As filed with the Securities and Exchange Commission on September 2, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 6021 62-1543819
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) 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:
John A. Good, Esq.
Baker, Donelson, Bearman & Caldwell
165 Madison Avenue, 20th Floor
Memphis, Tennessee 38103
Telephone (901) 577-2148
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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
Title of Securities Amount Proposed Maximum Proposed Maximum Amount of
Being Registered Being Offering Price Aggregate Registration
Registered(1) Per Unit (3) Offering Price Fee
- -------------------------- ------------- ------------------ ---------------- -------------
Debt Securities (1)(2) $200,000,000 N.A. $200,000,000 $60,607(7)
Preferred Stock,
$.01 par value (1)(4)
Common Stock,
$.01 par value (1)(5)
Securities Warrants (1)(6)
</TABLE>
(Footnotes on next page)
<PAGE>
The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay
its effective date until the Registrant shall file a further
amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until
this Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section
8(a), may determine.
(Footnotes from preceding page)
(1) Pursuant to Rule 429 under the Securities Act of 1933,
as amended, the Prospectus included in this Registration
Statement relates also to $33,875,000 Debt Securities,
Preferred Stock, Common Stock and Securities Warrants
registered on Form S-3, Registration No. 333-3274. This
Registration Statement includes such presently indeterminate
number of securities or rights as may be issuable from time
to time upon conversion or exchange of the securities
registered hereunder. This Registration Statement also
covers delayed delivery contracts that may be issued by the
Registrant under which the party purchasing such contracts
may be required to purchase Debt Securities, Preferred Stock
or Common Stock. Such contracts may be issued together with
the specific Offered Securities to which they relate. Any
securities registered hereunder may be sold separately or as
units with other securities registered hereunder.
(2) Subject to Footnote (1), there is being registered
hereunder an indeterminate principal amount of Debt
Securities.
(3) The proposed maximum offering price per unit will be
determined, from time to time, by the Registrant in
connection with the issuance by the Registrant of the
securities registered hereunder.
(4) Subject to Footnote (1), there is being registered
hereunder an indeterminate number of shares of Preferred
Stock (par value $.01 per share) as may be sold, from time
to time, by the Registrant. There is also being registered
hereunder an indeterminate number of shares of Preferred
Stock as shall be issuable upon conversion of Debt
Securities or exercise of Securities Warrants registered
hereby.
(5) Subject to Footnote (1), there is being registered
hereunder an indeterminate number of shares of Common Stock
(par value $.01 per share) as may be sold, from time to
time, by the Registrant. There is also being registered
hereunder an indeterminate number of shares of Common Stock
as shall be issuable upon conversion of shares of Preferred
Stock or Debt Securities or exercise of Securities Warrants
registered hereby.
(6) Subject to Footnote (1), there is being registered
hereunder an indeterminate number of Debt Securities
Warrants, Preferred Stock Warrants and Common Stock Warrants
representing rights to purchase Debt Securities, Preferred
Stock and Common Stock, respectively, registered pursuant to
this Registration Statement.
(7) Calculated pursuant to Rule 457(o) of the rules and
regulations under the Securities Act of 1933, as amended.
Information contained herein is subject to completion or
amendment. A registration statement relating to these
securities has been filed with the Securities and Exchange
Commission. These securities may not be sold nor may offers
to buy be accepted without the delivery of a final
prospectus. This prospectus shall not constitute an offer to
sell or the solicitation of an offer to buy nor shall there
be any sale of these securities in any state in which such
offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of
any such state.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 2, 1997
PROSPECTUS
MID-AMERICA APARTMENT COMMUNITIES, INC.
$233,875,000
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 $233,875,000. 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 right, 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: (i) directly by
the Company; (ii) through underwriting syndicates
represented by one or more managing underwriters, or through
one or more underwriters without a syndicate; and (iii)
through agents designated from time to time. 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 total value of outstanding
capital stock of the Company, with certain exceptions. See
"Description of Capital Stock -- Ownership Limitations."
See "Risk Factors" beginning on page 3 for information
that should be considered by prospective investors.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF THE
OFFERED SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997.
<PAGE>
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. Electronic filings made
through the Electronic Data Gathering, Analysis and
Retrieval System are publicly available through the
Securities and Exchange Commission's web site
(http://www.sec.gov). 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 a
Registration Statement on Form S-3 under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to
the securities offered hereby. The Prospectus and any
accompanying Prospectus Supplement do not contain all of the
information included in the Registration Statement, certain
parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with
respect to the Company and the Offered Securities, reference
is hereby made to the Registration Statement, including the
exhibits and schedules thereto. Statements contained in
this Prospectus and any accompanying Prospectus Supplement
concerning the provisions or contents of any contract,
agreement or other document referred to herein or therein
are not necessarily complete. With respect to each such
contract, agreement or document filed as an exhibit to the
Registration Statement, reference is made to such exhibit
for a more complete description of the matters involved, and
each such statement shall be deemed qualified in its
entirety by such reference to the copy of the applicable
document filed with the Commission. The Registration
Statement, including the exhibits and schedules thereto, may
be inspected without charge at the Commission's principal
office at 450 Fifth Street, N.W., Washington, D.C. and
copies of it or any part thereof may be obtained from such
office, upon payment of the fees prescribed by the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
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, 1996;
(b) Quarterly Reports on Form 10-Q for the periods ended March 31, 1997
and June 30, 1997, respectively;
(c) Current Reports on Form 8-K dated August 19, 1997, June 5, 1997,
April 25, 1997, April 11, 1997, March 19, 1997, and February 21,
1997 and Current Reports of Form 8-K/A dated July 29, 1997, April
11, 1997, June 10, 1997, May 19, 1997, March 17, 1997 and February
21, 1997;
(d) pages 2 through 10 of the Company's Proxy Statement for its 1997
Annual Meeting of Shareholders;
(e) 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; and
(f) the description of the Company's 9.5% Series A Cumulative Preferred
Stock contained in the Company's Registration Statement on Form
8-A/A filed with the Commission on October 11, 1996.
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 information and the financial statements
and related notes appearing elsewhere in this Prospectus or
incorporated herein by reference. Unless otherwise
indicated, as used herein, the term "Company" includes Mid-
America Apartment Communities, Inc., its predecessor and
those entities owned or controlled thereby, including Mid-
America Apartments, L.P., a Tennessee limited partnership
(the "Operating Partnership"), all subsidiary limited
partnerships and all qualified REIT subsidiaries of the
Company. Where used herein, the term "Funds from Operations"
("FFO") shall mean net income (computed in accordance with
generally accepted accounting principles), excluding
extraordinary items, minority interest in Operating
Partnership income, gain or loss on disposition of real
estate assets, and certain non-cash items, primarily
depreciation and amortization, less preferred stock
distributions. FFO is computed in accordance with the
current National Association of Real Estate Investment
Trusts, Inc. ("NAREIT") definition, which eliminates
amortization of deferred financing costs and depreciation of
non-real estate assets as items added back to net income
when computing FFO. The Company adopted this method of
calculating FFO effective as of the NAREIT-suggested
adoption date of January 1, 1996.
THE COMPANY
General
The Company is a Memphis, Tennessee-based self-
administered and self-managed umbrella partnership REIT
("UPREIT") which, as of June 30, 1997, owned and operated
80 apartment communities containing 21,482 apartment units
in 12 states (the "Communities"). At June 30, 1997, the
Communities had an average occupancy of 94.1% and an average
rental rate per unit of $540.
