<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 31, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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ASSOCIATED ESTATES REALTY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
34-1747603
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
5025 Swetland Court
Richmond Heights, OH 44143-1467
(216) 261-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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JEFFREY I. FRIEDMAN
5025 Swetland Court
Richmond Heights, OH 44143-1467
(216) 261-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
Albert T. Adams
Baker & Hostetler, LLP
3200 National City Center
Cleveland, Ohio 44114
(216) 861-7090
FAX: (216) 696-0740
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Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Shares..................... 5,139,387 $16.78 $86,238,914 $25,440
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) on the basis of the average of the high and low
price of the Common Shares on the New York Stock Exchange on August 28,
1998.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAW OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PROSPECTUS DATED , 1998
5,139,387 COMMON SHARES
ASSOCIATED ESTATES REALTY
CORPORATION
------------------------
This Prospectus relates to the offer and sale from time to time for a
period of one year from the effective date of the Registration Statement related
hereto by the holders (collectively, the "Selling Shareholders") of up to an
aggregate 5,139,387 common shares, without par value (the "Resale Shares") of
Associated Estates Realty Corporation, an Ohio corporation (the "Company")
consisting of common shares originally issued to subsidiaries of MIG Residential
REIT, Inc. ("MIG REIT") in connection with the Company's acquisition of certain
multifamily properties from such subsidiaries on June 30, 1998. See "Selling
Shareholders." The Company is registering the Resale Shares pursuant to the
Company's obligations under certain registration rights agreements between the
Company and the MIG REIT subsidiaries, but the registration of the Resale Shares
does not necessarily mean that any of the Resale Shares will be offered or sold
by the Selling Shareholders hereunder.
The common shares, without par value, of the Company (the "Common Shares")
are listed on the New York Stock Exchange (the "NYSE") under the symbol "AEC."
The Common Shares are subject to certain restrictions on ownership and transfer
designed to assist the Company in maintaining its status as a real estate
investment trust for Federal income tax purposes. See "Description of Common
Shares."
SEE "RISK FACTORS" ON PAGE 5 FOR MATERIAL RISKS RELEVANT TO AN INVESTMENT
IN THE COMMON SHARES.
The Selling Shareholders from time to time may offer and sell any Resale
Shares directly or through agents or broker-dealers on terms to be determined at
the time of sale. To the extent required, the names of any agent or
broker-dealer and applicable commissions or discounts and any other required
information with respect to any particular offer will be set forth in an
accompanying Company prospectus supplement. See "Plan of Distribution." The
Selling Shareholders reserve the right to accept or reject, in whole or in part,
any proposed purchase of the Resale Shares to be made directly or through
agents.
The Selling Shareholders and any agents or broker-dealers that participate
with the Selling Shareholders in the distribution of the Resale Shares may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any commissions received by them and any
profit on the resale of the Resale Shares may be deemed to be underwriting
commissions or discounts under the Securities Act. See "Indemnification" for a
description of certain indemnification arrangements between the Company and the
Selling Shareholders.
The Company will not receive any proceeds from the sale of the Resale
Shares by the Selling Shareholders, but has agreed to bear the expenses of
registration of such shares under federal and state securities laws.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
<PAGE> 3
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 under the Securities Act and
the rules and regulations promulgated thereunder with respect to the securities
offered pursuant to this Prospectus. This Prospectus, which is part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Shares, reference is made
to the Registration Statement and such exhibits and schedules. Statements
contained in this Prospectus as to the contents of any contract or other
document which is filed as an exhibit to the Registration Statement are not
necessarily complete, and each such statement is qualified in its entirety by
reference to the full text of such contract or document.
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, proxy and information statements and other information
with the Commission. Such reports, proxy and information statements and other
information and the Registration Statement and exhibits and schedules thereto
filed by the Company with the Commission can be inspected and copied at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at 7 World Trade Center, Suite 1300, New York, New York 10048
and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies
of such material can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also maintains a Web site at
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. Such reports, proxy and information statements and other information
also can be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
1-12486) are incorporated by reference herein and shall be deemed to be a part
hereof:
(a) Annual Report on Form 10-K for the year ended December 31, 1997 filed
with the Commission on March 31, 1998;
(b) Form 10-Q for the quarter ended June 30, 1998 filed with the Commission
on August 14, 1998 and Amendment No. 1 thereto filed with the
Commission on August 31, 1998;
(c) Form 10-Q for the quarter ended March 31, 1988 filed with the
Commission on May 13, 1998.
(d) Current Report on Form 8-K dated June 30, 1998 filed with the
Commission on July 13, 1998 and Amendment No. 1 thereto filed with the
Commission on August 31, 1998;
(e) Current Report on Form 8-K dated May 29, 1998 filed with the Commission
on May 29, 1998;
(f) Current Report on Form 8-K dated February 19, 1998 filed with the
Commission on March 31, 1998 and Amendment No. 1 thereto filed with the
Commission on June 25, 1998;
(g) Current Report on Form 8-K dated February 3, 1998 filed with the
Commission on February 17, 1998 and Amendment No. 1 thereto filed with
the Commission on April 8, 1998;
(h) Current Report on Form 8-K dated August 25, 1997 filed with the
Commission on December 2, 1997; and
(i) Current Report on Form 8-K dated February 6, 1997 filed with the
Commission on July 1, 1997 and Amendment No. 1 thereto filed with the
Commission on July 3, 1997.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of this offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of the filing
of such documents. Any statement contained in a document incorporated by
reference shall be deemed to be modified or superseded
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for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed incorporated document or in an accompanying
Company prospectus supplement, if any, 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.
Upon written or oral request of any person to whom a Prospectus is
delivered, including any beneficial owner, the Company will provide, without
charge, a copy of the documents which have been incorporated by reference in
this Prospectus (other than exhibits thereto unless such exhibits are
specifically incorporated by reference in any such document that this Prospectus
incorporates). Requests for such documents should be directed to Associated
Estates Realty Corporation, 5025 Swetland Court, Richmond Heights, Ohio
44143-1467, Attention: Barbara E. Hasenstab, Director of Investors Relations,
(216) 797-8798.
THE COMPANY
The Company is a self-administered and self-managed real estate investment
trust ("REIT") which began operations through its predecessor in the mid-1960s.
The Company was formed in July 1993 to continue the business of its predecessor
of owning, managing, developing and acquiring multifamily residential apartment
communities. At June 30, 1998, the Company's portfolio consisted of 21,506 owned
suites in 101 multifamily properties and 13,325 managed suites in 51 multifamily
properties, approximately 79% of which are located in the Midwest, together with
land for future development. Approximately 96.6% of the suites in the properties
owned at June 30, 1998 were leased. As a result of the acquisition of
privately-owned MIG Realty Advisors, Inc. ("MIGRA") on June 30, 1998, the
Company also provides co-investment and joint venture opportunities to
institutional and pension fund clients.
Of the Company's 34,831 owned and managed suites, 32,773 suites, or
approximately 94%, are contained in conventional market-rate properties; 1,888
suites, or approximately 5%, are contained in government-assisted properties,
the rents of which are subsidized by the United States Department of Housing and
Urban Development; and 170 suites, or less than 1%, are contained in two
congregate care facilities for elderly persons, in which residents are provided
with meal, housekeeping, laundry and other services. The Company is pursuing
opportunities to sell its government-assisted and congregate care properties.
The Company also owns substantially all of the economic interests in five
corporations that provide various property-related services to the Company. In
addition, the Company manages eight commercial properties not owned by the
Company.
The Company's executive offices are located at 5025 Swetland Court,
Richmond Heights, Ohio 44143-1467, and its telephone number is (216) 261-5000.
THE OFFERING
This Prospectus relates to the possible offer and sale from time to time
for a period of one year from the effective date of the Registration Statement
of 5,139,387 Resale Shares by the Selling Shareholders. The Resale Shares are
Common Shares beneficially owned or controlled by the Selling Shareholders. See
"Selling Shareholders." The Company is registering the Resale Shares for sale by
the Selling Shareholders pursuant to its obligations under certain Registration
Rights Agreements between the Company and the MIG REIT subsidiaries
(collectively referred to as the "Registration Rights Agreement"). The Company
will not receive any proceeds from the sale of any Resale Shares.
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RISK FACTORS
An investment in the Common Shares involves various risks. Prospective
investors should carefully consider the following information in conjunction
with the other information contained or incorporated by reference in this
Prospectus before making a decision to purchase any Resale Shares.
GENERAL REAL ESTATE INVESTMENT RISKS
General. The Company's investments generally consist of investments in
multifamily apartment communities and as such, are subject to varying degrees of
risk generally incident to the ownership and development of real estate. The
economic performance and values of the Company's real estate investments and the
Company's financial condition and ability to make expected distributions to its
shareholders will be dependent upon the Company's ability to operate and develop
its properties in a manner sufficient to maintain or increase revenues and to
generate sufficient income in excess of operating expenses. Income from the
properties may be affected by many factors, including changes in the national,
regional and local economic climate, local conditions such as an oversupply of
apartment units or a reduction in demand for apartment units in the Company's
markets, the perception of tenants as to the attractiveness, convenience and
safety of the properties, competition from other properties, changes in interest
rates and in the availability, cost and terms of mortgage financing, changes in
real estate taxes and other operating expenses (e.g., cleaning, electricity,
heating, ventilation, elevator repair and maintenance, insurance and
administrative costs, and other general costs related to security, landscaping,
repairs and maintenance), adverse changes in governmental rules and fiscal
policies, adverse changes in zoning laws, civil unrest, acts of God including
natural disasters (which may result in uninsured losses), acts of war and other
factors which are beyond the control of the Company.
Value and Illiquidity of Real Estate. Real estate investments are
relatively illiquid. The Company's ability to vary its portfolio in response to
changes in economic or other conditions will therefore be limited. If the
Company must sell an investment, there can be no assurance that it will be able
to dispose of the investment in the time period it desires or that the sales
price of the investment will recoup or exceed the amount of the Company's cost
for the investment. In addition, provisions of the Internal Revenue Code of
1986, as amended (the "Code") limit the Company's ability to sell properties
held for fewer than four years, which may affect the Company's ability to sell
properties without adversely affecting returns to the Company's shareholders.
Further, if the Company were to sell such properties, such sales might subject
the Company to additional tax liability. See "FEDERAL INCOME TAX CONSEQUENCES."
Risks of Acquisition Activities. The Company continually evaluates many
potential acquisitions, the process of which involves costs that are
non-recoverable. There can be no assurance that the properties that are acquired
will perform in accordance with expectations or that cost estimates for
improvements to the acquired properties will be accurate.
Risks of Development Activities. The Company intends to continue to pursue
the development and expansion of multifamily apartment communities in accordance
with the Company's development and underwriting policies as opportunities arise
in the future. Risks associated with such development and construction
activities include, but are not limited to, the following: the Company may
abandon development opportunities after expending resources to determine a
project's feasibility; construction costs of a project may exceed original
estimates; occupancy rates and rents at a newly completed property may not be
sufficient to make the property profitable; financing may not be available on
favorable terms for development of a property; and construction and lease-up may
not be completed on schedule, resulting in increased debt service expense and
construction costs. Development activities are also subject to risks relating to
the inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy, and other required governmental permits and authorizations.
If any of the foregoing occurs, the Company's results of operations, financial
condition and ability to make expected distributions to shareholders could be
adversely affected. In addition, new development activities, regardless of
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whether or not they are ultimately successful, typically require a substantial
portion of management's time and attention.
Dependence on Rental Income from Real Property. Since substantially all of
the Company's income is derived from rental income from real property, the
Company's income and funds available for distribution would be adversely
affected if a significant number of the Company's tenants were unable to meet
their obligations to the Company or if the Company was unable to lease a
significant amount of suites on economically favorable lease terms. There can be
no assurance that any tenant whose lease expires in the future will renew such
lease or that the Company will be able to re-lease space on economically
advantageous terms.
Geographic Concentration of the Properties. Approximately 85% of the
Company's properties are located in the Midwestern region of the country, in
Ohio, Michigan, Indiana and Western Pennsylvania. The Company's performance,
therefore, is linked to economic conditions and the market for available rental
housing in these regions. A decline in the market for available housing in Ohio,
or to a lesser extent, the remainder of the region, may adversely affect the
Company's financial condition, results of operations and ability to make
distributions to its shareholders.
Regulatory Risks. A wide variety of federal, state and local zoning,
subdivision, planning, building, environmental and other land use laws and
regulations govern real estate. In addition, a portion of the portfolio is
subject to regulation by the Department of Housing and Urban Development. Such
laws may place significant restrictions on the Company's ability to develop real
estate or to improve real estate which it owns, and even unintentional
violations of such laws and regulations by the Company or its tenants may result
in forced corrective action and substantial monetary penalties. In addition, as
to multifamily residential apartment communities, various federal, state and
local laws and regulations may restrict the amount and process by which rents
may increase, as well as the Company's right to convert a property to other
uses, such as condominiums or cooperatives.
Environmental Risks. Under various federal, state and local laws,
ordinances and regulations, the Company may be considered an owner or operator
of real property or may have arranged for the disposal or treatment of hazardous
or toxic substances and, therefore, may become liable for the costs of removal
or remediation of certain hazardous substances released on or in its property or
disposed of by it, as well as certain other potential costs relating to
hazardous or toxic substances (including governmental fines and injuries to
persons or property). Such liability may be imposed whether or not the Company
knew of, or was responsible for, the presence of such hazardous or toxic
substances.
