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RULE 424(b)(3)
FILE NO. 333-93907
PROSPECTUS
THE TOWN AND COUNTRY TRUST
COMMON SHARES OF BENEFICIAL INTEREST
PREFERRED SHARES OF BENEFICIAL INTEREST
DEPOSITARY SHARES
WARRANTS
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We may offer at various times up to $75,000,000 of the types of securities
listed above in one or more offerings.
We will provide specific terms of these securities in supplements to this
prospectus. We urge you to read this prospectus and any prospectus supplement
carefully before you make your investment decision.
This prospectus may not be used to offer and sell these securities unless
accompanied by a prospectus supplement.
The common shares offered hereby are listed on the New York Stock Exchange under
the symbol "TCT". If we decide to list any other securities offered hereby on a
national securities exchange upon issuance, the supplements to this prospectus
will identify the exchange and state when we expect trading to begin.
INVESTING IN OUR SECURITIES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" ON PAGES
2 TO 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus or any accompanying prospectus supplement is truthful or complete.
Any representation to the contrary is a criminal offense.
We may offer the securities through underwriters or agents or directly to
investors. The supplements to this prospectus will provide the specific terms of
the plan of distribution.
The date of this prospectus is January 12, 2000.
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TABLE OF CONTENTS
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About this Prospectus..................................................................................... 1
Cautionary Statement Regarding Forward-Looking Statements................................................. 1
About The Town and Country Trust.......................................................................... 2
Risk Factors.............................................................................................. 2
Use of Proceeds........................................................................................... 7
General Description of the Offered Securities............................................................. 7
Description of Our Shares of Beneficial Interest.......................................................... 7
Description of Depositary Shares.......................................................................... 12
Description of Warrants................................................................................... 15
Material Federal Income Tax Considerations................................................................ 16
Plan of Distribution...................................................................................... 23
Validity of the Securities................................................................................ 24
Experts................................................................................................... 24
Where You Can Find More Information....................................................................... 25
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission, which is commonly referred to as the "SEC",
utilizing a "shelf" registration process. Under this shelf process, we may offer
and sell any combination of the securities described in this prospectus in one
or more offerings up to a total dollar amount of $75,000,000. This prospectus
provides you with a general description of the securities we may offer. Each
time we offer securities, we will provide a prospectus supplement and attach it
to this prospectus. The prospectus supplement will contain specific information
about the terms of the securities being offered at that time. The prospectus
supplement also may add, update or change information contained in this
prospectus. To the extent information in this prospectus is inconsistent with
information contained in a prospectus supplement, you should rely on the
information in the prospectus supplement. You should read both this prospectus
and any prospectus supplement, together with additional information described
under the heading "Where You Can Find More Information", and any additional
information you may need to make your investment decision.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
We have made certain statements in this prospectus and our other filings
with the SEC which may constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The words and
phrases "looking ahead", "we are confident", "should be", "will be",
"predicted", "believe", "expect", "anticipate", and similar expressions identify
forward-looking statements. These forward-looking statements reflect our current
views in respect of future events and financial performance, but are subject to
many uncertainties and factors relating to our operations and business
environment which may cause our actual results to differ materially from any
future results expressed or implied by such forward-looking statements. We
undertake no obligation to update publicly or revise any forward-looking
statements whether as a result of new information, future events or otherwise.
Accordingly, you should not place undue reliance on such statements.
IMPORTANT FACTS THAT MAY AFFECT OUR EXPECTATIONS, ESTIMATES OR PROJECTIONS
INCLUDE, BUT ARE NOT LIMITED TO:
- Our Funds Available for Distribution to Shareholders may be reduced by:
-- A reduction in rental rates due to competition or market conditions;
-- An increase in our vacancy rates due to competition or market
conditions; or
-- Increased or unanticipated expenses which can not be offset by an
increase in rental or occupancy rates.
- The value of our properties may decline as a result of:
-- A general decline in the market value of multi-family apartments or a
decline in the value of multi-family apartments in the mid-Atlantic
states;
-- An unexpected increase in maintenance expenses;
-- An unexpected casualty; or
-- The occurrence or the discovery of an environmental problem.
- We may lose our status as a real estate investment trust as a result of:
-- Changes in the Federal income tax laws; or
-- Our failure to comply with Federal income tax requirements.
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ABOUT THE TOWN AND COUNTRY TRUST
We own and operate multi-family apartment buildings in the mid-Atlantic and
Southeastern regions of the United States. Our properties primarily contain one-
and two-bedroom apartments. We typically rent our apartments to families and
individuals on a year-to-year basis.
For Federal income tax purposes, we are structured as a real estate
investment trust, or "REIT", which means that, so long as we comply with the
relevant requirements, we are not subject to Federal income tax on our profits.
The Town and Country Trust is a holding company. The primary business of The
Town and Country Trust is to act as a general partner of The TC Operating
Limited Partnership. We own all of our properties through partnerships of which
The TC Operating Limited Partnership and we are, indirectly, the sole partners.
The TC Operating Limited Partnership manages all of our properties. This
structure of operation is commonly referred to as an "umbrella partnership", or
"Up-REIT", structure.
Our principal executive offices are located at 100 South Charles Street,
Suite 1700, Baltimore, Maryland 21201 and our telephone number is
(410) 539-7600.
RISK FACTORS
INVESTING IN OUR EQUITY SECURITIES INVOLVES SIGNIFICANT RISKS. YOU SHOULD
CAREFULLY CONSIDER, AMONG OTHER FACTORS, THE MATTERS DESCRIBED BELOW.
REVENUES AVAILABLE FOR DISTRIBUTION TO OUR SHAREHOLDERS ARE AFFECTED BY MANY
FACTORS INCLUDING THOSE DESCRIBED BELOW.
OUR FUNDS AVAILABLE FOR DISTRIBUTION TO OUR SHAREHOLDERS MAY BE REDUCED BY A
DECREASE IN THE RENTAL RATES THAT WE ARE ABLE TO CHARGE.
Our principal source of revenues is the rents that we charge. We may need to
reduce our rental rates from time to time in order to respond to competition
from other multifamily apartments or due to a general economic decline in the
markets where we operate. A number of our competitors have greater resources
than us and may be able to reduce rates in order to increase occupancy. Also, a
general economic decline in areas where we operate may require us to reduce our
rental rates. For a further discussion of the competitive environment in which
we operate, see "Real Estate Investments' Value and Income Fluctuate Due to
Various Factors Including Those Described Below--We Are in a Competitive
Business" below, and for a discussion of the markets in which we operate, see
"--a Downturn in the Mid-Atlantic Region of the United States May Reduce Our
Funds Available for Distribution to Our Shareholders and May Reduce the Value of
Our Properties" below.
OUR FUNDS AVAILABLE FOR DISTRIBUTION TO OUR SHAREHOLDERS MAY BE REDUCED BY AN
INCREASE IN OUR VACANCY RATES.
Many of our buildings are almost fully occupied. Our average occupancy rate
for the nine months ended September 30, 1999 was approximately 94.7%. This level
of occupancy may not continue indefinitely. Our vacancy rates may increase due
to competition or a general market downturn in the areas where we operate. For a
further discussion of the competitive environment in which we operate, see "Real
Estate Investments' Value and Income Fluctuate Due to Various Factors Including
Those Described Below--We Are in a Competitive Business" below and for a
discussion of the markets in which we operate, see "--A Downturn in the
Mid-Atlantic Region Of the United States May Reduce Our Funds Available for
Distribution to Our Shareholders and May Reduce the Value of Our Properties"
below.
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OUR FUNDS AVAILABLE FOR DISTRIBUTION TO OUR SHAREHOLDERS MAY BE REDUCED BY AN
INCREASE IN OUR EXPENSES THAT CAN NOT BE OFFSET THROUGH AN INCREASE IN RENTAL
RATES OR OCCUPANCY.
Our expenses over the last five years have increased at approximately 2.2%
per annum. We may not be able to limit our expense increases to this level in
the future. Our expenses may increase due to a higher level of inflation, an
increase in the cost of maintaining our buildings or an increase in the cost of
living in the areas in which we operate. See "--The Age of Our Apartment
Communities May Make Us Less Competitive and Require Us to Make Significant
Capital Expenditures" for a discussion of our possible need to make capital
expenditures on our buildings. If our expenses increase we may be unable to
increase our rental rates or occupancy levels to offset the increased expenses.
OUR FUNDS AVAILABLE FOR DISTRIBUTION TO OUR SHAREHOLDERS MAY BE REDUCED BY AN
UNANTICIPATED CASUALTY.