Founded in 1977 by George E. Cates, the Company's
Chairman of the Board of Directors and Chief Executive
Officer, the Company's predecessor grew from an operator of
a single 252-unit apartment community in Memphis, Tennessee
into a fully-integrated owner and operator of 5,580
apartment units in 22 apartment communities in four
southeastern states immediately prior to the Company's
initial public offering in February 1994 (the "Initial
Offering"). Since the Initial Offering, the Company has
increased in size by 58 apartment communities containing
15,902 apartment units, including 12 apartment communities
containing 3,212 apartment units acquired in the Company's
merger with America First REIT, Inc. ("AFR") in June 1995
(the "AFR Merger") for an aggregate value of approximately
$111 million (as measured by Common Stock issued and AFR
debt assumed).
The Company's internal growth strategy is to increase
operating cash flow by (i) increasing rental rates through
physical and marketing improvements, (ii) controlling
expenses through its system of detailed management reporting
and accountability, and (iii) maintaining high occupancy
levels. The Company's external growth strategy is to
acquire and selectively develop additional apartment units
and, when apartment communities no longer meet the Company's
long-term strategic objectives or investment return goals,
to dispose of those communities. Through the UPREIT
structure, the Company has the ability to acquire apartment
communities by issuing units of limited partnership interest
in the Operating Partnership ("Units") in tax-deferred
exchanges with owners of such communities.
The Company seeks to acquire apartment communities
appealing to middle and upper income residents in mid-size
cities primarily in the southeastern United States and
Texas. Approximately 65% of the Company's apartment units
are located in Tennessee, Florida and Texas markets. The
Company's strategic focus is to provide its residents high
quality apartment units in attractive community settings,
characterized by extensive landscaping and attention to
aesthetic detail. The Company's utilizes its experience and
expertise in maintenance, landscaping, marketing and
management to effectively "reposition" many of the apartment
communities it acquires to raise occupancy levels and per
unit average rentals.
As of July 31, 1997, the executive officers and
directors of the Company owned approximately 12% of the
combined outstanding Common Stock and Class A Common Units
of Limited Partnership Interest in the Operating Partnership
("Class A Common Units"). Class A Common Units are
redeemable by the holders thereof for Common Stock on a one-
for-one basis, or, at the Company's sole election, for cash.
Stock and other incentive compensation are used to motivate
employees to meet long-term management goals that are
consistent with creating value for the Company's
shareholders.
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 Structure of the Company
The Company is formed and operates in an UPREIT
structure primarily through the Operating Partnership and
certain subsidiary operating partnerships. In addition, the
Company owns four Communities directly and 9 Communities
through wholly owned qualified REIT subsidiaries (each, a
"QRS" and, collectively, "QRSs") as defined in Section
856(i) of the Code.
The Operating Partnership
The Operating Partnership is the principal operating
unit of the Company and currently owns and operates 48
Communities and an approximately 42,000 square foot office
building in Memphis, Tennessee in which the Company's
principal offices are located (the "Office Building"). In
addition, the Operating Partnership has entered into
definitive agreements to acquire 3 apartment communities and
to acquire approximately 64 acres of land on which it
intends to develop an apartment community (the "Proposed
Acquisitions"). The Operating Partnership conducts the
Company's multifamily property management, marketing,
landscaping and acquisition business. The Company currently
owns directly a 1% general partnership interest in the
Operating Partnership, and, through its QRS, MAC II of
Delaware, Inc., owns a 80.4% limited partnership interest in
the Partnership. The remaining 18.6% limited partnership
interest in the Partnership is owned by the holders of Class
A Common Units. The Amended and Restated Agreement of
Limited Partnership of the Operating Partnership, as further
amended (the "Partnership Agreement") provides for a special
allocation of net income or loss of the Operating
Partnership to holders of the Class A Common Units to
provide such holders with the economic and tax attributes
that they would enjoy if the Operating Partnership owned all
assets currently owned outright by the Company or by the
AFRI QRSs (hereinbelow defined).
The Texas Operating Partnership
Nine Communities are owned and operated through Mid-
America Apartments of Texas, L.P. (the "Texas Operating
Partnership") in which the Operating Partnership is the sole
99% limited partner and MAC of Delaware, Inc., a QRS of the
Company is the sole 1% general partner. The Texas Operating
Partnership is the primary operating unit of the Company in
the state of Texas.
Subsidiary Partnerships
Nine Communities are owned and operated through
subsidiary limited partnerships (the "Subsidiary
Partnerships"). The Company is the sole general partner of
all Subsidiary Partnerships except one, owning between a 1%
and 10% general partnership interest therein, and the
Operating Partnership is the sole limited partner thereof,
owning between a 90% and 99% limited partnership interest
therein. One Community is owned in a single purpose
Subsidiary Partnership of which a QRS is the sole general
partner owning a 1% general partnership interest therein,
and the Operating Partnership is the sole limited partner
thereof, owning a 99% limited partnership interest therein.
Properties Owned by QRSs
Nine Communities are owned through five QRSs, namely
America First Austin REIT, Inc., America First Florida REIT,
Inc., America First South Carolina REIT, Inc., America First
Tennessee REIT, Inc., and America First Texas REIT, Inc.
(collectively, the "AFRI QRSs"). The AFRI QRSs became
wholly owned subsidiaries of the Company in connection with
the AFR Merger.
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 be taxed as a REIT.
Although the Company believes that it was organized and has
been operating in conformity with the requirements for
qualification as a REIT ("REIT Qualification") under the
Internal Revenue Code of 1986, as amended (the "Code"), 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 Company's capital stock is subject to
certain restrictions and ownership of the capital stock by
any single person is limited to 9.9% of the total value of
outstanding capital stock, subject to certain exceptions.
See "Description of Capital Stock -- Ownership Limitations."
RISK FACTORS
An investment in the Offered Securities involves
various risks, including those described below. Investors
should carefully consider these risk factors together with
all of the information set forth or incorporated by
reference in this Prospectus and in any Prospectus
Supplement in determining whether to purchase the Offered
Securities. Information contained or incorporated by
reference in this Prospectus and in any Prospectus
Supplement may contain forward-looking statements within the
meaning of the Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended,
which statements can be identified by the use of forward-
looking terminology such as "may," "will," "expect,"
"anticipate," "estimate," or "continue" or the negative
thereof or other comparable terminology. The following
matters and certain other factors noted throughout this
Prospectus, and any document incorporated by reference
herein or therein and exhibits hereto and thereto,
constitute cautionary statements identifying important
factors with respect to any such forward-looking statements,
including certain risks and uncertainties, that could cause
the Company's actual results to differ materially from those
contained in any such forward-looking statements.
Real Estate Investment Risks
General Risks
The Company's ability to make distributions to its
shareholders is dependent on the ability of the Company to
generate FFO in excess of scheduled principal payments on
indebtedness and capital expenditure requirements. FFO and
the value of the Communities may be adversely affected by
events or conditions which are beyond the Company's control,
including an oversupply of apartments or a reduction in
demand for apartments in the Company's markets, the cost of
regulation, changes in tax laws, housing laws, increasing
interest rate levels, and the unavailability of financing.
FFO would be adversely affected if a significant number of
residents were unable to pay rent or if apartments could not
be rented on favorable terms. Significant expenditures
associated with each equity investment in a Community (such
as mortgage payments, if any, real estate taxes and
maintenance costs) generally are not reduced when
circumstances cause a reduction in a Community's rent
revenue.
