<PAGE>
PROSPECTUS SUPPLEMENT Filed Pursuant to Rule 424(b)(5)
(To Prospectus dated November 21, 1997) Registration No. 333-38613
375,540 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 southern United States. It is a
fully integrated real estate company whose activities include ownership of a
diversified portfolio of 95 properties located in Alabama, Florida, Georgia,
Mississippi, North Carolina, Tennessee, South Carolina and Virginia, 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
("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 February
12, 1998 was $30 per share. See "Price Range of Common Shares and Distribution
History."
Ownership of more than 5% of the Common Shares generally is prohibited 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.
Prospective investors should carefully consider the matters discussed under
"Risk Factors" beginning on page 4 in the accompanying Prospectus.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting
Price to Discounts and Proceeds to
Public Commissions/(1)/ Company/(2)/
- --------------------------------------------------------------------------------
Per Share....................... $30.00 $1.50 $28.50
- --------------------------------------------------------------------------------
Total........................... $11,266,200 $563,310 $10,702,890
================================================================================
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
approximately $30,000.
----------------------
The Common Shares offered by this Prospectus Supplement are offered by
Smith Barney Inc. (the "Underwriter"), subject to prior sale, when, as and if
delivered to and accepted by the Underwriter and subject to its right to reject
orders in whole or in part. It is expected that delivery of the Common Shares
offered hereby will be made at the offices of Smith Barney Inc., 333 West 34th
Street, New York, NY 10001, on or about February 18, 1998.
Salomon Smith Barney
February 12, 1998
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus Supplement, including information incorporated by reference, may
contain statements that may be deemed to be "forward-looking" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Company's actual results or experiences could differ
materially from those set forth in the forward-looking statements. Certain
factors that might cause such a difference are discussed in the section entitled
"Risk Factors" beginning on page 4 of the accompanying Prospectus.
<PAGE>
THE COMPANY
The Company is one of the largest developers, owners and operators of
multifamily, retail and office properties in the southern United States. The
Company or its predecessors have been engaged in the multifamily, retail and
office property business for over 27 years. The Company is a fully-integrated
real estate company whose activities include ownership of a diversified
portfolio of 95 properties located in Alabama, Florida, Georgia, Mississippi,
North Carolina, Tennessee, South Carolina and Virginia, development of new
properties, acquisitions of existing properties and build-to-suit development.
The Company is a self-administered equity REIT that owns 43 garden-style
multifamily apartment communities containing a total of 13,759 apartment units
(the "Multifamily Properties"), 37 retail properties (including 12 regional
malls, two "power centers" and 23 neighborhood shopping centers) containing a
total of approximately 10.6 million square feet of retail space (the "Retail
Properties"), 15 office properties containing a total of approximately 2.2
million square feet of office space (the "Office Properties") and parcels of
land adjacent to or near 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, through Colonial Properties Holding Company, Inc., an Alabama
corporation ("CPHC"), is the sole general partner of, and holds approximately
67.8% of the units of limited partnership interest (the "OP Units") in, Colonial
Realty Limited Partnership, a Delaware limited partnership (the "Operating
Partnership"). (The Company intends to dissolve CPHC during the first half of
1998 and thereby become the direct general partner of the Operating
Partnership.) The Operating Partnership owns, directly or indirectly, 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, which provide management services for the Company's Properties and
for properties owned by third parties. As sole general partner of the Operating
Partnership, the Company, through CPHC, generally has the exclusive power to
manage and conduct the business of the Operating Partnership.
The Company will use the net proceeds of the Offering to repay outstanding
balances under its $200 million unsecured revolving credit facility (the "Line
of Credit").
RECENT DEVELOPMENTS
Securities Issuances
On November 6, 1997, the Company consummated an underwritten public
offering of 5,000,000 8 3/4% Series A Cumulative Redeemable Preferred Shares of
Beneficial Interest, par value $.01 per share (the "Series A Preferred Shares"),
of the Company. The net offering proceeds of $120.5 million were used to repay
outstanding balances under the Line of Credit.
On December 23, 1997, the Company issued 165,632 Common Shares to Legg
Mason Wood Walker, Incorporated, as underwriter of an offering to Legg Mason
REIT Trust, December 1997 Series, a unit investment trust. The net offering
proceeds of approximately $4.7 million were used to repay outstanding balances
under the Line of Credit.
Real Estate Acquisitions
On October 31, 1997, the Company, through the Operating Partnership,
acquired Colonial Village at Caledon Wood (formerly known as Caledon Wood
Apartments), a 350-unit multifamily community. The purchase price of
approximately $21.3 million was funded by an advance on the Line of Credit.
On November 4, 1997, the Company, through the Operating Partnership,
acquired three enclosed shopping malls in Georgia (including Glynn Place Mall,
Valadosta Mall and Lakeshore Mall) for an aggregate purchase price of
approximately $97.0 million. In connection with the acquisition, which was
structured as a like-kind exchange, the Company agreed to sell to a third party
four multifamily properties for an aggregate sale price of approximately $54.8
million, which the third-party purchaser paid by assuming an existing mortgage
of approximately $10 million and paying approximately $44.8 million in cash. The
Company used the cash portion of the sale price, together with an advance on the
Line of Credit in the approximate amount of $52.2 million, to pay the purchase
price of the three malls.
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On November 14, 1997, the Company, through the Operating Partnership,
acquired the 26.95% interest in 2200/2300 Riverchase Center that it did not
already own for a purchase price of approximately $3.4 million, funded by the
issuance of 114,798 OP Units (valued at $29.35 each).
On November 14, 1997, the Company, through the Operating Partnership,
acquired a 50% interest in Colonial Plaza, giving the Company 100% ownership of
the property. The purchase price of approximately $7.4 million was funded by
the assumption of $1.2 million in debt and an advance on the Line of Credit in
the approximate amount of $6.2 million.
On various dates in November and December of 1997 and January of 1998, the
Company, through the Operating Partnership, completed the acquisition of a
portfolio of eight retail properties located in North Carolina, Tennessee and
Virginia. The portfolio includes three enclosed shopping malls (Holly Hill
Mall, Staunton Mall and Mayberry Mall) and five shopping centers (Rivermont
Shopping Center, Quaker Village, Yadkin Plaza Shopping Center, Stanly Plaza and
Abingdon Town Centre). The total purchase price of approximately $78.5 million
was funded by the issuance of 661,517 OP Units (valued at $29.50 each) for an
aggregate amount of approximately $19.5 million, the assumption of approximately
$5.7 million in debt and an advance on the Line of Credit in the approximate
amount of $53.3 million.