We may sustain a loss as a result of a natural disaster, like a flood or
hurricane. While we maintain insurance on our properties, depending upon the
casualty, the insurance may be insufficient to cover our losses. For a
discussion of the adequacy of our insurance coverage, see "Real Estate
Investments' Value and Income Fluctuate Due To Various Factors Including Those
Described Below--Some Of Our Potential Losses May Not Be Covered By Insurance"
below.
WE MAY INCUR ANTICIPATED COSTS AND LIABILITIES DUE TO ENVIRONMENTAL PROBLEMS.
As an operator of apartment buildings, we face the risk that an
environmental problem may arise. To the extent that we have an environmental
problem, we are subject to potential liability to the tenants of the building
and for the costs of the cleaning up the problem. We may have liability for the
environmental problem even if we did not cause or know of it. While we have not
to date suffered a material loss as a result of an environmental problem, it is
possible that an environmental problem may develop of which we were previously
unaware. For a discussion of our exposure to environmental liability, see "Real
Estate Investments' Value and Income Fluctuate Due To Various Factors Including
Those Described Below--We May Incur Costs To Comply With Environmental Laws"
below.
THE AGE OF OUR APARTMENT COMMUNITIES MAY MAKE US LESS COMPETITIVE AND REQUIRE US
TO MAKE SIGNIFICANT CAPITAL EXPENDITURES.
The average age of our apartment communities is 22 years. The age of our
communities may place us at a disadvantage in competing with newer apartment
communities. As our communities age, the costs of maintaining our communities
may increase.
A DOWNTURN IN THE MID-ATLANTIC REGION OF THE UNITED STATES MAY REDUCE OUR FUNDS
AVAILABLE FOR DISTRIBUTION TO OUR SHAREHOLDERS AND MAY REDUCE THE VALUE OF OUR
PROPERTIES.
Thirty-six of our 42 properties are located in five states in the
mid-Atlantic region of the United States. As a result, our performance is linked
to the economic conditions and the market for apartments in the mid-Atlantic
states. A downturn in the economy in this region may reduce our rental rates,
increase our vacancies and reduce the value of our properties.
REAL ESTATE INVESTMENTS' VALUE AND INCOME FLUCTUATE DUE TO VARIOUS FACTORS
INCLUDING THOSE DESCRIBED BELOW.
THE VALUE OF REAL ESTATE FLUCTUATES DEPENDING ON CONDITIONS IN THE GENERAL
ECONOMY AND THE REAL ESTATE BUSINESS. THESE CONDITIONS MAY ALSO LIMIT OUR
REVENUES AND AVAILABLE CASH.
The factors that affect the value of our real estate include, among other
things:
- national, regional and local economic conditions;
- reduced demand for rentals in a property's area;
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- whether tenants consider a property attractive;
- how well we manage our properties;
- competition from comparable properties;
- tenants' ability to pay rents;
- increases or decreases in market rental rates;
- increases in operating costs due to inflation, increased real estate taxes
and other factors;
- government regulations and changes in zoning or tax laws;
- market interest rates;
- our ability to pay for adequate maintenance and insurance, including
insurance premiums, utilities and real estate taxes; and
- our potential liability for environmental or other legal claims.
WE MAY BE UNABLE TO REFINANCE OUR INDEBTEDNESS IF THE VALUE OF OUR PROPERTIES
DECLINE.
We have $367 million of indebtedness that comes due in 2008. This debt is
secured by mortgages on substantially all of our properties and these mortgages
are cross-collateralized. See "Cross-Collateralization May Permit a Lender to
Foreclose on Substantially All of Our Properties In the Event We Are Unable to
Service Our Indebtedness" for a further discussion of cross-collateralization.
We may be unable to refinance our debt due to a number of factors, including a
reduction in the value of our properties. See "Real Estate Investments' Value
and Income Fluctuate Due to Various Factors Including Those Described Below"
below for a discussion of factors that may adversely affect the value of our
properties.
CROSS-COLLATERALIZATION MAY PERMIT A LENDER TO FORECLOSE ON SUBSTANTIALLY ALL OF
OUR PROPERTIES IN THE EVENT WE ARE UNABLE TO SERVICE OUR INDEBTEDNESS.
Approximately $367 million of our existing of debt is cross-collateralized
by 35 of our properties. Cross-collateralization makes all of the subject
properties available to the lender in order to satisfy our debt. In the event
that we are unable to service this debt or otherwise default on this loan, our
lenders would have the ability to foreclose on the mortgages on all of the
subject properties.
WE ARE IN A COMPETITIVE BUSINESS.
The real estate industry is highly competitive. In each region in which we
operate, we compete for tenants with a large number of real estate property
owners. Since all of our properties are in areas where there are properties of
the same type and quality, the competition we face could affect our ability to
attract and retain tenants. In addition, we compete with other major real estate
investors with significant capital for attractive investment properties.
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WE MAY INCUR COSTS TO COMPLY WITH ENVIRONMENTAL LAWS.
Under various federal, state or local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up hazardous or toxic substances released at a property,
and may be held liable to a governmental entity or to third parties for property
damage or personal injuries and for investigation and clean-up costs incurred by
the parties in connection with the contamination. These laws often impose
liability without regard to whether the owner or operator knew of, or was
responsible for, the release of the hazardous or toxic substances. The presence
of contamination or the failure to remediate contamination may adversely affect
the owner's ability to sell or lease real estate or to borrow using the real
estate as collateral. Other federal, state and local laws, ordinances and
regulations require abatement or removal of asbestos-containing materials in the
event of demolition or some renovations or remodeling and also govern emissions
of and exposure to asbestos fibers in the air. Federal and state laws also
regulate the operation and subsequent removal of underground storage tanks. In
connection with the ownership, operation and management of our properties, we
could be held liable for the costs of remedial action with respect to these
regulated substances or tanks or related claims arising out of environmental
contamination at our properties.
SOME OF OUR POTENTIAL LOSSES MAY NOT BE COVERED BY INSURANCE.
We carry comprehensive liability, fire, extended coverage and rental loss
insurance on all of our properties. We believe the policy specifications and
insured limits of these policies are adequate and appropriate. There are,
however, some types of losses, including lease and other contract claims, that
generally are not insured. If an uninsured loss or a loss in excess of insured
limits occurs, we could lose all or a portion of the capital we have invested in
a property, as well as the anticipated future revenue from the property. If this
happens, we might nevertheless remain obligated for any mortgage debt or other
financial obligations related to the property.
OUR ORGANIZATIONAL AND FINANCIAL STRUCTURE GIVES RISE TO OPERATIONAL AND
FINANCIAL RISKS INCLUDING THOSE DESCRIBED BELOW.
IN THE CASE OF A SALE OR REFINANCING OF OUR ORIGINAL 26 PROPERTIES, OUR CHAIRMAN
AND PRESIDENT MAY HAVE A CONFLICT OF INTEREST.
A sale, or refinancing for less than $232 million, of our original 26
properties may cause a significant tax liability to accrue to the limited
partners of The TC Operating Limited Partnership. These limited partners include
Mr. Schulweis, who is our President and Chief Executive Officer and a member of
our Board of Trustees, and an entity owned by Mr. Lerner, the Chairman of our
Board of Trustees. As a result, if our Board of Trustees were presented with the
question of whether to sell our original 26 properties or refinance these
properties for less than $232 million, Mr. Lerner and Mr. Schulweis would have a
conflict between their interests as limited partners in The TC Operating Limited
Partnership and as shareholders and trustees of The Town and Country Trust.
OUR CHARTER DOCUMENTS AND APPLICABLE LAW MAY HINDER ANY ATTEMPT TO ACQUIRE US.
Generally, for us to maintain our qualification as a REIT under the Internal
Revenue Code, not more than 50% in value of our outstanding shares of beneficial
interest may be owned, directly or indirectly, by five or fewer individuals at
any time during the last half of our taxable year. The Internal Revenue Code
defines "individuals" for this purpose to include some types of entities. Under
our declaration of trust, no person may own more than 5.0% of the lesser of the
number or value of our outstanding common shares, except for Mr. Lerner, for
whom the ownership limit is 29%. These restrictions on transferability and
ownership may delay, deter or prevent a change in control or other transaction
that might involve a premium price or otherwise be in the best interest of the
shareholders.
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Our declaration of trust authorizes the Board of Trustees:
- to cause us to issue additional authorized but unissued common shares or
preferred shares;
- to classify or reclassify any unissued shares; and
- to set the preferences, rights and other terms of any classified or
reclassified shares that we issue.
The Board of Trustees could establish a series of preferred shares whose
terms could delay, deter or prevent a change in control or other transaction
that might involve a premium price or otherwise be in the best interest of our
shareholders. Our declaration of trust and bylaws contain other provisions that
may delay, deter or prevent a change in control or other transaction that might
involve a premium price or otherwise be in the best interest of the
shareholders.