Operating Risks
The Communities are subject to all operating risks
common to apartment communities in general. Such risks
include: (i) competition from other apartment communities
and alternative housing, (ii) new construction of comparable
properties or adverse economic conditions in the areas in
which the Communities are located, either of which might
adversely affect apartment occupancy or rental rates, (iii)
increases in operating costs (including real estate taxes)
due to inflation and other factors, which increases may not
necessarily be offset by increased rents; (iv) inability or
unwillingness of residents to pay rent increases, (v) future
enactment of rent control laws or other laws regulating
multifamily housing, including present and possible future
laws relating to access by disabled persons; and (vi)
disagreements with joint venture partners or real estate co-
investors, if any. The local rental market may limit the
extent to which rents may be increased in response to
operating expense increases without decreasing occupancy
rates. Historically, the Company has incurred increased
operating expenses in the third calendar quarter due to
planned increases in apartment unit turnover during such
quarter. The Company's ability to make expected
distributions to shareholders could be adversely affected by
any of the above-described events.
Dependence on Memphis, Tennessee Market
As of July 31, 1997, approximately 21% of the apartment
units in the Communities were located in the Memphis,
Tennessee market. The Company's performance, therefore, may
be linked to economic conditions in that market. Adverse
developments in that market, including the risk factors
described above, could adversely affect the Company's
operating results.
Illiquidity of Real Estate Could Adversely Affect the
Price and Timing of Sales of Communities
Real estate investments are relatively illiquid and,
therefore, the Company's ability to vary its portfolio
promptly in response to changes in economic or other
conditions may be limited. The Operating Partnership has
agreed that it will not sell or refinance Greenbrook
Apartments, a 1,031-unit apartment community transferred to
the Company by Robert F. Fogelman, a member of the Company's
Board of Directors, in connection with the Company's
formation, without the advance written consent of Mr.
Fogelman, so long as he continues to own at least 217,500
Common Units. The Company also has agreed not to sell or
refinance four other Communities without the advance written
consent of certain limited partners of the Operating
Partnership (including, with respect to one Community in
addition to Greenbrook, Mr. Fogelman; all such limited
partners being collectively referred to hereinafter as the
"Taxable Partners") who continue to own in the aggregate at
least 50% of the Common Units received on account of the
transfer of the applicable Community in connection with the
Company's formation. The Taxable Partners may withhold such
consent in their sole discretion, precluding the sale or
refinancing of such Communities, which could adversely
affect the Company's liquidity or ability to take advantage
of particular opportunities.
Bond Compliance Requirements May Limit Income from Certain
Communities
Nineteen of the Company's Communities have been
financed with the proceeds of the issuance of tax-exempt
bonds or HUD guaranteed loans and are subject to restrictive
covenants or deed restrictions. The aggregate outstanding
principal amount of such financing as of July 31, 1997 was
approximately $97.1 million. Communities financed with the
proceeds of tax-exempt bonds are subject to various
restrictions and requirements, including a requirement that
not less than 20% of the apartment units in each such
Community be occupied by residents whose income does not
exceed 80% of the median income for the area at all times
during the period specified in the bond documents. The bond
compliance requirements may have the effect of limiting the
Company's income from affected Communities in the event the
Company is required to lower its rental rates to attract
residents meeting the qualification requirements. In the
event that tax law requirements are not met, interest on the
bonds could become subject to federal and state income tax,
which would result in either an increase in the interest
rate on such bonds or an early redemption of the bonds
(which redemption could be at a premium).
Possible Liability Relating to Environmental Matters
Under various federal, state and local laws, ordinances
and regulations, an owner or operator of real property may
become liable for the costs of removal or remediation of
certain hazardous substances released on or in its property.
Such laws often impose such liability without regard to
whether the owner or operator knew of, or was responsible
for, the release of such hazardous substances. The presence
of such substances, or the failure to properly remediate
such substances, when released, may adversely affect
occupancy of the Properties affected and the owner's ability
to sell such real estate or to borrow using such real estate
as collateral. In addition to investigation and clean-up
actions brought by federal, state and local agencies, the
presence of hazardous wastes on a property could result in
personal injury or similar claims by private plaintiffs.
The Company has not been notified by any governmental
authority of any noncompliance, liability or other claim in
connection with any of its Communities or developments, nor
is the Company aware of any other material environmental
condition with respect to any of the Communities.
Each of the Communities has been subjected to a Phase I
environmental site assessment ("ESA") (which does not
involve invasive procedures, such as soil sampling or ground
water analysis) by independent environmental consultants.
Phase II testing (which involves invasive procedures) has
been performed on two of the Company's Communities. These
ESAs have not revealed any significant environmental
liability that would have a material adverse effect on the
Company's business. However, in connection with the
ownership and operation of the Communities, the Company, the
Operating Partnership, the Texas Operating Partnership or
the Operating Subsidiaries, as the case may be, potentially
may be liable for damages or cleanup, investigation or
remediation costs.
With the exception of two Communities, the ESAs
completed prior to 1994 have been updated in connection with
additional financings. Several of the ESAs indicated the
presence of radon levels exceeding Environmental Protection
Agency ("EPA") approved levels. In each instance where
sampling disclosed elevated radon levels, the owners of the
affected Communities have taken the recommended remedial
actions, and subsequent testing was done to confirm that the
levels were brought to acceptable EPA levels. Unknown and
unremediated radon levels at any Community could give rise
to personal injury claims by residents and others. No
assurances can be given that existing ESAs with respect to
any of the Communities have revealed all environmental
liabilities, that any prior owner of a Community did not
create any material environmental condition not known to the
Company, or that a material environmental condition does not
otherwise exist as to any one or more of the Communities.
Twenty of the Communities have asbestos-containing
materials ("ACM") on or in insulation, floor and ceiling
coverings. While the precise amounts of ACM contained in
the Communities cannot be determined without incurring
substantial expense, the Company believes, based on its
review of the Phase I and Phase II environmental reports,
that overall levels are low and that ACM at 12 of the
Communities are non-friable. Friable ACM are contained in
eight Communities and the Company believes that such ACM are
subject to adequate maintenance programs. The ESAs do not
recommend any remediation of ACM at any Community. However,
there can be no assurance that the Company will not be
required to remediate ACM in the future at significant
expense, which could have a material adverse affect on the
Company's ability to make distributions to shareholders.
Compliance with Other Laws.
The Communities and any apartment community acquired or
developed by the Company in the future must comply with
Title III of the Americans with Disabilities Act (the "ADA")
to the extent that such Communities are "public
accommodations" and/or "commercial facilities" as defined by
the ADA. Compliance with the ADA requirements could require
removal of structural barriers to handicapped access in
certain public areas of the Communities, where such removal
is readily achievable. The ADA does not, however, consider
residential properties such as apartment communities to be
public accommodations or commercial facilities, except to
the extent portions of such facilities, such as a leasing
office, are open to the public. The Company believes that
the Communities comply with all present requirements under
the ADA and applicable state laws. Noncompliance with the
ADA could result in imposition of fines or an award of
damages to private litigants.
The Fair Housing Amendments Act of 1988 (the "FHA")
requires apartment communities first occupied after March
13, 1990 to be accessible to the handicapped. Noncompliance
with the FHA could result in the imposition of fines or an
award of damages to private litigants. The Company believes
that the Communities that are subject to the FHA are in
compliance with such law.
