<PAGE>
Pursuant to Rule 424(b)(2)
Registration No. 333-18259
PROSPECTUS SUPPLEMENT
(To Prospectus dated January 8, 1997)
LOGO
1,700,000 Shares
Colonial Properties Trust
COMMON SHARES
----------------
COLONIAL PROPERTIES TRUST (THE "COMPANY"), A REAL ESTATE INVESTMENT TRUST (A
"REIT"), IS ONE OF THE LARGEST DEVELOPERS, OWNERS AND OPERATORS OF MULTIFAMILY,
RETAIL AND OFFICE PROPERTIES IN THE SOUTHEASTERN UNITED STATES. IT IS A FULLY-
INTEGRATED REAL ESTATE COMPANY WHOSE ACTIVITIES INCLUDE OWNERSHIP OF A
DIVERSIFIED PORTFOLIO OF 81 PROPERTIES LOCATED IN ALABAMA, FLORIDA, GEORGIA AND
SOUTH CAROLINA, DEVELOPMENT OF NEW PROPERTIES, ACQUISITIONS OF EXISTING
PROPERTIES AND BUILD-TO-SUIT DEVELOPMENT.
----------------
ALL OF THE COMMON SHARES OF BENEFICIAL INTEREST, PAR VALUE $.01 PER SHARE (THE
"COMMON SHARES"), OFFERED HEREBY ARE BEING OFFERED BY THE COMPANY. THE COMMON
SHARES ARE LISTED ON THE NEW YORK STOCK EXCHANGE (THE "NYSE") UNDER THE SYMBOL
"CLP." THE REPORTED LAST SALE PRICE OF THE COMMON SHARES ON THE NYSE ON JULY 24,
1997 WAS $30 15/16.
----------------
OWNERSHIP OF MORE THAN 5% OF THE COMMON SHARES IS RESTRICTED IN ORDER TO
PRESERVE THE COMPANY'S STATUS AS A REIT FOR FEDERAL INCOME TAX PURPOSES. SEE
"DESCRIPTION OF COMMON SHARES OF BENEFICIAL INTEREST--RESTRICTIONS ON TRANSFER"
IN THE ACCOMPANYING PROSPECTUS.
----------------
SEE "RISK FACTORS" BEGINNING AT PAGE 3 OF THE ACCOMPANYING PROSPECTUS FOR
CERTAIN FACTORS RELATING TO AN INVESTMENT IN THE COMMON SHARES.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
PRICE $30 15/16 A SHARE
----------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
-------- --------------- -----------
<S> <C> <C> <C>
Per Share............................... $30.9375 $1.6375 $29.3000
Total (3)............................... $52,593,750 $2,783,750 $49,810,000
</TABLE>
- --------
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriter."
(2) Before deducting expenses estimated as $95,000 payable by the Company.
(3) The Company has granted the Underwriter an option, exercisable within
30 days from the date hereof, to purchase up to 255,000 additional
Common Shares at the Price to Public, less the Underwriting Discounts
and Commissions, for the purpose of covering over-allotments, if any.
If the Underwriter exercises such option in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $60,482,812.50, $3,201,312.50 and $57,281,500.00, respectively.
See "Underwriter."
----------------
The Common Shares are offered, subject to prior sale, when, as and if
accepted by the Underwriter and subject to approval of certain legal matters
by Brown & Wood LLP, counsel for the Underwriter. It is expected that delivery
of the Common Shares will be made on or about July 30, 1997 at the offices of
Morgan Stanley & Co. Incorporated, New York, New York against payment therefor
in immediately available funds.
----------------
MORGAN STANLEY DEAN WITTER
July 24, 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES.
SPECIFICALLY, THE UNDERWRITER MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, COMMON SHARES IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITER."
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER
SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR IN THE
ACCOMPANYING PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PROSPECTUS SUPPLEMENT
<S> <C>
The Company.............................................................. S-3
Recent Developments...................................................... S-3
Use of Proceeds.......................................................... S-4
Price Range of Common Shares and Distribution History.................... S-4
Underwriter.............................................................. S-5
Safe Harbor Statement under the Private Securities Litigation Reform Act
of 1995................................................................. S-6
Legal Matters............................................................ S-6
PROSPECTUS
The Company.............................................................. 2
Risk Factors............................................................. 3
Use of Proceeds.......................................................... 7
Ratios of Earnings to Fixed Charges...................................... 7
Description of Debt Securities........................................... 7
Description of Preferred Shares of Beneficial Interest................... 19
Description of Common Shares of Beneficial Interest...................... 24
Description of Common Share Warrants..................................... 27
Federal Income Tax Considerations........................................ 27
Plan of Distribution..................................................... 34
Available Information.................................................... 35
Incorporation of Certain Documents by Reference.......................... 35
Legal Matters............................................................ 36
Experts.................................................................. 36
</TABLE>
S-2
<PAGE>
The following information contained in this Prospectus Supplement is
qualified in its entirety by the detailed information appearing elsewhere in
this Prospectus Supplement or the accompanying Prospectus or incorporated
therein by reference. As used herein, the term "Company" includes Colonial
Properties Trust, an Alabama real estate investment trust, and one or more of
its subsidiaries (including Colonial Properties Holding Company, Inc.,
Colonial Realty Limited Partnership (the "Operating Partnership"), Colonial
Properties Services Limited Partnership and Colonial Properties Services,
Inc.) or, as the context may require, Colonial Properties Trust only or the
Operating Partnership only.
THE COMPANY
The Company is one of the largest developers, owners and operators of
multifamily, retail and office properties in the Southeastern United States.
The Company's Common Shares are traded on the New York Stock Exchange ("NYSE")
under the symbol "CLP." The Company is a fully-integrated real estate company
whose activities include, as of July 24, 1997, ownership of a diversified
portfolio of 81 properties located in Alabama, Florida, Georgia and South
Carolina (the "Properties"), development of new properties, acquisitions of
existing properties and build-to-suit development. The Company is a self-
administered equity real estate investment trust ("REIT") whose real estate
holdings presently include more than 14,000 apartment units, 7.1 million
square feet of retail shopping space, and 1.5 million square feet of leasable
office space.
The Company, through Colonial Properties Holding Company, Inc., a wholly
owned subsidiary ("CPHC"), is the sole general partner of, and, as of July 24,
1997, holds approximately 69.1% of the interests in, the Operating
Partnership. The Operating Partnership owns all of the Properties (or
interests therein). The Company conducts all of its business through CPHC, the
Operating Partnership and the Company's two management subsidiaries, Colonial
Properties Services Limited Partnership, which provides management services
for the Company's Properties, and Colonial Properties Services, Inc., which
provides management services for properties owned by third parties. As sole
general partner of the Operating Partnership, the Company, through CPHC, has
the exclusive power to manage and conduct the business of the Operating
Partnership, subject to certain limited exceptions.
The Company is an Alabama REIT that was formed in July 1993. The principal
executive offices of the Company are located at 2101 Sixth Avenue North, Suite
750, Birmingham, Alabama 35203, and its telephone number is (205) 250-8700.
RECENT DEVELOPMENTS
SECURITIES ISSUANCE
On July 22, 1997, the Company, through the Operating Partnership, publicly
offered an aggregate of $75 million principal amount of unsecured debt
securities under its medium term notes program. The offering of the debt
securities is expected to close on July 25, 1997. The debt securities will
mature in July 2004, bear a coupon rate of 6.96% (which equates to a spread of
75 basis points over the seven-year Treasury), and pay an effective rate of
7.14%. The Company intends to use the net proceeds of the offering of these
debt securities to repay a portion of the outstanding balance under its line
of credit. See "--Unsecured Credit Facility" below.
UNSECURED CREDIT FACILITY
On July 10, 1997, the Company increased its borrowing capacity under its
revolving credit facility from $125 million to $200 million. The Company
entered into a new credit facility with a group of banks led by SouthTrust
Bank, N.A. and including AmSouth Bank of Alabama, Wells Fargo Bank, N.A.,
Wachovia Bank of Georgia, N.A., PNC Bank, Ohio, N.A. and First National Bank
of Commerce, N.A. The credit facility, which is used by the Company primarily
to finance additional property investments, includes a line of credit that
bears interest at 110 basis points above LIBOR.
S-3
<PAGE>
The line of credit is renewable annually and provides for a two-year
amortization in the case of non-renewal. The new credit facility includes a
competitive bid feature which will allow the Company to convert substantial
borrowings under the line of credit to a fixed rate, for a fixed term not to
exceed 90 days. As of July 24, 1997, the Company had approximately $191.6
million outstanding under this line of credit. Upon the application of the net
proceeds from the sale of the Common Shares offered hereby (see "Use of
Proceeds") and the net proceeds from the sale of the debt securities described
in "--Securities Issuance" above, the Company expects to have approximately
$67.2 million outstanding under its line of credit.
SECOND QUARTER 1997 RESULTS
For the quarter ended June 30, 1997, the Company reported net income of $7.1
million, representing an increase of 20.3% when compared to net income of $5.9
million for the same quarter in 1996. Net income for the six months ended June
30, 1997 was $14.0 million, representing a 21.7% increase over net income of
$11.5 million for the comparable period in 1996. Revenues for the three and
six months ended June 30, 1997 amounted to $42.8 million and $82.0 million,
respectively, representing increases of 34.6% and 33.6%, respectively, over
revenues of $31.8 million and $61.4 million, respectively, for the comparable
periods in 1996. Earnings per share increased by 8.8%, to $.37, for the second
quarter of 1997 as compared to $.34 for the second quarter of 1996. Earnings
per share for the six months ended June 30, 1997 increased by 10.5%, to $.74,
from $.67 for the six months ended June 30, 1996.
USE OF PROCEEDS
The net proceeds to the Company (after deducting expenses payable by the
Company) from the sale of the Common Shares offered hereby are estimated to be
approximately $49.7 million ($57.2 million if the Underwriter's over-allotment
option is exercised in full). The Company intends to use the net proceeds to
repay a portion of the outstanding balance under the Company's line of credit.
Pending such use, the net proceeds may be invested in short-term, income-
producing investments such as commercial paper, government securities or money
market funds that invest in government securities.
PRICE RANGE OF COMMON SHARES AND DISTRIBUTION HISTORY
The Common Shares are traded on the NYSE under the symbol "CLP." As of
January 24, 1997, the Company's transfer agent reported 341 record holders of
Common Shares. The reported last sale price for the Common Shares on the NYSE
on July 24, 1997 was $30 15/16 per share. The following table sets forth the
high and low sales prices per Common Share for the periods indicated as
reported on the NYSE and the distributions per share declared by the Company
with respect to the periods noted.
<TABLE>
<CAPTION>
HIGH LOW DISTRIBUTION
1995 ---- --- ------------
<S> <C> <C> <C>
First Quarter................................. $23 1/4 $22 1/4 $.475
Second Quarter................................ 23 3/4 22 1/8 .475
Third Quarter................................. 25 1/2 22 3/4 .475
Fourth Quarter................................ 26 1/8 22 3/4 .475
1996
First Quarter................................. 26 23 .500
Second Quarter................................ 24 3/4 22 .500
Third Quarter................................. 26 1/4 23 3/4 .500
Fourth Quarter................................ 30 3/8 25 7/8 .500
1997
First Quarter................................. 31 7/8 28 1/8 .520
Second Quarter................................ 30 1/8 26 5/8 .520
Third Quarter (through July 24, 1997)......... 30 3/8 29 1/4 .520
</TABLE>
S-4
<PAGE>
On July 24, 1997, the Company's Board of Trustees approved a distribution of
$.52 per share for the quarter ended June 30, 1997, payable on August 11, 1997
to shareholders of record as of August 4, 1997. If the purchasers in this
offering continue to hold the Common Shares offered hereby through August 4,
1997, such purchasers will be entitled to receive the distribution approved by
the Board of Trustees on July 24, 1997. The Company's current indicated
annualized distribution is $2.08 per Common Share. The Company has made
consecutive quarterly distributions since its initial public offering and has
increased its annual distribution in each subsequent year. A portion of the
Company's distribution may represent a non-taxable return of capital and/or a
capital gain dividend. Approximately 25% of the 1996 distribution of $2.00 per
Common Share was a non-taxable return of capital. There were no capital gain
dividends in 1996. The Company's ability to make distributions depends on a
number of factors, including its net cash provided by operating activities,
capital commitments and debt repayment schedules.
Holders of Common Shares are entitled to receive distributions when, as and
if declared by the Board of Trustees out of any funds legally available for
that purpose. The Company, as a REIT, is required to distribute annually to
its shareholders at least 95% of its "real estate investment trust taxable
income," which, as defined by the relevant tax statutes and regulations, is
generally equivalent to net taxable ordinary income. See "Federal Income Tax
Considerations--Taxation of the Company" in the accompanying Prospectus.
UNDERWRITER
Under the terms and subject to the conditions set forth in the underwriting
agreement dated the date hereof (the "Underwriting Agreement"), between Morgan
Stanley & Co. Incorporated (the "Underwriter") and the Company, the
Underwriter has agreed to purchase and the Company has agreed to sell to the
Underwriter 1,700,000 Common Shares at the price set forth on the cover page
of this Prospectus Supplement.
The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of the Common Shares offered hereby is subject
to the approval of certain legal matters by counsel for the Underwriter and to
certain other conditions. The Underwriter is obligated to take and pay for all
of the Common Shares offered hereby (other than those covered by the
Underwriter's over-allotment option described below) if any such shares are
taken.
The Underwriter has advised the Company that it initially proposes to offer
part of the Common Shares offered hereby to the public at the public offering
price set forth on the cover page hereof and part to certain dealers at a
price that represents a concession not in excess of $.82 a share under the
public offering price. After the initial offering of the Common Shares offered
hereby, the offering price and other selling terms may from time to time be
varied by the Underwriter.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriter an option, exercisable for 30 days from the date of this
Prospectus Supplement, to purchase up to 255,000 additional Common Shares at
the public offering price set forth on the cover page hereof, less the sum of
the underwriting discounts and commissions and an amount equal to the
distribution per share declared by the Company and payable with respect to the
1,700,000 Common Shares offered hereby but not payable with respect to the
Common Shares issued upon exercise of such option. The Underwriter may
exercise such option to purchase solely for the purpose of covering over-
allotments, if any, made in connection with the offering.
The Common Shares are listed on the NYSE under the symbol "CLP."
In order to facilitate the offering of the Common Shares, the Underwriter
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Shares. Specifically, the Underwriter may over-allot in
connection with the offering, creating a short position in the Common Shares
for its own account. In
S-5
<PAGE>
addition, to cover over-allotments or to stabilize the price of the Common
Shares, the Underwriter may bid for, and purchase, Common Shares in the open
market. Finally, the Underwriter may reclaim selling concessions allowed to a
dealer for distributing the Common Shares in the offering, if the Underwriter
repurchases previously distributed Common Shares in transactions to cover
short positions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Common Shares
above independent market levels. The Underwriter is not required to engage in
these activities and may end any of these activities at any time.
