As filed with the Securities and Exchange Commission on May
8, 1996 Registration No. 333-3274
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3 to
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
MID-AMERICA APARTMENT COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE
(State or other jurisdiction of incorporation or
organization)
6021
(Primary Standard Industrial Classification Code
Number)
62-1543819
(I.R.S. Employer Identification No.)
6584 Poplar Avenue, Suite 340
Memphis, Tennessee 38138
(Address of principal executive office)
George E. Cates
6584 Poplar Avenue, Suite 340
Memphis, Tennessee 38138
(901) 682-6600
(Name and address of agent for service)
Copies to:
Linda M. Crouch, Esq.
Baker, Donelson, Bearman & Caldwell
165 Madison Avenue, 20th Floor
Memphis, Tennessee 38103
Telephone (901) 577-2260
Approximate date of commencement of proposed sale to
the public: From time to time after the effective date of
this Registration Statement.
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, 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. [ ]
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 8, 1996
PROSPECTUS
MID-AMERICA APARTMENT COMMUNITIES, INC.
$150,000,000
DEBT SECURITIES, PREFERRED STOCK, COMMON
STOCK AND SECURITIES WARRANTS
Mid-America Apartment Communities, Inc. (the "Company")
may from time to time offer and sell in one or more series
(i) its unsecured debt securities (the "Debt Securities");
(ii) shares of its preferred stock, par value $.01 per share
(the "Preferred Stock"); (iii) shares of its common stock,
par value $.01 per share ("Common Stock"); or (iv) warrants
to purchase Debt Securities (the "Debt Securities
Warrants"), warrants to purchase Preferred Stock (the
"Preferred Stock Warrants") and warrants to purchase Common
Stock (the "Common Stock Warrants") (the Debt Securities
Warrants, Preferred Stock Warrants and Common Stock
Warrants, collectively, the "Securities Warrants"), with an
aggregate public offering price of up to $150,000,000. The
Debt Securities, Preferred Stock, Common Stock and
Securities Warrants offered pursuant hereto (collectively,
the "Offered Securities") may be offered separately or
together, in separate series, in amounts and at prices and
terms to be set forth in an accompanying supplement to this
Prospectus (a "Prospectus Supplement"). The aggregate
public offering price and terms of the Offered Securities
will be determined by market conditions at the time such
securities are offered. Unless otherwise specified in a
Prospectus Supplement, the proceeds from the sale of the
Offered Securities will be received by the Company and used
for general corporate purposes.
The applicable Prospectus Supplement shall set forth
(i) with respect to the Debt Securities, the specific title,
aggregate principal amount, currency, form (which may be
registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation
thereof) and time of payment of interest, terms for
redemption at the option of the Company or repayment at the
option of the Holder, any sinking fund provisions and any
conversion provisions, (ii) with respect to Preferred Stock,
the specific designation and stated value per share, any
dividend, liquidation, redemption, conversion, voting and
other rights, and all other specific terms of the Preferred
Stock, (iii) with respect to the Common Stock, the specific
number of shares and issuance price per share, and (iv) with
respect to the Securities Warrants, the duration, offering
price, exercise price and detachability. The applicable
Prospectus Supplement will also contain information, where
applicable, about all material United States federal income
tax considerations relating to, and any listing on a
securities exchange of, the Offered Securities covered by
such Prospectus Supplement.
The Offered Securities may be sold on a negotiated or
competitive bid basis to or through underwriters or dealers
designated from time to time or by the Company, directly or
through agents, to other purchasers. Certain terms of any
offering and sale of Offered Securities, including, where
applicable, the names of the underwriters, dealers or
agents, if any, the principal amount or number of shares or
Securities Warrants to be purchased, the purchase price of
the Offered Securities, any applicable commissions,
discounts and other compensation to underwriters, dealers
and agents, and the proceeds to the Company from such sale,
will be set forth in, or calculable from information
contained in, a Prospectus Supplement. See "Plan of
Distribution."
The Common Stock is listed on the New York Stock
Exchange under the symbol "MAA." To ensure that the Company
maintains its qualification as a REIT, ownership by any
person is limited to 9.9% of the outstanding shares of
Common Stock, with certain exceptions.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT
PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
The date of this Prospectus is May , 1996.
<PAGE>
IN CONNECTION WITH AN OFFERING, THE UNDERWRITERS FOR SUCH
OFFERING MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR
MAINTAIN THE MARKET PRICE OF THE SECURITIES AT LEVELS ABOVE THOSE
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS
MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, THE OVER-THE-COUNTER
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
No dealer, salesperson or other individual has been
authorized to give any information or to make any
representations not contained or incorporated by reference
in this Prospectus or any Prospectus Supplement in
connection with the offering covered by this Prospectus. If
given or made, such information or representations must not
be relied upon as having been authorized by the Company.
This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any Offered Securities, in
any jurisdiction where, or to any person to whom, it is
unlawful to make any such offer or solicitation. Neither the
delivery of this Prospectus nor any offer or sale made
hereunder shall, under any circumstances, create an
implication that there has not been any change in the facts
set forth in this Prospectus or in the affairs of the
Company since the date hereof.
AVAILABLE INFORMATION
The Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith
files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"),
pursuant to the Exchange Act. Such reports, proxy
statements and other information filed by the Company may be
examined without charge at, or copies obtained upon payment
of prescribed fees from, the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and are also available for inspection
and copying at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New
York 10048 and at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. The Common Stock of the
Company is listed on the New York Stock Exchange, and such
material can also be inspected and copied at the offices of
the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005.
The Company has filed with the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, a Registration
Statement on Form S-3 under the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and
regulations promulgated thereunder, with respect to the
securities 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 financial
schedules thereto. For further information concerning the
Company and the securities offered hereby, reference is made
to the Registration Statement and the exhibits and schedules
filed therewith, which may be examined without charge at, or
copies obtained upon payment of prescribed fees from, the
Commission at its regional offices at the locations listed
above. Any statements contained herein concerning the
provisions of any document are not necessarily complete,
and, in each instance, reference is made to the copy of such
document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission. Each such statement
is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by America
First REIT, Inc. (File No. 1-11798), which, by means of a
merger with and into a wholly owned subsidiary of the
Company, on June 29, 1995 became a wholly owned subsidiary
of the Company, with the Commission are incorporated herein
by reference:
(a) Annual Report on Form 10-K for the year ended
December 31, 1994; and
(b) Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995.
The following documents heretofore filed by the Company
with the Commission (File No. 1-12762) are incorporated
herein by reference:
(a) Annual Report on Form 10-K for the year ended
December 31, 1995;
(b) Current Reports on Form 8-K dated February 5, 1996
and March 15, 1996, respectively;
(c) pages 2 through 10 of the Company's Proxy
Statement for its 1996 Annual Meeting of Shareholders; and
(d) the description of the Company's Common Stock
contained in the Company's Registration Statement on Form 8-A
filed with the Commission on December 14, 1993.
<PAGE>
All documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Prospectus and prior to the filing of a
post-effective amendment which indicates that all Offered
Securities offered hereby have been sold or which
deregisters all Offered Securities then remaining unsold
shall be incorporated by reference in this Prospectus and
made a part hereof from the date of the filing of such
documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement
contained herein or in any other document subsequently filed
with the Commission which also is deemed to be incorporated
by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a
part of this Prospectus.
The Company will provide without charge to each person
to whom this Prospectus is delivered, upon the written or
oral request of such person, a copy of any or all of the
documents incorporated by reference herein (not including
the exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents).
Request for such copies should be directed to: Mid-America
Apartment Communities, Inc., 6584 Poplar Avenue, Suite 340,
Memphis, Tennessee, 38138, Attention: Lynn A. Johnson,
Secretary, telephone (901) 682-6600.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by
the more detailed descriptions and the financial information
and statements appearing elsewhere and incorporated in this
Prospectus. As used herein, the term "Company" includes Mid-
America Apartment Communities, Inc. and its predecessor and
those entities owned or controlled thereby (collectively,
the "Operating Subsidiaries"), including Mid-America
Apartments, L.P. and its subsidiaries (the "Operating
Partnership") and seven wholly owned subsidiaries that are
"qualified REIT subsidiaries" for Federal tax purposes.
Where used herein, the term "Funds from Operations" ("FFO")
shall mean net income (computed in accordance with generally
accepted accounting principles), excluding gains (losses)
from debt restructuring, sales of property and other
extraordinary items, plus depreciation and amortization, and
after adjustments for consolidated partnerships and joint
ventures, which definition has been adopted by the National
Association of Real Estate Investment Trusts ("NAREIT").
Effective January 1, 1996, the Company implemented the
modified NAREIT definition of FFO to eliminate amortization
of deferred financing costs and depreciation of non-real
estate assets as items added back to net income.
THE COMPANY
General
The Company, a Tennessee corporation, is a self-
administered and self-managed equity REIT which invests in
and operates multifamily residential properties. As of
March 31, 1996, the Company owns 71 apartment communities
containing 18,660 units in 13 states (the "Properties"), and
has grown by 13,080 units since the Company's initial public
offering which was completed in February 1994 (the "Initial
Offering"), an increase of 234% over the number of apartment
units owned at the time of the Initial Offering.
The Properties are located primarily in the
southeastern United States and Texas, with additional units
in Arizona, Kentucky, Missouri, Ohio and Virginia. Since
the Initial Offering, the Company has expanded
geographically from having apartment communities in 4 states
to its current presence in 13 states. Of the Company's
properties, 48 contain more than 200 units, with the largest
apartment community containing 1,031 units. As of March 1,
1996, the Properties had an average occupancy rate of 95.8%.
The Properties are characterized by amenities which may
include extensive landscaping, swimming pools, tennis
courts, fitness centers, saunas or hot tubs. Many apartment
units offer one or more additional features, such as vaulted
ceilings, fireplaces and washer and dryer connections.
The Company's principal executive offices are located
at 6584 Poplar Avenue, Suite 340, Memphis, Tennessee, 38138
and its telephone number is (901) 682-6600.
The Operating Subsidiaries of the Company
The operations of the Company are conducted primarily
through the Operating Subsidiaries, so that, among other
things, the Company is able to comply with certain technical
and complex requirements under the federal tax law relating
to the assets and income that a REIT may hold or earn.
The Company presently holds an 82.3% partnership
interest in the Operating Partnership. The remaining 17.7%
partnership interest in the Operating Partnership is owned
by third parties who own units of limited partnership
interests in the Operating Partnership ("Units"). Units are
redeemable on a one-for-one basis for shares of Common Stock
or, at the Company's election, for cash, and holders of
Units generally receive distributions per Unit equal to the
dividend per share paid in respect of the Common Stock. The
Amended and Restated Agreement of Limited Partnership of the
Operating Partnership (the "Partnership Agreement") provides
for a special allocation of net income or loss of the
Operating Partnership to holders of Units to provide such
holders with the economic effect of net income or losses
realized in respect of all Properties on a consolidated
basis.
<PAGE>
Tax Status of the Company
The Company elected to be taxed as a REIT for federal
income tax purposes for its taxable year ended December 31,
1994, and expects to continue to elect such status.
Although the Company believes that it was organized and has
been operating in conformity with the requirements for
qualification as a REIT under the Internal Revenue Code of
1986, as amended (the "Code") ("REIT Qualification"), no
assurance can be given that the Company will continue to
qualify as a REIT. REIT Qualification involves application
of highly technical and complex Code provisions for which
there are only limited judicial or administrative
interpretations. If in any taxable year the Company should
fail to qualify as a REIT, the Company would not be allowed
a deduction for distributions to shareholders for computing
taxable income and would be subject to federal taxation at
regular corporate rates. Unless entitled to relief under
certain statutory provisions, the Company would also be
disqualified from treatment as a REIT for the four taxable
years following the year during which REIT Qualification was
lost. As a result, the Company's ability to make
distributions to its shareholders would be adversely
affected. See "Federal Income Tax Considerations."
To ensure that the Company qualifies as a REIT,
transfer of the Common Stock is subject to certain
restrictions and ownership of the Common Stock by any single
person is limited to 9.9% of the total number of shares of
outstanding Common Stock, subject to certain exceptions. As
provided in the Company's Charter, any purported transfer in
violation of the above-described ownership limitations shall
be void.
<PAGE>
PRICE AND DIVIDEND HISTORY
The Common Stock has been traded on the New York Stock
Exchange ("NYSE") under the symbol "MAA" since the Company's
Initial Offering. The following table sets forth the
quarterly high and low sales prices per share reported on
the NYSE and the Company's distribution history.
<TABLE>
<CAPTION>
Portion of
Distribution
Representing
Distribution Return of
Period or Quarter Ended: High Low Per Share Capital
<S> <C> <C> <C> <C>
1994:
First Quarter, commencing January 28 $24 1/2 $20 3/4 $.26(1) $.12(1)
Second Quarter $27 $22 3/4 $.45 $.20
Third Quarter $26 7/8 $24 1/8 $.50 $.23
Fourth Quarter $26 3/4 $23 1/4 $.50 $.22
1995:
First Quarter $26 $25 3/4 $.50 $.13
Second Quarter $25 $24 3/4 $.50 $.14
Third Quarter $24 3/4 $24 5/8 $.50 $.14
Fourth Quarter $24 7/8 $24 3/8 $.51 $.14
1996:
First Quarter $26 3/4 $24
<FN>
(1) Represents the distribution per share, including the
portion representing a return of capital, paid for the 56-
day period ended March 31, 1994.
</TABLE>
On March 29, 1996 the last reported sale price of the
Common Stock on the NYSE was $25.75 per share. On March 29,
1996 the Company had approximately 15,040 shareholders of
record.
USE OF PROCEEDS
Unless otherwise described in the Prospectus Supplement
which accompanies this Prospectus, the Company intends to
use the net proceeds from the sale of the Offered Securities
for general corporate purposes, which may include the
acquisition and development of multifamily properties as
suitable opportunities arise, the improvement of certain
properties in the Company's portfolio and the repayment of
certain then-outstanding secured or unsecured indebtedness.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios
of earnings to fixed charges of the Company and for the
predecessor to the Company prior to February 4, 1994:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges .89x(1) 1.07x 1.32x 1.83x 1.52x
<FN>
(1) Although the Company and its predecessor have
historically generated positive net cash flow, the financial
statements of the predecessor reflect a net loss for 1991.
Consequently, the computation of the ratio of earnings to
fixed charges for such year indicates that earnings were
inadequate to cover fixed charges by approximately $906,000.
</TABLE>
<PAGE>
For the purpose of calculating the ratio or earnings to
fixed charges, earnings consist of income before minority
interest and extraordinary items, and fixed charges. Fixed
charges consist of interest expense, capitalized interest
and amortization of deferred financing costs. To date, the
Company has not issued any Preferred Stock; therefore, the
ratios of earnings to combined fixed charges and preferred
stock dividend requirements are the same as the ratios of
earnings to fixed charges presented above.
<PAGE>
DESCRIPTION OF THE CAPITAL STOCK OF THE COMPANY
The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock. Each outstanding share of Common Stock
entitles the holder to one vote on all matters presented to
shareholders for a vote.
Common Stock
Subject to such preferential rights as may be granted
by the Board of Directors in connection with the future
issuance of Preferred Stock, holders of shares of Common
Stock are entitled to one vote per share on all matters to
be voted on by shareholders and are entitled to receive
ratably such dividends as may be declared in respect of the
Common Stock by the Board of Directors in its discretion
from funds legally available therefor. ln the event of the
liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in all
assets remaining after payment of all debts and other
liabilities and any liquidation preference of the holders of
Preferred Stock. Holders of Common Stock have no
subscription, redemption, conversion or preemptive rights.
Matters submitted for shareholder approval generally require
a majority vote of the shares present and voting thereon.
The outstanding shares of Common Stock are fully paid and
nonassessable.