Risks of Liability and Loss. The development and ownership of real estate
may result in liability to third parties, due to conditions existing on a
property which result in injury. Such liability may be uninsurable in some
circumstances or may exceed the limits of insurance maintained at typical
amounts for the type and condition of such property. In addition, real estate
may suffer a loss in value due to casualties such as fire, hurricane or tornado.
Such loss may be uninsurable in some circumstances or may exceed the limits of
insurance maintained at typical amounts for the type and condition of the
property. Public authorities may also take real estate, in whole or in part, for
public purposes in eminent domain proceedings. Awards resulting from such
proceedings may not adequately compensate the Company for the value lost.
INTEGRATION OF ACQUISITIONS
On June 30, 1998, the Company completed a merger with MIGRA, including
assumption of MIGRA's investment advisory business, and the acquisition of eight
multifamily properties from subsidiaries of MIG REIT, resulting (together with
other acquisitions completed in the first half of 1998) in the acquisition by
the Company of 12 properties containing 3,150 suites and the management by the
Company of 19 additional properties containing 6,273 suites. The integration of
the recent acquisitions and assimilation of existing and MIGRA management and
operating structures presents a management challenge. Although the Company
believes that its current management can lead the Company through this
transition, there can be no assurance that the Company will be able to
assimilate these recent acquisitions or any further acquisitions in its
portfolio without operating
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disruptions and unanticipated costs or that the anticipated benefits of an
acquisition will be realized. The failure to successfully integrate acquisitions
could have a material adverse effect on the Company's results of operations,
financial condition and its ability to pay expected distributions to
shareholders.
ADVERSE IMPACT ON DISTRIBUTIONS OF FAILURE TO QUALIFY AS A REIT
Since the Company's initial public offering in November 1993, the Company
has operated in a manner to qualify as a REIT under the Code, and the Company
intends to continue to operate in such a manner so as to permit the Company to
qualify as a REIT under the Code. Although the Company believes that it will
continue to operate in such a manner, no assurance can be given that the Company
will remain qualified as a REIT. If in any taxable year the Company were to fail
to qualify as a REIT, the Company would not be allowed a deduction for
distributions to shareholders in computing taxable income and would be subject
to Federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. See "Certain Federal Income Tax
Considerations -- Failure to Qualify."
LIMITATIONS ON ACQUISITION AND CHANGE IN CONTROL
With certain limited exceptions, the Company's Second Amended and Restated
Articles of Incorporation, as amended (the "Articles") prohibit the ownership of
more than 4% of the outstanding Common Shares by any person. Such restriction is
likely to have the effect of precluding acquisition of control of the Company
without the consent of the Board of Directors even if a change in control was in
the interests of shareholders.
NO LIMITATION IN ORGANIZATIONAL DOCUMENTS ON INCURRENCE OF DEBT
The Company intends to continue to maintain a conservative debt
capitalization with a ratio of debt to total market capitalization (e.g., the
sum of the aggregate market value of the Company's Common Shares, the
liquidation preference on any preferred shares outstanding, and the Company's
total indebtedness, including the Company's proportionate share of indebtedness
from its unconsolidated joint venture properties) of less than 50%, but the
organizational documents of the Company do not contain any limitation on the
amount or percentage of indebtedness the Company may incur. The indentures under
which the Company has outstanding certain indebtedness contain limits on the
Company's ability to incur indebtedness. Nonetheless, the Company could become
more highly leveraged, resulting in an increase in debt service that could
adversely affect the Company's ability to make expected distributions to
shareholders and in an increase risk of default on its obligations.
CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS
Directors and executive officers of the Company owned approximately 12% of
the Company's outstanding Common Shares as of June 30, 1998. Accordingly, such
persons have substantial influence over the Company and on the outcome of
matters submitted to the Company's shareholders for approval.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contribution of key management, certain of whom may be difficult to replace. The
loss of services of these executives could have a material adverse effect on the
Company. There can be no assurance that the services of such personnel will
continue to be available to the Company. Mr. Jeffrey Friedman, Chairman of the
Board and Chief Executive Officer of the Company, is a party to an employment
agreement with the Company. The Company does not hold key-man life insurance on
any of its managers.
MARKET CONDITIONS
The market value of the Common Shares could be substantially affected by
general market conditions.
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USE OF PROCEEDS
The Common Shares offered hereby are being registered for the account of
the Selling Shareholders. Accordingly, the Company will not receive any of the
proceeds from the sale of the Resale Shares by the Selling Shareholders but has
agreed to bear certain expenses of registration of the Resale Shares.
SELLING SHAREHOLDERS
On June 30, 1998, the Company acquired eight multifamily properties
consisting of 1,830 suites in California, Texas, Maryland, Missouri, North
Carolina, Georgia and Arizona from eight separate subsidiaries of MIG REIT (the
"MIG REIT Acquisition"). The MIG REIT Acquisition was effected by the Company
purchasing such properties in exchange, in part, for an aggregate of 5,139,387
of its Common Shares. Since the issuance, the subsidiaries have transferred the
Common Shares received by them in connection with the MIG REIT Acquisition to
MIG REIT by means of dividends and MIG REIT has transferred the Common Shares to
its Class A shareholders in connection with a dissolution of MIG REIT. Those
Class A shareholders are the Selling Shareholders described herein.
This Prospectus relates to the possible offer and sale from time to time
for a period of one year from the effective date of the Registration Statement
related hereto of 5,139,387 Resale Shares by the Selling Shareholders listed
below. The Resale Shares offered by this Prospectus will be offered from time to
time by the Selling Shareholders, or by pledgees and permitted transferees, as
described in the Registration Rights Agreement. The following table provides the
number of Common Shares beneficially owned and offered by each Selling
Shareholder.
<TABLE>
<CAPTION>
NAME OF COMMON SHARES COMMON SHARES OWNED
SELLING SHAREHOLDER OFFERED HEREBY AFTER OFFERING(1)
- ------------------------------------------------ ----------------------- ---------------------
NUMBER OF NUMBER OF
SHARES PERCENT(2) SHARES PERCENT
--------- ---------- --------- --------
<S> <C> <C> <C> <C>
CS & CO......................................... 1,139,333 5.04% -- --
Trustees of Michelin North America, Inc. Master
Trust under agreement dated January 1, 1993... 924,792 4.09 -- --
Trustees of McDermott Incorporated Master Trust
under agreement dated January 1, 1993......... 854,500 3.78 -- --
Fresno County Employees' Retirement
Association................................... 569,666 2.52 -- --
City of Orlando Police, Firefighters' And
General Employees Pension Funds............... 472,666 2.09 -- --
Oakland County Employees' Retirement System..... 402,212 1.78 -- --
Trustees of Carpenters Individual Account
Pension Trust of Western Washington under
agreement dated June 1, 1981 and of Carpenters
Retirement Trust of Western Washington under
agreement dated January 1, 1996............... 398,766 1.76 -- --
Worchester Retirement System.................... 227,867 1.01 -- --
Massachusetts Water Resources Authority......... 56,967 * -- --
Trustees of Colonial Gas Company Master Pension
Trust under agreement dated July 1, 1998...... 49,893 * -- --
Trustees of Dillingham Construction Pension Plan
under agreement dated August 1, 1997.......... 42,725 * -- --
</TABLE>
- ---------------
* Less than 1%.
(1) Assumes the sale of all the Common Shares offered hereby.
(2) The percentages of Common Shares owned by each Selling Shareholder are based
on 22,601,958 outstanding Common Shares as of August 26, 1998.
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DESCRIPTION OF COMMON SHARES
GENERAL
The Articles authorize the issuance of up to 41,000,000 Common Shares,
without par value. As of August 26, 1998, there were 22,601,958 Common Shares
issued and outstanding. In addition, up to 543,093 Common Shares have been
reserved for issuance upon the exercise of options under the Company's employee
share option plan, and 43,750 Common Shares have been reserved for issuance upon
the exercise of options granted to the Company's independent directors. The
Common Shares are listed on the NYSE under the symbol "AEC." National City Bank,
Cleveland, Ohio, is the transfer agent and registrar of the Common Shares.
The following description of the Common Shares sets forth certain general
terms and provisions of the Common Shares. The statements below describing the
Common Shares are in all respects subject to and qualified in their entirety by
reference to the applicable provisions of the Articles and the Company's Code of
Regulations.
Holders of Common Shares are entitled to receive dividends, when, as and if
declared by the Board of Directors of the Company, out of funds legally
available therefor. The payment and declaration of dividends on the Common
Shares and purchases thereof by the Company will be subject to certain
restrictions if the Company fails to pay dividends on any outstanding preferred
shares of the Company. The holders of Common Shares, upon any liquidation,
dissolution or winding-up of the Company, are entitled to receive ratably any
assets remaining after payment in full of all liabilities of the Company,
including the preferential amounts owing with respect to any preferred shares.
The Common Shares possess ordinary voting rights, with each share entitling the
holder thereof to one vote. Holders of Common Shares do not have cumulative
voting rights in the election of directors and do not have preemptive rights.
All of the Common Shares now outstanding are fully paid and nonassessable.
The Articles provide that except in certain specified instances, no director of
the Company will be personally liable to the Company or any of its shareholders
for monetary damages for breach of any fiduciary duty as a director. However,
this provision may not limit the availability of monetary relief for violations
of securities laws and does not limit the availability of non-monetary relief.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding capital stock 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, and its capital stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months or during a proportionate part of a shorter taxable year of 12
months or during a proportionate part of a shorter taxable year. Additionally,
certain other requirements must be satisfied.
To assure that five or fewer individuals do not own more than 50% in value
of the Company's outstanding Common Shares, the Articles provide that, subject
to certain exceptions, no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 4% (the "Ownership Limit") of the
Company's outstanding Common Shares. Shareholders whose ownership exceeded the
Ownership Limit immediately after the Company's initial public offering may
continue to own Common Shares in excess of the Ownership Limit and may acquire
additional shares from such sources such that the five largest beneficial owners
of Common Shares hold no more than 49.6% of the outstanding Common Shares, and
in any event may not acquire additional shares from any other source. In
addition, since rent from a Related Party Tenant (any tenant 10% of which is
owned, directly or constructively, by a REIT, including an owner of 10% or more
of a REIT) is not qualifying rent for purposes of the gross income tests under
the Code, the Articles provide that no individual or entity may own, or be
deemed to own by virtue of the attribution provisions of the Code (which differ
from the outstanding Common Shares (the "Related Party Limit"). The Board of
Directors may waive the Ownership Limit and the Related Party Limit (such
Related Party Limit has been waived with respect to the shareholders who
exceeded the Related Party Limited immediately after the Company's initial
public offering) if an opinion of counsel or a ruling from the Internal Revenue
Service is provided to the Board of Directors and the Company's
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tax counsel to the effect that such ownership will not then or in the future
jeopardize the Company's status a REIT. As a condition of such waiver, the Board
of Directors will require appropriate representations and undertakings from the
applicant with respect to preserving the REIT status of the Company.
The foregoing restrictions on transferability and ownership of Common
Shares may not apply if the Board of Directors determines that it is no longer
in the best interests of the Company to attempt to qualify, or to continue to
qualify, as a REIT. The Ownership Limit and the Related Party Limit will not be
automatically removed even if the REIT provisions of the Code are changed so as
to no longer contain any ownership concentration limitations or if the ownership
concentration limitation is increased. In addition to preserving the Company's
status as a REIT, the effects of the Ownership Limit and the Related Party Limit
are to prevent any person or small group of persons from acquiring unilateral
control of the Company. Any change in the Ownership Limit would require an
amendment to the Articles even if the Board of Directors determines that
maintenance of REIT status is no longer in the best interests of the Company.
Amendments to the Articles require the affirmative vote of holders owning not
less than a majority of the outstanding Common Shares. If it is determined that
an amendment would materially and adversely affect the holders of any class of
preferred shares, such amendment also would require the affirmative vote of
holders of not less than two-thirds of such class of preferred shares.
If Common Shares in excess of the Ownership Limit or the Related Party
Limit, or Common Shares which would cause the REIT to be beneficially or
constructively owned by less than 100 persons or would result in the Company
being "closely held" within the meaning of Section 856(h) of the Code, are
issued or transferred to any person, such issuance or transfer will be null and
void to the intended transferee, and the intended transferee will acquire no
rights to the shares. Common Shares transferred or proposed to be transferred in
excess of the Ownership Limit or the Related Party Limit or which would
otherwise jeopardize the Company's REIT status ("Excess Shares") will be subject
to repurchase by the Company. The purchase price of any Excess Shares will be
equal to the lesser of (i) the price in such proposed transaction and (ii) the
fair market value of such shares reflected in the last reported sale price for
the Common Shares on the trading day immediately preceding the date on which the
Company or its designee determines to exercise its repurchase right, if then
listed on a national securities exchange, or such price for the shares on the
principal exchange, if they are then listed on more than one national securities
exchange, or, if the Common Shares are not then listed on a national securities
exchange, the latest bid quotation for the Common Shares if they are then traded
over-the-counter, or, if such quotation is not available, the fair market value
as determined by the Board of Directors in good faith, on the last trading day
immediately preceding the day on which notice of such proposed purchase is sent
by the Company. From and after the date fixed for purchase of Excess Shares by
the Company, the holder of such Excess Shares will cease to be entitled to
distribution, voting rights and other benefits with respect to such Excess
Shares except the right to payment of the purchase price for the Excess Shares.
