market for the Series B Preferred Shares will exist prior to commencement of
trading. See "Underwriting."
------------------------
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 SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
========================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.......................................... $25.00 $.7875 $24.2125
- ------------------------------------------------------------------------------------------------------------------------
Total(4)........................................... $50,000,000 $1,575,000 $48,425,000
========================================================================================================================
</TABLE>
(1) Plus accrued dividends, if any, from the date of original issue.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(3) Before deducting expenses payable by the Company estimated at $150,000.
(4) The Company has granted the Underwriters an option to purchase up to an
additional 300,000 shares to cover over-allotments. If all such shares are
purchased, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $57,500,000, $1,811,250, and $55,688,750, respectively. See
"Underwriting."
------------------------
The Series B Preferred Shares are being offered by the Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the Series B Preferred Shares will be made in New York, New York on
or about October 28, 1997.
------------------------
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
------------------------
The date of this Prospectus Supplement is October 23, 1997.
<PAGE> 2
PROSPECTUS SUPPLEMENT SUMMARY
THE COMPANY
The Company is one of the largest developers and operators of upscale
multifamily apartment communities in the Southeastern United States. As of June
30, 1997, the Company owned 49 stabilized communities (the "Communities")
containing 17,648 apartment units located primarily in metropolitan Atlanta,
Georgia and Tampa, Florida. In addition, as of June 30, 1997, the Company had
under construction or in initial lease-up ten new communities and additions to
two existing communities in the Atlanta, Georgia; Tampa, Florida; Nashville,
Tennessee and Charlotte, North Carolina metropolitan areas that will contain an
aggregate of 4,025 apartment units when completed. For the six months ended June
30, 1997, the average economic occupancy rate of the 48 Communities stabilized
for the entire period was 94.3%. The average monthly rental rate per apartment
unit at these Communities for the same period was $800. The Company also manages
through affiliates one community with 260 apartment units under the Post(R)
brand name for a third party and approximately 7,800 additional apartment units
owned by third parties. The Company is a fully-integrated organization with
multifamily development, acquisition, operation and asset management expertise
and has approximately 1,200 employees, none of whom is a party to a collective
bargaining agreement.
The Company conducts all of its operations through Post Apartment Homes,
L.P. (the "Operating Partnership") and its subsidiaries. The Company is the sole
general partner of, and controls a majority of the limited partnership interests
in, the Operating Partnership. As of June 30, 1997, the Company owned 80.9% of
the outstanding partnership interests in the Operating Partnership.
RECENT DEVELOPMENTS
ACQUISITION ACTIVITY
On August 4, 1997, the Company announced that it had entered into a
definitive agreement and plan of merger with Columbus Realty Trust, a Texas real
estate investment trust ("Columbus"), pursuant to which Columbus would be merged
into a wholly owned subsidiary of the Company (the "Merger Agreement"). Pursuant
to the Merger Agreement, each outstanding share of Columbus common shares will
be converted into 0.615 shares of common stock of the Company (the "Common
Stock"), which will result in the issuance of approximately 8.4 million shares
of Common Stock.
The merger, which will be accounted for as a purchase, will be completed on
October 24, 1997. In connection with the merger, the Company intends to effect a
restructuring pursuant to which its general and limited partner interests will
be held by wholly owned subsidiaries of the Company. Pursuant to the Merger
Agreement, Columbus' assets will be contributed by Post LP Holdings, Inc., a
wholly owned subsidiary of the Company, to the Operating Partnership for limited
partnership interests in the Operating Partnership. Upon completion of the
merger, the Company will indirectly own 85.4% of the outstanding partnership
interests in the Operating Partnership.
Columbus is a self-administered and self managed real estate investment
trust that develops, owns and operates upscale multifamily residential
properties primarily in urban communities in the Southwestern United States. As
of June 30, 1997, Columbus owned 39 total properties: 28 completed multifamily
residential properties containing an aggregate of 6,045 apartment units located
primarily in the Dallas/Ft. Worth metropolitan area, two industrial properties,
one retail property, six multifamily development sites in various states of
construction, and two sites acquired for future development.
FINANCING ACTIVITY
Pursuant to an agreement with the Federal National Mortgage Association to
provide credit enhancement for the Company's outstanding tax-exempt bonds, on
October 9, 1997, the Company conducted an advance refunding of three bonds with
issues having a maturity of June 1, 2025 and weekly variable interest rates.
On September 22, 1997, the Company issued $35 million of fixed rate medium
term notes as follows: $10 million due September 22, 2004, which priced at par
with a coupon rate of 6.69%, and $25 million due September 22, 2005, which
priced at par with a coupon rate of 6.78%. On September 26, 1997, the Company
issued $16 million fixed rate medium term notes due December 31, 1999, which
priced at par with a coupon rate of 6.22%.
As of September 30, 1997, the Company had outstanding indebtedness in the
aggregate principal amount of $508.9 million.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SERIES B
PREFERRED SHARES, INCLUDING EXERCISING THE OVERALLOTMENT OPTION, ENTERING
STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS, AND IMPOSING
PENALTY BINDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
<PAGE> 3
THE OFFERING
Securities Offered......... 2,000,000 shares of 7 5/8% Series B Cumulative
Redeemable Preferred Shares.
Use of Proceeds............ The net proceeds to the Company from the Offering
(approximately $48.3 million) will be used to pay
down existing indebtedness and for general
corporate purposes.
Ranking.................... With respect to the payment of dividends and
amounts upon liquidation, the Series B Preferred
Shares offered hereby will rank pari passu with
the Series A Preferred Shares (as hereinafter
defined) and any other preferred shares which are
not by their terms subordinated to the Series B
Preferred Shares and will rank senior to the
Common Stock and any other shares of the Company
which by their terms rank junior to the Series B
Preferred Shares. See "Description of Preferred
Stock -- Rank" in the accompanying Prospectus.
Dividends.................. Dividends on the Series B Preferred Shares offered
hereby are cumulative from the date of issue and
are payable quarterly on or about the last day of
March, June, September and December of each year,
commencing on December 31, 1997, at the rate of
7 5/8% of the liquidation preference per annum
(equivalent to $1.90625 per annum per share).
Dividends on the Series B Preferred Shares will
accrue whether or not the Company has earnings,
whether or not there are funds legally available
for the payment of such dividends and whether or
not such dividends are declared.
Liquidation Rights......... The Series B Preferred Shares will have a
liquidation preference of $25.00 per share, plus
an amount equal to accrued and unpaid dividends.
See "Description of Series B Preferred
Shares -- Liquidation Preference."
Redemption................. The Series B Preferred Shares are not redeemable
prior to October 28, 2007. On and after October
28, 2007, the Series B Preferred Shares will be
redeemable for cash at the option of the Company,
in whole or in part, at $25.00 per share, plus
accrued and unpaid dividends, if any, thereon.
The redemption price (other than the portion
thereof consisting of accrued and unpaid
dividends) is payable solely out of the sale
proceeds of other capital stock of the Company
which may include other series of preferred
shares, and from no other source. See
"Description of Series B Preferred
Shares -- Redemption."
Voting Rights.............. If dividends on the Series B Preferred Shares are
in arrears for six or more quarterly periods,
whether or not such quarterly periods are
consecutive, holders of the Series B Preferred
Shares (voting separately as a class with the
Series A Preferred Shares and all other series of
preferred shares upon which like voting rights
have been conferred and are exercisable) will be
entitled to vote for the election of two
additional Directors to serve on the Board of
Directors of the Company until all distribution
arrearages have been paid. See "Description of
Series B Preferred Shares -- Voting Rights."
Conversion................. The Series B Preferred Shares are not convertible
or exchangeable for any other property or
securities of the Company.
S-3
<PAGE> 4
Ownership Limits........... The Series B Preferred Shares will be subject to
certain restrictions on transfer intended to
preserve the Company's status as a REIT for
federal income tax purposes. In general, under
such restrictions, a holder may not acquire or
own Series B Preferred Shares to the extent that
such ownership causes an individual (as specially
defined under the Internal Revenue Code of 1986,
as amended (the "Code") to include certain
charitable organizations) to own more than 6% of
the value of the outstanding Series B Preferred
Shares, taking into account applicable
constructive ownership rules of the Code. Under
these rules, Preferred Shares held by entities
such as corporations, mutual funds, insurance
companies and pension trusts would be treated as
owned by their ultimate individual beneficial
owners for purposes of applying the 6% ownership
limit. See "Description of Series B Preferred
Shares -- Restrictions on Transfer."
Trading.................... Application will be made to list the Series B
Preferred Shares on the New York Stock Exchange
("NYSE"). If such application is approved,
trading of the Series B Preferred Shares on the
NYSE is expected to commence within a 30-day
period after the date of initial delivery of the
Series B Preferred Shares. While the Underwriters
have advised the Company that they intend to make
a market in the Series B Preferred Shares prior
to commencement of trading on the NYSE, they are
under no obligation to do so and no assurance can
be given that a market for the Series B Preferred
Shares will exist prior to commencement of
trading. See "Underwriting."
S-4
<PAGE> 5
USE OF PROCEEDS
The net cash proceeds to the Company from the sale of the Series B
Preferred Shares offered hereby are expected to be approximately $48.3 million.
The Company intends to contribute or otherwise transfer the net proceeds of the
sale of the Series B Preferred Shares to the Operating Partnership in exchange
for 7 5/8% Series B Preferred Units in the Operating Partnership, the economic
terms of which will be substantially identical to the Series B Preferred Shares.
The Operating Partnership will be required to make all required distributions on
the Series B Preferred Units (which will mirror the payments of distributions,
including accrued and unpaid distributions upon redemption, and of the
liquidation preference amount on the Series B Preferred Shares) prior to any
distribution of cash or assets to the holders of Units or to the holders of any
other interests in the Operating Partnership, except for the Series A Preferred
Units and any other series or preference units ranking on a parity with the
Series B Preferred Units as to distributions and/or liquidation rights and
except for distributions required to enable the Company to maintain its
qualification as a REIT. The Operating Partnership will use the net proceeds to
pay down indebtedness outstanding under its revolving credit facility (the
"Revolver"). The Revolver terminates on May 1, 2000 and borrowings thereunder
bear interest, at the option of the Operating Partnership, at LIBOR plus .675%
or prime minus .25%. As of September 30, 1997 interest accrued on borrowings
outstanding under the Revolver of a weighted average interest rate of 6.09% per
annum.
S-5
<PAGE> 6
DESCRIPTION OF SERIES B PREFERRED SHARES
This description of the particular terms of the Series B Preferred Shares
offered hereby supplements, and to the extent inconsistent therewith replaces,
the description of the general terms and provisions of the Preferred Shares set
forth in the accompanying Prospectus, to which description reference is hereby
made.
GENERAL
The Company is authorized to issue up to 20,000,000 shares of preferred
stock, $.01 par value per share, in one or more series, with such designations,
powers, preferences and rights of the shares of such series and the
qualifications, limitations or restrictions thereon, including, but not limited
to, the fixing of the dividend rights, dividend rate or rates, conversion
rights, voting rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, and the liquidation preferences, in
each case, if any, as the Board of Directors of the Company may determine by
adoption of an applicable articles of amendment (a "Designating Amendment") to
the Company's Amended and Restated Articles of Incorporation (the "Articles of
Incorporation"), without any further vote or action by the shareholders. See
"Description of Preferred Stock -- Terms" in the accompanying Prospectus. On
October 1, 1996, the Company issued 1,000,000 shares of 8 1/2% Series A
Cumulative Redeemable Preferred Shares (the "Series A Preferred Shares" and,
together with the Series B Preferred Shares, the "Preferred Shares").
On October 23, 1997, a form of Designating Amendment was adopted
determining the terms of a series of preferred stock consisting of up to
2,300,000 shares, designated 7 5/8% Series B Cumulative Redeemable Preferred
Shares. The following summary of the terms and provisions of the Series B
Preferred Shares does not purport to be complete and is qualified in its
entirety by reference to the pertinent sections of the Articles of Incorporation
and the Designating Amendment designating the Series B Preferred Shares, each of
which is available from the Company.
The Company intends to contribute or otherwise transfer the net proceeds of
the sale of the Series B Preferred Shares to a wholly owned subsidiary, which
will contribute such proceeds to the Operating Partnership in exchange for
7 5/8% Series B Preferred Units in the Operating Partnership, the economic terms
of which will be substantially identical to the Series B Preferred Shares. The
Operating Partnership will be required to make all required distributions on the
Series B Preferred Units (which will mirror the payments of distributions,
including accrued and unpaid distributions upon redemption, and of the
liquidation preference amount of the Series B Preferred Shares) prior to any
distribution of cash or assets to the holders of the Units or to the holders of
any other interests in the Operating Partnership, except for holders of the
Series A Preferred Units or any other series of preference units ranking on a
parity with the Series B Preferred Units as to distributions and/or liquidation
rights and except for distributions required to enable the Company to maintain
its qualification as a REIT.
None of the Series B Preferred Shares, the Series B Preferred Units or any
of the indebtedness of the Operating Partnership contain any provisions
affording holders of the Series B Preferred Shares protection in the event of a
highly leveraged or other transaction that might adversely affect holders of
Series B Preferred Shares.
The registrar, transfer agent and dividends disbursing agent for the Series
B Preferred Shares will be Wachovia Bank of North Carolina, N.A.
DIVIDENDS
Holders of the Series B Preferred Shares shall be entitled to receive, when
and as authorized by the Board of Directors, out of funds legally available for
the payment of dividends, cumulative cash dividends at the rate of 7 5/8% of the
liquidation preference per annum (equivalent to $1.90625 per annum per share).
Such dividends shall accrue and be cumulative from the date of original issue
and shall be payable quarterly in arrears on or about the last day of each
March, June, September and December or, if not a business day, the succeeding
business day (each, a "Dividend Payment Date"). The first dividend on the Series
B Preferred Shares will be paid on December 31, 1997. Any dividend payable on
the Series B Preferred Shares for any
S-6
<PAGE> 7
partial dividend period will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Dividends will be payable to holders of
record as they appear in the share records of the Company at the close of
business on the applicable record date, which shall be the 15th day of the
calendar month in which the applicable Dividend Payment Date falls or such other
date designated by the Board of Directors of the Company for the payment of
dividends that is not more than 30 nor less than 10 days prior to such Dividend
Payment Date (each, a "Dividend Record Date").
No dividends on the Series B Preferred Shares shall be authorized by the
Board of Directors of the Company or be paid or set apart for payment by the
Company at such time as the terms and provisions of any agreement of the Company
(or the Operating Partnership, as to the Series B Preferred Units), including
any agreement relating to its indebtedness, prohibits such authorization,
payment or setting apart for payment or provides that such authorization,
payment or setting apart for payment would constitute a breach thereof or a
default thereunder, or if such authorization or payment shall be restricted or
prohibited by law.
Notwithstanding the foregoing, dividends on the Series B Preferred Shares
will accrue whether or not the Company has earnings, whether or not there are
funds legally available for the payment of such dividends and whether or not
such dividends are authorized. Accrued but unpaid dividends on the Series B
Preferred Shares will not bear interest and holders of the Series B Preferred
Shares will not be entitled to any dividends in excess of full cumulative
dividends as described above. See "Description of Preferred Stock -- Dividends"
in the accompanying Prospectus.
The Operating Partnership will be required to make all required
distributions to the Company that will mirror the Company's payment of dividends
on the Series B Preferred Shares (including accrued and unpaid dividends upon
redemption, and of the liquidation preference amount of the Series B Preferred
Shares) prior to any distribution of cash or assets to the holders of the Units
or to the holders of any other interests in the Operating Partnership, except
for distributions required in connection with the Series A Preferred Shares or
any other shares of the Company ranking senior to or on a parity with the Series
B Preferred Shares as to dividends and/or liquidation rights and except for
distributions required to enable the Company to maintain its qualification as a
REIT. The credit agreement for the Revolver includes covenants which restrict
the ability of the Operating Partnership to make distributions, in excess of
stated amounts, which in turn restricts the discretion of the Company to declare
and pay dividends. In general, during any fiscal year the Operating Partnership
may only distribute up to 100% of the Operating Partnership's consolidated
income available for distribution (as defined in the credit agreement),
exclusive of distributions of up to $30.0 million of capital gains for such
year. The credit agreement contains exceptions to these limitations to allow the
Operating Partnership to make distributions necessary to allow the Company to
maintain its status as a REIT. The Company does not believe that this covenant
will adversely affect the ability of the Operating Partnership to make
distributions in an amount sufficient to permit the Company to pay dividends
with respect to the Series B Preferred Shares.
Any dividend payment made on the Series B Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due with respect to
such shares which remains payable.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of the affairs
of the Company, the holders of the Series B Preferred Shares are entitled to be
paid out of the assets of the Company legally available for distribution to its
shareholders liquidating distributions in cash or property at its fair market
value as determined by the Company's Board of Directors in the amount of a
liquidation preference of $25.00 per share, plus an amount equal to any accrued
and unpaid dividends to the date of such liquidation, dissolution or winding up,
before any distribution of assets is made to holders of Common Stock or any
other capital shares that rank junior to the Series B Preferred Shares as to
liquidation rights. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Series B Preferred
Shares will have no right or claim to any of the remaining assets of the
Company. The consolidation or merger of the Company with or into any other
entity or the sale, lease, transfer or conveyance of all or substantially all of
the property or business of the Company shall not be deemed to constitute a
liquidation, dissolution or winding up of the
S-7
<PAGE> 8
Company. For further information regarding the rights of the holders of Series B
Preferred Shares upon the liquidation, dissolution or winding up of the Company,
see "Description of Preferred Stock -- Liquidation Preference" in the
accompanying Prospectus.
REDEMPTION
The Series B Preferred Shares are not redeemable prior to October 28, 2007.