Preferred Stock
The Board of Directors is empowered by the Company's
Charter to designate and issue from time to time one or more
classes or series of Preferred Stock without shareholder
approval. The Board of Directors may fix the relative
rights, limitations, preferences and privileges of each
class or series of Preferred Stock so issued. Because the
Board of Directors has the power to establish the
preferences and rights of each class or series of Preferred
Stock, it may afford the holders in any series or class of
Preferred Stock preferences, powers and rights, voting or
otherwise, senior to the rights of holders of Common Stock.
The issuance of Preferred Stock could have the effect of
delaying or preventing a change in control of the Company.
As of the date hereof, no shares of Preferred Stock are
outstanding.
The applicable Prospectus Supplement will describe each
of the following terms that may be applicable in respect of
any Preferred Stock offered and issued pursuant to this
Prospectus: (1) the specific designation, number of shares,
seniority and purchase price; (2) any liquidation preference
per share; (3) any maturity date; (4) any mandatory or
option redemption or repayment dates and terms or sinking
fund provisions; (5) any dividend rate or rates and the
dates on which any dividends will be payable (or the method
by which such rates or dates will be determined); (6) any
voting rights; (7) any rights to convert the Preferred Stock
into other securities or rights of the Company, including a
description of the securities or rights into which such
Preferred Stock is convertible (which may include other
Preferred Stock) and the terms and conditions upon which
such conversions will be effected, including, without
limitation, conversion rates or formulas, conversion periods
and other related provisions; (8) the place or places where
dividends and other payments with respect to the Preferred
Stock will be payable; (9) any additional voting, dividend,
liquidation, redemption and other rights, preferences,
privileges, limitations and restrictions, including
restrictions imposed for the purpose of maintaining the
Company's qualification as a REIT. Upon issuance and
delivery against payment therefor, the Preferred Stock will
be fully paid and nonassessable.
Charter and Bylaw Provisions
Shareholders' rights and related matters are governed
by the Tennessee Business Corporation Act (the "TBCA"), the
Company's Charter and its Bylaws. Certain provisions of the
Charter and Bylaws of the Company, which are summarized
below, may make it more difficult to change the composition
of the Board of Directors and may discourage or make more
difficult any attempt by a person or group to obtain control
of the Company.
<PAGE>
Voting Requirement. The Company's Charter may not be
amended without the affirmative vote of at least a majority
of the shares entitled to vote generally in the election of
directors, voting as a single voting group. The Company's
Bylaws may be amended by either the affirmative vote of a
majority of all shares outstanding and entitled to vote
generally in the election of directors, voting as a single
group, or by an affirmative vote of a majority of the Board
of Directors then holding office, unless the shareholders
prescribe that any such bylaw may not be amended or repealed
by the Board of Directors. Notwithstanding the foregoing,
the Company cannot take any action intended to terminate its
qualification as a REIT without the affirmative vote of at
least two-thirds of the outstanding shares of Common Stock.
Special Meetings. Under the Company's Bylaws, special
meetings of the shareholders may be called by shareholders
only if such shareholders hold outstanding shares
representing more than 50% of all votes entitled to be cast
on any issue proposed to be considered at any such special
meeting.
Staggered Board of Directors. The Company's Board of
Directors is divided into three classes of directors serving
staggered three year terms. A majority of the directors
must be persons who are not officers of the Company. The
requirements for a majority of independent directors and the
provisions for staggered terms of directors may not be
changed without approval of a majority of the shareholders
or by 80% of the members of the Board of Directors. Certain
provisions of the Company's Charter, including the use of a
staggered board, may render more difficult a change in
control of the Company or removal of incumbent management.
Advance Notice of Director Nominations and New
Business. The Bylaws of the Company provide that with
respect to an annual meeting of shareholders, the proposal
of business to be considered by shareholders may be made
only (i) by or at the direction of the Board of Directors,
or (ii) by a shareholder who has complied with the advance
notice procedures set forth in the Bylaws. In addition,
with respect to any meeting of shareholders, nominations of
persons for election to the Board of Directors may be made
only (i) by or at the direction of the Board of Directors or
(ii) by any shareholder of the Company who is entitled to
vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.
The advance notice provisions of the Bylaws could have
the effect of discouraging a takeover or other transaction
in which holders of some, or a majority, of the shares of
Common Stock might receive a premium for their shares over
the then prevailing market price or which such holders might
believe to be otherwise in their best interests.
Limitation of Directors' Liability
The Company's Charter eliminates, subject to certain
exceptions, the personal liability of a director to the
Company or its shareholders for monetary damages for
breaches of such director's duty of care or other duties as
a director. The Charter does not provide for the
elimination of or any limitation on the personal liability
of a director for (i) any breach of a director's duty of
loyalty to the Company, (ii) acts or omissions which involve
intentional misconduct or knowing violations of law, (iii)
unlawful corporate distributions, or (iv) acts or omissions
which involve transactions from which the director derived
an improper personal benefit. The Charter of the Company
further provides that if the TBCA is amended to authorize
corporate action further eliminating or limiting the
personal liability of a director of the Company shall be
eliminated or limited to the fullest extent permitted by the
TBCA, as amended. These provisions of the Charter will
limit the remedies available to a shareholder in the event
of breaches of any director's duties to such shareholder of
the Company.
<PAGE>
Tennessee Anti-Takeover Statutes
In addition to certain of the Company's Charter
provisions discussed above, Tennessee has adopted a series
of statutes which can have an anti-takeover effect and may
delay or prevent a tender offer or takeover attempt that a
shareholder might consider in its best interest, including
those attempts that might result in a premium over the
market price for the Common Stock.
Under the Tennessee Investor Protection Act, unless a
company's board of directors has recommended a takeover
offer to shareholders no offeror beneficially owning 5% or
more of any class of equity securities of the offeree
company, any of which was purchased within one year prior to
the proposed takeover offer (unless the offeror, before
making such purchase, has made a public announcement of his
intention with respect to changing or influencing the
management or control of the offeree company, has made a
full, fair and effective disclosure of such intention to the
person from whom he intends to acquire such securities and
has filed with the Tennessee Commissioner of Commerce and
Insurance (the "Commissioner") and the offeree company a
statement signifying such intentions and containing such
additional information as the Commissioner by rule
prescribes), may offer to acquire any class of equity
security of an offeree company pursuant to a tender offer if
after the acquisition thereof the offeror would be directly
or indirectly a beneficial owner of more than 10% of any
class of outstanding equity securities of the company (a
"Takeover Offer"). Such an offeror must provide that any
equity securities of an offeree company deposited or
tendered pursuant to a Takeover Offer may be withdrawn by an
offeree at any time within seven days from the date the
offer has become effective following filing with the
Commissioner and the offeree company and public announcement
of the terms or after 60 days from the date the offer has
become effective. If an offeror makes a Takeover Offer for
less than all the outstanding equity securities of any
class, and if the number of securities tendered is greater
than the number the offeror has offered to accept and make
for, the securities shall be accepted pro rata. If an
offeror varies the terms of a Takeover Offer before its
expiration date by increasing the consideration offered to
offeree, the offeror shall make the increased consideration
for all equity securities accepted, whether accepted before
or after the variation in the terms of the offer.
Under the Tennessee Business Combination Act, subject
to certain exceptions, no Tennessee corporation may engage
in any "business combination" with an "interested
shareholder" for a period of five years following the date
that such shareholder became an interested shareholder
unless prior to such date the Board of Directors of the
corporation approved either the business combination or the
transaction which resulted in the shareholder becoming an
interested shareholder.
"Business combination" is defined by the Tennessee
Business Combination Act as any (i) merger or consolidation;
(ii) share exchange; (iii) sale, lease, exchange, mortgage,
pledge or other transfer of assets representing 10% of more
of (A) the aggregate market value of the corporation's
consolidated assets, (B) the aggregate market value of the
corporation's shares, or (C) the corporation's consolidated
net income; (iv) issuance or transfer of shares from the
corporation to the interested shareholder, (v) plan of
liquidation of dissolution proposed by the interested
shareholder, (vi) transaction or recapitalization which
increases the proportionate share of any outstanding voting
securities owned or controlled by the interested
shareholder, or (vii) financing arrangement whereby any
interested shareholder receives, directly or indirectly, a
benefit except proportionately as a shareholder.
"Interested shareholder" is defined as (i) any person
that is the beneficial owner of 10% or more of the voting
power of any class or series of outstanding voting stock of
the corporation or (ii) an Affiliate or associate of the
corporation who at any time within the five-year period
immediately prior to the date in question was the beneficial
owner, directly or indirectly, of 10% or more of the voting
power of any class or series of the outstanding stock of the
corporation. Consummation of a business combination that is
subject to the five-year moratorium is permitted after such
period when the transaction (a) (i) complies with all
applicable charter and bylaw requirements and (ii) is
approved by the holders of two-thirds of the voting stock
not beneficially owned by the interested shareholder, and
(b) meets certain fair price criteria.
<PAGE>
The Tennessee Greenmail Act prohibits a Tennessee
corporation from purchasing, directly or indirectly, any of
its shares at a price above the market value of such shares
(defined as the average of the highest and lowest closing
market price for such shares during the 30 trading days
preceding the purchase and sale or preceding the
commencement or announcement of a tender offer if the seller
of such shares has commenced a tender offer or announced an
intention to seek control of the corporation) from any
person who holds more than 3% of the class of securities to
be purchased if such person has held such shares for less
than two years, unless the purchase has been approved by the
affirmative vote of a majority of the outstanding shares of
each class of voting stock issued by such corporation or the
corporation makes an offer, of at least equal value per
share, to all holders of shares of such class.
Restrictions on Transfer
Ownership Limits. The Company's Charter contains
certain restrictions on the number of shares of Common Stock
that an individual shareholder may own. For the Company to
qualify as a REIT under the Code, no more than 50% in value
of its outstanding shares of Common Stock may be owned,
directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) during the
last half of a taxable year (other than the first taxable
year) or during a proportionate part of a shorter taxable
year. The Common Stock must also be beneficially owned by
100 or more persons during at least 335 days of a taxable
year or during a proportionate part of a shorter taxable
year. Because the Company expects to continue to qualify as
a REIT, the Charter of the Company contains restrictions on
the acquisition of Common Stock intended to ensure
compliance with these requirements.
Subject to certain exceptions specified in the Charter,
no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.9% (the
"Ownership Limit") of the issued and outstanding shares of
Common Stock. Although the Board of Directors presently has
no intention of doing so, the Board of Directors could
increase the Ownership Limit from time to time, but may not
do so to the extent that after giving effect to such
increase five beneficial owners of shares could beneficially
own in the aggregate more than 49.5% of the outstanding
shares of Common Stock. The Board of Directors may, with a
ruling from the IRS or an opinion of counsel satisfactory to
it, waive the Ownership Limit with respect to a holder if
such holder's ownership will not then or in the future
jeopardize the Company's status as a REIT.
If any shareholder purports to transfer shares to a
person and either the transfer would result in the Company's
failing to qualify as a REIT, or the transfer would cause
the transferee to hold more than the applicable Ownership
Limit, the purported transfer shall be void. In addition,
if any person holds shares of Common Stock in excess of the
applicable Ownership Limit, such person will be deemed to
hold the shares that cause the Ownership Limit to be
exceeded in trust, and will not receive distributions with
respect to such shares and will not be entitled to vote such
shares. At the Company's option, the person will be
required to sell such shares. At the Company's option, the
person will be required to sell such shares on terms
determined by and at the direction of the Company or the
Company will redeem such shares for the lesser of the amount
paid for the shares and the closing price on the date the
Company exercises its right to redeem. If the Company
redeems such shares, it may pay for the shares with Units,
which are non transferrable except in very limited
circumstances.
All certificates representing shares of Common Stock
will bear a legend referring to the restrictions described
above.
Every owner of more than 5% (or such lower percentage
as required by the Code or regulations thereunder) of the
issued and outstanding shares of Common Stock must file a
written notice with the Company containing the information
required by applicable Treasury Regulations no later than
January 30 of each year. In addition, each shareholder
shall upon demand be required to disclose to the Company in
<PAGE>
writing such information as the Company may request in good
faith in order to determine the Company's status as a REIT.
The foregoing ownership limitations may have the effect
of precluding acquisition of control of the Company without
the consent of the Board of Directors.
Other Matters
The transfer agent and registrar for the Company's
Common Stock is AmSouth Bank of Alabama, Birmingham,
Alabama.
Pursuant to the TBCA, the Company cannot merge with or
sell all or substantially all of the assets of the Company,
except pursuant to a resolution approved by the affirmative
vote of a majority of the outstanding shares of Common Stock
entitled to vote on the resolution. In addition, the
Partnership Agreement requires that any merger or sale of
all or substantially all of the assets of or dissolution of
the Operating Partnership be approved by the affirmative
vote of a majority of the outstanding Units.
FEDERAL INCOME TAX CONSIDERATIONS
Introductory Notes
The applicable Prospectus Supplement will contain
information, where applicable, about all material Federal
income tax considerations relating to the Offered Securities
covered by such Prospectus Supplement.
The following discussion summarizes all material Federal
income tax considerations that may be relevant to investors
in the Offered Securities. Baker, Donelson, Bearman &
Caldwell, which has acted as tax counsel to the Company, has
reviewed the following discussion and is of the opinion that
the descriptions of the law and the legal conclusions contained
herein are correct in all material respects, and the discussion
hereunder does not omit any material provision with respect to
the matters covered. This discussion and such opinion are based
on current law. This summary does not give a detailed
discussion of any state, local, or foreign tax consideration
nor does it discuss all of the aspects of Federal income
taxation that may be relevant to a prospective shareholder
in light of his or her particular circumstances or to
certain types of shareholders (including insurance
companies, tax-exempt entities, financial institutions or
broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) who are subject
to special treatment under the Federal income tax laws. As
used in this section, the term "Company" refers solely to
Mid-America Apartment Communities, Inc.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH
HIS OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES
TO HIM OR HER OF THE PURCHASE, OWNERSHIP AND SALE OF THE
OFFERED SECURITIES IN AN ENTITY ELECTING TO BE TAXED AS A
REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAl, STATE,
LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
Taxation of the Company
General. The Company has made an election to be taxed
as a REIT under Sections 856 through 860 of the Code
effective for its short taxable year ending on December 31,
1994. The Company believes that it is organized and has
operated in such a manner as to qualify under the Code for
taxation as a REIT commencing with its 1994 taxable year,
and the Company intends to continue to operate in such a
manner. No assurance, however, can be given that the Company
will operate in a manner so as to qualify or remain
qualified as a REIT. See "Failure to Qualify" below.
<PAGE>
The Company has obtained the opinion of Baker, Donelson,
Bearman & Caldwell that the Company is organized in conformity
with the requirements for qualification as a REIT pursuant to
Sections 856 through 860 of the Code and that the Company's
current and proposed method of operation will enable it to
meet the requirements for qualification and taxation as a
REIT under the Code for its 1995 and subsequent taxable years.
The following is a general summary of the Code
provisions that govern the Federal income tax treatment of a
REIT and its shareholders. The provisions of the Code are
highly technical and complex. This summary is qualified in
its entirety by the applicable Code provisions, the
regulations promulgated thereunder ("Treasury Regulations"),
and administrative and judicial interpretations thereof.
If the Company qualifies for taxation as a REIT, it
generally will not be subject to Federal corporate income
taxes on net income that it currently distributes to
shareholders. This treatment substantially eliminates the
"double taxation" (at the corporate and shareholder levels)
that generally results from investment in a corporation.
Notwithstanding its REIT election, however, the Company will
be subject to Federal income tax in the following
circumstances. First, the Company will be taxed at regular
corporate rates on any undistributed taxable income,
including undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the
"alterative minimum tax" on its items of tax preference.