The Company and certain of its executive officers have agreed that, until 90
days from the date of this Prospectus Supplement, they will not (subject to
certain exceptions), without the prior written consent of the Underwriter,
sell, offer to sell, issue, distribute or otherwise dispose of any of their
equity securities, sell or grant options, rights or warrants with respect to
any of their equity securities, or register for sale under the Securities Act
of 1933, as amended, any of their equity securities.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Certain statements set forth herein or incorporated by reference herein from
the Company's filings under the Securities Exchange Act of 1934, as amended
(see "Incorporation of Certain Documents by Reference" in the accompanying
Prospectus), contain forward-looking statements, including, without
limitation, statements relating to the timing and anticipated capital
expenditures of the Company's acquisition and development programs. Although
the Company believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, the actual results may differ
materially from that set forth in the forward-looking statements. Certain
factors that might cause such difference include general economic conditions,
local real estate conditions, construction delays due to the unavailability of
construction materials, weather conditions or other delays beyond the control
of the Company. Consequently, such forward-looking statements should be
regarded solely as reflections of the Company's current operating, acquisition
and development plans and estimates. These plans and estimates are subject to
revision from time to time as additional information becomes available, and
actual results may differ from those indicated in the referenced statements.
LEGAL MATTERS
The validity of the issuance of the Common Shares pursuant to this
Prospectus Supplement will be passed upon for the Company by Hogan & Hartson
L.L.P., Washington, D.C. Certain legal matters will be passed upon for the
Underwriter by Brown & Wood LLP, New York, New York.
S-6
<PAGE>
PROSPECTUS
$250,000,000
COLONIAL PROPERTIES TRUST
DEBT SECURITIES, PREFERRED SHARES, COMMON SHARES AND COMMON SHARE WARRANTS
----------------
Colonial Properties Trust (the "Company") may from time to time offer in one
or more series of (i) unsecured debt securities ("Debt Securities"), (ii)
preferred shares of beneficial interest ("Preferred Shares"), (iii) common
shares of beneficial interest, $.01 par value ("Common Shares"), and (iv)
warrants exercisable for Common Shares ("Common Share Warrants"), with an
aggregate public offering price of up to $250,000,000 (or its equivalent based
on the exchange rate at the time of sale) in amounts, at prices and on terms
to be determined at the time of offering. The Debt Securities, Preferred
Shares, Common Shares and Common Share Warrants (collectively, the
"Securities") may be offered, separately or together, in separate series in
amounts, at prices and on terms to be described in one or more supplements to
this Prospectus (a "Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Debt Securities, the
specific title, aggregate principal amount, currency, form (which may be
registered or bearer, or certificated or global), authorized denominations,
maturity, rate (or manner of calculation thereof) and time of payment of
interest, any terms for redemption at the option of the Company or repayment
at the option of the holder, any terms for any sinking fund payments, any
terms for conversion into Preferred Shares or Common Shares of the Company,
covenants and any initial public offering price; (ii) in the case of Preferred
Shares, the specific title and stated value, any dividend, liquidation,
redemption, conversion, voting and other rights, and any initial public
offering price; (iii) in the case of Common Shares, any initial public
offering price or, if applicable, information regarding the exchange of units
of partnership interest ("Units") of Colonial Realty Limited Partnership for
Common Shares; and (iv) in the case of Common Share Warrants, the specific
title and aggregate number, and the issue price and the exercise price. In
addition, such specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Securities, in each case as may
be appropriate to preserve the status of the Company as a real estate
investment trust for federal income tax purposes.
The applicable Prospectus Supplement also will contain information, where
applicable, about certain U.S. federal income tax considerations relating to,
and any listing on a securities exchange of, the Securities covered by such
Prospectus Supplement.
The Securities may be offered directly, through agents designated from time
to time by the Company, or to or through underwriters or dealers. If any
agents or underwriters are involved in the sale of any of the Securities,
their names, and any applicable purchase price, fee, commission or discount
arrangement with, between or among them, will be set forth, or will be
calculable from the information set forth, in an accompanying Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of a Prospectus Supplement describing the method and terms of the
offering of such Securities.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS FOR CERTAIN
FACTORS RELATING TO AN INVESTMENT IN THE SECURITIES.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
----------------
The date of this Prospectus is January 8, 1997.
<PAGE>
As used herein, the term "Company" includes Colonial Properties Trust, an
Alabama real estate investment trust, and one or more of its subsidiaries
(including Colonial Properties Holding Company, Inc., Colonial Realty Limited
Partnership, Colonial Properties Services Limited Partnership and Colonial
Properties Services, Inc.) or, as the context may require, Colonial Properties
Trust only or Colonial Realty Limited Partnership only.
THE COMPANY
The Company is one of the largest developers, owners and operators of
multifamily, retail and office properties in the Southeastern United States.
The Company's common shares are traded on the New York Stock Exchange ("NYSE")
under the symbol "CLP." It is a fully-integrated real estate company, whose
activities include ownership of a diversified portfolio of 71 properties
located in Alabama, Florida, Georgia and South Carolina, development of new
properties, acquisitions of existing properties and build-to-suit development.
The Company is a self-administered equity real estate investment trust
("REIT") that owns 40 garden-style multifamily apartment communities
containing a total of 13,657 apartment units (the "Multifamily Properties"),
21 retail properties (including five regional malls, two "power centers" and
14 neighborhood shopping centers) containing a total of approximately 5.7
million square feet of retail space (the "Retail Properties"), ten office
properties containing a total of approximately 1.0 million square feet of
office space (the "Office Properties") and parcels of land adjacent to certain
of these properties (the "Land"). (The Multifamily Properties, the Retail
Properties, the Office Properties and the Land are referred to collectively as
the "Properties"). The Company also is expanding four Multifamily Properties
and two Retail Properties and is developing four new multifamily properties.
The Company, through Colonial Properties Holding Company, Inc., a wholly
owned subsidiary ("CPHC"), is the sole general partner of, and, as of December
1, 1996, holds approximately 67.7% of the interests in, Colonial Realty
Limited Partnership, a Delaware limited partnership (the "Operating
Partnership"). The Operating Partnership owns all of the Properties (or
interests therein). The Company conducts all of its business through CPHC, the
Operating Partnership and the Company's two management subsidiaries, Colonial
Properties Services Limited Partnership (the "Management Partnership"), which
provides management services for the Company's properties, and Colonial
Properties Services, Inc. (the "Management Corporation"), which provides
management services for properties owned by third parties. As sole general
partner of the Operating Partnership, the Company, through CPHC, has the
exclusive power to manage and conduct the business of the Operating
Partnership, subject to certain limited exceptions.
Since the Company's initial public offering in September 1993 (the "IPO"),
the Company has significantly expanded its portfolio of Properties and its
operating businesses. The Company has acquired direct or indirect interests in
24 additional Multifamily Properties, twelve additional Retail Properties
(while disposing of a 36,000 square foot mini-warehouse storage facility
previously included as a Retail Property) and several additional parcels of
Land. The Company also has completed the expansion of three Multifamily
Properties, has initiated or is planning the expansion or development of six
additional Multifamily Properties, and has initiated major expansions of Macon
Mall and Montgomery Promenade. The Company's acquisitions and its expansion
and development activities have increased the Company's presence in Alabama,
Florida and Georgia, and the Company has expanded its operations into South
Carolina through the acquisition of a 488,000 square foot regional mall
located in Myrtle Beach.
The Company's experienced staff of approximately 570 employees provides a
full range of real estate services from its headquarters in Birmingham,
Alabama and from five regional offices located in the Mobile, Huntsville and
Montgomery, Alabama and Orlando and Tampa, Florida metropolitan areas.
The Company is an Alabama REIT that was formed in July 1993. The principal
executive offices of the Company are located at 2101 Sixth Avenue North, Suite
750, Birmingham, Alabama 35203, and its telephone number is (205) 250-8700.
2
<PAGE>
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below.
REAL ESTATE INVESTMENT RISKS
General. Real property investments are subject to varying degrees of risk.
The yields available from equity investments in real estate and the Company's
ability to service debt will depend in large part on the amount of income
generated, expenses incurred and capital expenditures required. The Company's
income from retail, multifamily or office properties may be adversely affected
by a number of factors, including the general economic climate and local real
estate conditions, such as an oversupply of, or a reduction in demand, for
retail, apartment or office space in the area and the attractiveness of the
properties to shoppers, residents and tenants. In addition, income from
properties and real estate values also are affected by such factors as the
cost of compliance with government regulation, including zoning and tax laws,
the potential for liability under applicable laws, interest rate levels and
the availability of financing. Certain significant expenditures associated
with each equity investment by the Company in a property (such as mortgage
payments, if any, real estate taxes and maintenance costs) also are generally
not reduced when circumstances cause a reduction in income from the property.
Debt Financing. The Company is subject to the risks associated with debt
financing, including the risk that the Company's cash provided by operating
activities will be insufficient to meet required payments of principal and
interest, the risks of rising interest rates on the Company's floating rate
debt, the risk that the Company will not be able to prepay or refinance
existing indebtedness on the Properties (which generally will not have been
fully amortized at maturity) or that the terms of such refinancing will not be
as favorable as the terms of existing indebtedness. In the event the Company
is unable to secure refinancing of such indebtedness on acceptable terms, the
Company might be forced to dispose of properties upon disadvantageous terms,
which might result in losses to the Company and might adversely affect the
cash flow available for distribution to equity holders or debt service. In
addition, if a property or properties are mortgaged to secure payment of
indebtedness and the Company is unable to meet mortgage payments, the mortgage
securing the property could be foreclosed upon by, or the property could be
otherwise transferred to, the mortgagee with a consequent loss of income and
asset value to the Company.
Renewal of Leases and Reletting of Space. The Company is subject to the
risks that upon expiration of leases for space located at the Properties, the
leases may not be renewed, the space may not be relet or the terms of the
renewal or reletting (including the cost of required renovations or
concessions to tenants) may be less favorable than current lease terms.
Although the Company has established an annual budget for renovation and
reletting expenses that it believes are reasonable in light of each Property's
situation, no assurance can be given that this budget will be sufficient to
cover these expenses. If the Company is unable to promptly relet or renew
leases for all or substantially all of the space at its Properties, if the
rental rates upon such renewal or reletting are significantly lower than
expected, or if the Company's reserves for these purposes prove inadequate,
then the Company's cash provided by operating activities and ability to make
expected distributions to shareholders or debt service payments could be
adversely affected.
Dependence on Primary Markets. All of the Company's Properties are located
in the Southeastern United States and 40 of the Properties are located in
Birmingham and Montgomery, Alabama, Orlando, Florida and Macon, Georgia. The
Company's performance and its ability to make distributions to shareholders or
debt service payments could be adversely affected by economic conditions in
the Southeast and in Birmingham, Montgomery, central Florida and Macon in
particular.
Possible Environmental Liabilities. Under various Federal, state and local
laws, ordinances and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean up certain hazardous
substances released at the property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and
cleanup costs incurred by such parties in connection with the contamination.
In addition, some environmental laws create a lien on the contaminated site in
favor of the
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government for damages and costs it incurs in connection with the
contamination. 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. The owner or operator
of a site may be liable under common law to third parties for damages and
injuries resulting from environmental contamination emanating from the site.
The Company has not been notified by any governmental authority of any
material non-compliance, liability or other claim in connection with any of
the Properties and the Company is not aware of any other environmental
condition with respect to any of the Properties that could be material. No
assurance, however, can be given that no prior owner created any material
environmental condition not known to the Company, that no material
environmental condition with respect to any Property has occurred during the
Company's ownership thereof, or that future uses or conditions (including,
without limitation, changes in applicable environmental laws and regulations)
will not result in imposition of environmental liability.
At one of the Company's Properties, the Gadsden Mall in Gadsden, Alabama,
four underground storage tanks were removed in 1989. In connection with the
removal of these gasoline storage tanks, associated petroleum contamination
was discovered in the soil and groundwater. The Company is currently working
with the state regulatory agency to remediate the contamination in accordance
with applicable requirements. Because the tanks were registered with the
Alabama Department of Environmental Management and the facility was in
compliance with regulations prior to the incident, the Company has been
reimbursed under the Alabama Underground Storage Tank Trust Fund for the costs
incurred to date in connection with the ongoing cleanup, and expects to be
reimbursed for the remaining costs as well. Currently, a free product recovery
program is underway.
CONFLICTS OF INTEREST
Certain members of the Company's Board of Trustees ("Board of Trustees") and
officers (including Thomas and James Lowder, Harold Ripps and Herbert Meisler)
own Units in the Operating Partnership and, thus, may have interests that
conflict with shareholders with respect to business decisions affecting the
Company and the Operating Partnership. In particular, a holder of Units may
suffer different and/or more adverse tax consequences than the Company upon
the sale or refinancing of some of the Properties as a result of unrealized
gain attributable to certain Properties. These Unit holders and the Company,
therefore, may have different objectives regarding the appropriate pricing and
timing of any sale or refinancing of Properties. Although the Company (through
CPHC), as the sole general partner of the Partnership, has the exclusive
authority as to whether and on what terms to sell or refinance an individual
Property, these Unit holders might seek to influence the Company not to sell
or refinance the Properties, even though such sale might otherwise be
financially advantageous to the Company, or may seek to influence the Company
to refinance a Property with a higher level of debt than would be in the best
interests of the Company. The Company has agreed to use its reasonable efforts
to minimize the adverse impact of any such refinancing upon the former owners,
and to take into account the tax consequences to such former owners in
deciding whether to sell a Property, which also may result in decisions that
are not in the best interest of all of the shareholders.
The Lowder family (which includes Thomas, James, Robert and Catherine Lowder
and their affiliates) holds interests in certain companies that in the past
have performed construction management, insurance brokerage and other services
with respect to the Properties. These companies may perform similar services
for the Company in the future. As a result of its financial interest in these
companies, the Lowder family may realize benefits from transactions between
such companies and the Company that are not realized by other shareholders of
the Company. In addition, Thomas Lowder and his brother, James Lowder, as
trustees of the Company, may be in a position to influence the Company to do
business with companies in which the Lowder family has a financial interest.
Although the Company has adopted certain policies designed to eliminate or
minimize potential conflicts of interest, including a policy which requires
that transactions in which a trustee or officer of the Company has a conflict
of interest be approved by a majority of the disinterested trustees, there can
be no assurance that these policies will be successful in eliminating the
influence of such conflicts, or that such transactions, if any, will be on
terms as favorable to the Company as could be obtained in an arms-length
transaction with a third party.
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DEVELOPMENT AND ACQUISITION RISKS
The Company intends to continue development of new multifamily, retail and
office properties (including expansions of existing Properties on the land
adjacent to those Properties) and to consider acquisitions of multifamily,
retail and office properties where it believes that such development or
acquisition is consistent with the business strategies of the Company. New
project development is subject to a number of risks, including construction
delays or cost overruns that may increase project costs, financing risks as
described above, the failure to meet anticipated occupancy or rent levels,
failure to receive required zoning, occupancy and other governmental permits
and authorizations and changes in applicable zoning and land use laws, which
may result in the incurrence of development costs in connection with projects
that are not pursued to completion. In addition, because the Company must
distribute 95% of its taxable income in order to maintain its qualification as
a REIT, the Company anticipates that new developments and acquisitions will be
financed primarily through lines of credit or other forms of secured or
unsecured construction financing. If permanent debt or equity financing is not
available on acceptable terms to refinance such new developments or
acquisitions are undertaken without permanent financing, further development
activities or acquisitions may be curtailed or cash available for distribution
to shareholders or to meet debt service obligations may be adversely affected.