On and after October 28, 2007, the Company, at its option upon not less than 30
nor more than 60 days' written notice, may redeem the Series B Preferred Shares,
in whole or in part, at any time or from time to time, in cash at a redemption
price of $25.00 per share, plus accrued and unpaid dividends thereon to the date
fixed for redemption (except as provided below), without interest, to the extent
the Company will have funds legally available therefor. The redemption price of
the Series B Preferred Shares (other than any portion thereof consisting of
accrued and unpaid dividends) shall be paid solely from the sale proceeds of
other capital stock of the Company and not from any other source. For purposes
of the preceding sentence, "capital stock" means any common stock, preferred
stock, depositary shares, interests, participation, or other ownership interests
(however designated) and any rights (other than debt securities convertible into
or exchangeable for equity securities) or options to purchase any of the
foregoing. Holders of Series B Preferred Shares to be redeemed shall surrender
such shares at the place designated in such notice and shall be entitled to the
redemption price and any accrued and unpaid dividends payable upon such
redemption following such surrender. If notice of redemption of any Series B
Preferred Shares has been given and if the funds necessary for such redemption
have been set aside by the Company in trust for the benefit of the holders of
any Series B Preferred Shares so called for redemption, then from and after the
redemption date dividends will cease to accrue on such Series B Preferred
Shares, such shares shall no longer be deemed outstanding and all rights of the
holders of such shares will terminate, except the right to receive the
redemption price. If fewer than all of the outstanding Series B Preferred Shares
are to be redeemed, the Series B Preferred Shares to be redeemed shall be
selected pro rata (as nearly as may be practicable without creating fractional
Series B Preferred Shares) or by any other equitable method determined by the
Company. See "Description of Preferred Stock -- Redemption" in the accompanying
Prospectus.
Notice of redemption will be given by publication in a newspaper of general
circulation in the City of New York, such publication to be made once a week for
two successive weeks commencing not less than 30 nor more than 60 days prior to
the redemption date. A similar notice furnished by the Company will be mailed by
the registrar, postage prepaid, not less than 30 nor more than 60 days prior to
the redemption date, addressed to the respective holders of record of the Series
B Preferred Shares to be redeemed at their respective addresses as they appear
on the share transfer records of the registrar. No failure to give such notice
or any defect thereto or in the mailing thereof shall affect the validity of the
proceedings for the redemption of any Series B Preferred Shares except as to the
holder to whom notice was defective or not given. Each notice shall state: (i)
the redemption date; (ii) the redemption price; (iii) the number of Series B
Preferred Shares to be redeemed; (iv) the place or places where the Series B
Preferred Shares are to be surrendered for payment of the redemption price; and
(v) that dividends on the shares to be redeemed will cease to accrue on such
redemption date. If fewer than all the Series B Preferred Shares held by any
holder are to be redeemed, the notice mailed to such holder shall also specify
the number of Series B Preferred Shares to be redeemed from such holder.
The holders of Series B Preferred Shares at the close of business on a
Dividend Record Date will be entitled to receive the dividend payable with
respect to the Series B Preferred Shares on the corresponding Dividend Payment
Date notwithstanding the redemption thereof between such Dividend Record Date
and the corresponding Dividend Payment Date or the Company's default in the
payment of the dividend due. Except as provided above, the Company will make no
payment or allowance for unpaid dividends, whether or not in arrears, on Series
B Preferred Shares to be redeemed.
The Series B Preferred Shares have no stated maturity and will not be
subject to any sinking fund or mandatory redemption provisions (except as
provided under "-- Restrictions on Transfer" below).
S-8
<PAGE> 9
VOTING RIGHTS
Except as indicated below or in the accompanying Prospectus, or except as
otherwise from time to time required by applicable law, the holders of Series B
Preferred Shares will have no voting rights.
On any matter on which the Series B Preferred Shares are entitled to vote
(as expressly provided herein or as may be required by law), including any
action by written consent, each Series B Preferred Share shall be entitled to
one vote. With respect to each Series B Preferred Share the holder thereof may
designate a proxy, with each such proxy having the right to vote on behalf of
such holder.
If dividends on the Series B Preferred Shares are in arrears for six or
more quarterly periods, whether or not such quarterly periods are consecutive,
holders of the Series B Preferred Shares (voting separately as a class with the
holders of Series A Preferred Shares and all other series of preferred shares
upon which like voting rights have been conferred and are exercisable) will be
entitled to vote for the election of two additional Directors to serve on the
Board of Directors of the Company until all dividend arrearages have been paid.
For further information regarding the voting rights of the holders of the Series
B Preferred Shares, see "Description of Preferred Stock -- Voting Rights" in the
accompanying Prospectus.
CONVERSION
The Series B Preferred Shares are not convertible into or exchangeable for
any other property or securities of the Company.
RESTRICTIONS ON TRANSFER
Ownership Limits. The Designating Amendment contains certain restrictions
on the number of Series B Preferred Shares that a single shareholder may own.
For the Company to qualify as a REIT under the Code, no more than 50% in value
of its outstanding Preferred Shares and Common Stock may be owned, actually and
constructively under the applicable constructive ownership provisions of the
Code, by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year (other than the first year) or
during a proportionate part of a shorter taxable year. The Preferred Shares and
Common Stock must also be beneficially owned by 100 or more persons during at
least 335 days of a taxable year (other than the first year) or during a
proportionate part of a shorter taxable year. Because the Company has elected to
be treated as a REIT, the Articles of Incorporation and the Designating
Amendment of the Company contain restrictions on the acquisition of Preferred
Shares and Common Stock intended to ensure compliance with these requirements.
Subject to certain exceptions specified in the Designating Amendment, no
person who is an "individual" within the meaning of Section 542(a)(2) of the
Code may own, after taking account the applicable constructive ownership
provisions of the Code, more than 6% (the "Ownership Limit") of the outstanding
Series B Preferred Shares. Under the constructive ownership rules, Series B
Preferred Shares owned by an entity, including a corporation, life insurance
company, mutual fund or pension trust, are treated as owned by the ultimate
individual beneficial owners of the entity. In addition, a holder is prohibited
from acquiring any Series B Preferred Shares if such acquisition would cause
five individuals to own (actually and constructively under the applicable
constructive ownership of the Code) in the aggregate more than 50% in value of
the outstanding Preferred Shares and Common Stock.
If any shareholder purports to transfer shares to a person and either the
transfer would result in the Company failing to qualify as a REIT, or the
shareholder knows that such transfer would cause the transferee to hold more
than the applicable Ownership Limit, the purported transfer will be null and
void as to that number of shares the transfer of which would cause a violation
of the applicable limit, and the shareholder will be deemed not to have
transferred such excess shares. In addition, if any person holds Series B
Preferred Shares in excess of the applicable Ownership Limit, such person will
be deemed to hold the shares that cause the limit to be exceeded in trust for
the Company, and will not receive dividends or distributions with respect to
such shares and will not be entitled to exercise any voting rights with respect
to such shares. The person will be required to sell such shares to the Company
for the lesser of the amount paid for the shares or the average
S-9
<PAGE> 10
of the last reported sales prices for the ten trading days immediately preceding
the redemption or to sell such shares at the direction of the Company, in which
case the Company will be reimbursed for its expenses in connection with the sale
plus any remaining amount of such proceeds that exceeds the amount such person
paid for the shares and such person will be entitled to receive only the balance
of the proceeds. If the Company repurchases such shares, it may elect to pay for
the shares with Operating Partnership Units.
All certificates representing Series B Preferred Shares will bear a legend
referring to the restrictions described above.
The Designating Amendment provides that each shareholder shall upon demand
be required to disclose to the Company in writing such information as the
Company may request in good faith in order to determine the Company's status as
a REIT.
S-10
<PAGE> 11
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain federal income tax considerations is based
on current law, is for general information only, and is not tax advice. This
discussion does not purport to deal with all aspects of taxation that may be
relevant to particular shareholders in light of their personal investment or tax
circumstances, or to certain types of shareholders (including insurance
companies, tax-exempt organizations, financial institutions or broker dealers,
foreign corporations and persons who are not citizens or residents of the United
States) subject to special treatment under the federal income tax laws. In
addition, this section does not discuss foreign, state, or local taxation.
This Prospectus Supplement does not address the taxation of the Company or
the impact on the Company of its election to be taxed as a REIT. Such matters
are addressed in the accompanying Prospectus under "Federal Income Tax
Considerations -- Taxation of the Company." Prospective investors should
consult, and must depend on, their own tax advisors regarding the state, local,
foreign and other tax consequences of holding and disposing of Series B
Preferred Shares.
Dividends and Other Distributions; Backup Withholding. For a discussion
regarding the taxation of dividends and other distributions with respect to
shares of the Company's capital stock, and the backup withholding rules, see
"Federal Income Tax Considerations -- Taxation of Shareholders" in the
accompanying Prospectus. In determining the extent to which a distribution on
the Series B Preferred Shares constitutes a dividend for tax purposes, the
earnings and profits of the Company will be allocated, on a pro rata basis,
first to distributions with respect to the Preferred Shares and then to the
Common Stock.
Sale or Exchange of Series B Preferred Shares. Upon the sale or exchange
of Series B Preferred Shares to a party other than the Company, a holder of
Series B Preferred Shares will realize a capital gain or loss measured by the
difference between the amount realized on the sale or other disposition and the
holder's adjusted tax basis in the Series B Preferred Shares (provided the
Series B Preferred Shares are held as a capital asset). If the Series B
Preferred Shares have been held by an individual for more than one year but not
more than 18 months at the time of disposition, the maximum capital gains rate
will be 28 percent. If the Series B Preferred Shares have been held by an
individual for more than 18 months, the maximum capital gains rate will be 20
percent. Any loss on a sale of Series B Preferred Shares which were held by the
holder for six months or less and with respect to which capital gain dividends
have been received will be treated as a long term capital loss, up to the amount
of the capital gain dividend received with respect to such shares.
Redemption of Series B Preferred Shares. The treatment to be accorded to
any redemption by the Company of Series B Preferred Shares can only be
determined on the basis of particular facts as to each holder of Series B
Preferred Shares at the time of redemption. In general, a holder of Series B
Preferred Shares will recognize capital gain or loss (provided the Series B
Preferred Shares are held as a capital asset) measured by the difference between
the amount realized by the holder upon the redemption and such holder's adjusted
tax basis in the Series B Preferred Shares redeemed if such redemption (i)
results in a "complete termination" of the holder's interest in all classes of
shares of the Company under Section 302(b)(3) of the Code, (ii) is
"substantially disproportionate" with respect to the holder's interest in the
Company under Section 302(b)(2) of the Code (which will not be the case if only
Series B Preferred Shares are redeemed, since they generally do not have voting
rights) or (iii) is "not essentially equivalent to a dividend" with respect to
the holder of Series B Preferred Shares under Section 302(b)(1) of the Code. In
determining whether any of these tests have been met, shares considered to be
owned by the holder by reason of certain constructive ownership rules set forth
in the Code, as well as shares actually owned, generally must be taken into
account. If the aforementioned tests are not met, the redemption will be treated
as a distribution with respect to the Series B Preferred Shares as described
under "Federal Income Tax Consequences -- Taxation of Shareholders" in the
accompanying Prospectus. Because the determination as to whether any of the
alternative tests of Section 302(b) of the Code will be satisfied with respect
to any particular holder of Series B Preferred Shares depends upon the facts and
circumstances at the time when the determination must be made, prospective
investors are advised to consult their own tax advisors to determine such tax
treatment.
S-11
<PAGE> 12
UNDERWRITING
Subject to the terms and conditions contained in the terms agreement and
related purchase agreement (collectively, the "Purchase Agreement"), the Company
has agreed to sell to each of the Underwriters named below (the "Underwriters")
and each of the Underwriters has severally agreed to purchase from the Company
the aggregate number of Series B Preferred Shares set forth opposite the name of
each such Underwriter. The Purchase Agreement provides that the obligations of
the Underwriters are subject to certain conditions precedent, and that the
Underwriters will be obligated to purchase all of the Series B Preferred Shares
if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 1,001,000
Morgan Stanley & Co. Incorporated........................... 333,000
PaineWebber Incorporated.................................... 333,000
Prudential Securities Incorporated.......................... 333,000
---------
Total............................................. 2,000,000
=========
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Series B Preferred Shares to the public at the public offering price
set forth on the cover page of this Prospectus Supplement, and to certain
dealers at such price less a concession not in excess of $.50 per share. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $.40 to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus Supplement, to purchase up
to 300,000 additional Series B Preferred Shares at the price to the public set
forth on the cover page of this Prospectus Supplement, less the underwriting
discount.
The Company and the Operating Partnership have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the
Underwriters may be required to make in respect thereof.
In connection with the Offering, the rules of the Securities and Exchange
Commission permit the Underwriters to engage in certain transactions that
stabilize the price of the Preferred Shares. Such transactions may consist of
bids or purchases for the purpose of pegging, fixing or maintaining the price of
the Preferred Shares.
If the Underwriters create a short position in the Preferred Shares in
connection with the Offering (i.e., if they sell more Preferred Shares than are
set forth on the cover page of this Prospectus Supplement), the Underwriters may
reduce that short position by purchasing Preferred Shares in the open market.
The Underwriters may also elect to reduce any short position by exercising all
or part of the over-allotment option described herein.
The Underwriters also may impose a penalty bid on certain Underwriters and
selling group members. This means that if the Underwriters purchase Preferred
Shares in the open market to reduce the Underwriters' short position or to
stabilize the price of the Common Stock or Preferred Shares, they may reclaim
the amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the Offering.
Neither the Company nor any of the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transaction
described above may have on the price of the Preferred Shares. In addition,
neither the Company nor any of the Underwriters makes any representation that
S-12
<PAGE> 13
the Underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
Application will be made to list the Series B Preferred Shares on the NYSE.
If such application is approved, trading of the Series B Preferred Shares on the
NYSE is expected to commence within a 30-day period after the date of initial
delivery of the Series B Preferred Shares. While the Underwriters have advised
the Company that they intend to make a market in the Series B Preferred Shares
prior to commencement of trading on the NYSE, they are under no obligation to do
so and no assurance can be given that a market for the Series B Preferred Shares
will exist prior to commencement of trading.
Merrill Lynch and Morgan Stanley & Co. Incorporated have from time to time
provided investment banking and financial advisory services to the Company and
the Operating Partnership.
LEGAL MATTERS
The validity of the Series B Preferred Shares offered pursuant to this
Prospectus Supplement and the Prospectus will be passed upon for the Company by
King & Spalding, Atlanta, Georgia. Herschel M. Bloom, a member of King &
Spalding, is a director of the Company.
Certain legal matters related to the Offering will be passed upon for the
Underwriters by Hogan & Hartson L.L.P., Washington, D.C.
S-13
<PAGE> 14
PROSPECTUS
$794,000,000
POST PROPERTIES, INC.
COMMON STOCK, PREFERRED STOCK AND DEPOSITARY SHARES
POST APARTMENT HOMES, L.P.
DEBT SECURITIES
POST LOGO
------------------------
Post Properties, Inc. (the "Company") may from time to time offer in one or
more series or classes (i) shares of its common stock, par value $0.01 per share
(the "Common Stock"), (ii) shares of its preferred stock, par value $0.01 per
share (the "Preferred Stock") and (iii) shares of Preferred Stock represented by
Depositary Shares (the "Depositary Shares"), with an aggregate public offering
price of up to $450,000,000 (or its equivalent in another currency based on the
exchange rate at the time of sale) in amounts, at prices and on terms to be
determined at the time of offering. Post Apartment Homes, L.P. (the "Operating
Partnership") may from time to time offer in one or more series unsecured non-
convertible debt securities ("Debt Securities"), with an aggregate public
offering price of up to $344,000,000 (or its equivalent in another currency
based on the exchange rate at the time of sale) in amounts, at prices and on
terms to be determined at the time of offering. The Common Stock, Preferred
Stock, Depositary Shares and Debt Securities (collectively, the "Securities")
may be offered, separately or together, in separate series in amounts, at prices
and on terms to be set forth in one or more supplements to this Prospectus
(each, a "Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable (i) in the case of Common Stock, any initial
public offering price; (ii) in the case of Preferred Stock, the specific title
and stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and any initial public offering price; (iii) in the case of
Depositary Shares, the fractional share of Preferred Stock represented by each
such Depositary Share; and (iv) in the case of Debt Securities, the specific
title, aggregate principal amount, currency, form (which may be registered or
bearer, or certificated or global), authorized denominations, maturity, rate (or
manner of calculation thereof) and time of payment of interest, terms for
redemption at the option of the Operating Partnership or repayment at the option
of the holder, terms for sinking fund payments, covenants and any initial public
offering price. In addition, such specific terms may include limitations on
direct or beneficial ownership and restrictions on transfer of the Securities,
in each case as may be appropriate to preserve the status of the Company as a
real estate investment trust ("REIT") for Federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States Federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
The Securities may be offered directly, through agents designated from time
to time by the Company or the Operating Partnership, or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of the applicable Prospectus Supplement describing the method and terms
of the offering of such series of Securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The date of this Prospectus is October 20, 1997.
<PAGE> 15
AVAILABLE INFORMATION
The Company and the Operating Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by the Company and the
Operating Partnership may be examined without charge at, 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 Seven World Trade Center, New York, New York 10048 and at 500 West
Madison Street, Chicago, Illinois 60661-2511. In addition, the Company's Common
Stock is listed on the New York Stock Exchange and such material can also be
inspected and copied at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005. Copies of documents electronically filed
with the Commission also may be obtained at the Commission's Internet address at
"http://www.sec.gov".
The Company and the Operating Partnership have filed with the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), and the
rules and regulations promulgated thereunder, with respect to the Securities.