On December 31, 1997, the Company acquired the Village at Roswell Summit, a
25,000 square foot community shopping center located in Atlanta, Georgia. The
purchase price of $3.0 million was funded through the assumption of $1.7 million
of debt, the issuance of 34,777 Operating Partnership Units (valued at $29.00
each) and an advance on the Line of Credit of approximately $300,000.
On January 9, 1998, the Company, through the Operating Partnership,
acquired Perimeter Corporate Park, a 233,000 square foot office property located
in Huntsville, Alabama. The purchase price of $19.5 million was funded through
the acquisition of $5.5 million of debt and an advance on the Line of Credit in
the approximate amount of $14.0 million.
On January 15, 1998, the Company, through the Operating Partnership,
acquired Independence Plaza, a 106,000 square foot office property located in
Birmingham, Alabama. The purchase price of $7.5 million was funded by an
advance on the Line of Credit.
Fourth Quarter and Year-End 1997 Results
For the quarter ended December 31, 1997, the Company reported net income of
$10.6 million, representing an increase of 16.5% when compared to net income of
$9.1 million for the same quarter in 1996. Net income for the year ended
December 31, 1997 was $30.3 million, representing an increase of 10.1% when
compared to net income of $27.5 million for the year ended December 31, 1996.
Revenues for the three and twelve months ended December 31, 1997 amounted to
$54.7 million and $184.1 million, respectively, representing increases of 41.7%
and 36.5%, respectively, over revenues of $38.6 million and $134.9 million,
respectively, for the comparable periods in 1996. Earnings per share amounted
to $0.51 for the fourth quarter of 1997 as compared to $0.51 for the fourth
quarter of 1996. Earnings per share for the year ended December 31, 1997
decreased by 3.2% to $1.53 as compared to $1.58 for the year ended December 31,
1996.
USE OF PROCEEDS
The net cash proceeds to the Company from the sale of the Common Shares
offered hereby are estimated to be approximately $10.7 million, after deducting
the estimated expenses payable by the Company. The Company will use the net
proceeds of the Offering to repay outstanding balances under the Line of Credit.
Pending such application, the Company may invest the net proceeds in short-term
investments such as commercial paper, government securities or money market
funds that invest in government securities.
S-4
<PAGE>
PRICE RANGE OF COMMON SHARES AND DISTRIBUTION HISTORY
The Common Shares are traded on the NYSE under the symbol "CLP." As of
December 12, 1997, the Company's transfer agent reported 422 record holders of
Common Shares. The reported last sale price for the Common Shares on the NYSE on
February 12, 1998 was $30 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 paid by the Company during such periods.
Calendar Period High Low Distribution
- --------------- ---- --- ------------
1996:
First Quarter.............................. $26.000 $23.000 $.50
Second Quarter............................. $24.750 $22.000 $.50
Third Quarter.............................. $26.375 $23.750 $.50
Fourth Quarter............................. $30.375 $25.875 $.50
1997:
First Quarter.............................. $31.875 $28.125 $.52
Second Quarter............................. $30.125 $26.625 $.52
Third Quarter.............................. $31.375 $27.500 $.52
Fourth Quarter............................. $30.750 $27.750 $.52
1998
First Quarter (through February 12)........ $31.375 $29.625 $.55
- -------------
The Company's current indicated annualized distribution is $2.20 per Common
Share. The Company has made consecutive quarterly distributions since its
initial public offering and has increased its annual distribution each year. A
portion of the Company's distribution may represent a non-taxable return of
capital and/or a capital gain dividend. Approximately 26% of the 1997
distribution of $2.08 per Common Share was a non-taxable return of capital.
There were no capital gain dividends in 1997. 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.
UNDERWRITING
Subject to the terms and conditions contained in a Purchase Agreement and
related Terms Agreement dated February 12, 1998 (the "Agreement"), among the
Company, the Operating Partnership and the Underwriter, the Company has agreed
to sell to the Underwriter, and the Underwriter has agreed to purchase from the
Company, 375,540 Common Shares at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus Supplement. The Agreement provides that the Underwriter's obligation
to purchase the Common Shares is subject to the satisfaction of certain
conditions, including the receipt of certain legal opinions. The nature of the
Underwriter's obligation is such that it is committed to purchase all of the
Common Shares if any such shares are purchased.
The Underwriter intends to deposit the Common Shares offered hereby with
the trustee of The Equity Focus Trusts -- REIT Portfolio Series, 1998-A (the
"Trust"), a registered unit investment trust under the Investment Company Act of
1940, as amended, for which the Underwriter acts as sponsor and depositor, in
exchange for units of the Trust. The Underwriter is an affiliate of the Trust.
S-5
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The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act, as amended, or to
contribute to payments the Underwriter may be required to make in respect
thereof.
The Underwriter may from time to time provide investment banking and
financial advisory services to the Company and its affiliates for which
customary compensation will be received.
LEGAL MATTERS
The legality of the Common Shares offered hereby will be passed upon for
the Company by Hogan & Hartson L.L.P., Washington, D.C., and for the Underwriter
by Brown & Wood LLP, New York, New York. Hogan & Hartson L.L.P. and Brown &
Wood L.L.P. will rely on the opinion of Sirotte & Permutt P.C. as to certain
matters of Alabama law.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Clinton Administration's budget proposal announced on February 2, 1998
includes a proposal to amend the REIT asset tests with respect to non-qualified
REIT subsidiaries, such as Colonial Properties Services, Inc. ("CSPI"). The
proposal would permit a REIT to own no more than 10% of the vote or no more than
10% of the value of the outstanding stock of any non-qualified REIT subsidiary.
Existing non-qualified REIT subsidiaries would be grandfathered, and therefore
subject to the existing 5% asset test and 10% voting securities test (see
"Federal Income Tax Considerations" in the accompanying Prospectus), except that
the grandfathering would terminate if the subsidiary engaged in a new trade or
business or acquired substantial new assets. As a result, if the proposal were
to be enacted and if CSPI commenced a new trade or business or acquired
substantial new assets after the specified effective date of the proposal, CSPI
would become subject to the new 10% of the vote and value limitation (which the
Company could not currently satisfy). Accordingly, the proposal, if enacted,
could materially impede the ability of the Company to engage in other activities
without jeopardizing its REIT status.