Under Maryland law, as applicable to real estate investment trusts,
specified "business combinations" between a Maryland real estate investment
trust and an "interested shareholder" (as defined below) or an affiliate of an
interested shareholder are prohibited for five years after the most recent date
on which the interested shareholder becomes an interested shareholder. Business
combinations, for purposes of the preceding sentence, include specified mergers,
consolidations, share exchanges and asset transfers and some issuances and
reclassifications of equity securities. After the end of the five-year period,
any business combination with an interested shareholder or an affiliate of the
interested shareholder must be recommended by the board of trustees of the trust
and approved by the affirmative vote of at least:
- 80% of the votes entitled to be cast by holders of outstanding voting
shares of beneficial interest of the trust, voting together as a single
voting group; and
- two-thirds of the votes entitled to be cast by holders of voting shares of
the trust other than voting shares held by the interested shareholder with
whom, or with whose affiliate, the business combination is to be effected
or held by an affiliate or associate of the interested shareholder, voting
together as a single voting group.
These percentage approval requirements do not apply if, among other
conditions, the trust's common shareholders receive a statutorily defined
minimum price for their shares and the consideration is received in cash or in
the same form as previously paid by the interested shareholder for its common
shares. The provisions of the Maryland law also do not apply to business
combinations that are approved or exempted by the board of trustees of the trust
before the interested shareholder becomes an interested shareholder. The
Maryland law defines "interested shareholder" as any person who beneficially
owns 10% or more of the voting power of the trust's shares or an affiliate or an
associate (as defined in the Maryland law) of the trust who, at any time within
the two-year period before the date in question, was the beneficial owner of 10%
or more of the voting power of the then outstanding voting shares of beneficial
interest of the trust. A person is not an interested shareholder if, prior to
the time the person would have become an interested shareholder, the board
approved the transaction which would have resulted in the person becoming an
interested shareholder.
Our Board of Trustees has adopted an irrevocable resolution which exempts
from this statute any business combination with Mr. Lerner or any of his present
or future affiliates or associates or any person acting in concert with any of
them. As a result, Mr. Lerner or any of the other specified persons may be able
to enter into business combinations with us which may not be in the best
interest of shareholders. With respect to business combinations with other
persons, the business combination provisions of Maryland law may delay, deter or
prevent a change in control or other transaction that might involve a premium
price or otherwise be in the best interest of the shareholders.
Additionally, under Maryland law, as amended, "control shares" (as defined
below) of a Maryland REIT acquired in a control share acquisition generally have
no voting rights except those voting rights
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that have been approved by a vote of two-thirds of the votes eligible to vote
under the statute. Maryland law defines "control shares" as voting shares of
stock or beneficial interest which entitle their holder to several specified
ranges of voting power in elections of directors. If voting rights are not
approved at a meeting of shareholders, a Maryland company generally may redeem
any or all of the control shares for fair value. If voting rights for control
shares are approved at a shareholders' meeting and the acquiror becomes entitled
to vote a majority of the shares of beneficial interest entitled to vote, all
other shareholders may exercise appraisal rights. Our bylaws contain a provision
exempting from the control share acquisition statute any future transaction
which otherwise would be subject to the statute by Mr. Lerner or any of his
present or future affiliates or associates or any person acting in concert with
any of them.
WE MIGHT FAIL TO QUALIFY OR REMAIN QUALIFIED AS A REIT.
It is possible that we may lose our status as a REIT for Federal income tax
purposes. Qualification as a REIT for Federal income tax purposes is governed by
highly technical and complex provisions of the Internal Revenue Code for which
there are only limited judicial or administrative interpretations. Our
qualification as a REIT also depends on various facts and circumstances that are
not entirely within our control. In addition, legislation, new regulations,
administrative interpretations or court decisions might significantly change the
tax laws with respect to the requirements for qualification as a REIT or the
Federal income tax consequences of qualification as a REIT.
If, for any taxable year, we fail to maintain our qualification as a REIT,
we could not deduct distributions to shareholders in computing our taxable
income and would have to pay Federal income tax on our taxable income at regular
corporate rates. The Federal income tax payable would include any applicable
alternative minimum tax. As a result, the amount of money available to
distribute to shareholders would be reduced for the year or years involved, and
we would no longer be required to distribute money to shareholders. In addition,
we would also be disqualified from treatment as a REIT for the four taxable
years following the year during which qualification was lost, unless we were
entitled to relief under the relevant statutory provisions. Although we
currently intend to operate in a manner designed to allow us to qualify as a
REIT, future economic, market, legal, tax or other considerations may cause us
to revoke the REIT election.
USE OF PROCEEDS
Unless otherwise indicated in an accompanying prospectus supplement, we
intend to use the proceeds from the sale of the securities for general purposes,
including capital expenditures, acquisition or development of additional
properties, repayment of indebtedness, repurchases of our common shares and
meeting our working capital needs.
GENERAL DESCRIPTION OF THE OFFERED SECURITIES
We may use this prospectus to offer common shares of beneficial interest,
preferred shares of beneficial interest, depositary shares, warrants to purchase
common shares, warrants to purchase preferred shares, warrants to purchase
depositary shares or any combination of the foregoing, either individually or as
units consisting of two or more of such securities. We will set forth the
specific terms of any securities offered in an accompanying prospectus
supplement.
DESCRIPTION OF OUR SHARES OF BENEFICIAL INTEREST
We were formed as a real estate investment trust under the laws of the State
of Maryland. The rights of our shareholders are governed by Title 8 of the
Corporations and Associations Article, Annotated Code of Maryland, to which we
refer in this prospectus as the "Maryland REIT Law", and certain provisions of
the Maryland General Corporation Law, to which we refer in this prospectus as
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the "MGCL", and by our declaration of trust and bylaws. The following summary of
the terms of our shares of beneficial interest is not complete and is subject
to, and qualified in its entirety by reference to, our declaration of trust and
bylaws and any applicable articles supplementary to the declaration of trust
designating the terms of a series of preferred shares. We refer in this
prospectus to any such articles supplementary as "designating articles". You
should refer to the exhibits to the registration statement for copies of our
declaration of trust and bylaws, which are incorporated by reference as exhibits
to the registration statement of which this prospectus is a part. See "Where You
Can Find More Information".
AUTHORIZED SHARES
Our declaration of trust provides that we may issue up to 500.0 million
shares of beneficial interest, par value $0.01 per share. Our Board of Trustees
is authorized, under our declaration of trust, to classify such shares as common
shares or preferred shares, and to set the rights, privileges and preferences of
such shares. On December 17, 1999, there were 15,789,080 common shares issued
and outstanding and no preferred shares issued and outstanding.
Under the Maryland REIT Law, a shareholder is not liable for our obligations
solely as a result of his or her status as a shareholder. Our declaration of
trust provides that no shareholder is liable for any of our debts or obligations
solely by reason of being a shareholder.
All persons who own, directly or by virtue of the attribution provisions of
the Internal Revenue Code, more than 1.0% in number or value of our outstanding
shares of beneficial interest, whether preferred or common, must give a written
notice to us containing certain specified information by January 30 of each
year. In addition, each shareholder is required, upon demand, to disclose to us
in writing such information in respect of such shareholder's direct, indirect
and constructive ownership of beneficial interests as we deem necessary to
comply with the provisions of the Internal Revenue Code applicable to a real
estate investment trust, to comply with the requirements of any taxing authority
or governmental agency or to determine any such compliance.
ISSUANCE OF PREFERRED SHARES
Our Board of Trustees has the authority to issue preferred shares from time
to time, in one or more series, without any further action by our shareholders.
The following description of our preferred shares sets forth general terms and
provisions of the preferred shares to which any prospectus supplement may
relate. The preferred shares, when issued, will be fully paid and
non-assessable.
Because our Board of Trustees has the power to establish the preferences,
powers and rights of each series of preferred shares, it may afford the holders
of any series of preferred shares preferences, powers and rights, voting or
otherwise, senior to the rights of holders of common shares. The issuance of
preferred shares could have the effect of delaying, deferring or preventing a
change of control that might involve a premium price for common shareholders or
otherwise be in their best interest and may adversely affect the voting and
other rights of holders of the common shares. See "Risk Factors--Our
Organizational And Financial Structure Gives Rise To Operational And Financial
Risks Including Those Described Below--Our Charter Documents and Applicable Law
May Hinder Any Attempt To Acquire Us" for a discussion of the provisions of our
organizational documents that may prevent or deter an acquisition of Town and
Country.