Acquisitions entail risks that investments will fail to perform in accordance
with expectations and that judgments with respect to the costs of improvements
to bring an acquired property up to standards established for the market
position intended for that property will prove inaccurate, as well as general
investment risks associated with any new real estate investment. See "Real
Estate Investment Risks" above.
MANAGEMENT, LEASING AND BROKERAGE RISKS; CONTROL OF MANAGEMENT CORPORATION
The Company is subject to the risks associated with the property management,
leasing and brokerage businesses. These risks include the risk that management
contracts or service agreements with third-party owners will be lost to
competitors, that contracts will not be renewed upon expiration or will not be
renewed on terms consistent with current terms and that leasing and brokerage
activity generally may decline. Each of these developments could adversely
affect the ability of the Company to make expected distributions to
shareholders or debt service payments.
In order to maintain the Company's qualification as a REIT while realizing
income from the Company's third-party management business, the capital stock
of the Management Corporation (which conducts the Company's third-party
management, leasing and brokerage businesses) is divided into two classes.
Voting common stock, representing 1.01% of the total equity of the Management
Corporation, is held 99% by the Lowder family and 1% by the Company. Nonvoting
common stock, representing 98.99% of the total equity of the Management
Corporation, is held entirely by the Company. Although the Company holds a
total of 99% of the equity interests in the Management Corporation, the
Company is not able to elect directors of the Management Corporation and,
consequently, the Company's ability to influence the day-to-day decisions of
such entity is limited.
CHANGES IN POLICIES
The major policies of the Company, including its policies with respect to
development, acquisitions, financing, growth, operations, debt capitalization
and distributions, are determined by its Board of Trustees. Although it has no
present intention to do so, the Board of Trustees may amend or revise these
and other policies from time to time without a vote of the shareholders of the
Company. A change in these policies could adversely affect the Company's
financial condition, results of operations, funds available for distributions
to shareholders or debt service or the market price of the Securities. The
Company cannot change its policy of seeking to maintain its qualification as a
REIT without the approval of the holders of a majority of the Common Shares.
CERTAIN TAX RISKS
Tax Liabilities as a Consequence of the Failure to Qualify as a REIT. The
Company believes that it has operated so as to qualify as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"),
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commencing with its taxable year ended December 31, 1993, and intends to
continue to so operate. No assurance, however, can be given that the Company
has so qualified or will be able to remain so qualified. Qualification as a
REIT involves the application of highly technical and complex Code provisions
as to which there are only limited judicial and administrative
interpretations. Certain facts and circumstances that may be wholly beyond the
Company's control may affect its ability to qualify or to continue to qualify
as a REIT. In addition, no assurance can be given that new legislation,
Treasury Regulations, administrative interpretations or court decisions will
not significantly change the tax laws with respect to the qualification as a
REIT or the Federal income consequences of such qualification to the Company.
If the Company fails to qualify as a REIT, it will be subject to Federal
income tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. In addition, unless entitled to relief
under certain statutory provisions, the Company would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. The additional tax incurred in such event would
significantly reduce the cash flow available for distribution to shareholders
and to meet debt service obligations. See "Federal Income Tax Considerations--
Taxation of the Company."
REIT Distribution Requirements and Potential Impact of Borrowings. To obtain
the favorable tax treatment associated with qualifying as a REIT under the
Code, the Company generally is required each year to distribute to its
shareholders at least 95% of its net taxable income. See "Federal Income Tax
Considerations--Taxation of the Company (Annual Distribution Requirements)."
The Company could be required to borrow funds on a short-term basis to meet
the distribution requirements that are necessary to achieve the tax benefits
associated with qualifying as a REIT, even if management believed that then
prevailing market conditions were not generally favorable for such borrowings.
Other Tax Liabilities. Even if the Company qualifies as a REIT, it will be
subject to certain Federal, state and local taxes on its income and property.
See "Federal Income Tax Considerations--Taxation of the Company and--Other Tax
Considerations." In particular, CPHC will be subject to income tax and certain
intangible property taxes in Alabama and the State of Alabama may seek to
contend that the Company is subject to such taxes as well.
PRICE FLUCTUATIONS OF THE COMMON SHARES AND TRADING VOLUME; SHARES AVAILABLE
FOR FUTURE SALE
A number of factors may adversely influence the price of the Company's
Common Shares in the public markets, many of which are beyond the control of
the Company. These factors include possible increases in market interest
rates, which may lead purchasers of Common Shares to demand a higher annual
yield from distributions by the Company in relation to the price paid for
Common Shares, the relatively low daily trading volume of REITs in general,
including the Common Shares and any inability of the Company to invest the
proceeds of a future offering of Securities in a manner that will increase
earnings per share. Sales of a substantial number of Common Shares, or the
perception that such sales could occur, could adversely affect prevailing
market prices for shares. The Company also may currently issue up to 8,141,023
Common Shares (subject to the Ownership Limit, as defined below) upon
redemption of Units issued in connection with the formation of the Company and
subsequent acquisitions. In addition, 800,000 Common Shares of the Company
have been issued or reserved for issuance pursuant to share option and
restricted share plans, and these shares will be available for sale in the
public markets from time to time pursuant to exemptions from registration
requirements or upon registration. No prediction can be made about the effect
that future sales of Common Shares will have on the market prices of shares.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES
In order to maintain its qualification as a REIT, the Company has limited
ownership of the issued and outstanding Common Shares by any single
shareholder (other than Lowder family members) to 5% of the outstanding Common
Shares (the "Ownership Limit"). The Board of Trustees could waive this
restriction if it were satisfied, based upon the advice of tax counsel, that
ownership in excess of the Ownership Limit would not jeopardize the Company's
status as a REIT and the Board of Trustees otherwise decided such action would
be in
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the best interests of the Company. Common Shares acquired or transferred in
breach of the limitation may be redeemed by the Company for the lesser of the
price paid and the average closing price for the ten trading days immediately
preceding redemption. The Company may elect to redeem such shares for Units,
which are subject to certain limitations on transfer. A transfer of Common
Shares to a person who, as a result of the transfer, violates the Ownership
Limit will be void. See "Description of Shares of Beneficial Interest--
Restrictions on Transfer" for additional information regarding the Ownership
Limit. A similar restriction would be imposed on any Preferred Shares or Debt
Securities convertible into Preferred or Common Shares that the Company may
issue under this Prospectus.
RESTRICTIONS ON ACQUISITION AND CHANGE IN CONTROL
Various provisions of the Company's Declaration of Trust (the "Declaration
of Trust") restrict the possibility for acquisition or change in control of
the Company, even if such acquisition or change in control were in the
shareholders' interest, including the Ownership Limit, the staggered terms of
the Company's Trustees and the ability of the board to issue preferred shares.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the
Company intends to invest, contribute or otherwise transfer the net proceeds
of any sale of Securities to the Operating Partnership, which would use such
net proceeds for general business purposes, including, without limitation, the
development and acquisition of additional properties and other acquisition
transactions as suitable opportunities arise, the repayment of certain debt
outstanding at such time, capital expenditures, improvements to certain
properties in the Company's portfolio, working capital and other general
purposes.
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the years ended
December 31, 1993, 1994 and 1995 and the nine months ended September 30, 1996
was 1.31, 2.24, 1.92 and 2.39, respectively.
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of income (loss) before
gains from sales of property and extraordinary items plus fixed charges. Fixed
charges consist of interest expense (including interest costs capitalized) and
the amortization of debt issuance costs. To date, the Company has not issued
any Preferred Shares; therefore, the ratios of earnings to combined fixed
charges and preferred share dividends are unchanged from the ratios presented
in this section.
Prior to completion of the Company's IPO, certain of the predecessor
entities to the Company operated in a highly leveraged manner. As a result,
although the Properties have historically generated positive net cash flow,
the combined financial statements of the predecessor entities for the fiscal
years ended December 31, 1992 and 1991 show net losses. Consequently, the
computation of the ratio of earnings to fixed charges for such periods
indicates that earnings were inadequate to cover fixed charges by
approximately $0.8 million and $3.4 million for the years ended December 31,
1992 and 1991, respectively.
The reorganization and recapitalization of the Company effected in
connection with the IPO permitted the Operating Partnership to deleverage the
Properties significantly, resulting in an improved ratio of earnings to fixed
charges for periods subsequent to the IPO.
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions of
the Debt Securities to which this Prospectus and any applicable Prospectus
Supplement may relate. The particular terms of the Debt Securities
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being offered and the extent to which such general provisions may apply will
be set forth in the applicable Indenture or in one or more indentures
supplemental thereto and described in a Prospectus Supplement relating to such
Debt Securities. The Forms of the Senior Indenture (as defined herein) and the
Subordinated Indenture (as defined herein) have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Company and
may be either senior Debt Securities ("Senior Securities") or subordinated
Debt Securities ("Subordinated Securities"). The Debt Securities will be
issued under one or more indentures (the "Indentures"). Senior Securities and
Subordinated Securities will be issued pursuant to separate indentures
(respectively, a "Senior Indenture" and a "Subordinated Indenture"), in each
case between the Company and a trustee (a "Trustee"). The Indentures will be
subject to and governed by the Trust Indenture Act of 1939, as amended (the
"TIA"). The statements made under this heading relating to the Debt Securities
and the Indentures are summaries of the anticipated provisions thereof, do not
purport to be complete and are qualified in their entirety by reference to the
Indentures and such Debt Securities. All section references appearing herein
are to sections of each Indenture unless otherwise indicated and capitalized
terms used but not defined below shall have the respective meanings set forth
in each Indenture.
The indebtedness represented by Subordinated Securities will be subordinated
in right of payment to the prior payment in full of the Senior Debt of the
Company as described under "--Subordination."
Except as set forth in the applicable Indenture or in one or more indentures
supplemental thereto and described in a Prospectus Supplement relating
thereto, the Debt Securities may be issued without limit as to aggregate
principal amount, in one or more series, in each case as established from time
to time in or pursuant to authority granted by a resolution of the Board of
Trustees of the Company or as established in the applicable Indenture or in
one or more indentures supplemental to such Indenture. All Debt Securities of
one series need not be issued at the same time and, unless otherwise provided,
a series may be reopened, without the consent of the Holders of the Debt
Securities of such series, for issuances of additional Debt Securities of such
series.
It is anticipated that each Indenture will provide that there may be more
than one Trustee thereunder, each with respect to one or more series of Debt
Securities. Any Trustee under an Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor Trustee may
be appointed to act with respect to such series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a trustee of a trust under the
applicable Indenture separate and apart from the trust administered by any
other Trustee, and, except as otherwise indicated herein, any action described
herein to be taken by each Trustee may be taken by each such Trustee with
respect to, and only with respect to, the one or more series of Debt
Securities for which it is Trustee under the applicable Indenture.
The Prospectus Supplement relating to any series of Debt Securities being
offered will contain the specific terms thereof, including, without
limitation:
(1) The title of such Debt Securities and whether such Debt Securities
are Senior Securities or Subordinated Securities;
(2) The aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) The percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof, the portion
of the principal amount thereof payable upon declaration of acceleration of
the maturity thereof;
(4) If convertible in whole or in part into Common Shares or Preferred
Shares, the terms on which such Debt Securities are convertible, including
the initial conversion price or rate (or method for
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determining the same), the portion that is convertible and the conversion
period, and any applicable limitations on the ownership or transferability
of the Common Shares or Preferred Shares receivable on conversion;
(5) The date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt Securities
will bear interest, if any;
(7) The date or dates, or the method for determining such date or dates,
from which any such interest will accrue, the dates on which any such
interest will be payable, the regular record dates for such interest
payment dates, or the method by which such dates shall be determined, the
persons to whom such interest shall be payable, and the basis upon which
interest shall be calculated if other than that of a 360-day year of twelve
30-day months;
(8) The place or places where the principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable, where such Debt
Securities may be surrendered for conversion or registration of transfer or
exchange and where notices or demands to or upon the Company in respect of
such Debt Securities and the applicable Indenture may be served;
(9) The period or periods within which, the price or prices at which and
the other terms and conditions upon which such Debt Securities may be
redeemed, in whole or in part, at the option of the Company, if the Company
is to have such an option;
(10) The obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous provision or
at the option of a Holder thereof, and the period or periods within which
or the date and dates on which, the price or prices at which and the other
terms and conditions upon which such Debt Securities will be redeemed,
repaid or purchased, in whole or in part, pursuant to such obligation;
(11) If other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (and premium, if any)
or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units or composite currency or currencies) and the manner in which such
amounts shall be determined;
(13) Any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to Events of Default or covenants set
forth in the applicable Indenture;
(14) Whether such Debt Securities will be issued in certificate or book-
entry form;
(15) Whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating thereto;
(16) The applicability, if any, of the defeasance and covenant defeasance
provisions of Article Fourteen of the applicable Indenture;
(17) Whether and under what circumstances the Company will pay any
additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company will have
the option to redeem such Debt Securities in lieu of making such payment;
and
(18) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture (Section 301).
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The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special federal income tax, accounting
and other considerations applicable to Original Issue Discount Securities will
be described in the applicable Prospectus Supplement.
Except as set forth in the applicable Indenture or in one or more indentures
supplemental thereto, the applicable Indenture will not contain any provisions
that would limit the ability of the Company to incur indebtedness or that
would afford Holders of Debt Securities protection in the event of a highly
leveraged or similar transaction involving the Company or in the event of a
change of control. Restrictions on ownership and transfers of the Company's
Common Shares and Preferred Shares are designed to preserve its status as a
REIT and, therefore, may act to prevent or hinder a change of control. See
"Description of Preferred Shares of Beneficial Interest--Restrictions on
Ownership" and "Description of Common Shares of Beneficial Interest--
Restrictions on Transfer." Reference is made to the applicable Prospectus
Supplement for information with respect to any deletions from, modifications
of or additions to the Events of Default or covenants of the Company that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
"Significant Subsidiary" means any Subsidiary that is a "significant
subsidiary" (within the meaning of Regulation S-X promulgated under the
Securities Act) of the Company.
"Subsidiary" means a corporation or a partnership a majority of the
outstanding voting stock or partnership interests, as the case may be, of
which is owned or controlled, directly or indirectly, by the Company or by one
or more other Subsidiaries of the Company. For the purposes of this
definition, "voting stock" means stock having voting power for the election of
directors, or trustees, as the case may be, whether at all times or only so
long as no senior class of stock has such voting power by reason of any
contingency.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of
Debt Securities will be payable at the corporate trust office of the Trustee,
the address of which will be stated in the applicable Prospectus Supplement;
provided that, at the option of the Company, payment of interest may be made
by check mailed to the address of the person entitled thereto as it appears in
the applicable register for such Debt Securities or by wire transfer of funds
to such person at an account maintained within the United States (Sections
301, 305, 306, 307 and 1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable regular record
date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than ten days prior to such Special Record Date, or may be paid at any
time in any other lawful manner, all as more completely described in the
Indenture (Section 307).