EXPERTS
The consolidated balance sheets as of December 31, 1996 and 1995, and the
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996, which are
incorporated by reference in the Company's Form 10-K for the year ended December
31, 1996 (incorporated herein by reference); the historical summaries of
revenues and direct operating expenses of Acquired Properties -- Riverchase
Center Building 2100, Beechwood Shopping Center, Brookwood Mall, The Meadows at
Trussville and the proposed acquisition of Mansell 400 Office and Retail
Properties, all of which are included in the Company's Form 8-K filed July 21,
1997 (incorporated herein by reference); the historical summaries of revenues
and direct operating expenses of Acquired Properties -- Georgia Malls and Mark
Trace, both of which are included in the Company's Form 8-K filed on October 30,
1997 (incorporated herein by reference); the historical summaries of revenues
and direct operating expenses of Acquired Properties -- Retail Portfolio, which
are included in the Company's Form 8-K filed on December 10, 1997 (incorporated
herein by reference), have been incorporated herein in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
said firm as experts in accounting and auditing.
S-6
<PAGE>
PROSPECTUS
$325,000,000
COLONIAL PROPERTIES TRUST
DEBT SECURITIES, PREFERRED SHARES, COMMON SHARES, COMMON SHARE WARRANTS AND
DEPOSITARY SHARES
----------------
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"), (iv) warrants
exercisable for Common Shares ("Common Share Warrants"), and (v) Preferred
Shares represented by depositary shares (the "Depositary Shares"), with an
aggregate public offering price of up to $325,000,000 (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, Common Share Warrants and Depositary Shares
(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; (iv) in the case of Common Share Warrants, the specific title
and aggregate number, and the issue price and the exercise price; and (v) in
the case of Depositary Shares, the fractional Preferred Share represented by
each Depositary Share. 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 date of this Prospectus is November 21, 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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus and the documents incorporated by
reference herein and any accompanying Prospectus Supplement, including those
set forth in "Risk Factors" and "Use of Proceeds" herein constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company or industry results
to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions which will, among other things, affect demand for multifamily
properties, availability and creditworthiness of prospective tenants, lease
rents and the availability of financing, adverse changes in the real estate
markets including, among other things, competition with other companies, risks
of real estate acquisition, governmental actions and initiatives, and
environmental/safety requirements. See "Risk Factors."
THE COMPANY
The Company is one of the largest developers, owners and operators of
multifamily, retail and office properties in the southern 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 as of November 19, 1997 included ownership of a diversified
portfolio of 84 properties located in Alabama, Florida, Georgia, Mississippi
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 as of November 19, 1997
owned 43 garden-style multifamily apartment communities containing a total of
13,631 apartment units (the "Multifamily Properties"), 28 retail properties
(including 9 regional malls, two "power centers" and 17 neighborhood shopping
centers) containing a total of approximately 8.7 million square feet of retail
space (the "Retail Properties"), 13 office properties containing a total of
approximately 1.9 million square feet of office space (the "Office
Properties") and parcels of land adjacent to or near 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, through Colonial Properties Holding Company, Inc., a wholly
owned subsidiary ("CPHC"), is the sole general partner of, and, as of November
19, 1997, holds approximately 69.4% of the common equity interests in,
Colonial Realty Limited Partnership, a Delaware limited partnership (the
"Operating Partnership"). The Operating Partnership owns, directly or
indirectly, 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's acquisitions and its expansion
2
<PAGE>
and development activities have increased the Company's presence in Alabama,
Florida and Georgia, and the Company has expanded its operations into
Mississippi and South Carolina through acquisitions.
The Company's experienced staff of approximately 660 employees provides a
full range of real estate services from its headquarters in Birmingham,
Alabama and from six regional offices located in the Mobile, Huntsville and
Montgomery, Alabama, Orlando and Tampa, Florida and Atlanta, Georgia
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.
3
<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 southern United States and 41 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, Herbert Meisler and
William Johnson) 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 9,143,590
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, 1,375,000 Common Shares of the Company
have been issued or reserved for issuance pursuant to share option and
restricted share plans and other employee benefit 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
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jeopardize the Company's status as a REIT and the Board of Trustees otherwise
decided such action would be in 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, 1995 and 1996 and the nine months ended September 30,
1997 was 1.31, 2.24, 1.92, 2.40 and 1.97, 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
year ended December 31, 1992 show net losses. Consequently, the computation of
the ratio of earnings to fixed charges for such period indicates that earnings
were inadequate to cover fixed charges by approximately $0.8 million.
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.
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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 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;
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(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 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, Preferred Shares and Depositary 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).
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
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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) 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 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
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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).
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
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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 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
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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 insolvency, certain general creditors of the
Company may recover more, ratably, than Holders of Subordinated Securities.
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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 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
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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.
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
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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 10,000,000 Preferred Shares. On November
6, 1997, the Company issued 5,000,000 Preferred Shares designated as the
Company's 8 3/4% Series A Cumulative Redeemable Preferred Shares of Beneficial
Interest. No other Preferred Shares were outstanding as of November 19, 1997.
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,
subject to any shareholder approval required by the Constitution of the State
of Alabama. 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.
On October 23, 1997, the Company's shareholders authorized the Board of
Trustees to designate and issue up to 10,000,000 Preferred Shares. 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;
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(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;
(14) Whether interests in such Preferred Shares will be represented by
Depositary Shares; and
(15) 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.
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
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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 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
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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.
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
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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.
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
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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 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 Declaration of Trust provides that (subject to
certain exceptions) no holder of Preferred Shares may own, directly or by
attribution, more than 9.8% of any class or series of Preferred Shares. In
addition, no holder may own, directly or by attribution, more than 9.8% of the
issued and outstanding Common Shares and Preferred Shares. For a more detailed
discussion of these restrictions, see "Description of Common Shares of
Beneficial Interest--Restrictions on Transfer."
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 includes 65,000,000 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 September 30, 1997, there were 20,934,059 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.
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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 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
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aggregate more than 49% of the outstanding Shares. The Board of Trustees may,
with a ruling from the IRS or 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 BankBoston, N.A.
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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.
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DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Shares, as specified in the applicable
Prospectus Supplement. Preferred Shares of each series represented by
Depositary Shares will be deposited under a separate Deposit Agreement (each,
a "Deposit Agreement") among the Company, the depositary named therein (the
"Preferred Share Depositary") and the holders from time to time of the
Depositary Receipts. Subject to the terms of the Deposit Agreement, each owner
of a Depositary Receipt will be entitled, in proportion to the fractional
interest of a share of a particular series of Preferred Shares represented by
the Depositary Shares evidenced by such Depositary Receipt, to all the rights
and preferences of the Preferred Shares represented by such Depositary Shares
(including dividend, voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the
issuance and delivery of the Preferred Shares by the Company to the Preferred
Share Depositary, the Company will cause the Preferred Share Depositary to
issue, on behalf of the Company, the Depositary Receipts. Copies of the
applicable form of Deposit Agreement and Depositary Receipt may be obtained
from the Company upon request, and the following summary of the form thereof
filed as an exhibit to the Registration Statement of which this Prospectus is
a part is qualified in its entirety by reference thereto.