Third, if the Company has (i) net income from the sale or
other disposition of "foreclosure property" (which is, in
general, property acquired by foreclosure or otherwise on
default of a loan secured by the 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 at the
highest corporate rate on such income. Fourth, if the
Company has net income from prohibited transactions (which
are, in general, certain sales or other dispositions of
property (other than foreclosure property) held primarily
for sale to customers in the ordinary course of business),
such income will be subject to a 100% tax. Fifth, if the
Company should fail to satisfy the 75% gross income test or
the 95% gross income test (as discussed below), and has
nonetheless maintained its qualification as a REIT because
certain other requirements have been met, it will be subject
to a 100% tax on the net income attributable to the greater
of the 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 should fail
to distribute during each calendar year at least the sum of
(i) 85% of its REIT ordinary income for such year, (ii) 95%
of its REIT capital gain net income for such year, and (iii)
any undistributed taxable income from prior years, the
Company would be subject to a non-deductible 4% excise tax
on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company acquires any
asset from a C corporation (i.e., a corporation generally
subject to full corporate level tax) in a transaction in
which the basis of the asset in the Company's hands is
determined by reference to the basis of the asset (or any
other property) in the hands of the C corporation, and the
Company recognizes gain on the disposition of such asset
during the 10-year period beginning on the date on which
such asset was acquired by the Company, then, to the extent
of such property's "built-in" gain (the excess of the fair
market value of such property at the time of acquisition by
the Company over the adjusted basis of such property at such
time), such gain will be subject to tax at the highest
regular corporate rate applicable (as provided in IRS
regulations that have not yet been promulgated). The results
described above with respect to the recognition of "built-
in" gain assume that the Company would have an election
pursuant to IRS Notice 88-19 if it were to make any such
acquisition.
Requirements for Qualification. The Code defines a REIT
as a corporation, trust or association (1) which is managed
by one or more trustees or directors; (2) the beneficial
ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (3) which
would be taxable as a domestic corporation but for Sections
856 through 859 of the Code; (4) which is neither a
financial institution nor an insurance company subject to
certain provisions of the Code; (5) the beneficial ownership
of which is held by 100 or more persons; (6) not more than
50% in value of the outstanding stock of which is owned,
directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities of each
taxable year) (the "5/50 Rule"); and (7) which meets certain
other tests, described below, regarding the nature of its
income and assets. The Code provides that conditions (1)
through (4), inclusive, must be met during the entire
taxable year and that condition (5) must be met during at
least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months.
Conditions (5) and (6) will not apply until after the first
taxable year for which an election is made to be taxed as a
REIT. The Company has issued sufficient shares of Common
Stock with sufficient diversity of ownership to allow the
Company to satisfy requirements (5) and (6). In addition,
the Company's Charter contains restrictions regarding the
transfer of
<PAGE>
its shares that are intended to assist the Company in
continuing to satisfy the share ownership requirements
described in (5) and (6) above. See "Description of the
Capital Stock of the Company - Restrictions on Transfer."
A corporation may not elect to become a REIT unless its
taxable year is the calendar year. The Company's taxable
year is the calendar year.
For purposes of determining Share Ownership under the
5/50 Rule, a pension trust generally is considered an
individual. However, beneficiaries of certain pension
trusts are treated as holding shares of a REIT in proportion
to their actual interests in the pension trust for purposes
of the 5/50 Rule.
In the case of a REIT which is a partner in a
partnership, 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 hands
of the REIT for purposes of Section 856 of the Code,
including satisfying the gross income tests and asset tests
(as discussed below). Thus, the Company's proportionate
share of the assets, liabilities and items of income of the
Operating Partnership and the Subsidiary Partnerships are
treated as assets, liabilities and items of the Company for
purposes of applying the requirements described herein.
Income Tests. In order to maintain qualification as a
REIT, three gross income requirements must be satisfied
annually. First, at least 75% of the REIT's gross income
(excluding gross income from prohibited transactions) for
each taxable year must be derived directly or indirectly
from investments relating to real property or mortgages on
real property (including "rents from real property" and, in
certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the REIT's
gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from
such real property investments described above, and from
dividends, interest and gain from the sale or disposition of
stock or securities, or from any combination of the
foregoing. Third, short-term gain from the sale or other
disposition of stock or securities, gain from prohibited
transactions and gain on the sale or other disposition of
real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property)
must represent less than 30% of the REIT's gross income
(including gross income from prohibited transactions) for
each taxable year. For purposes of applying the 30% gross
income test the holding period of Properties held by
Operating Partnership on the date of the Initial Offering
will be deemed to have commenced on such date.
Rents received by the Company will qualify as "rents
from real property" in satisfying the above gross income
tests 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 "rents from real
property" solely by reason of being based on a fixed
percentage or percentages of receipts or sales. Second,
rents received from a resident will not qualify as "rents
from real property" if the Company, or an owner of 10% or
more of the Company, directly or constructively owns 10% or
more of such resident (a "Related Party Tenant"). Third, if
rent attributable to personal property that is leased in
connection with a lease of real property is greater than 15%
of the total rent received under the lease, then the portion
of rent attributable to such personal property will not
qualify as "rents from real property." The Company does not
charge, and does not anticipate charging, rent for any
portion of any Property that is based in whole or in part on
the income or profits of any person, and the Company does
not receive, and does not anticipate receiving, any rents
from Related Party Tenants. The Company does not anticipate
that rent attributable to personal property leased in
connection with any lease of real property will exceed 15%
of total rent received under such lease. Finally, for rents
received to qualify as "rents from real property," the
Company generally must not operate or manage the property or
furnish or render services to residents, other than through
an "independent contractor" who is adequately compensated
and from whom the Company derives no revenue. The
"independent contractor" requirement, however, does not
apply to the extent the services provided by the Company are
"usually or customarily rendered" in connection with the
rental of space for occupancy only and
<PAGE>
are not otherwise considered "rendered to the occupant." The
Operating Partnership provides certain services with respect to
its Properties and with respect to Properties of the Subsidiary
Partnerships.
The Operating Partnership receives fees in
consideration of the performance of management, landscaping
and administrative services with respect to properties that
are not wholly owned, directly or indirectly, by the
Operating Partnership. A portion of such fees generally will
not qualify under the 75% or 95% gross income tests. The
Company will also receive certain other types of non-
qualifying income, such as income from coin-operated laundry
machines and income from corporate and guests apartments.
The Company believes, however, that the aggregate amount of
such fees and other non-qualifying income in any taxable
year will not cause the Company to exceed the limits on non-
qualifying income under the 75% and 95% gross income tests.
It is possible that, from time to time, the Company,
the Operating Partnership, or a Subsidiary Partnership will
enter into hedging transaction with respect to one or more
of its assets or liabilities. Any such hedging transactions
could take a variety of forms, including interest rate swap
contracts, interest rate cap or floor contracts, futures or
forward contracts, and options. To the extent that the
Company, the Operating Partnership, or a Subsidiary
Partnership enters into an interest rate swap or cap
contract to hedge any variable rate indebtedness incurred to
acquire or carry real estate assets, any periodic income or
gain from the disposition of such contract should be
qualifying income for purposes of the 95% gross income test.
Furthermore, any such contract would be considered a
"security" for purposes of applying the 30% gross income
test. To the extent that the Company, the Operating
Partnership, or a Subsidiary Partnership hedges with other
types of financial instruments or in other situations, it
may not be entirely clear how the income from those
transactions will be treated for purposes of the various
income tests that apply to REITs under the Code. The
Company intends to structure any hedging transactions in a
manner that does not jeopardize its status as a REIT.
If the Company fails to satisfy one or both of the 75%
or 95% gross income tests for any taxable year, it may
nevertheless qualify as a REIT for such year if it is
entitled to relief under certain provisions of the Code.
These relief provisions generally will be available if the
Company's failure to meet such tests was due to reasonable
cause and not due to willful neglect, the Company attaches a
schedule of the sources of its income to its return and any
income information on the schedules was not due to fraud
with intent to evade tax. It is not possible, however, to
state whether in all circumstances the Company would be
entitled to the benefit of these relief provisions. As
discussed above in "General," even if these relief
provisions were to apply, a tax would be imposed with
respect to the excess net income.
Asset Tests. At the close of each quarter of its
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 real estate assets (including (i) its allocable share of
real estate assets held by the Operating Partnership and the
Subsidiary Partnerships and (ii) stock or debt instruments
held for not more than one year purchased with the proceeds
of a stock offering or long-term (at least five years) debt
offering of the Company), cash, cash items and government
securities. Second, not more than 25% of the Company's total
assets may be represented by securities other than those in
the 75% asset class. Third, of the investments included in
the 25% asset class, the value of any one issuer's
securities owned by the Company must not exceed 5% of the
value of the Company's total assets, and the Company may not
own more than 10% of any one issuer's outstanding voting
securities (except for its ownership interest in the
Operating Partnership or the stock of a subsidiary with
respect to which it has held 100% of the stock at all times
during the subsidiaries existence). The Company intends to
comply with the asset tests for REIT status.
Annual Distribution Requirements. The Company, in order
to qualify as a REIT, is required to distribute
distributions (other than capital gain distributions) to its
shareholders in an amount at least equal to (A) the sum of
(i) 95% of the Company's "REIT taxable income" (computed
without regard to the
<PAGE>
distributions paid deduction and the REIT s net capital gain)
and (ii) 95% of the net income (after tax), if any, from
foreclosure property, minus (B) the sum of certain items of
noncash income. Such distributions must be paid in the taxable
year to which they relate, or in the following taxable year if
declared before the Company timely files its tax return for such
year and if paid on or before the first regular dividend payment
after such declaration. To the extent that the Company does not
distribute all of its net capital gain or distributes at
least 95%, but less than 100%, of its "REIT taxable income,"
as adjusted, it will be subject to tax on the undistributed
amount at regular capital gains and ordinary corporate tax
rates. Furthermore, if the Company should fail to distribute
during each calendar year at least the sum of (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT
capital gain income for such year, and (iii) any
undistributed taxable income from prior periods, the Company
will be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed.
The Company has made and intends to continue to make
timely distributions sufficient to satisfy the annual
distribution requirements. In this regard, the Partnership
Agreement authorizes the Company, as general partner, to
take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount
sufficient to permit the Company to meet these distribution
requirements. It is possible, however, that the Company,
from time to time, may not have sufficient cash or other
liquid assets to meet the distribution requirements due to
timing differences between the actual receipt of income and
actual payment of deductible expenses and the inclusion of
such income and deduction of such expenses in arriving at
taxable income of the Company, or if the amount of
nondeductible expenses such as principal amortization or
capital expenditures exceed the amount of noncash
deductions. In the event that such timing differences occur,
in order to meet the distribution requirements, the Company
may cause the Operating Partnership to arrange for short-
term, or possibly long-term, borrowing to permit the payment
of required dividends. If the amount of nondeductible
expenses exceeds noncash deductions, the Operating
Partnership may refinance its indebtedness to reduce
principal payments and borrow funds for capital
expenditures.
Under certain circumstances, the Company may be able to
rectify a failure to meet the distribution requirement for a
year by paying "deficiency dividends" to shareholders in a
later year that may be included in the Company' 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 to the IRS based upon the amount of any
deduction taken for deficiency dividends.
Special Distribution Requirement. Applicable Treasury
Regulations generally provide that, in the case of a
corporation, such as the Company, that succeeds to earnings
and profits accumulated during a non-REIT taxable year, such
a corporation is eligible to elect to be taxed as a REIT for
a taxable year only if, as of the close of that taxable
year, it has distributed such non-REIT earnings and profits.
Accordingly, to elect to be taxed as a REIT it was necessary
for the Company to distribute, on or before December 31,
1994, the full amount of its current and accumulated
earnings and profits attributable to the operations of The
Cates Company prior to its merger with and into the Company.
The Cates Company satisfied this requirement by distributing
all current and accumulated earnings and profits up to and
including the date of its merger with and into the Company
to its shareholders immediately prior to the consummation of
such merger.
Annual Record Keeping Requirement. Pursuant to
applicable Treasury Regulations, in order to be able to
elect to be taxed as a REIT, the Company must maintain
certain records and request on an annual basis certain
information from its shareholders designed to disclose the
actual ownership of its outstanding shares. The Company
intends to comply with such requirements.
Failure to Qualify. If the Company fails to qualify for
taxation as a REIT in any taxable year and no relief
provisions apply, the Company will be subject to tax
(including any applicable alterative 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. In such
<PAGE>
event, to the extent of current and accumulated earnings and
profits, all distributions to shareholders will be taxable as
ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the distributions
received deduction. Unless entitled to relief under specific
statutory provisions, the Company also will be disqualified
from taxation as a REIT for the four taxable years following
the year during which qualification was lost. It is not
possible to state whether in all circumstances the Company
would be entitled to such statutory relief.
Taxation of Shareholders
Taxation of Taxable Domestic Shareholders. As long as
the Company qualifies as a REIT, distributions made to the
Company's taxable domestic shareholders out of current or
accumulated earnings and profits (and not designated as
capital gain dividends) will be taken into account by them
as ordinary income, and corporate shareholders will not be
eligible for the dividends received deduction as to such
amounts. Distributions that are designated as capital gain
dividends will be taxed as long-term capital gains (to the
extent they do not exceed the Company's actual net capital
gain for the taxable year) without regard to the period for
which the shareholder has held his shares. However,
corporate shareholders may be required to treat up to 20% of
certain capital gain distributions as ordinary income.
Distributions in excess of current and accumulated earnings
and profits will not be taxable to a shareholder to the
extent that they do not exceed the adjusted basis of the
shareholder's shares of Common Stock, but rather will reduce
the adjusted basis of such shares. To the extent that such
distributions exceed the adjusted basis of a shareholder's
shares of Common Stock, they will be included in income as
long-term capital gain (or short-term capital gain if the
shares have been held for one year or less), assuming the
shares are a capital asset in the hands of the shareholder.
In addition, any dividend. declared by the Company in
October, November or December of any year payable to a
shareholder of record on a specific date in any such month
shall be treated as both paid by the Company and received by
the shareholder on December 31 of such year, provided that
the dividend is actually paid by the Company during January
of the following calendar year. Shareholders may not include
in their individual income tax returns any net operating
losses or capital losses of the Company.
In general any loss upon a sale or exchange of shares
of Common Stock by a shareholder who has held such shares
for six months or more (after applying certain holding
period rules) will be treated as a long-term capital loss to
the extent of distributions from the Company required to be
treated by such shareholder as long-term capital gain.
Backup Withholding. The Company will report to its
domestic shareholders and the IRS the amount of
distributions paid during each calendar year, and the amount
of tax withheld, if any, with respect thereto. Under the
backup withholding rules, a shareholder may be subject to
backup withholding at the rate of 31% with respect to
dividends paid unless such holder (a) is a corporation or
comes within certain other exempt categories and, when
required, demonstrates this fact, or (b) provides a taxpayer
identification number, certifies as to no loss of exemption
from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. A
shareholder who does not provide the Company with its
correct taxpayer identification number may also be subject
to penalties imposed by the IRS. Any amount paid as backup
withholding will be creditable against the shareholder's
income tax liability. In addition, the Company may be
required to withhold a portion of capital gain distributions
made to any shareholders who fail to certify their non-
foreign status to the Company. See "Taxation of Foreign
Shareholders" below.