This Prospectus, which is part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement and the exhibits
and financial schedules thereto. For further information concerning the Company,
the Operating Partnership and the Securities, reference is made to the
Registration Statement and the exhibits and schedules filed therewith, which may
be examined without charge at, or copies obtained upon payment of prescribed
fees from, the Commission and its regional offices at the locations listed
above. Any statements contained herein concerning the provisions of any document
are not necessarily complete, and, in each instance, reference is made to the
copy of such document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company (File No. 1-12080)
and the Operating Partnership (File No. 0-28226) with the Commission are
incorporated herein by reference: (a) the Company's Annual Report on Form 10-K
for the year ended December 31, 1996; (b) the Company's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997; (c) the
Company's Current Reports on Form 8-K filed on February 27, 1997, August 6, 1997
and September 17, 1997; (d) the description of the Common Stock of the Company
included in the Company's Registration Statement on Form 8-A, dated July 22,
1993; (e) the Operating Partnership's Annual Report on Form 10-K for the year
ended December 31, 1996; (f) the Operating Partnership's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997; and (g) the
Operating Partnership's Current Reports on Form 8-K filed on January 29, 1997,
February 27, 1997, August 6, 1997 and September 17, 1997.
All documents filed by the Company and/or the Operating Partnership
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Prospectus and prior to the termination of the Offering shall
be deemed to be incorporated by reference in this Prospectus and made a part
hereof from the date of the filing of such documents. Any statement contained in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other document subsequently
filed with the Commission which also is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company and the Operating Partnership will provide without charge to
each person, including any beneficial owner, 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 such exhibits are specifically incorporated by reference
in such documents). Request for such copies should be directed to: Post
Properties, Inc., 3350 Cumberland Circle, Suite 2200, Atlanta, Georgia 30339,
Attention: Secretary, telephone (770) 850-4400.
2
<PAGE> 16
THE COMPANY AND THE OPERATING PARTNERSHIP
The Company is a self-administered and self-managed equity real estate
investment trust (a "REIT") and is one of the largest developers and operators
of upscale multifamily apartment communities in the Southeastern United States.
As of June 30, 1997, the Company owned 49 stabilized communities (the
"Communities") containing 17,648 apartment units located primarily in
metropolitan Atlanta, Georgia and Tampa, Florida. In addition, as of June 30,
1997, the Company had under construction or in initial lease-up ten new
communities and additions to two existing communities in the Atlanta, Georgia;
Tampa, Florida; Nashville, Tennessee and Charlotte, North Carolina metropolitan
areas that will contain an aggregate of 4,025 apartment units when completed.
For the six months ended June 30, 1997, the average economic occupancy rate of
the 48 Communities stabilized for the entire period was 94.3%. The average
monthly rental rate per apartment unit at these Communities for the same period
was $800. The Company also manages through affiliates one community with 260
apartment units under the Post(R) brand name for third parties and approximately
7,800 additional apartment units owned by third parties. The Company is a
fully-integrated organization with multifamily development, acquisition,
operation and asset management expertise and has approximately 1,200 employees,
none of whom is a party to a collective bargaining agreement.
The Company is the sole general partner of, and controls a majority of the
limited partnership interests in, the Operating Partnership. As of June 30,
1997, the Company owned 80.9% of the outstanding partnership interests in the
Operating Partnership. The Company conducts all its business through the
Operating Partnership and its subsidiaries.
As of June 30, 1997 the Company and the Operating Partnership had
outstanding indebtedness of $473.7 million. Any applicable Prospectus Supplement
relating to offered securities will set forth the outstanding indebtedness of
the issuer and its subsidiaries as of a recent date.
On August 4, 1997, the Company announced that it has entered into a
definitive agreement and plan of merger with Columbus Realty Trust, a Texas real
estate investment trust ("Columbus"), pursuant to which Columbus would be merged
into a wholly owned subsidiary of the Company (the "Merger Agreement"). Pursuant
to the Merger Agreement, each outstanding share of Columbus common shares will
be converted into 0.615 shares of Common Stock, which will result in the
issuance of approximately 8.4 million shares of Common Stock. Upon completion of
the merger, the Company will own 85.4% of the outstanding partnership interests
in the Operating Partnership. The merger, which will be accounted for as a
purchase, is expected to be completed in October 1997, subject to the approval
of the shareholders of the Company and Columbus and other customary conditions.
Columbus is a self-administered and self-managed REIT which develops, owns and
operates upscale multifamily residential properties primarily in urban
communities in the Southwestern United States. As of June 30, 1997, Columbus
owned 39 total properties: 28 completed multifamily residential properties
containing an aggregate of 6,045 apartment units located primarily in the
Dallas/Ft. Worth metropolitan area, two industrial properties, one retail
property, six multifamily development sites in various stages of construction,
and two sites acquired for future development.
The Company is a Georgia corporation that was founded in 1971. The
Operating Partnership is a Georgia limited partnership that was formed in 1993.
The Company's and the Operating Partnership's executive offices are located at
3350 Cumberland Circle, Suite 2200, Atlanta, Georgia 30339 and their telephone
number is (770) 850-4400.
USE OF PROCEEDS
The Company is required, by the terms of the partnership agreement of the
Operating Partnership, to invest the net proceeds of any sale of Common Stock,
Preferred Stock or Depositary Shares in the Operating Partnership in exchange
for additional Units. Unless otherwise indicated in the applicable Prospectus
Supplement, the Company and the Operating Partnership intend to use such net
proceeds and the net proceeds from the sale of Debt Securities for general
corporate purposes including, without limitation, the acquisition and
development of multi-family communities and the repayment of debt. Pending
application of the net proceeds, the Operating Partnership will invest such
proceeds in interest-bearing accounts and short-term, interest-bearing
securities, which are consistent with the Company's intention to continue to
qualify for taxation as a REIT. Such investments may include, for example,
obligations of the Government National
3
<PAGE> 17
Mortgage Association, other government and government agency securities,
certificates of deposit, interest-bearing bank deposits and mortgage loan
participations.
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The Company's and the Operating Partnership's ratios of earnings to fixed
charges were 2.8 for the six months ended June 30, 1997, 2.7 for the year ended
December 31, 1996, 2.1 for the year ended December 31, 1995, 2.0 for the year
ended December 31, 1994 and 1.1 for the year ended December 31, 1993.
For purposes of calculating the ratios of earnings to fixed charges,
earnings have been calculated by adding fixed charges, excluding capitalized
interest, and minority interest to pre-tax income from continuing operations.
Fixed charges consist of interest costs, whether expensed or capitalized, the
interest component of rental expense and amortization of debt issuance costs.
The Company's and the Operating Partnership's ratios of earnings to
combined fixed charges and preferred stock dividends were 2.6 for the six months
ended June 30, 1997, 2.6 for the year ended December 31, 1996, 2.1 for the year
ended December 31, 1995, 2.0 for the year ended December 31, 1994 and 1.1 for
the year ended December 31, 1993.
For purposes of calculating the ratios of earnings to combined fixed
charges and preferred stock dividends, earnings have been calculated by adding
combined fixed charges and preferred stock dividends, excluding capitalized
interest, and minority interest to pre-tax income from continuing operations.
Combined fixed charges and preferred stock dividends consist of interest costs,
whether expensed or capitalized, the interest component of rental expense,
amortization of debt issuance costs and preferred dividends.
Prior to completion of the Company's reorganization in July 1993, the
Company maintained a different capital structure. As a result, although the
original properties have historically generated positive net cash flow, the
financial statements of the Company show a net loss for the fiscal year ended
December 31, 1992. Consequently, the computation of the ratios of earnings to
fixed charges and ratios of earnings to combined fixed charges and preferred
stock dividends for such period indicates that the earnings were inadequate to
cover fixed charges and combined fixed charges and preferred stock dividends by
approximately $10.0 million.
The recapitalization of the Company effected in connection with the
reorganization permitted the Company to significantly deleverage, resulting in
an improved ratio of earnings to fixed charges for periods subsequent to the
reorganization.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued under an Indenture (the "Indenture"),
between the Operating Partnership and a Trustee (the "Trustee") chosen by the
Operating Partnership and qualified to act as Trustee under the Trust Indenture
Act of 1939, as amended (the "TIA"). The Indenture has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part and will be
available for inspection at the corporate trust office of the trustee or as
described above under "Available Information." The Indenture is subject to, and
governed by, the TIA. The statements made hereunder relating to the Indenture
and the Debt Securities to be issued thereunder are summaries of all material
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
such Debt Securities. All section references appearing herein are to sections of
the Indenture.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership and will rank equally with all other unsecured and unsubordinated
indebtedness of the Operating Partnership. At June 30, 1997, the total
outstanding debt of the Operating Partnership was $473.7 million, all of which
was unsubordinated indebtedness. Of such outstanding debt, $165.7 million was
secured debt. The Debt Securities may be issued without limit as to aggregate
principal amount, in one or more series, in each case as established from time
to time in or pursuant to authority granted by a resolution of the Board of
Directors of the Company
4
<PAGE> 18
as sole general partner of the Operating Partnership or as established in one or
more indentures supplemental to the Indenture. All Debt Securities of one series
need not be issued at the same time and, unless otherwise provided, a series may
be reopened, without the consent of the holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series (Section
301).
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect to
such series (Section 608). In the event that two or more persons are acting as
Trustee with respect to different series of Debt Securities, each such Trustee
shall be a trustee of a trust under the Indenture separate and apart from the
trust administered by any other Trustee (Section 609), and, except as otherwise
indicated herein, any action described herein to be taken by a Trustee may be
taken by each such Trustee with respect to, and only with respect to, the one or
more series of Debt Securities for which it is Trustee under the Indenture.
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities offered thereby for the specific terms thereof, including:
(1) the title of such Debt Securities;
(2) any limit on the aggregate principal amount of such Debt
Securities that may be authenticated and delivered under the Indenture;
(3) the percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount thereof,
the portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;
(4) the date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(5) the rate or rates, or the method by which such rate or rates shall
be determined, at which such Debt Securities will bear interest, if any,
the date or dates, or the method for determining such date or dates, from
which any interest will accrue, the dates on which any such interest will
be payable, the record dates for such interest payment dates, or the method
by which any such date shall be determined, and the basis upon which
interest shall be calculated if other than that of a 360-day year of twelve
30-day months;
(6) the place or places where the principal of (and premium, if any),
interest, if any, and additional amounts, if any, on such Debt Securities
will be payable, such Debt Securities may be surrendered for registration
of transfer or exchange and notices or demands to or upon the Operating
Partnership in respect of such Debt Securities and the Indenture may be
served;
(7) the period or periods within which, the price or prices at which,
the currency or currencies, currency unit or units or composite currency or
currencies in which, and the terms and conditions upon which such Debt
Securities may be redeemed, as a whole or in part, at the option of the
Operating Partnership, if the Operating Partnership is to have such an
option;
(8) the obligation, if any, of the Operating Partnership to redeem,
repay or purchase such Debt Securities pursuant to any sinking fund or
analogous provision or at the option of a holder thereof, and the period or
periods within which, the price or prices at which, the currency or
currencies, currency unit or units or composite currency or currencies in
which, and the terms and conditions upon which such Debt Securities will be
redeemed, repaid or purchased, as a whole or in part, pursuant to such
obligation;
(9) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which any registered Debt Securities
("Registered Securities") shall be issuable and, if other than
denominations of $5,000 and any integral multiple thereof, the denomination
or denominations in which any bearer Debt Securities ("Bearer Securities")
shall be issuable;
(10) if other than the Trustee, the identity of each security
registrar and/or paying agent;
5
<PAGE> 19
(11) if other than the principal amount thereof, the portion of the
principal amount of the Debt Securities that shall be payable upon
declaration of acceleration of the maturity thereof or the method by which
such portion shall be determined;
(12) if other than U.S. dollars, the currency or currencies in which
payment of the principal of (and premium, if any) or interest or additional
amounts, if any, on the Debt Securities shall be payable or in which the
Debt Securities shall be denominated;
(13) whether the amount of payments of principal of (and premium, if
any) or interest, if any, on the Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may be based, without limitation, on one or more currencies,
currency units, composite currencies, commodities, equity indices or other
indices), and the manner in which such amounts shall be determined;
(14) whether the principal of (and premium, if any) or interest or
additional amounts, if any, on the Debt Securities are to be payable, at
the election of the Operating Partnership or a holder (a "Holder") thereof,
in a currency or currencies, currency unit or units or composite currency
or currencies other than that in which such Debt Securities are denominated
or stated to be payable, the period or periods within which, and the terms
and conditions upon which, such election may be made, and the time and
manner of, and identity of the exchange rate agent with responsibility for,
determining the exchange rate between the currency or currencies, currency
unit or units or composite currency or currencies in which such Debt
Securities are denominated or stated to be payable and the currency or
currencies, currency unit or units or composite currency or currencies in
which such Debt Securities are to be so payable;
(15) provisions, if any, granting special rights to the Holders of the
Debt Securities upon the occurrence of such events as may be specified;
(16) any deletions from, modifications of or additions to the events
of default (the "Events of Default") or covenants of the Operating
Partnership with respect to the Debt Securities, whether or not such Events
of Default or covenants are consistent with the Events of Default or
covenants set forth in the Indenture;
(17) whether the Debt Securities are to be issuable as Registered
Securities, Bearer Securities (with or without coupons) or both, any
restrictions applicable to the offer, sale or delivery of Bearer Securities
and the terms upon which Bearer Securities may be exchanged for Registered
Securities and vice versa (if permitted by applicable laws and
regulations), whether any Debt Securities are to be issuable initially in
temporary global form and whether any Debt Securities are to be issuable in
permanent global form with or without coupons and, if so, whether
beneficial owners of interests in any such permanent global Debt Security
may exchange such interests for Debt Securities of such series and of like
tenor of any authorized form and denomination and the circumstances under
which any such exchanges may occur, and, if Registered Securities are to be
issuable as a global Debt Security, the identity of the depositary for such
series;
(18) the date as of which any Bearer Securities and any temporary
global Debt Security representing Outstanding (as hereinafter defined) Debt
Securities shall be dated if other than the date of original issuance of
the first Debt Security of the series to be issued;
(19) the person to whom any interest on any Registered Security shall
be payable, if other than the person in whose name that Debt Security is
registered at the close of business on the applicable record date (the
"Regular Record Date") for such interest, the manner in which, or the
person to whom any interest on any Bearer Security shall be payable, if
otherwise than upon presentation and surrender of the coupons appertaining
thereto as they severally mature, and the extent to which, or the manner in
which, any interest payable on a temporary global Debt Security on an
interest payment date (an "Interest Payment Date") will be paid;
(20) if the defeasance and covenant defeasance provisions described
herein are to be inapplicable or any modification of such provisions;
6
<PAGE> 20
(21) if the Debt Securities to be issuable in definitive form (whether
upon original issue or upon exchange of a temporary Debt Security) only
upon receipt of certain certificates or other documents or satisfaction of
other conditions, then the form and/or terms of such certificates,
documents or conditions;
(22) whether and under what circumstances the Operating Partnership
will pay additional amounts on the Debt Securities to any Holder who is not
a United States person (including any modification to the definition of
such term) in respect of any tax, assessment or governmental charge and, if
so, whether the Operating Partnership will have the option to redeem such
Debt Securities rather than pay such additional amounts (and the terms of
any such option);
(23) with respect to any Debt Securities that provide for optional
redemption or prepayment upon the occurrence of certain events (such as a
change of control of the Operating Partnership), (i) the possible effects
of such provisions on the market price of the Operating Partnership's or
the Company's securities or in deterring certain mergers, tender offers or
other takeover attempts, and the intention of the Operating Partnership to
comply with the requirements of Rule 14e-1 under the Exchange Act and any
other applicable securities laws in connection with such provisions; (ii)
whether the occurrence of the specified events may give rise to
cross-defaults on other indebtedness such that payment on such Debt
Securities may be effectively subordinated; and (iii) the existence of any
limitations on the Operating Partnership's financial or legal ability to
repurchase such Debt Securities upon the occurrence of such an event
(including, if true, the lack of assurance that such a repurchase can be
effected) and the impact, if any, under the Indenture of such a failure,
including whether and under what circumstances such a failure may
constitute an Event of Default; and
(24) any other terms of such Debt Securities not inconsistent with the
terms of the Indenture.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). If material or applicable, special U.S.
Federal income tax, accounting and other considerations applicable to Original
Issue Discount Securities will be described in the applicable Prospectus
Supplement.
Except as described under "Merger, Consolidation or Sale" or as may be set
forth in any Prospectus Supplement, the Indenture does not contain any other
provisions that would limit the ability of the Operating Partnership to incur
indebtedness or that would afford holders of the Debt Securities protection in
the event of (i) a highly leveraged or similar transaction involving the
Operating Partnership, the management of the Operating Partnership or the
Company, or any affiliate of any such party, (ii) a change of control, or (iii)
a reorganization, restructuring, merger or similar transaction involving the
Operating Partnership that may adversely affect the holders of the Debt
Securities. In addition, subject to the limitations set forth under "Merger,
Consolidation or Sale," the Operating Partnership may, in the future, enter into
certain transactions, such as the sale of all or substantially all of its assets
or the merger or consolidation of the Operating Partnership, that would increase
the amount of the Operating Partnership's indebtedness or substantially reduce
or eliminate the Operating Partnership's assets, which may have an adverse
effect on the Operating Partnership's ability to service its indebtedness,
including the Debt Securities. In addition, restrictions on ownership and
transfers of the Company's Common Stock and Preferred Stock are designed to
preserve its status as a REIT and, therefore, may act to prevent or hinder a
change of control. See "Description of Common Stock -- Restrictions on Transfer"
and "Description of Preferred Stock -- Restrictions on Ownership." Reference is
made to the applicable Prospectus Supplement for information with respect to any
deletions from, modifications of or additions to the events of default or
covenants that are described below, including any addition of a covenant or
other provision providing event risk or similar protection.
The applicable Prospectus Supplement will summarize the nature and scope of
any event risk provisions contained in any offered Debt Security, including the
types of events protected by such provisions and any limitations on the
Operating Partnership's ability to satisfy its obligations under such
provisions. The applicable Prospectus Supplement will also summarize
anti-takeover provisions in other securities of the Operating Partnership or the
Company, which could have a material effect on the offered Debt Securities. Such
summary will contain a detailed and quantifiable definition of any "change in
control" provision.