DIVIDENDS
The Preferred Share Depositary will distribute all cash dividends received
in respect of the Preferred Shares to the record holders of Depositary
Receipts evidencing the related Depositary Shares in proportion to the number
of such Depositary Receipts owned by such holders, subject to certain
obligations of holders to file proofs, certificates and other information and
to pay certain charges and expenses to the Preferred Share Depositary.
In the event of a dividend other than in cash, the Preferred Share
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of
holders to file proofs, certificates and other information and to pay certain
charges and expenses to the Preferred Share Depositary, unless the Preferred
Share Depositary determines that it is not feasible to make such distribution,
in which case the Preferred Share Depositary may, with the approval of the
Company, sell such property and distribute the net proceeds from such sale to
such holders.
No dividend will be made in respect of any Depositary Share to the extent
that it represents any Preferred Shares converted into Excess Shares.
WITHDRAWAL OF SHARES
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Share Depositary (unless the related Depositary Shares have
previously been called for redemption or converted into Excess Shares), the
holders thereof will be entitled to delivery at such office, to or upon such
holder's order, of the number of whole or fractional Preferred Shares and any
money or other property represented by the Depositary Shares evidenced by such
Depositary Receipts. Holders of Depositary Receipts will be entitled to
receive whole or fractional shares of the related Preferred Shares on the
basis of the proportion of the Preferred Shares represented by each Depositary
Share as specified in the applicable Prospectus Supplement, but holders of
such Preferred Shares will not thereafter be entitled to receive Depositary
Shares therefor. If the Depositary Receipts delivered by the holder evidence a
number of Depositary Shares in excess of the number of Depositary Shares
representing the number of Preferred Shares to be withdrawn, the Preferred
Share Depositary will deliver to such holder at the same time a new Depositary
Receipt evidencing such excess number of Depositary Shares.
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REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems Preferred Shares held by the Preferred Share
Depositary, the Preferred Share Depositary will redeem as of the same
redemption date the number of Depositary Shares representing the Preferred
Shares so redeemed, provided the Company shall have paid in full to the
Preferred Share Depositary the redemption price of the Preferred Shares to be
redeemed plus an amount equal to any accrued and unpaid dividends thereon to
the date fixed for redemption. The redemption price per Depositary Share will
be equal to the redemption price and any other amounts per share payable with
respect to the Preferred Shares. If fewer than all the Depositary Shares are
to be redeemed, the Depositary Shares to be redeemed will be selected pro rata
(as nearly as may be practicable without creating fractional Depositary
Shares) or by any other equitable method determined by the Company that will
not result in the issuance of any Excess Shares.
From and after the date fixed for redemption, all dividends in respect of
the Preferred Shares so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts
evidencing the Depositary Shares so called for redemption will cease, except
the right to receive any monies payable upon such redemption and any money or
other property to which the holders of such Depositary Receipts were entitled
upon such redemption upon surrender thereof to the Preferred Share Depositary.
VOTING OF THE PREFERRED SHARES
Upon receipt of notice of any meeting at which the holders of the Preferred
Shares are entitled to vote, the Preferred Share Depositary will mail the
information contained in such notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent such
Preferred Shares. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the
record date for the Preferred Shares) will be entitled to instruct the
Preferred Share Depositary as to the exercise of the voting rights pertaining
to the amount of Preferred Shares represented by such holder's Depositary
Shares. The Preferred Share Depositary will vote the amount of Preferred
Shares represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all reasonable action which
may be deemed necessary by the Preferred Share Depositary in order to enable
the Preferred Share Depositary to do so. The Preferred Share Depositary will
abstain from voting the amount of Preferred Shares represented by such
Depositary Shares to the extent it does not receive specific instructions from
the holders of Depositary Receipts evidencing such Depositary Shares. The
Preferred Share Depositary shall not be responsible for any failure to carry
out any instruction to vote, or for the manner or effect of any such vote
made, as long as any such action or non-action is in good faith and does not
result from negligence or willful misconduct of the Preferred Share
Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will
be entitled to the fraction of the liquidation preference accorded each
Preferred Share represented by the Depositary Share evidenced by such
Depositary Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED SHARES
The Depositary Shares, as such, are not convertible into Common Shares or
any other securities or property of the Company, except in connection with
certain conversions in connection with the preservation of the Company's
status as a REIT. Nevertheless, if so specified in the applicable Prospectus
Supplement relating to an offering of Depositary Shares, the Depositary
Receipts may be surrendered by holders thereof to the Preferred Share
Depositary with written instructions to the Preferred Share Depositary to
instruct the Company to cause conversion of the Preferred Shares represented
by the Depositary Shares evidenced by such Depositary Receipts into whole
Common Shares, other Preferred Shares (including Excess Shares) of the Company
or other shares of beneficial interest, and the Company has agreed that upon
receipt of such instructions and any amounts payable
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in respect thereof, it will cause the conversion thereof utilizing the same
procedures as those provided for delivery of Preferred Shares to effect such
conversion. If the Depositary Shares evidenced by a Depositary Receipt are to
be converted in part only, a new Depositary Receipt or Receipts will be issued
for any Depositary Shares not to be converted. No fractional Common Shares
will be issued upon conversion, and if such conversion will result in a
fractional share being issued, an amount will be paid in cash by the Company
equal to the value of the fractional interest based upon the closing price of
the Common Shares on the last business day prior to the conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the Preferred Shares and any provision of the Deposit Agreement may
at any time be amended by agreement between the Company and the Preferred
Share Depositary. However, any amendment that materially and adversely alters
the rights of the holders of Depositary Receipts or that would be materially
and adversely inconsistent with the rights granted to the holders of the
related Preferred Shares will not be effective unless such amendment has been
approved by the existing holders of at least a majority of the Depositary
Shares evidenced by the Depositary Receipts then outstanding. No amendment
shall impair the right, subject to certain exceptions in the Depositary
Agreement, of any holder of Depositary Receipts to surrender any Depositary
Receipt with instructions to deliver to the holder the related Preferred
Shares and all money and other property, if any, represented thereby, except
in order to comply with law. Every holder of an outstanding Depositary Receipt
at the time any such amendment becomes effective shall be deemed, by
continuing to hold such Depositary Receipt, to consent and agree to such
amendment and to be bound by the Deposit Agreement as amended thereby.