Taxation of Tax-Exempt Shareholders. The IRS has ruled
that amounts distributed by a REIT to a tax-exempt
employees' pension trust do not constitute "unrelated
business taxable income" ("UBTI"). Based upon this ruling
and the analysis therein, distributions by the Company to a
shareholder that is a tax-exempt entity, including a
qualified employee pension or profit sharing trust or an
individual retirement account (an "Exempt Organization"),
should not constitute UBTI, provided that the Exempt
Organization has not financed the acquisition of its shares
with "acquisition indebtedness" within the meaning of the
Code and the shares of
<PAGE>
Common Stock are not otherwise used in an unrelated trade or
business of the Exempt Organization. Revenue rulings, however,
are interpretative in nature and subject to revocation or
modification by the IRS. Social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts,
and qualified group legal services plans that are exempt from
taxation under paragraphs (7), (9), (17) and (20), respectively,
of Code Section 501(c) are subject to different UBTI rules,
which generally will require them to characterize
distributions from the Company as UBTI. In addition, a
pension trust owning more than 10% of a REIT is required to
treat a percentage of the dividends from the REIT as UBTI
(the "UBTI Percentage") under certain circumstances. The
UBTI Percentage is the gross income derived from an
unrelated trade or business (determined as if the REIT were
a pension trust) divided by the gross income of the REIT for
the year in which the dividends are paid. The UBTI rule
applies only if (i) the UBTI Percentage is at least 5%, (ii)
the REIT qualifies as a REIT by reason of the modification
of the 5/50 Rule described above, and (iii) either (A) one
pension trust owns more than 25% of the value of the REIT's
stock or (B) a group of pension trusts individually holding
more than 10% of the value of the REIT's stock collectively
own more than 50% of the value of the REIT's stock.
Taxation of Foreign Shareholders. The rules governing
U.S. Federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and
other foreign shareholders (collectively, "Foreign
Shareholders") are complex, and no attempt will be made
herein to provide more than a limited summary of such rules.
Prospective Foreign Shareholders should consult with their
own tax advisors to determine the impact of U.S. Federal,
state and local income tax laws with regard to an investment
in Common Stock, including any reporting requirements.
Distributions that are not attributable to gain from
sales or exchanges by the Company of U.S. real property
interests and not designated by the Company as capital gain
dividends will be treated as distributions of ordinary
income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Such
distributions, ordinarily, will be subject to a withholding
tax equal to 30% of the gross amount of the distribution
unless an applicable tax treaty reduces that tax. However,
if income from the investment in the shares of Common Stock
is treated as effectively connected with the Foreign
Shareholder's conduct of a U.S. trade or business, the
Foreign Shareholder generally will be subject to a tax at
graduated rates, in the same manner as U.S. shareholders are
taxed with respect to such distributions (and may also be
subject to the 30% branch profits tax if the shareholder is
a foreign corporation). The Company expects to withhold U.S.
income tax at the rate of 30% on the gross amount of any
distributions paid to a Foreign Shareholder that are not
designated as capital gain dividends unless (i) a lower
treaty rate applies and the required form evidencing
eligibility for that reduced rate is filed with the Company
or (ii) the Foreign Shareholder files an IRS Form 4224 with
the Company claiming that the distribution is "effectively
connected" income. Distributions in excess of current and
accumulated earnings and profits of the Company will not be
taxable to a shareholder to the extent that they do not
exceed the adjusted basis of the shareholder's shares of
Common Stock, but rather will reduce the adjusted basis of
such shares. To the extent that such distributions exceed
the adjusted basis of a Foreign Shareholder's shares, they
will give rise to tax liability if the Foreign Shareholder
would otherwise be subject to tax on any gain from the sale
or disposition of his shares of Common Stock as described
below. Because it generally cannot be determined at the time
a distribution is made whether or not such distribution will
be in excess of current and accumulated earnings and
profits, distributions that are not exempt from withholding
tax will be subject to withholding in full at the rate
applicable to distributions. However, the Foreign
Shareholder may seek a refund of such amounts from the IRS
if it is subsequently determined that such distribution was,
in fact, in excess of current and accumulated earnings and
profits of the Company.
For any year in which the Company qualifies as a REIT,
distributions that are attributable to gain from sales or
exchanges by the Company of U.S. real property interests
will be taxed to a Foreign Shareholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under
<PAGE>
FIRPTA, these distributions are taxed to a Foreign Shareholder
as if such gain were effectively connected with a U.S. business.
Thus, Foreign Shareholders will be taxed on such distributions
at the normal capital gain rates applicable to U.S. shareholders
(subject to applicable alterative minimum tax and a special
alterative minimum tax in the case of nonresident alien individuals).
Also, distributions subject to FIRPTA may be subject to a
30% branch profits tax in the hands of a corporate Foreign
Shareholder not entitled to treaty relief or exemption. The
Company is required by applicable Treasury Regulations to
withhold 34% of any distribution that could be designated by
the Company as a capital gain dividend. However, because the
Omnibus Budget Reconciliation Act of 1993 provides for an
increase in the rate of withholding for distributions made
by certain domestic partnerships, trusts, and estates to
35%, it is likely that the Treasury Regulations will be
amended to impose a similar withholding rate on REIT capital
gain dividends. The amount withheld is creditable against
the Foreign Shareholder's FIRPTA tax liability.
Gain recognized by a Foreign Shareholder upon a sale of
Common Stock generally will not be taxed under FIRPTA if the
Company is a "domestically controlled REIT," defined
generally as a REIT in which at all times during a specified
testing period less than 50% in value of the stock was held
directly or indirectly by foreign persons. The Company
believes that it currently qualifies as a "domestically
controlled REIT," and that the sale of Common Stock will not
therefore be subject to tax under FIRPTA. However, because
the Company is publicly traded, however, no assurance can be
given that the Company will continue to be a domestically
controlled REIT. In addition, gain not subject to FIRPTA
will be taxable to a Foreign Shareholder if (i) the
investment in Common Stock is treated as effectively
connected with the Foreign Shareholder's U.S. trade or
business, in which case the Foreign Shareholder will be
subject to the same treatment as U.S. shareholders with
respect to such gains or (ii) the Foreign Shareholder is a
nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and has
a "tax home" in the United States, in which case the
nonresident alien individual will be subject to a 30% tax on
the individual's capital gains. If the gain on the sale of
Common Stock were to be subject to tax under FIRPTA, the
Foreign Shareholder would be subject to the same treatment
as U.S. shareholders with respect to such gain (subject to
applicable alterative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals).
Other Tax Considerations
The Company, the Operating Partnership, the Subsidiary
Partnerships, and the Company's and its shareholders may be
subject to state or local taxation in various state or local
jurisdictions, including those in which it or they own
property, transact business or reside. The state and local
tax treatment of the Company and its shareholders may not
conform to the Federal income tax consequences discussed
above. Consequently, prospective investors should consult
their own tax advisors regarding the effect of state and
local tax laws on an investment in the Common Stock of the
Company.
Tax Aspects of the Operating Partnership and the Subsidiary
Partnerships
The following discussion summarizes material Federal
income tax considerations applicable to the Company's
investment in the Operating Partnership and the Subsidiary
Partnerships (collectively, the "Property-Owning
Partnerships"). The discussion does not cover state or
local tax laws or any Federal tax laws other than income tax
laws.
Classification as a Partnership
The Company is entitled to include in its income its
distributive share of the Property-Owning Partnerships'
income and to deduct its distributive share of the Property-
Owning Partnerships' losses only if the Property-Owning
Partnerships are classified for Federal income tax purposes
as partnerships rather than as associations taxable as
corporations. An organization formed as a partnership will
be treated as a
<PAGE>
partnership, rather than as a corporation, for Federal income
tax purposes only if it has no more than two of the four corporate
characteristics that the Treasury Regulations use to distinguish
a partnership from a corporation for tax purposes. Those four
characteristics are continuity of life, centralization of management,
limited liability, and free transferability of interests.
The Property-Owning Partnerships have not requested,
and do not intend to request, a ruling from the IRS that
they will be classified as partnerships for Federal income
tax purposes. However, the Company has obtained an opinion
of Baker, Donelson, Bearman & Caldwell to the effect that
the Property-Owning Partnerships will be treated as
partnerships for federal income tax purposes and not
associations taxable as corporations. For a more detailed
discussion of the basis for the opinion of counsel described
herein, prospective investors should refer to the complete
opinion filed as an exhibit to the registration statement
of which this Prospectus is a part.
If for any reason the Operating Partnership were to be
taxable as a corporation, rather than as a partnership, for
Federal income tax purposes, the Company would not be able
to satisfy the income and asset requirements for REIT
status. See "Requirements for Qualification (Income Test)"
and "Requirements for Qualification (Asset Tests). If a
Subsidiary Partnership were to be taxable as a corporation
for tax purposes, the Company may cease to qualify as a REIT
because the value of the Company's ownership interest in
such partnership would exceed 10% of the partnership's
voting interests. See "Requirements for Qualification Asset
Tests." In addition, any change in a Property-Owning
Partnership's status for tax purposes might be treated as a
taxable event, in which case the Company might incur a tax
liability without any related cash distribution. See
"Requirements for Qualification - Annual Distribution
Requirements." Further, items of income and deduction of
such partnership would not pass through to its partners, and
its partners would be treated as stockholders for tax
purposes. Consequently, the partnership would be required
to pay income tax at corporate tax rates on its net income,
and distributions to its partners would constitute dividends
that would not be deductible in computing the partnership's
taxable income.
Income Taxation of the Operating Partnership, the Subsidiary
Partnerships and their Partners
Partners, Not the Partnership, Subject to Tax. A
partnership is not a taxable entity for Federal income tax
purposes. Rather, the Company will be required to take into
account its allocable share of a Property-Owning
Partnership's income, gains, losses, deductions, and credits
for any taxable year of the Property-Owning Partnership
ending within or with the taxable year of the Company,
without regard to whether the Company has received or will
receive any distribution from the Property-Owning
Partnership.
Partnership Allocations. Although a partnership
agreement generally will determine the allocation of income
and losses among partners, such allocations will be
disregarded for tax purposes under Section 704(b) of the
Code if they do not comply with the provisions of Section
704(b) of the Code and the Treasury Regulations promulgated
thereunder. If an allocation is not recognized for Federal
income tax purposes, the item subject to the allocation will
be reallocated in accordance with the partners' interest in
the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the
economic arrangement of the partners with respect to such
time.
Tax Allocations With Respect to Contributed Properties.
Pursuant to Section 704(c) of the Code, income, gain loss,
and deduction attributable to appreciated or depreciated
property that is contributed to a partnership in exchange
for an interest in the partnership must be allocated for
Federal income tax purposes in a manner such that the
contributor is charged with, or benefits from, the
unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of
such unrealized gain or unrealized loss is generally equal
to the difference between the fair market value of the
contributed property at the time of contribution and the
adjusted tax basis of such property at the time of
contribution. The Treasury Department recently issued
regulations requiring partnerships to use a "reasonable
method" for allowing items affected by Section 704(c) of the
Code and outlining two reasonable allocation methods. Under
the Partnership Agreement, the Company, as general partner
of the Operating Partnership, in its sole discretion may
select a method of making Code Section 704(c) allocations.
The application of Section 704(c) to the
<PAGE>
Operating
Partnership is not entirely clear and may be affected by
Treasury Regulations promulgated in the future.
Basis in Partnership Interest. The Company's adjusted
tax basis in its partnership interest in a Property-Owning
Partnership generally (i) will be equal to the amount of
cash and the basis of any other property contributed to the
partnership by the Company; (ii) will be increased by (A)
its allocable share of the partnership's income and (B) its
allocable share of indebtedness of the partnership and (iii)
will be reduced, but not below zero, by (I) the Company's
allocable share of the partnership's loss and (II) the
amount of cash distributed to the Company.
If the allocation of the Company's distributive share
of a Property-Owning Partnership's loss would reduce the
adjusted tax basis of the Company's partnership interest in
the partnership below zero, the recognition of such loss
will be deferred until such time as the recognition of such
loss would not reduce the Company's adjusted tax basis
before zero. To the extent that a Property-Owning
Partnership's distributions, or any decrease in the
Company's share of the indebtedness of the partnership (such
decrease being considered a constructive cash distribution
to the partners), would reduce the Company;s adjusted tax
basis below zero, such distributions (including such
construction distributions) constitute taxable income to the
Company. Such distributions and constructive distributions
normally will be characterized as capital gain, and, if the
Company's partnership interest in a Property-Owning
partnership has been held for longer than the long-term
capital gain holding period (currently one year), the
distributions and constructive distribution will constitute
long-term capital gain.
Depreciation Deductions. To the extent that the
Operating Partnership acquires Properties in exchange for
cash, the Operating Partnership's initial basis in the
Properties for Federal income tax purposes generally is the
price paid by the Operating Partnership to acquire the
Properties. The Operating Partnership depreciates such
depreciable property for Federal income tax purposes under
either the modified accelerated cost recovery system of
depreciation ("MACRS") or the alternative depreciation
system of depreciation ("ADS"). The Operating Partnership
uses MACRS for the furnishings and equipment in the
Properties. Under MACRS, the Operating Partnership
generally depreciates furnishings and equipment in service
during the last three months of a taxable year, a mid-
quarter depreciation convention must be used for the
furnishings and equipment placed in service during that
year. The Operating Partnership uses ADS for the buildings
and improvements comprising the Properties. Under ADS, the
Operating Partnership generally depreciates such buildings
and improvements over a 40-year recovery period using a
straight line method and a mid-month convention. However,
to the extent that the Operating Partnership acquired the
Initial Properties in exchange for Units, the Operating
Partnership's initial basis in the Initial Properties for
Federal income tax purposes is the same as the selling
partnership's basis in the Initial Properties on the date of
acquisition. The Operating Partnership depreciates such
depreciable property for Federal income tax purposes under
the same methods previously used by the selling
partnerships.
<PAGE>
DESCRIPTION OF DEBT SECURITIES
Capitalized terms not otherwise defined herein shall
have the meanings set forth in the Indenture.
The Debt Securities are to be issued under an
Indenture, a copy of the form of which has been filed as an
exhibit to the Registration Statement of which this
Prospectus is a part and incorporated herein by reference,
subject to such supplements and amendments as may be adopted
from time to time (each ans "Indenture") and collectively,
the "Indentures"). The Indentures will be executed by the
Company and one or more trustees (each a "Trustee"). The
Indenture is subject to, and governed by, the Trust
Indenture Act of 1939, as amended (the "TIA"). The
statements made hereunder relating to the Indenture and the
Debt Securities to be issued thereunder are summaries of
certain provisions thereof and do not purport to be complete
and are subject to, and are qualified in their entirety by
reference to, all provisions of the Indenture and such Debt
Securities. All section references appearing herein are to
sections of the Indenture, and capitalized terms used but
not defined herein shall have the respective meanings set
forth in the Indenture.
General
The Debt Securities will be direct and unsecured
general obligations of the Company, unless otherwise
provided in the Prospectus Supplement. As indicated in the
applicable Prospectus Supplement, the Debt Securities may be
either senior debt, senior to all future subordinated
indebtedness of the Company and pari passu with other
current and future unsecured, unsubordinated indebtedness of
the Company, or, in the alternative, subordinated debt
subordinate in right of payment to current and future senior
debt and pari passu with other future subordinated
indebtedness of the Company. The Indenture provides that
the Debt Securities may be issued without limit as to
aggregate principal amount, in one or more series, in each
case as established from time to time in or pursuant to
authority granted by a resolution of the Board of Directors
of the Company or as established in one or more indentures
supplemental to the Indenture. All Debt Securities of one
series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the
consent of the Holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such
series (Section 3.1).
The Indenture provides that there may be more than one
Trustee hereunder, each with respect to one or more series
of Debt Securities. Any Trustee under the Indenture may
resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to
act with respect to such series (Section 6.9). In the event
that two or more persons are acting as Trustee with respect
to different series of Debt Securities, each such Trustee
shall be a Trustee of a trust under the Indenture separate
and apart from the trust administered by any other Trustee
(Section 6.10), and, except as otherwise indicated herein,
any action described herein to be taken by the Trustee may
be taken by each such Trustee with respect to, and only with
respect to, the one or more series of Debt Securities for
which it is Trustee under the Indenture.