Any dividend or distribution paid to a proposed transferee on Excess Shares will
be repaid to the Company upon demand. If the foregoing transfer restrictions are
determined to be void or invalid by virtue of any legal decision, statute, rule
or regulation, then the intended transferee of any Excess Shares may be deemed,
at the option of the Company, to have acted as an agent on behalf of the Company
in acquiring such Excess Shares and to hold such Excess Shares on behalf of the
Company.
All certificates representing Common Shares bear a legend referring to the
restrictions described above.
The Articles provide that all persons who own, directly or by virtue of the
attribution provisions of the Code, more than 5% of the outstanding Common
Shares must file and affidavit with the Company containing information specified
in the Articles within 30 days after January 1 of each year. In addition, each
such shareholder will upon demand be required to disclose to the Company in
writing such information with respect to the direct, indirect and constructive
ownership of shares as the Board of Directors deems necessary to comply with the
provisions of the Code as applicable to a REIT or to comply with the
requirements of any taxing authority or governmental agency.
PLAN OF DISTRIBUTION
This Prospectus relates to the offer and sale from time to time of up to an
aggregate of 5,139,387 Resale Shares by the Selling Shareholders, or by
pledgees, donees, transferees or other successors in interest thereto. The
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Company is registering the Resale Shares pursuant to the Company's obligations
under the Registration Rights Agreement, but the registration of the Resale
Shares does not necessarily mean that any of the Resale Shares will be offered
or sold by the Selling Shareholders thereunder. The Company will not receive any
proceeds from the sale of the Resale Shares by the Selling Shareholders but has
agreed to bear certain expenses of registration of the Resale Shares.
The distribution of the Resale Shares may be effected from time to time in
one or more underwritten transactions at a fixed price or prices, which may be
changed, or at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Any such underwritten
offering may be on a "best efforts" or a "firm commitment" basis. In connection
with any such underwritten offering, underwriters or agents may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholders. Underwriters may sell the Resale Shares 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 act as agents.
The Selling Shareholders and any underwriters, dealers or agents that
participate in the distribution of the Resale Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any profit on the
sale of the Resale Shares by them and any discounts, commissions or concessions
received by any such underwriters, dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act.
At a time a particular offer of Resale Shares is made by the Selling
Shareholders, a Prospectus Supplement, if required, will be distributed that
will set forth the names of any underwriters, dealers or agents and any
discounts, commissions and other terms constituting compensation from the
Selling Shareholders and any other required information.
The sale of Resale Shares by the Selling Shareholders also may be effected
from time to time by selling Resale Shares directly to purchasers or to or
through broker-dealers. In connection with any such sale, any such broker-dealer
may act as agent for the Selling Shareholders or may purchase from the Selling
Shareholders all or a portion of the Resale Shares as principal, and may be made
pursuant to any of the methods described below. Such sales may be made on the
NYSE or other exchanges on which the Common Shares are then traded, in the
over-the-counter market, in negotiated transactions or otherwise at prices and
at terms then prevailing or at prices related to the then-current market prices
or at prices otherwise negotiated.
The Resale Shares also may be sold in one or more of the following
transactions: (i) block transactions in which a broker-dealer may sell all or a
portion of such shares as agent but may position and resell all or a portion of
the block as principal to facilitate the transaction; (ii) purchases by any such
broker-dealer as principal and resale by such broker-dealer for its own account
pursuant to a Prospectus Supplement; (iii) a special offering, an exchange
distribution or a secondary distribution in accordance with applicable NYSE or
other stock exchange rules; (iv) ordinary brokerage transactions and
transactions in which any such broker-dealer solicits purchasers; (v) sales "at
the market" to or through a market maker or into an existing trading market, on
an exchange or otherwise, for such shares; and (vi) sales in other ways not
involving market makers or established trading markets, including direct sales
to purchasers. In effecting sales, broker-dealers engaged by the Selling
Shareholders may arrange for other broker-dealers to participate. Broker-dealers
will receive commissions or other compensation from the Selling Shareholders in
amounts to be negotiated immediately prior to the sale that will not exceed
those customary in the types of transactions involved. Broker-dealers may also
receive compensation from purchasers of the Resale Shares in amounts which are
not expected to exceed that customary in the types of transactions involved.
In order to comply with the securities laws of certain states, if
applicable, the Resale Shares may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, Resale Shares may not be
sold unless they have been registered or qualified for sale in such state or an
exemption from such registration or qualification requirement is available and
is satisfied.
All expenses incident to the offering and sale of the Resale Shares, other
than commissions, discounts and fees of underwriters, broker-dealers or agents,
fees and disbursements of counsel representing the Selling
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Shareholders and transfer taxes, if any, will be paid by the Company. The
Company has agreed to indemnify the Selling Shareholders against certain losses,
claims, damages and liabilities, including liabilities under the Securities Act.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material Federal income tax
considerations to the Company and its shareholders relating to the Common Shares
and the treatment of the Company as a REIT. The discussion is general in nature
and is not intended to represent a detailed description of the Federal income
tax consequences applicable to a particular shareholder of the Company in view
of a shareholder's particular circumstances, or to certain types of shareholders
(including insurance companies, tax-exempt organizations, financial institutions
or broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) subject to special treatment under the Federal
income tax laws. The discussion in this section is based on current provisions
of the Code, current and proposed Treasury Regulations, court decisions and
other administrative rulings and interpretations, all of which are subject to
change either prospectively or retroactively. There can be no assurance that any
such change, future Code provision or other legal authority will alter
significantly the tax consequences described herein.
ACCORDINGLY, THIS DISCUSSION IS NOT INTENDED TO BE A SUBSTITUTE FOR CAREFUL
TAX PLANNING AND EACH PROSPECTIVE PURCHASER OF COMMON SHARES IS URGED TO CONSULT
HIS OR HER OWN TAX ADVISER REGARDING THE SPECIFIC TAX CONSEQUENCES IN VIEW OF
SUCH PROSPECTIVE PURCHASER'S INDIVIDUAL CIRCUMSTANCES OF THE PURCHASE, OWNERSHIP
AND SALE OF COMMON SHARES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES THEREOF AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
GENERAL
The Company has elected to be taxed as a REIT under Sections 856 through
860 of the Code, commencing with its initial taxable year ended December 31,
1993. The Company believes that it is organized and is operating in such a
manner as to qualify for taxation as a REIT under the Code. The Company intends
to continue to operate in such a manner, but no assurance can be given that it
will operate in a manner so as to qualify or remain qualified as a REIT.
In the opinion of Baker & Hostetler LLP, based on certain assumptions and
representations, the Company has qualified as a REIT for its taxable years ended
December 31, 1993 through December 31, 1997, and the Company is organized in
conformity with the requirements for qualification as a REIT and the Company's
method of operation has enabled it and will continue to enable it to meet the
requirements for qualification and taxation as a REIT under the Code, provided
the Company meets and continues to meet the asset composition, source of income,
shareholder diversification, distributions and other requirements of the Code
necessary for the Company to qualify as a REIT. It must be emphasized that this
opinion is based on various assumptions and is conditioned upon certain
representations made by the Company as to factual matters including, but not
limited to, those set forth in this discussion of "Federal Income Tax
Considerations" and those concerning the Company's business and properties as
set forth in this Prospectus. Moreover, such qualification and taxation as a
REIT depends upon the Company's ability to meet, through actual annual operating
results, distribution levels and diversity of stock ownership, the various
qualification tests imposed under the Code hereinafter discussed, the results of
which will not be reviewed by Baker & Hostetler LLP. Accordingly, no assurance
can be given that the actual results of the Company's operations for any
particular taxable year will satisfy such requirements. See
" -- Failure to Qualify."
TAXATION OF THE COMPANY
If the Company qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income tax on its taxable income that is
distributed in a timely manner to its shareholders. This treatment substantially
eliminates the "double taxation" (at the corporate and shareholder levels) that
generally results from an
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investment in a corporation. However, the Company will be subject to Federal
income tax in several ways, including the following: First, the Company will be
taxed at regular corporate rates on any undistributed REIT taxable income,
including undistributed capital gains (although shareholders will, upon filing
their federal income tax returns, receive an offsetting credit against their own
federal income tax liability for federal income taxes paid by the Company with
respect to any such undistributed net capital gain for which the Company makes a
Capital Gains Designation (as hereinafter defined)). Second, under certain
circumstances, the Company may be subject to the "alternative minimum tax."
Third, if the Company has (i) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in the
ordinary course of business or (ii) other non-qualifying income from foreclosure
property, it will be subject to tax on such income at the highest corporate
rate. Fourth, if the Company has net income from "prohibited transactions"
(which are, in general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business other than
foreclosure property), such income will be subject to a 100% corporate level
tax. Fifth, if the Company fails to satisfy the 75% gross income test or the 95%
gross income test (each hereinafter discussed) but nonetheless maintains its
qualification as a REIT by satisfying certain other requirements, it will be
subject to a 100% tax on an amount equal to the gross income attributable to the
greater of the amount by which the Company fails the 75% or 95% test, multiplied
by a fraction intended to reflect the Company's profitability. Sixth, if the
Company fails to distribute during each calendar year at least the sum of (i)
85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain
net income for such year (other than certain long-term capital gains for which
the Company makes a Capital Gains Designation and pays the tax thereon) and
(iii) any undistributed taxable income from prior periods, it will be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company acquires any assets from a C
corporation (i.e., generally a corporation subject to full corporate-level tax)
in a transaction in which the basis of the asset of the Company is determined by
reference to the basis of the asset (or any other property) of the C
corporation, and the Company recognizes gain on the disposition of such asset
during the ten-year period beginning on the date the asset was acquired by the
Company, then the excess of (i) the fair market value of such asset as of the
beginning of such period over (ii) the Company's adjusted basis in such asset as
of the beginning of such period will be subject to take at the highest corporate
rate. Beginning with the Company's taxable year ending December 31, 1998, the
Company may, with respect to undistributed net long-term capital gains it
receives during the taxable year, elect to pay tax on such gains and to
designate in a notice mailed to shareholders within 60 days of the end of the
taxable year (or in a notice mailed with its annual report for the taxable year)
the amount of such gains that its shareholders must include in their taxable
income as long-term capital gains (the "Capital Gains Designation"). Thus, if
the Company made the Capital Gains Designation, the shareholders of the Company
would include in their taxable income, as long-term capital gains, their
proportionate share of the undistributed long-term capital gains as designated
by the Company. Each shareholder of the Company would be deemed to have paid
such shareholder's share of the tax paid by the Company on such gains, which tax
would, upon the shareholder filing his or her federal income tax return, be
credited or refunded to the shareholder. A shareholder would increase such
shareholder's tax basis in his or her Common Shares by the amount of taxable
income to the shareholder resulting from the designation and decrease such tax
basis by the amount of such shareholder's credit or refund for the tax paid by
the Company.
REQUIREMENTS FOR QUALIFICATIONS AS A REIT
A REIT is defined in the Code as a corporation, trust or association (i)
which is managed by one or more trustees or directors; (ii) the beneficial
ownership of which is evidenced by transferable shares, or by transferable
certificates of beneficial interest; (iii) which would be taxable as a domestic
corporation, but for Sections 856 through 859 of the Code; (iv) which is neither
a financial institution nor an insurance company subject to certain provisions
of the Code; (v) the beneficial ownership of which is held by 100 or more
persons; (vi) not more than 50% in value of the outstanding stock of which is
owned during the last half of each taxable year, directly or indirectly by five
or fewer individuals (as defined in the Code to include certain entities); and
(vii) which meets certain income and asset tests described below. Conditions (i)
through (iv), inclusive, must be met during the entire taxable year and
condition (v) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
Beginning with the Company's taxable year ending December 31, 1998, if the
Company complies with Treasury Regulations for ascertaining the actual
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ownership of its shares and did not know or, exercising reasonable diligence
would not have reason to know, that more than 50% in value of its outstanding
shares were held, actually or constructively, by five or fewer individuals, then
the Company will be treated as meeting such requirement.
The Company believes it has satisfied conditions (v) and (vi) set forth
above. In addition, the Articles provide for restrictions regarding the transfer
and ownership of Common Shares, which restrictions are intended to assist the
Company in continuing to satisfy those requirements.
The Company owns and/or operates a number of properties through its wholly
owned subsidiaries (the "Subsidiaries"). These Subsidiaries are "qualified REIT
subsidiaries" of the Company and 100% of the outstanding shares of each of the
Subsidiaries is held by the Company. Code Section 856(i)(1) provides that a
corporation which is a "qualified REIT subsidiary" shall not be treated as a
separate corporation, and all assets, liabilities and items of income, deduction
and credit of a qualified REIT subsidiary shall be treated as assets,
liabilities and such items (as the case may be) of the REIT. Thus, in applying
the requirements described herein, the Subsidiaries will be ignored and all of
the assets, liabilities and items of income, deduction and credit of the
Subsidiaries will be treated as assets, liabilities and items of the Company.