The Deposit Agreement may be terminated by the Company upon not less than 30
days' prior written notice to the Preferred Share Depositary if (i) such
termination is necessary to assist in maintaining the Company's status as a
REIT or (ii) a majority of each series of Preferred Shares affected by such
termination consents to such termination, whereupon the Preferred Share
Depositary shall deliver or make available to each holder of Depositary
Receipts, upon surrender of the Depositary Receipts held by such holder, such
number of whole or fractional Preferred Shares as are represented by the
Depositary Shares evidenced by such Depositary Receipts together with any
other property held by the Preferred Share Depositary with respect to such
Depositary Receipts. The Company has agreed that if the Deposit Agreement is
terminated to assist in maintaining the Company's status as a REIT, then, if
the Depositary Shares are listed on a national securities exchange, the
Company will use its best efforts to list the Preferred Shares issued upon
surrender of the related Depositary Shares on a national securities exchange.
In addition, the Deposit Agreement will automatically terminate if (i) all
outstanding Depositary Shares shall have been redeemed, (ii) there shall have
been a final distribution in respect of the related Preferred Shares in
connection with any liquidation, dissolution or winding up of the Company and
such distribution shall have been distributed to the holders of Depositary
Receipts evidencing the Depositary Shares representing such Preferred Shares
or (iii) each share of the related Preferred Shares shall have been converted
into shares of beneficial interest of the Company not so represented by
Depositary Shares.
CHARGES OF PREFERRED SHARE DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Share Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay certain other transfer and
other taxes and governmental charges as well as the fees and expenses of the
Preferred Share Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Share Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time
remove the Preferred Share Depositary, any such resignation or
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removal to take effect upon the appointment of a successor Preferred Share
Depositary. A successor Preferred Share Depositary must be appointed within 60
days after delivery of the notice of resignation or removal and must be a bank
or trust company having its principal office in the United States and having a
combined capital and surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Share Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Share Depositary with respect to the related Preferred Shares.
Neither the Preferred Share Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its
control, performing its obligations under the Deposit Agreement. The
obligations of the Company and the Preferred Share Depositary under the
Deposit Agreement will be limited to performing their duties thereunder in
good faith and without negligence (in the case of any action or inaction in
the voting of Preferred Shares represented by the Depositary Shares), gross
negligence or willful misconduct, and the Company and the Preferred Share
Depositary will not be obligated to prosecute or defend any legal proceeding
in respect of any Depositary Receipts, Depositary Shares or Preferred Shares
represented thereby unless satisfactory indemnity is furnished. The Company
and the Preferred Share Depositary may rely on written advice of counsel or
accountants, or information provided by persons presenting Preferred Shares
represented thereby for deposit, holders of Depositary Receipts or other
persons believed in good faith to be competent to give such information, and
on documents believed in good faith to be genuine and signed by a proper
party.
In the event the Preferred Share Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on
the one hand, and the Company, on the other hand, the Preferred Share
Depositary shall be entitled to act on such claims, requests or instructions
received from the Company.
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FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes certain Federal income tax
considerations to a prospective holder of Common Shares. The applicable
Prospectus Supplement will contain information about additional Federal income
tax considerations, if any, relating to Securities other than Common Shares.
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 discussed below, the Taxpayer Relief Act of 1997 (the "1997 Act")
contains certain changes to the REIT qualification requirements and to the
taxation of REITs that may be material to a holder of Common Shares, but that
will become effective only for the Company's taxable years commencing on or
after January 1, 1998. As used in this section, the term "Company" refers
solely to Colonial Properties Trust.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER IN LIGHT OF HIS
OR HER SPECIFIC OR UNIQUE CIRCUMSTANCES 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 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.
In any year in which the Company qualifies for taxation as a REIT, it
generally will not be subject to Federal corporate income taxes on that
portion of its REIT taxable income or capital gain that it currently
distributes to shareholders. This treatment substantially eliminates the
"double taxation" (at both the corporate and shareholder levels) that
generally results from the use of corporate investment vehicles. The Company
may, however, be subject to tax at normal corporate rates on any taxable
income or capital gain that it does not distribute.
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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." Moreover, pursuant to the 1997
Act, for the Company's taxable years commencing on or after January 1, 1998,
if the Company complies with regulatory rules pursuant to which it is required
to send annual letters to holders of its shares requesting information
regarding the actual ownership of such shares, but does not know, or by
exercising reasonable diligence would not have known, whether it failed to
meet the requirement that it not be closely held, the Company will be treated
as having met the requirement.
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 (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. Pursuant to the 1997 Act, the Company
will not have to meet this third test for its taxable years commencing on or
after January 1, 1998.
Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% test or the 95% test if the Company, or an
owner of 10% or more of the Company, directly or constructively owns 10% or
more of such tenant. In addition, if rent attributable to personal property
leased in connection with a lease of real property is greater than 15% of the
total rent received under the lease, then the portion of rent attributable to
such personal property will not qualify as rents from real property. Moreover,
an amount received or accrued will not qualify as rents from real property (or
as interest income) for purposes of the 75% and 95% gross income tests if it
is based in whole or in part on the income or profits of any person. Finally,
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 that the services provided by the
Company are "usually or customarily rendered" in connection with the rental of
space for occupancy only, and are not otherwise considered "rendered to the
occupant" ("Permissible Services").
Pursuant to the 1997 Act, for the Company's taxable years commencing on or
after January 1, 1998, rents received generally will qualify as rents from
real property notwithstanding the fact that the Company provides services that
are not Permissible Services so long as the amount received for such services
meets a de minimis standard. 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 which are not Permissible Services in the future that reasonably
might be expected not to meet the "usual or
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customary" standard, it will arrange to have such services provided by an
independent contractor from which the Operating Partnership will receive no
income.
The amount received for "impermissible services" with respect to a property
(or, if services are available only to certain tenants, possibly with respect
to such tenants) cannot exceed one percent of all amounts received, directly
or indirectly, by the Company with respect to such property (or, if services
are available only to certain tenants, possibly with respect to such tenants).
The amount that the Company will be deemed to have received for performing
"impermissible services" will be the greater of the actual amount so received
or 150% of the direct cost to the Company of providing those services.
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, the Company will be subject to a
100% tax based upon the greater of the amount by which it fails either the 75%
or 95% gross income test for that year, less certain adjustments.