Reference is made to the Prospectus Supplement relating
to the series of Debt Securities being offered for the
specific terms thereof, including:
1. the title of such Debt Securities (including
whether they are senior debt or subordinated debt and
whether they are convertible);
2. the aggregate principal amount of such Debt
Securities and any limit on such aggregate principal amount;
3. the date or dates, or the method for determining
such date or dates, on which the principal of such Debt
Securities will be payable;
<PAGE>
4. the rate or rates (which may be fixed or
variable), or the method by which such rate or rates shall
be determined, at which such Debt Securities will bear
interest, if any;
5. the date or dates, or the method for determining
such date or dates, from which any such interest will
accrue, the Interest Payment Dates on which any such
interest will be payable, the Regular Record Dates for such
Interest Payment Dates, or the method by which such dates
shall be determined, the Person to whom such interest shall
be payable, and the basis upon which interest shall be
calculated if other than that of a 360-day year of twelve 30-
day months;
6. the place or places where the principal of (and
premium, if any) and interest, if any, on such Debt
Securities will be payable, such Debt Securities may be
surrendered for conversion or registration of transfer or
exchange, and notices or demands to or upon the Company in
respect of such Debt Securities and the Indenture may be
served;
7. the period or periods within which, the price or
prices at which and the terms and conditions upon which such
Debt Securities may be redeemed, as a whole or in part, at
the option of the Company, if the Company is to have such an
option;
8. the obligation, if any, of the Company to redeem,
repay or purchase such Debt Securities pursuant to any
sinking fund or analogous provision or at the option of a
Holder thereof, and the period or periods within which, the
price or prices at which and the terms and conditions upon
which such Debt Securities will be redeemed, repaid or
purchased, as a whole or in part, pursuant to such
obligation;
9. the percentage of the principal at which such Debt
Securities will be issued and, if other than the principal
amount thereof, the portion of the principal amount thereof
payable upon declaration of acceleration of the maturity
thereof, or (if applicable) the portion of the principal
amount of such Debt Securities which is convertible into
shares of Common Stock, Preferred Stock or Debt Securities
of another series, or the method by which any such portion
shall be determined;
10. if other than U.S. dollars, the currency or
currencies in which such Debt Securities are denominated and
payable, which may be a foreign currency or units of two or
more foreign currencies or a composite currency or
currencies, and the terms and conditions relating thereto;
11. whether the amount of payments of principal of
(and premium, if any) or interest, if any, on such Debt
Securities may be determined with reference to an index,
formula or other method (which index, formula or method may,
but need not be, based on a currency, currencies, currency
unit or units or composite currency or currencies) and the
manner in which such amounts shall be determined;
12. any additions to, modifications of or deletions
from the terms of such Debt Securities with respect to the
Events of Default or covenants set forth in the Indenture;
13. whether such Debt Securities will be issued in
certificated or book-entry form;
14. whether such Debt Securities will be in registered
or bearer form and, if in registered form, the denominations
thereof if other than $1,000 and any integral multiple
thereof and, if in bearer form, the denominations thereof
and terms and conditions relating thereto;
<PAGE>
15. the applicability, if any, of the defeasance and
covenant defeasance provisions of Article XIV of the
Indenture;
16. if such Debt Securities are to be issued upon the
exercise of Debt Securities Warrants, the time, manner and
place for such Debt Securities to be authenticated and
delivered;
17. the terms, if any, upon which Debt Securities may
be convertible into Common Stock, Preferred Stock or Debt
Securities of another series of the Company and the terms
and conditions upon which such conversion will be effected,
including, without limitation, the initial conversion price
or rate and the conversion period;
18. if convertible, in connection with the
preservation of the Company's status as a REIT, any
applicable limitations on the ownership or transferability
of the Common Stock, Preferred Stock or other capital stock
of the Company into which such Debt Securities are
convertible;
19. whether and under what circumstances the Company
will pay Additional Amounts as contemplated in the Indenture
on such Debt Securities in respect of any tax, assessment or
governmental charge and, if so, whether the Company will
have the option to redeem such Debt Securities in lieu of
making such payment;
20. the terms, if any, upon which such Debt Securities
will be subordinate to other debt of the Company; and
21. any other terms of such Debt Securities not
inconsistent with the provisions of the Indenture (Section
3.1)
The Debt Securities may provide for less than the
entire principal amount thereof to be payable upon
declaration of acceleration of the maturity thereof or bear
no interest or bear interest at a rate which at the time of
issuance is below market rates ("Original Issue Discount
Securities"). Special U.S. federal income tax, accounting
and other considerations applicable to Original Issue
Discount Securities will be described in the applicable
Prospectus Supplement.
The Indenture does not contain any other provisions
that would limit the ability of the Company to incur
indebtedness or that would afford holders of Debt Securities
protection in the event of a highly leveraged or similar
transaction involving the Company or in the event of a
change of control. However, restrictions on ownership and
transfers of the Company's Common Stock are designed to
preserve its status as a REIT and, therefore, may act to
prevent or hinder a change of control. See "Description of
the Capital Stock of the Company." Reference is made to the
applicable Prospectus Supplement for information with
respect to any deletions from, modifications of or additions
to the Events of Default or covenants of the Company that
are described below, including any addition of a covenant or
other provision providing event risk or similar protection.
Denominations, Interest, Registration and Transfer
Unless otherwise described in the applicable Prospectus
Supplement, the Debt Securities of any series will be
issuable in denominations of $1,000 and integral multiples
thereof (Section 3.2).
Unless otherwise described in the applicable Prospectus
Supplement, the principal of (and premium, if any) and
interest on any series of Debt Securities will be payable at
the corporate trust office of the Trustee, provided that, at
the option of the Company, payment of interest may be made
by check mailed to the address
<PAGE>
of the Person entitled thereto as it appears in the Security
Register or by wire transfer of funds to such Person at an
account maintained within the United States (Sections 3.5 and 3.7).
Any interest not punctually paid or duly provided for
on any Interest Payment Date with respect to a Debt Security
("Defaulted Interest") will forthwith cease to be payable to
the Holder on the applicable Regular Record Date and may
either be paid to the person in whose name such Debt
Security is registered at the close of business on a special
record date (the "Special Record Date") for the payment of
such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to the Holder of such Debt Security
not less than 10 days prior to such Special Record Date, or
may be paid at any time in any other lawful manner, all as
more completely described in the Indenture.
Subject to certain limitations imposed upon Debt
Securities issued in book-entry form, the Debt Securities of
any series will be exchangeable for other Debt Securities of
the same series and of a like aggregate principal amount and
tenor of different authorized denominations upon surrender
of such Debt Securities at the corporate trust office of the
Trustee. In addition, subject to certain limitations
imposed upon Debt Securities issued in book-entry form, the
Debt Securities of any series shall be surrendered for
conversion (if applicable) or registration of transfer
thereof at the corporate trust office of the Trustee. Every
Debt Security surrendered for conversion, registration of
transfer or exchange shall be duly endorsed or accompanied
by a written instrument of transfer. No service charge will
be made for any registration of transfer or exchange of any
Debt Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge
payable in connection therewith (Section 3.5). If the
applicable Prospectus Supplement refers to any transfer
agent (in addition to the Trustee) initially designated by
the Company with respect to any series of Debt Securities,
the Company may at any time rescind the designation of any
such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the
Company will be required to maintain a transfer agent in
each Place of Payment for such series. The Company may at
any time designate additional transfer agents with respect
to any series of Debt Securities (Section 10.2).
Neither the Company nor the Trustee shall be required
to (i) issue, register the transfer of or exchange Debt
Securities of any series during a period beginning at the
opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the
close of business on the day of mailing of the relevant
notice of redemption; (ii) register the transfer of or
exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt
Security being redeemed in part; or (iii) issue, register
the transfer of or exchange any Debt Security which has been
surrendered for repayment at the option of the holder,
except the portion, if any, of such Debt Security not to be
so repaid (Section 3.5).
Merger, Consolidation or Sale
The Company, without the consent of the Holders of any
of the Debt Securities, may consolidate with, or sell, lease
or convey all or substantially all of its assets to, or
merge with or into, any other corporation, provided that (a)
either the Company shall be the continuing corporation or,
the successor corporation (if other than the Company) formed
by or resulting from any such consolidation or merger or
which shall have received the transfer of such assets shall
expressly assume payment of the principal of (and premium,
if any) and interest on all of the Debt Securities and the
due and punctual performance and observance of all of the
covenants and conditions contained in the Indenture; (b)
immediately after giving effect to such transaction and
treating any indebtedness which becomes an obligation of the
Company or any Subsidiary as a result thereof as having been
incurred and be continuing; and (c) an officer's certificate
and legal opinion covering such conditions shall be
delivered to the Trustee (Sections 8.1 and 8.3).
<PAGE>
Certain Covenants
Existence. Except as permitted under "Merger,
Consolidation or Sale," the Company will do or cause to be
done all things necessary to preserve and keep in full force
and effect its corporate existence, rights (charter and
statutory) and franchises; provided, however, that the
Company shall not be required to preserve any right or
franchise if it determines that the preservation thereof is
no longer desirable in the conduct of its business and that
the loss thereof is not disadvantageous in any material
respect to the Holders of the Debt Securities (Section
10.6).
Maintenance of Properties. The Company will cause all
of its properties used or useful in the conduct of its
business or the business of any Subsidiary to be maintained
and kept in good condition, repair and working order and
supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements and
improvements thereof, all as in the judgment of the Company
may be necessary so that the business carried on in
connection therewith may be properly and advantageously
conducted at all times; provided, however, that the Company
and its Subsidiaries shall not be prevented from selling or
otherwise disposing for value its properties in the ordinary
course of business (Section 10.7).
Insurance. The Company will, and will cause each of
its Subsidiaries to, keep all of its insurable properties
insured against loss or damage in accordance with industry
practices and with insurers of recognized responsibility and
of suitable financial stability (Section 10.8).
Payment of Taxes and Other Claims. The Company will
pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (i) all taxes, assessments
and governmental charges levied or imposed upon it or any
Subsidiary or upon the income, profits or property of the
Company or any Subsidiary; and (ii) all lawful claims for
labor, materials and supplies which, if unpaid, might by law
become a lien upon the property of the Company or any
Subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good
faith by appropriate proceedings (Section 10.9).
Provision of Financial Information. Whether or not the
Company is subject to Section 13 or 15(d) of the Exchange
Act, the Company will, to the extent permitted under the
Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company
would have been required to file with the Commission
pursuant to such Section 13 or 15(d) (the "Financial
Statements") if the Company were so subject, such documents
to be filed with the Commission on or prior to the
respective dates (the "Required Filing Dates") by which the
Company would have been required to file such documents if
the Company were so subject. The Company will also in any
event (x) within 15 days of each Required Filing Date file
with the Trustee copies of the annual reports, quarterly
reports and other documents which the Company would have
been required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act if the Company were
subject to such Section; and (y) if filing such documents by
the Company with the Commission is not permitted under the
Exchange Act, promptly upon written request and payment of
the reasonable cost of duplication and delivery, supply
copies of such documents to any Holder (Section 10.10).
Additional Covenants. Any additional covenants of the
Company with respect to any series of Debt Securities will
be set forth in the Prospectus Supplement relating thereto.
Events of Default, Notice and Waiver
The Indenture provides that the following events are
"Events of Default" with respect to any series of Debt
Securities issued thereunder: (a) default for 30 days in the
payment of any installment of interest
<PAGE>
on any Debt Security of such series; (b) default in the payment
of the principal of (or premium, if any, on) any Debt Security
of such series at its Maturity or in the deposit of any sinking
fund payment when and as due by the terms of any Debt Security;
(c) default in the performance of any other covenant of the
Company contained in the Indenture (other than a covenant
added to the Indenture solely for the benefit of a series of
Debt Securities issued thereunder other than such series),
continued for 60 days after written notice as provided in
the Indenture; (d) default in the payment of an aggregate
principal amount not less than $10,000,000 of any evidence
of indebtedness of the Company or any mortgage, indenture or
other instrument under which such indebtedness is issued or
by which such indebtedness is secured, such default having
occurred after the expiration of any applicable grace period
and having resulted in the acceleration of the maturity of
such indebtedness, but only if such indebtedness is not
discharged or such acceleration is not rescinded or
annulled; (e) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver,
liquidator or trustee of the Company or for substantially
all of its properties; and (f) any other Event of Default
provided with respect to a particular series of Debt
Securities (Section 5.1).
If an Event of Default under the Indenture with respect
to Debt Securities of any series at the time Outstanding
occurs and is continuing, then in every such case the
Trustee or the Holders of not less than 25% in principal
amount of the Outstanding Debt Securities of that series may
declare the principal amount (or, if the Debt Securities of
the series are Original Issue Discount Securities or Indexed
Securities, such portion of the principal amount as may be
specified in the terms thereof) of all of the Debt
Securities of that series to be due and payable immediately
by written notice thereof to the Company (and to the Trustee
if given by the Holders). However, at any time after such a
declaration of acceleration with respect to Debt Securities
of such series (or of all Debt Securities then Outstanding
under the Indenture, as the case may be) has been made, but
before a judgment or decree for payment of the money due has
been obtained by the Trustee, the holders of not less than
25% in principal amount of Outstanding Debt Securities of
such series (or of all Debt Securities then Outstanding
under the Indenture, as the case may be) may rescind and
annul such declaration and its consequences if (a) the
Company shall have deposited with the Trustee all required
payments of the principal of (and premium, if any) and
interest on the Debt Securities of such series (or of all
Debt Securities then outstanding under the Indenture, as the
case may be), plus certain fees, expenses, disbursements and
advances of the Trustee and (b) all Events of Default, other
than the non-payment of accelerated principal (or specified
portion thereof), with respect to Debt Securities of such
series (or of all Debt Securities then outstanding under the
Indenture, as the case may be) have been cured or waived as
provided in the Indenture (Section 5.2). The Indenture also
provides that the Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of any
series (or of all Debt Securities then Outstanding under the
Indenture, as the case may be) may waive any past default
with respect to such series and its consequences, except a
default (x) in the payment of the principal of (or premium,
if any) or interest on any Debt Security of such series or
(y) in respect of a covenant or provisions contained in the
Indenture that cannot be modified or amended without the
consent of the holder of each outstanding Debt Security
affected thereby (Section 5.13).
The Trustee is required to give notice to the Holders
of Debt Securities within 60 days of a default under the
Indenture; provided, however, that the Trustee may withhold
notice to the holders of any series of Debt Securities of
any default with respect to such series (except a default in
the payment of the principal of (or premium, if any) or
interest on any Debt Security of such series or in the
payment of any sinking fund installment in respect of any
Debt Security of such series) if the Responsible Officers of
the Trustee consider such withholding to be in the interest
of such Holders (Section 6.2).
The Indenture provides that no holders of Debt
Securities of any series may institute any proceedings,
judicial or otherwise, with respect to the Indenture or for
any remedy thereunder, except in the case of failure of the
Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an Event of
Default from the Holders of not less than 25% in principal
amount of the outstanding Debt
<PAGE>
Securities of such series as well as an offer of reasonable
indemnity (Section 5.7). This provision will not prevent,
however, any holder of Debt Securities from instituting suit
for the enforcement of payment of the principal of (and premium,
if any) and interest on such Debt Securities at the respective
due dates thereof (Section 5.8).
Subject to provisions in the Indenture relating to its
duties in case of default, the Trustee is under no
obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any Holders of any
series of Debt Securities then outstanding under the
Indenture, unless such Holders shall have offered to the
Trustee reasonable security or indemnity (Section 6.3). The
Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series (or of all
Debt Securities then outstanding under the Indenture, as the
case may be) shall have the right to direct the time, method
and place of conducting any proceeding for any remedy
available to the Trustee, or of exercising any trust or
power conferred upon the Trustee. However, the Trustee may
refuse to follow any direction which is in conflict with any
law or the Indenture, which may involve the Trustee in
personal liability or which may be unduly prejudicial to the
Holders of Debt Securities of such series not joining
therein (Section 5.12).
Within 120 days after the close of each fiscal year,
the Company must deliver to the Trustee a certificate,
signed by one of several specified officers, stating whether
or not such officer has knowledge of any default under the
Indenture and, if so, specifying each such default and the
nature and status thereof (Section 10.11).