The rights, preferences, privileges and restrictions of any series of
preferred shares will be fixed by the designating articles relating to the
series. A prospectus supplement relating to each series will specify the terms
of the preferred shares, including the following:
- the title of the preferred shares;
- the number of preferred shares in the series and the liquidation
preference per share;
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- the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation of the dividend rate;
- the date from which dividends will accumulate;
- the relative ranking and preferences as to dividend rights and rights upon
the liquidation, dissolution or winding up of our affairs;
- any voting rights, either generally or upon the issuance of another series
of preferred shares;
- any mandatory or optional redemption provisions;
- any right to convert or exchange the preferred shares for other
securities;
- any limitation on issuance of any other series of preferred shares;
- any limitations or restriction on the ownership or transfer of the
preferred shares;
- whether interests in the preferred shares will be represented by
depositary shares;
- the procedures for any auction and remarketing; and
- any additional rights, preferences, privileges, limitations and
restrictions of the preferred shares which are not inconsistent with the
declaration of trust, bylaws and any designating articles.
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COMMON SHARES
Our Board of Trustees has the authority to issue common shares from time to
time without any further action by our shareholders. The following description
of our common shares sets forth general terms and provisions of the common
shares to which any prospectus supplement may relate. All outstanding common
shares are, and any new common shares, when issued, will be, fully paid and
non-assessable.
The common shares have the dividend, liquidation, voting and general rights
set forth below unless otherwise specified in the prospectus supplement being
used to offer the common shares.
The applicable prospectus supplement will describe the terms of the common
shares including, where applicable, the following:
- the number of common shares to be offered; and
- any additional terms of the common shares which are not inconsistent with
the provisions of the declaration of trust and the bylaws.
DIVIDENDS AND LIQUIDATION RIGHTS.
Subject to the preferential rights of any class or series of preferred
shares, holders of common shares will be entitled to receive distributions on
such shares if authorized and declared by our Board of Trustees and to share
ratably in our assets legally available for distribution to the shareholders in
the event of our liquidation, dissolution or winding-up after payment of, or
adequate provision for, all of our known debts and liabilities.
All of our common shares rank equally as to their dividend, distribution,
liquidation and other rights.
VOTING RIGHTS.
Each outstanding common share entitles the holder to one vote on all matters
submitted to a vote of shareholders. These matters include the election of
trustees and, except as otherwise required by law or except as provided with
respect to any preferred shares, the holders of such shares will possess
exclusive voting power. Our declaration of trust provides that our trustees are
elected by a plurality vote. Our declaration of trust provides that there is no
cumulative voting in the election of trustees.
Our declaration of trust provides that the approval of a majority of the
votes cast shall be required to approve any other matter submitted to the
shareholders for approval, except as otherwise provided by law, the declaration
of trust, or the bylaws. A proposal to terminate the existence of the trust
requires the affirmative vote of holders of two-thirds of the shares of all
classes. A proposal to amend the declaration of trust requires the affirmative
vote of the holders of at least a majority of the shares entitled to vote on the
proposal. Our declaration of trust provides that the Board of Trustees has the
authority to amend the declaration of trust at any time to cause to us to
continue to meet the requirements applicable to a REIT and to determine, at any
time and from time to time, whether to attempt to cause us to qualify as a REIT.
GENERAL.
Except as otherwise set forth in the applicable prospectus supplement, a
holder of the common shares has no conversion, sinking fund, redemption rights,
exchange rights or preemptive rights to subscribe for any of our securities.
The transfer agent and registrar for our common shares is National City
Bank, Cleveland, Ohio.
Our common shares are listed on the New York Stock Exchange under the
trading symbol "TCT".
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RESTRICTIONS ON OWNERSHIP AND TRANSFER
Our declaration of trust contains restrictions on the number of our shares
of beneficial interest that shareholders may own. For us to qualify as a REIT
under the Internal Revenue Code no more than 50.0% in value of our outstanding
shares of beneficial interest may be owned, actually or constructively under the
applicable attribution rules of the Internal Revenue Code, by five or fewer
individuals during the last half of a taxable year. We refer to this as the
"5/50 Rule". Pension plans and mutual funds are among the entities that are not
treated as individuals for the purposes of the 5/50 Rule. Individuals that own
indirect interests in shares through entities that are not treated as
individuals for purposes of the 5/50 Rule are treated as owning their
proportionate share of such shares for the purposes of the 5/50 Rule. Our shares
of beneficial interest must also be owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a proportionate part of a
shorter taxable year.
In general, the ownership limit set forth in our declaration of trust
provides that no person or entity may own, or be deemed to own by virtue of the
applicable constructive ownership provisions of the Internal Revenue Code, more
than 5.0% of the lesser of the number or value of our outstanding shares of
beneficial interest, except for Mr. Lerner, as to whom the limit is 29.0%. The
constructive ownership rules of the Internal Revenue Code are complex, and may
cause shares owned actually or constructively by a group of related individuals
and/or entities to be deemed to be constructively owned by one individual or
entity.
Although they are not required to, our Board of Trustees may waive the
ownership limit provided in our declaration of trust with respect to a
particular shareholder if our Board of Trustees determines that the
shareholder's ownership will not jeopardize our status as a REIT and otherwise
decides such action would be in our best interest. Our Board of Trustees may
place whatever conditions they deem appropriate on such waiver.
Our declaration of trust further provides that our Board of Trustees may
refuse to permit a transfer of shares if, in the opinion of the Board of
Trustees, the proposed transfer may jeopardize our qualification as a REIT.
Any person who acquires or attempts or intends to acquire actual or
constructive ownership of our shares of beneficial interest that will or may
violate any of the restrictions on transferability of ownership discussed above
must give notice immediately to us. If any purported transfer of our shares or
any other event otherwise would result in any person violating the ownership
limit, the number of shares purported to be transferred in excess of the
ownership limit shall be converted into a separate class of "excess shares". The
excess shares shall not be entitled to receive any dividends or distributions or
to vote on any matter (other than as provided by Maryland law). Within 30 days
after the earlier of our receipt of notice from a holder of his or her
acquisition of excess shares or our independent discovery of an acquisition of
excess shares, we will call the excess shares for redemption at a price equal to
the lower of the price paid in the transaction creating the excess shares or the
market price for the shares on the redemption date. We may pay the redemption
price at any time or times up to our date of liquidation, unless our Board of
Trustees determines that it is in our best interest to pay the redemption price
on an earlier date. If the Board of Trustees determines to pay the redemption
price at the liquidation of the Trust, the redemption price shall not exceed the
sum of the per-share liquidating distributions and the return of capital
distributions declared in respect of shares of record after the redemption date.
No interest shall accrue from the redemption date to the date of payment.
We will not redeem the excess shares if the holder of the excess shares has
disposed of them prior to our giving written notice of redemption. If the excess
shares have been disposed of, the holder of the excess shares must pay to us the
amount (if any) by which the consideration he or she received in disposing of
the excess shares (or, if the transfer was without consideration, the market
value of the excess shares) exceeded the redemption price we would have paid for
the excess shares. We will rescind
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the redemption if the holder of the excess shares, within 30 days after
receiving our notice of redemption, transfers, to a person in whose hands the
shares will not violate the ownership limit, enough of his or her remaining
shares so that he or she no longer holds shares in excess of the ownership limit
and pays us the amount, if any, by which the greater of (1) the market value of
the excess shares on the date of the transfer of the remaining shares and
(2) the price received on the sale of the remaining shares exceeds the purchase
price of the excess shares (or, if the acquisition of the excess shares was
without consideration, the market value of the excess shares on the date of
acquisition).
If any attempted acquisition of shares would cause our shares of beneficial
interest to be owned beneficially fewer than 100 persons, such acquisition will
be null and void in its entirety and the intended purchaser or recipient will
acquire no rights to the shares.
Except as otherwise described above, any change in the ownership limit would
require an amendment to our declaration of trust. Generally, amendments to our
declaration of trust require the affirmative vote of holders owning at least a
majority of our shares of beneficial interest outstanding and entitled to vote
thereon. Our declaration of trust provides that the Board of Trustees has the
authority to determine, at any time and from time to time, whether to attempt to
cause us to qualify as a REIT.
All certificates representing our common shares currently bear a legend
referring to the restrictions described above.
If the redemption provisions discussed above are determined to be void or
invalid by virtue of any legal decision, statute, rule or regulation, then the
intended transferee of any shares in violation of the ownership limit may be
deemed, at our option, to have acted as agent on our behalf in acquiring such
shares and to hold such shares on our behalf.
The ownership limitations discussed above may have the effect of precluding
acquisition of control of the Trust without the consent of our Board of Trustees
and, consequently, shareholders may be unable to realize a premium for their
shares over the then-prevailing market price which is customarily associated
with such acquisitions. See "Risk Factors--Our Organizational And Financial
Structure Gives Rise To Operational And Financial Risks Including Those
Described Below--Our Charter Documents and Applicable Law May Hinder Any Attempt
To Acquire Us" for a discussion of the provisions of our organizational
documents that may impact an acquisition of Town and Country.