Subject to certain limitations imposed upon Debt Securities issued in book-
entry form, the Debt Securities of any series will be exchangeable for other
Debt Securities of the same series and of a like aggregate principal amount
and tenor of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the applicable Trustee referred to
above. In addition, subject to certain limitations imposed upon Debt
Securities issued in book-entry form, the Debt Securities of any series may be
surrendered for conversion or registration of transfer or exchange thereof at
the corporate trust office of the applicable Trustee. Every Debt Security
surrendered for conversion, registration of transfer or exchange must be duly
endorsed or accompanied
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by a written instrument of transfer. No service charge will be made for any
registration of transfer or exchange of any Debt Securities, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. If the applicable Prospectus
Supplement refers to any transfer agent (in addition to the applicable
Trustee) initially designated by the Company with respect to any series of
Debt Securities, the Company may at any time rescind the designation of any
such transfer agent or approve a change in the location through which any such
transfer agent acts, except that the Company will be required to maintain a
transfer agent in each place of payment for such series. The Company may at
any time designate additional transfer agents with respect to any series of
Debt Securities (Section 1002).
Neither the Company nor any Trustee shall be required to (i) issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business
on the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed
in part; or (iii) issue, register the transfer of or exchange any Debt
Security that has been surrendered for repayment at the option of the Holder,
except the portion, if any, of such Debt Security not to be so repaid (Section
305).
MERGER, CONSOLIDATION OR SALE
The Company will be permitted to consolidate with, or sell, lease or convey
all or substantially all of its assets to, or merge with or into, any other
entity provided that (a) either the Company shall be the continuing entity, or
the successor entity (if other than the Company) formed by or resulting from
any such consolidation or merger or which shall have received the transfer of
such assets shall expressly assume payment of the principal of (and premium,
if any) and interest on all of the Debt Securities and the due and punctual
performance and observance of all of the covenants and conditions contained in
each Indenture; (b) immediately after giving effect to such transaction and
treating any indebtedness that becomes an obligation of the Company or any
Subsidiary as a result thereof as having been incurred by the Company or
Subsidiary at the time of such transaction, no Event of Default under the
Indentures, and no event which, after notice or the lapse of time, or both,
would become such an Event of Default, shall have occurred and be continuing;
and (c) an officer's certificate and legal opinion covering such conditions
shall be delivered to each Trustee (Sections 801 and 803).
CERTAIN COVENANTS
Existence. Except as described above under "Merger, Consolidation or Sale",
the Company will be required to do or cause to be done all things necessary to
preserve and keep in full force and effect its existence, rights (by
declaration of trust, by-laws and statute) and franchises; provided, however,
that the Company shall not be required to preserve any right or franchise if
it determines that the preservation thereof is no longer desirable in the
conduct of its business and that the loss thereof is not disadvantageous in
any material respect to the Holders of the Debt Securities.
Maintenance of Properties. The Company will be required to cause all of its
material properties used or useful in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary
so that the business carried on in connection therewith may be properly and
advantageously conducted at all times (Section 1007).
Insurance. The Company will be required to, and will be required to cause
each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value with
insurers of recognized responsibility and, if described in the applicable
Prospectus Supplement, having a specified rating from a recognized insurance
rating service (Section 1008).
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Payment of Taxes and Other Claims. The Company will be required to pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or property of
the Company or any Subsidiary, and (ii) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a lien upon the property of
the Company or any Subsidiary; provided, however, that the Company shall not
be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings (Section 1009).
Provision of Financial Information. Whether or not the Company is subject to
Section 13 or 15(d) of the Exchange Act, the Company will be required, to the
extent permitted under the Exchange Act, to file with the Commission the
annual reports, quarterly reports and other documents which the Company would
have been required to file with the Commission pursuant to such Sections 13 or
15(d) if the Company were so subject (the "Financial Information"), such
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which the Company would have been required so
to file such documents if the Company were so subject. The Company also will
in any event (x) within 15 days of each Required Filing Date (i) to transmit
by mail to all Holders of Debt Securities, as their names and addresses appear
in the Security Register, without cost to such Holders, copies of the
Financial Information and (ii) to file with the Trustee copies of the
Financial Information, and (y) if filing such documents by the Company with
the Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, to
supply copies of such documents to any prospective Holder (Section 1010).
ADDITIONAL COVENANTS AND/OR MODIFICATION TO THE COVENANTS DESCRIBED ABOVE
Any additional covenants of the Company and/or modifications to the
covenants described above with respect to any Debt Securities or series
thereof, including any covenants relating to limitations on incurrence of
indebtedness or other financial covenants, will be set forth in the applicable
Indenture or an indenture supplemental thereto and described in the Prospectus
Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each Indenture will provide that the following events are "Events of
Default" with respect to any series of Debt Securities issued thereunder: (i)
default for 30 days in the payment of any installment of interest on any Debt
Security of such series; (ii) default in the payment of principal of (or
premium, if any, on) any Debt Security of such series at its maturity; (iii)
default in making any sinking fund payment as required for any Debt Security
of such series; (iv) default in the performance or breach of any other
covenant or warranty of the Company contained in the applicable Indenture
(other than a covenant added to the Indenture solely for the benefit of a
series of Debt Securities issued thereunder other than such series), continued
for 60 days after written notice as provided in the applicable Indenture; (v)
default in the payment of an aggregate principal amount exceeding $10,000,000
of any indebtedness of the Company or any mortgage, indenture or other
instrument under which such indebtedness is issued or by which such
indebtedness is secured, such default having occurred after the expiration of
any applicable grace period and having resulted in the acceleration of the
maturity of such indebtedness, but only if such indebtedness is not discharged
or such acceleration is not rescinded or annulled; (vi) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Company or any Significant Subsidiary or either
of its property; and (vii) any other Event of Default provided with respect to
a particular series of Debt Securities (Section 501).
If an Event of Default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the Holders of not less than 25% of the
principal amount of the Outstanding Debt Securities of that series will have
the right to declare the principal amount (or, if the Debt Securities of that
series are Original Issue Discount Securities or indexed securities, such
portion of the principal amount as may be specified in the terms thereof) of
all the Debt Securities of that series to be due and payable immediately by
written notice thereof to the Company (and to the applicable
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Trustee if given by the Holders). However, at any time after such a
declaration of acceleration with respect to Debt Securities of such series (or
of all Debt Securities then Outstanding under any Indenture, as the case may
be) has been made, but before a judgment or decree for payment of the money
due has been obtained by the applicable Trustee, the Holders of not less than
a majority in principal amount of Outstanding Debt Securities of such series
(or of all Debt Securities then Outstanding under the applicable Indenture, as
the case may be) may rescind and annul such declaration and its consequences
if (a) the Company shall have deposited with the applicable Trustee all
required payments of the principal of (and premium, if any) and interest on
the Debt Securities of such series (or of all Debt Securities then Outstanding
under the applicable Indenture, as the case may be), plus certain fees,
expenses, disbursements and advances of the applicable Trustee and (b) all
events of default, other than the non-payment of accelerated principal (or
specified portion thereof), with respect to Debt Securities of such series (or
of all Debt Securities then Outstanding under the applicable Indenture, as the
case may be) have been cured or waived as provided in such Indenture (Section
502). Each Indenture also will provide that the Holders of not less than a
majority in principal amount of the Outstanding Debt Securities of any series
(or of all Debt Securities then Outstanding under the applicable Indenture, as
the case may be) may waive any past default with respect to such series and
its consequences, except a default (x) in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or (y) in
respect of a covenant or provision contained in the applicable Indenture that
cannot be modified or amended without the consent of the Holder of each
Outstanding Debt Security affected thereby (Section 513).
Each Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the applicable Indenture unless
such default shall have been cured or waived; provided, however, that such
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of
the principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any
Debt Security of such series) if specified responsible officers of such
Trustee consider such withholding to be in the interest of such Holders
(Section 601).
Each Indenture will provide that no Holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the cases of failure of the
applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an Event of Default from the
Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it (Section 507). This provision will not prevent, however,
any Holder of Debt Securities from instituting suit for the enforcement of
payment of the principal of (and premium, if any) and interest on such Debt
Securities at the respective due dates thereof (Section 508).
Subject to provisions in each Indenture relating to its duties in case of
default, no Trustee will be under any obligation to exercise any of its rights
or powers under an Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under such Indenture, unless such
Holders shall have offered to the Trustee thereunder reasonable security or
indemnity (Section 602). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series (or of all Debt
Securities then Outstanding under an Indenture, as the case may be) shall have
the right to direct the time, method and place of conducting any proceeding
for any remedy available to the applicable Trustee, or of exercising any trust
or power conferred upon such Trustee. However, a Trustee may refuse to follow
any direction which is in conflict with any law or the applicable Indenture,
which may involve such Trustee in personal liability or which may be unduly
prejudicial to the Holders of Debt Securities of such series not joining
therein (Section 512).
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers, stating whether or not such officer has knowledge of any
default under the applicable Indenture and, if so, specifying each such
default and the nature and status thereof (Section 1011).
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MODIFICATIONS OF THE INDENTURES
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Debt Securities issued under such Indenture which
are affected by such modification or amendment; provided, however, that no
such modification or amendment may, without the consent of the Holder of each
such Debt Security affected thereby, (a) change the stated maturity of the
principal of, or any installment of interest (or premium, if any) on, any such
Debt Security; (b) reduce the principal amount of, or the rate or amount of
interest on, or any premium payable on redemption of, any such Debt Security,
or reduce the amount of principal of an Original Issue Discount Security that
would be due and payable upon declaration of acceleration of the maturity
thereof or would be provable in bankruptcy, or adversely affect any right of
repayment of the Holder of any such Debt Security; (c) change the place of
payment, or the coin or currency, for payment of principal or premium, if any,
or interest on any such Debt Security; (d) impair the right to institute suit
for the enforcement of any payment on or with respect to any such Debt
Security; (e) reduce the above-stated percentage of Outstanding Debt
Securities of any series necessary to modify or amend the applicable
Indenture, to waive compliance with certain provisions thereof or certain
defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the applicable Indenture; or (f) modify any of the
foregoing provisions or any of the provisions relating to the waiver of
certain past defaults or certain covenants, except to increase the required
percentage to effect such action or to provide that certain other provisions
may not be modified or waived without the consent of the Holder of such Debt
Security (Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities of each series affected thereby will have the right to waive
compliance by the Company with certain covenants in such Indenture (Section
1013).
Modifications and amendments of an Indenture will be permitted to be made by
the Company and the respective Trustee thereunder without the consent of any
Holder of Debt Securities for any of the following purposes: (i) to evidence
the succession of another person to the Company as obligor under such
Indenture; (ii) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Debt Securities or to surrender any right or
power conferred upon the Company in the Indenture; (iii) to add Events of
Default for the benefit of the Holders of all or any series of Debt
Securities; (iv) to add or change any provisions of an Indenture to facilitate
the issuance of, or to liberalize certain terms of, Debt Securities in bearer
form, or to permit or facilitate the issuance of Debt Securities in
uncertificated form, provided that such action shall not adversely affect the
interests of the Holders of the Debt Securities of any series in any material
respect; (v) to change or eliminate any provisions of an Indenture, provided
that any such change or elimination shall become effective only when there are
no Debt Securities Outstanding of any series created prior thereto which are
entitled to the benefit of such provision; (vi) to secure the Debt Securities;
(vii) to establish the form or terms of Debt Securities of any series,
including the provisions and procedures, if applicable, for the conversion of
such Debt Securities into Common Shares or Preferred Shares of the Company;
(viii) to provide for the acceptance of appointment by a successor Trustee or
facilitate the administration of the trusts under an Indenture by more than
one Trustee; (ix) to cure any ambiguity, defect or inconsistency in an
Indenture, provided that such action shall not adversely affect the interests
of Holders of Debt Securities of any series issued under such Indenture in any
material respect; or (x) to supplement any of the provisions of an Indenture
to the extent necessary to permit or facilitate defeasance and discharge of
any series of such Debt Securities, provided that such action shall not
adversely affect the interests of the Holders of the Debt Securities of any
series in any material respect (Section 901).
Each Indenture will provide that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have
given any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security
that shall be deemed to be Outstanding shall be the amount of the principal
thereof that would be due and payable as of the date of such determination
upon declaration of acceleration of the maturity thereof, (ii) the principal
amount of any Debt Security denominated in a foreign currency that shall be
deemed Outstanding shall be the U.S. dollar equivalent, determined on the
issue date for
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such Debt Security, of the principal amount (or, in the case of Original Issue
Discount Security, the U.S. dollar equivalent on the issue date of such Debt
Security of the amount determined as provided in (i) above), (iii) the
principal amount of an indexed security that shall be deemed Outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security pursuant to
the applicable Indenture, and (iv) Debt Securities owned by the Company or any
other obligor upon the Debt Securities or any affiliate of the Company or of
such other obligor shall be disregarded.
Each Indenture will contain provisions for convening meetings of the Holders
of Debt Securities of a series (Section 501). A meeting will be permitted to
be called at any time by the applicable Trustee, and also, upon request, by
the Company or the Holders of at least 10% in principal amount of the
Outstanding Debt Securities of such series, in any such case upon notice given
as provided in the Indenture. Except for any consent that must be given by the
Holder of each Debt Security affected by certain modifications and amendments
of an Indenture, any resolution presented at a meeting or adjourned meeting
duly reconvened at which a quorum is present may be adopted by the affirmative
vote of the Holders of a majority in principal amount of the Outstanding Debt
Securities of that series; provided, however, that, except as referred to
above, any resolution with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action that may be made, given or
taken by the Holders of a specified percentage, which is less than a majority,
in principal amount of the Outstanding Debt Securities of a series may be
adopted at a meeting or adjourned meeting or adjourned meeting duly reconvened
at which a quorum is present by the affirmative vote of the Holders of such
specified percentage in principal amount of the Outstanding Debt Securities of
that series. Any resolution passed or decision taken at any meeting of Holders
of Debt Securities of any series duly held in accordance with an Indenture
will be binding on all Holders of Debt Securities of that series. The quorum
at any meeting called to adopt a resolution, and at any reconvened meeting,
will be persons holding or representing a majority in principal amount of the
Outstanding Debt Securities of a series; provided, however, that if any action
is to be taken at such meeting with respect to a consent or waiver which may
be given by the Holders of not less than a specified percentage in principal
amount of the Outstanding Debt Securities of a series, the persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum.
Notwithstanding the foregoing provisions, each Indenture will provide that
if any action is to be taken at a meeting of Holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the Holders of a specified percentage in principal
amount of all Outstanding Debt Securities affected thereby, or the Holders of
such series and one or more additional series: (i) there shall be no minimum
quorum requirement for such meeting, and (ii) the principal amount of the
Outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action
shall be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been
made, given or taken under such Indenture.