In the case of a REIT or a qualified REIT subsidiary that is a partner in a
partnership, the Treasury Regulations provide that the REIT will be deemed to
own its proportionate share of the assets of the partnership and will be deemed
to be entitled to the income of the partnership attributable to such share. In
addition, the character of the assets and gross income of the partnership will
retain the same character in the REIT for purposes of Section 856 of the Code,
including satisfying the gross income and asset tests. Thus, the Company's
proportionate share of the assets, liabilities and items of income of the
partnerships (including limited liability companies treated as partnerships for
Federal income tax purposes) in which the Company or its Subsidiaries is a
partner will be treated as assets, liabilities and items of income of the
Company for purposes of applying the requirements described herein.
INCOME TESTS
Currently, in order to maintain qualification as a REIT, the Company
annually must satisfy two gross income requirements. First, at least 75% of the
Company's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived 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 Company's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived from such real
property investments, dividends, interest and gain from the sale or other
disposition of stock or securities (or from any combination of the foregoing).
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT heretofore described only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or an owner of 10% or more of the REIT, directly or
constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, for rents received to qualify as
"rents from real property," the REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an independent contractor from whom the REIT derives no revenue,
provided, however, the Company may directly perform certain services that are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the occupant" of
the property.
Moreover, beginning with its taxable year ending December 31, 1998, the
Company is permitted to render a de minimis amount of impermissible services to
tenants, or in connection with the management of property, and
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still treat amounts received with respect to that property as rent. The value of
the impermissible services may not exceed 1% of all amounts received or accrued
during the year, directly or indirectly, from the property. The amount received
for any service (or management operation) for this purpose will be deemed to be
not less than 150% of the direct cost of the Company in furnishing or rendering
the service (or providing the management or operation).
The Company does not and will not charge rent for any property that is
based in whole or in part on the income or profits of any person (except by
reason of being based on a percentage of receipts or sales, as heretofore
described), and the Company does not and will not rent any personal property
(other than personal property leased in connection with the lease of real
property, the amount of which is less than 15% of the total rent received under
the lease). The Company directly performs services under certain of its leases,
but such services are not rendered to the occupant of the property. Furthermore
these services are usual and customary management services provided by landlords
renting space for occupancy in the geographic areas in which the Company owns
property. To the extent that the performance of any services provided by the
Company would cause amounts received from its tenants to be excluded from rents
from real property, the Company will hire independent contractors from whom the
Company derives no revenue to perform such services.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part of the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
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 it is entitled to relief under certain provisions of the Code. These
relief provisions generally will be available if the Company's failure to meet
such tests was attributable to reasonable cause and not to willful neglect, the
Company attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not attributable to fraud with intent
to evade tax. It is not possible, however, to determine whether, in all
circumstances, the Company would be entitled to the benefit of those relief
provisions. As discussed above in " -- General," even if those relief provisions
apply, a tax would be imposed with respect to excess net income.
For taxable years prior to January 1, 1998, the Company had to satisfy an
additional gross income test annually -- less than 30% of the Company's gross
income could consist of short-term gain from the sale or other disposition of
stock or securities, gain from prohibited transactions and gain from the sale or
other disposition of real property held for less than four years. No mitigation
provision was applicable if the Company were to fail to satisfy the 30% income
test for its taxable year ended December 31, 1997. See "Risk Factors -- Adverse
Impact on Distributions of Failure to Qualify as a REIT."
ASSET TESTS
At the close of each quarter of the taxable year, the Company must also
satisfy three tests relating to the nature of its assets. First, at least 75% of
the value of the Company's total assets must be represented by interests in real
property, interests in mortgages on real property to the extent the mortgage
balance does not exceed the value of the associated real property, shares in
other REITs, cash, cash items, government securities and certain securities
attributable to temporary investment of new capital. Second, not more than 25%
of the Company's total assets may be represented by securities other than those
in the 75% asset class. Third, of the investments included in the 25% asset
class, the value of any one issuer's securities 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 voting securities.
ANNUAL DISTRIBUTION REQUIREMENTS
The Company must distribute dividends (other than capital gain dividends)
to its shareholders each year in an amount at least equal to (i) the sum of (a)
95% of the Company's "REIT taxable income" (computed without regard to the
dividends paid deduction and the Company's net capital gain), and (b) 95% of the
net income (after tax), if any, from foreclosure property, minus (ii) the sum of
certain items of non-cash income. To the extent that
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the Company does not distribute all of its net capital gain or distributes at
least 95%, but less than 100%, of its "REIT taxable income," as adjusted, it
will be subject to tax thereon at regular ordinary and capital gains corporate
tax rates. Furthermore, if the Company fails to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain income for such year (other than certain long-term
capital gains for which the Company makes a Capital Gains Designation and pays
the tax thereon) and (iii) any undistributed taxable income from prior periods,
the Company will be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Beginning with the Company's
taxable year ending December 31, 1998, (i) the class of non-cash income that is
excluded from the distribution requirement is expanded to include income from
the cancellation of indebtedness and (ii) the treatment of original issue
discount ("OID") (over cash and the fair market value of property received on
the instrument) as such non-cash income is extended to OID instruments generally
for REITs, like the Company, that use an accrual method of accounting. 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. Beginning with the Company's taxable year ending December 31, 1998, the
Company may, with respect to undistributed net long-term capital gains it
receives during the taxable year, elect to pay tax on such gains and to
designate in a notice mailed to shareholders within 60 days of the end of the
taxable year (or in a notice mailed with its annual report for the taxable year)
the amount of the Capital Gains Designation. Thus, if the Company made the
Capital Gains Designation, the shareholders of the Company would include in
their taxable income, as long-term capital gains, their proportionate share of
the undistributed long-term capital gains as designated by the Company. Each
shareholder of the Company would be deemed to have paid such shareholder's share
of the tax paid by the Company on such gains, which tax would, upon the
shareholder filing his or her federal income tax return, be credited or refunded
to the shareholder. A shareholder would increase such shareholder's tax basis in
his or her Common Shares by the amount of taxable income to the shareholder
resulting from the designation and decrease such tax basis by the amount of such
shareholder's credit or refund for the tax paid by the Company.
The Company intends to make timely distributions sufficient to satisfy
these annual distribution requirements. It is possible that the Company, from
time to time, may not have sufficient cash or other liquid assets to meet the
95% distribution requirement because of timing differences between (i) the
actual receipt of income and the actual payment of deductible expenses and (ii)
the inclusion of such income and deduction of such expenses in arriving at the
taxable income of the Company. In the event that such timing differences occur,
in order to meet the 95% distribution requirement the Company may find it
necessary to arrange for short-term, or possibly long-term, borrowings or to pay
dividends in the form of taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a certain year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Thus, the Company
may be able to avoid being taxed on amounts distributed as deficiency dividends.
However, the Company will be required to pay interest based upon the amount of
any deduction taken for deficiency 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 deductible by the Company nor will they be
required to be made 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 of the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company will
also be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. Whether the Company
would be entitled to such statutory relief cannot be foreseen.
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<PAGE> 17
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions made by the
Company to its taxable domestic shareholders out of current or accumulated
earnings and profits of the Company (and not designated as capital gain
dividends) will result in ordinary income to such shareholders. Corporate
shareholders will not be entitled to the dividends received deduction.
Distributions (and beginning with the Company's taxable year ending December 31,
1998, undistributed amounts for which the Company properly makes a Capital Gains
Designation) that are designated as capital gains dividends will be treated as
gain from the sale or disposition 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
his or her shares. However, corporate shareholders may be required to treat up
to 20% of certain capital gain dividends as ordinary income. Distributions by
the Company in excess if its current and accumulated earnings and profits will
not be taxable to a shareholder to the extent that such distributions do not
exceed the adjusted basis of the shareholder's shares, but rather, will be a
non-taxable reduction in a shareholder's adjusted basis.
Any dividends declared by the Company in October, November or December of
any year payable to shareholders of record on a specified date in any such month
will be treated as both paid by the Company and received by shareholders on or
before December 31 of such year, provided that the dividend is actually paid by
the Company by January 31 of the following calendar year.
Shareholders may not include any net operating losses or capital losses of
the Company in their individual income tax returns. In general, any loss upon
the sale or exchange of shares by a shareholder who has held such shares for six
months or less (after applying certain holding period rules) will be treated as
a long-term capital loss to the extent distributions from the Company are
required to be treated by such shareholder as long-term capital gain.
The Taxpayer Relief Act of 1997 (as modified by the Internal Revenue
Service Restructuring and Reform Act of 1998, which was signed into law on July
22, 1998) made certain changes to the Code with respect to taxation of long-term
capital gains earned by taxpayers other than corporations. In general, for sales
made after January 1, 1998, the maximum tax rate for individual taxpayers on net
long-term capital gains (i.e., the excess of net long-term capital gain over net
short-term capital loss) is lowered to 20% for most assets. This 20% rate
applies to sales on or after January 1, 1998 only if the asset was held for more
than 12 months at the time of disposition. Also, so-called "unrecaptured section
1250 gain" is subject to a maximum Federal income tax rate of 25%. "Unrecaptured
section 1250 gain" generally includes the long-term capital gain realized on the
sale of a real property asset described in Section 1250 of the Code, but not in
excess of the amount of depreciation (less the gain, if any, treated as ordinary
income under Code Section 1250) taken on such asset. A rate of 18% instead of
20% will apply after December 31, 2000 for assets held more than five years.
However, the 18% rate applies only to assets acquired after December 31, 2000
unless the taxpayer elects to treat an asset held prior to such date as sold for
market value on January 1, 2001. In the case of individuals whose ordinary
income is taxed at a 15% rate, the 20% rate is reduced to 10% and the 10% rate
for assets held more than five years is reduced to 8%.
Certain aspects of the new legislation are currently unclear, to gains
earned by REITs such as the Company. The 20% or 10% rate will apply to
distributions Act of 1997 gives pass-through entities, including REITs. It is
possible that the IRS could provide in such regulations, as it did the IRS
authority to apply the Act's new rules on taxation of capital gains to sales by
of long-term capital gains by the Company. The Taxpayer Relief until the IRS
issues some guidance, it is unclear whether or how including how the reduced
rates will apply in IRS Notice 97-64 (superceded by the Internal Revenue Service
Restructuring and Reform Act of 1998), that REIT capital gain dividends must be
determined by looking through to the assets sold by the REIT and treated by REIT
shareholders as "long-term capital gain" and "unrecaptured section 1250 gain" to
the extent of such respective gain realized by the REIT. No regulations have yet
been issued. Such regulations, if and when issued, may have a retroactive
effect.
Shareholders of the Company should consult their tax advisors with regard
to (i) the application of the changes made by the Taxpayer Relief Act of 1997
and the Internal Revenue Service Restructuring and Reform Act of 1998 with
respect to taxation of capital gains and capital gain dividends and (ii) state,
local and foreign taxes on capital gains.
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<PAGE> 18
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Based upon a revenue ruling issued by the IRS, dividend distributions by a
REIT to a tax-exempt employees' pension trust do not constitute unrelated
business taxable income ("UBTI"). Subject to the discussion contained herein
regarding a "pension-held REIT," based on such ruling and the statutory
framework of the Code, distributions by the Company to a shareholder that is a
tax-exempt entity should not constitute UBTI, provided that (i) the tax-exempt
entity has not financed the acquisition of its Common Shares with "acquisition
indebtedness" within the meaning of the Code, (ii) the Common Shares are not
otherwise used in an unrelated trade or business of the tax-exempt entity, and
(iii) the Company, consistent with its present intent, does not hold a residual
interest in a Real Estate Mortgage Investment Conduit.
However, if any pension or other retirement trust qualified under Section
401(a) of the Code (a "qualified pension trust") holds more than 10% by value of
the interests in a pension-held REIT at any time during a taxable year, then a
portion of the dividends paid by the REIT to such qualified pension trust may
constitute UBTI, but only if (i) such REIT would not have qualified as a REIT
but for the provisions of the Code which look through such a qualified pension
trust for purposes of determining ownership of shares of a REIT and (ii) at
least one qualified pension trust holds more than 25% by value of the interests
in such REIT or one or more qualified pension trusts (each owning more than a
10% interest in such REIT) hold in the aggregate more than 50% (by value) of the
interests in such REIT.
BECAUSE OF THE COMPLEXITY AND VARIATIONS OF THE UBTI RULES, TAX-EXEMPT
ENTITIES SHOULD CONSULT THEIR OWN TAX ADVISERS.
TAXATION OF FOREIGN SHAREHOLDERS
General. A "Non-U.S. Shareholder" is (i) any individual who is neither a
citizen or resident of the United States, (ii) any corporation or partnership
other than a corporation or partnership created or organized in the United
States or under the laws of the United States or any state thereof or under the
laws of the District of Columbia (unless in the case of a partnership, Treasury
Regulations provide otherwise), (iii) an estate or (iv) a trust that is not a
"U.S. Trust." For taxable years beginning after December 31, 1996 (or if the
trustee of a trust elects to apply the following definition to an earlier
taxable year ending after August 20, 1996) a trust is a U.S. Trust if, and only
if, (a) a court within the United States is able to exercise primary supervision
over the administration of the trust and (b) one or more U.S. persons has the
authority to control all substantial decisions of the trust.