These restrictions will not preclude settlement for transactions through the
New York Stock Exchange.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The following summary of each of the deposit agreement, the depositary
shares and the depositary receipts, each as described below, is not complete,
and is qualified in its entirety by reference to the deposit agreement and
depositary receipts with respect to the depositary shares relating to any
particular series of preferred shares. You should refer to the exhibits to the
registration statement for copies of the forms of the deposit agreement and
deposit receipts. See "Where You Can Find More Information".
The following summary of the deposit agreement, the depositary shares and
the depositary receipts relates to terms and conditions applicable to the
depositary shares generally. The particular terms of any series of depositary
shares will be described in the applicable prospectus supplement. If so
indicated in the prospectus supplement, the terms of any such series may differ
from the terms set forth below.
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Each depositary share evidences a specified fraction of a preferred share.
The preferred shares underlying any depositary shares will be deposited under a
separate deposit agreement between us and a bank or trust company selected by us
as depositary. The bank or trust company acting as depositary will be specified
in the applicable prospectus supplement. Subject to the terms of the applicable
deposit agreement, each owner of a depositary share will be entitled, in
proportion to the applicable fractional interest in a preferred share underlying
such depositary share, to all the rights, preferences or privileges of such
preferred shares (including dividend, voting, redemption, conversion, exchange
and liquidation rights).
DIVIDENDS
The depositary will distribute all cash dividends or other cash
distributions received by it in respect of the preferred shares to the record
holders of depositary shares relating to such preferred shares in proportion to
the numbers of depositary shares held on the relevant record date. The amount
made available for distribution will be reduced by any amounts withheld by the
depositary or us on account of taxes.
In the event of a distribution other than in cash, the depositary will
distribute securities or property received by it to the record holders of
depositary shares in proportion to the numbers of depositary shares held on the
relevant record date, unless the depositary determines that it is not feasible
to make such distribution. In that case, the depositary may make the
distribution by such method as it deems equitable and practicable. One such
possible method is for the depositary to sell the securities or property and
then distribute the net proceeds from the sale as provided in the case of a cash
distribution.
WITHDRAWAL OF SHARES
Upon surrender of depositary receipts representing any number of whole
shares at the depositary's office, unless the related depositary shares
previously have been called for redemption, the holder of the depositary shares
evidenced by the depositary receipts will be entitled to delivery of the number
of whole shares of the related series of preferred shares and all money and
other property, if any, underlying such depositary shares. However, once such an
exchange is made, the preferred shares cannot thereafter be redeposited in
exchange for depositary shares. Holders of depositary shares will be entitled to
receive whole shares of the related series of preferred shares on the basis set
forth in the applicable prospectus supplement. If the depositary receipts
delivered by the holder evidence a number of depositary shares representing more
than the number of whole preferred shares of the related series to be withdrawn,
the depositary will deliver to the holder at the same time a new depositary
receipt evidencing the excess number of depositary shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever we redeem the preferred shares, the depositary will redeem a number
of depositary shares representing the same number of preferred shares so
redeemed. If fewer than all of the depositary shares are to be redeemed, the
depositary shares to be redeemed will be selected by lot, pro rata or by any
other equitable method as the depositary may determine.
VOTING OF UNDERLYING PREFERRED SHARES
Upon receipt of notice of any meeting at which the holders of the preferred
shares of any series are entitled to vote, the depositary will mail the
information contained in the notice of meeting to the record holders of the
depositary shares relating to that series of preferred shares. Each record
holder of the depositary shares on the record date will be entitled to instruct
the depositary as to the exercise of the voting rights represented by the number
of preferred shares underlying the holder's depositary
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shares. The depositary will endeavor, to the extent it is practical to do so, to
vote the number of whole preferred shares underlying such depositary shares in
accordance with such instructions. We will agree to take all action that the
depositary may deem reasonably necessary in order to enable the depositary to do
so. To the extent the depositary does not receive specific instructions from the
holders of depositary shares relating to such preferred shares, it will abstain
from voting such preferred shares.
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The form of depositary receipt evidencing the depositary shares and any
provision of the applicable deposit agreement may at any time be amended by
agreement between us and the depositary. We may, with the consent of the
depositary, amend the deposit agreement from time to time in any manner that we
desire. However, if the amendment would materially and adversely alter the
rights of the existing holders of depositary shares, the amendment would need to
be approved by the holders of at least a majority of the depositary shares then
outstanding.
The deposit agreement may be terminated by us or the depositary if:
- all outstanding depositary shares have been redeemed; or
- there has been a final distribution in respect of the preferred shares of
the applicable series in connection with our liquidation, dissolution or
winding up and such distribution has been made to the holders of
depositary receipts.
RESIGNATION AND REMOVAL OF DEPOSITARY
The depositary may resign at any time by delivering to us notice of its
election to do so. We may remove a depositary at any time. Any resignation or
removal will take effect upon the appointment of a successor depositary and its
acceptance of appointment.
CHARGES OF DEPOSITARY
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of any depositary arrangements. We will pay all
charges of each depositary in connection with the initial deposit of the
preferred shares of any series, the initial issuance of the depositary shares,
any redemption of such preferred shares and any withdrawals of such preferred
shares by holders of depositary shares. Holders of depositary shares will be
required to pay any other transfer taxes.
NOTICES
Each depositary will forward to the holders of the applicable depositary
shares all notices, reports and communications from us which are delivered to
such depositary and which we are required to furnish the holders of the
preferred shares.
LIMITATION OF LIABILITY
The deposit agreement contains provisions that limit our liability and the
liability of the depositary to the holders of depositary shares. Under the
deposit agreement, we and the depositary have no liability to the holders of the
depositary receipts other than for our negligence, willful misconduct or bad
faith. Both the depositary and we are also entitled to an indemnity from the
holders of the depositary shares prior to bringing, or defending against, any
legal proceeding. We or any depositary may rely upon written advice of counsel
or accountants, or information provided by persons presenting preferred shares
for deposit, holders of depositary shares or other persons believed by us or it
to be competent and on documents believed by us or them to be genuine.
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DESCRIPTION OF WARRANTS
We may issue warrants to purchase common shares, preferred shares or
depositary shares. We may issue warrants independently or together with any
other securities offered by any prospectus supplement and the warrants may be
attached to or separate from those securities. Each series of warrants will be
issued under a separate warrant agreement, to be entered into between us and a
warrant agent specified in a prospectus supplement. You should refer to the
exhibits to the registration statement for copies of the forms of warrant
agreements. See "Where You Can Find More Information". The warrant agent will
act solely as our agent in connection with the warrants of such series and will
not assume any obligation or relationship of agency or trust with any of the
holders of the warrants. The warrant agent will be specified in the applicable
prospectus supplement. We will set forth further terms of the warrants and the
applicable warrant agreements in the applicable prospectus supplement relating
to the issuance of any warrants.
The applicable prospectus supplement will describe the terms of the warrants
in respect of which this prospectus is being delivered including, where
applicable, the following:
- the title of the warrants;
- the aggregate number of the warrants;
- the number of common shares, preferred shares or depositary shares
purchasable upon exercise of the warrants;
- the designation and terms of the securities, if any, with which the
warrants are issued and the number of the warrants issued with each such
offered security;
- the date, if any, on and after which the warrants and the related common
shares, preferred shares or depositary shares will be separately
transferable;
- the price at which each common share, preferred share or depositary share
purchasable upon exercise of the warrants may be purchased;
- the date on which the right to exercise the warrants shall commence and
the date on which the right shall expire;
- the minimum or maximum amount of the warrants which may be exercised at
any one time;
- any circumstances that will cause the warrants to be deemed to be
automatically exercised; and
- any other material terms of the warrants.
The exercise of any warrants will be subject to and limited by the transfer
and ownership restrictions in our declaration of trust, which we have described
under "Description of Our Shares of Beneficial Interest--Restrictions on
Ownership and Transfer".
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations to us resulting from the treatment of us as a REIT. Squire,
Sanders & Dempsey L.L.P., as successor to Berick, Pearlman & Mills Co., L.P.A.,
has acted as our tax counsel in connection with the preparation of this
prospectus. This summary should not be construed as tax advice.
The statements in this summary are based on current provisions of the
Internal Revenue Code and the related Treasury Regulations and administrative
and judicial interpretations, all as of the date hereof, and all of which are
subject to change, possibly with retroactive effect. The provisions of the
Internal Revenue Code and the related Treasury Regulations and administrative
and judicial interpretations that concern REITs are highly technical and
complex, and this summary is qualified in its entirety by those Internal Revenue
Code provisions, Treasury Regulations, and administrative and judicial
interpretations. We can give no assurance that future legislative, judicial, or
administrative actions or decisions will not affect the accuracy of any
statements in this summary. In addition, we can give no assurance that we will
seek a ruling from the Internal Revenue Service with respect to any matter
discussed herein, or that the IRS or a court will agree with the statements made
herein.