7
<PAGE> 21
Reference is made to "-- Certain Covenants" below and to the description of
any additional covenants with respect to a series of Debt Securities in the
applicable Prospectus Supplement. Except as otherwise described in the
applicable Prospectus Supplement, compliance with such covenants generally may
not be waived with respect to a series of Debt Securities by the Board of
Directors of the Company as sole general partner of the Operating Partnership or
by the Trustee unless the Holders of at least a majority in principal amount of
all outstanding Debt Securities of such series consent to such waiver, except to
the extent that the defeasance and covenant defeasance provisions of the
Indenture described under "-- Discharge, Defeasance and Covenant Defeasance"
below apply to such series of Debt Securities. See "-- Modification of the
Indenture."
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series which are Registered Securities, other than
Registered Securities issued in global form (which may be of any denomination),
shall be issuable in denominations of $1,000 and any integral multiple thereof
and the Debt Securities which are Bearer Securities, other than Bearer
Securities issued in global form (which may be of any denomination), shall be
issuable in denominations of $5,000 (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the Trustee, provided that, at
the option of the Operating Partnership, payment of interest may be made by
check mailed to the address of the Person entitled thereto as it appears in the
applicable Security Register or by wire transfer of funds to such Person at an
account maintained within the United States (Sections 301, 307 and 1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the Regular Record Date and may
either be paid to the Person in whose name such Debt Security is registered at
the close of business on a special record date (the "Special Record Date") for
the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to the Holder of such Debt Security not less than 10 days
prior to such Special Record Date, or may be paid at any time in any other
lawful manner, all as more completely described in the Indenture.
Subject to certain limitations imposed upon Debt Securities issued in book
entry form, the Debt Securities of any series will be exchangeable for other
Debt Securities of the same series and of a like aggregate principal amount and
tenor of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the Trustee. In addition, subject to
certain limitations imposed upon Debt Securities issued in book entry form, the
Debt Securities of any series may be surrendered for registration of transfer
thereof at the corporate trust office of the Trustee. Every Debt Security
surrendered for registration of transfer or exchange shall be duly endorsed or
accompanied by a written instrument of transfer. No service charge will be made
for any registration of transfer or exchange of any Debt Securities, but the
Trustee or the Operating Partnership may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith
(Section 305). If the applicable Prospectus Supplement refers to any transfer
agent (in addition to the Trustee) initially designated by the Operating
Partnership with respect to any series of Debt Securities, the Operating
Partnership may at any time rescind the designation of any such transfer agent
or approve a change in the location through which any such transfer agent acts,
except that the Operating Partnership will be required to maintain a transfer
agent in each place of payment for such series. The Operating Partnership may at
any time designate additional transfer agents with respect to any series of Debt
Securities (Section 1002).
Neither the Operating Partnership nor the Trustee shall be required (i) to
issue, register the transfer of or exchange any Debt Security if such Debt
Security may be among those selected for redemption during a period beginning at
the opening of business 15 days before selection of the Debt Securities to be
redeemed and ending at the close of business on (A) if such Debt Securities are
issuable only as Registered Securities, the day of the mailing of the relevant
notice of redemption and (B) if such Debt Securities are issuable as Bearer
Securities, the day of the first publication of the relevant notice of
redemption or, if such Debt Securities are
8
<PAGE> 22
also issuable as Registered Securities and there is no publication, the mailing
of the relevant notice of redemption, or (ii) to register the transfer of or
exchange any Registered Security so selected for redemption in whole or in part,
except, in the case of any Registered Security to be redeemed in part, the
portion thereof not to be redeemed, or (iii) to exchange any Bearer Security so
selected for redemption except that such a Bearer Security may be exchanged for
a Registered Security of that series and like tenor, provided that such
Registered Security shall be simultaneously surrendered for redemption, or (iv)
to issue, register the transfer of or exchange any Debt Security which has been
surrendered for repayment at the option of the Holder, except the portion, if
any, of such Debt Security not to be so repaid (Section 305).
MERGER, CONSOLIDATION OR SALE
The Operating Partnership may consolidate with, or sell, lease or convey
all or substantially all of its assets to, or merge with or into, any other
entity, provided that (a) the Operating Partnership shall be the continuing
entity, or the successor entity (if other than the Operating Partnership) formed
by or resulting from any such consolidation or merger or which shall have
received the transfer of such assets shall expressly assume payment of the
principal of (and premium, if any) and interest on all the Debt Securities and
the due and punctual performance and observance of all of the covenants and
conditions contained in the Indenture; (b) immediately after giving effect to
such transaction and treating any indebtedness which becomes an obligation of
the Operating Partnership or any subsidiary of the Operating Partnership (a
"Subsidiary") as a result thereof as having been incurred by the Operating
Partnership or such Subsidiary at the time of such transaction, no Event of
Default under the Indenture, and no event which, after notice or the lapse of
time, or both, would become such an Event of Default, shall have occurred and be
continuing; and (c) an officer's certificate and legal opinion covering such
conditions shall be delivered to the Trustee (Sections 801 and 803).
CERTAIN COVENANTS
Existence. Except as permitted under "Merger, Consolidation or Sale," the
Operating Partnership is required to do or cause to be done all things necessary
to preserve and keep in full force and effect its existence, rights and
franchises; provided, however, that the Operating Partnership shall not be
required to preserve any right or franchise if it determines that the
preservation thereof is no longer desirable in the conduct of its business and
that the loss thereof is not disadvantageous in any material respect to the
Holders of the Debt Securities (Section 1006).
Maintenance of Properties. The Operating Partnership is required to cause
all of its material properties used or useful in the conduct of its business or
the business of any Subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and to cause
to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Operating Partnership may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that the
Operating Partnership and its Subsidiaries shall not be prevented from selling
or otherwise disposing for value their respective properties in the ordinary
course of business (Section 1007).
Insurance. The Operating Partnership is required to, and is required to
cause each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value with
financially sound and reputable insurance companies (Section 1008).
Payment of Taxes and Other Claims. The Operating Partnership is required
to pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon its income, profits or property or
that of any Subsidiary, and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Operating Partnership or any Subsidiary; provided, however, that the Operating
Partnership shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings (Section
1009).
9
<PAGE> 23
Provision of Financial Information. The Holders of Debt Securities will be
provided with copies of the annual reports and quarterly reports of the
Operating Partnership. Whether or not the Operating Partnership is subject to
Section 13 or 15(d) of the Exchange Act and for so long as any Debt Securities
are outstanding, the Operating Partnership will, to the extent permitted under
the Exchange Act, be required to file with the Commission the annual reports,
quarterly reports and other documents which the Operating Partnership would have
been required to file with the Commission pursuant to such Section 13 or 15(d)
(the "Financial Statements") if the Operating Partnership were so subject, such
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which the Operating Partnership would have been
required so to file such documents if the Operating Partnership were so subject.
The Operating Partnership will also in any event (x) within 15 days of each
Required Filing Date (i) transmit by mail to all Holders of Debt Securities, as
their names and addresses appear in the security register for the Debt
Securities (the "Security Register"), without cost to such Holders, copies of
the annual reports and quarterly reports which the Operating Partnership would
have been required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act if the Operating Partnership were subject to such Sections
and (ii) file with the Trustee copies of the annual reports, quarterly reports
and other documents which the Operating Partnership would have been required to
file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if
the Operating Partnership were subject to such Sections and (y) if filing such
documents by the Operating Partnership with the Commission is not permitted
under the Exchange Act, promptly upon written request and payment of the
reasonable cost of duplication and delivery, supply copies of such documents to
any prospective Holder (Section 1010).
Additional Covenants. Any additional or different covenants of the
Operating Partnership with respect to any series of Debt Securities will be set
forth in the Prospectus Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (a) default for
30 days in the payment of any installment of interest on any Debt Security of
such series; (b) default in the payment of the principal of (or premium, if any,
on) any Debt Security of such series at its maturity; (c) default in making any
sinking fund payment as required for any Debt Security of such series; (d)
default in the performance of any other covenant of the Operating Partnership
contained in the Indenture (other than a covenant added to the Indenture solely
for the benefit of a series of Debt Securities issued thereunder other than such
series), such default having continued for 60 days after written notice as
provided in the Indenture; (e) default in the payment of an aggregate principal
amount exceeding $5,000,000 of any evidence of recourse indebtedness of the
Operating Partnership or any mortgage, indenture or other instrument under which
such indebtedness is issued or by which such indebtedness is secured, such
default having occurred after the expiration of any applicable grace period and
having resulted in the acceleration of the maturity of such indebtedness, but
only if such indebtedness is not discharged or such acceleration is not
rescinded or annulled; (f) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee of the
Operating Partnership or any Significant Subsidiary or any of their respective
property; and (g) any other Event of Default provided with respect to a
particular series of Debt Securities. The term "Significant Subsidiary" means
each significant subsidiary (as defined in Regulation S-X promulgated under the
Securities Act) of the Operating Partnership.
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing, then in every
such case the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Debt Securities of that series may declare the principal amount
(or, if the Debt Securities of that series are Original Issue Discount
Securities or Securities, the terms of which provide that the principal amount
thereof payable at maturity may be more or less than the principal face amount
thereof at original issuance ("Indexed Securities"), such portion of the
principal amount as may be specified in the terms thereof) of all of the Debt
Securities of that series to be due and payable immediately by written notice
thereof to the Operating Partnership (and to the Trustee if given by the
Holders). However, at any time after such a declaration of acceleration with
respect to Debt Securities of such series (or of all Debt Securities then
Outstanding under the Indenture, as the case may be) has been made, but before a
judgment
10
<PAGE> 24
or decree for payment of the money due has been obtained by the Trustee, the
Holders of not less than a majority in principal amount of Outstanding Debt
Securities of such series (or of all Debt Securities then Outstanding under the
Indenture, as the case may be) may rescind and annul such declaration and its
consequences if (a) the Operating Partnership shall have deposited with the
applicable Trustee all required payments of the principal of (and premium, if
any) and interest on the Debt Securities of such series (or of all Debt
Securities then Outstanding under the Indenture, as the case may be), plus
certain fees, expenses, disbursements and advances of the Trustee and (b) all
Events of Default, other than the nonpayment of accelerated principal of (or
specified portion thereof), or premium (if any) or interest on the Debt
Securities of such series (or of all Debt Securities then Outstanding under the
Indenture, as the case may be) have been cured or waived as provided in the
Indenture (Section 502). The Indenture also provides that the Holders of not
less than a majority in principal amount of the Outstanding Debt Securities of
any series (or of all Debt Securities then Outstanding under the Indenture, as
the case may be) may waive any past default with respect to such series and its
consequences, except a default (x) in the payment of the principal of (or
premium, if any) or interest on any Debt Security or such series or (y) in
respect of a covenant or provision contained in the Indenture that cannot be
modified or amended without the consent of the Holder of each Outstanding Debt
Security affected thereby (Section 513).
The Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the Indenture unless such default
has been cured or waived; provided, however, that the Trustee may withhold
notice to the Holders of any series of Debt Securities of any default with
respect to such series (except a default in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or in the
payment of any sinking fund installment in respect of any Debt Security of such
series) if specified Responsible Officers of the Trustee consider such
withholding to be in the interest of such Holders (Section 601).
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the Trustee, for
60 days, to act after it has received a written request to institute proceedings
in respect of an Event of Default from the Holders of not less than 25% in
principal amount of the Outstanding Debt Securities of such series, as well as
an offer of indemnity reasonably satisfactory to it (Section 507). This
provision will not prevent, however, any holder of Debt Securities from
instituting suit for the enforcement of payment of the principal of (and
premium, if any) and interest on such Debt Securities at the respective due
dates thereof (Section 508).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under the Indenture, unless such
Holders shall have offered to the Trustee thereunder reasonable security or
indemnity (Section 602). The Holders of not less than a majority in principal
amount of the Outstanding Debt securities of any series (or of all Debt
Securities then Outstanding under the Indenture, as the case may be) shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or of exercising any trust or power
conferred upon the Trustee. However, the Trustee may refuse to follow any
direction which is in conflict with any law or the Indenture, which may involve
the Trustee in personal liability or which may be unduly prejudicial to the
holders of Debt Securities of such series not joining therein (Section 512).
Within 120 days after the close of each fiscal year, the Operating
Partnership must deliver to the Trustee a certificate, signed by one of several
specified officers of the Company, stating whether or not such officer has
knowledge of any default under the Indenture and, if so, specifying each such
default and the nature and status thereof.
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Debt Securities or series of Outstanding Debt
Securities which are affected by such modification or amendment; provided,
however, that no such modification or amendment may, without the consent of the
Holders of each such Debt Security
11
<PAGE> 25
affected thereby, (a) change the Stated Maturity of the principal of, or premium
(if any) or any installment of interest on, any such Debt Security; (b) reduce
the principal amount of, or the rate or amount of interest on, or any premium
payable on redemption of, any such Debt Security, or reduce the amount of
principal of an Original Issue Discount Security that would be due and payable
upon declaration of acceleration of the maturity thereof or would be provable in
bankruptcy, or adversely affect any right of repayment of the holder of any such
Debt Security; (c) change the place of payment, or the coin or currency, for
payment of principal of, premium, if any, or interest on any such Debt Security;
(d) impair the right to institute suit for the enforcement of any payment on or
with respect to any such Debt Security; (e) reduce the above stated percentage
of outstanding Debt Securities of any series necessary to modify or amend the
Indenture, to waive compliance with certain provisions thereof or certain
defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the Indenture; or (f) modify any of the foregoing
provisions or any of the provisions relating to the waiver of certain past
defaults or certain covenants, except to increase the required percentage to
effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the Holders of such Debt Security
(Section 902). A Debt Security shall be deemed outstanding ("Outstanding") if it
has been authenticated and delivered under the Indenture unless, among other
things, such Debt Security has been cancelled or redeemed.
The Indenture provides that the Holders of not less than a majority in
principal amount of a series of Outstanding Debt Securities have the right to
waive compliance by the Operating Partnership with certain covenants relating to
such series of Debt Securities in the Indenture (Section 1014).
Modifications and amendments of the Indenture will be permitted to be made
by the Operating Partnership and the Trustee without the consent of any Holder
of Debt Securities for any of the following purposes: (i) to evidence the
succession of another Person to the Operating Partnership as obligor under the
Indenture; (ii) to add to the covenants of the Operating Partnership for the
benefit of the Holders of all or any series of Debt Securities or to surrender
any right or power conferred upon the Operating Partnership in the Indenture;
(iii) to add Events of Default for the benefit of the Holders of all or any
series of Debt Securities; (iv) to add or change any provisions of the Indenture
to facilitate the issuance of, or to liberalize certain terms of, Debt
Securities in bearer form, or to permit or facilitate the issuance of Debt
Securities in uncertificated form, provided, that such action shall not
adversely affect the interests of the Holders of the Debt Securities of any
series in any material respect; (v) to change or eliminate any provisions of the
Indenture, provided that any such change or elimination shall become effective
only when there are no Debt Securities Outstanding of any series created prior
thereto which are entitled to the benefit of such provision; (vi) to secure the
Debt Securities; (vii) to establish the form or terms of Debt Securities of any
series; (viii) to provide for the acceptance of appointment by a successor
Trustee or facilitate the administration of the trusts under the Indenture by
more than one Trustee; (ix) to cure any ambiguity, defect or inconsistency in
the Indenture, provided that such action shall not adversely affect the
interests of Holders of Debt Securities of any series in any material respect;
or (x) to supplement any of the provisions of the Indenture to the extent
necessary to permit or facilitate defeasance and discharge of any series of such
Debt Securities, provided that such action shall not adversely affect the
interests of the Holders of the Debt Securities of any series in any material
respect (Section 901).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be Outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a foreign currency that shall be deemed
Outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an Indexed Security that shall be deemed Outstanding shall
be the principal face amount of such Indexed Security at original issuance,
unless otherwise provided with respect to such Indexed Security pursuant to the
Indenture; and (iv) Debt Securities owned by
12
<PAGE> 26
the Operating Partnership or any other obligor upon the Debt Securities or any
affiliate of the Operating Partnership or of such other obligor shall be
disregarded.
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501). A meeting will be permitted to be
called at any time by the Trustee, and also, upon request, by the Operating
Partnership or the holders of at least 10% in principal amount of the
Outstanding Debt Securities of such series, in any such case upon notice given
as provided in the Indenture (Section 1502). Except for any consent that must be
given by the Holder of each Debt Security affected by certain modifications and
amendments of the Indenture, any resolution presented at a meeting or adjourned
meeting duly reconvened at which a quorum is present will be permitted to be
adopted by the affirmative vote of the Holders of a majority in principal amount
of the Outstanding Debt Securities of that series; provided, however, that,
except as referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of the Outstanding Debt Securities of a
series may be adopted at a meeting or adjourned meeting duly reconvened at which
a quorum is present by the affirmative vote of the Holders of such specified
percentage in principal amount of the Outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of Holders of
Debt Securities of any series duly held in accordance with the Indenture will be
binding on all Holders of Debt Securities of that series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
Persons holding or representing a majority in principal amount of the
Outstanding Debt Securities of a series; provided, however, that if any action
is to be taken at such meeting with respect to a consent or waiver which may be
given by the Holders of not less than a specified percentage in principal amount
of the Outstanding Debt Securities of a series, the Persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Debt Securities of any series with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action that
the Indenture expressly provides may be made, given or taken by the Holders of a
specified percentage in principal amount of all Outstanding Debt Securities
affected thereby, or of the Holders of such series and one or more additional
series: (i) there shall be no minimum quorum requirement for such meeting and
(ii) the principal amount of the Outstanding Debt Securities of such series that
vote in favor of such request, demand, authorization, direction, notice,
consent, waiver or other action shall be taken into account in determining
whether such request, demand, authorization, direction, notice, consent, waiver
or other action has been made, given or taken under the Indenture (Section
1504).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Operating Partnership may discharge certain obligations to Holders of
any series of Debt Securities that have not already been delivered to the
Trustee for cancellation and that either have become due and payable or will
become due and payable within one year (or scheduled for redemption within one
year) by irrevocably depositing with the Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be (Sections 1401 and 1404).