Risks Associated with Debt Financing
The Company currently uses and intends to continue
using debt financing for acquisitions and development. Such
debt financing may include permanent mortgage financing and
the use of the Company's unsecured bank line of credit (the
"Credit Line"). Payments of principal and interest on
borrowings may leave the Company with insufficient cash
resources to operate the Communities or pay distributions
required to be paid in respect of the Series A Preferred
Stock or in order for the Company to maintain its
qualification as a REIT. The Board of Directors has adopted
a policy limiting the Company's indebtedness to 60% of
adjusted gross assets (defined as the gross tangible book
value of the Company's assets, plus $10 million), but the
organizational documents of the Company do not contain any
limitation on the amount or percentage of indebtedness,
funded or otherwise, that the Company may incur. The
Company's ratio of debt to adjusted gross assets was
approximately 46% at July 31, 1997. The Board of Directors,
without shareholder approval, can amend or modify its
current policy on borrowing. If this policy were changed,
the Company could become more highly leveraged, resulting in
an increase in debt service that could adversely affect the
Company's FFO, cash flow and ability to make distributions
to its shareholders; increase the risk of default on the
Company's obligations and increase the risk of foreclosure
on property securing debt.
As of July 31, 1997, approximately $131.7 million of
long-term fixed rate debt was recourse to the Operating
Partnership. The Company has agreed to maintain $8.9
million of recourse debt in order to preserve the tax bases
of the Taxable Partners (except Mr. Fogelman) in their
Common Units. Upon the liquidation and dissolution of the
Operating Partnership, the Taxable Partners (except Mr.
Fogelman) have agreed to indemnify the Company for any
deficiency in the repayment of such debt and contribute the
amount of any such deficiency to the Operating Partnership
as additional capital. Mr. Fogelman has personally
guaranteed $12.6 million of long-term fixed rate non-
recourse indebtedness in order to preserve his tax basis in
his Common Units. The Company has agreed to maintain at
least $12.6 million of such guaranteed non-recourse
indebtedness for so long as Mr. Fogelman owns at least
285,250 Common Units. The Company has agreed to indemnify
Mr. Fogelman and the other Taxable Partners for taxes,
penalties and interest that may be incurred due to
inadvertent prepayment of debt by the Company. The
foregoing agreements require that the Company to maintain at
least $21.5 million of indebtedness unless the appropriate
Taxable Partners consent to the prepayment of such
indebtedness or dispose of their Common Units, which could
limit the Company's ability to control the terms of its
mortgage financing or the Credit Line. The Company could be
forced to dispose of certain Communities upon
disadvantageous terms, which could result in losses to the
Company and could adversely affect cash flow available for
distribution to shareholders. Moreover, if a Community is
mortgaged to secure payment of indebtedness and the Company
is unable to meet mortgage payments, the Community could be
foreclosed upon by or otherwise transferred to the mortgagee
with a consequent loss of income and asset value to the
Company.
Tax Risks
Tax Liabilities as a Consequence of the Failure to Qualify
as a REIT
The Company operates and intends to continue to operate
so as to qualify as a REIT for federal income tax purposes.
The Company has not requested, and does not expect to
request, a ruling from the Internal Revenue Service (the
"Service") that it qualifies as a REIT. The continued
qualification of the Company as a REIT will depend on the
Company's continuing ability to meet various requirements
concerning, among other things, the ownership of its
outstanding capital stock, the nature of its assets, the
sources of its income and the amount of its distributions to
its shareholders. See "Federal Income Tax Considerations."
If the Company were to fail to qualify as a REIT in any
taxable year, the Company would not be allowed a deduction
for distributions to shareholders in computing its taxable
income and would be subject to Federal income tax (including
any applicable alternative minimum tax) on its resulting
taxable income at regular corporate rates. Unless entitled
to relief under certain provisions of the Code, the Company
would be disqualified from treatment as a REIT for the four
taxable years following the year during which the
qualification was lost. As a result, the funds available
for distribution to shareholders would be reduced
substantially for each of the years involved. Although the
Company currently intends to continue to operate in a manner
designed to qualify as a REIT, it is possible that future
economic, market, legal, tax or other considerations may
cause the Company's Board of Directors, with the affirmative
vote of two-thirds of the outstanding shares of the
Company's Common Stock, to revoke the Company's REIT
election. See "Federal Income Tax Considerations".
REIT Minimum Distribution Requirements
In order to avoid corporate income taxation of the
earnings it distributes, the Company generally is required
each year to distribute to its shareholders at least 95% of
its net taxable income (excluding any net capital gain). In
addition, the Company will be subject to a 4% nondeductible
excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year
are less than the sum of (i) 85% of its ordinary income for
that year, (ii) 95% of its capital gain net income for that
year and (iii) 100% of its undistributed income from prior
years.
The Company has made and intends to continue to make
distributions to its shareholders to comply with the 95%
distribution requirement and to avoid the nondeductible
excise tax. The Company's income will consist primarily of
the Company's share of the income of the Operating
Partnership, and the Company's cash available for
distribution will consist primarily of the Company's share
of cash distributions from the Operating Partnership.
Differences in timing between the recognition of taxable
income and the receipt of cash available for distribution
due to the seasonality of the multi-family residential
industry could require the Company, through the Operating
Partnership, to borrow funds on a short-term basis to meet
the 95% distribution requirement and to avoid the
nondeductible excise tax.
Distributions by the Operating Partnership will be
determined by the Board of Directors of the Company, as the
sole general partner of the Operating Partnership, and will
be dependent on a number of factors, including the aggregate
amount of the Operating Partnership's cash available for
distribution, the Operating Partnership's financial
condition, any decision by the Board of Directors to
reinvest funds rather than to distribute such funds, the
aggregate amount of capital expenditures, the annual
distribution requirements under the REIT provisions of the
Code and such other factors as the Board of Directors deems
relevant. See "Federal Income Tax Considerations --
Requirements for Qualification -- Distribution
Requirements."
Classification of the Operating Partnership, the Texas
Operating Partnership and the Subsidiary Partnerships for
Federal Income Tax Purposes; Impact on Real Estate
Investment Trust Status
The Company has not requested, and does not expect to
request, a ruling from the Service that the Operating
Partnership, the Texas Operating Partnership or any
Subsidiary Partnership (collectively, the "Property
Partnerships") will be classified as partnerships for
federal income tax purposes. If the Service were to
challenge successfully the tax status of any Property
Partnership as a partnership for federal income tax
purposes, such Property Partnership would be taxable as a
corporation. In such event, the Company would cease to
qualify as a REIT for a variety of reasons. Furthermore,
imposition of a corporate income tax on any Property
Partnership would substantially reduce the amount of cash
available for distribution to the Company and its
shareholders. See "Federal Income Tax Considerations."
Other Tax Liabilities
Even if the Company qualifies as a REIT, the Company,
any QRS, or any Property Partnership may be subject to
certain federal, state, and local taxes on their income and
property which could reduce operating cash flow.
Potential Conflicts of Interest
Holders of Class A Common Units may suffer different
and more adverse tax consequences than the Company upon the
sale of any of the Communities acquired upon formation of
the Company or refinancing or prepayment of indebtedness
associated with or secured by any of such Communities.