THE RULES GOVERNING UNITED STATES FEDERAL INCOME TAXATION OF NON-U.S.
SHAREHOLDERS ARE COMPLEX AND NO ATTEMPT IS MADE HEREIN TO PROVIDE MORE THAN A
SUMMARY OF SUCH RULES. PROSPECTIVE NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH
THEIR OWN TAX ADVISORS TO DETERMINE THE IMPACT OF FEDERAL, STATE AND LOCAL
INCOME TAX LAWS WITH REGARD TO AN INVESTMENT IN THE COMMON SHARES, INCLUDING ANY
REPORTING REQUIREMENTS.
It is currently anticipated that the Company will qualify as a
"domestically controlled REIT" (i.e., a REIT in which at all times during a
specified testing period less than 50% of the value of the capital stock of
which is owned directly or indirectly by Non-U.S. Shareholders) and therefore
gain from the sale of Common Shares by a Non-U.S. Shareholder will not be
subject to United States taxation unless such gain is treated as "effectively
connected" with the Non-U.S. Shareholder's United States trade or business.
Distributions that are not attributable to gain from sales or exchanges by
the Company of United States real property interests (and are not designated as
capital gain dividends) will be treated as dividends of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions generally will be subject to a U.S. withholding
tax equal to 30% of the gross amount of the distribution, subject to reduction
or elimination under an applicable tax treaty. However, if dividends from the
investment in the Common Shares are treated as "effectively connected" with the
Non-U.S. Shareholder's conduct of a United States trade or business, such
dividends will be subject to regular U.S. income taxation (and foreign
corporations may also be subject to the 30% branch profits tax). The Company
expects to withhold
18
<PAGE> 19
United States income tax at the rate of 30% on the gross amount of any such
dividends paid to a Non-U.S. Shareholder unless (i) a lower treaty rate applies
and the Non-U.S. Shareholder files certain information evidencing its
entitlement to such lower treaty rate or (ii) the Non-U.S. Shareholder files an
IRS Form 4224 with the Company claiming that the distribution is "effectively
connected" income. Distributions which exceed current and accumulated earnings
and profits of the Company will not be taxable to a Non-U.S. Shareholder to the
extent that they do not exceed the adjusted basis of the shareholder's Common
Shares, but rather will reduce the adjusted basis of such Common Shares. To the
extent that such distributions exceed the adjusted basis of a Non-U.S.
Shareholder's Common Shares, they will generally give rise to United States tax
liability if the Non-U.S. Shareholder would otherwise be subject to tax on any
gain from the sale or disposition of his Common Shares, as described above. If
it cannot be determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the distributions will be subject to withholding at the same rate as dividends.
However, amounts thus withheld are refundable if it subsequently is determined
that such distribution was, in fact, in excess of current and accumulated
earnings and profits of the Company.
Distributions by the Company that are attributable to gain from sales or
exchanges by the Company of United States real property interests are subject to
income and withholding tax under the provisions of the Foreign Investment in
Real Property Tax Act of 1980, as amended ("FIRPTA"). Under FIRPTA, those
distributions, if any, which are treated as gain recognized from the sale of
United States real property interests, are taxed as income "effectively
connected" with a U.S. business. Non-U.S. Shareholders would thus be taxed at
the normal capital gain rates applicable to U.S. shareholders (subject to
applicable alternative minimum tax and special alternative minimum tax for
nonresident alien individuals). Also, distributions subject to FIRPTA may be
subject to a 30% branch profits tax in the hands of a foreign corporate
shareholder not entitled to treaty exemption. The Company will withhold 35% of
any distribution that could be designated by the Company as a capital gain
dividend. This amount is creditable against the Non-U.S. Shareholder's Federal
tax liability. A refund may be available if the amount withheld exceeds the
Non-U.S. Shareholder's Federal tax liability.
Information Reporting and Backup Withholding. The Company must report
annually to the IRS and to each Non-U.S. Shareholder (as hereinafter defined)
the amount of dividends (including any capital gain dividends) paid to, and the
tax withheld with respect to, each Non-U.S. Shareholder. These reporting
requirements apply regardless of whether withholding was reduced or eliminated
by an applicable tax treaty. Copies of these returns may also be made available
under the provisions of a specific treaty or agreement with the tax authorities
in the country in which the Non-U.S. Shareholder resides.
U.S. backup withholding (which generally is imposed at the rate of 31% on
certain payments to persons that fail to furnish the information required under
the U.S. information reporting requirements) and information reporting will
generally not apply to dividends (including any capital gain dividends) paid on
stock to a Non-U.S. Shareholder at an address outside the United States.
The payment of the proceeds from the disposition of stock to or through a
U.S. office of a broker will be subject to information reporting and backup
withholding unless the owner, under penalties of perjury, certifies, among other
things, its status as a Non-U.S. Shareholder, or otherwise establishes an
exemption. The payment of the proceeds from the disposition of stock to or
through a non-U.S. office of a non-U.S. broker generally will not be subject to
backup withholding and information reporting, except as noted below. In the case
of a payment of proceeds from the disposition of stock to or through a non-U.S.
office of a broker which is (i) a U.S. person, (ii) a "controlled foreign
corporation" for U.S. Federal income tax purposes or (iii) a foreign person 50%
or more of whose gross income for certain periods is derived from a U.S. trade
or business, information reporting (but not backup withholding) will apply
unless the broker has documentary evidence in its files that the holder is a
Non-U.S. Shareholder (and the broker has no actual knowledge to the contrary)
and certain other conditions are met, or the holder otherwise establishes an
exemption. A payment of the proceeds from the disposition of stock to or through
such broker will be subject to backup withholding if such broker has actual
knowledge that the holder is a U.S. person.
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<PAGE> 20
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-U.S.
Shareholder's U.S. Federal income tax liability, provided that required
information is furnished to the IRS.
New Withholding Regulations. Final regulations with regard to withholding
tax on income paid to foreign persons and related matters (the "New Withholding
Regulations") were recently promulgated. In general, the New Withholding
Regulations do not significantly alter the substantive withholding and
information reporting requirements, but unify current certification procedures
and forms and clarify reliance standards. For example, the New Withholding
Regulations adopt a certification rule which was in the proposed regulations
under which a Non-U.S. Stockholder who wishes to claim the benefit of an
applicable treaty rate with respect to dividends received from a U.S.
corporation will be required to satisfy certain certification and other
requirements. In addition, the New Withholding Regulations require a corporation
that is a REIT to treat as a dividend the portion of a distribution that is not
designated as a capital gain dividend or return of basis and apply the 30%
withholding tax (subject to any applicable deduction or exemption) to such
portion, and to apply the FIRPTA withholding rules (heretofore discussed) with
respect to the portion of the distribution designated by the REIT as capital
gain dividend. The New Withholding Regulations will generally be effective for
payments made after December 31, 1999. EXCEPT AS PROVIDED IN THIS PARAGRAPH, THE
DISCUSSION SET FORTH ABOVE UNDER
"-- INFORMATION REPORTING AND BACKUP WITHHOLDING" DOES NOT TAKE THE NEW
WITHHOLDING REGULATIONS INTO ACCOUNT. PROSPECTIVE PURCHASERS OF COMMON SHARES
SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE IMPACT TO THEM OF THE NEW
WITHHOLDING REGULATIONS.
STATE AND LOCAL CONSEQUENCES
The Company and its shareholders may be subject to state or local taxation
in various 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.
Prospective shareholders should consult their own tax advisors regarding the
effect of state and local tax laws on an investment in the Company.
FEDERAL ESTATE TAX
Shares owned or treated as owned by an individual who is not a citizen or a
"resident" (as specifically defined for U.S. Federal estate tax purposes) of the
United States at the time of death will be includable in the individual's gross
estate for U.S. Federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise. Such individual's estate may be subject to U.S.
Federal estate tax on the property.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K of the Company for the year ended
December 31, 1997, the audited historical statement of revenue and certain
expenses included on pages F-2 to F-4 of the Company's Current Report on Form
8-K/A-1 dated February 6, 1997, the audited historical statements of revenue and
certain expenses included on pages F-2 to F-5 of the Company's Current Report on
Form 8-K dated August 25, 1997 and the audited historical statement of revenue
and certain expenses included on pages F-6 to F-8 of the Company's Current
Report on Form 8-K dated February 19, 1998, have been so incorporated in
reliance on the reports of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The (a) consolidated financial statements of MIG REIT for each of the three
years in the period ended December 31, 1997 and combined financial statements of
MIG Companies for the year ended December 31, 1997, appearing in the Company's
Current Reports on Form 8-K dated February 19, 1998 and Amendment No. 1 thereto,
and Amendment No. 1 of Form 8-K dated June 30, 1998, and (b) combined statement
of revenue and certain expenses for certain multifamily properties for the year
ended December 31, 1997, for those properties which were acquired by the Company
on February 2, 1998, appearing in the Company's Current Report on Form 8-K dated
February 19, 1998, filed with the Commission, have been audited by Ernst & Young
LLP, independent
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<PAGE> 21
certified public accountants, as set forth in their reports thereon included
therein and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters relating to the validity of the Common Shares and
certain tax matters will be passed upon for the Company by Baker & Hostetler
LLP, Cleveland, Ohio. Albert T. Adams, a partner with Baker & Hostetler, LLP, is
a director of the Company.
INDEMNIFICATION
Pursuant to the Registration Rights Agreement, the Company has agreed to
indemnify and hold harmless the Selling Shareholders and their directors,
officers, employees, agents, trustees and partners against all liabilities
(including expenses) arising out of or based upon (a) any violation by the
Company of any rule promulgated under the Securities Act or the Exchange Act or
any state securities act and relating to any action or inaction required of the
Company in connection with any registration statement or prospectus to which the
Registration Rights Agreement relates, (b) any untrue or alleged untrue
statement of material fact contained in any such registration statement or
prospectus, or (c) any omission or alleged omission to state in any such
registration statement or prospectus a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading. The foregoing
indemnification does not apply to any untrue statement made in reliance upon
information supplied by a Selling Shareholder or a Selling Shareholder's failure
to send or give a final prospectus furnished to it by the Company at or prior to
the time required by the Securities Act.
The Articles provide for the indemnification of its directors and executive
officers to the fullest extent permitted by Ohio law. Additionally, each of the
Company's executive officers and directors is a party to an Indemnification
Agreement with the Company. It is the position of the Commission that
indemnification of directors and officers for liabilities arising under the
Securities Act is against public policy and is unenforceable pursuant to Section
14 of the Securities Act.
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or the Selling Shareholders. This Prospectus does not constitute
an offer to sell or the solicitation of an offer to buy the Common Shares by
anyone in any jurisdiction in which such offer or solicitation is not
authorized, or in which the person making the offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall create an implication that the information contained or
incorporated by reference herein is correct as of any time subsequent to its
date.
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<PAGE> 22
- ------------------------------------------------------
- ------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information................... 3
Incorporation Of Certain Documents by
Reference............................. 3
The Company............................. 4
The Offering............................ 4
Risk Factors............................ 5
Proceeds................................ 8
Selling Shareholders.................... 8
Description of Common Shares............ 9
Plan of Distribution.................... 10
Federal Income Tax Considerations....... 12
Experts................................. 20
Legal Matters........................... 21
Indemnification......................... 21
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
5,139,387 COMMON SHARES
ASSOCIATED ESTATES
REALTY CORPORATION
------------------------
PROSPECTUS
------------------------
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 23
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses to be incurred in connection with the offering
contemplated by this Registration Statement, all of which will be paid by the
Company, are as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $25,440
NYSE Listing Fee............................................ 25,500
Accounting Fees and Expenses................................ 50,000
Legal Fees and Expenses..................................... 50,000
Printing and Engraving Expenses............................. 50,000
Miscellaneous Expenses...................................... 4,060
-------
Total............................................. 205,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Ohio Revised Code (the "Ohio Code") authorizes Ohio corporations to
indemnify officers and directors from liability if the officer or director acted
in good faith and in a manner reasonably believed by the officer or director to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal actions, if the officer or director had no reason to believe his
action was unlawful. In the case of an action by or on behalf of a corporation,
indemnification may not be made (i) if the person seeking indemnification is
adjudged liable for negligence or misconduct, unless the court in which such
action was brought determines such person is fairly and reasonably entitled to
indemnification, or (ii) if liability asserted against such person concerns
certain unlawful distributions. The indemnification provisions of the Ohio Code
require indemnification if a director or officer has been successful on the
merits or otherwise in defense of any action, suit or proceeding that he was a
party to by reason of the fact that he is or was a director or officer of the
corporation. The indemnification authorized under Ohio law is not exclusive and
is in addition to any other rights granted to officers and directors under the
articles of incorporation or code of regulations of the corporation or any
agreement between officers and directors and the corporation. A corporation may
purchase and maintain insurance or furnish similar protection on behalf of any
officer or director against any liability asserted against him and incurred by
him in his capacity, or arising out of the status, as an officer or director,
whether or not the corporation would have the power to indemnify him against
such liability under the Ohio Code.