Modification of the Indenture
Modifications and amendments of the Indenture may be
made only with the consent of the Holders of not less than a
majority in principal amount of all outstanding Debt
Securities which are affected by such modification or
amendment; provided, however, that no such modification or
amendment may, without the consent of the holder of each
such Debt Security affected thereby, (a) change the Stated
Maturity of the principal of, or any installment of interest
(or premium, if any) on, any such Debt Security; (b) reduce
the principal amount of, or the rate or amount of interest
on, or any premium on redemption of, any such Debt Security,
or reduce the amount of principal of an Original Issue
Discount Security that would be due and payable upon
declaration of acceleration of the majority thereof or would
be provable in bankruptcy, or adversely affect any right of
repayment of the Holder of any such Debt Security; (c)
change the Place of Payment, or in the coin or currency, for
payment of principal of, premium, if any, or interest on any
such Debt Security; (d) impair the right to institute suit
for the enforcement of any payment on or with respect to any
such Debt Security; (e) reduce the above-stated percentage
of outstanding Debt Securities of any series necessary to
modify or amend the Indenture, to waive compliance with
certain provisions thereof or certain defaults and
consequences thereunder or to reduce the quorum or voting
requirements set forth in the Indenture; or (f) modify any
of the foregoing provisions or any of the provisions
relating to the waiver of certain past defaults or certain
covenants, except to increase the required percentage to
effect such action or to provide that certain other
provisions may not be modified or waived without the consent
of the Holder of such Debt Security (Section 9.2).
The Holders of not less than a majority in principal
amount of each series of Outstanding Debt Securities have
the right to waive compliance by the Company with certain
covenants in the Indenture (Section 10.13).
Modifications and amendments of the Indenture may be
made by the Company and the Trustee without the consent of
any Holder of Debt Securities for any of the following
purposes: (i) to evidence the succession of another person
to the Company as obligor under the Indenture; (ii) to add
to the covenants of the Company for the benefit of the
Holders of all or any series of Debt Securities or to
surrender any right
<PAGE>
or power conferred upon the Company in the Indenture; (iii)
to add Events of Default for the benefit of the Holders of all
or any series of Securities; (iv) to add or change any provisions
of the Indenture to facilitate the issuance of, or to liberalize
certain terms of, Debt Securities in bearer form, or to permit or
facilitate the issuance of Debt Securities in uncertificated
form, provided that such action shall not adversely affect
the interest of the Holders of the Debt Securities of any
series in any material respect; (v) to change or eliminate
any provisions of the Indenture, provided that any such
change or elimination shall become effective only when there
are no Debt Securities Outstanding of any series created
prior thereto which are entitled to the benefit of such
provision; (vi) to secure the Debt Securities; (vii) to
establish the form or terms of Debt Securities of any
series, including the provisions and procedures, if
applicable, for the conversion of such Debt Securities into
Common Stock or Preferred Stock of the Company; (viii) to
provide for the acceptance of appointment by a successor
Trustee or facilitate the administration of the trusts under
the Indenture, by more than one Trustee; (ix) to cure any
ambiguity, correct or supplement any provision which may be
defective or inconsistent or make any other provisions with
respect to matters or questions arising under the Indenture,
provided that such action shall not adversely affect the
interests of Holders of Debt Securities of any series in any
material respect; or (x) to supplement any of the provisions
of the Indenture to the extent necessary to permit or
facilitate defeasance and discharge of any series of such
Debt Securities, provided that such action shall not
adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect (Section
9.1).
The Indenture provides that in determining whether the
Holders of the requisite principal amount of Outstanding
Debt Securities of a series have given any request, demand,
authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of
Holders of Debt Securities, (i) the principal amount of an
Original Issue Discount Security that shall be deemed to be
outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such
determination upon declaration of acceleration of the
maturity thereof; (ii) the principal amount of a Debt
Security denominated in a Foreign Currency that shall be
deemed outstanding shall be the U.S. dollar equivalent,
determined on the issue date for such Debt Security, of the
principal amount (or, in the case of an Original Issue
Discount Security, the U.S. dollar equivalent on the issue
date of such Debt Security of the amount determined as
provided in (i) above); (iii) the principal amount of an
Indexed Security that shall be deemed outstanding shall be
the principal face amount of such Indexed Security at
original issuance, unless otherwise provided with respect to
such Indexed Security pursuant to Section 3.1 of the
Indenture; and (iv) Debt Securities owned by the Company or
any other obligor upon the Debt Securities or any Affiliate
of the Company or of such other obligor shall be disregarded
(Section 3.1).
The Indenture contains provisions for convening
meetings of the Holders of Debt Securities of a series
(Section 15.1). A meeting may be called at any time by the
Trustee, and also, upon request, by the Company or the
Holders of at least 10% in principal amount of the
Outstanding Debt Securities of such series, in any such case
upon notice given as provided in the Indenture (Section
15.2). Except for any consent that must be given by the
Holder of each Debt Security affected by certain
modifications and amendments of the Indenture, any
resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by
the affirmative vote of the Holders of a majority in
principal amount of the Outstanding Debt Securities of that
series; provided, however, that, except as referred to above
any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other
action that may be made, given or taken by the Holders of a
specified percentage, which is less than a majority, in
principal amount of the Outstanding Debt Securities of a
series may be adopted at a meeting or adjourned meeting duly
reconvened at which a quorum is present by the affirmative
vote of the Holders of such specified percentage in
principal amount of the Outstanding Debt Securities of that
series. Any resolution passed or decision taken at any
meeting of Holders of Debt Securities of any series duly
held in accordance with the Indenture will be binding on all
Holders of Debt Securities of that series. The quorum at
any meeting called to adopt a resolution, and at any
reconvened meeting, will be Persons holding or representing
a majority in principal
<PAGE>
amount of the Outstanding Debt Securities of a series; provided,
however, that if any action is to be taken at such meeting with
respect to a consent or waiver which may be given by the Holders
of not less than a specified percentage in principal amount of the
Outstanding Debt Securities of a series, the Persons holding
or representing such specified percentage in principal
amount of the Outstanding Debt Securities of such series
will constitute a quorum (Section 15.4).
Notwithstanding the foregoing provisions, if any action
is to be taken at a meeting of Holders of Debt Securities of
any series with respect to any request, demand,
authorization, direction, notice, consent, waiver or other
action that the Indenture expressly provides may be made,
given or taken by the Holders of a specified percentage in
principal amount of all Outstanding Debt Securities affected
thereby, or of the Holders of such series and one or more
additional series: (i) there shall be no minimum quorum
requirement for such meeting; and (ii) the principal amount
of the Outstanding Debt Securities of such series that vote
in favor of such request, demand, authorization, direction,
notice, consent, waiver or other action shall be taken into
account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other
action has been made, given or taken under the Indenture
(Section 15.4).
Discharge, Defeasance and Covenant Defeasance
The Company may discharge certain obligations to
Holders of any series of Debt Securities that have not
already been delivered to the Trustee for cancellation and
that either have become due and payable or will become due
and payable within one year (or scheduled for redemption
within one year) by irrevocably depositing with the Trustee,
in trust, funds in such currency or currencies, currency
unit or units or composite currency or currencies in which
such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in
respect of principal (and premium, if any) and interest to
the date of such deposit (if such Debt Securities have
become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be (Section 4.1).
The Indenture provides that, if the provisions of
Article Fourteen are made applicable to the Debt Securities
of or within any series pursuant to Section 14.4 of the
Indenture, the Company may elect either (a) to defease and
be discharged from any and all obligations with respect to
such Debt Securities (except for the obligation to pay
Additional Amounts, if any, upon the occurrence of certain
events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the
obligations to register the transfer or exchange of such
Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities to maintain an
office or agency in respect of such Debt Securities and to
hold moneys for payment in trust) ("defeasance") (Section
14.2) or (b) to be released from its obligations with
respect to such Debt Securities under Section 10.4 to 10.10,
inclusive, of the Indenture (being the restrictions
described under "Certain Covenants") or, if provided
pursuant to Section 3.1 of the Indenture, its obligations
with respect to any other covenant, and any omission to
comply with such obligations shall not constitute a default
or an Event of Default with respect to such Debt Securities
("Covenant Defeasance") (Section 14.3), in either case upon
the irrevocable deposit by the Company with the Trustee, in
trust, of an amount, in such currency or currencies,
currency unit or units or composite currency or currencies
in which such Debt Securities are payable at Stated
Maturity, or Governmental Obligations (as defined below), or
both, applicable to such Debt Securities which through the
scheduled payment of principal and interest in accordance
with their terms will provide money in an amount sufficient
to pay the principal of (and premium, if any) and interest
on such Debt Securities, and any mandatory sinking fund or
analogous payments thereon, on the scheduled due dates
therefor.
Such a trust may only be established if, among other
things, the Company has delivered to the Trustee an Opinion
of Counsel (as specified in the Indenture) to the effect
that the Holders of such Debt Securities will not recognize
income, gain or loss for U.S. federal income tax purposes as
a result of such defeasance or
<PAGE>
covenant defeasance and will be subject to U.S. federal income
tax on the same amounts, in the same manner and at the same times
as would have been the case if such defeasance or covenant
defeasance had not occurred, and such Opinion of Counsel, in the
case of defeasance, must refer to and be based upon a ruling of the
Internal Revenue Service or a change in applicable United
States federal income tax law occurring after the date of
the Indenture (Section 14.4).
"Government Obligations" means securities which are (i)
direct obligations of the United States of America or the
government which issued the Foreign Currency in which the
Debt Securities of a particular series are payable, for the
payment of which its full faith and credit is pledged or
(ii) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States
of America or such government which issued the Foreign
Currency in which the Debt Securities of such series are
payable, the payment of which is unconditionally guaranteed
as a full faith and credit obligation by the United States
of America, or such other government, which, in either case,
are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued
by the bank or trust company as custodian with respect to
any such Government Obligation or a specific payment of
interest on or principal of any such Government Obligation
held by such custodian for the account of the holder of a
depository receipt, provided that (except as required by
law) such custodian is not authorized to make any deduction
from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect
of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation
evidenced by such depository receipt (Section 1.1).
Unless otherwise provided in the applicable Prospectus
Supplement, if after the Company has deposited funds and/or
Government Obligations to effect defeasance or covenant
defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled
to, and does, elect pursuant to Section 14.5 of the
Indenture or the terms of such Debt Security to receive
payment in a currency, currency unit or composite currency
other than that in which such deposit has been made in
respect of such Debt Security, or (b) a Conversion Event (as
defined below) occurs in respect of the currency, currency
unit or composite currency in which such deposit has been
made, the indebtedness represented by such Debt Security
shall be deemed to have been and will be, fully discharged
and satisfied through the payment of the principal of (and
premium, if any) and interest on such Debt Security as they
become due out of the proceeds yielded by converting the
amount so deposited in respect of such Debt Security into
the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such
election or such cessation of usage based on the applicable
market exchange rate (Section 14.5). "Conversion Event"
means the cessation of use of (i) a currency, currency unit
or composite currency both by the government of the country
which issued such currency and for the settlement of
transactions by a central bank or other public institutions
of or within the international banking community, (ii) the
ECU both within the European Monetary System and for the
settlement of transactions by public institutions of or
within the European Communities or (iii) any currency unit
or composite currency other than the ECU for the purposes
for which it was established. Unless otherwise provided in
the applicable Prospectus Supplement, all payments of
principal of (and premium if any) and interest on any Debt
Security that is payable in Foreign Currency that ceases to
be used by its government of issuance shall be made in U. S.
dollars (Section 1.1).
In the event the Company effects covenant defeasance
with respect to any Debt Securities and such Debt Securities
are declared due and payable because of the occurrence of
any Event of Default other than the Event of Default
described in clause (d) under "Events of Default, Notice and
Waiver" with respect to Sections 10.4 to 10.10, inclusive,
of the Indenture (which Sections would no longer be
applicable to such Debt Securities) or described in clause
(g) under "Events of Default, Notice and Waiver" with
respect to any other covenant as to which there has been
covenant defeasance, the amount in such currency, currency
unit or composite currency in which such Debt Securities are
payable, and Government Obligations on deposit with the
Trustee, will be sufficient to pay amounts due on such Debt
Securities at the time of their Stated Maturity
<PAGE>
but may not be sufficient to pay amounts due on such Debt
Securities at the time of the acceleration resulting from such
Event of Default. However, the Company would remain liable
to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further
describe the provisions, if any, permitting such defeasance
or covenant defeasance, including any modifications to the
provision described above, with respect to the Debt
Securities of or within a particular series.
Conversion Rights
The terms and conditions, if any, upon which the Debt
Securities are convertible into Common Stock, Preferred
Stock or Debt Securities of another series will be set forth
in the applicable Prospectus Supplement relating thereto.
Such terms will include whether such Debt Securities are
convertible into Common Stock, Preferred Stock or Debt
Securities of another series, the conversion price (or
manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of
the Holders or the Company, the events requiring an
adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such Debt
Securities. To protect the Company's status as a REIT, a
Holder may not convert any Debt Security, and such Debt
Security shall not be convertible by any Holder, if as a
result of such conversion any person would then be deemed to
own, directly or indirectly, more than 9.9% of the Company's
Common Stock.
Global Securities
The Debt Securities of a series may be issued in whole
or in part in the form of one or more global securities (the
"Global Securities") that will be deposited with, or on
behalf of, a depositary (the "Depositary") identified in the
applicable Prospectus Supplement relating to such series.
Global Securities may be issued in either registered or
bearer form and in either temporary or permanent form. The
specific terms of the depositary arrangement with respect to
a series of Debt Securities will be described in the
applicable Prospectus Supplement relating to such series.
The laws of some jurisdictions require that certain
purchasers of securities take physical delivery as such
securities in definitive form. Such laws may impair the
ability to transfer beneficial interests in Debt Securities
represented by Global Securities.
DESCRIPTION OF SECURITIES WARRANTS
The Company may issue Securities Warrants for the
purchase of Debt Securities, Preferred Stock or Common
Stock. Securities Warrants may be issued independently or
together with any other Offered Securities offered by any
Prospectus Supplement and may be attached to or separate
from such Offered Securities. Each series of Securities
Warrants will be issued under a separate warrant agreement
(each, a "Warrant Agreement") to be entered into between the
Company and a warrant agent specified in the applicable
Prospectus Supplement (the "Warrant Agent"). The Warrant
Agent will act solely as an agent of the Company in
connection with the Securities Warrants of such series and
will not assume any obligations or relationship of agency or
trust for or with any holders of beneficial owners of
Securities Warrants. The following summaries of certain
provisions of the Securities Warrant Agreement and the
Securities Warrants do not purport to be complete and are
subject to, and are qualified in their entirety by reference
to, all the provisions of the Securities Warrant Agreement
and the Securities Warrant certificates relating to each
series of Securities Warrants which will be filed with the
Commission and incorporated by reference as an exhibit to
the Registration Statement of which this Prospectus is a
part at or prior to the time of the issuance of such series
of Securities Warrants.
<PAGE>
If Securities Warrants are offered, the applicable
Prospectus Supplement will describe the terms of Securities
Warrants, including, in the case of Securities Warrants for
the purchase of Debt Securities, the following where
applicable: i) the offering price; ii) the denominations
and terms of the series of Debt Securities purchasable upon
exercise of such Securities Warrants; iii) the designation
and terms of any series of Debt Securities with which such
Securities Warrants are being offered and the number of such
Securities Warrants being offered with such Debt Securities;
iv) the date, if any, on and after which such Securities
Warrants and the related series of Debt Securities will be
transferable separately; v) the principal amount of the
series of Debt Securities purchasable upon exercise of each
such Securities Warrant and the price at which such
principal amount od Debt Securities shall commence and the
date on which such right shall expire (the "Expiration
Date"); vi) the date on which the right to exercise such
Securities Warrants shall commence and the date on which
such right shall expires (the "Expiration Date"); vii)
whether the Securities Warrants will be issued in registered
or bearer form; viii) all materialUnited States federal
income tax consequences; ix) the terms, if any, on which the
Company may accelerate the date by which the Securities
Warrants must be exercise; and x) any other material terms
of such Securities Warrants.