Therefore, such holders, including Mr. Cates, Mr. Fogelman,
and O. Mason Hawkins, who is also a member of the Board of
Directors, may have different objectives from the Company
regarding the appropriate pricing and timing of any
refinancing or prepayment of indebtedness associated with
such Communities or any sale of such Communities. The
Company has exclusive authority as to whether and on what
terms to sell or refinance or repay indebtedness related to
an individual Community (except certain Communities
described below), and the Company's bylaws provide that a
majority of the Board of Directors, including a majority of
the independent directors, may approve the sale or other
disposition of a Community. However, Messrs. Cates,
Fogelman and Hawkins may influence the remaining directors
not to approve the sale of or refinancing of the
indebtedness associated with a particular Community, even
though such sale or refinancing might otherwise be
financially advantageous to the Company, or may influence
the Company to refinance the indebtedness associated with a
particular Community and increase the level of debt.
Moreover, as to five of the Communities acquired upon
formation of the Company, the Operating Partnership has
agreed that it will not sell such Communities or refinance
the indebtedness associated with such Communities without
the advance written consent of certain former owners
thereof. Mr. Fogelman is one of those former owners. Such
owners are likely to be motivated by tax reasons to withhold
such consent, which would adversely affect the Operating
Partnership's ability to take advantage of particular
opportunities. Further, the Company is obligated to (i)
maintain at least $12.6 million of non-recourse debt
guaranteed by Mr. Fogelman so long as he continues to own
285,250 Common Units and (ii) maintain approximately $8.9
million of recourse debt in order to preserve the Taxable
Partners' tax bases in their Common Units.
Possible Adverse Consequences of Limits on Ownership of Shares
The Company's charter limits ownership of the Company's
capital stock by any single shareholder to 9.9% of the
aggregate value of the outstanding capital stock (the
"Ownership Limit"). Shares acquired or transferred in
breach of the Ownership Limit shall be deemed "Excess
Shares" and shall be (i) held in trust for the exclusive
benefit of the person(s) to whom such Excess Shares may
later be transferred, (ii) subject to transfer at the
direction of the Board of Directors, and (iii) subject to
redemption at a price equal to the lesser of (a) the price
paid by the holder of such Excess Shares or (b) the closing
price per share of such shares on the New York Stock
Exchange (the "NYSE") (which redemption price may be paid in
Common Units). An individual who acquires Excess Shares
bears the risk that, among other things, (i) he may lose
control over the power to dispose of such Excess Shares,
(ii) he may not be able to recognize the profit from the
sale of such Excess Shares upon an increase in the market
price thereof, and (iii) he may be required to recognize a
loss from the sale of such Excess Shares upon a decrease in
the market price thereof.
Limitations on Acquisition and Change in Control
Ownership Limit
The Ownership Limit may have the effect of precluding
acquisition of control of the Company by a third party
without consent of the Board of Directors. See "Description
of Capital Stock of the Company -- Ownership Limitations."
Staggered Board of Directors
The Board of Directors has three classes of directors.
The terms of the first, second and third classes will expire
in 1998, 1999, and 2000, respectively. Directors in each
class are elected for a three-year term . The staggered
terms for directors may affect the shareholders' ability to
change control of the Company even if a change in control
were in the shareholders' interest. See "Description of
Capital Stock of the Company -- Charter and Bylaw
Provisions."
Preferred Stock
The Company's Charter authorizes the Board of Directors
to issue up to 5,000,000 shares of preferred stock and to
establish the preferences and rights of any shares issued.
The issuance of preferred stock could have the effect of
delaying or preventing a change in control of the Company
even if a change in control were in the shareholders'
interest. Currently, 2,000,000 shares of the Company's 9.5%
Series A Cumulative Preferred Stock (the "Series A Preferred
Stock") are issued and outstanding. See "Description of
Capital Stock of the Company -- Preferred Stock" and "--
Series A Preferred Stock."
Tennessee Anti-takeover Statutes
As a Tennessee corporation, the Company is subject to
various legislative acts set forth in Chapter 35 of Title 48
of the Tennessee Business Corporation Act (the "TBCA"),
which impose certain restrictions and require certain
procedures with respect to certain takeover offers and
business combinations, including, but not limited to,
combinations with interested shareholders and share
repurchases from certain shareholders. These provisions may
have the effect of delaying or preventing a change in
control of the Company even if a change in control were in
the shareholders' interest. See "Description of Capital
Stock of the Company -- Tennessee Anti-Takeover Statutes."
USE OF PROCEEDS
The Company will contribute the net proceeds of any
sale of the Offered Securities by the Company to the
Operating Partnership in exchange for units of limited
partnership interests having characteristics similar to
those of the Offered Securities. Unless otherwise set forth
in the applicable Prospectus Supplement, the net proceeds
from the sale of any Offered Securities will be used by the
Company 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 RATIO OF EARNINGS TO FIXED CHARGES AND
CONSOLIDATED RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DISTRIBUTIONS AND
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratio
of earnings to combined fixed charges and preferred stock
distributions of the Company and for the predecessor to the
Company prior to February 4, 1994:
<TABLE>
Year Ended December 31, Period Ended June 30,
-------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1997
Ratio of Earnings to
Combined Fixed Charges
and Preferred Stock
Distributions 1.07x 1.32x 1.82x 1.50x 1.52x 1.48x
Ratio of Earnings to
Fixed Charges 1.07x 1.32x 1.82x 1.50x 1.57x 1.73x
</TABLE>
For the purpose of calculating the consolidated ratio
of earnings to combined fixed charges and preferred stock
distributions and the consolidated ratio of earnings to
fixed charges, earnings consist of net income (loss) before
gain on disposition of properties, extraordinary items and
allocation to minority interests, plus fixed charges less
capitalized interest. Fixed charges consist of interest
expense, capitalized interest and amortization of deferred
financing costs. Prior to 1996, the Company had not issued
any Preferred Stock; therefore, for the years prior to 1996
the ratios of earnings to combined fixed charges and
preferred stock distributions and the ratios of earnings to
fixed charges are the same.
DESCRIPTION OF CAPITAL STOCK
The summary of the terms of the shares of the Company's
capital stock set forth below does not purport to be
complete and is subject to and qualified in its entirety by
reference to the Amended and Restated Charter of the Company
as further amended, and the Amended and Restated Bylaws of
the Company, both of which may be further amended from time
to time and both of which are incorporated herein by
reference.
General
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 granted by the
Board of Directors in connection with the issuance of the
Series A Preferred Stock and preferential rights as may be
granted by the Board of Directors in connection with the
future issuances 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. In 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 the Series A Preferred Stock and other shares of
Preferred Stock which may be issued in the future. 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 Company is authorized to issue up to 5,000,000
shares of Preferred Stock in one or more series, with such
designations, powers, preferences, conversion or other
rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms
or conditions of redemption, in each case, if any, as are
permitted by Tennessee law and as the Board of Directors may
determine by adoption of an amendment to the Company's
Charter without any further vote or action by the Company's
shareholders. As of the date of this Prospectus, 2,000,000
shares of the Series A Preferred Stock were issued and
outstanding, having the following rights, restrictions,
limitations, preferences, and other attributes:
The Series A Preferred Stock
Maturity. The Series A Preferred Stock has no stated
maturity and is not be subject to any sinking fund or
mandatory redemption.