This summary of material federal income tax considerations describes our tax
treatment as a REIT. The summary describes the complex technical requirements
which we must satisfy in order to qualify as a REIT. Our failure to meet those
requirements could result in our income becoming taxable in the same manner as
any regular C corporation (i.e. any corporation subject to full corporate-level
tax). The resulting tax liability to us if we failed to meet the REIT
requirements would have a significant adverse effect on an investment in the
securities. In addition, even if we do qualify as a REIT, various federal income
taxes may still be imposed on us as are described in the summary.
TAXATION OF THE TOWN AND COUNTRY TRUST
GENERAL.
We have elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code and the applicable Treasury Regulations, which together
set forth the requirements for qualifying as a REIT (the "REIT Requirements"),
beginning with our taxable year ended December 31, 1993. We believe that we are
organized, have operated and will continue to operate in a manner to qualify for
taxation as a REIT under the Internal Revenue Code. We can provide no assurance,
however, that we will continue to operate in a manner to remain qualified as a
REIT.
Subject to the qualifications described in this summary and stated in its
opinion, in the opinion of Squire, Sanders & Dempsey L.L.P., as successor to
Berick, Pearlman & Mills Co., L.P.A., we are organized in conformity with the
requirements for qualification as a REIT under the Internal Revenue Code, our
method of operation has enabled us to meet the requirements for qualification
and taxation as a REIT under the Internal Revenue Code and our proposed method
of operation will allow us to continue to meet such requirements. An opinion of
counsel is not binding on the IRS or a court and we can give no assurance that
the IRS or a court will not take a position different from that expressed by our
tax counsel. We also must emphasize that our tax counsel's opinion is based on
various assumptions and is conditioned upon numerous representations made by us
and The TC Operating Limited Partnership as to factual matters, including those
related to our and its businesses and properties as set forth in this
prospectus. Our tax counsel has not independently verified our representations.
Our qualification and taxation as a REIT also depend upon our ability to meet on
a continuing basis the actual operating results, distribution levels, diversity
of ownership and the various other qualification tests imposed by the Internal
Revenue Code as discussed below. Our tax counsel will not review our compliance
with these tests on a continuing basis.
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Accordingly, we can provide no assurance that the actual results of our
operations for any given taxable year will satisfy the REIT Requirements. See
"--Failure to Qualify", below.
REIT TAXATION.
For any taxable year in which we qualify for taxation as a REIT, we
generally will not be subject to federal corporate income tax on that portion of
our ordinary income or capital gain that is currently distributed to our
shareholders. The REIT provisions of the Internal Revenue Code generally allow a
REIT to deduct dividends paid to its shareholders in calculating its taxable
income. This deduction for dividends paid to shareholders substantially
eliminates the federal "double taxation" on earnings (once at the corporate
level and once again at the shareholder level) that generally results from an
investment in a corporation.
Even if we continue to qualify for taxation as a REIT, we may be subject to
federal income tax in the following circumstances:
- We will be taxed at regular corporate rates on any undistributed "REIT
taxable income" and undistributed net capital gains.
- In some circumstances, we may be subject to the corporate "alternative
minimum tax" on our items of tax preference, if any.
- If we have net income from the sale or other disposition of "foreclosure
property" which is held primarily for sale to customers in the ordinary
course of business or other nonqualifying income from foreclosure
property, we will be subject to tax on such income at the highest
regular corporate rate (currently 35%).
- If we have net income from prohibited transactions, such income will be
subject to a 100% tax. Prohibited transactions, in general, are sales or
other dispositions of property held primarily for sale to customers in
the ordinary course of business, other than foreclosure property.
- If we should fail to satisfy the 75% gross income test or the 95% gross
income test (as discussed below), but nonetheless maintain our
qualification as a REIT because we meet other requirements, we will be
subject to a 100% tax on the greater of the amount by which we fail the
75% or the 95% test, multiplied by a fraction intended to reflect our
profitability.
- If we should fail to distribute for each calendar year at least the sum
of:
- 85% of our REIT ordinary income for such year,
- 95% of our REIT capital gain net income for such year, and
- any undistributed taxable income from prior periods,
we will be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. However, to the extent
we elect to retain and pay income tax on net long-term capital gains we
received during the year, such amounts will be treated as having been
distributed for purposes of the 4% excise tax.
- If we acquire any asset from a C corporation in a transaction in which
the basis of the asset in our hands is determined by reference to the
basis of the asset (or any other property) in the hands of the C
corporation and we subsequently recognize gain on the disposition of
such asset during the ten-year period (the "Recognition Period")
beginning on the date on which the asset was acquired by us, then,
pursuant to guidelines issued by the IRS, we will be taxed on the amount
of our gain to the extent of the gain that would have been realized if
the C corporation had sold the asset on the last day before the date on
which we acquired the asset.
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Alternatively, we may elect, in lieu of the treatment described above,
to be subject to tax at the highest regular corporate tax rate on the
excess, if any, of:
- the fair market value of the asset as of the beginning of the
applicable Recognition Period, over
- our adjusted basis in such asset as of the beginning of such
Recognition Period (I.E., "built-in gain").
We also will be taxed on any recognized built-in gains during the
Recognition Period attributed to the disposition of assets of an acquired
corporation which is a "qualified REIT subsidiary." See "--Requirements for
REIT Qualification" and "--Qualified REIT Subsidiary".
We use the calendar year for both federal income tax purposes and financial
reporting purposes.
REQUIREMENTS FOR REIT QUALIFICATION.
To qualify as a REIT, we must have met and continue to meet the requirements
discussed below, relating to our organization, the sources of our gross income,
the nature of our assets, and the level of distributions to our shareholders.
ORGANIZATIONAL REQUIREMENTS.
The Internal Revenue Code requires that a REIT be a corporation, trust, or
association:
- which is managed by one or more trustees or directors;
- the beneficial ownership of which is evidenced by transferable shares or
by transferable certificates of beneficial interest;
- which would be taxable as a domestic corporation but for compliance with
the REIT requirements;
- which is neither a financial institution nor an insurance company under
the Internal Revenue Code;
- the beneficial ownership of which is held by 100 or more persons;
- which is not closely held (as described below) at any time during the
last half of each taxable year; and
- which meets other tests, described below, regarding the nature of its
income and assets and distribution requirements.
The Internal Revenue Code provides that the first four conditions above must
be met during the entire taxable year and that the fifth condition 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.
We have issued sufficient shares to enough holders to allow us to satisfy
the fifth condition set forth above (the "100 holder requirement"). For purposes
of determining ongoing compliance with the 100 holder requirement, Treasury
Regulations require us to issue letters to some shareholders demanding
information regarding the amount of shares each such shareholder actually or
constructively owns. Although any failure by us to comply with the shareholder
demand letters requirement should not jeopardize our REIT status, such failure
would subject us to financial penalties. We must maintain a list of those
shareholders failing or refusing to comply with this demand as part of our
records. A shareholder who fails or refuses to comply with the demand must
submit a statement with its tax return disclosing the actual ownership of the
shares and other information.
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As set forth in the sixth condition above, to qualify as a REIT we also must
satisfy the requirement set forth in Section 856(a)(6) of the Internal Revenue
Code that we not be closely held. We will not be closely held so long as at all
times during the last half of any of our taxable years not more than 50% in
value of our outstanding shares of beneficial interest is owned, directly or
constructively under the applicable attribution rules of the Internal Revenue
Code, by five or fewer individuals (as defined in the Internal Revenue Code to
include tax-exempt entities, other than, in general, qualified domestic pension
funds). This requirement is known as the "5/50 Rule".
Although our declaration of trust contains restrictions on the ownership and
transfer of the shares, the restrictions do not ensure that we will be able to
satisfy the 5/50 Rule. If we fail to satisfy the 5/50 Rule, our status as a REIT
will terminate and we will not be able to prevent such termination. However, for
taxable years beginning after 1997, if we comply with the procedures prescribed
in Treasury Regulations for issuing shareholder demand letters and do not know,
or with the exercise of reasonable diligence would not have known, that the 5/50
Rule was violated, the requirement that we not be closely held will be deemed to
be satisfied for the year. See "--Failure to Qualify", below.
OWNERSHIP OF A PARTNERSHIP INTEREST.