SUBORDINATION
Upon any distribution to creditors of the Company in a liquidation,
dissolution or reorganization, the payment of the principal of and interest on
any Subordinated Securities will be subordinated to the extent provided in the
applicable Indenture in right of payment to the prior payment in full of all
Senior Debt (Sections 1601 and 1602 of the Subordinated Indenture), but the
obligation of the Company to make payment of the principal and interest on
such Subordinated Securities will not otherwise be affected (Section 1608 of
the Subordinated Indenture). No payment of principal or interest will be
permitted to be made on Subordinated Securities at any time if a default on
Senior Debt exists that permits the Holders of such Senior Debt to accelerate
its maturity and the default is the subject of judicial proceedings or the
Company receives notice of the default (Section 1602 of the Subordinated
Indenture). After all Senior Debt is paid in full and until the Subordinated
Securities are paid in full, Holders will be surrogated to the right of
Holders of Senior Debt to the extent that distributions otherwise payable to
Holders have been applied to the payment of Senior Debt (Section 1607 of the
Subordinated Indenture). By reason of such subordination, in the event of a
distribution of assets upon
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insolvency, certain general creditors of the Company may recover more,
ratably, than Holders of Subordinated Securities.
Senior Debt will be defined in the Subordinated Indenture as the principal
of and interest on, or substantially similar payments to be made by the
Company in respect of, the following, whether outstanding at the date of
execution of the applicable Indenture or thereafter incurred, created or
assumed: (i) indebtedness of the Company for money borrowed or represented by
purchase-money obligations, (ii) indebtedness of the Company evidenced by
notes, debentures, or bonds or other securities issued under the provisions of
an indenture, fiscal agency agreement or other agreement, (iii) obligations of
the Company as lessee under leases of property either made as part of any sale
and leaseback transaction to which the Company is a party or otherwise, (iv)
indebtedness of partnerships and joint ventures which is included in the
consolidated financial statements of the Company, (v) indebtedness,
obligations and liabilities of others in respect of which the Company is
liable contingently or otherwise to pay or advance money or property or as
guarantor, endorser or otherwise or which the Company has agreed to purchase
or otherwise acquire, and (vi) any binding commitment of the Company to fund
any real estate investment or to fund any investment in any entity making such
real estate investment, in each case other than (1) any such indebtedness,
obligation or liability referred to in clauses (i) through (vi) above as to
which, in the instrument creating or evidencing the same pursuant to which the
same is outstanding, it is provided that such indebtedness, obligation or
liability is not superior in right of payment to the Subordinated Securities
or ranks pari passu with the Subordinated Securities, (2) any such
indebtedness, obligation or liability which is subordinated to indebtedness of
the Company to substantially the same extent as or to a greater extent than
the Subordinated Securities are subordinated, and (3) the Subordinated
Securities. As used in the preceding sentence, the term "purchase money
obligations" shall mean indebtedness or obligations evidenced by a note,
debenture, bond or other instrument (whether or not secured by any lien or
other security interest but excluding indebtedness or obligations for which
recourse is limited to the property purchased) issued or assumed as all or a
part of the consideration for the acquisition of property, whether by
purchase, merger, consolidation or otherwise, but shall not include any trade
accounts payable. There will not be any restrictions in an Indenture relating
to Subordinated Securities upon the creation of additional Senior Debt.
If this Prospectus is being delivered in connection with a series of
Subordinated Securities, the accompanying Prospectus Supplement or the
information incorporated herein by reference will contain the approximate
amount of Senior Debt outstanding as of the end of the Company's most recent
fiscal quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Company may be permitted under the applicable Indenture to discharge
certain obligations to Holders of any series of Debt Securities issued
thereunder that have not already been delivered to the applicable Trustee for
cancellation and that either have become due and payable or will become due
and payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the applicable Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient
to pay the entire indebtedness on such Debt Securities in respect of principal
(and premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the stated maturity or
redemption date, as the case may be.
Each Indenture will provide that, if the provisions of Article Fourteen are
made applicable to the Debt Securities of or within any series pursuant to
Section 301 of such Indenture, the Company may elect either (a) to defease and
be discharged from any and all obligations with respect to such Debt
Securities (except for the obligation to pay additional amounts, if any, upon
the occurrence of certain events of tax, assessment or governmental charge
with respect to payments on such Debt Securities, and the obligations to
register the transfer or exchange of such Debt Securities, to replace
temporary or mutilated, destroyed, lost or stolen Debt Securities, to maintain
an office or agency in respect of such Debt Securities and to hold moneys for
payment in trust) ("defeasance") (Section 1402) or (b) to be released from its
obligations with respect to such Debt Securities under certain specified
sections of Article Ten of such Indenture as specified in the applicable
Prospectus
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Supplement and any omission to comply with such obligations shall not
constitute an Event of Default with respect to such Debt Securities ("covenant
defeasance") (Section 1403), in either case upon the irrevocable deposit by
the Company with the applicable Trustee, in trust, of an amount, in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable at stated maturity, or
Government Obligations (as defined below), or both, applicable to such Debt
Securities which through the scheduled payment of principal and interest in
accordance with their terms will provide money in an amount sufficient without
reinvestment to pay the principal of (and premium, if any) and interest on
such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Trustee an opinion of
counsel (as specified in the applicable Indenture) to the effect that the
Holders of such Debt Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such opinion of
counsel, in the case of defeasance, will be required to refer to and be based
upon a ruling of the Internal Revenue Service or a change in applicable U.S.
federal income tax law occurring after the date of the Indenture (Section
1404).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations
of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which
issued the foreign currency in which the Debt Securities of such series are
payable, the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation of the United States of America or such
government, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or principal of any
such Government Obligation held by such custodian for the account of the
Holder of a depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the Holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt (Section 101 of each Indenture).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any
series, (a) the Holder of a Debt Security of such series is entitled to, and
does, elect pursuant to the applicable Indenture or the terms of such Debt
Security to receive payment in a currency, currency unit or composite currency
other than that in which such deposit has been made in respect of such Debt
Security, or (b) a Conversion Event (as defined below) occurs in respect of
the currency, currency unit or composite currency in which such deposit has
been made, the indebtedness represented by such Debt Security will be deemed
to have been, and will be, fully discharged and satisfied through the payment
of the principal of (and premium, if any) and interest on such Debt Security
as they become due out of the proceeds yielded by converting the amount so
deposited in respect of such Debt Security into the currency, currency unit or
composite currency in which such Debt Security becomes payable as a result of
such election or such cessation of usage based on the applicable market
exchange rate. "Conversion Event" means the cessation of use of (i) a
currency, currency unit or composite currency both by the government of the
country which issued such currency and for the settlement of transactions by a
central bank or other public institutions of or within the international
banking community, (ii) the ECU both within the European Monetary System and
for the settlement of transactions by public institutions of or within the
European Communities or (iii) any currency unit or composite currency other
than the ECU for the purposes for which it was established. Unless otherwise
provided in the applicable Prospectus Supplement, all payments of principal of
(and premium, if any) and interest on any Debt Security that is payable in a
foreign currency that ceases to be used by its government of issuance shall be
made in U.S. dollars.
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In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because
of the occurrence of any Event of Default other than the Event of Default
described in clause (iv) under "Events of Default, Notice and Waiver" with
respect to certain specified sections of Article Ten of each Indenture (which
sections would no longer be applicable to such Debt Securities as a result of
such covenant defeasance) or described in clause (vii) under "Events of
Default, Notice and Waiver" with respect to any other covenant as to which
there has been covenant defeasance, the amount in such currency, currency unit
or composite currency in which such Debt Securities are payable, and
Government Obligations on deposit with the applicable Trustee, will be
sufficient to pay amounts due on such Debt Securities at the time of their
stated maturity but may not be sufficient to pay amounts due on such Debt
Securities at the time of the acceleration resulting from such Default.
However, the Company would remain liable to make payment of such amounts due
at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Shares or Preferred Shares will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Shares or Preferred
Shares, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option
of the Holders or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such Debt Securities and any restrictions on conversion,
including restrictions directed at maintaining the Company's REIT status.
REDEMPTION OF SECURITIES
The Indenture provides that the Debt Securities may be redeemed at any time
at the option of the Company, in whole or in part, at the Redemption Price,
except as may otherwise be provided in connection with any Debt Securities or
series thereof.
From and after notice has been given as provided in the Indenture, if funds
for the redemption of any Debt Securities called for redemption shall have
been made available on such redemption date, such Debt Securities will cease
to bear interest on the date fixed for such redemption specified in such
notice, and the only right of the Holders of the Debt Securities will be to
receive payment of the Redemption Price.
Notice of any optional redemption of any Debt Securities will be given to
Holders at their addresses, as shown in the Security Register, not more than
60 nor less than 30 days prior to the date fixed for redemption. The notice of
redemption will specify, among other items, the Redemption Price and the
principal amount of the Debt Securities held by such Holder to be redeemed.
If the Company elects to redeem Debt Securities, it will notify the Trustee
at least 45 days prior to the redemption date (or such shorter period as
satisfactory to the Trustee) of the aggregate principal amount of Debt
Securities to be redeemed and the redemption date. If less than all the Debt
Securities are to be redeemed, the Trustee shall select the Debt Securities to
be redeemed pro rata, by lot or in such manner as it shall deem fair and
appropriate.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depository identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depository arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such series.
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DESCRIPTION OF PREFERRED SHARES OF BENEFICIAL INTEREST
The Company is authorized to issue 50,000,000 shares of beneficial interest,
which may include Preferred Shares. As of November 1, 1996, there were no
Preferred Shares outstanding.
Under the Company's Declaration of Trust, the Board of Trustees may from
time to time establish and issue one or more series of Preferred Shares. The
Trustees may classify or reclassify any unissued Preferred Shares by setting
or changing the number, designation, preference, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms or conditions of redemption of such series.
THE BOARD OF TRUSTEES
The following description of the Preferred Shares sets forth certain general
terms and provisions of the Preferred Shares to which any Prospectus
Supplement may relate. The statements below describing the Preferred Shares
are in all respects subject to and qualified in their entirety by reference to
the applicable provisions of the Company's Declaration of Trust and the
Company's bylaws (the "Bylaws").
GENERAL
The Board of Trustees is empowered by the Company's Declaration of Trust to
designate and issue from time to time one or more series of Preferred Shares
without shareholder approval. The Board of Trustees may determine the relative
rights, preferences and privileges of each series of Preferred Shares so
issued. Because the Board of Trustees has the power to establish the
preferences 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
Preferred Shares will, when issued, be fully paid and nonassessable.
The Prospectus Supplement relating to any Preferred Shares offered thereby
will contain the specific terms thereof, including, without limitation:
(l) The title and stated value of such Preferred Shares;
(2) The number of such Preferred Shares offered, the liquidation
preference per share and the offering price of such Preferred Shares;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to such Preferred Shares;
(4) The date from which dividends on such Preferred Shares shall
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Shares;
(6) The provision for a sinking fund, if any, for such Preferred Shares;
(7) The provision for redemption, if applicable, of such Preferred
Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Shares will be convertible into Common Shares of the Company, including the
conversion price (or manner of calculation thereof);
(10) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares;
(11) A discussion of federal income tax considerations applicable to such
Preferred Shares;
(12) The relative ranking and preferences of such Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company;
(13) Any limitations on issuance of any series of Preferred Shares
ranking senior to or on a parity with such series of Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(14) Any limitations on direct or beneficial ownership and restrictions
on transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT.
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RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Shares of the Company, and to all equity securities ranking
junior to such Preferred Shares; (ii) on a parity with all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank on a parity with the Preferred Shares; and (iii) junior to all
equity securities issued by the Company the terms of which specifically
provide that such equity securities rank senior to the Preferred Shares. The
term "equity securities" does not include convertible debt securities.
DIVIDENDS
Holders of the Preferred Shares of each series will be entitled to receive,
when, as and if declared by the Board of Trustees of the Company, out of
assets of the Company legally available for payment, cash dividends (or
dividends in kind or in other property if expressly permitted and described in
the applicable Prospectus Supplement) at such rates and on such dates as will
be set forth in the applicable Prospectus Supplement. Each such dividend shall
be payable to holders of record as they appear on the share transfer books of
the Company on such record dates as shall be fixed by the Board of Trustees of
the Company.
Dividends on any series of Preferred Shares may be cumulative or non-
cumulative, as provided in the applicable Prospectus Supplement. Dividends, if
cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Trustees of the Company
fails to declare a dividend payable on a dividend payment date on any series
of the Preferred Shares for which dividends are non-cumulative, then the
holders of such series of the Preferred Shares will have no right to receive a
dividend in respect of the dividend period ending on such dividend payment
date, and the Company will have no obligation to pay the dividend accrued for
such period, whether or not dividends on such series are declared payable on
any future dividend payment date.
Unless otherwise specified in the Prospectus Supplement, if any Preferred
Shares of any series are outstanding, no full dividends shall be declared or
paid or set apart for payment on any capital shares of the Company of any
other series ranking, as to dividends, on a parity with or junior to the
Preferred Shares of such series for any period unless (i) if such series of
Preferred Shares has a cumulative dividend, full cumulative dividends have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Preferred
Shares of such series for all past dividend periods and the then current
dividend period or (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends for the then current dividend period have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Preferred
Shares of such series. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon Preferred Shares of
any series and the shares of any other series of Preferred Shares ranking on a
parity as to dividends with the Preferred Shares of such series, all dividends
declared upon Preferred Shares of such series and any other series of
Preferred Shares ranking on a parity as to dividends with such Preferred
Shares shall be declared pro rata so that the amount of dividends declared per
share of Preferred Shares of such series and such other series of Preferred
Shares shall in all cases bear to each other the same ratio that accrued
dividends per share on the Preferred Shares of such series (which shall not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Shares do not have a cumulative dividend) and such
other series of Preferred Shares bear to each other. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on Preferred Shares of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for all past dividend periods and
the then current dividend period, and (ii) if such series of Preferred Shares
does not have a cumulative dividend, full dividends on the Preferred Shares of
such series have been or
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contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in Common Shares or other capital shares
ranking junior to the Preferred Shares of such series as to dividends and upon
liquidation) shall be declared or paid or set aside for payment or other
distribution upon the Common Shares, or any other capital shares of the
Company ranking junior to or on a parity with the Preferred Shares of such
series as to dividends or upon liquidation, nor shall any Common Shares, or
any other capital shares of the Company ranking junior to or on a parity with
the Preferred Shares of such series as to dividends or upon liquidation be
redeemed, purchased or otherwise acquired for any consideration (or any moneys
be paid to or made available for a sinking fund for the redemption of any such
shares) by the Company (except by conversion into or exchange for other
capital shares of the Company ranking junior to the Preferred Shares of such
series as to dividends and upon liquidation).
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Shares
will be subject to mandatory redemption or redemption at the option of the
Company, in whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of such Preferred
Shares that shall be redeemed by the Company in each year commencing after a
date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon
(which shall not, if such Preferred Shares do not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in
cash or other property, as specified in the applicable Prospectus Supplement.