The Indenture provides that, if the provisions of Article Fourteen are made
applicable to the Debt Securities of or within any series pursuant to Section
301 of the Indenture, the Operating Partnership may elect either (a) to defease
and be discharged from any and all obligations with respect to such Debt
Securities (except for the obligation to pay additional amounts, if any, upon
the occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (Section 1402) or (b) to be released from its obligations with
respect to such Debt Securities under sections 1004 to 1011, inclusive, of the
Indenture (including the restrictions
13
<PAGE> 27
described under "Certain Covenants") and its obligations with respect to any
other covenant, and any omission to comply with such obligations shall not
constitute a default or an Event of Default with respect to such Debt Securities
("covenant defeasance") (Section 1403), in either case upon the irrevocable
deposit by the Operating Partnership with the Trustee, in trust, of an amount,
in such currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable at the stated maturity date
specified thereon ("Stated Maturity"), or Government Obligations (as defined
below), or both, applicable to such Debt Securities which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient to pay the principal of (and premium, if any) and
interest on such Debt Securities, and any mandatory sinking fund or analogous
payments thereon, on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Operating Partnership has delivered to the Trustee an Opinion of
Counsel (as specified in the Indenture) to the effect that the Holders of such
Debt Securities will not recognize income, gain or loss for U.S. Federal income
tax purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such Opinion of Counsel, in the case of
defeasance, must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable United States Federal income tax law occurring
after the date of the Indenture (Section 1404).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the foreign
currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Operating Partnership has deposited funds and/or Government Obligations to
effect defeasance or covenant defeasance with respect to Debt Securities of any
series; (a) the Holder of a Debt Security of such series is entitled to, and
does, elect pursuant to the Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
Conversion Event based on the applicable market exchange rate. "Conversion
Event" means the cessation of use of (i) a currency, currency unit or composite
currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions of or within the international banking community, (ii) the ECU both
within the European Monetary System and for the settlement of transactions by
public institutions of or within the European Community or (iii) any currency
unit or composite currency other than the ECU for the purposes for which it was
established.
14
<PAGE> 28
Unless otherwise provided in the applicable Prospectus Supplement, all
payments of principal of (and premium, if any) and interest on any Debt Security
that is payable in a foreign currency that ceases to be used by its government
of issuance shall be made in U.S. dollars.
In the event the Operating Partnership effects covenant defeasance with
respect to any Debt Securities and such Debt Securities are declared due and
payable because of the occurrence of any Event of Default other than the Event
of Default described in clause (d) under "Events of Default, Notice and Waiver"
with respect to Sections 1004 to 1011, inclusive, of the Indenture (which
sections would no longer be applicable to such Debt Securities) or described in
clause (g) under "Events of Default, Notice and Waiver" with respect to any
other covenant as to which there has been covenant defeasance, the amount in
such currency, currency unit or composite currency in which such Debt securities
are payable, and Government Obligations on deposit with the Trustee, will be
sufficient to pay amounts due on such Debt Securities at the time of their
Stated Maturity but may not be sufficient to pay amounts due on such Debt
Securities at the time of the acceleration resulting from such event of Default.
However, the Operating Partnership would remain liable to make payment of such
amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
NO CONVERSION RIGHTS
The Debt Securities will not be convertible into or exchangeable for any
capital stock of the Company or equity interest in the Operating Partnership.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the applicable Prospectus Supplement relating to such series. Global Securities
may be issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement with respect to
a series of Debt Securities will be described in the applicable Prospectus
Supplement relating to such series.
DESCRIPTION OF COMMON STOCK
GENERAL
The authorized common stock of the Company includes 100,000,000 shares of
Common Stock $.01 par value per share. Each outstanding share of Common Stock
entitles the holder to one vote on all matters presented to shareholders for a
vote. Holders of Common Stock have no preemptive rights. At June 30, 1997, there
were 22,044,296 shares of Common Stock outstanding, 5,216,474 shares reserved
for issuance upon exchange of outstanding Units and 1,045,140 shares reserved
for issuance upon exercise of outstanding stock options.
Shares of Common Stock currently outstanding are listed for trading on the
New York Stock Exchange (the "NYSE") under the symbol "PPS." The Company will
apply to the NYSE to list the additional shares of Common Stock to be sold
pursuant to any Prospectus Supplement, and the Company anticipates that such
shares will be so listed.
All shares of Common Stock issued will be duly authorized, fully paid, and
nonassessable. Distributions may be paid to the holders of Common Stock if and
when declared by the Board of Directors of the Company out of funds legally
available therefor.
Under Georgia law, shareholders are generally not liable for the Company's
debts or obligations. If the Company is liquidated, subject to the right of any
holders of preferred stock, if any, to receive preferential
15
<PAGE> 29
distributions, each outstanding share of Common Stock will be entitled to
participate pro rata in the assets remaining after payment of, or adequate
provision for, all known debts and liabilities of the Company.
PROVISIONS OF COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
The Articles of Incorporation of the Company provide for the Board of
Directors to be divided into three classes of directors, each class to consist
as nearly as possible of one-third of the directors. At each annual meeting of
shareholders, the class of directors to be elected at such meeting will be
elected for a three-year term and the directors in the other two classes will
continue in office. The overall effect of the provisions in the Articles of
Incorporation with respect to the classified board may be to render more
difficult a change of control of the Company or removal of incumbent management.
Holders of Common Stock have no right to cumulative voting for the election of
directors. Consequently, at each annual meeting of shareholders, the holders of
a plurality of the shares of Common Stock are able to elect all of the
successors of the class of directors whose term expires at that meeting.
Directors may be removed only for cause and only with the affirmative vote of
the holders of a majority of the shares of Common Stock entitled to vote in the
election of directors.
OTHER MATTERS
The transfer agent and registrar for the Common Stock is Wachovia Bank of
North Carolina, N.A., Winston-Salem, North Carolina.
The Company may not engage in any merger, consolidation or other
combination with or into another person or sale of all or substantially all of
its assets unless such transaction includes the merger of the Operating
Partnership or sale of substantially all of the assets of the Operating
Partnership, which sale or merger must be approved by the holders of a majority
of the Units. If the Company were ever to hold less than a majority of the
Units, this voting requirement might limit the possibility for acquisition or
change in the control of the Company.
RESTRICTIONS ON TRANSFER
Ownership Limits. The Company's Articles of Incorporation contain certain
restrictions on the number of shares of Common Stock that a single shareholder
may own. For the Company to qualify as a REIT under the Code, no more than 50%
in value of its outstanding shares of Common Stock may be owned, actually and
constructively under the applicable attribution provisions of the Code, by five
or fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year (other than the first year) or during a
proportionate part of a shorter taxable year. The Common Stock must also be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year (other than the first year) or during a proportionate part of a shorter
taxable year. Because the Company has elected to be treated as a REIT, the
Articles of Incorporation of the Company contain restrictions on the acquisition
of Common Stock intended to ensure compliance with these requirements.
Subject to certain exceptions specified in the Articles of Incorporation,
no person other than Messrs. Williams and Glover may own, or be deemed to own by
virtue of the applicable attribution provisions of the Code, more than 6% (the
"Ownership Limit") of the outstanding shares of Common Stock. Messrs. Williams
and Glover are subject to a separate limitation (referred to as the "Excluded
Holder Limit") pursuant to which they are prohibited from owning (actually and
constructively under the applicable attribution provisions of the Code) more
than 31%, in the aggregate, of the outstanding shares of Common Stock. In
addition, Messrs. Williams and Glover are prohibited from acquiring any shares
of Common Stock if such acquisition would cause five individuals to own
(actually and constructively under the applicable attribution provisions of the
Code) in the aggregate more than 50% in value of the outstanding shares of
Common Stock.
If any shareholder purports to transfer shares to a person and either the
transfer would result in the Company failing to qualify as a REIT, or the
shareholder knows that such transfer would cause the transferee to hold more
than the applicable Ownership Limit or Excluded Holder Limit, the purported
transfer will be null and void as to that number of shares the transfer of which
would cause a violation of the applicable limit,
16
<PAGE> 30
and the shareholder will be deemed not to have transferred such excess shares.
In addition, if any person holds shares of Common Stock in excess of the
applicable Ownership Limit or Excluded Holder Limit, such person will be deemed
to hold the shares that cause the applicable limit to be exceeded in trust for
the Company, and will not receive dividends or distributions with respect to
such shares and will not be entitled to vote such shares. The person will be
required to sell such shares to the Company for the lesser of the amount paid
for the shares and the average of the last reported sales prices for the ten
trading days immediately preceding the redemption or to sell such shares at the
direction of the Company, in which case the Company will be reimbursed for its
expenses in connection with the sale plus any remaining amount of such proceeds
that exceeds the amount such person paid for the shares and such person will be
entitled to receive only the balance of the proceeds. If the Company repurchases
such shares, it may elect to pay for the shares with Units.
All certificates representing shares of Common Stock will bear a legend
referring to the restrictions described above.
Every owner of more than 5% (or such lower percentage as may be required by
the Code or regulations thereunder) of the issued and outstanding shares of
Common Stock must file a written notice with the Company containing the
information specified in the Articles of Incorporation no later than January 30
of each year. In addition, each shareholder shall upon demand be required to
disclose to the Company in writing such information as the Company may request
in good faith in order to determine the Company's status as a REIT.
The foregoing ownership limitations may have the effect of precluding
acquisition of control of the Company without the consent of the Board of
Directors.
DESCRIPTION OF PREFERRED STOCK
GENERAL
The Company is authorized to issue 20,000,000 shares of preferred stock,
$0.01 par value per share, of which 1,000,000 8 1/2% Series A Cumulative
Redeemable Preferred Shares were outstanding at June 30, 1997.
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Articles of Incorporation (the "Articles
of Incorporation") and Bylaws and any applicable amendment to the Articles of
Incorporation designating terms of a series of Preferred Stock (a "Designating
Amendment").
TERMS
Subject to the limitations prescribed by the Articles of Incorporation, the
Board of Directors is authorized to fix the number of shares constituting each
series of Preferred Stock and the designations and powers, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including such provisions as may be desired
concerning voting, redemption, dividends, dissolution or the distribution of
assets, conversion or exchange, and such other subjects or matters as may be
fixed by resolution of the Board of Directors. The Preferred Stock will, when
issued, be fully paid and nonassessable by the Company (except as described
under "-- Shareholder Liability" below) and will have no preemptive rights.
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms thereof, including:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;
17
<PAGE> 31
(3) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock shall
accumulate, if applicable;
(5) The procedures for any auction or remarketing, if any, for such
Preferred Stock;
(6) The provision for a sinking fund, if any, for such Preferred
Stock;
(7) The provision for redemption, if applicable, of such Preferred
Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock of the Company, including the
conversion price (or manner of calculation thereof);
(10) Whether interests in such Preferred Stock will be represented by
Depositary Shares;
(11) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(12) A discussion of U.S. Federal income tax considerations applicable
to such Preferred Stock;
(13) The relative ranking of preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company;
(14) Any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(15) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case an may be appropriate to preserve
the status of the Company as a REIT.
The applicable Prospectus Supplement will summarize the nature and scope of
any event risk provisions contained in any series of Preferred Stock, including
the types of events protected by such provisions and any limitations on the
Company's ability to satisfy its obligations under such provisions. The
applicable Prospectus Supplement will also summarize anti-takeover provisions in
other securities of the Operating Partnership or the Company, which could have a
material effect on any series of Preferred Stock. Such summary will contain a
detailed and quantifiable definition of any "change in control" provision.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Stock of the Company, and to all equity securities ranking
junior to such Preferred Stock; (ii) on a parity with all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank on a parity with the Preferred Stock; and (iii) junior to all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank senior to the Preferred Stock. The term "equity
securities" does not include convertible debt securities.
DIVIDENDS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of assets
of the Company legally available for payment, cash dividends at such rates and
on such dates as will be set forth in the applicable Prospectus Supplement. Each
such dividend shall be payable to holders of record as they appear on the share
transfer books of the Company on such record dates as shall be fixed by the
Board of Directors of the Company.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a
18
<PAGE> 32
dividend payable on a dividend payment date on any series of the Preferred Stock
for which dividends are non-cumulative, then the holders of such series of the
Preferred Stock will have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and the Company will have
no obligation to pay the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future dividend payment
date.
If Preferred Stock of any series is outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Preferred Stock of such series. When dividends
are not paid in full (or a sum sufficient for such full payment is not so set
apart) upon Preferred Stock of any series and the shares of any other series of
Preferred Stock ranking on a parity as to dividends with the Preferred Stock of
such series, all dividends declared upon Preferred Stock of such series and any
other series of Preferred Stock ranking on a parity as to dividends with such
Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Preferred Stock of such series (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend) and such
other series of Preferred Stock bear to each other. No interest, or sum of money
in lieu of interest, shall be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in shares of Common Stock or other capital
shares ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation) shall be declared or paid or set aside for payment or other
distribution shall be declared or made upon the Common Stock, or any other
capital shares of the Company ranking junior to or on a parity with the
Preferred Stock of such series as to dividends or upon liquidation, nor shall
any shares of Common Stock, or any other capital shares of the Company ranking
junior to or on a parity with the Preferred Stock of such series as to dividends
or upon liquidation be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any such shares) by the Company (except by conversion into or
exchange for other capital shares of the Company ranking junior to the Preferred
Stock of such series as to dividends and upon liquidation).
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be subject to mandatory redemption or redemption at the option of the
Company, as a whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property,
19
<PAGE> 33
as specified in the applicable Prospectus Supplement. If the redemption price
for Preferred Stock of any series is payable only from the net proceeds of the
issuance of capital shares of the Company, the terms of such Preferred Stock may
provide that, if no such capital shares shall have been issued or to the extent
the net proceeds from any issuance are insufficient to pay in full the aggregate
redemption price then due, such Preferred Stock shall automatically and
mandatorily be converted into the applicable capital shares of the Company
pursuant to conversion provisions specified in the applicable Prospectus
Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all shares of any series
of Preferred Stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, and (ii) if such
series of Preferred Stock does not have a cumulative dividend, full dividends of
the Preferred Stock of any series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, no shares of any series of
Preferred Stock shall be redeemed unless all outstanding Preferred Stock of such
series is simultaneously redeemed; provided, however, that the foregoing shall
not prevent the purchase or acquisition of Preferred Stock of such series to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Stock of
such series. In addition, unless (i) if such series of Preferred Stock has a
cumulative dividend, full cumulative dividends on all outstanding shares of any
series of Preferred Stock have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividends periods and the then current dividend period, and (ii) if
such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, the Company shall
not purchase or otherwise acquire directly or indirectly any shares of Preferred
Stock of such series (except by conversion into or exchange for capital shares
of the Company ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation); provided, however, that the foregoing shall not
prevent the purchase or acquisition of Preferred Stock of such series to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Stock of
such series.
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
or for which redemption is requested by such holder (with adjustments to avoid
redemption of fractional shares) or by lot in a manner determined by the
Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the share transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all the shares of Preferred Stock of any series are to
be redeemed, the notice mailed to each such holder thereof shall also specify
the number of shares of Preferred Stock to be redeemed from each such holder. If
notice of redemption of any Preferred Stock has been given and if the funds
necessary for such redemption have been set aside by the Company in trust for
the benefit of the holders of any Preferred Stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Preferred Stock, and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Stock or any other class or series of capital
shares of the Company ranking junior to the Preferred Stock in the distribution
of assets
20
<PAGE> 34
upon any liquidation, dissolution or winding up of the Company, the holders of
each series of Preferred Stock shall be entitled to receive out of assets of the
Company legally available for distribution to shareholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which shall not include any accumulation in respect
of unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative dividend). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Preferred Stock will
have no right or claim to any of the remaining assets of the Company. In the
event that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the available assets of the Company are insufficient to pay the
amount of the liquidating distributions on all outstanding Preferred Stock and
the corresponding amounts payable on all shares of other classes or series of
capital shares of the Company ranking on a parity with the Preferred Stock in
the distribution of assets, then the holders of the Preferred Stock and all
other such classes or series of capital shares shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company shall be distributed among
the holders of any other classes or series of capital shares ranking junior to
the Preferred Stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Company with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Company, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Whenever dividends on any shares of Preferred Stock shall be in arrears for
six or more consecutive quarterly periods, the holders of such shares of
Preferred Stock (voting separately as a class with all other series of Preferred
Stock upon which like voting rights have been conferred and are exercisable)
will be entitled to vote for the election of two additional directors of the
Company at a special meeting called by the holders of record of at least ten
percent (10%) of any series of Preferred Stock so in arrears (unless such
request is received less than 90 days before the date fixed for the next annual
or special meeting of the shareholders) or at the next annual meeting of
shareholders, and at each subsequent annual meeting until (i) if such series of
Preferred Stock has a cumulative dividend, all dividends accumulated on such
shares of Preferred Stock for the past dividend periods and the then current
dividend period shall have been fully paid or declared and a sum sufficient for
the payment thereof set aside for payment or (ii) if such series of Preferred
Stock does not have a cumulative dividend, four consecutive quarterly dividends
shall have been fully paid or declared and a sum sufficient for the payment
thereof set aside for payment. In such case, the entire Board of Directors of
the Company will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of at least two-thirds of the shares
of each series of Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking prior to such series of Preferred
Stock with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up or reclassify any authorized capital
stock of the Company into such shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to purchase any
such shares; or (ii) amend, alter or repeal the provisions of the Company's
Articles of Incorporation or the Designating Amendment for such series of
Preferred Stock, whether by merger, consolidation or otherwise (an "Event"), so
as to materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Stock or the holder thereof; provided,
however, to the occurrence of any of the Events set forth in (ii) above, so long
as the Preferred Stock remains outstanding with the terms thereof materially
unchanged,
21
<PAGE> 35
taking into account that upon the occurrence of an Event, the Company may not be
the surviving entity, the occurrence of any such Event shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
power of holders of Preferred Stock and provided further that (x) any increase
in the amount of the authorized Preferred Stock or the creation or issuance of
any other series of Preferred Stock, or (y) any increase in the amount of
authorized shares of such series or any other series of Preferred Stock, in each
case ranking on a parity with or junior to the Preferred Stock of such series
with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up, shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
Under Georgia law, notwithstanding anything to the contrary set forth
above, holders of each series of Preferred Stock will be entitled to vote as a
class upon any proposed amendment to the Articles of Incorporation, whether or
not entitled to vote thereon by the Articles of Incorporation, if the amendment
would (i) increase or decrease the aggregate number of authorized shares of such
series; (ii) effect an exchange or reclassification of all or part of the shares
of the series into shares of another series; (iii) effect an exchange or
reclassification, or create the right of exchange, of all or part of the shares
of another class or series into shares of the series; (iv) change the
designation, rights, preferences or limitations of all or a part of the shares
of the series; (v) change the shares of all or part of the series into a
different number of shares of the same series; (vi) create a new series having
rights or preferences with respect to distributions or dissolution that are
prior, superior or substantially equal to the shares of the series; (vii)
increase the rights, preferences or number of authorized shares of any class or
series that, after giving effect to the amendment, have rights or preferences
with respect to distributions or to dissolution that are prior, superior or
substantially equal to the shares of the series; (viii) limit or deny an
existing preemptive right of all or part of the shares of the series; or (ix)
cancel or otherwise affect rights to distributions or dividends that have
accumulated but have not yet been declared on all or part of the shares of the
series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Stock
is convertible into shares of Common Stock will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
shares of Common Stock into which the shares of Preferred Stock are convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversions will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such series of Preferred Stock.