The Registrant's Code of Regulations provides for the indemnification of
directors and officers of the Registrant to the maximum extent permitted by Ohio
law as authorized by the Board of Directors of the Registrant and for the
advancement of expenses incurred in connection with the defense of any action,
suit or proceeding that he was a party to by reason of the fact that he is or
was a director or officer of the Registrant upon the receipt of an undertaking
to repay such amount unless it is ultimately determined that the director or
officer is entitled to indemnification. The Registrant maintains a directors'
and officers' insurance policy which insures the directors and officers of the
Registrant from claims arising out of an alleged wrongful act by such persons in
their respective capacities as directors and officers of the Registrant, subject
to certain exceptions. The Registrant has entered into indemnification
agreements with its directors and officers which provide for indemnification to
the fullest extent permitted under Ohio law.
II-1
<PAGE> 24
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S>
4.1 Second Amended and Restated Articles of Incorporation of the
Company, as amended (incorporated by reference to Exhibit
3.1 to Form S-11 filed June 30, 1994 (file No. 33-80950 as
amended))
4.2 Code of Regulations of the Company (incorporated by
reference to Exhibit 3.2
4.3 Form of Registration Rights Agreement
5.1 Opinion of Baker & Hostetler LLP regarding legality of the
Common Shares
8.1 Opinion of Baker & Hostetler LLP regarding certain tax
matters
23.1 Consent of Baker & Hostetler LLP (contained in Exhibits 5.1
and 8.1 hereto)
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Ernst & Young LLP
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1.) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
Registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration Statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the
II-2
<PAGE> 25
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than in payment by the Registrant of expenses incurred
or paid by a Company manager, director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being Registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Richmond Heights, State of Ohio, on the 26th of
August, 1998.
ASSOCIATED ESTATES REALTY CORPORATION
By: /s/ JEFFREY I. FRIEDMAN
------------------------------------
Jeffrey I. Friedman
Chairman of the Board of Directors,
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Jeffrey I. Friedman, Dennis W. Bikun and
Martin A. Fishman and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him, and on his
behalf and in his name, place and stead, in any and all capacities, to sign,
execute and file this Registration Statement under the Securities Act of 1933,
as amended, and any or all amendments (including, without limitation,
post-effective amendments), with all exhibits and any and all documents required
to be filed with respect thereto, with the Securities and Exchange Commission or
any regulatory authority, granting unto such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JEFFREY I. FRIEDMAN Chairman of the Board of Directors, August 26, 1998
- ------------------------------------- President and Chief Executive Officer
Jeffrey I. Friedman (Principal Executive Officer)
/s/ DENNIS W. BIKUN Vice President, Chief Financial August 26, 1998
- ------------------------------------- Officer and Treasurer (Principal
Dennis W. Bikun Financial Officer and Principal
Accounting Officer)
/s/ MARK L. MILSTEIN Director August 26, 1998
- -------------------------------------
Mark L. Milstein
/s/ ALBERT T. ADAMS Director August 26, 1998
- -------------------------------------
Albert T. Adams
/s/ GERALD C. MCDONOUGH Director August 26, 1998
- -------------------------------------
Gerald C. McDonough
</TABLE>
II-4
<PAGE> 27
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ FRANK E. MOSIER Director August 26, 1998
- -------------------------------------
Frank E. Mosier
/s/ RICHARD T. SCHWARZ Director August 26, 1998
- -------------------------------------
Richard T. Schwarz
/s/ LARRY E. WRIGHT Director August 26, 1998
- -------------------------------------
Larry E. Wright
</TABLE>
II-5
<PAGE> 1
Exhibit 4.3
FORM OF REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is
entered into as of June 30, 1998, by and between ASSOCIATED ESTATES REALTY
CORPORATION, an Ohio corporation (the "Company"), and each of the persons who
are signatories hereto (each, a "Holder").
WHEREAS, each Holder has entered into a purchase agreement for
the sale of real property by Holder to the Company (the "Purchase Agreement")
and a portion of the consideration paid by the Company for such real property is
a number of common shares, without par value, of the Company specified in the
Purchase Agreement; and
WHEREAS, the Company has agreed to provide the Holders with
certain registration rights with respect to the shares received by those
Holders, subject to the terms and conditions provided herein.
NOW, THEREFORE, in consideration of the foregoing, the mutual
promises and agreements set forth herein, and other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. CERTAIN DEFINITIONS.
As used in this Agreement, the following capitalized defined
terms shall have the following meanings:
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"PERMITTED TRANSFEREE" shall mean, in the case of a Holder
that is a group trust or corporation, any Person that is a beneficial owner or
shareholder, respectively, therein and shall include the holders of the Class A
Common Stock of MIG Residential REIT, Inc.
"PERSON" shall mean an individual, partnership, corporation,
trust, or unincorporated organization, or a government or agency or political
subdivision thereof.
"PROSPECTUS" shall mean the prospectus included in a
Registration Statement, including any preliminary prospectus, as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Shares covered by such Registration
Statement, and by all other amendments and supplements to such prospectus,
including post-effective amendments, and in each case including all material
incorporated by reference therein.
"REGISTRABLE SHARES" shall mean (i) the Shares received in
consideration for real property pursuant to the Purchase Agreements (excluding
(a) Shares for which a Registration Statement relating to the sale thereof shall
have become effective under the Securities Act and which have been disposed of
under such Registration Statement, and (b) Shares sold pursuant to Rule 144
under the Securities Act, and (ii) any securities of the Company that may be
issued or distributed with respect to, in exchange or substitution for, or upon
conversion of such Registrable Shares, or on account of such Registrable Shares
<PAGE> 2
as a result of any stock dividend, stock split, reverse split or other
distribution, merger, combination, consolidation, recapitalization or
reclassification or otherwise. All references in this Agreement to Rule 144 and
subsections thereof shall refer to corresponding provisions of future law.
Registrable Shares includes Shares held by other holders pursuant to other real
estate purchase agreements by and between such holders and the Company, as
contemplated by that certain Agreement and Plan of Merger, dated November 5,
1997, among the Company, MIG Realty Advisors, Inc. ("MIGRA") and certain
stockholders of MIGRA.
"REGISTRATION EXPENSES" shall mean all expenses incident to
performance of or compliance with this Agreement, including, without limitation:
(i) all SEC, stock exchange or NASD registration and filing fees; (ii) all fees
and expenses incurred in connection with compliance with state securities or
"blue sky" laws (including reasonable fees and disbursements of counsel in
connection with "blue sky" qualification of any of the Registrable Shares and
the preparation of a Blue Sky Memorandum) and compliance with the rules of the
NASD; (iii) all out-of-pocket expenses of any Persons in preparing or assisting
in preparing, word processing, printing and distributing any Registration
Statement, any Prospectus, certificates and other documents relating to the
performance of and compliance with this Agreement; (iv) all fees and expenses
incurred in connection with the listing, if any, of any of the Registrable
Shares on any securities exchange or exchanges; and (v) the fees and
disbursements of counsel for the Company (other than its internal counsel) and
of the independent public accountants of the Company, including the expenses of
any special audit or "cold comfort" letters required by or incident to such
performance and compliance. Registration Expenses shall specifically exclude
underwriting discounts and commissions relating to the sale or disposition of
Registrable Shares by the Holder, the fees and disbursements of counsel
representing the Holder, and transfer taxes, if any, relating to the sale or
disposition of Registrable Shares by the Holder, all of which shall be borne by
the Holder in all cases.
"REGISTRATION STATEMENT" shall mean any registration statement
of the Company and any other entity required to be a registrant with respect to
such registration statement pursuant to the requirements of the Securities Act
which covers any of the Registrable Shares on an appropriate form, and all
amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all materials incorporated by reference
therein.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SHARES" shall mean common shares, without par value, of the
Company.
2. REGISTRATION.
(a) As soon as reasonably practicable, but no later than
sixty days after the Closing Date (as defined in the Purchase Agreement), the
Company at its sole cost and expense, will prepare and file with the SEC a
Registration Statement on Form S-3 under Rule 415 promulgated under the
Securities Act relating to the Registrable Shares (the "Initial Registration
Statement").
(b) The Company will use all reasonable efforts to have the
Initial Registration Statement declared effective by the SEC as promptly as
practicable (which effective date may or may not occur before the Closing Date
as defined in the Purchase Agreement) and to keep the Registration Statement
continuously effective for a period ending on the date that is one (1) year
following the date the Initial Registration Statement is declared effective by
the SEC or until such earlier date on which the Holders no longer hold any
Registrable Shares covered by the Initial Registration Statement. Holder
- --------------------------------------------------------------------------------
Page 2
<PAGE> 3
acknowledges and agrees that the Company's exercise of "reasonable efforts"
under this Section 2(b) in connection with keeping the Initial Registration
Statement continuously effective, shall not require the Company to alter or
otherwise revise its disclosure practices nor shall the Company's obligation to
use such "reasonable efforts" require the Company to accelerate any discussions
or take any other actions in an effort to reduce the Black-Out Periods (as
defined in Section 8). However, the Company will not invoke Black-Out Periods in
excess of an aggregate of 180 days. In addition, if, in the aggregate, the
Black-Out Periods exceed 120 days, then the Company's obligation to maintain the
effectiveness of the Initial Registration Statement pursuant to this Section
2(b) will be extended by that number of days in excess of 120.
(c) If, at any time while the Registrable Shares are
outstanding (without any obligation to do so) the Company proposes to file
another Registration Statement under the Securities Act with respect to an
offering of Shares which covers sales of Shares by holders of demand
registration rights granted by the Company, the Company shall give prompt
written notice of such proposed filing to the Holders. The notice referred to in
the preceding sentence shall offer each of the Holders the opportunity to
register such amount of Registrable Shares as they may request (a "PIGGYBACK
REGISTRATION"). Subject to the provisions of Section 3 below, the Company shall
include in such Piggyback Registration and in the registration and qualification
for sale under the blue sky or securities laws of the various states, all
Registrable Shares for which the Company has received a written request for
inclusion therein within ten (10) calendar days after the notice referred to
above has been given by the Company to the Holders. Each Holder shall be
permitted to withdraw all or part of his Registrable Shares from a Piggyback
Registration at any time prior to the effective date of such Piggyback
Registration.
(d) During the period beginning one year after the date of
issuance of the Registrable Shares and ending two years after the date of such
issuance, if the Company proposes to file a Registration Statement under the
Securities Act with respect to an underwritten offering by the Company, for its
own account, of any class of equity security (or any options, warrants or other
securities convertible into, or exchangeable or exercisable for, equity
securities) to be offered for cash (other than in connection with the
registration of securities issuable pursuant to an employee stock option, stock
purchase or similar plan or pursuant to a merger, exchange offer or a
transaction of the type specified in Rule 145(a) under the Securities Act) (a
"Company Registration"), then the Company will give written notice of the
proposed filing to the Holders at least 20 days before the filing date, and the
notice will offer the Holders the opportunity to register such number of
Registrable Shares as each Holder may request. If such offer is accepted by
written notice to the Company within 10 days of the giving of the written notice
provided for in the preceding sentence, the Company will use its best efforts to
cause the managing underwriter or underwriters thereof to permit, the Holders of
Registrable Shares requested to be included in the Company Registration for such
offering to include such Registrable Shares in such offering on the same terms
and conditions as the corresponding securities of the Company included therein.
The number of Registrable Shares to be offered for the account of Holders will
be 20% of the number of Shares to be offered by the Company (for example, if the
Company proposes to offer 100,000 Shares, the number of Registrable Shares to be
offered will be 20,000 for an aggregate offering of 120,000 Shares). If the
Company receives acceptances from Holders to register Registrable Shares in
excess of 20% of the number of Shares to be offered by the Company, then the
amount of securities to be offered for the accounts of Holders of Registrable
Shares shall be reduced PRO RATA to the extent necessary to reduce the total
amount of Registrable Shares to be included in such offering to 20% of the
number of Shares to be offered by the Company. If, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the Registration Statement filed in connection with such
Company Registration, the Company determines for any reason not to proceed with
the proposed Company Registration, the Company may, at its election, give
written notice of such determination to each Holder of Registrable Shares
requested to be included in such registration and thereupon will be relieved of
its obligation to register any Registrable Shares in connection with such
registration.
- --------------------------------------------------------------------------------
Page 2
<PAGE> 4
The Company will only be obligated to include Registrable
Shares in one Company Registration as determined by the Company in consultation
with the managing underwriters. The Company will have no obligation to include
Registrable Shares in a spot or "rapidly offered common" offering. Upon
completion of a Company Registration in which notice to Holders pursuant to this
Section 2(d) was provided and the Registrable Shares of the applicable Holders
were sold, the Holders will have no further right to include Registrable Shares
in a Company Registration.
All Holders requesting to have Registrable Shares included in
the Company Registration must sell their Registrable Shares to the underwriters
who shall have been selected by the Company on the same terms and conditions as
apply to the Company, with such differences, including any with respect to
indemnification and contribution, as may be customary or appropriate in combined
primary and secondary offerings.
Any Holder who elects to participate in a Company Registration
must agree to enter into a contractual agreement with the managing underwriter
or underwriters of the offering to refrain from sale or distribution of
Registrable Shares (other than those Registrable Shares included in the Company
Registration) during the 90-day period beginning on the effective date of the
Registration Statement filed in connection with the Company Registration.
(e) The Company shall notify each Holder of the
effectiveness of each Registration Statement which covers Registrable Shares and
shall furnish to each Holder the number of copies of the Registration Statement
(including any amendments, supplements and exhibits), the Prospectus contained
therein (including each preliminary prospectus and all related amendments and
supplements) and any documents incorporated by reference in the Registration
Statement or such other documents as each Holder may reasonably request in order
to facilitate his sale of the Registrable Shares in the manner described in the
Registration Statement.