If the redemption price for Preferred Shares of any series is payable only
from the net proceeds of the issuance of capital shares of the Company, the
terms of such Preferred Shares may provide that, if no such capital shares
shall have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Shares shall automatically and mandatorily be converted into the
applicable capital shares of the Company pursuant to conversion provisions
specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Shares
has a cumulative dividend, full cumulative dividends on all Preferred Shares
of any series shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the current dividend period and (ii) if such
series of Preferred Shares does not have a cumulative dividend, full dividends
of the Preferred Shares of any series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, no Preferred Shares of
any series shall be redeemed unless all outstanding Preferred Shares of such
series are simultaneously redeemed; provided, however, that the foregoing
shall not prevent the purchase or acquisition of Preferred Shares of such
series to preserve the REIT status of the Company or pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding Preferred
Shares of such series. In addition, unless (i) if such series of Preferred
Shares has a cumulative dividend, full cumulative dividends on all outstanding
shares of any series of Preferred Shares have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for all past dividends periods and the then current dividend
period, and (ii) if such series of Preferred Shares does not have a cumulative
dividend, full dividends on the Preferred Shares of any series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for the then current dividend
period, the Company shall not purchase or otherwise acquire directly or
indirectly any Preferred Shares of such series (except by conversion into or
exchange for capital shares of the Company ranking junior to the Preferred
Shares of such series as to dividends and upon liquidation); provided,
however, that the foregoing shall not prevent the purchase or acquisition of
Preferred Shares of such series to preserve the REIT status of the Company or
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding Preferred Shares of such series.
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If fewer than all of the outstanding Preferred Shares of any series are to
be redeemed, the number of shares to be redeemed will be determined by the
Company and such shares may be redeemed pro rata from the holders of record of
such shares in proportion to the number of such shares held or for which
redemption is requested by such holder (with adjustments to avoid redemption
of fractional shares) or by lot in a manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares
of any series to be redeemed at the address shown on the share transfer books
of the Company. Each notice shall state: (i) the redemption date; (ii) the
number and series of Preferred Shares to be redeemed; (iii) the redemption to
be surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi)
the date upon which the holder's conversion rights, if any, as to such shares
shall terminate. If fewer than all of the Preferred Shares of any series are
to be redeemed, the notice mailed to each such holder thereof shall also
specify the number of Preferred Shares to be redeemed from each such holder.
If notice of redemption of any Preferred Shares has been given and if the
funds necessary for such redemption have been set aside by the Company in
trust for the benefit of the holders of any Preferred Shares so called for
redemption, then from and after the redemption date dividends will cease to
accrue on such Preferred Shares, and all rights of the holders of such shares
will terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Shares or any other class or series of
capital shares of the Company ranking junior to the Preferred Shares in the
distribution of assets upon any liquidation, dissolution or winding up of the
Company, the holders of each series of Preferred Shares shall be entitled to
receive out of assets of the Company legally available for distribution to
shareholders liquidating distributions in the amount of the liquidation
preference per share (set forth in the applicable Prospectus Supplement), plus
an amount equal to all dividends accrued and unpaid thereon (which shall not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Shares do not have a cumulative dividend). After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of Preferred Shares will have no right or claim to any
of the remaining assets of the Company. In the event that, upon any such
voluntary or involuntary liquidation, dissolution or winding up, the available
assets of the Company are insufficient to pay the amount of the liquidating
distributions on all outstanding Preferred Shares and the corresponding
amounts payable on all shares of other classes or series of capital shares of
the Company ranking on a parity with the Preferred Shares in the distribution
of assets, then the holders of the Preferred Shares and all other such classes
or series of capital shares shall share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares, the remaining assets of the Company shall be distributed
among the holders of any other classes or series of capital shares ranking
junior to the Preferred Shares upon liquidation, dissolution or winding up,
according to their respective rights and preferences and in each case
according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation,
trust or entity, or the sale, lease or conveyance of all or substantially all
of the property or business of the Company, shall not be deemed to constitute
a liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Holders of Preferred Shares will not have any voting rights, except as set
forth below or as otherwise from time to time required by law or as indicated
in the applicable Prospectus Supplement.
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Whenever dividends on any Preferred Shares shall be in arrears for six or
more consecutive quarterly periods, the holders of such Preferred Shares
(voting separately as a class with all other series of Preferred Shares upon
which like voting rights have been conferred and are exercisable) will be
entitled to vote for the election of two additional Trustees of the Company at
a special meeting called by the holders of record of at least ten percent
(10%) of any series of Preferred Shares so in arrears (unless such request is
received less than 90 days before the date fixed for the next annual or
special meeting of the shareholders) or at the next annual meeting of
shareholders, and at each subsequent annual meeting until (i) if such series
of Preferred Shares has a cumulative dividend, all dividends accumulated on
such shares of Preferred Shares for the past dividend periods and the then
current dividend period shall have been fully paid or declared and a sum
sufficient for the payment thereof set aside for payment or (ii) if such
series of Preferred Shares do not have a cumulative dividend, four consecutive
quarterly dividends shall have been fully paid or declared and a sum
sufficient for the payment thereof set aside for payment. In such case, the
entire Board of Trustees of the Company will be increased by two Trustees.
Unless provided otherwise for any series of Preferred Shares, so long as any
Preferred Shares remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of at least two-thirds of each
series of Preferred Shares outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount
of, any class or series of capital shares ranking prior to such series of
Preferred Shares with respect to the payment of dividends or the distribution
of assets upon liquidation, dissolution or winding up or reclassify any
authorized capital shares of the Company into such shares, or create,
authorize or issue any obligation or security convertible into or evidencing
the right to purchase any such shares; or (ii) amend, alter or repeal the
provisions of the Company's Declaration of Trust or the Designating Amendment
for such series of Preferred Shares, whether by merger, consolidation or
otherwise (an "Event"), so as to materially and adversely affect any right,
preference, privilege or voting power of such series of Preferred Shares or
the holders thereof; provided, however, with respect to the occurrence of any
of the Events set forth in (ii) above, so long as the Preferred Shares remain
outstanding with the terms thereof materially unchanged, taking into account
that upon the occurrence of an Event, the Company may not be the surviving
entity, the occurrence of any such Event shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting power of
holders of Preferred Shares and provided further that (x) any increase in the
amount of the authorized Preferred Shares or the creation or issuance of any
other series of Preferred Shares, or (y) any increase in the amount of
authorized shares of such series or any other series of Preferred Shares, in
each case ranking on a parity with or junior to the Preferred Shares of such
series with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up, shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding Preferred Shares of such series shall have been
redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Shares
is convertible into Common Shares will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
Common Shares into which the Preferred Shares are convertible, the conversion
price (or manner of calculation thereof), the conversion period, provisions as
to whether conversion will be at the option of the holders of the Preferred
Shares or the Company, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of
such series of Preferred Shares.
SHAREHOLDER LIABILITY
As discussed below under "Description of Common Shares of Beneficial
Interest--General," applicable Alabama law provides that no shareholder,
including holders of Preferred Shares, shall be personally liable for
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the acts and obligations of the Company and that the funds and property of the
Company shall be the only recourse for such acts or obligations.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Description of Common Shares of Beneficial
Interest--Ownership Limits," for the Company to qualify as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"), not more than 50% in
value of its outstanding capital shares may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year. To assist the Company in
meeting this requirement, the Company may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of the
Company's outstanding equity securities, including any Preferred Shares of the
Company. Therefore, the Designating Amendment for each series of Preferred
Shares may contain provisions restricting the ownership and transfer of
Preferred Shares.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF COMMON SHARES OF BENEFICIAL INTEREST
GENERAL
The authorized capital stock of the Company of 50,000,000 shares includes
common shares of beneficial interest, $.01 par value per share ("Common
Shares"). The outstanding Common Shares entitle the holder to one vote on all
matters presented to shareholders for a vote. Holders of Common Shares have no
preemptive rights. At December 1, 1996, there were 17,660,527 Common Shares
outstanding.
Common Shares currently outstanding are listed for trading on the New York
Stock Exchange (the "NYSE"). The Company will apply to the NYSE to list the
additional Common Shares to be sold pursuant to any Prospectus Supplement, and
the Company anticipates that such shares will be so listed.
Both Alabama statutory law governing real estate investment trusts organized
under the laws of that state (the "Alabama REIT Law") and the Company's
Declaration of Trust provide that no shareholder of the Company will be
personally liable for any obligations of the Company. The Company's Bylaws
further provide that the Company shall indemnify each shareholder against any
claim or liability to which the shareholder may become subject by reason of
his being or having been a shareholder, and that the Company shall reimburse
each shareholder for all legal and other expenses reasonably incurred by him
in connection with any such claim or liability. In addition, it will be the
Company's policy to include a clause in its contracts which provides that
shareholders assume no personal liability for obligations entered into on
behalf of the Company. However, with respect to tort claims, contractual
claims where shareholder liability is not so negated, claims for taxes and
certain statutory liability, the shareholder may, in some jurisdictions, be
personally liable to the extent that such claims are not satisfied by the
Company. Inasmuch as the Company will carry public liability insurance which
it considers adequate, any risk of personal liability to shareholders is
limited to situations in which the Company's assets plus its insurance
coverage would be insufficient to satisfy the claims against the Company and
its shareholders.
Subject to such preferential rights as may be granted by the Board of
Trustees in connection with the future issuance of Preferred Shares, holders
of Common Shares are entitled to one vote per share on all matters to be
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voted on by shareholders and are entitled to receive ratably such dividends as
may be declared on the Common Shares by the Board of Trustees in its
discretion from funds legally available therefor. In the event of the
liquidation, dissolution or winding up of the Company, holders of Common
Shares are entitled to share ratably in all assets remaining after payment of
all debts and other liabilities and any liquidation preference of the holders
of Preferred Shares. Holders of Common Shares have no subscription,
redemption, conversion or preemptive rights. Matters submitted for shareholder
approval generally require a majority vote of the shares present and voting
thereon.
Advance Notice of Trustee Nominations and New Business. The Bylaws of the
Company provide that, with respect to an annual meeting of shareholders, the
proposal of business to be considered by shareholders may be made only (i) by
or at the direction of the Board of Trustees or (ii) by a shareholder who has
complied with the advance notice procedures set forth in the Bylaws. In
addition, with respect to any meeting of shareholders, nominations of persons
for election to the Board of Trustees may be made only (i) by or at the
direction of the Board of Trustees or (ii) by any shareholder of the Company
who is entitled to vote at the meeting and has complied with the advance
notice provisions set forth in the Bylaws.
RESTRICTIONS ON TRANSFER
Ownership Limits. The Company's Declaration of Trust contains certain
restrictions on the number of Common Shares that individual shareholders may
own. For the Company to qualify as a REIT under the Code, no more than 50% in
value of its outstanding Common Shares may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year (other than the first year)
or during a proportionate part of a shorter taxable year. The Common Shares
must also be beneficially owned by 100 or more persons during at least 335
days of a taxable year or during a proportionate part of a shorter taxable
year. Because the Company intends to maintain its qualification as a REIT, the
Declaration of Trust of the Company contains restrictions on the ownership and
transfer of Common Shares intended to ensure compliance with these
requirements.
Subject to certain exceptions specified in the Declaration of Trust, no
holder may own, or be deemed to own by virtue of certain attribution
provisions of the Code, more than 5% (the "Common Shares Ownership Limit") of
the issued and outstanding Common Shares. Members of the Lowder family (which
includes Thomas and James Lowder, members of their family and various
corporations and partnerships owned by them) are not subject to the Common
Shares Ownership Limit, but they are prohibited from acquiring additional
Common Shares if, as a result of such acquisition, a single member of the
Lowder family would be considered to own beneficially more than 29% of the
outstanding Common Shares, or any two members of the Lowder family would be
considered to own beneficially more than 34% of the outstanding Common Shares,
or any three members of the Lowder family would be considered to own
beneficially more than 39% of the outstanding Common Shares or any four
members of the Lowder family would be considered to own beneficially more than
44% of the outstanding Common Shares (the "Excluded Holder Limit"). In
addition, they are prohibited from acquiring any Common Shares if such
acquisition would cause five beneficial owners of Common Shares to
beneficially own in the aggregate more than 50% in value of the outstanding
Common Shares.
In addition to the foregoing ownership limits, no holder may own, directly
or by attribution, more than 9.8% of the issued and outstanding Common Shares
and Preferred Shares on a combined basis (the "Aggregate Ownership Limit").
Also, no holder may own, directly or by attribution, more than 9.8% of any
class or series of Preferred Shares (the "Preferred Shares Ownership Limit").
(The Common Shares Ownership Limit, the Excluded Holder Limit, the Preferred
Shares Ownership Limit and the Aggregate Ownership Limit are referred to
collectively herein as the "Ownership Limits".)
The Board of Trustees may increase the Ownership Limits from time to time,
but may not do so to the extent that after giving effect to such increase five
beneficial owners of shares could beneficially own in the aggregate more than
49% of the outstanding Shares. The Board of Trustees may, with a ruling from
the IRS or
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an opinion of counsel satisfactory to it, waive the Ownership Limits with
respect to a holder if such holder's ownership will not then or in the future
jeopardize the Company's status as a REIT.
Excess Shares. If any person owns, either directly or constructively under
the applicable attribution rules of the Code, Shares in excess of any of the
Ownership Limits (which include limits where the acquisition or ownership of
Shares would cause the Company to fail to qualify as a REIT), such person will
be deemed to have exchanged the Shares that cause an Ownership Limit to be
exceeded for an equal number of Excess Shares. The Excess Shares will not be
deemed issued to the person who exceeded the Ownership Limit, but instead will
be held by the Company as trustee of a trust for the exclusive benefit of a
transferee (or transferees) to be designated by the Company, provided that
such designee is a person to whom an equal number of Shares could be
transferred without violating the Ownership Limits. In addition, any purported
transfer of Shares which would cause the transferee to hold Shares in excess
of the Ownership Limits, shall be null and void. In such cases, the intended
transferee will acquire no rights or economic interest in the Shares, and the
transferor will be deemed instead to have transferred such Shares to the
Company in exchange for Excess Shares, which will be deemed to be held by the
Company as trustee of a trust for the exclusive benefit of the person or
persons to whom the Shares can be transferred without violating the Ownership
Limits. The Company generally must designate a transferee within 30 days of an
event which results in the deemed exchange for Excess Shares.
A person who holds or acquires Shares that shall have been deemed exchanged
for Excess Shares will not be entitled to vote the Excess Shares and will not
be entitled to receive any distributions (any distribution paid on Shares
prior to the discovery by the Company that such Shares have been exchanged for
Excess Shares shall be repaid to the Company upon demand, and any distribution
declared but unpaid shall be rescinded). Such person shall be entitled to
receive consideration paid by the Company's designated transferee in an amount
that is equal to the lesser of (i) in the case of a deemed exchange for Excess
Shares resulting from a transfer for value, the price paid for the Shares in
such transfer, or, in the case of a deemed exchange for Excess Shares
resulting from some other event, the market price, on the date of the deemed
exchange, of the Shares deemed exchanged, and (ii) the market price of the
Shares for which such Excess Shares are deemed to be exchanged, on the date of
the designation of the transferee. Any amount paid by the designated
transferee in excess of the amount described in the preceding sentence will be
paid to the Company. For these purposes, the market price on a given date is
determined by reference to the average closing price of the Shares for the
five preceding days. The Excess Shares so transferred will automatically be
deemed to be exchanged for Shares. Excess Shares may be purchased by the
Company for the lesser of (i) in the case of a deemed exchange for Excess
Shares resulting from a transfer for value, the price paid for the Shares in
such transfer, or, in the case of a deemed exchange for Excess Shares
resulting from some other event, the market price, on the date of the deemed
exchange, of the Shares deemed exchanged, and (ii) the market price of the
Shares for which such Excess Shares are deemed to be exchanged, on the date
the Company purchases the Excess Shares.