In the case of Securities Warrants for the purchase of
Preferred Stock of Common Stock, the applicable Prospectus
Supplement will describe the terms of such Securities
Warrants, including the following where applicable; (i) the
offering price; (ii) the aggregate number of shares
purchasable upon exercise of such Securities Warrants, the
exercise price, and in the case of Securities Warrants for
Preferred Stock, the designation, aggregate number and terms
of the series of Preferred Stock purchasable upon exercise
of such Securities Warrants; (iii) the designation and terms
of any series of Preferred Stock with which such Securities
Warrants are being offered and the number of such Securities
Warrants being offered with such Preferred Stock; (iv) the
date, if any, on and after which such Securities Warrants
and the related series of Preferred Stock or Common Stock
will be transferable separately; (v) the date on which the
right to exercise such Securities Warrants shall commence
and the Expiration Date; (vi) any special United States
federal income tax consequences; and (vii) any other
material terms of such Securities Warrants.
Securities Warrant certificates may be exchanged for
new Securities Warrant certificates of different
denominations, may (if in registered form) be presented for
registration of transfer, and may be exercised at the
corporate trust office of the Securities Warrant Agent or
any other office indicted in the applicable Prospectus
Supplement. Prior to the exercise of any Securities Warrant
to purchase debt Securities, holders of such Securities
Warrants will not have any of the rights of holders of the
Debt Securities purchasable upon such exercise, including
the right to receive payments of principal, premium, if any,
or interest, if any, on such Debt Securities or to enforce
covenants in the applicable indenture. Prior to the
exercise of any Securities Warrants to purchase Preferred
Stock or Common Stock, including the right to receive
payments of dividends, if any, on such Preferred Stock or
Common Stock, or to exercise any applicable right to vote.
Exercise of Securities Warrants
Each Securities Warrant will entitle the holder thereof
to purchase such principal amount of Debt Securities or
number of shares of Preferred Stock or Common Stock, as the
case may be, at such exercise price as shall in each case be
set forth in, or calculable from, the Prospectus Supplement
relating to the offered Securities Warrants. After the
close of business on the Expiration Date (or such later date
to which such Expiration Date may be extended by the
Company), unexercised Securities Warrants will become void.
Securities Warrants may be exercised by delivering to
the Securities Warrant Agent payment as provided in the
applicable Prospectus Supplement of the amount required to
purchase the Debt Securities, Preferred Stock or Common
Stock, as the case may be, purchasable upon such exercise
together with certain information set forth on the reverse
side of the Securities Warrant certificate. Securities
Warrants will be deemed to have been exercised upon receipt
of payment of the exercise price, subject to the receipt
within five (5) business days, of the Securities Warrant
certificate evidencing such Securities Warrants. Upon
receipt of
<PAGE>
such payment and the Securities Warrant certificate properly
completed and duly executed at the corporate trust office of
the Securities Warrant Agent or any other office indicated
in the applicable Prospectus Supplement, the Company will,
as soon as practicable, issue and deliver the Debt Securities,
Preferred Stock or Common Stock, as the case may be, purchasable
upon such exercise. If fewer than all of the Securities Warrants
represented by such Securities Warrant certificate as exercised,
a new Securities Warrant certificate will be issued for the
remaining amount of Securities Warrants.
Amendments and Supplements to Warrant Agreement
The Warrant Agreements may be amended or supplemented
without consent of the holders of the Securities Warrants
issued thereunder to effect changes that are not
inconsistent with the provisions of the Securities Warrants
and that do not adversely affect the interests of the
holders of the Securities Warrants.
Adjustments
Unless otherwise indicated in the applicable Prospectus
Supplement, the exercise price of, and the number of shares
of Common Stock covered by, a Common Stock Warrant are
subject to adjustment in certain events, including, (i)
payment of a dividend on the Common Stock payable in shares
of Common Stock and stock splits, combinations or
reclassification of Common Stock; (ii) issuance to all
holders of Common Stock of rights or warrants to subscribe
for or purchase shares of Common Stock at less than their
current market price (as defined in the Warrant Agreement
for such series of Common Stock Warrants); and (iii) certain
distributions of evidences of indebtedness or assets
(including securities but excluding cash dividends or
distributions paid out of consolidated earnings or retained
earnings or dividends payable in Common Stock) or of
subscription rights and warrants (excluding those referred
to above).
No adjustment in the exercise price of, and the number
of shares of Common Stock covered by, a Common Stock Warrant
will be made for regular or quarterly or other periodic or
recurring cash dividends or distributions or for cash
dividends or distributions to the extent paid from
consolidated earnings or retained earnings. No adjustment
will be required unless such adjustment would require a
change of at least 1% in the exercise price then in effect.
Except as stated above, the exercise price of, and the
number of shares of Common Stock covered by, a Common Stock
Warrant will not be adjusted for the issuance of shares of
Common Stock or any securities convertible into or
exchangeable for shares of Common Stock, or carrying the
right or option to purchase or otherwise acquire the
foregoing, in exchange for cash, other property or services.
In the event of any (i) consolidation or merger of the
Company with or into any entity (other than a consolidation
or merger that does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares
of Common Stock); (ii) sale, transfer, lease or conveyance
of all or substantially all of the assets of the Company; or
(iii) reclassification, capital reorganization or change of
the Common Stock (other than solely a change in par value or
from par value to no par value), then any holder of a Common
Stock Warrant will be entitled, on or after the occurrence
of any such event, to receive on exercise of such Common
Stock Warrant the kind and amount of shares of stock or
other securities, cash or other property (or any combination
thereof) that the holder would have received had such holder
exercised such holder's Common Stock Warrant immediately
prior to the occurrence of such event. If the consideration
to be received upon exercise of the Common Stock Warrant
following any such event consists of common stock of the
surviving entity, then from and after the occurrence of such
event, the exercise price of such Common Stock Warrant will
be subject to the same anti-dilution and other adjustments
described in the second preceding paragraph, applied as if
such common stock were Common Stock.
<PAGE>
PLAN OF DISTRIBUTION
The Securities may be sold (i) through agents, (ii)
through underwriters, (iii) through dealers or (iv) directly
to purchasers (through a specific bidding or auction process
or otherwise). The distribution of Securities may be
effected from time to time in one or more transactions at a
fixed price or prices, which may be changed, or at market
prices prevailing at the time of sale, at prices relating to
such prevailing market prices or at negotiated prices.
Offers to purchase the Securities may be solicited by
agents designated by the Company from time to time. Any
such agent involved in the offer or sale of the Securities
will be named, and any commissions payable by the company to
such agent will be set forth in the Prospectus Supplement.
Unless otherwise indicated in the Prospectus Supplement, any
such agent will be acting on a best efforts basis for the
period of its appointment. Any such agent may be deemed to
be an underwriter, as that term is defined in the Securities
Act, of the Securities so offered and sold.
If an underwriter or underwriters are utilized in the
sale of Securities, the Company will execute an underwriting
agreement with such underwriter or underwriters at the time
an agreement for such sale is reached, and the names of the
specific managing underwriter or underwriters, as well as
any other underwriters, and the terms of the transactions,
including compensation of the underwriters and dealers, in
any, will be set forth in the Prospectus Supplement, which
will be used by the underwriters to make resales of the
Securities.
If a dealer is utilized in the sale of the Securities,
the Company will sell such Securities to the dealer, as
principal. The dealer may then resell such Securities to
the public at varying prices to be determined by such dealer
at the time of resale. The name of the dealer and the terms
of the transactions will be set forth in the Prospectus
Supplement relating thereto.
Offers to purchase the securities may be solicited
directly by the Company and sales thereof may be made by the
Company directly to institutional investors or others. The
terms of any such sales, including the terms of any bidding
or auction prices, if utilized, will be described in the
Prospectus Supplement relating thereto.
Agents, underwriters and dealers may be entitled under
agreements which may be entered into with the Company to
indemnification by the Company against certain liabilities,
including liabilities under the Securities Act, and any such
agents, underwriters or dealers, or their affiliates may be
customers of, engage in transactions with or perform
services for the Company in the ordinary course of business.
If so indicated in the Prospectus Supplement, the
Company will authorize agents and underwriters to solicit
offers by certain institutions to purchase Debt Securities
from the Company at the public offering price set forth in
the Prospectus Supplement pursuant to Delayed Delivery
Contracts ("Contracts") providing for payment and delivery
on the date stated in the Prospectus Supplement. Such
Contracts will be subject to only those conditions set forth
in the Prospectus Supplement. Each Contract will be for an
amount not less than, and the principal amount of Offered
Securities sold pursuant to Contracts shall not be less nor
more than, the respective amounts stated in such Prospectus
Supplement. Institutions with which Contracts, when
authorized, may be made include commercial and savings
banks, insurance companies, pension funds, investment
companies, educational and charitable institutions and other
institutions, but will in all cases be subject to approval
of the Company. Contracts will not be subject to any
conditions except (i) the purchase by an institution of the
Offered Securities covered by its Contract shall not at the
time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution
is subject and (ii) the Company shall have sold to such
underwriters the total principal amount of the Offered
Securities less the principal amount thereof covered by
Contracts. A commission indicated in the Prospectus
Supplement
<PAGE>
will be paid to underwriters and agents soliciting purchases
of Debt Securities pursuant to Contracts accepted by the Company.
EXPERTS
The Consolidated Financial Statements incorporated in
this Prospectus by reference to the Annual Report on Form 10-K
for the year ended December 31, 1995, have been so
incorporated in reliance on the report of KPMG Peat Marwick
LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting. The
Consolidated Financial Statements of America First REIT,
Inc. incorporated in this Prospectus by reference to the
Annual Report on Form 10-K for the year ended December 31,
1994, have been so incorporated in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on
the authority of said firm as experts in auditing and
accounting.
LEGAL MATTERS
The validity of the issuance of the Offered Securities
offered pursuant to this Prospectus or any Prospectus
Supplement will be passed upon for the Company by Baker,
Donelson, Bearman & Caldwell, Memphis, Tennessee. In
addition, the description of federal income tax consequences
contained in the section of the Prospectus entitled "Federal
Income Tax Considerations" is based on the opinion of Baker,
Donelson, Bearman & Caldwell.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
<TABLE>
<CAPTION>
<S> <C>
Registration fee to the SEC $51,725
Printing expense 2,000
Accounting fees and expenses 10,000
Legal fees and expenses 20,000
Miscellaneous expenses 2,000
-------
Total $85,725
=======
<FN>
All fees and expenses are estimates except for the
registration fee to the SEC.
</TABLE>
Item 15. Indemnification of Directors and Officers.
The Charter of the Company, generally, limits the
liability of the Company's directors and officers to the
Company and the shareholders for money damages to the
fullest extent permitted from time to time by the laws of
Tennessee. The Charter also provides, generally, for the
indemnification of directors and officers, among others,
against judgments, settlements, penalties, fines, and
reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by
reason of their service in those or other capacities except
in connection with a proceeding by or in the right of the
Company in which the director was adjudged liable to the
Company or in connection with any other proceeding charging
a personal benefit was improperly received by him. Insofar
as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be
permitted to directors and officers of the Company pursuant
to the foregoing provisions or otherwise, the Company has
been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act, and is,
therefore, unenforceable.
The Company intends to purchase director and officer
liability insurance for the purpose of providing a source of
funds to pay any indemnification described above.
Item 16. Exhibits.
Exhibits
Number Description
*1.1 Form of Underwriting Agreement (for Common Stock)
*1.2 Form of Underwriting Agreement (for Preferred
Stock)
*1.3 Form of Underwriting Agreement (for Debt
Securities)
**4.1 Form of Common Shares Certificate, incorporated by
reference to Exhibit 3(B) to the Company's registration
statement on Form S-11, filed August 2, 1994
**4.2 Form of Indenture governing the Debt Securities
*4.3 Form of Debt Security
<PAGE>
*4.4 Form of Securities Warrant Agreement
*4.5 Form of Certificate of Preferences, Conversion and
Other Rights of Preferred Shares of beneficial interest
*4.6 Form of Preferred Share Certificate
**5.1 Opinion Regarding Legality
8.1 Opinion Regarding Tax Matters
12.1 Statements regarding computation of ratios
(Included in Prospectus)
**24.1 Consent of KPMG Peat Marwick LLP
**24.2 Consent of Coopers & Lybrand L.L.P.
**24.3 Consent of Baker, Donelson (Included in Exhibits
5.1 and 8.1)
*26.1 Form T-1 Statement of Eligibility and Qualification
[FN]
* To be filed by post-effective amendment or by a
current report on Form 8-K pursuant to the Securities
Exchange Act of 1934, as appropriate.
** Previously filed.
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 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) (230.424(b) of that
chapter) 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;
<PAGE>
(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 section 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.
The undersigned Registrant hereby undertakes to file an
application for the purpose of determining the eligibility
of the Trustee to act under subsection (a) of Section 310 of
the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section
305(b)(2) of the Trust Indenture Act of 1939, as amended.
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 section 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 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.
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 the payment by the Registrant for expenses incurred or
paid by a 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.
<PAGE>
SIGNATURES
Pursuant to the requirement 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 its Amendment No. 3
the the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of
Memphis, State of Tennessee, on May 8, 1996.
MID-AMERICA APARTMENT
COMMUNITIES, INC.
By: /s/ George Cates
George E. Cates, President
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 3 to the Registration Statement has been
signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
/s/ George Cates President and Chief Executive Officer May 8, 1996
George E. Cates (principal executive officer)
/s/ Simon Wadsworth Chief Financial Officer (principal May 8, 1996
Simon R. C. Wadsworth accounting and financial officer)
* Director May 8, 1996
John J. Byrne, III
* Director May 8, 1996
Robert F. Fogelman
* Director May 8, 1996
O. Mason Hawkins
* Director May 8, 1996
Michael B. Yanney
[FN]
*BY: /s/ Simon R. C. Wadsworth
Simon R. C. Wadsworth, Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
Exhibits
Number Description
*1.1 Form of Underwriting Agreement (for Common Stock)
*1.2 Form of Underwriting Agreement (for Preferred
Stock)
*1.3 Form of Underwriting Agreement (for Debt
Securities)
**4.1 Form of Common Shares Certificate, incorporated by
reference to Exhibit 3(B) to the Company's registration
statement on Form S-11, filed August 2, 1994
**4.2 Form of Indenture governing the Debt Securities
*4.3 Form of Debt Security
*4.4 Form of Securities Warrant Agreement
*4.5 Form of Certificate of Preferences, Conversion and
Other Rights of Preferred Shares of beneficial interest
*4.6 Form of Preferred Share Certificate
**5.1 Opinion Regarding Legality
8.1 Opinion Regarding Tax Matters
12.1 Statements regarding computation of ratios
(Included in Prospectus)
**24.1 Consent of KPMG Peat Marwick LLP
**24.2 Consent of Coopers & Lybrand L.L.P.
**24.3 Consent of Baker, Donelson (Included in Exhibits
5.1 and 8.1)
*26.1 Form T-1 Statement of Eligibility and
Qualification
[FN]
* To be filed by post-effective amendment or by a
current report on Form 8-K pursuant to the Securities
Exchange Act of 1934, as appropriate.
** Previously filed.
Baker, Donelson, Bearman & Caldwell
Twentieth Floor, First Tennessee Building
165 Madison Avenue
Memphis, Tennessee 38103
(901)526-2000
Facsimile (901)577-2303
Linda M. Crouch-McCreadie
Direct Dial: (901) 577-2262
May 8, 1996
Mid-America Apartment Communities, Inc.