Rank. The Series A Preferred Stock, with respect to
dividend rights and rights upon liquidation, dissolution or
winding up of the Company, ranks (i) senior to all classes
or series of Common Stock, and to all equity securities
ranking junior to the Series A Preferred Stock, (ii) on
parity with all equity securities issued by the Company the
terms of which specifically provide that such equity
securities rank on a parity with the Series A Preferred
Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company, and
(iii) junior to all existing and future indebtedness of the
Company. The term "equity securities" does not include
convertible debt securities, which will rank senior to the
Series A Preferred Stock.
Dividends. Holders of the Series A Preferred Stock are
entitled to receive, when and as declared by the Board of
Directors (or a duly authorized committee thereof), out of
funds legally available for the payment of dividends,
preferential cumulative cash distributions at the rate of
9.5% per annum of the $25 liquidation preference per share
(equivalent to a fixed annual amount of $2.375 per share).
Liquidation Preference. Upon any voluntary or
involuntary liquidation, dissolution or winding up of the
affairs of the Company, the holders of shares of Series A
Preferred stock are entitled to be paid out of the assets of
the Company legally available for distribution to its
shareholders a liquidation preference of $25 per share, plus
an amount equal to any accrued and unpaid distributions to
the date of payment, but without interest, before any
distribution of assets is made to holders of Common Stock or
any other class or series of capital stock of the Company
that ranks junior to the Series A Preferred Stock as to
liquidation rights.
Redemption. Except in certain circumstances relating
to the preservation of the Company's status as a REIT, the
Series A Preferred Stock is not redeemable prior to November
1, 2001. On and after such date, the Series A Preferred
Stock will be redeemable for cash at the option of the
Company, in whole or in part, at a redemption price of $25
per share, plus distributions accrued and unpaid to the
redemption date (whether or not declared) without interest.
Voting Rights. Holders of Series A Preferred Stock
generally will have no voting rights except as required by
law. However, whenever distributions on any shares of
Series A Preferred Stock shall be in arrears for 18 or more
months, the holders of such shares (voting separately as a
class with all other series of parity preferred stock upon
which like voting rights have been conferred and are
exercisable) will be entitled to vote for the election of
two additional directors of the Company until all
distributions accumulated on such shares of Series A
Preferred Stock have been fully paid or declared and a sum
sufficient for the payment thereof set aside for payment.
In addition, certain changes to the terms of the Series A
Preferred Stock that would be materially adverse to the
rights of holders of the Series A Preferred Stock cannot be
made without the affirmative vote of the holders of at least
two-thirds of the outstanding Series A Preferred Stock.
Conversion. The Series A Preferred Stock is not
convertible into or exchangeable for any other property or
securities of the Company.
Charter and Bylaw Provisions
Shareholders' rights and related matters are governed
by 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.
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 (x) by or at the direction of the Board of Directors or
(y) 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.
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.
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.
Ownership Limitations
For the Company to qualify as a REIT under the Code,
among other things, no more than 50% in value of its
outstanding shares of capital stock may be owned, directly
or indirectly, by five or fewer shareholders (as defined in
the Code to include certain entities) during the last half
of a taxable year, and such capital stock must be
beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. To ensure
that the Company continues to meet the requirements for
qualification as a REIT, the Company's Charter, subject to
certain exceptions, provides that no holder may own, or be
deemed to own by virtue of the attribution provisions of the
Code, shares of the Company's capital stock in excess of the
Ownership Limit. The Board of Directors may waive the
Ownership Limit with respect to a shareholder if evidence
satisfactory to the Board of Directors and the Company's tax
counsel is presented that the changes in ownership will not
then or in the future jeopardize the Company's status as a
REIT. Any transfer of capital stock or any security
convertible into capital stock that would result in a direct
or indirect ownership of capital stock by a shareholder in
excess of the Ownership Limit or that would result in the
failure of the Company to meet the requirements for
qualification as a REIT, including any transfer that results
in the capital stock being owned by fewer than 100 persons
or results in the Company being "closely held" within the
meaning of section 856(h) of the Code, shall be null and
void, and the intended transferee will acquire no rights to
the capital stock. The foregoing restrictions on
transferability and ownership will not apply if the Board of
Directors determines that it is no longer in the best
interests of the Company to attempt to qualify, or to
continue to qualify as a REIT.
Capital stock owned, or deemed to be owned, or
transferred to a shareholder in excess of the Ownership
Limit shall be deemed Excess Shares held by such holder as
agent on behalf of, and in trust for the exclusive benefit
of the transferees (which may include the Company) to whom
such capital stock may be ultimately transferred without
violating the Ownership Limit. While the Excess Shares are
held in trust, the holder thereof will not be entitled to
vote, the Excess Shares will not be considered issued and
outstanding for purposes of any shareholder vote or the
determination of a quorum for such vote and, except upon
liquidation, will not be entitled to participate in
dividends or other distributions. Any dividend or
distribution paid to a proposed transferee of Excess Shares
prior to the discovery by the Company that capital stock has
been transferred in violation of the Ownership Limitation
shall be repaid to the Company upon demand.
Excess Shares are further subject to transfer at the
direction of the Board of Directors. If the Board of
Directors directs a holder of Excess Shares to sell such
Excess Shares, such holder shall pay the Company out of the
proceeds of such sale all expenses incurred by the Company
in connection with such sale plus any remaining amount of
such proceeds that exceeds that amount paid by such holder
for the Excess Shares.
In addition, the Company will have the right, for a
period of six months during the time any Excess Shares are
held by the holder in trust, to redeem all or any portion of
the Excess Shares from the holder for the lesser of the
price paid for the capital stock by the holder or the market
price (as determined in the manner set forth in the
Company's charter) of the capital stock on the date the
Company give notice of its intent to redeem such Excess
Shares. The six month period begins on the date on which
the Company receives written notice of the transfer or other
event resulting in the classification of capital stock as
Excess Shares.
Each shareholder shall upon demand be required to
disclose to the Company in writing any information with
respect to the direct, indirect and constructive ownership
of beneficial interests in the Company as the Board of
Directors deems necessary to comply with the provisions of
the Code applicable to REITs, to comply with the
requirements of any taxing authority or governmental agency
or to determine any such compliance.
The Ownership Limitation may have the effect of
precluding acquisition of control of the Company unless the
Board of Directors determines that maintenance of REIT
status is no longer in the best interests of the Company.
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.
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 an "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 thereunder, 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;
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 dates on which any such interest will be
payable, the record dates for determining to whom interest
payments will be made, or the method by which such dates
shall be determined, the persons to whom such interest shall
be payable, and the basis upon which interest shall be
calculated if other than that of a 360-day year of twelve 30-
day months;
6. the place or places where the principal of (and
premium, if any) and interest, if any, on such Debt
Securities will be payable, where such Debt Securities may
be surrendered for conversion or registration of transfer or
exchange, and where notices or demands to or upon the
Company in respect of such Debt Securities and the 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, in 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, in whole or in part, pursuant to such obligation;
9. the price (stated as a percentage of par or the
stated principal amount of the Debt Securities) at which
such Debt Securities will be issued and, if other than 100%
of the stated principal amount thereof, the portion of the
stated principal amount thereof payable upon declaration of
acceleration of the maturity thereof, or (if applicable) the
portion of the stated 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;
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 may
bear no interest or may 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 provision 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
deletion from, modification of or addition 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 of the person entitled
thereto as it appears in the transfer record maintained in
respect of such series of Debt Securities 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 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 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).
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 of Debt Securities
(Section 10.10).