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
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. The Company, in order to qualify as a
REIT, is required to make dividend distributions (other than capital gain
dividends) to its shareholders each year in an amount at least equal to (A)
the sum of (i) 95% of the Company's REIT taxable income (computed without
regard to the dividends
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paid deduction and the Company's net capital gain) and (ii) 95% of the net
income (after tax), if any, from foreclosure property, minus (B) the sum of
certain items of non-cash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if
declared before the Company timely files its tax return for such year and if
paid on or before the first regular dividend payment after such declaration.
To the extent that the Company does not distribute all of its net capital
gain or distributes at least 95%, but less than 100%, of its REIT taxable
income, as adjusted, it will be subject to tax on the undistributed amount at
regular capital gains or ordinary corporate tax rates, as the case may be.
Pursuant to the 1997 Act, for the Company's taxable years commencing on or
after January 1, 1998, the Company may elect to require the holders of Common
Shares to include the Company's undistributed net capital gains in their
income by designating, in a written notice to such holders, those amounts as
undistributed capital gains in respect of its shareholder's shares. If the
Company makes such an election, the holders will (i) include in their income
as capital gains their proportionate share of such undistributed capital gains
and (ii) be deemed to have paid their proportionate share of the tax paid by
the Company on such undistributed capital gains and thereby receive a credit
or refund for such amount. A holder of Common Shares will increase the basis
in its shares by the difference between the amount of capital gain included in
its income and the amount of the tax that the Company is deemed to have paid
on the holder's behalf. The earnings and profits of the Company will be
adjusted appropriately. For a more detailed description of the tax
consequences to a holder of Common Shares of such a designation, see "Taxation
of Taxable Domestic Holders of Common Shares."
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 and the relief provisions do not apply, the Company will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to shareholders in
any year in which the Company fails to qualify will not be required and, if
made, will not be deductible by the Company. In such event, to the extent of
current and accumulated earnings and profits, all distributions to
shareholders will be taxable as ordinary income, and, subject to certain
limitations in the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Company also will be disqualified from taxation as a
REIT for the four taxable years following the year during which qualification
was lost. It is not possible to state whether in all circumstances the Company
would be entitled to such statutory relief.
TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN PARTNERSHIPS
General. The Company holds direct or indirect interests in the Operating
Partnership and the Management Partnership (each individually a "Partnership"
and, collectively, the "Partnerships"). The Company believes that each of the
Partnerships qualifies as a partnership (as opposed to an association taxable
as a corporation) for Federal income tax purposes. If any of the Partnerships
were to be treated as an association, it would be taxable as a corporation and
therefore 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,
which would preclude the Company from satisfying the asset tests and possibly
the income tests (see "Federal Income Tax Considerations--Taxation of the
Company--Asset Tests" and "--Gross Income Tests"), and in turn would prevent
the Company from qualifying as a REIT.
Tax Allocations with Respect to the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership must be allocated in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value and the
adjusted tax basis of contributed property at the time of contribution (a
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"Book-Tax Difference"). Such allocations are solely for Federal income tax
purposes and do not affect the book capital accounts or other economic or
legal arrangements among the partners. The Operating Partnership was formed by
way of contributions of appreciated property. Consequently, the Operating
Partnership partnership agreement requires such allocations to be made in a
manner consistent with Section 704(c). As a result, certain limited partners
of the Operating Partnership will be allocated lower amounts of depreciation
deductions for tax purposes and increased taxable income and gain on sale by
the Partnerships of the contributed assets. These allocations will tend to
eliminate the Book-Tax Difference over the life of the Partnerships. However,
the special allocation rules of Section 704(c) as applied by the Company do
not always entirely rectify 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 assets in the hands of the Partnership will cause the
Company to be allocated lower depreciation and other deductions, and possibly
greater amounts of taxable income in the event of a sale of such contributed
assets in excess of the economic or book income allocated to its as a result
of such sale. This may cause the Company to recognize taxable income in excess
of cash proceeds, which might adversely affect the Company's ability to comply
with the REIT distribution requirements. See "Federal Income Tax
Considerations--Taxation of the Company--Annual Distribution Requirements."
Sale of the Properties. The Company's share of any gain realized by the
Operating Partnership on the sale of any dealer property generally will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "Federal Income Tax Considerations--Taxation of the Company--
Gross Income Tests--The 95% Test." Under existing law, whether property is
dealer property is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. The Operating
Partnership has held and intends to continue to hold the Properties for
investment with a view to long-term appreciation, to engage in the business of
acquiring, developing, owning and operating the Properties and to make such
occasional sales of the Properties as are consistent with the Company's
investment objectives. Based upon such investment objectives, the Company
believes that in general the Properties should not be considered dealer
property and that the amount of income from prohibited transactions, if any,
will not be material.
TAXATION OF TAXABLE DOMESTIC HOLDERS OF COMMON SHARES
General. As long as the Company qualifies as a REIT, distributions made by
the Company 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
gains from the sale or exchange of a capital asset held for more than one year
(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. Corporate shareholders, however, may be required to treat up
to 20% of certain capital gain dividends as ordinary income. As described
below in "--Recent Legislation," the 1997 Act changed significantly the
taxation of capital gains by taxpayers who are individuals, estates, or
trusts. On November 10, 1997, the IRS issued IRS Notice 97-64, which provides
generally that the Company may classify portions of its designated capital
gain dividend as (i) a 20% rate gain distribution (which would be taxed as
long-term capital gain in the 20% group), (ii) an unrecaptured Section 1250
gain distribution (which would be taxed as long-term capital gain in the 25%
group), or (iii) a 28% rate gain distribution (which would be taxed as long-
term capital gain in the 28% group). (If no designation is made, the entire
designated capital gain dividend will be treated as a 28% rate gain
distribution.) IRS Notice 97-64 provides that a REIT must determine the
maximum amounts that it may designate as 20% and 25% rate capital gain
dividends by performing the computation required by the Code as if the REIT
were an individual whose ordinary income were subject to a marginal tax rate
of at least 28%. The Notice further provides that designations made by the
REIT will only be effective only to the extent that they comply with Revenue
Ruling 89-81, which requires that distributions made to different classes of
shares be composed proportionately of dividends of a particular type.
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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
taxable as capital gains, 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. With respect
to dispositions occurring after July 28, 1997, in the case of a taxable
domestic shareholder who is an individual or an estate or trust, such gain or
loss will be mid-term capital gain or loss if such shares have been held for
more thatn 18 months. In the case of a taxable domestic shareholder that is a
corporation, such gain or loss will be long-term capital gain or loss if such
shares have been held 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 long-
term or mid-term capital loss to the extent of distributions from the Company
required to be treated by such shareholder as long-term or mid-term capital
gain.