SHAREHOLDER LIABILITY
As discussed below under "Description of Common Stock -- General,"
applicable Georgia law provides that no shareholder, including holders of
Preferred Stock, shall be personally liable for the acts and obligations of the
Company and that the funds and property of the Company shall be the only
recourse for such acts or obligations.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Description of Common Stock -- Restrictions on
Transfer," for the Company to qualify as a REIT under the Code, not more than
50% in value of its outstanding capital shares may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year. To assist the Company
in meeting this requirement, the Company may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of the
Company's outstanding equity securities, including any Preferred Stock of the
Company. Therefore, the
22
<PAGE> 36
Designating Amendment for each series of Preferred Sock may contain provisions
restricting the ownership and transfer of the Preferred Stock. The applicable
Prospectus Supplement will specify any additional ownership limitation relating
to a series of Preferred Stock.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock of each series represented by Depositary
Shares will be deposited under a separate deposit agreement (each, a "Deposit
Agreement") among the Company, the depositary named therein (a "Preferred Stock
Depositary") and the holders from time to time of the Depositary Receipts.
Subject to the terms of the applicable Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest of
a share of a particular series of Preferred Stock represented by the Depositary
Shares evidenced by such Depositary Receipt, to all the rights and preferences
of the Preferred Stock represented by such Depositary Shares (including
dividend, voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to a Preferred Stock
Depositary, the Company will cause such Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the statements made hereunder relating to Deposit Agreements and
the Depositary Receipts to be issued thereunder are summaries of certain
anticipated provisions thereof and do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the applicable Deposit Agreement and related Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
A Preferred Stock Depositary will be required to distribute all cash
dividends or other cash distributions received in respect of the applicable
Preferred Stock to the record holders of Depositary Receipts evidencing the
related Depositary Shares in proportion to the number of such Depositary
Receipts owned by such holders, subject to certain obligations of holders to
file proofs, certificates and other information and to pay certain charges and
expenses to such Preferred Stock Depositary.
In the event of a distribution other than in cash, a Preferred Stock
Depositary will be required to distribute property received by it to the record
holders of Depositary Receipts entitled thereto, subject to certain obligations
of holders to file proofs, certificates and other information and to pay certain
charges and expenses to such Preferred Stock Depositary, unless such Preferred
Stock Depositary determines that it is not feasible to make such distribution,
in which case such Preferred Stock Depositary may, with the approval of the
Company, sell such property and distribute the net proceeds from such sale to
such holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock which has been converted or
exchanged.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the applicable Preferred Stock Depositary (unless the related Depositary Shares
have previously been called for redemption or converted),
23
<PAGE> 37
the holders thereof will be entitled to delivery at such office, to or upon each
such holder's order, of the number of whole or fractional shares of the
applicable Preferred Stock and any money or other property represented by the
Depositary Shares evidenced by such Depositary Receipts. Holders of Depositary
Receipts will be entitled to receive whole or fractional shares of the related
Preferred Stock on the basis of the proportion of Preferred Stock represented by
each Depositary Share as specified in the applicable Prospectus Supplement, but
holders of such shares of Preferred Stock will not thereafter be entitled to
receive Depositary Shares therefor. If the Depositary Receipts delivered by the
holder evidence a number of Depositary Shares in excess of the number of
Depositary Shares representing the number of shares of Preferred Stock to be
withdrawn, the applicable Preferred Stock Depositary will be required to deliver
to such holder at the same time a new Depositary Receipt evidencing such excess
number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by a Preferred
Stock Depositary, such Preferred Stock Depositary will be required to redeem as
of the same redemption date the number of Depositary Shares representing shares
of the Preferred Stock so redeemed, provided the Company shall have paid in full
to such Preferred Stock Depositary the redemption price of the Preferred Stock
to be redeemed plus an amount equal to any accrued and unpaid dividends thereon
to the date fixed for redemption. The redemption price per Depositary Share will
be equal to the redemption price and any other amounts per share payable with
respect to the Preferred Stock. If fewer than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by the Company that preserves the REIT
status of the Company.
From and after the date fixed for redemption, all dividends in respect of
the shares of Preferred Stock so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption upon surrender thereof to the applicable Preferred Stock Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the
applicable Preferred Stock are entitled to vote, a Preferred Stock Depositary
will be required to mail the information contained in such notice of meeting to
the record holders of the Depositary Receipts evidencing the Depositary Shares
which represent such Preferred Stock. Each record holder of Depositary Receipts
evidencing Depositary Shares on the record date (which will be the same date as
the record date for the Preferred Stock) will be entitled to instruct such
Preferred Stock Depositary as to the exercise of the voting rights pertaining to
the amount of Preferred Stock represented by such holder's Depositary Shares.
Such Preferred Stock Depositary will be required to vote the amount of Preferred
Stock represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all reasonable action which may
be deemed necessary by such Preferred Stock Depositary in order to enable such
Preferred Stock Depositary to do so. Such Preferred Stock Depositary will be
required to abstain from voting the amount of Preferred Stock represented by
such Depositary Shares to the extent it does not receive specific instructions
from the holders of Depositary Receipts evidencing such Depositary Shares. A
Preferred Stock Depositary will not be responsible for any failure to carry out
any instruction to vote, or for the manner or effect of any such vote made, as
long as any such action or non-action is in good faith and does not result from
negligence or willful misconduct of such Preferred Stock Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by the Depositary Share evidenced by such Depositary
Receipt, as set forth in the applicable Prospectus Supplement.
24
<PAGE> 38
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, will not be convertible into Common Stock
or any other securities or property of the Company. Nevertheless, if so
specified in the applicable Prospectus Supplement relating to an offering of
Depositary Shares, the Depositary Receipts may be surrendered by holders thereof
to the applicable Preferred Stock Depositary with written instructions to such
Preferred Stock Depositary to instruct the Company to cause conversion of the
Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipts into whole shares of Common Stock, other shares of Preferred
Stock of the Company or other shares of stock, and the Company will agree that
upon receipt of such instructions and any amounts payable in respect thereof, it
will cause the conversion thereof utilizing the same procedures as those
provided for delivery of Preferred Stock to effect such conversion. If the
Depositary Shares evidenced by a Depositary Receipt are to be converted in part
only, a new Depositary Receipt or Receipts will be issued for any Depositary
Shares not to be converted. No fractional shares of Common Stock will be issued
upon conversion, and if such conversion will result in a fractional share being
issued, an amount will be paid in cash by the Company equal to the value of the
fractional interest based upon the closing price of the Common Stock on the last
business day prior to the conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
Any form of Depositary Receipt evidencing Depositary Shares which will
represent Preferred Stock and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between the Company and the
applicable Preferred Stock Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Receipts or that
would be materially and adversely inconsistent with the rights granted to the
holders of the related Preferred Stock will not be effective unless such
amendment has been approved by the existing holders of at least two-thirds of
the applicable Depositary Shares evidenced by the applicable Depositary Receipts
then outstanding. No amendment shall impair the right, subject to certain
anticipated exceptions in the Deposit Agreements, of any holders of Depositary
Receipts to surrender any Depositary Receipt with instructions to deliver to the
holder the related Preferred Stock and all money and other property, if any,
represented thereby, except in order to comply with law. Every holder of an
outstanding Depositary Receipt at the time any such amendment becomes effective
shall be deemed, by continuing to hold such Depositary Receipt, to consent and
agree to such amendment and to be bound by the applicable Deposit Agreement as
amended thereby.
A Deposit Agreement will be permitted to be terminated by the Company upon
not less than 30 days' prior written notice to the applicable Preferred Stock
Depositary if (i) such termination is necessary to preserve the Company's status
as a REIT or (ii) a majority of each series of Preferred Stock affected by such
termination consents to such termination, whereupon such Preferred Stock
Depositary will be required to deliver or make available to each holder of
Depositary Receipts, upon surrender of the Depositary Receipts held by such
holder, such number of whole or fractional shares of Preferred Stock as are
represented by the Depositary Shares evidenced by such Depositary Receipts
together with any other property held by such Preferred Stock Depositary with
respect to such Depositary Receipts. The Company will agree that if a Deposit
Agreement is terminated to preserve the Company's status as a REIT, then the
Company will use its best efforts to list the Preferred Stock issued upon
surrender of the related Depositary Shares on a national securities exchange. In
addition, a Deposit Agreement will automatically terminate if (i) all
outstanding Depositary Shares thereunder shall have been redeemed, (ii) there
shall have been a final distribution in respect of the related Preferred Stock
in connection with any liquidation, dissolution or winding up of the Company and
such distribution shall have been distributed to the holders of Depositary
Receipts evidencing the Depositary Shares representing such Preferred Stock or
(iii) each share of the related Preferred Stock shall have been converted into
stock of the Company not so represented by Depositary Shares.
CHARGES OF A PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of a Deposit Agreement. In addition, the
Company will pay the fees and expenses of a Preferred Stock Depositary in
connection with the performance of its duties under a Deposit Agreement.
However,
25
<PAGE> 39
holders of Depositary Receipts will pay the fees and expenses of a Preferred
Stock Depositary for any duties requested by such holders to be performed which
are outside of those expressly provided for in the applicable Deposit Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
A Preferred Stock Depositary will be permitted to resign at any time by
delivering to the Company notice of its election to do so, and the Company will
be permitted at any time to remove a Preferred Stock Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Stock Depositary. A successor Preferred Stock Depositary will be
required to be appointed within 60 days after delivery of the notice of
resignation or removal and will be required to be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
A Preferred Stock Depositary will be required to forward to holders of
Depositary Receipts any reports and communications from the Company which are
received by such Preferred Stock Depositary with respect to the related
Preferred Stock.
Neither a Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under a Deposit Agreement. The obligations of the
Company and a Preferred Stock Depositary under a Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Stock represented by the applicable Depositary Shares), gross negligence or
willful misconduct, and neither the Company nor any applicable Preferred Stock
Depositary will be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of Preferred
Stock represented thereby unless satisfactory indemnity is furnished. The
Company and any Preferred Stock Depositary will be permitted to rely on written
advice of counsel or accountants, or information provided by persons presenting
shares of Preferred Stock represented thereby for deposit, holders of Depositary
Receipts or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
In the event a Preferred Stock Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and the Company on the other hand, such Preferred Stock Depositary shall
be entitled to act on such claims, requests or instructions received from the
Company.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTORY NOTES
This discussion summarizes the material Federal income tax considerations
that may be relevant to a prospective holder of the Securities. This discussion
is based on current law. The discussion is not exhaustive of all possible tax
considerations and does not give a detailed discussion of any state, local, or
foreign tax considerations. It also does not discuss all of the aspects of
Federal income taxation that may be relevant to a prospective holder of
securities in light of his particular circumstances or to certain types of
holders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) who are subject to special treatment
under the Federal income tax laws. As used in this section, the term "Company"
refers solely to Post Properties, Inc.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF SECURITIES IN AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT
TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES
OF SUCH PURCHASE, OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
26
<PAGE> 40
QUALIFICATION AND TAXATION OF THE COMPANY AS A REIT
The Company had made an election to be taxed as a REIT under Sections 856
through 860 of the Code effective for its short taxable year ending on December
31, 1993. The Company's qualification and taxation as a REIT depends upon the
Company's ability to meet on a continuing basis, through actual annual operating
results, distribution levels and diversity of stock ownership, the various
qualification tests and organizational requirements imposed under the Code, as
discussed below. The Company believes that it is organized and has operated in
such a manner as to qualify under the Code for taxation as a REIT commencing
with its 1993 taxable year, and the Company intends to continue to operate in
such a manner. No assurance, however, can be given that the Company will operate
in a manner so as to qualify or remain qualified as a REIT. See "Failure to
Qualify" below.
In the opinion of King & Spalding, the Company met the requirements for
qualification and taxation as a REIT for its taxable years ended December 31,
1993, 1994, 1995 and 1996, and its current and proposed method of operation
should enable it to continue to meet the requirements for qualification and
taxation as a REIT. This opinion is based on various assumptions relating to the
organization and operation of the Operating Partnership and the partnerships in
which the Operating Partnership owns or has owned an interest (referred to
herein as "Subsidiary Partnerships") and is conditioned upon certain
representations made by the Company as to certain relevant factual matters
relating to the organization and expected manner of operation of the Company,
the Operating Partnership, and the Subsidiary Partnerships. King & Spalding is
not aware of any facts or circumstances that are inconsistent with these
assumptions and representations. Moreover, such qualification and taxation as a
REIT will depend upon the Company's ability to meet on a continuing basis,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests imposed under the Code
discussed below. King & Spalding will not review compliance with these tests on
a continuing basis. No assurance can be given that the Company will satisfy such
tests on a continuing basis. See "Failure to Qualify" below.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following discussion sets forth certain
material aspects of the Code sections that govern the Federal income tax
treatment of a REIT and its shareholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations promulgated
thereunder and administrative and judicial interpretations thereof, all of which
are subject to change prospectively or retroactively.
So long as the Company continues to qualify for taxation as a REIT, it
generally will not be subject to Federal corporate income tax on its net income
that is distributed currently to its shareholders. That treatment substantially
eliminates the "double taxation" (i.e., taxation at both the corporate and
shareholder levels) that generally results from investment in a corporation.
However, the Company will be subject to Federal income tax in the following
circumstances. First, the Company will be taxed at regular corporate rates on
any undistributed REIT taxable income, including undistributed net capital
gains. Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" on items of tax preference, if any. Third, if the
Company has (i) net income from the sale or other disposition of "foreclosure
property" (which is, in general, property acquired by foreclosure or otherwise
on default of a loan or lease secured by the property) that is held primarily
for sale to customers in the ordinary course of business or (ii) other
nonqualifying income from foreclosure property, it will be subject to tax at the
highest corporate rate on such income. Fourth, if the Company has net income
from prohibited transactions (which are, in general, certain sales or other
dispositions of property (other than foreclosure property) held primarily for
sale to customers in the ordinary course of business), such income will be
subject to a 100% tax. Fifth, if the Company should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), and
nonetheless has maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amounts by which it fails the 75% or 95%
gross income test. Sixth, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year and (iii) any
undistributed taxable income from prior periods, it would be subject to a 4%
excise tax on the excess of such required distribution over the amounts actually
distributed. Finally, if the Company acquires any asset from a C corporation
(i.e., a corporation generally subject to full corporate-level tax) in a
transaction
27
<PAGE> 41
in which the basis of the asset in the Company's hands is determined by
reference to the basis of the asset (or any other property) in the hands of the
C corporation, and the Company recognizes gain on the disposition of such asset
during the ten-year period beginning on the date on which such asset was
acquired by the Company, then, to the extent of such property's "built-in" gain
(the excess of the fair market value of such property at the time of acquisition
by the Company over the adjusted basis of such property at such time), such gain
will be subject to the highest corporate rate applicable (as provided in
retroactive IRS regulations that were announced in IRS Notice 88-19 but which
have not yet been promulgated), provided an election is made by the Company to
apply the principles of Section 1374 of the Code to such gain (a "Notice 88-19
election").