Additional Covenants. Any additional covenant 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 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 holder of Debt
Securities of any series may institute any proceeding,
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 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 holder of any
series of Debt Securities then outstanding under the
Indenture, unless such holder 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 of and amendments to 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 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 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 provision 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 interests of the holders of the Debt Securities of any
series in any material respect; (v) to change or eliminate
any provision 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 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 thereof 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 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 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% in value
Company's outstanding capital 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 depository (the "Depository") identified in the
applicable Prospectus Supplement relating to such series.
Global Securities may be issued in either registered or
bearer form and in either temporary or permanent form. The
specific terms of the depository arrangement with respect to
a series of Debt Securities will be described in the
applicable Prospectus Supplement relating to such series.
The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of 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.
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: the offering price; the denominations and
terms of the series of Debt Securities purchasable upon
exercise of such Securities Warrants; 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;
the date, if any, on and after which such Securities
Warrants and the related series of Debt Securities will be
transferable separately; 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 of Debt Securities shall commence and the date on
which such right shall expire (the "Expiration Date"); 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"); whether the Securities
Warrants will be issued in registered or bearer form; all
material United States federal income tax consequences; the
terms, if any, on which the Company may accelerate the date
by which the Securities Warrants must be exercise; and 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; the
offering price; 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; 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; 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; the date on which the right to
exercise such Securities Warrants shall commence and the
Expiration Date; any special United States federal income
tax consequences; and 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 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.
FEDERAL INCOME TAX CONSIDERATIONS
Introductory Notes
The following summary of material federal income tax
considerations that may be relevant to a prospective holder
of the Offered Securities is based on current law, is for
general information only and is not tax advice. The
discussion contained herein does not purport to deal with
all aspects of taxation that may be relevant to particular
security holders in light of their personal investment or
tax circumstances, or to certain types of shareholders
(including insurance companies, tax-exempt organizations,
financial institutions or broker-dealers, foreign
corporations and persons who are not citizens or residents
of the United States) subject to special treatment under the
federal income tax laws.
The statements in this discussion are based on current
provisions of the Code, existing, temporary and currently
proposed Treasury regulations promulgated under the Code
("Treasury Regulations"), the legislative history of the
Code, existing administrative rulings and practices of the
Service and judicial decisions. No assurance can be given
that future legislative, judicial, or administrative actions
or decisions, which may be retroactive in effect, will not
affect the accuracy of any statements in this Prospectus
with respect to the transactions entered into or
contemplated prior to the effective date of such changes.
As used in this section, the term "Company" refers solely to
Mid-America Apartment Communities, Inc.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS
TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM
OF THE PURCHASE, OWNERSHIP AND SALE OF THE OFFERED
SECURITIES AND OF THE COMPANY'S ELECTION TO BE TAXED AS A
REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND
OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE,
AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX
LAWS.
Taxation of the Company
General. The Company has elected 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, commencing with its 1994 taxable year, it
has been organized and has operated in such a manner as to
qualify for taxation as a REIT under the Code, and the
Company intends to continue to operate in such a manner, but
no assurance 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.
Baker, Donelson, Bearman & Caldwell has acted as tax
counsel to the Company. The Company has obtained an opinion
of Baker, Donelson, Bearman & Caldwell as to its REIT
qualification. Continued qualification and taxation as a
REIT will depend on the Company's ability to meet on a
continuing basis, through actual annual operating results,
distribution levels, and stock ownership, the various
qualification tests imposed under the Code discussed below.
No assurance can be given that the actual results of the
Company's operation for any particular taxable year will
satisfy such requirements. For a discussion of the tax
consequences of failure to qualify as a REIT, see "Federal
Income Tax Considerations - Failure to Qualify".
The sections of the Code relating to qualification and
operation as a REIT are highly technical and complex. The
following discussion sets forth the material aspects of the
Code sections that govern the federal income tax treatment
of a REIT and its shareholders. The discussion is qualified
in its entirety by the applicable Code provisions, Treasury
Regulations promulgated thereunder and administrative and
judicial interpretations thereof, all of which are subject
to change prospectively or retrospectively.
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" (i.e., taxation at both 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 "alternative minimum tax" on its
undistributed 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) that 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. 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 asset) 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 asset's "built-in" gain (i.e. the excess of the fair
market value of such property at the time of acquisition by
the Company over the adjusted basis of such asset at such
time), such gain will be subject to tax at the highest
regular corporate rate applicable (as provided in Treasury
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 (i) that is managed
by one or more directors or trustees; (ii) the beneficial
ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (iii) that
would be taxable as a domestic corporation, but for Sections
856 through 859 of the Code; (iv) that is neither a
financial institution nor an insurance company subject to
certain provisions of the Code; (v) the beneficial ownership
of which is held by 100 or more persons; (vi) not more than
50% in value of the outstanding stock of which is owned,
directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) during the
last half of each taxable year (the "5/50 Rule"); and (vii)
that makes an election to be a REIT (or has made such
election for a previous taxable year) and satisfies all
relevant filing and other administrative requirements
established by the Service that must be met in order to
elect and to maintain REIT status; (viii) that uses a
calendar year for federal income tax purposes and complies
with the recordkeeping requirements of the Code and Treasury
Regulations promulgated thereunder; and (ix) that meets
certain other tests, described below, regarding the nature
of its income and assets. The Code provides that conditions
(i) through (iv), inclusive, must be met during the entire
taxable year and that condition (v) must be met during at
least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months.
The Company has issued sufficient shares of Common Stock and
Preferred Stock with sufficient diversity of ownership to
allow the Company to satisfy requirements (v) and (vi). In
addition, the Company's Charter contains restrictions
regarding the transfer of its shares that are intended to
assist the Company in continuing to satisfy the share
ownership requirements described in (v) and (vi) above. See
"Description of the Capital Stock of the Company - Ownership
Limitations."
For purposes of determining Share Ownership under the
5/50 Rule, a supplemental unemployment compensation benefits
plan, a private foundation or a portion of a trust
permanently set aside or used exclusively for charitable
purposes generally is considered an individual. A trust
that is a qualified trust under Code Section 401(a),
however, generally is not considered an individual and the
beneficiaries of such trust are treated as holding shares of
a REIT in proportion to their actuarial interests in such
trust for purposes of the 5/50 Rule.
The Company currently has eight corporate subsidiaries
and may have additional corporate subsidiaries in the
future. Code Section 856(i) provides that a corporation
that is a "qualified REIT subsidiary" shall not be treated
as a separate corporation, and all assets, liabilities and
items of income, deduction and credit of a "qualified REIT
subsidiary" shall be treated as assets, liabilities and
items of income, deduction and credit of the REIT. A
"qualified REIT subsidiary" is a corporation, all of the
capital stock of which has been owned by the REIT from the
commencement of such corporation's existence. Thus, in
applying the requirements described herein, the Company's
"qualified REIT subsidiaries" will be ignored, and all
assets, liabilities and items of income, deduction and
credit of such subsidiaries will be treated as assets,
liabilities and items of income, deduction and credit of the
Company. The Company's corporate subsidiaries are
"qualified REIT subsidiaries".