Pursuant to the 1997 Act, for the Company's taxable years commencing on or
after January 1, 1998, the Company may elect to require holders of Common
Shares to include the Company's undistributed net capital gains in their
income. If the Company makes such an election, holders of Common Shares will
(i) include in their income as capital gains their proportionate share of such
undistributed capital gains and (ii) be deemed to have paid their
proportionate share of the tax paid by the Company on such undistributed
capital gains and thereby receive a credit or refund for such amount. A holder
of Common Shares will increase the basis in its Common Shares by the
difference between the amount of capital gain included in its income and the
amount of tax it is deemed to have paid. The earnings and profits of the
Company will be adjusted appropriately.
Additional Tax Consequences for Holders of Securities Other than Common
Shares. If the Company offers Securities other than Common Shares there may be
additional tax consequences for the holders of such Securities. For a
discussion of any such additional consequences, see the applicable Prospectus
Supplement.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Most tax-exempt employees' pension trusts are not subject to Federal income
tax except to the extent of their receipt of "unrelated business taxable
income" as defined in Section 512(a) of the Code ("UBTI"). Distributions by
the Company to a shareholder that is a tax-exempt entity should not constitute
UBTI, provided that the tax-exempt entity has not financed the acquisition of
its Securities with "acquisition indebtedness" within the meaning of the Code
and the Securities are not otherwise used in an unrelated trade or business of
the tax-exempt entity. In addition, for taxable years beginning on or after
January 1, 1994, certain pension trusts that own more than 10% of a "pension-
held REIT" must report a portion of the distribution that they receive from
such a REIT as UBTI. The Company has not been and does not expect to be
treated as a pension-held REIT for purposes of this rule.
TAXATION OF FOREIGN SHAREHOLDERS
The following is a discussion of certain anticipated U.S. Federal income tax
consequences of the ownership and disposition of Securities applicable to Non-
U.S. Holders of such Securities. The rules governing U.S. federal income
taxation of Non-U.S. Holders are complex, and no attempt will be made herein
to provide more than a limited summary of such rules. A "Non-U.S. Holder" is
any person other than (i) a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in the United States or under
the laws of the United States, or of any state thereof (other than a
partnership that is not treated as a United States person under applicable
Treasury Regulations), (iii) an estate or trust whose income is includable in
gross income for U.S. Federal income tax purposes regardless of its source.
The discussion is based on current law and is for general information only
(including certain trusts in existence on August 20, 1996, and treated as
United States persons under the United States Internal Revenue Code of 1986
which elect to continue to be treated as United States persons), or (iv) a
trust; if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
fiduciaries have the authority to control all substantial decisions of the
trust.
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Distributions From the Company. The portion of dividends received by Non-
U.S. Holders payable out of the Company's earnings and profits which are not
attributable to capital gains of the Company or of the Operating Partnership
and which are not effectively connected with a U.S. trade or business of the
Non-U.S. Holder will be subject to U.S. withholding tax at the rate of 30%
(unless reduced by an applicable treaty). In general, Non-U.S. Holders will
not be considered engaged in a U.S. trade or business solely as a result of
their ownership of Securities. In cases where the dividend income from a Non-
U.S. Holder's investment in Securities is (or is treated as) effectively
connected with the Non-U.S. Holder's conduct of a U.S. trade or business, the
Non-U.S. Holder generally will be subject to U.S. tax at graduated rates, in
the same manner as U.S. shareholders are taxed with respect to such dividends
(and may also be subject to the 30% branch profits tax in the case of a Non-
U.S. Holder that is a foreign corporation).
Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Holder 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. Holder's
Common Shares, they will give rise to gain from the sale or exchange of its
Common Shares, the tax treatment of which is described below. As a result of a
legislative change made by the Small Business Job Protection Act of 1996, it
appears that the Company will be required to withhold 10% of any distribution
in excess of the Company's current and accumulated earnings and profits.
Consequently, although the Company intends to withhold at a rate of 30% on the
entire amount of any distribution (or a lower applicable treaty rate), to the
extent that the Company does not do so, any portion of distribution not
subject to withholding at a rate of 30% (or a lower applicable treaty rate)
will be subject to withholding at a rate of 10%. However, the Non-U.S. Holder
may seek a refund of such amounts from the Internal Revenue Service if it
subsequently determined that such distribution was, in fact, in excess of
current or accumulated earnings and profits of the Company, and the amount
withheld exceeded the Non-U.S. Holder's United States tax liability, if any,
with respect to the distribution.
Under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), a
distribution made by the Company to a Non-U.S. Holder, to the extent
attributable to gains from dispositions of United States Real Property
Interests ("USRPIs") such as the Properties beneficially owned by the Company
("USRPI Capital Gains"), will be considered effectively connected with a U.S.
trade or business of the Non-U.S. Holder and subject to U.S. income tax at the
rate applicable to U.S. individuals or corporations, without regard to whether
such distribution is designated as a capital gain dividend. In addition, the
Company will be required to withhold tax equal to 35% of the amount of
dividends to the extent such dividends constitute USRPI Capital Gains.
Distributions subject to FIRPTA may also be subject to a 30% branch profits
tax in the hands of a foreign corporate shareholder that is not entitled to
treaty exemption.
Although the law is not entirely clear on the matter, it appears that
amounts designated by the Company pursuant to the 1997 Act as undistributed
capital gains in respect of Common Shares (see "Taxation of Taxable Domestic
Holders of Common Shares" above) would be treated with respect to Non-U.S.
Holders in the manner outlined in the preceding paragraph for actual
distributions by the Company of capital gain dividends. Under that approach,
the Non-U.S. Holders would be able to offset as a credit against their United
States federal income tax liability resulting therefrom their proportionate
share of the tax paid by the Company on such undistributed capital gains (and
to receive from the IRS a refund to the extent their proportionate shares of
such tax paid by the Company were to exceed their actual United States federal
income tax liability).