We are a general partner in the operating partnership. In the case of a REIT
that is a partner in a partnership, Treasury Regulations provide that the REIT
is deemed to own its proportionate share of the assets of the partnership
corresponding to the REIT's capital interest in the partnership and is deemed to
earn its proportionate share (based on the REIT's capital interest) of the
income of the partnership. In addition, the partnership's assets and gross
income retain the same character in the hands of the REIT for purposes of the
REIT Requirements, including satisfying the gross income tests and the asset
tests. Accordingly, our proportionate share of the assets, liabilities and items
of income of the operating partnership, including The TC Operating Limited
Partnership's proportionate share of the assets, liabilities and items of income
of each of its property-owning subsidiaries, to which we refer in this
prospectus as "property partnerships", are treated as our assets, liabilities
and items of income for purposes of applying the REIT Requirements, provided
that the operating partnership and each of the property partnerships are treated
as partnerships for federal income tax purposes.
QUALIFIED REIT SUBSIDIARY.
If a REIT owns a corporate subsidiary that is a "qualified REIT subsidiary"
within the meaning of section 856(i) of the Internal Revenue Code, that
subsidiary is disregarded for federal income tax purposes, and all assets,
liabilities, and items of income, deduction, and credit of the subsidiary are
treated as assets, liabilities and such items of the REIT itself. A "qualified
REIT subsidiary" is a corporation all of the capital stock of which is owned by
the REIT. If an existing corporation is acquired by a REIT and becomes a
"qualified REIT subsidiary" of such REIT, all of its pre-acquisition earnings
and profits must be distributed before the end of the REIT's taxable year. Our
wholly-owned corporate subsidiaries that act as a general partner in the
property partnerships are "qualified REIT subsidiaries" and thus all of such
subsidiary corporations' assets, liabilities, and items of income, deduction,
and credit will be treated as our assets, liabilities, and items of income,
deduction and credit.
INCOME TESTS.
To maintain our qualification as a REIT, we must satisfy two gross income
requirements annually. First, at least 75% of our gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived
directly or indirectly from investments relating to real property or mortgages
on real property (including "rents from real property" and, in some
circumstances, interest) or from some types of temporary investments. Second, at
least 95% of our gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real
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property investments and from dividends, interest, and gain from the sale or
disposition of stock or securities or from any combination of the foregoing.
Rents received by us will qualify as "rents from real property" in
satisfying the gross income requirements described above only if several
conditions are met:
- First, the amount of rent received or accrued with respect to any
property must not be based in whole or in part on the income or profits
derived by any person from such property, although 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 gross receipts or gross sales. Rents received from a
tenant that are based on the tenant's income from the property will not
be treated as rents based on income or profits and thus will not be
excluded from the term "rents from real property" if the tenant derives
substantially all of its income with respect to such property from the
leasing or subleasing of substantially all of such property, provided
that the tenant receives from subtenants only amounts that would be
treated as rents from real property if received directly by a REIT.
- Second, rents received from a tenant will not qualify as "rents from
real property" in satisfying the gross income tests if the REIT, or an
owner of 10% or more of the REIT, directly or constructively owns 10% or
more of such tenant.
- Third, if rent attributable to personal property, leased in connection
with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such
personal property will not qualify as "rents from real property."
- Finally, a REIT generally must not operate or manage the property or
furnish or render services to the tenants of such property, other than
through an "independent contractor" from whom the REIT derives no
income. However, we (or our affiliates) are permitted directly to
perform services that are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not
otherwise considered rendered for the convenience of the occupant of the
property. A DE MINIMIS exception allows a REIT to provide non-customary
services to its tenants and not disqualify all income received with
respect to that property as rents from real property so long as the
aggregate income derived by the REIT with respect to a particular
property that is attributable to the impermissible services performed
for any and all tenants at the property does not exceed 1.0% of the
gross income derived by the REIT with respect to that property. For
these purposes, the amount we receive that is attributable to
impermissible services may not be valued at less than 150% of our direct
cost of providing these services.
Substantially all of our gross income is attributable to investments in real
property and specifically to rents attributable to and gains from the
disposition of real property. We do not receive rents based on the net income or
profits of a tenant. Moreover, we do not receive rents in excess of a DE MINIMIS
amount from a related-party tenant. We also believe that the amounts of any rent
attributable to personal property leased in connection with a lease of real
property will not cause us to fail to satisfy the 95% gross income test.
If we fail to satisfy one or both of the 75% or the 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for such year if we
are entitled to relief under some provisions of the Internal Revenue Code. These
relief provisions generally will be available if:
- our failure to meet such test(s) was due to reasonable cause and not due
to willful neglect;
- we reported the nature and amount of each item of our income included in
the test(s) for such taxable year on a schedule attached to our tax
return; and
- any incorrect information on the schedule was not due to fraud with
intent to evade tax.
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It is not possible, however, to state whether, in all circumstances, we
would be entitled to the benefit of these relief provisions. For example, if we
fail to satisfy the gross income tests because nonqualifying income that we
intentionally earn exceeds the limits on such income, the IRS could conclude
that our failure to satisfy the tests was not due to reasonable cause. As
discussed above in "--REIT Taxation", even if these relief provisions apply, we
will still be subject to a 100% tax on the greater of the amount by which we
failed the 75% or the 95% test, multiplied by a fraction intended to reflect our
profitability. See "--Failure to Qualify", below.
ASSET TESTS.
At the close of each quarter of our taxable year, we also must satisfy three
tests relating to the nature of our assets.
- First, at least 75% of the value of our total assets, including our
allocable share of assets held by The TC Operating Limited Partnership,
must be represented by real estate assets, cash, cash items and U.S.
government securities. For this purpose, real estate assets include
stock or debt instruments purchased with proceeds of a stock offering or
a long-term (at least five years) debt offering made by us, but only
during a one-year period beginning on the date we receive such proceeds.
- Second, not more than 25% of our total assets may be represented by
securities other than those in the 75% asset class.
- Third, of the investments included in the 25% asset class, the value of
any one issuer's securities owned by us may not exceed 5% of the value
of our total assets, and we may not own more than 10% of any one
issuer's outstanding voting securities.
By virtue of our partnership interest in the operating partnership, we will
be deemed for purposes of these three asset tests to own our pro rata share of
the assets of the operating partnership.
After initially meeting the asset tests at the close of any quarter, we will
not lose our status as a REIT for failure to satisfy any of the asset tests at
the end of a later quarter solely by reason of changes in asset values. If the
failure to satisfy the asset tests results from an acquisition of securities or
other property during a quarter, the failure can be cured by disposition of
sufficient nonqualifying assets within 30 days after the close of that quarter.
ANNUAL DISTRIBUTION REQUIREMENTS.
To continue to qualify as a REIT, we are required to distribute dividends
(other than capital gain dividends) to our shareholders each year in an amount
at least equal to:
- the sum of (A) 95% of our "REIT taxable income" (computed without regard
to the dividends paid deduction and our net capital gain) plus (B) 95% of
the net income (after tax), if any, from foreclosure property, minus
- the sum of items of non-cash income.
We must pay such distributions in the taxable year to which they relate, or
in the following taxable year if declared before we timely file our tax return
for such year and if paid on or before the first regular dividend payment after
such declaration. A distribution which is not pro rata within a class of
beneficial interest entitled to a dividend or which is not consistent with the
rights to distributions between classes of beneficial interest (a "preferential
dividend") is not taken into consideration for the purpose of meeting the
distribution requirement and is not eligible for the dividends paid deduction.
Accordingly, the payment of a preferential dividend could affect our ability to
meet this distribution requirement.
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To the extent that we do not distribute all of our net capital gain or
distribute at least 95%, but less than 100%, of our "REIT taxable income," as
adjusted, we will be subject to tax on the undistributed amount at regular
corporate capital gains or ordinary corporate tax rates, as the case may be.
Furthermore, if we should fail to distribute for each calendar year at least the
sum of (A) 85% of our REIT ordinary income for such year, (B) 95% of our REIT
capital gain net income for such year, plus (C) any undistributed taxable income
from prior periods, we will be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. However, to the
extent we elect to retain and pay income tax on net long-term capital gains we
received during the year such amounts will be treated as having been distributed
for purposes of the 4% excise tax.
We have and intend to continue to make timely distributions sufficient to
satisfy all of the annual distribution requirements. We anticipate that we
generally will have sufficient cash or liquid assets to enable us to satisfy
these distribution requirements. It is possible that, from time to time, we may
not have sufficient cash or other liquid assets to meet the 95% distribution
requirement due to the insufficiency of cash flow in a particular year or to
timing differences between the actual receipt of income and actual payment of
deductible expenses, on the one hand, and the inclusion of such income and
deduction of such expenses in computing our "REIT taxable income," on the other
hand. In the event that an insufficiency or timing differences occur, in order
to meet the 95% distribution requirement, we may find it necessary to borrow
funds or to liquidate assets, or to cause the operating partnership to do so.