When Columbus was formed in 1993, it acquired certain built-in gain assets
from a C corporation in a carryover basis transaction. Columbus believes that
the aggregate built-in gain with respect to such assets is approximately $7.8
million. Columbus filed a Notice 88-19 election with its first REIT tax return
for the taxable year ended December 31, 1993. Accordingly, the Company (as
Columbus' successor) should be subject to a Section 1374 corporate-level tax
(assuming the retroactive regulations announced in Notice 88-19 are eventually
issued by the IRS) if the Company or the Operating Partnership sells a built-in
gain asset in a taxable transaction during the ten-year period commencing on the
date such assets were originally acquired by Columbus. The Company will likewise
file a Notice 88-19 election with respect to the built-in gain assets acquired
from Columbus, but the Company has no current intention to sell any of the
built-in gain assets that will be acquired from Columbus.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association (i) that is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation, but
for Sections 856 through 860 of the Code; (iv) that is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi) not
more than 50% in value of the outstanding shares of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of each taxable year (the "5/50 Rule");
(vii) that makes an election to be a REIT (or has made such election for a
previous taxable year which has not been revoked or terminated) and satisfies
all relevant filing and other administrative requirements established by the IRS
that must be met in order to elect and maintain REIT status; (viii) that uses a
calendar year for Federal income tax purposes and complies with the
recordkeeping requirements of the Code and Treasury Regulations promulgated
thereunder; and (ix) that meets certain other tests, described below, regarding
the nature of its income and assets. The Code provides that conditions (i) to
(iv), inclusive, must be met during the entire taxable year and that condition
(v) must be met during at least 335 days of a taxable year of 12 months, or
during a proportionate part of a taxable year of less than 12 months. For
purposes of determining stock ownership under the 5/50 Rule, a supplemental
unemployment compensation benefits plan, a private foundation or a portion of a
trust permanently set aside or used exclusively for charitable purposes
generally is considered an individual. A trust that is a qualified trust under
Section 401(a) of the Code, however, generally is not considered an individual
and beneficiaries of such trust are treated as holding shares of a REIT in
proportion to their actuarial interests in such trust for purposes of the 5/50
Rule. Finally, under the Taxpayer Relief Act of 1997 signed by the President on
August 5, 1997 (the "1997 Act"), for its taxable years beginning after December
31, 1997, the Company will be treated as having met condition (vi) above if it
has complied with certain Treasury regulations for ascertaining the ownership of
its stock for such year and if it did not know (or after the exercise of
reasonable diligence would not have known) that its stock was sufficiently
closely held during such year to cause it to fail condition (vi).
The Company's Articles of Incorporation contains restrictions regarding the
transfer of its shares that are intended to assist the Company in continuing to
satisfy the share ownership requirements described in clauses (v) and (vi)
above. See "Capital Stock of the Company -- Restrictions on Transfer."
Section 856(i) of the Code provides that a corporation that is a "qualified
REIT subsidiary" shall not be treated as a separate corporation for Federal
income tax purposes, and all assets, liabilities and items of
28
<PAGE> 42
income, deduction and credit of a "qualified REIT subsidiary" shall be treated
as assets, liabilities and items of income, deduction and credit of the REIT.
For taxable years ending on or before December 31, 1997, a "qualified REIT
subsidiary" is a corporation, all of the capital stock of which has been held by
the REIT "at all times during the period such corporation was in existence."
Under the 1997 Act, for post-1997 taxable years the stock of a qualified REIT
subsidiary no longer needs to have been held by the REIT "at all times during
the period such corporation was in existence." Certain subsidiaries of the
Company constitute qualified REIT subsidiaries. Accordingly, in applying the
income and asset tests described below, such subsidiaries will be ignored for
Federal income tax purposes, and all assets, liabilities and items of income,
deduction and credit of such subsidiaries will be treated as assets, liabilities
and items of income, deduction, and credit of the Company. Such subsidiaries
therefore will not be subject to Federal corporate income taxation, although
they may be subject to state and local taxation.
In the case of a REIT that is a partner in an entity that is classified for
Federal income tax purposes as a partnership, Treasury Regulations provide that
the REIT will be deemed to own its proportionate share of the assets of the
partnership (based on the REIT's capital interest in the partnership) and will
be deemed to be entitled to the gross income of the partnership attributable to
such share. In addition, the assets and gross income of the partnership will
retain the same character in the hands of the REIT for purposes of Section 856
of the Code, including satisfying the gross income and asset tests described
below. The ownership of interests in the Operating Partnership by the Company
will result in its proportionate share of the assets, liabilities and items of
income of the Operating Partnership being treated as assets, liabilities and
items of income of the Company for purposes of the asset and income tests
described below.
Income Tests. For its taxable years ending on or before December 31, 1997,
in order for the Company to maintain its qualification as a REIT, three
requirements relating to gross income must be satisfied annually. First, at
least 75% of its gross income (excluding gross income from prohibited
transactions) for each taxable year must consist of defined types of income
derived directly or indirectly from investments relating to real property or
mortgages on real property (including "rents from real property" and, in certain
circumstances, interest) or temporary investment income. Second, at least 95% of
its gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived from such real property or temporary investments,
and from dividends, other types of interest and gain from the sale or
disposition of stock or securities, or from any combination of the foregoing.
Third, for each taxable years ending on or before December 31, 1997, short-term
gain from the sale or other disposition of stock or securities, gain from
prohibited transactions, and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of the REIT's gross
income (including gross income from prohibited transactions) for each taxable
year (the "30% Gross Income Test"). Under the 30% Gross Income Test, if a REIT
holds an interest in a partnership that sells real property or if the REIT sells
its interest in a partnership that holds real property, the gross income derived
from such sale, to the extent attributable to real property, is deemed to be
derived from the sale of real property held for the shorter of the period that
the partnership held the property or the period that the REIT held its
partnership interest. The 1997 Act repeals the 30% Gross Income Test effective
for the Company's taxable year beginning January 1, 1998.
The rent received by the Company from its tenants will qualify as "rents
from real property" in satisfying the gross income requirements for a REIT
described above only if several conditions are met. First, the amount of rent
must not be based, in whole or in part, on the income or profits of any person.
However, an amount received or accrued generally will not be excluded from the
term "rents from real property" solely by reason of being based on a fixed
percentage or percentages of receipts or sales. Second, the Code provides that
rents received from a tenant of the Company will not qualify as "rents from real
property" in satisfying the gross income tests if the Company, or a direct or
indirect owner of 10% or more of the Company, directly or constructively owns
10% or more of such tenant (a "Related Party Tenant"). Third, if rent
attributable to personal property that is leased in connection with a lease of
real property is greater than 15% of the total rent received under the lease,
then the portion of rent attributable to such personal property will not qualify
as "rents from real property." Finally, for the rent to qualify as "rents from
real property," the Company generally must not operate or manage its properties
or furnish or render services to the tenants of such
29
<PAGE> 43
properties, other than through an "independent contractor" who is adequately
compensated and from whom the Company derives or receives no income. The
"independent contractor" requirement, however, does not apply to the extent the
services provided by the Company are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant." In addition, for the Company's taxable
years beginning after December 31, 1997, the "independent contractor"
requirement will not apply to noncustomary services provided by the Company, the
annual value of which does not exceed 1% of the gross income derived from the
property with respect to which the services are provided (the "1% de minimis
exception"). For this purpose, such services may not be valued at less than 150%
of the Company's direct cost of providing the services.
The Company does not charge rent for any portion of any property that is
based, in whole or in part, on the income or profits of any person. In addition,
the Company does not receive any material rent from a Related Party Tenant.
Finally, any noncustomary services will be provided through qualifying
independent contractors or, for post-1997 taxable years, will satisfy the 1% de
minimis exception.
The Operating Partnership receives fees in consideration of the performance
of management, landscaping and administrative services with respect to
properties that are not wholly owned, directly or indirectly, by the Operating
Partnership. A portion of such fees (corresponding to that portion of any such
property owned by a third party) generally will not qualify under the 75% or 95%
gross income tests. The Company will also receive certain other types of
non-qualifying income, including its allocable share of any dividends paid by
Post Services to the Operating Partnership (which will qualify under the 95%
gross income test but not under the 75% gross income test). The Company
believes, however, that the aggregate amount of such fees and other
non-qualifying income in any taxable year will not cause the Company to exceed
the limits on non-qualifying income under the 75% and 95% gross income tests.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it nevertheless may qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. Those relief
provisions generally will be available if the failure to meet such tests is due
to reasonable cause and not due to willful neglect, the Company attaches a
schedule of the sources of its income to its return, and any incorrect
information on the schedule was not due to fraud with intent to evade tax. It is
not possible, however, to state whether in all circumstances the Company would
be entitled to the benefit of those relief provisions. As discussed above in
"-- Qualification and Taxation of the Company as a REIT," even if those relief
provisions apply, a 100% tax would be imposed on the net income attributable to
the greater of the amount by which the Company fails the 75% and 95% gross
income tests. No such relief is available for violations of the 30% Gross Income
Test (which, as noted above, has been repealed commencing with the Company's
1998 taxable year).
Asset Tests. At the close of each quarter of its taxable year, the Company
also must satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets, including (i) its allocable share of real estate assets held by
the Operating Partnership and any subsidiary partnerships or limited liability
companies, and (ii) stock or debt instruments held for not more than one year
purchased with the proceeds of a stock offering or long-term (at least five
years) public debt offering of the Company, cash, cash items and government
securities. Second, not more than 25% of the Company's total assets may be
represented by securities other than those in the 75% asset class. Third, of the
investments included in the 25% asset class, the value of any one issuer's debt
and equity securities owned by the Company (including its allocable share of
such securities owned by the Operating Partnership) may not exceed 5% of the
value of the Company's total assets, and the Company may not own more than 10%
of any one issuer's outstanding voting securities. Debt of an issuer that is
secured by real estate assets does not constitute a "security" for purposes of
the 5% asset test. The 5% asset test generally must be met for any quarter in
which a REIT acquires securities of an issuer or other property. Thus, this
requirement must be satisfied not only on the date that the Company initially
acquires securities of Post Services, but also each time the Company increases
its ownership of securities of Post Services (e.g. as limited partners exercise
their redemption rights).
30
<PAGE> 44
As described above, the Operating Partnership owns 100% of the nonvoting
stock and 1% of the voting stock of Post Services. In addition, the Operating
Partnership also holds a note of Post Services. By virtue of its ownership of an
interest in the Operating Partnership, the Company is deemed to own its pro rata
share of assets of the Operating Partnership and any subsidiary partnerships,
including the securities of Post Services. Because the Operating Partnership
does not own more than 10% of the voting securities of Post Services, the
Company likewise does not own more than 10%. In addition, based upon its
analysis of the estimated value of the debt and equity securities of Post
Services owned by the Operating Partnership relative to the estimated value of
the other assets owned by the Operating Partnership, the Company believes that
its pro rata share of the debt and equity securities of Post Services at all
relevant times has been less than 5% of the total value of the Company's assets.
However, no independent appraisals have been obtained to support this
conclusion, and King & Spalding, in rendering its opinion as to the Company's
qualification as a REIT, is relying on the Company's representation with respect
to the value of Post Services and its wholly owned subsidiaries. After
reasonable inquiry, King & Spalding is not aware of any facts inconsistent with
such representation. Although the Company plans to take steps to ensure that it
satisfies the 5% value test for any quarter with respect to which any actual or
deemed acquisition of the securities of Post Securities is to occur, there can
be no assurance that such steps will always be successful or will not require a
reduction in the Operating Partnership's overall interest in Post Services.
Distribution Requirements. The Company, in order to qualify as a REIT, is
required to distribute with respect to each taxable year dividends (other than
capital gain dividends) to its shareholders in an aggregate amount at least
equal to (i) the sum of (A) 95% of its "REIT taxable income" (computed without
regard to the dividends paid deduction and its net capital gain) and (B) 95% of
the net income (after tax), if any, from foreclosure property, minus (ii) the
sum of certain items of non-cash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if declared
before the Company timely files its Federal income tax return for such year and
if paid on or before the first regular dividend payment date after such
declaration. To the extent that the Company does not distribute all of its net
capital gain or distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gains corporate tax rates. Furthermore, if the Company
should fail to distribute during each calendar year at least the sum of (i) 85%
of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain
income for such year and (iii) any undistributed taxable income from prior
periods, it would be subject to a 4% nondeductible excise tax on the excess of
such required distribution over the amounts actually distributed.
The Company has made and intends to continue to make timely distributions
sufficient to satisfy the annual distribution requirements. In this regard, the
Partnership Agreement authorizes the Company, as general partner, to take such
steps as may be necessary to cause the Operating Partnership to distribute to
its partners an amount sufficient to permit the Company to meet these
distribution requirements. It is possible, however, that the Company, from time
to time, may not have sufficient cash or other liquid assets to meet the
distribution requirements due to timing differences between the actual receipt
of income and actual payment of deductible expenses and the inclusion of such
income and deduction, of such expenses in arriving at the Company's taxable
income, or if the amount of nondeductible expenses (such as principal
amortization or capital expenses) exceed the amount of noncash deductions. In
the event that such timing differences occur, in order to meet the distribution
requirements, the Company may cause the Operating Partnership to arrange for
short-term, or possibly long-term, borrowing to permit the payment of required
dividends. If the amount of nondeductible expenses exceeds noncash deductions,
the Operating Partnership may refinance its indebtedness to reduce principal
payments and borrow funds for capital expenditures.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirements for a year by paying "deficiency
dividends" to its shareholders in a later year, which may be included in its
deduction for dividends paid for the earlier year. Although the Company may be
able to avoid being taxed on amounts distributed as deficiency dividends, it
will be required to pay to the IRS interest based upon the amount of any
deduction taken for deficiency dividends.
Recordkeeping Requirements. Pursuant to applicable Treasury Regulations,
in order to maintain qualification as a REIT, the Company must maintain certain
records and request on an annual basis certain
31
<PAGE> 45
information from its shareholders designed to disclose the actual ownership of
its outstanding shares. The Company intends to comply with these requirements.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, it will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to shareholders in any year in which the Company fails to
qualify will not be deductible nor will they be required to be made. In such
event, to the extent of current and accumulated earnings and profits, all
distributions to shareholders will be taxable as ordinary income and, subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Company also will be disqualified from taxation as a REIT for
the four taxable years following the year during which it ceased to qualify as a
REIT. It is not possible to predict whether in all circumstances the Company
would be entitled to such statutory relief.
OTHER TAX CONSIDERATIONS
Tax Status of Operating Partnership and Other Pass-Through Entities. All
of the Company's investments have been made through the Operating Partnership,
which in turn holds an interest in a subsidiary partnership (the "Subsidiary
Partnership"). In the opinion of King & Spalding, the Operating Partnership and
the Subsidiary Partnership each qualify as a partnership for Federal income tax
purposes and not as an association taxable as a corporation or as a publicly
traded partnership.
A publicly traded partnership is a partnership whose interests are traded
on an established securities market or are readily tradable on a secondary
market or the substantial equivalent of a secondary market. The Treasury
Department recently issued regulations effective for taxable years beginning
after December 31, 1995 (the "PTP Regulations") that provide limited safe
harbors, which, if satisfied, will prevent a partnership's interests from being
treated as readily tradable on a secondary market or the substantial equivalent
thereof. The "private placement" safe harbor applies if (i) all interests in the
partnership were issued in a transaction (or transactions) that was not required
to be registered under the Securities Act and (ii) the partnership does not have
more than 100 partners at any time during the partnership's taxable year. In
determining the number of partners in a partnership, a person owning an interest
in a flow-through entity (i.e., a partnership, grantor trust, or S corporation)
that owns an interest in the partnership is treated as a partner in such
partnership only if (i) substantially all of the value of the person's interest
in the flowthrough entity is attributable to the flow-through entity's interest
(direct or indirect) in the partnership and (ii) a principal purpose of the use
of the tiered arrangement is to permit the partnership to satisfy the
100-partner limitation. The Operating Partnership does not currently meet the
private placement safe harbor of the PTP Regulations because it has more than
100 partners.
Under a special grandfather rule, an existing partnership may continue to
rely on safe harbors contained in IRS Notice 88-75 for a 10-year period. The
Company believes that the Operating Partnership has satisfied, and will continue
to satisfy, the private placement safe harbor under such Notice because, in
part, it has fewer than 500 direct and indirect partners. Upon expiration of the
grandfather period, if the Operating Partnership does not at that time satisfy
the private placement safe harbor of the PTP Regulations, it is possible that
the Operating Partnership could be classified as a publicly traded partnership.
In that event, the Operating Partnership should satisfy a special "passive
income" exception provided in Section 7704(c) of the Code and therefore should
not be subject to Federal income tax at the corporate level. However, if the
Operating Partnership were classified as a publicly traded partnership, the
partners of the Operating Partnership would nevertheless be subject to special
passive loss rules in Section 469(k) of the Code.
If the Operating Partnership were treated as an association taxable as a
corporation, the Company would fail the 75% asset test. Further, if the
Subsidiary Partnership were treated as a taxable corporation, then the Company
would cease to qualify as a REIT if the Company's ownership interest in such
partnership exceeded 10% of the partnership's voting interests or the value of
such interest exceeded 5% of the value of the Company's assets. Furthermore, in
such a situation, distributions from the Subsidiary Partnership to Post
32
<PAGE> 46
would be treated as dividends, which are not taken into account in satisfying
the 75% gross income test described above and which could therefore make it more
difficult for the Company to meet such test. Finally, the Company would not be
able to deduct its share of losses generated by any of the Subsidiary
Partnerships in computing its taxable income. See "-- Failure to Qualify" above
for a discussion of the effect of the Company's failure to meet such tests for a
taxable year.
Taxation of Post Services and Operating Subsidiaries. Post Services and
its existing subsidiaries file a corporate consolidated return for federal
income tax purposes. The consolidated taxable income of these companies is
subject to tax at regular corporate rates. To the extent such entities are
required to pay Federal, state and local income taxes, the cash available for
distribution to shareholders will be correspondingly reduced.
State and Local Taxes. The Company and its shareholders may be subject to
state or local taxation in various state or local jurisdictions, including those
in which it or they transact business or reside (although shareholders who are
individuals generally should not be required to file state income tax returns
outside of their state of residence with respect to the Company's operations and
distributions). The state and local tax treatment of the Company and its
shareholders may not conform to the Federal income tax consequences discussed
above. Consequently, prospective shareholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
the Securities.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions made to taxable
U.S. Shareholders (as hereinafter defined) out of current or accumulated
earnings and profits (and not designated as capital gain dividends) will be
taken into account by such U.S. Shareholders (as hereinafter defined) as
ordinary income and will not be eligible for the dividends received deduction
generally available to corporations. As used herein, the term "U.S. Shareholder"
means a holder of the Company's shares that for United States Federal income tax
purposes is (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or of any political subdivision thereof, (iii) an estate the
income of which is subject to United States Federal income taxation regardless
of its source, or (iv) a trust if (A) a court within the United States is able
to exercise primary supervision over the administration of the trust, and (B)
one or more United States persons have the authority to control all substantial
decisions of the trust. Distributions that are designated as capital gain
dividends will be taxed as gain from the sale or exchange of a capital asset
held for more than one year (to the extent they do not exceed the payor's actual
net capital gain for the taxable year) without regard to the period for which
the U.S. Shareholder has held his or her shares. However, corporate U.S.
Shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and accumulated
earnings and profits will not be taxable to a U.S. Shareholder to the extent
that they do not exceed the adjusted basis of the U.S. Shareholder's shares, but
will reduce the adjusted basis of such shares. To the extent that such
distributions in excess of current and accumulated earnings and profits exceed
the adjusted basis of a U.S. Shareholder's shares, such distributions will be
included in income as capital gain, assuming that such shares are capital assets
in the hands of the U.S. Shareholder. The tax rate to which such capital gain
will be subject will depend on the U.S. Shareholder's holding period for his
shares. See "-- Capital Gains Rates Under the 1997 Act" below. In addition, any
distribution declared by the Company in October, November or December of any
year and payable to a U.S. Shareholder of record on a specified date in any such
month shall be treated as both paid by the payor and received by the U.S.
Shareholder on December 31 of such year, provided that the distribution is
actually paid by the payor during January of the following calendar year.
For its taxable years beginning after December 31, 1997, the Company may
make an election with respect to all or part of its undistributed net capital
gain. If the Company should make such an election, its shareholders would be
required to include in their income as long-term capital gain their
proportionate share of the Company's undistributed net capital gain as
designated by the Company. The tax rate applicable to such gain is not clear
under the 1997 Act. See "-- Capital Gains Rates Under the 1997 Act" below. Each
such shareholder would be deemed to have paid his proportionate share of the
income tax imposed on the Company with respect to such undistributed net capital
gain, and this amount would be credited or refunded
33
<PAGE> 47
to the shareholder. In addition, the tax basis of the shareholder's stock would
be increased by his proportionate share of undistributed net capital gains
included in his income less his proportionate share of the income tax imposed on
the Company with respect to such gains.
U.S. Shareholders may not include in their individual income tax returns
any net operating losses or capital losses of the Company. Instead, such losses
would be carried over by the Company for potential offset against its future
income (subject to certain limitations). Taxable distributions from the Company
and gain from the disposition of its shares will not be treated as passive
activity income and, therefore, U.S. Shareholders generally will not be able to
apply any "passive activity losses" (such as losses from certain types of
limited partnerships in which a shareholder is a limited partner) against such
income. In addition, taxable distributions from the Company generally will be
treated as investment income for purposes of the investment interest
limitations. Capital gains from the disposition of the Company's shares (or
distributions treated as such), however, will be treated as investment income
only if the U.S. Shareholder so elects, in which case such capital gains will be
taxed at ordinary income rates. The Company will notify shareholders after the
close of the Company's taxable year as to the portions of the distributions
attributable to that year that constitute ordinary income, return of capital and
capital gain.
TAXATION OF U.S. SHAREHOLDERS ON THE DISPOSITION OF THE COMPANY'S SHARES
In general, any gain or loss realized upon a taxable disposition of the
Company's shares by a U.S. Shareholder who is not a dealer in securities will be
treated as a capital gain or loss. Lower marginal tax rates for individuals may
apply in the case of capital gains, depending on the holding period of the
Company's shares that are sold. See "-- Capital Gains Rates Under the 1997 Act"
below. However, any loss upon a sale or exchange by a U.S. Shareholder who has
held such shares for six months or less (after applying certain holding period
rules), will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such U.S. Shareholder
as long-term capital gain. All or a portion of any loss realized upon a taxable
disposition of the Company's shares may be disallowed if other Company shares
are purchased within 30 days before or after the disposition. In addition,
capital losses not offset by capital gains may be deducted from an individual's
ordinary income only up to a maximum of $3,000 per year. Unused capital losses
may be carried forward. A corporate taxpayer may deduct capital losses only to
the extent of capital gains, but may carry unused capital losses back three
years and forward five years.
CAPITAL GAINS RATES UNDER THE 1997 ACT
In general, under the 1997 Act, the maximum tax rate on an individual's net
capital gain is reduced from 28-percent to 20-percent. In addition, any net
capital gain which otherwise would be taxed at a 15-percent rate is taxed at a
10-percent rate. However, the rates applicable to ordinary income continue to
apply to the sale or exchange of capital assets held for one year or less, and
the applicable tax rates under prior law, rather than the new 20-percent and
10-percent rates, will continue to apply to the sale or exchange of capital
assets held for more than one year but not more than 18 months. It is unclear
how the applicable rate is determined in the case of capital gain dividends paid
by a REIT, which, under Section 857 of the Code, are required to be treated as
"gain from the sale or exchange of a capital asset held for more than one year."
The Treasury Department is authorized to issue regulations that address the
application of the new capital gains rates to sales and exchanges by REITs and
to sales and exchanges of interests in REITs, but no such regulations have been
issued.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Company will report to its U.S. Shareholders and to the IRS the amount
of distributions paid during each calendar year, and the amount of tax withheld,
if any. Under the backup withholding rules, a U.S. Shareholder may be subject to
backup withholding at the rate of 31% with respect to distributions paid unless
such holder (i) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or (ii) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with the applicable requirements of the
backup withholding rules. A U.S. Shareholder who does not provide the Company
with his correct taxpayer identification number
34
<PAGE> 48
also may be subject to penalties imposed by the IRS. Any amount paid as backup
withholding will be creditable against the U.S. Shareholder's income tax
liability. In addition, the Company may be required to withhold a portion of
capital gain distributions to any U.S. Shareholders who fail to certify their
nonforeign status to the Company. See "-- Taxation of Non-U.S. Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from Federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, the IRS has issued a published ruling
that dividend distributions from a REIT to an exempt employee pension trust do
not constitute UBTI, provided that the shares of the REIT are not otherwise used
in an unrelated trade or business of the exempt employee pension trust. Based on
that ruling, amounts distributed by the Company to Exempt Organizations
generally should not constitute UBTI. However, if an Exempt Organization
finances its acquisition of shares with "acquisition indebtedness," a portion of
its income from distributions on such shares will constitute UBTI pursuant to
the "debt-financed property" rules. Furthermore, social clubs, voluntary
employee benefit associations, supplemental unemployment benefit trusts and
qualified group legal service plans that are exempt from taxation under
paragraphs (7), (9), (17) and (20), respectively, of Code section 501(c) are
subject to different UBTI rules, which generally will require them to
characterize distributions from the Company as UBTI. In addition, in certain
circumstances, a pension trust that owns more than 10% of the shares would be
required to treat a percentage of the dividends on its shares as UBTI (the "UBTI
Percentage"). The UBTI Percentage is the gross income, less related direct
expenses, derived by Post from an unrelated trade or business (determined as if
the Company were a pension trust) divided by the gross income, less related
direct expenses, of the Company for the year in which the dividends are paid.
The UBTI rule applies to a pension trust holding more than 10% of the Common
Stock only if (i) the UBTI Percentage is at least 5%, (ii) Post qualifies as a
REIT by reason of the modification of the 5/50 Rule that allows the
beneficiaries of the pension trust to be treated as holding shares of the
Company, in proportion to their actuarial interests in the pension trust and
(iii) either (A) one pension trust owns more than 25% of the value of such
shares or (B) a group of pension trusts individually holding more than 10% of
the value of shares collectively owns more than 50% of the value of the shares.
TAXATION OF NON-U.S. SHAREHOLDERS
The rules governing United States Federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
holders of the Company's shares (collectively, "Non-U.S. Shareholders") are
complex and no attempt will be made herein to provide more than a summary of
such rules. NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO
DETERMINE THE IMPACT OF FEDERAL, STATE AND LOCAL INCOME TAX LAWS WITH REGARD TO
AN INVESTMENT IN THE SECURITIES, INCLUDING ANY REPORTING REQUIREMENTS.
Distributions to Non-U.S. Shareholders that are not attributable to gain
from sales or exchanges by the Company of United States real property interests
and are not designated by the Company as capital gain dividends will be treated
as dividends of ordinary income to the extent that they are made out of the
Company's current or accumulated earnings and profits. Such distributions
ordinarily will be subject to a withholding tax equal to 30% of the gross amount
of the distribution unless an applicable tax treaty reduces or eliminates that
tax. However, if income from the investment in shares is treated as effectively
connected with the Non-U.S. Shareholder's conduct of a United States trade or
business, the Non-U.S. Shareholder generally will be subject to Federal income
tax at graduated rates, in the same manner as U.S. Shareholders are taxed with
respect to such distributions (and also may be subject to the 30% branch profits
tax in the case of a Non-U.S. Shareholder that is a corporate Non-U.S.
Shareholder). The Company expects to withhold United States income tax at the
rate of 30% on the gross amount of any such distributions made to a Non-U.S.
Shareholder unless (i) a lower treaty rate applies and any required form
evidencing eligibility for that reduced rate is filed with the Company or (ii)
the Non-U.S. Shareholder files an IRS Form 4224 with the Company
35
<PAGE> 49
claiming that the distribution is effectively connected income. The IRS issued
proposed regulations in April 1996 that would modify the manner in which the
Company complies with the withholding requirements.
Distributions in excess of current and accumulated earnings and profits of
the Company will not be taxable to a shareholder to the extent that such
distributions do not exceed the adjusted basis of the shareholder's shares but
rather will reduce the adjusted basis of such shares. To the extent that
distributions in excess of current and accumulated earnings and profits exceed
the adjusted basis of a Non-U.S. Shareholder's shares, such distributions will
give rise to tax liability if the Non-U.S. Shareholder otherwise would be
subject to tax on any gain from the sale or disposition of his shares as
described below. Because it generally cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of
current and accumulated earnings and profits, the entire amount of any
distribution normally will be subject to withholding at the same rate as a
dividend. However, amounts so withheld are refundable to the extent it is
determined subsequently that such distribution was, in fact, in excess of the
payor's current and accumulated earnings and profits.
The Company is required to withhold 10% of any distribution in excess of
its current and accumulated earnings and profits to the extent such shares
constitute "U.S. real property interests" under Section 897(c) of the Code.
Consequently, although the Company intends to withhold at a rate of 30% on the
entire amount of any distribution to a Non-U.S. Shareholder, to the extent that
the Company does not do so, any portion of a distribution not subject to 30%
withholding will be subject to 10% withholding.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges of U.S. real property interests
will be taxed to a Non-U.S. Shareholder under the provisions of the Foreign
Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
distributions attributable to gain from sales of United States real property
interests are taxed to a Non-U.S. Shareholder as if such gain were effectively
connected with a United States business. Non-U.S. Shareholders thus would be
taxed at the normal capital gain rates applicable to U.S. Shareholders (subject
to applicable alternative minimum tax and a special alternative minimum tax in
the case of nonresident alien individuals). Distributions subject to FIRPTA also
may be subject to the 30% branch profits tax in the hands of a corporate
Non-U.S. Shareholder not entitled to treaty relief or exemption. The Company is
required to withhold 35% of any distribution that is designated by it as a
capital gains dividend. The amount withheld is creditable against the Non-U.S.
Shareholder's U.S. tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of shares generally
will not be taxed under FIRPTA if the Company is a "domestically controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the stock was held directly or
indirectly by foreign persons. The Company is currently a
"domestically-controlled REIT" and, therefore, the sale of Common Stock will not
be subject to taxation under FIRPTA. However, because the Company's shares are
publicly traded, no assurance can be given that the Company is or will continue
to be a "domestically-controlled REIT." In addition, a Non-U.S. Shareholder that
owned (actually or constructively under certain constructive ownership rules) 5%
or less of the Company's outstanding shares at all times during a specified
testing period will not be subject to tax under FIRPTA if such shares are
regularly traded on an established securities market (e.g., the NYSE, on which
the shares are currently traded). Furthermore, gain not subject to FIRPTA will
be taxable to a Non-U.S. Shareholder if (i) investment in shares is effectively
connected with the Non-U.S. Shareholder's United States trade or business, in
which case the Non-U.S. Shareholder will be subject to the same treatment as
U.S. Shareholders with respect to such gain, or (ii) the Non-U.S. Shareholder is
a nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and certain other conditions apply, in which
case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains. If the gain on the sale of shares were to be subject
to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to the same
treatment as U.S. Shareholders with respect to such gain (subject to applicable
alternative minimum tax, a special alternative minimum tax in the case of
nonresident alien individuals, and the possible application of the 30% branch
profits tax in the case of corporate Non-U.S. Shareholders).
36
<PAGE> 50
OTHER TAX CONSEQUENCES
The Company, the Operating Partnership, the corporate subsidiaries of the
Company or the Company's shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they own
property, transact business or reside. The state and local tax treatment of the
Company and the Company's shareholders may not conform to the Federal income tax
consequences discussed above.
TAXATION OF HOLDERS OF PREFERRED STOCK, DEPOSITARY SHARES AND DEBT SECURITIES
If the Company offers one or more series of Preferred Stock or Depositary
Shares, or if the Operating Partnership offers one or more series of Debt
Securities, then there may be tax consequences for the holders of such
Securities not discussed herein. For a discussion of any such additional
consequences, see the applicable Prospectus Supplement.
PLAN OF DISTRIBUTION
The Company and the Operating Partnership may sell Securities to or through
underwriters, and also may sell Securities directly to other purchasers or
through agents.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters may receive
compensation from the Company, from the Operating Partnership or from purchasers
of Securities, for whom they may act as agents, in the form of discounts,
concessions, or commissions. Underwriters may sell Securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions, or commissions from the underwriters and/or commissions from the
purchasers for whom they may act as agents. Underwriters, dealers, and agents
that participate in the distribution of Securities may be deemed to be
underwriters, and any discounts or commissions they receive from the Company or
the Operating Partnership, and any profit on the resale of Securities they
realize may be deemed to be underwriting discounts and commissions, under the
Securities Act. Any such underwriter or agent will be identified, and any such
compensation received from the Company or the Operating Partnership will be
described, in the Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the Common Stock which is listed on the NYSE. Any shares of Common
Stock sold pursuant to a Prospectus Supplement will be listed on such exchange,
subject to official notice of issuance. The Company or the Operating Partnership
may elect to list any series of Debt Securities, Preferred Stock or Depositary
Shares on an exchange, but neither is obligated to do so. It is possible that
one or more underwriters may make a market in a series of Securities, but will
not be obligated to do so and may discontinue any market making at any time
without notice. Therefore, no assurance can be given as to the liquidity of the
trading market for the Securities.
Under agreements the Company and the Operating Partnership may enter into,
underwriters, dealers, and agents who participate in the distribution of
Securities may be entitled to indemnification by the Company or the Operating
Partnership against certain liabilities, including liabilities under the
Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be customers of, the Company or the Operating
Partnership in the ordinary course of business.
If so indicated in the applicable Prospectus Supplement, the Company or the
Operating Partnership, as the case may be, will authorize underwriters or other
persons acting as the Company's or the Operating Partnership's agents to solicit
offers by certain institutions to purchase Securities from the Company or the
Operating Partnership at the public offering price set forth in such Prospectus
Supplement pursuant to delayed delivery contracts ("Contracts") providing for
payment and delivery on the date or dates stated in such Prospectus Supplement.
Each Contract will be for an amount not less than, and the aggregate principal
amount of Securities sold pursuant to Contracts shall be not less nor more than,
the respective amounts stated in the applicable Prospectus Supplement.
Institutions with whom Contracts, when authorized, may be made
37
<PAGE> 51
include commercial savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other institutions but
will in all cases be subject to the approval of the Company or the Operating
Partnership, as the case may be. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Securities covered by its
Contracts shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject, and (ii)
if the Securities are being sold to underwriters, the Company or the Operating
Partnership, as the case may be, shall have sold to such underwriters the total
principal amount of the Securities less the principal amount thereof covered by
Contracts.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and incorporated in this Prospectus by reference to the Annual
Report on Form 10-K of the Operating Partnership for the year ended December 31,
1996 have been so incorporated in reliance on the reports of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Columbus Realty Trust for the year
ended December 31, 1996 and 1995 and for each of the three years in the period
ended December 31, 1996, included in the Current Report on Form 8-K dated
September 17, 1997 filed by Post Properties, Inc., and the Current Report on
Form 8-K dated September 17, 1997 filed by Post Apartment Homes, L.P., have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such consolidated
financial statements have been incorporated herein by reference in reliance upon
such reports given the authority of such firm as experts in accounting and
auditing.
LEGAL MATTERS
The legality of the Securities will be passed upon for the Company and the
Operating Partnership by King & Spalding, Atlanta, Georgia. Herschel M. Bloom, a
member of King & Spalding, is a director of the Company.
38
<PAGE> 52
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY, BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE AS OF WHICH
INFORMATION IS FURNISHED.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary......... S-2
Use of Proceeds....................... S-5
Description of Series B Preferred
Shares.............................. S-6
Certain Federal Income Tax
Considerations...................... S-11
Underwriting.......................... S-12
Legal Matters......................... S-12
PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company and the Operating
Partnership......................... 3
Use of Proceeds....................... 3
Ratio of Earnings to Fixed Charges.... 3
Description of Debt Securities........ 4
Description of Common Stock........... 15
Description of Preferred Stock........ 17
Description of Depositary Shares...... 22
Federal Income Tax Considerations..... 26
Plan of Distribution.................. 35
Experts............................... 35
Legal Matters......................... 36
</TABLE>
======================================================
======================================================
2,000,000 SHARES
POST PROPERTIES, INC.
7 5/8% SERIES B CUMULATIVE
REDEEMABLE PREFERRED STOCK
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
OCTOBER 23, 1997
======================================================