The Board of Trustees has the authority at any time to waive the requirement
that Excess Shares be issued or be deemed outstanding in accordance with the
provisions of the Declaration of Trust if the issuance of such Excess Shares
or the fact that such Excess Shares are deemed to be outstanding would in the
opinion of counsel be satisfactory to jeopardize the status of the Company as
a REIT for Federal income tax purposes.
All certificates representing Common Shares will bear a legend referring to
the restrictions described above.
Every owner of more than 5% (or such lower percentage as required by the
Code or regulations thereunder) of the issued and outstanding Common Shares
must file a written notice with the Company containing the information
specified in the Declaration of Trust no later than December 31 of each year.
In addition, each shareholder shall upon demand be required to disclose to the
Company in writing such information as the Company may request in good faith
in order to determine the Company's status as a REIT.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Common Shares is the First National
Bank of Boston.
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DESCRIPTION OF COMMON SHARE WARRANTS
The Company may issue Common Share Warrants for the purchase of Common
Shares. Common Share Warrants may be issued independently or together with any
other Securities offered by any Prospectus Supplement and may be attached to
or separate from such Securities. Each series of Common Share Warrants will be
issued under a separate warrant agreement (each, a "Warrant Agreement") to be
entered into between the Company and a warrant agent specified in the
applicable Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will
act solely as an agent of the Company in connection with the Common Share
Warrants of such series and will not assume any obligation or relationship of
agency or trust for or with any holders or beneficial owners of Common Share
Warrants. The following sets forth certain general terms and provisions of the
Common Share Warrants offered hereby. Further terms of the Common Share
Warrants and the applicable Warrant Agreements will be set forth in the
applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Common
Share Warrants in respect of which this Prospectus is being delivered,
including, where applicable, the following:
(1) The title of such Common Share Warrants;
(2) The aggregate number of such Common Share Warrants;
(3) The price or prices at which such Common Share Warrants will be
issued;
(4) The designation, number and terms of the Common Shares purchasable
upon exercise of such Common Share Warrants;
(5) The designation and terms of the other Securities offered thereby
with which such Common Share Warrants are issued and the number of such
Common Share Warrants issued with each such Security offered thereby;
(6) The date, if any, on and after which such Common Share Warrants and
the related Common Stock will be separately transferable;
(7) The price at which each of the Common Shares purchasable upon
exercise of such Common Share Warrants may be purchased;
(8) The date on which the right to exercise such Common Share Warrants
shall commence and the date on which such right shall expire;
(9) The minimum or maximum number of such Common Share Warrants which may
be exercised at any one time;
(10) Information with respect to book entry procedures, if any;
(11) A discussion of certain federal income tax considerations; and
(12) Any other terms of such Common Share Warrants, including terms,
procedures and limitations relating to the exchange and exercise of such
Common Share Warrants.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a description of certain Federal income tax consequences to
the Company and the holders of Common Shares, Preferred Shares and Common
Share Warrants of the treatment of the Company as a REIT under applicable
provisions of the Code. The following discussion, which is not exhaustive of
all possible tax considerations, does not give a detailed discussion of any
state, local or foreign tax considerations. Nor does it discuss all of the
aspects of Federal income taxation that may be relevant to a prospective
shareholder in light of his or her particular circumstances or to certain
types of shareholders (including insurance companies, tax-exempt entities,
financial institutions or broker-dealers, foreign corporations and persons who
are not citizens or residents of the United States) who are subject to special
treatment under the Federal income tax laws. As used in this section, the term
"Company" refers solely to Colonial Properties Trust.
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EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF SHARES IN AN ENTITY ELECTING 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.
TAXATION OF THE COMPANY
General. The Company, which is considered a corporation for Federal income
tax purposes, has elected to be taxed as a REIT under Sections 856 through 860
of the Code effective as of its taxable year ending December 31, 1993. The
Company believes that it is organized and has operated in a manner so as to
qualify for taxation as a REIT under the Code, and the Company intends to
continue to operate in such a manner. No assurance, however, can be given that
the Company has operated in a manner so as to qualify as a REIT or that it
will continue to operate in such a manner in the future. Qualification and
taxation as a REIT depends upon the Company's ability to meet on a continuing
basis, through actual annual operating results, distribution levels and
diversity of stock ownership, the various qualification tests imposed under
the Code on REITs, some of which are summarized below. While the Company
intends to operate so that it qualifies as a REIT, given the highly complex
nature of the rules governing REITs, the ongoing importance of factual
determinations, and the possibility of future changes in circumstances of the
Company, no assurance can be given that the Company satisfies such tests or
will continue to do so. See "--Failure to Qualify" below.
The following is a general summary of the Code provisions that govern the
Federal income tax treatment of a REIT and its shareholders. These provisions
of the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations and
administrative and judicial interpretations thereof.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income taxes on net income that it currently
distributes to shareholders. However, the Company will be subject to Federal
income tax on any income that it does not distribute and will be subject to
Federal income tax in certain circumstances on certain types of income even
though that income is distributed.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares of
stock, or by transferable certificates of beneficial interest; (3) that would
be taxable as a domestic corporation, but for Sections 856 through 859 of the
Code; (4) that is neither a financial institution nor an insurance company
subject to certain provisions of the Code; (5) the beneficial ownership of
which is held by 100 or more persons; (6) that during the last half of each
taxable year not more than 50% in value of the outstanding stock of which is
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities); and (7) that meets certain other tests,
described below, regarding the nature of its income and assets. The Code
provides that conditions (1) through (4), inclusive, must be met during the
entire taxable year and that condition (5) must be met during at least 335
days of a taxable year of 12 months, or during a proportionate part of a
taxable year of less than 12 months. The Company's Declaration of Trust
contains restrictions regarding the transfer of its Common Shares that are
intended to assist the Company in continuing to satisfy the share ownership
requirements described in (5) and (6) above. See "Description of Shares of
Beneficial Interest--Restrictions on Transfer."
Income Tests. In order to maintain qualification as a REIT, there are three
gross income requirements that must be satisfied annually. First, at least 75%
of the REIT's 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 certain circumstances, interest)
or from certain types of temporary investments. Second, at least 95% of the
REIT's gross income
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(excluding gross income from prohibited transactions) for each taxable year
must be derived from the same items which qualify under the 75% income test,
and from dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing. Third, short-term gain
from the sale or other disposition of stock or securities, gain from
prohibited transactions and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of the REIT's
gross income (including gross income from prohibited transactions) for each
taxable year.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions (related to the identity of the tenant, the computation of
the rent payable, and the nature of the property leased) are met. The Company
does not anticipate receiving rents in excess of 1% of gross revenue that fail
to meet these conditions. In addition, for rents received to qualify as "rents
from real property," the Company generally must not operate or manage the
property or furnish or render services to tenants, other than through an
"independent contractor" from whom the Company derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent
the services provided by the Company are "usually or customarily rendered" in
connection with the rental space for occupancy only and are not otherwise
considered "rendered to the occupant." The Management Partnership, which is
not an "independent contractor," provides certain services with respect to the
Properties, but the Company believes that all such services should be
considered "usually or customarily rendered" in connection with the rental of
space for occupancy only, although there is no assurance that the IRS might
not contend otherwise. If the Operating Partnership contemplates providing
services in the future that reasonably might be expected not to meet the
"usual or customary" standard, it will arrange to have such services provided
by an independent contractor from which the Operating Partnership will receive
no income.
The Operating Partnership and/or the Management Partnership may receive fees
in consideration of the performance of property management services with
respect to certain Properties not owned entirely by the Operating Partnership.
A portion of such fees (corresponding to that portion of a Property owned by a
third- party) will not qualify under the 75% or 95% gross income test. The
Operating Partnership also may receive certain other types of income with
respect to the Properties it owns that will not qualify for the 75% or 95%
gross income test. In addition, dividends on the Company's stock in the
Management Corporation and its share of interest on the Management Corporation
note will not qualify under the 75% gross income test. The Company believes,
however, that the aggregate amount of such fees and other non-qualifying
income in any taxable year will not cause the Company to exceed the limits on
nonqualifying income under the 75% and 95% gross income tests.
If the Company fails to satisfy one or both of the 75% or the 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code. It
is not possible, however, to state whether in all circumstances the Company
would be entitled to the benefit of these relief provisions. Even if these
relief provisions were to apply, however, a tax would be imposed with respect
to the "excess net income" attributable to the failure to satisfy the 75% and
95% gross income tests.
Asset Tests. At the close of each quarter of its taxable year, the Company
also must satisfy three tests relating to the nature of its assets: (i) at
least 75% of the value of the Company's total assets must be represented by
"real estate assets", cash, cash items and government securities; (ii) not
more than 25% of the Company's total assets may be represented by securities
other than those in the 75% asset class; and (iii) of the investments included
in the 25% asset class, the value of any one issuer's securities (other than
an interest in a partnership, shares of a "qualified REIT subsidiary" or
another REIT) owned by the Company may not exceed 5% of the value of the
Company's total assets, and the Company may not own more than 10% of any one
issuer's outstanding voting securities (other than an interest in a
partnership, shares of a "qualified REIT subsidiary" or another REIT). The
Company owns 100% of the nonvoting stock and l% of the voting stock of the
Management Corporation. In addition, the Operating Partnership owns a note
issued by the Management Corporation, and by virtue of its ownership of Units,
the Company is considered to own its pro rata share of the note of the
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Management Corporation. Neither the Company nor the Operating Partnership,
however, own more than 10% of the voting securities of the Management
Corporation. In addition, the Company and its senior management believe that
the Company's pro rata share of the value of the securities of the Management
Corporation (taking into account both the stock of the Management Corporation
held directly and the Company's pro rata share of the note of the Management
Corporation held by the Operating Partnership) do not exceed 5% of the total
value of the Company's assets. There can be no assurance, however, that the
IRS might not contend either that the value of the securities of the
Management Corporation held by the Company (directly and through the Operating
Partnership) exceeds the 5% value limitation or that the nonvoting stock of
the Management Corporation owned by the Operating Partnership should be
considered "voting stock" for this purpose.
The 5% value requirement must be satisfied each time the Company increases
its ownership of securities of the Management Corporation (including as a
result of increasing its interest in the Operating Partnership as limited
partners exercise their redemption rights or, for example, as a result of
investing the proceeds of sales of Common Shares in the Operating
Partnership). Although the Company plans to take steps to ensure that it
satisfies the 5% value test for any quarter with respect to which retesting is
to occur, there can be no assurance that such steps will always be successful
or will not require a reduction in the Company's overall interest in the
Management Corporation.
Annual Distribution Requirements. To qualify as a REIT, the Company
generally must distribute to its shareholders at least 95% of its income each
year. In addition, the Company will be subject to tax on the undistributed
amount at regular capital gains and ordinary corporate tax rates and also may
be subject to a 4% excise tax on undistributed income in certain events.
The Company believes that it has made, and intends to continue to make,
timely distributions sufficient to satisfy the annual distribution
requirements. It is possible, however, that the Company, from time to time,
may not have sufficient cash or other liquid assets to meet the distribution
requirements. In that event, CPHC may cause the Operating Partnership to
arrange for short-term, or possibly long-term, borrowing to permit the
payments of required dividends.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year, the Company will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Unless entitled to relief under specific statutory provisions, the
Company also will be disqualified from taxation as a REIT for the four taxable
years following the year during which qualification was lost. It is not
possible to state whether in all circumstances the Company would be entitled
to such statutory relief.
TAXATION OF HOLDERS OF COMMON SHARES
Taxation of Taxable Domestic Shareholders. As long as the Company qualifies
as a REIT, distributions made to the Company's taxable domestic shareholders
out of current or accumulated earnings and profits (and not designated as
capital gain dividends) will be taken into account by them as ordinary income,
and corporate shareholders will not be eligible for the dividends received
deduction as to such amounts. For purposes of determining whether
distributions on the Common Shares are out of current or accumulated earnings
and profits, the earnings and profits of the Company will be allocated first
to Preferred Shares, if any, and second to the Common Shares. There can be no
assurance that the Company will have sufficient earnings and profits to cover
distributions on any Preferred Shares. Distributions that are designated as
capital gain dividends will be taxed as long-term capital gains (to the extent
they do not exceed the Company's actual net capital gain for the taxable year)
without regard to the period for which the shareholder has held its stock.
However, corporate shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Distributions in excess of current
or accumulated earnings and profits will not be taxable to a shareholder to
the extent that they do not exceed the adjusted basis of the shareholder's
Common Shares, but rather will reduce the adjusted basis of such Common
Shares. To the extent that such distributions exceed the adjusted basis of a
shareholder's Common Shares, they will be included in income as long-term
capital gain (or short-term capital gain if the Common
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Shares have been held for one year or less), assuming the Common Shares are a
capital asset in the hands of the shareholder.
In general, a domestic shareholder will realize capital gain or loss on the
disposition of Common Shares equal to the difference between (i) the amount of
cash and the fair market value of any property received on such disposition
and (ii) the shareholder's adjusted basis of such Common Shares. Such gain or
loss generally will constitute long-term capital gain or loss if the
shareholder has held such shares for more than one year. Loss upon a sale or
exchange of Common Shares by a shareholder who has held such Common Shares for
six months or less (after applying certain holding period rules) will be
treated as a long-term capital loss to the extent of distributions from the
Company required to be treated by such shareholder as long-term capital gain.
Under certain circumstances, domestic shareholders may be subject to backup
withholding at the rate of 31% with respect to dividends paid.
Taxation of Tax-Exempt Shareholders. The Company does not expect that
distributions by the Company to a shareholder that is a tax-exempt entity will
constitute "unrelated business taxable income" ("UBTI"), provided that the
tax-exempt entity has not financed the acquisition of its Common Shares with
"acquisition indebtedness" within the meaning of the Code and the Common
Shares are not otherwise used in an unrelated trade or business of the tax-
exempt entity.
Taxation of Non-U.S. Shareholders. The rules governing U.S. Federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign shareholders (collectively, "Non-U.S.
Shareholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. Prospective Non-U.S. Shareholders should
consult with their own tax advisors to determine the impact of U.S. Federal,
state and local income tax laws with regard to an investment in Common Shares,
including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
the Company of U.S. real property interests and not designated by the Company
as capital gain dividends will be treated as dividends of ordinary income to
the extent that they are made out of current or accumulated earnings and
profits of the Company. Such distributions, ordinarily, will be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces that tax. Distributions in excess of current and
accumulated earnings and profits of the Company will not be taxable to a Non-
U.S. Shareholder to the extent that they do not exceed the adjusted basis of
the shareholder's Common Shares, but rather will reduce the adjusted basis of
such Common Shares. To the extent that such distributions exceed the adjusted
basis of a Non-U.S. Shareholder's Common Shares, they will give rise to tax
liability if the Non-U.S. Shareholder would otherwise be subject to tax on any
gain from the sale or disposition of his Common Shares as described below (in
which case they also may be subject to a 30% branch profits tax if the
shareholder is a foreign corporation). If it cannot be determined at the time
a distribution is made whether or not such distribution will be in excess of
current or accumulated earnings and profits, the entire distribution will be
subject to withholding at the rate applicable to dividends. However, the Non-
U.S. Shareholder may seek a refund of such amounts from the IRS if it is
subsequently determined that such distribution was, in fact, in excess of
current or accumulated earnings and profits of the Company.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of U.S. real
property interests will be taxed to a Non-U.S. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA") at the normal capital gain rates applicable to U.S. shareholders
(subject to applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals). Also, distributions
subject to FIRPTA may be subject to a 30% branch profits tax in the hands of a
corporate Non-U.S. Shareholder not entitled to treaty relief or exemption. The
Company is required by applicable Treasury Regulations to withhold 35% of any
distribution that is or could be designated by the Company as a capital gain
dividend. The amount withheld is creditable against the Non-U.S. Shareholder's
FIRPTA tax liability.
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Gain recognized by a Non-U.S. Shareholder upon a sale of Common Shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. The Company believes that it is a
"domestically controlled REIT," and, therefore, that the sale of Common Shares
will not be subject to taxation under FIRPTA. If the gain on the sale of
Common Shares were to be subject to tax under FIRPTA, the Non-U.S. Shareholder
would be subject to the same treatment as U.S. shareholders with respect to
such gain (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals), and the
purchaser of the Common Shares would be required to withhold and remit to the
IRS 10% of the purchase price.
TAXATION OF HOLDERS OF PREFERRED SHARES OR COMMON SHARE WARRANTS
Additional Tax Consequences for Holders of Preferred Shares or Common Share
Warrants. If the Company offers one or more series of Preferred Shares or
Common Share Warrants, then there may be tax consequences for the holders of
such Securities not discussed herein. For a discussion of any such additional
consequences, see the applicable Prospectus Supplement.
OTHER TAX CONSIDERATIONS
Entity Classification. Substantially all of the Company's investments are
through the Operating Partnership and the Management Partnership. If either
the Operating Partnership or the Management Partnership were treated as an
association, the entity would be taxable as a corporation and therefore would
be subject to an entity level tax on its income. In such a situation, the
character of the Company's assets and items of gross income would change and
would preclude the Company from qualifying as a REIT (see "Taxation of the
Company--Income Tests" and "--Asset Tests").
Prior to January 1, 1997, an organization formed as a partnership or a
limited liability company was treated as a partnership for Federal income tax
purposes rather than as a corporation only if it had no more than two of the
four corporate characteristics that the Treasury Regulations in effect at that
time used to distinguish a partnership from a corporation for tax purposes.
These four characteristics were (i) continuity of life, (ii) centralization of
management, (iii) limited liability and (iv) free transferability of
interests. Under final Treasury Regulations which became effective January 1,
1997, the four factor test has been eliminated and an entity formed as a
partnership or as a limited liability company will be taxed as a partnership
for Federal income tax purposes, unless it specifically elects otherwise. The
Regulations provide that the IRS will not challenge the classification of an
existing partnership or limited liability company for tax periods prior to
January 1, 1997 so long as (1) the entity had a reasonable basis for its
claimed classification, (2) the entity and all of its members recognized the
federal income tax consequences of any changes in the entity's classification
within the 60 months prior to January 1, 1997, and (3) neither the entity nor
any member of the entity had been notified in writing on or before May 8,
1996, that the classification of the entity was under examination by the IRS.
The Company believes that the Operating Partnership and the Management
Partnership each will be treated as a partnership for Federal income tax
purposes (and not as an association taxable as a corporation) both under
existing Treasury Regulations and under the new Treasury Regulations that will
become effective January 1, 1997.
Tax Allocations with Respect to the Properties. The Operating Partnership
was formed by way of contributions of appreciated property (including certain
of the Properties and additional appreciated properties that have been
contributed to the Operating Partnership since its formation). When property
is contributed to a partnership in exchange for an interest in the
partnership, the partnership generally takes a carryover basis in that
property for tax purposes equal to the adjusted basis of the contributing
partner in the property, rather than a basis equal to the fair market value of
the property at the time of contribution (this difference is referred to as a
"Book-Tax Difference"). The Partnership Agreement requires allocations of
income, loss, gain and deduction with respect to the contributed Property be
made in a manner consistent with the special rules in section 704(c)
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of the Code and the regulations thereunder, which allocations will tend to
eliminate the Book-Tax Differences with respect to the contributed Properties
over the life of the Operating Partnership. However, because of certain
technical limitations, the special allocation rules of section 704(c) of the
Code may not always entirely eliminate the Book-Tax Difference on an annual
basis or with respect to a specific taxable transaction such as a sale. Thus,
the carryover basis of the contributed Properties in the hands of the
Operating Partnership could cause the Company (i) to be allocated lower
amounts of depreciation and other deductions for tax purposes than would be
allocated to the Company if all Properties were to have a tax basis equal to
their fair market value at the time of their contribution to the Operating
Partnership, and (ii) possibly to be allocated taxable gain in the event of a
sale of such contributed Properties in excess of the economic or book income
allocated to the Company as a result of such sale.
Management Corporation. A portion of the amount distributed by the Company
to shareholders comes from the Management Corporation, through dividends on
stock to the Operating Partnership held by the Company and payments on the
note held by the Operating Partnership. The Management Corporation does not
qualify as a REIT and thus pays Federal, state and local income taxes on its
net income at normal corporate rates. As a result of interest and amortization
deductions, the Management Corporation does not pay significant income taxes
currently. There can be no assurance, however, that the IRS will not challenge
these deductions. In any event, future increases in the income of the
Management Corporation will be subject to income tax. Any Federal, state or
local income taxes that the Management Corporation is required to pay will
reduce the cash available for distribution by the Company to its shareholders.
In addition, as described above, the value of the securities of the Management
Corporation held by the Company cannot exceed 5% of the value of the Company's
assets at a time when a Partner exercises his redemption right (or the Company
otherwise is considered to acquire additional securities of the Management
Corporation, including as the result of the sale of Common Shares, Preferred
Shares, or Common Share Warrants pursuant to this Prospectus). See "Taxation
of the Company--Asset Tests." This limitation may restrict the ability of the
Management Corporation to increase the size of its respective business unless
the value of the assets of the Company is increasing at a commensurate rate.
State and Local Taxes. The Company and its shareholders may be subject to
state or local taxation in various state or local jurisdictions, including
those in which it or they transact business or reside. The state and local tax
treatment of the Company and its shareholders may not conform to the Federal
income tax consequences discussed above. Consequently, prospective
shareholders should consult their own tax advisors regarding the effect of
state and local tax laws on an investment in the Common Shares, Preferred
Shares or Common Share Warrants of the Company.
The Alabama Real Estate Investment Trust Act (the "Act"), which was enacted
in July 1995, generally conforms the treatment of REITs (such as the Company)
and qualified REIT subsidiaries (such as CPHC) under Alabama tax law to
federal law for tax years beginning after December 31, 1994. In particular,
the Act specifically permits REITs to deduct dividends paid in computing
taxable income for Alabama income tax purposes. In addition, the Act provides
that neither REITs nor qualified REIT subsidiaries will be subject to a tax on
the value of their shares in Alabama. Under Alabama law, each beneficiary of a
REIT is required to report and pay Alabama tax on its share of the REIT's
income to the extent described below. An individual who is an Alabama resident
is required to report and pay tax on all of its share of the REIT's income,
regardless of the source of that income. An individual who is not resident in
Alabama for Alabama state income tax purposes is required to report and pay
tax only on income considered to be Alabama source income (i.e., income that
would be subject to tax in Alabama if received directly by the individual).
For this purpose, however, income derived by a REIT with respect to stock or
securities is not considered to be Alabama source income merely because the
securities are issued by a corporation organized under Alabama law or doing
business in Alabama. Similar treatment applies to a corporate beneficiary of a
REIT that is not organized or otherwise engaged in a "trade or business" in
Alabama. The Company has received an opinion from special Alabama tax counsel
to the effect that so long as the Company's sole assets consist of stock and
securities of other corporations (i.e., CPHC and the Management Corporation),
(i) individual shareholders of the Company who are not residents of Alabama
for
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Alabama state income tax purposes and who do not otherwise receive taxable
income from property owned or business transacted in Alabama and (ii)
corporate shareholders not organized in Alabama that do not otherwise receive
income from sources within, or business transacted in, Alabama will not be
required to file tax returns in Alabama or pay tax in Alabama as a result of
investing in Common Shares, Preferred Shares or Common Share Warrants of the
Company.
The state of Alabama imposes a franchise tax on corporations organized under
Alabama law. The Company is organized as an Alabama real estate investment
trust under the Act and believes that it is not subject to the domestic
franchise tax. Nevertheless, there can be no assurance that the state of
Alabama will not contend that the Alabama franchise tax applies to the
Company. Any Alabama franchise tax that the Company is required to pay will
reduce the cash available for distribution by the Company to shareholders.
The Alabama Department of Revenue initiated a tax audit with respect to the
Company and CPHC for periods prior to the effective date of the Act. In
meetings with the Company and CPHC, the Alabama Department of Revenue
initially raised questions about whether the Company was subject to Alabama
franchise tax as a Maryland REIT and whether CPHC is entitled to certain
substantial deductions claimed by CPHC for Alabama income tax purposes for
interest payments made by CPHC to the Company. Under the Act, CPHC will not be
subject to a franchise tax liability for tax years beginning after December
31, 1994. The Company is unable at this time to predict whether any liability
will result from this audit proceeding or, if so, the amount thereof.
PLAN OF DISTRIBUTION
The Company may sell Securities in or through underwriters for public offer
and sale by them, and also may sell Securities offered hereby to investors
directly or through agents. Any such underwriter or agent involved in the
offer and sale of the Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. The Company may also offer and sell the
Securities in exchange for one or more of its then outstanding issues of debt
or convertible debt securities. The Company also may, from time to time,
authorize underwriters acting as the Company's agents to offer and sell
Securities upon terms and conditions set forth in the applicable Prospectus
Supplement. In connection with the sale of the Securities, underwriters may be
deemed to have received compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of the Securities for whom they may act as agent. Underwriters may
sell Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of the Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters,
dealers and agents participating in the distribution of the Securities may be
deemed to be underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of the Securities may be deemed to
be underwriting discounts and commissions under the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements to be
entered into with the Company, to indemnification against and contribution
toward certain civil liabilities, including liabilities under the Securities
Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Securities from the Company
at the public offering price set forth in such Prospectus Supplement pursuant
to delayed delivery contracts ("Contracts") providing for payment and delivery
on the date or dates stated in such Prospectus Supplement. Each Contract will
be for an amount not less than, and the aggregate principal amount of
Securities sold pursuant to Contracts shall be not less nor more than, the
respective amounts stated in the applicable
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Prospectus Supplement. Institutions with whom Contracts, when authorized, may
be made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions, and
other institutions but will in all cases be subject to the approval of the
Company. Contracts will not be subject to any conditions except (i) the
purchase by an institution of the Securities covered by its Contracts shall
not at the time of delivery be prohibited under the laws of any jurisdiction
in the United States to which such institution is subject, and (ii) if the
Securities are being sold to underwriters, the Company shall have sold to such
underwriters the total principal amount of the Securities less the principal
amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for the Company and its Subsidiaries
in the ordinary course of business.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information can be inspected at the Public Reference Section maintained
by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
and the following regional offices of the Commission: 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material can be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Company's Common
Shares are listed on the New York Stock Exchange and such reports, proxy
statements and other information concerning the Company can be inspected at
the offices of the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement"), of which this Prospectus is a part, under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other documents are not necessarily complete, and in each instance, reference
is made to the copy of such contract or documents filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Securities, reference is hereby made to the
Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment
of the fees prescribed by the Commission. The Commission maintains a "web
site' that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the Commission.
The address of such site is "http://www.sec.gov".
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the Exchange
Act with the Commission and are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1995 (the "10-K").
2. The Company's current reports on Form 8-K filed January 22, 1996 and
December 18, 1996.
3. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996.
4. The Company's Registration Statement on Form 8-A, which incorporates
by reference a description of the Common Shares from the Company's
Registration Statement on Form S-11 (File No. 33-65954) including an
amendment or report filed for the purpose of updating such description.
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All documents filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination
of the offering of all Securities to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and shall be part
hereof from the date of filing of such document.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in
this Prospectus (in the case of a statement in a previously filed document
incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement relating to a specific offering of
Securities or in any other subsequently filed document that is also
incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus or any accompanying Prospectus Supplement. Subject to the
foregoing, all information appearing in this Prospectus and each accompanying
Prospectus Supplement is qualified in its entirety by the information
appearing in the documents incorporated by reference.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon their
written or oral request, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents, unless such
exhibits are specifically incorporated by reference in such documents).
Written requests for such copies should be addressed to Douglas B. Nunnelley,
the Company's Senior Vice President and Chief Financial Officer at 2101 Sixth
Avenue North, Suite 750, Birmingham, Alabama 35203, telephone number (205)
250-8700.
LEGAL MATTERS
The legality of the Debt Securities, the Preferred Shares, the Common Shares
and the Common Share Warrants offered hereby and certain tax matters will be
passed upon for the Company by Hogan & Hartson L.L.P., Washington, D.C.
Certain Alabama tax matters will be passed on for the Company by Sirote &
Permutt, P.C., Birmingham, Alabama.
EXPERTS
The consolidated and combined financial statements and the related financial
statement schedules of the Company for the years ended December 31, 1995,
1994, and 1993, which are included in the Company's Form 10-K (incorporated
herein by reference); the combined historical summary of revenues and direct
operating expenses of Acquired Properties--Crowne Chase Apartments and Crowne
Point Apartments for the year ending December 31, 1995; the historical summary
of revenues and direct operating expenses of Acquired Property--Northdale
Court for the year ended December 31, 1995; the historical summary of revenues
and direct operating expenses of Acquired Property--Wekiva RiverWalk for the
year ended December 31, 1995; the historical summary of revenues and direct
operating expenses of Acquired Property--Bardmoor Village for the year ended
December 31, 1995; and the historical summary of revenues and direct operating
expenses of Acquired Property--Island Walk for the year ended December 31,
1995; all of which are included in the Company's Form 8-K filed with the
Commission on December 18, 1996 (incorporated herein by reference), have been
incorporated by reference herein in reliance upon the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of said firm
as experts in accounting and auditing.
The historical summary of revenues and direct operating expenses of Acquired
Property--Briarcliffe Mall for the year ended December 31, 1995, which is
included in the Company's Form 8-K filed with the Commission on December 18,
1996 (incorporated herein by reference), has been audited by Margolin, Winer &
Evens LLP, independent accountants, and is included herein in reliance upon
the authority of said firm as experts in accounting and auditing.
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