If we fail to meet the 95% distribution requirement as a result of an
adjustment to our tax return by the IRS upon audit, we may cure the failure
retroactively by paying "deficiency dividends" to our shareholders in a later
year, which may then be included in our deduction for dividends paid for the
earlier year. We may thus be able to avoid being taxed on amounts distributed as
deficiency dividends; however, we will be required to pay interest to the IRS
based upon the amount of any deduction taken for deficiency dividends.
PENALTY TAX ON PROHIBITED TRANSACTIONS.
Our share of any gain realized on the sale of any property held as inventory
or otherwise primarily for sale to customers in the ordinary course of our trade
or business generally will be treated as income from a prohibited transaction
that is subject to a 100% penalty tax. Under existing law, whether property is
held as inventory or primarily for sale to customers in the ordinary course of a
trade or business is a question of fact that depends on all the facts and
circumstances of a particular transaction. We intend to hold our properties for
investment with a view to long-term appreciation, to engage in the business of
acquiring, owning and operating the properties and to make such occasional sales
of the properties as are consistent with our investment objectives. Based upon
those investment objectives, we believe that in general our properties should
not be considered inventory or other property held primarily for sale to
customers in the ordinary course of a trade or business and that the amount of
income from prohibited transactions, if any, will not be material.
FAILURE TO QUALIFY.
If we fail to qualify for taxation as a REIT in any taxable year and the
relief provisions do not apply, we will be subject to tax (including any
applicable alternative minimum tax) on our taxable income at regular corporate
rates. Distributions to shareholders in any year in which we fail to qualify as
a REIT will not be required and, if made, will not be deductible by us. As a
result, our failure to qualify as a REIT will reduce the cash available for
distribution by us to our shareholders. In addition, if we fail to qualify as a
REIT, all distributions to our shareholders will be taxable as ordinary dividend
income to the extent of our then-current and accumulated earnings and profits,
and, subject to limitations in the Internal Revenue Code, corporate shareholders
may be eligible for the dividends-received deduction. Unless entitled to relief
under specific statutory provisions, we also will be
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ineligible for qualification as a REIT during the four taxable years following
the year during which qualification was lost. We cannot determine whether we
would be entitled to such statutory relief in all circumstances.
TAXATION OF OUR SECURITYHOLDERS.
Any material federal income tax considerations relating to a particular
offering of securities covered by this prospectus will be described in the
applicable prospectus supplement.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX CONSIDERATIONS.
Prospective holders should recognize that our present federal income tax
treatment may be modified by future legislative, judicial or administrative
actions or decisions at any time, which may be retroactive in effect, and, as a
result, any such action or decision may affect investments and commitments
previously made. The rules dealing with federal income taxation are constantly
under review, resulting in statutory changes as well as new, or revisions to
existing, regulations and revised interpretations of established concepts. We
can make no prediction as to the likelihood of passage of any new tax
legislation or other provisions either directly or indirectly affecting us or
our securityholders.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP, AND SALE OF THE SECURITIES OFFERED BY THIS PROSPECTUS AND OF OUR
ELECTION TO BE TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN,
AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE, AND ELECTION AND
OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
PLAN OF DISTRIBUTION
We may sell securities:
- to or through underwriting syndicates represented by managing
underwriters;
- through one or more underwriters without a syndicate for them to offer and
sell to the public;
- through dealers or agents; and
- to investors directly in negotiated sales or in competitively bid
transactions.
Any underwriter or agent involved in the offer and sale of any issuance of
securities will be named in the prospectus supplement.
The prospectus supplement for each offering of securities will specify:
- the terms of the offering of those securities, including the name of the
agent or the name or names of any underwriters;
- the public offering or purchase price;
- any discounts and commissions to be allowed or paid to the agent or
underwriters and all other items constituting underwriting compensation;
- any discounts and commissions to be allowed or paid to dealers; and
- other specific terms of the particular securities.
Only the agents or underwriters named in a prospectus supplement are agents
or underwriters in connection with the securities being offered by that
prospectus supplement.
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Underwriters, agents and dealers may be entitled, under agreements with Town
and Country, to indemnification against certain civil liabilities, including
liabilities under the Securities Act of 1933.
Underwriters to whom securities are sold by Town and Country for public
offering and sale are obliged to purchase all of those particular securities if
any are purchased. This obligation is subject to certain conditions and may be
modified in the applicable prospectus supplement.
The common shares are listed on the NYSE under the symbol "TCT". Any other
securities offered by a prospectus supplement will be a new issue of securities
and will not have an established trading market. Unless otherwise indicated in
the applicable prospectus supplement, Town and Country will not list any of
these other securities on an exchange. No assurance can be given that you will
be able to resell any of these other securities that you may purchase.
Underwriters, dealers or agents may engage in transactions with, or perform
services for, Town and Country or its affiliates in the ordinary course of
business.
VALIDITY OF THE SECURITIES
Certain legal matters in connection with the validity of the securities
offered hereby will be passed upon for us by Squire, Sanders & Dempsey L.L.P.,
Cleveland, Ohio, as successor to Berick, Pearlman & Mills Co., L.P.A.,
Cleveland, Ohio. Legal matters relating to Maryland law, including the validity
of the issuance of any common shares or preferred shares offered hereby, will be
passed upon for us by Venable, Baetjer and Howard, LLP, Baltimore, Maryland. In
addition, the description of federal income tax considerations contained in this
prospectus under "Material Federal Income Tax Considerations" is, to the extent
that it constitutes matters of law, summaries of legal matters or legal
conclusions, the opinion of Squire, Sanders & Dempsey L.L.P., Cleveland, Ohio,
as successor to Berick, Pearlman & Mills Co., L.P.A., our special tax counsel.
The validity of the securities offered by this prospectus and the accompanying
prospectus supplement will be passed upon for any underwriters, dealers or
agents by Sullivan & Cromwell, New York, New York. Sullivan & Cromwell will rely
as to all matters of Maryland law upon the opinion of Venable, Baetjer and
Howard, LLP. James H. Berick, a partner of Squire, Sanders & Dempsey L.L.P., is
a member of our Board of Trustees. Daniel G. Berick, a partner of Squire,
Sanders & Dempsey L.L.P., is our Secretary (but not an executive officer).
Certain partners and associates of Squire, Sanders & Dempsey L.L.P. owned 9,500
common shares of Town and Country as of January 12, 2000. Sullivan & Cromwell
from time to time have performed legal services for Mr. Lerner and certain of
his affiliates.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K for
the year ended December 31, 1998, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement.
Ernst & Young LLP have also audited the historical statements of revenues
and certain expenses included in our Current Report on Form 8-K for the year
ended December 31, 1997, as set forth in their reports for The Fairington,
Windermere Lakes, and Twelve Oaks, and for the year ended December 31, 1998, as
set forth in their reports for Colonial Grand at Kirkman, Heron's Run, McIntosh,
and Perico which are incorporated by reference in this prospectus and elsewhere
in the registration statement. Our financial statements, financial statement
schedule, and historical statements of revenue and certain expenses are
incorporated by reference in reliance on Ernst & Young LLP's reports, given on
their authority as experts in accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may inspect and copy such reports, proxy
statements and other information at the public reference facilities maintained
by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W, Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information. Such
material can also be obtained from the SEC's worldwide web site at http://
www.sec.gov. Our common shares are listed on the NYSE under the symbol "TCT" and
all such reports, proxy statements and other information filed by us with the
NYSE may be inspected at the NYSE's offices at 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3, of which this prospectus
is a part, covering the securities offered hereby. As allowed by SEC rules, this
prospectus does not contain all the information set forth in the registration
statement and the exhibits, financial statements and schedules thereto. We refer
you to the registration statement, the exhibits, financial statements and
schedules thereto for further information. This prospectus is qualified in its
entirety by such other information.
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this prospectus, and later
information that we file with the SEC will automatically update and supersede
this information as well as the information included in this prospectus. We have
filed the documents listed below with the SEC under the Securities Exchange Act
of 1934, as amended, which is commonly referred to us the "Exchange Act", and
these documents are incorporated herein by reference:
a. Our Annual Report on Form 10-K for the year ended December 31, 1998;
b. Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999, June 30, 1999 and September 30, 1999;
c. Our Current Report on Form 8-K filed December 29, 1999; and
d. The description of our common shares contained in our Registration
Statement on Form 8-A.
Any documents we file 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 of the securities to which this prospectus relates
automatically will be deemed to be incorporated by reference in this prospectus
and to be part hereof from the date of filing such documents.
Any party to whom this prospectus is delivered, including a holder in street
name, may request a copy of these filings (other than any exhibits unless
specifically incorporated by reference into this prospectus), at no cost, by
writing or telephoning us at the following address: Secretary, at The Town and
Country Trust, 100 South Charles Street, Suite 1700, Baltimore, Maryland, 21201,
telephone number (410) 539-7600.
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