6584 Poplar Avenue
Suite 340
Memphis, Tennessee 38138
RE: Mid-America Apartment Communities, Inc.
Gentlemen:
We have acted as counsel to Mid-America Apartment
Communities, Inc., a Tennessee corporation (the "Company"),
in connection with the preparation of a registration
statement on Form S-3, No. 333-3274 (the "Registration
Statement") and with respect to the offering and sale (the
"Offering") of up to $150,000,000 of Offered Securities as
that term is defined in the Registration Statement.
The Company has requested our opinion as to:
(a) whether the Company is organized in conformity
with the requirements for qualification as a real estate
investment trust (a "REIT") pursuant to sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the
"Code"), and whether the Company's current and proposed
method of operation will enable it to meet the requirements
for qualification and taxation as a REIT under the Code for
its 1995 and subsequent taxable years;
(b) whether the descriptions of the law and the legal
conclusions contained in the portion of the prospectus in
the Registration Statement (the "Prospectus") under the
caption "Federal Income Tax Considerations" are correct in
all material respects, and whether the discussion thereunder
omits any material provision with respect to the matters
covered; and
(c) whether any partnerships in which Company directly
or indirectly owns an interest (the "Partnerships") will be
treated for federal income tax purposes as partnerships and
not as associations taxable as corporations.
<PAGE>
Documents Examined
In connection with the opinions rendered below, we have
examined the following documents:
1. the Company's Amended and Restated Charter filed
with the Tennessee Secretary of State on January 25, 1994
(the "Amended Charter");
2. the Charter, Certificate of Limited Partnership and
other organizational documents for the Partnerships or any
corporate subsidiary of the Company (the "Subsidiaries")
(collectively the "Organizational Documents");
3. such other documents as we have deemed necessary or
appropriate for the formation of this opinion.
We have assumed that each of the foregoing documents
delivered to us is authentic, if delivered to us as an
original document, or in absolute conformity with the
original, if delivered to us as copies identified to our
satisfaction. We have further assumed that the signatures
on such documents are genuine in all respects. For the
purpose of the opinions below, we have also relied upon a
certificate of the authorized representative of the Company
regarding certain matters (the Officer's Certificate").
Factual Assumptions
For purposes of rendering the opinions below, we have
assumed generally that:
1. Each of the documents reviewed has been duly
authorized, executed and delivered and has not been amended;
2. During its 1995 taxable year and subsequent taxable
years, the Company will operate in such a manner that will
make the representations set forth in the Officer's
Certificate true for such years;
3. The Company will not make any amendments to its
organizational documents after the date of this opinion that
would affect its qualification as a REIT for any taxable
year;
<PAGE>
4. No actions will be taken by the Company, the
Partnerships, any partners in the Partnerships (the
"Partners"), or the Subsidiaries after the date hereof that
would have the effect of altering the facts upon which the
opinions set forth below are based; and
5. The Company will continue to be self-administered
and self-managed with full management authority in respect
to the assets owned by, being developed by or being acquired
by the Company, the Partnerships or the Subsidiaries
(collectively the "Properties"), and no other manager will
be engaged to manage or co-manage any of the Properties or
any other property in which the Partnerships, the
Subsidiaries or the Company owns an interest.
After reasonable inquiry, we are not aware of any facts
inconsistent with the representations made by the company.
Furthermore, where such representations involve matters of
law, we have explained to the Company's representatives the
relevant and material sections of the Code, the Treasury
regulations thereunder (the "Regulations"), published
rulings of the Internal Revenue Service (the "Service") and
other relevant authority to which such representations
relate and are satisfied that the Company's representatives
understand such provisions and are capable of making such
representations.
Opinions
Based on the documents, assumptions and representations
set forth above and the discussion in the Prospectus under
the caption "Federal Income Tax Considerations" (which is
incorporated herein by reference), we are of the opinion
that:
1. The Company is organized in conformity with the
requirements for qualification as a REIT pursuant to
sections 856 through 860 of the Code, and the Company's
current and proposed method of operation will enable it to
meet the requirements for qualification and taxation as a
REIT under the Code for its 1995 and subsequent taxable
years;
2. The descriptions of the law and the legal
conclusions contained in the Prospectus under the caption
"Federal Income Tax Considerations" are correct in all
material respects, and the discussion thereunder does not
omit any material provision with respect to the matters
covered; and
3. The Partnerships will be treated as partnerships
for federal income tax purposes and not associations taxable
as corporations.
<PAGE>
In regard to the opinion set forth in clause (3)
above, section 301.7701-2(a)(1) of the Regulations provides
that the classification of an unincorporated organization is
determined by taking into account the presence or absence of
each of the following corporate characteristics: (i)
associates, (ii) an objective to carry on business and
divide the gain therefrom, (iii) continuity of life, (iv)
centralization of management, (v) liability for corporate
debts limited to corporate property ("limited liability"),
and (vi) free transferability of interests. Since
associates and an objective to carry on a business and
divide the gains therefrom are generally common to both
corporations and partnerships, the determination of whether
an organization that has such characteristics is classified
for tax purposes as a partnership or an association depends
upon whether there exists continuity of life, centralization
of management, limited liability, and free transferability
of interests. Treas. Reg. 301.7701-2(a)(2). The
Partnerships will be treated as partnerships for federal
income tax purposes, and not as associations taxable as
corporations, if they each lack at least two of the
preceding four characteristics that distinguish corporations
from partnerships.
An entity organized as a limited partnership does
not have the corporate characteristic of continuity of life
if the death, insanity, bankruptcy, retirement, resignation,
expulsion, or other event of withdrawal of a general partner
causes a dissolution of the partnership. Id. 301.7701-
2(b)(1). The partnership agreement may permit the remaining
general partners or at least a majority in interest of the
remaining partners to agree to continue the partnership
without causing continuity of life. Id. Under the
Tennessee Revised Uniform Limited Partnership Act (the
"Act"), the dissolution of a limited partnership occurs upon
an event of withdrawal of a general partner unless either
(i) there is at least one other general partner who
continues the business of the partnership under a right to
do so stated in the partnership agreement or (ii) the
remaining partners agree in writing to continue the business
of the partnership and appoint a successor general partner.
Under the Act, an event of withdrawal of a general partner
includes the bankruptcy of the general partner. Under the
terms of the partnership agreements of the Partnerships (the
"Partnership Agreements"), the bankruptcy of the general
partner will cause the dissolution of the related
partnership unless all of the limited partners elect to
continue such partnership's business and appoint a
substitute general partner. Because of the provisions of
the Act and the Partnership Agreements, both of which cause
a dissolution of the partnership upon the bankruptcy of the
general partner unless one of the conditions specified above
is satisfied, the Partnerships will lack the corporate
characteristic of continuity of life.
An organization has centralized management if any
person (or any group of persons which does not include all
of the members) has continuing exclusive authority to make
the management decisions necessary to the conduct of the
business for which the organization
<PAGE>
was formed. Id. 301.7701-2(c)(1). Limited partnerships subject
to a statute corresponding to the Uniform Limited Partnership Act
generally do not have centralized management, but
centralized management ordinarily does exist in such a
limited partnership if substantially all the interests in
the partnership are owned by the limited partners. Id.
301.7701-2(c)(4). The Service has indicated that it will
not rule that a limited partnership lacks centralized
management unless the limited partnership interests,
excluding those held by general partners, do not exceed 80%
of the total interests in the partnership. Rev. Proc. 89-
12, 4.06, 1989-1 C.B. 798. If all or a specified group of
the limited partners may remove a general partner, all the
facts and circumstances must be taken into account in
determining whether the partnership possesses centralized
management. Treas. Reg. 301.7701-2(c)(4). However, a
substantially restricted right of the limited partners to
remove the general partner will not itself cause the
partnership to possess centralized management. Id. The
Service has indicated that it will consider all the facts
and circumstances, including limited partner control of the
general partners (whether direct or indirect), in
determining whether the partnership lacks centralized
management for ruling purposes. Rev. Proc. 89-12, 4.06,
1989-1 C.B. 798.
As of January 3, 1995, the Act was determined by
the Service to correspond to the Uniform Limited Partnership
Act. Rev. Rul. 95-2, 1995-1, I.R.B. 7. Since the Company
owns approximately 70% of Mid-America Apartments, L.P.
("MAALP") and MAALP's partnership agreement provides that
the general partner at all times will own at least 20% of
all of the interests in MAALP as a general partnership
interest, the limited partners do not own substantially all
of the interests in MAALP. The limited partners have no
power to remove the general partner. In addition, upon the
automatic removal of the general partner as a result of its
bankruptcy or dissolution, the general partner is entitled
to receive the fair market value of its interest in the
MAALP, reduced by any damages caused to the MAALP by the
general partner. The limited partners control over the
general partner is substantially circumscribed because the
general partner has represented that (i) the purchase of
interests in MAALP by the limited partners did not entail a
mandatory purchase of any type of security of, or interest
in, the general partner, (ii) each limited partner or an
affiliate of such limited partner does not own, directly or
indirectly (as defined in section 856(d)(5) of the Code),
10% or more of the general partner, (iii) a majority of the
general partner's board of directors are and will be
independent directors, and (iv) the common stock of the
general partner is publicly traded. Thus, MAALP lacks the
corporate characteristic of centralized management.
Moreover, the Company, directly or indirectly owns more than
20% of the partnership interests in each other Partnership
as a general and/or limited partner. Given the Company's
interest and absolute control over the management and
affairs of each other Partnership, the limited partnership
interests in these Partnerships is tantamount to a general
partnership interest. Thus, these Partnerships lack the
corporate characteristic of centralized management.
<PAGE>
The Regulations specify that a limited partnership
possesses the corporate characteristic of limited liability
if the general partner lacks substantial assets (other than
its interest in the partnership) and is merely a "dummy"
acting as the agent of the limited partners. Treas. Reg.
301.7701-2(d)(2). Under the Act, the general partner has
personal liability with respect to the debts and obligations
of each Partnership. Furthermore, the general partner has
represented that its net worth (excluding its interest in
the Partnerships, as applicable) exceeds $100,000 as of May
7, 1996. Although such amount generally would not be
considered "substantial," the general partner has
represented that it is not acting as an agent of the limited
partners in connection with the investments by the limited
partners in, and operation of, each Partnership. The
general partner also has represented that (i) the purchase
of interests in the Partnerships by the limited partners did
not entail a mandatory purchase of any type of security of,
or interest in, the general partner, (ii) each limited
partner or an affiliate of such limited partner does not
own, directly or indirectly (as defined in section 856(d)(5)
of the Code), 10% or more of the general partner, (iii) a
majority of the Company's board of directors are and will be
independent directors, and (iv) the Company's common stock
is publicly traded. Therefore, based on such facts and
because the general partner is not a "dummy" acting as an
agent of the limited partners, the Partnerships will lack
the corporate characteristic of limited liability.
An organization has the corporate characteristic
of free transferability of interests if each of its members,
or members who own substantially all of the interests in the
organization, have the power, without the consent of the
other members, to substitute for themselves in the same
organization a person who is not a member of the
organization. Id. 301.7701-2(e)(1). In order for this
power of substitution to exist, the member must be able,
without the consent of other members, to confer upon his
substitute all the attributes of his interest in the
organization. Id. The Service has indicated that it will
rule that a partnership lacks free transferability of
interests if, throughout the life of the partnership, the
partnership agreement expressly restricts the
transferability of partnership interests representing more
than 20% of all interests in partnership capital, income,
gain, loss, deduction, and credit. Rev. Proc. 92-33, 1992-1
C.B. 782. The Service, however, also has ruled that a
partnership may not lack free transferability of interests
if its partners are "commonly controlled." Rev. Rul. 93-4,
1993-3 I.R.B. 5. Under the terms of the MAALP's partnership
agreement, the general partner may not assign its interest
in MAALP other than in connection with certain mergers,
consolidations, or other combinations of the general
partner. Moreover, limited partners of MAALP may not
transfer their interests, except in certain limited events
involving death or reorganization of a holder or gift,
without the consent of the general partner, which may be
withheld in the general partner's absolute discretion.
Because (i) the transferability of the general partner's
interest in MAALP is prohibited except for limited
circumstances, (ii) the general partner owns approximately
70% of the interests in the MAALP, (iii) the general partner
does not control the
<PAGE>
limited partners, and (iv) limited partners may not transfer
their limited partnership interests in MAALP except in certain
limited circumstances, MAALP lacks the corporate characteristic
of free transferability of interests. Moreover, each other
Partnership's partnership agreement provides that the
limited partnership interest of a limited partner may be
sold, conveyed or assigned only in the absolute discretion
of the general partner thereof. However, given the common
control of these Partnerships, the limited partnership
interests of these Partnerships may be held by the Service
to be freely transferable.
Based on the foregoing, we believe that MAALP
lacks the corporate characteristics of continuity of life,
limited liability, free transferability of interests, and
centralized management and, each other Partnership lacks the
corporate characteristics of continuity of life, limited
liability and centralized management, and, consequently, the
Partnerships do not possess more corporate than noncorporate
characteristics. Therefore, it is our opinion that the
Partnerships will be treated as partnerships for federal
income tax purposes and not as associations taxable as
corporations, under the existing Code, Regulations,
administrative pronouncements, and case law, provided the
Partnerships are not "publicly traded" partnerships under
section 7704 of the Code.
Section 7704 of the Code generally provides that a
"publicly traded" partnership will be taxed as a
corporation. Code section 7704(b) defines a publicly traded
partnership as any partnership whose interests are traded on
an established securities market or are readily tradable on
a secondary market (or the substantial equivalent thereof).
Regulations issued to elaborate on what constitutes a
publicly traded partnership are not applicable to the
Partnerships. Treas. Reg. 1.7704-1(l). The Service,
however, has issued a notice providing limited safe harbors
from the definition of a publicly traded partnership which
are applicable to the Partnerships. I.R.S. Notice 88-75,
1988-2 C.B. 386. Pursuant to one of those safe harbors,
interests in a partnership will not be treated as readily
tradable on a secondary market or the substantial equivalent
thereof if (i) all of the partnership interests are issued
in a transaction that is not registered under the 1933 Act
and (ii) either (A) the partnership does not have more than
500 partners, or (B) the initial offering price of each unit
of partnership interest is at least $20,000 and the
partnership agreement provides that no unit of partnership
interest may be subdivided for resale into units smaller
than a unit the initial offering price of which would have
been at least $20,000. Since the Company has represented
that (i) the transactions in which the Partners acquired
their interests in the Partnerships was not one that was
required to be registered under the 1933 Act, (ii) neither
MAALP nor any other Partnership has more than 500 Partners,
(iii) the interests in the Partnerships are not traded on an
established securities market, and (iv) the Partnerships
have not added a substantial new line of business (as
defined in Treas.
<PAGE>
Reg. 1.7704-1(l)) since December 4, 1995, we are of the opinion
that the Partnerships will not be treated as publicly traded
partnerships.
The foregoing opinions are based on current provisions
of the Code and the Regulations thereunder, published
administrative interpretations thereof, and published court
decisions. The Service has not issued Regulations or
administrative interpretations with respect to various
provisions of the Code relating to REIT qualification. No
assurance can be given that the law will not change in a way
that will prevent the Company from qualifying as a REIT or
the Partnerships from being classified as partnerships for
federal income tax purposes.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement. In giving this
consent, we do not admit that we are in the category of
persons whose consent is required by Section 7 of the 1933
Act or the rules and regulations promulgated thereunder by
the Securities and Exchange Commission.
The foregoing opinions are 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, locality
or foreign country. We undertake no obligation to update
the opinions expressed herein after the date of this letter.
This opinion letter is solely for the benefit of the Company
and the prospective investors in the Offered Securities and
may not be relied upon for any purpose by any other person
without our express written consent.
Sincerely,
BAKER, DONELSON, BEARMAN,
& CALDWELL
By:
a member thereof