Dispositions of Securities. Unless Securities constitute a USRPI, a sale of
Securities by a Non-U.S. Holder generally will not be subject to U.S. taxation
under FIRPTA. The Securities will not constitute a USRPI if the Company is a
"domestically controlled REIT." A domestically controlled REIT is a REIT in
which, at all times during a specified testing period, less than 50% in value
of its Securities is held directly or indirectly by Non-U.S. Holders. The
Company believes that it has been and anticipates that it will continue to be
a domestically controlled REIT, and therefore that the sale of Securities will
not be subject to taxation under FIRPTA. Because the Securities will be
publicly traded, however, no assurance can be given that the Company will
continue to be
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a domestically controlled REIT. If the Company does not constitute a
domestically controlled REIT, a Non-U.S. Holder's sale of Securities generally
still will not be subject to tax under FIRPTA as a sale of a USRPI provided
that (i) the Securities are "regularly traded" (as defined by applicable
Treasury regulations) on an established securities market and (ii) the selling
Non-U.S. Holder held 5% or less of the Company's outstanding Securities at all
times during a specified testing period.
If gain on the sale of Securities were subject to taxation under FIRPTA, the
Non-U.S. Holder would be subject to the same treatment as a U.S. shareholder
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 Securities could be required to withhold 10% of the
purchase price and remit such amount to the Internal Revenue Service. Capital
gains not subject to FIRPTA will nonetheless be taxable in the United States
to a Non-U.S. Holder in two cases: (i) if the Non-U.S. Holder's investment in
Securities is effectively connected with a U.S. trade or business conducted by
such Non-U.S. Holder, the Non-U.S. Holder will be subject to the same
treatment as a U.S. shareholder with respect to such gain, or (ii) if the Non-
U.S. Holder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and has a "tax home" in
the United States, the nonresident alien individual will be subject to a 30%
tax on the individual's capital gain.
RECENT LEGISLATION
As described above, the 1997 Act contains certain changes to the REIT
qualification requirements and to the taxation of REITs. The 1997 Act also
contains certain changes to the taxation of capital gains of individuals,
trusts and estates.
Capital Gain Rates. Subject to certain exceptions, for individuals, trusts
and estates, the maximum rate of tax on the net capital gain from a sale or
exchange occurring after July 28, 1997 of a capital asset held for more than
18 months has been reduced from 28% to 20%. The maximum rate has been reduced
to 18% for capital assets acquired after December 31, 2000 and held for more
than five years. The maximum rate for capital assets held for more than one
year but not more than 18 months remains at 28%. The maximum rate for net
capital gains attributable to the sale of depreciable real property held for
more than 18 months is 25% to the extent of the prior deductions for
"unrecaptured Section 1250 gain" (that is depreciation deductions not
otherwise recaptured as ordinary income under the existing depreciation
recapture rules). Capital gain from the sale of depreciable real property held
for more than 18 months allocated by the Company to a non-corporate
shareholder will be subject to the 25% rate to the extent that the capital
gain on the real property sold by the Company does not exceed prior
depreciation deductions with respect to such property. With respect to any
depreciable real property held by the Company for more than one year but not
more than 18 months, prior depreciation deductions claimed in excess of the
depreciation that would have been allowed if computed on a straight-line basis
will be taxed at the rates applicable to ordinary income with the remaining
gain being taxed at a maximum rate of 28%. The 1997 Act provides the Internal
Revenue Service with authority to issue regulations that could, among other
things, apply these rates on a look-through basis in the case of "pass-
through" entities such as the Company. The taxation of capital gains of
corporations was not changed by the 1997 Act.
REIT Provisions. In addition to the provisions discussed above, the 1997 Act
contains a number of technical provisions that either (i) reduce the risk that
the Company will inadvertently cease to qualify as a REIT, or (ii) provide
additional flexibility with which the Company can meet the REIT qualification
requirements. These provisions are effective for the Company's taxable years
commencing on or after January 1, 1998.
OTHER TAX CONSIDERATIONS
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,
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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, Depositary 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 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.
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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 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.
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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, 1996 (the "10-K").
2. The Company's current reports on Form 8-K filed on January 31, 1997,
July 21, 1997, July 30, 1997, October 30, 1997 and November 5, 1997.
3. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997.
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.
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 Secretary at 2101 Sixth Avenue North,
Suite 750, Birmingham, Alabama 35203, telephone number (205) 250-8700.
43
<PAGE>
LEGAL MATTERS
The legality of the Debt Securities, the Preferred Shares, the Common
Shares, the Common Share Warrants and the Depositary Shares 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 balance sheets as of December 31, 1996 and 1995 and the
consolidated statements of operations, partners' capital, and cash flows for
each of the three years in the period ended December 31, 1996, which are
incorporated by reference in the Company's Form 10-K (incorporated herein by
reference); the historical summaries of revenues and direct operating expenses
of Acquired Properties--Riverchase Center Building 2100, Beechwood Shopping
Center, Brookwood Mall, The Meadows at Trussville, and the Proposed Office and
Retail Merger, all of which are included in the Company's Form 8-K filed July
21, 1997 (incorporated herein by reference); and the historical summaries of
revenues and direct operating expenses of Acquired Properties--Georgia Malls
and Mark Trace, both of which are included in the Company's Form 8-K filed on
October 30, 1997 (incorporated herein by reference), have been incorporated
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
44
<PAGE>
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No dealer, salesperson 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 Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Company or the Underwriter. This Prospectus
Supplement and the Prospectus do not constitute an offer 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. Neither the
delivery of this Prospectus Supplement or the 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 Prospectus or in the affairs of the Company since the date
hereof.
----------------------
TABLE OF CONTENTS
Prospectus Supplement Page
- --------------------- ----
Forward-Looking Statements............................................ S-2
The Company........................................................... S-3
Recent Developments................................................... S-3
Use of Proceeds....................................................... S-4
Price Range of Common Shares and Distribution
History......................................................... S-4
Underwriting.......................................................... S-5
Legal Matters......................................................... S-6
Certain Federal Income Tax Considerations............................. S-6
Experts............................................................... S-6
Prospectus
- ----------
Special Note Regarding Forward-Looking Statements..................... 2
The Company........................................................... 2
Risk Factors.......................................................... 4
Use of Proceeds....................................................... 8
Ratios of Earnings to Fixed Charges................................... 8
Description of Debt Securities........................................ 9
Description of Preferred Shares of Beneficial
Interest......................................................... 20
Description of Common Shares of Beneficial
Interest......................................................... 25
Description of Common Share Warrants.................................. 28
Description of Depository Shares...................................... 29
Federal Income Tax Considerations..................................... 33
Plan of Distribution.................................................. 42
Available Information................................................. 42
Incorporation of Certain Documents by
Reference........................................................ 43
Legal Matters......................................................... 44
Experts............................................................... 44
375,540 Shares
Colonial Properties Trust
Common Shares
--------------------
PROSPECTUS SUPPLEMENT
February 12, 1998
--------------------
Salomon Smith Barney
February 12, 1998
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