(f) The Company shall prepare and file with the SEC from
time to time such amendments and supplements to the Initial Registration
Statement and Prospectus used in connection therewith (the "Initial Prospectus")
as may be necessary to keep the Initial Registration Statement effective and to
comply with the provisions of the Securities Act with respect to the disposition
of all the Registrable Shares until the earlier of (i) such time as all of the
Registrable Shares have been disposed of in accordance with the intended methods
of disposition by the Holders as set forth in the Initial Registration Statement
or (ii) the date on which the Initial Registration Statement ceases to be
effective in accordance with the terms of this Section 2. The Company shall file
any necessary listing applications or amendments to the existing applications to
cause the Registrable Shares registered under any Registration Statement to be
then listed or quoted on the primary exchange or quotation system on which the
Registrable Shares are then listed or quoted and use its reasonable efforts to
have the Registrable Shares so listed.
(g) The Company shall promptly notify the Holders of, and
confirm in writing, any request by the SEC for amendments or supplements to any
Registration Statement or the Prospectus related thereto or for additional
information. In addition, the Company shall promptly notify the Holders of, and
confirm in writing, the filing of any Registration Statement or any Prospectus,
amendment or supplement related thereto or any post-effective amendment to the
Registration Statement and the effectiveness of any post-effective amendment.
(h) At any time when a Prospectus relating to a
Registration Statement is required to be delivered under the Securities Act, the
Company shall immediately notify the Holders of the happening of any event as a
result of which the Prospectus included in the Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state any
material fact required to
- --------------------------------------------------------------------------------
Page 4
<PAGE> 5
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. In such event, the
Company shall promptly prepare and furnish to each Holder a reasonable number of
copies of a supplement to or an amendment of such Prospectus as may be necessary
so that, as thereafter delivered to the purchasers of Registrable Shares, such
Prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Company will, if necessary, amend the Registration Statement of
which such Prospectus is a part to reflect such amendment or supplement.
(i) The Company shall use its reasonable efforts to comply
with all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable, an earning statement
covering the period of at least twelve months, beginning with the first fiscal
quarter beginning after the effective date of the Registration Statement, which
earning statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
(j) The Company shall use its reasonable efforts
(including, without limitation, calling for a meeting to obtain, through the use
of reasonable efforts, the approval of the Company's shareholders as required by
the New York Stock Exchange or its rules) to cause any Shares issued to Holders
to be approved for listing on the New York Stock Exchange, subject to official
notice of issuance.
3. STATE SECURITIES LAWS. Subject to the conditions set forth
in this Agreement, the Company shall, in connection with the filing of any
Registration Statement hereunder, file such documents as may be necessary under
the securities or "Blue Sky" laws of such states as a Holder may reasonably
request and otherwise use its reasonable efforts to have the Registrable Shares
registered, qualified or otherwise eligible for sale.
4. EXPENSES. The Company will bear all Registration Expenses
incurred in connection with Registration Statements filed pursuant to Section
2(a). In all cases, the Holders shall be responsible for any brokerage or
underwriting commissions and taxes of any kind (including, without limitation,
transfer taxes) with respect to any disposition, sale or transfer of Registrable
Shares sold by it and for any legal, accounting and other expenses incurred by
it. The Holders shall also bear their pro rata shares of any Registration
Expenses incurred in connection with any Piggyback Registration.
5. INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each Holder and its directors, officers, employees,
agents, trustees, and partners and each Person, if any, who controls such Holder
(within the meaning of the Securities Act or Exchange Act) against all losses,
claims, damages, actions, liabilities, costs and expenses (including without
limitation reasonable fees, expenses and disbursements of attorneys and other
professionals), joint or several, arising out of or based upon (a) any violation
or alleged violation by the Company of any rule or regulation promulgated under
the Securities Act or the Exchange Act or any state securities and, in each
case, any rule or regulations promulgated thereunder, applicable to the Company
and relating to action or inaction required of the Company in connection with
any Registration Statement or Prospectus, or (b) upon any untrue or alleged
untrue statement of material fact contained in the Registration Statement or any
Prospectus, (including, in each case, any amendments or supplements thereto) or
(c) any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided that the
Company shall not be liable to a Holder in any such case to the extent that any
such loss, claim, damage, liability (or action or proceeding in respect thereof)
or expense arises out of or is based upon (x) an untrue statement or alleged
untrue statement or omission or alleged omission made in such Registration
Statement, any such preliminary prospectus, final prospectus, summary
prospectus,
- --------------------------------------------------------------------------------
Page 5
<PAGE> 6
amendment or supplement in reliance upon and in conformity with information
regarding a Holder or his plan of distribution or ownership interests which was
furnished to the Company for use in connection with the Registration Statement
or the Prospectus contained therein by the Holder or the Holder's
representatives or (y) such Holder's failure to send or give a copy of the final
prospectus furnished to it by the Company through no fault of the Company at or
prior to the time such action is required by the Securities Act to the Person
claiming an untrue statement or alleged untrue statement or omission or alleged
omission if such statement or omission was corrected in such final prospectus.
The Company will reimburse such Holder and its directors, officers, employees,
agents, trustees and partners, and any Person who controls such Holder, for any
reasonable legal or other expenses incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, cost,
expense or action.
6. COVENANTS OF THE HOLDER. Each Holder hereby severally
agrees (a) to cooperate with the Company and to furnish to the Company all such
information concerning its plan of distribution and ownership interests with
respect to its Registrable Shares in connection with the preparation of the
Registration Statement and any filings with any state securities commissions as
the Company may reasonably request, (b) to deliver or cause delivery of the
Prospectus contained in the Registration Statement to any purchaser of the
shares covered by the Registration Statement from the Holder, and (c) to
indemnify the Company, its officers, directors, employees, agents,
representatives and affiliates, and each Person, if any, who controls the
Company within the meaning of the Securities Act, and each other Person, if any,
subject to liability because of his connection with the Company, against all
losses, claims, damages, actions, liabilities, costs and expenses arising out of
or based upon (i) any untrue statement or alleged untrue statement of material
fact contained in either a Registration Statement or the Prospectus contained
therein, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, if and
solely to the extent that such statement or omission occurs from reliance upon
and in conformity with written information regarding such Holder, its plan of
distribution or ownership interests, which was furnished to the Company by such
Holder or the Holder's representatives expressly for use therein or (ii) the
failure by such Holder to deliver or cause to be delivered the Prospectus
contained in the Registration Statement (as amended or supplemented, if
applicable) furnished by the Company to such Holder to any purchaser of the
Registrable Shares covered by the Registration Statement from such Holder
through no fault of the Company. The obligation of a Holder to provide
indemnification under this Section 6 shall be limited to the proceeds (net of
underwriting commissions and discounts) received by such Holder from the sale of
Registrable Shares under the Registration Statement which gives rise to such
obligation.
7. SUSPENSION OF REGISTRATION REQUIREMENT.
(a) The Company shall promptly notify each Holder of, and
confirm in writing, the issuance by the SEC of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any proceedings
for that purpose. The Company shall use its best efforts to obtain the
withdrawal of any order suspending the effectiveness of any such Registration
Statement at the earliest possible moment.
(b) Notwithstanding anything to the contrary set forth in
this Agreement, the Company's obligation under this Agreement to use all
reasonable efforts to cause a Registration Statement and any filings with any
state securities commission to become or remain effective or to amend or
supplement a Registration Statement shall be suspended in the event and during
such period as circumstances exist (including without limitation (i) pending
negotiations relating to, or consummation of, a transaction or the occurrence of
an event that would require additional disclosure of material information by the
Company in the Registration Statement, as to which the Company has a bona fide
business purpose for preserving confidentiality or which renders the Company
unable to comply with the
- --------------------------------------------------------------------------------
Page 6
<PAGE> 7
Securities Act and the rules and regulations promulgated by the SEC thereunder);
and (ii) in the case of a Company Registration, if, and to the extent that, the
Company is advised by the underwriters that sale of Registrable Shares (except
for those Registrable Shares included in the Company Registration) would have a
material adverse effect on the offering (such circumstances being hereinafter
referred to as a "SUSPENSION EVENT")) that would make it impractical or
inadvisable to cause the Registration Statement or such filings to become
effective or to amend or supplement the Registration Statement, but such
suspension shall continue only for so long as such event or its effect is
continuing. The Company shall notify each Holder of the existence and, in the
case of circumstances referred to in clause (i) of this Section 7(b), nature of
any Suspension Event.
8. BLACK-OUT PERIOD. Following the effectiveness of any
Registration Statement and the filings with any state securities commissions,
each Holder agrees that he will not effect any sales of the Registrable Shares
pursuant to the Registration Statement or any such filings at any time after he
has received notice from the Company to suspend sales as a result of the
occurrence or existence of any Suspension Event with respect to such
Registration Statement or so that the Company may correct or update such
Registration Statement or such filing (a "Black-Out Period"). Each Holder may
recommence effecting sales of the Registrable Shares pursuant to the
Registration Statement or such filings following further notice to such effect
from the Company, which notice shall be given by the Company not later than
three (3) days after the conclusion of any such Suspension Event.
9. RULE 144. For a period of two (2) years following the
Closing Date (as defined in the Purchase Agreement), the Company covenants that
it will file the reports required to be filed by it under the Securities Act and
the Exchange Act and the rules and regulations promulgated thereunder (or, if
the Company is not required to file such reports, it will, upon the request of
Holder, make publicly available other information so long as necessary to permit
sales under Rule 144 of the Securities Act ("Rule 144")) and it will take such
further action as Holder may reasonably request, all to the extent required from
time to time to enable Holder to sell the Shares without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144
as may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the SEC. Upon the request of Holder, the Company will
deliver to Seller a written statement as to whether it has complied with such
requirements.
10. ADDITIONAL SHARES. The Company, at its option, may
register, under any Registration Statement (other than the Initial Registration
Statement) and any filings with any state securities commissions filed pursuant
to this Agreement (other than in connection with the Initial Registration
Statement), any number of unissued Shares of the Company or any Shares of the
Company owned by any other shareholder or shareholders of the Company.
11. REGISTRATION PROCEDURES.
(a) The Company shall provide a transfer agent and
registrar for the Registrable Shares not later than the effective date of such
Registration Statement and thereafter maintain such a transfer agent and
registrar; and otherwise cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Shares to be
sold and not bearing any restrictive legends, other than as provided in the
Company's Articles of Incorporation;
(b) The Company shall provide such information and make
available appropriate management personnel as may reasonably be requested by the
Holders in connection with any "road show" or related selling activity.
(c) The Company shall deliver to each Holder, at least
thirty (30) days prior to the filing of a Registration Statement, a notice which
sets forth the name and number of shares
- --------------------------------------------------------------------------------
Page 7
<PAGE> 8
proposed to be shown in the Registration Statement with respect to such Holder,
to the extent such Holder is to be listed in the Registration Statement as a
selling stockholder; PROVIDED THAT, if such Holder provides corrected
information for inclusion in the Registration Statement within fifteen (15) days
after the date the notice is delivered, the Company shall instead include such
corrected information with respect to such Holder.
12. CONTRIBUTION. If the indemnification provided for in
Sections 5 and 6 is unavailable to an indemnified party with respect to any
losses, claims, damages, actions, liabilities, costs or expenses referred to
therein or is insufficient to hold the indemnified party harmless as
contemplated therein, then the Company or the Holder, whichever is the
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, actions, liabilities, costs or expenses in such
proportion as is appropriate to reflect the relative fault of the Company, on
the one hand, and the Holder, on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages, actions,
liabilities, costs or expenses as well as any other relevant equitable
considerations. The relative fault of the Company, on the one hand, and of the
Holder, on the other hand, shall be determined by reference to, among other
factors, whether the untrue or alleged untrue statement of a material fact or
omission to state a material fact relates to information supplied by the Company
or by the Holder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission;
PROVIDED, HOWEVER, that in no event shall the obligation of the Company or the
Holder, as indemnifying party, to contribute under this Section 10 exceed the
amount that such indemnifying party would have been obligated to pay by way of
indemnification if the indemnification provided for under Sections 5 or 6 hereof
had been available under the circumstances.
The Company and each Holder agree that it would not be
just and equitable if contribution pursuant to this Section 10 were determined
by pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately preceding
paragraph.
Notwithstanding the provisions of this Section 12, no
Holder shall be required to contribute any amount in excess of the amount by
which the proceeds (net of underwriting commissions and discounts) to such
Holder from the sale of such Holder's Registrable Shares sold pursuant to the
Registration Statement which give to such obligation to contribute (less the
aggregate amount of any damages which such Holder has otherwise been required to
pay in respect of such loss, claim, damage, liability, cost or expense arising
from the sale of the Registrable Shares) exceeds the amount of any damages that
such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission. No indemnified party guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any indemnifying party who was not guilty
of such fraudulent misrepresentation.
13. NOTICE; RIGHT TO DEFEND. Promptly after receipt by an
indemnified party under this Agreement of notice of the commencement of any
action (including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under this
Agreement, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, if the indemnifying party agrees in writing that it will be
responsible for any costs, expenses, judgments, damages and losses incurred by
the indemnified party with respect to such claim, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if the indemnified party reasonably
believes that representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual
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<PAGE> 9
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall relieve such indemnifying party of any
liability to the indemnified party under this Agreement only if and to the
extent that such failure is prejudicial to its ability to defend such action,
and the omission so to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party other than
under this Agreement.
14. SURVIVAL OF INDEMNITY AND CONTRIBUTION. The
indemnification and contribution provided by this Agreement shall be a
continuing right to indemnification and contribution and shall survive the
registration and sale of any securities by any Person entitled to
indemnification or contribution hereunder and the expiration or termination of
this Agreement.
15. NO OTHER OBLIGATION TO REGISTER. Except as otherwise
expressly provided in this Agreement, the Company shall have no obligation to
any Holder to register the Registrable Shares under the Securities Act.
16. AMENDMENTS AND WAIVERS. The provisions of this Agreement
may not be amended, modified, or supplemented or waived without the prior
written consent of (a) the Company and (b) Holders who, at the time of such
amendment, own a majority of the Registrable Shares then covered by this
Agreement.
17. NOTICES. Except as set forth below, all notices and other
communications provided for or permitted hereunder shall be in writing and shall
be deemed to have been duly given if delivered personally or sent by telex or
telecopier, registered or certified mail (return receipt requested), postage
prepaid or courier or overnight delivery service to the respective parties at
the following addresses (or at such other address for any party as shall be
specified by like notice, provided that notices of a change of address shall be
effective only upon receipt thereof):
If to the Company: Associated Estates Realty Corporation
5025 Swetland Court
Richmond Heights, Ohio 44143
Attn: Martin A. Fishman
Telephone: (216) 473-8780
Facsimile: (216) 473-8105
with a copy to: Albert T. Adams
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114
Telephone: (216) 861-7499
Facsimile: (216) 696-0740
If to the Holder: At the address set forth below that
Holder's signature.
In addition to the manner of notice permitted above,
notices given by the Company pursuant to Sections 2, 7 and 8 hereof may be
effected telephonically and confirmed in writing thereafter in the manner
described above.
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<PAGE> 10
18. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the parties hereto and their respective successors and permitted assigns
and shall inure to the benefit of the parties hereto and their respective
successors and assigns. This Agreement may be assigned by a Holder solely to a
Permitted Transferee and may not be otherwise assigned and any attempted
assignment hereof by a Holder in violation of the foregoing will be void and of
no effect and shall terminate all obligations of the Company hereunder to such
Holder; PROVIDED THAT a Holder may assign his rights hereunder in connection
with any of the following types of dispositions of Registrable Shares:
(a) a disposition by the Holder pursuant to a pledge,
grant of security interest or other encumbrance effected in a bona fide
transaction with an unrelated and unaffiliated pledgee;
(b) a disposition to another Holder; and
(c) at the sole discretion of the Company, a disposition
to a "qualified institutional buyer" (as that term is defined in Rule 144A
promulgated under the Securities Act) or an "accredited investor" (as that term
is defined in Rule 501 of Regulation D under the Securities Act)
PROVIDED, FURTHER, however, that any such assignment shall be effective only if,
the disposition is permitted under applicable federal or state securities laws.
In the event a Holder assigns its rights hereunder, the
Registrable Shares shall remain subject to this Agreement and, as a condition of
the validity of such assignment, the transferee shall be required to execute and
deliver a counterpart of this Agreement (except that a pledgee shall not be
required to execute and deliver a counterpart of this Agreement until it
forecloses upon such Shares). Thereafter, such transferee (including, without
limitation, a Permitted Transferee) shall be deemed to be a Holder for purposes
of this Agreement.
19. AUTHORIZATION; NO CONFLICTS. The execution and delivery of
this Agreement by the Company and the performance by the Company of its
covenants and agreements under this Agreement have been, or at the time of such
performance will have been, duly authorized by all necessary corporate action on
the part of the Company, and all required consents to the transactions
contemplated hereby have been obtained by the Company, or at the time of such
performance will have been received by the Company. The execution, delivery and
performance by the Company of this Agreement, the fulfillment of and compliance
with the respective terms and provisions hereof and thereof, and the
consummation by the Company of the transactions contemplated hereby and thereby,
do not and will not: (a) conflict with, or violate any provisions of, the
Articles of Incorporation or Code of Regulations of the Company; (b) conflict
with, or violate any provision of, any statute, law, ordinance, regulation,
rule, order, writ or injunction having applicability to the Company or any of
its assets; (c) result in a breach or acceleration of the maturity of any loan
or credit agreement to which the Company is a party or by which any of its
assets may be affected; or (d) conflict with, result in any breach of, or
constitute a default under any agreement to which the Company is a party or by
which it or any of its assets are bound; except (in the case of clauses (b), (c)
and (d) above) for such conflicts, violations, breaches or defaults (i) as will
not have a material adverse effect on the business or financial condition of the
Company or the transactions contemplated herein, or (ii) with respect to which
consents or waivers shall be obtained prior to the Company's performance of its
obligations hereunder.
20. SPECIFIC PERFORMANCE. The parties hereto acknowledge that
the obligations undertaken by them hereunder are unique and that there would not
be adequate remedy at law if any party fails to perform any of its obligations
hereunder, and accordingly agree that each party, in addition to any other
remedy to which it may be entitled at law or in equity, shall be entitled to (a)
compel specific performance of the obligations, covenants and agreements of any
other party under the Agreement in
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<PAGE> 11
accordance with the terms and conditions of this Agreement and (b) obtain
preliminary injunctive relief to secure specific performance and to prevent a
breach or contemplated breach of this Agreement in any court of the Unites
States or any State thereof having jurisdiction (each party waives the
requirement of the posting of any bond or security in connection with any
proceedings or any injunction issued in connection with this Section 20).
21. TIME OF THE ESSENCE. Time is of the essence in the
performance of this Agreement.
22. ATTORNEYS' FEES. Should either party employ attorneys to
enforce any of the provisions of this Agreement, the party against whom any
final judgement is entered agrees to pay the prevailing party all reasonable
costs, charges and expenses, including reasonable attorneys' fees, expended or
incurred by the prevailing party in connection therewith.
23. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
24. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio applicable to
contracts made and to be performed wholly within said State.
25. SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
26. ENTIRE AGREEMENT. This Agreement is intended by the
parties as a final expression of their agreement and intended to be the complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to such subject matter. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
ASSOCIATED ESTATES REALTY CORPORATION
By: ___________________________________
Its: ___________________________________
HOLDERS:
By:_______________________________
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<PAGE> 1
Exhibit 5.1
August 31, 1998 BAKER & HOSTETLER LLP
1900 E. Ninth Street
Cleveland OH 44114-3485
Associated Estates Realty Corporation
5025 Swetland Court
Richmond Heights, Ohio 44143-1467
Gentlemen:
As counsel for Associated Estates Realty Corporation, an Ohio
corporation (the "Company"), we are familiar with the Company's Registration
Statement on Form S-3 (the "Registration Statement") being filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"), on or about the date hereof, in connection with
the offering from time to time by the Selling Shareholders described in the
Registration Statement of 5,139,387 Common Shares, without par value, of the
Company. All capitalized terms that are not defined herein have the meanings
ascribed to them in the Registration Statement.
In connection with the foregoing, we have examined originals
or copies, certified or otherwise identified to our satisfaction, of the Second
Amended and Restated Articles of Incorporation and the Code of Regulations of
the Company incorporated by reference as exhibits to the Registration Statement,
and such records of the corporate proceedings of the Company and such other
documents as we deemed necessary to render this opinion.
Based upon such examination, we are of the opinion that the
Common Shares have been duly authorized and legally issued, and are fully paid
and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1
to the Registration Statement and the reference to us under the caption "Legal
Matters" in the Prospectus that is a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission promulgated thereunder.
Very truly yours,
Baker & Hostetler LLP
<PAGE> 1
Exhibit 8.1
BAKER & HOSTETLER LLP
1900 E. Ninth Street
Cleveland, OH 44114-3485
August 31, 1998
Associated Estates Realty Corporation
5025 Swetland Court
Richmond Heights, OH 44143
RE: STATUS AS A REIT
----------------
Ladies and Gentlemen:
In connection with the registration statement on Form S-3
being filed by you on the date hereof with the Securities and Exchange
Commission (the "Registration Statement"), you have requested our opinion
regarding whether the Company has been organized in conformity with the
requirements for qualification as a real estate investment trust ("REIT"), and
whether its method of operation has enabled the Company to meet, and will enable
it to continue to meet, the requirements for qualification and taxation as a
REIT under the Internal Revenue Code of 1986, as amended (the "Code"). This
opinion is based on various assumptions and is conditioned upon certain
representations made by the Company as to factual matters as set forth in the
Registration Statement and the registration statements on Forms S-3 and S-11
previously filed with the Securities and Exchange Commission (the "Prior
Registrations"). In addition, the Company has provided a representation letter
("Representation Letter") certifying, among other items, that it has made a
timely election to be taxed as a REIT under the Code commencing with its initial
taxable year ended December 31, 1993, and that commencing with the first taxable
year that the Company has elected to be taxed as a REIT, the Company has
operated and will continue to operate in accordance with the method of operation
described in the Registration Statement and the Prior Registrations.
Based on such assumptions and representations, it is our
opinion that the Company has qualified as a REIT for its taxable years ended
December 31, 1993 through December 31, 1997, and the Company is organized in
conformity with the requirements for qualification as a REIT and the Company's
method of operation has enabled it and will continue to enable it to meet the
requirements for qualification and taxation as a REIT under the Code, provided
the Company meets and continues to meet the asset composition, source of income,
shareholder diversification, distributions and other requirements of the Code
necessary for the Company to qualify as a REIT.
<PAGE> 2
August 28, 1998
Page 2
This opinion is based on various statutory provisions and
regulations promulgated thereunder, in effect on the date hereof, and the
interpretations of such provisions and regulations by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation
from the factual statements set forth in the Registration Statement, the Prior
Registrations or the Representation Letter may affect the conclusions stated
herein. Moreover, the Company's qualification and taxation as a REIT depends
upon the Company's ability to meet, through actual annual operating results,
distribution levels and diversity of stock ownership, the various qualification
tests imposed under the Code, the results of which will not be reviewed by Baker
& Hostetler LLP. Accordingly, no assurance can be given that the actual results
of the Company's operations for any one taxable year will satisfy such
requirements. We wish to point out that our opinion is not binding on the
Internal Revenue Service and, without limiting our opinion, we note that there
can be no assurance that all of the requirements for qualification as a REIT for
any particular taxable year have in fact been met until the return for such
taxable year has been reviewed by the Internal Revenue Service or the period for
such review has expired.
This opinion is limited to the federal income tax matters
addressed herein, and no other opinions are rendered with respect to other
federal tax matters or to any issues arising under the tax laws of any state or
locality. We undertake no obligation to update the opinions expressed herein
after the date of this letter. This opinion is rendered to the addressee of this
letter solely for the purpose referred to in the first paragraph hereof, and may
not be relied on or referred to by any other person or entity or by any
addressee for any other purpose without the express written consent of this
Firm.
We hereby consent to the filing of this opinion as an Exhibit
to the Registration Statement and the reference to us under the captions "Legal
Matters" and "Federal Income Tax Considerations" in the Prospectus that is a
part of the Registration Statement. In giving such consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Commission promulgated
thereunder.
Very truly yours,
Baker & Hostetler LLP
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report
dated March 18, 1998 which appears in Associated Estates Realty Corporation's
Annual Report on Form 10-K for the year ended December 31, 1997, our report
dated May 8, 1997 relating to the statement of revenue and certain expenses of
Saw Mill Village Apartments, which appears in the Current Report on Form 8-K/A-1
of Associated Estates Realty Corporation dated February 6, 1997, our reports
dated July 3, 1997 and September 19, 1997 relating to the statements of revenue
and certain expenses of Clinton Place Apartments and Spring Valley Apartments,
respectively, which appear in the Current Report on Form 8-K of Associated
Estates Realty Corporation dated August 25, 1997, and our report dated January
29, 1998 relating to the statement of revenue and certain expenses of Country
Club Apartments which appears in the Current Report on Form 8-K of Associated
Estates Realty Corporation dated February 19, 1998. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
Cleveland, Ohio
August 31, 1998
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Associated Estates
Realty Corporation (AERC) for the registration of 5,139,387 shares of its common
stock and to the incorporation by reference therein of (a) our reports dated
January 28, 1998 and February 20, 1998, with respect to the consolidated
financial statements of MIG Residential REIT, Inc. for each of the three years
in the period ended December 31, 1997 and the combined financial statements of
MIG Companies for the year ended December 31, 1997, respectively, included in
AERC's Current Reports on Form 8-K dated February 19, 1998 and Amendment No. 1
thereto, and Amendment No. 1 of Form 8-K dated June 30, 1998, and (b) our report
dated February 2, 1998, with respect to the combined statement of revenue and
certain expenses for certain multifamily properties for the year ended December
31, 1997, for those properties which were acquired by AERC on February 2, 1998,
included in AERC's Current Report on Form 8-K dated February 19, 1998, filed
with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
West Palm Beach, Florida
August 27, 1998