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
gross 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 and asset tests (as
discussed below). Thus, the Company's proportionate share
of the assets, liabilities and items of income of the
Operating Partnership, the Texas Operating Partnership and
the Subsidiary Partnerships shall be 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, there are requirements relating to the Company's gross
income that must be satisfied annually. First, at least 75%
of the Company's gross income (excluding gross income from
prohibited transactions) for each taxable year must consist
of defined types of income 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 temporary investment
income. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for
each taxable year must be derived from such real property or
temporary investments, and from dividends, interest and
gain from the sale or disposition of stock or securities, or
from any combination of the foregoing. Third, not more than
30% of the Company's gross income (including gross income
from prohibited transactions) for each taxable year may be
gain from the sale or other disposition of (i) stock or
securities held for less than one year, (ii) dealer property
that is not foreclosure property and (iii) certain real
property held for less than four years (apart from
involuntary conversions and sales of foreclosure property).
For purposes of applying the 30% gross income test the
holding period of Communities 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 gross income
requirements for a REIT described above only if several
conditions are met. First, the amount of rent must not be
based in whole or in part on the income or profits of any
person. However, an amount received or accrued generally
will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed
percentage or percentages of receipts or sales. Second, the
Code provides that rents received from a 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, leased in connection with a lease of real
property, is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to
such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents
from real property", the Company generally must not operate
or manage the property or furnish or render services to the
tenants of such property, other than through an "independent
contractor" who is adequately compensated and from whom the
Company derives no revenue. The "independent contractor"
requirement, however, does not apply to the extent that the
services provided by the Company are "usually or customarily
rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to
the occupant". 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. The Operating Partnership
provides certain services with respect to the Communities
and with respect to the Communities 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 or
a Property 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 or a Property 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 or a Property 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 two 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 cash or cash items (including certain
receivables), government securities, "real estate assets"
or, in cases where the Company raises new capital through
shares or long-term (at least five years) debt offerings,
temporary investments in shares or debt instruments during
the one-year period following the Company's receipt of such
capital. The term "real estate asset" includes interests in
real property, interests in mortgages on real property to
the extent the mortgage balance does not exceed the value of
the associated real property and shares of other REITS. For
purposes of the 75% asset test, the term "interest in real
property" includes an interest in land and improvements
thereon, such as buildings or other inherently permanent
structures (including items that are structural components
of such buildings or structures), a leasehold in real
property and an option to acquire real property (or a
leasehold in real property). Second, of the investments not
included in the 75% asset class, the value of any one
issuer's securities owned by the Company may not exceed 5%
of the value of the Company's total assets and the Company
may not own more than 10% of any one issuer's outstanding
voting securities (except for its ownership interest in the
Operating Partnership any Subsidiary Partnership or the
stock of a qualified REIT subsidiary as defined by Section
856(i) of the Code).
The Company believes that, at all relevant times (i) at
least 75% of the value of its total assets has been and will
continue to be represented by real estate assets, cash and
cash items (including receivables) and government securities
and (ii) it has not owned and will not own any securities
that do not satisfy the 75% asset test. In addition, the
Company does not intend to acquire or to dispose of, or
cause any Property Partnership to acquire or to dispose of,
assets in the future in a way that would cause it to violate
either asset test.
If the Company should fail to satisfy the asset tests
at the end of a calendar quarter, such a failure would not
cause it to lose its REIT status if (i) it satisfied all of
the asset tests at the close of the preceding calendar
quarter and (ii) the discrepancy between the value of the
Company's assets and the asset test requirements arose from
changes in the market values of its assets and was not
wholly or partly caused by an acquisition of nonqualifying
assets. If the condition described in clause (ii) of the
preceding sentence were not satisfied, the Company still
could avoid disqualification by eliminating any discrepancy
within 30 days after the close of the calendar quarter in
which it arose.
Annual Distribution Requirements. The Company, in order
to qualify as a REIT and avoid corporate income taxation of
the earnings that it distributes, is required to distribute
distributions (other than capital gain distributions) to its
shareholders in an amount at least equal to (i) the sum of
(A) 95% of the Company's "REIT taxable income" (computed
without regard to the distributions paid deduction and its
net capital gain) and (B) 95% of the net income (after tax),
if any, from foreclosure property, minus (ii) the sum of
certain items of 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 distribution 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% nondeductible 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, which may be included in the Company' deduction
for dividends paid for the earlier year. Although the
Company may be able to avoid being taxed on amounts
distributed as deficiency dividends, it will be required to
pay interest to the Service 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 has
complied and will continue to comply with such requirements.
Failure to Qualify. If the Company fails to qualify for
taxation as a REIT in any taxable year and the relief
provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to
shareholders in any year in which the Company fails to
qualify will not be deductible by the Company, nor will they
be required to be made. In such event, to the extent of
current and accumulated earnings and profits, all
distributions to shareholders will be taxable as ordinary
income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the 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 the Company ceased to
qualify as a REIT. It is not possible to state whether in
all circumstances the Company would be entitled to such
statutory relief.
Real Estate Investment Trust Simplification Act. On
August 5, 1997, President Clinton signed into law the
Taxpayer Relief Act of 1997 (the "TRA"). Included as part
of that legislation was the Real Estate Investment Trust
Simplification Act ("REITSA"), comprising Sections 1251
through 1263 of the TRA. The provisions of REITSA are
effective for taxable years beginning after the date of
enactment. Therefore the provisions shall apply to the
Company beginning with its 1998 taxable year.
Under REITSA, a REIT may now receive income from
impermissible services at a given property in an amount of
up to one percent of the total income of such property,
provided that the amount of any such impermissible service
shall be not less that 150% of the cost to the REIT in
rendering or furnishing such service. This provision is
intended to permit a REIT to receive a de minimus amount of
impermissible income from each of its properties.
Moreover, REITSA repeals the prior requirement that no
more than 30% of a REIT's gross income be derived from gain
on the sale of stock or securities held for less than one
year, dealer property that is not foreclosure property, and
certain property held for less than four years.
Subject to limited exceptions, distributions of a REIT
are now treated as being made first out of the earliest
accumulated earnings and profits of the REIT and any C
corporation predecessor, rather than out of the the most
recently accumulated earnings and profits.
Other provisions of REITSA benefiting REITs generally
are (i) the inclusion of payments under certain interest
rate swaps, futures contracts and other hedging instruments
as qualifying income, (ii) the treatment of any wholly owned
subsidiary as a qualified REIT subsidiary, notwithstanding
the fact that it might not have always been owned by the
REIT, (iii) the imposition of a $25,000 fine ($50,000 in the
event of intentional disregard) for failure to issue a
shareholder demand letter, rather than loss of REIT status,
and (iv) the granting of a tax credit to REIT shareholders
for taxes by the REIT on undistributed capital gains.
Taxation of Shareholders
Taxation of Taxable U.S. Shareholders.
As long as the Company qualifies as a REIT,
distributions made to the Company's taxable U.S.
shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will
be taken into account by such U.S. shareholders as ordinary
income and will not be eligible for the dividends received
deduction generally available to corporations. As used
herein, the term "U.S. shareholder" means a holder of Common
Stock or Preferred Stock that for U.S. federal income tax
purposes is (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of
any political subdivision thereof, (iii) an estate whose
income from sources without the United States is includible
in gross income for U.S. federal income tax purposes
regardless of its connection with the conduct of a trade or
business within the United States or (iv) any trust with
respect to which (A) a U.S. court is able to exercise
primary supervision over the administration of such trust
and (B) one or more U.S. fiduciaries have the authority to
control all substantial decisions of the trust.
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 stock. However, corporate
shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Distributions in
excess of current 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 stock,
but rather will reduce the adjusted basis of such stock. To
the extent that distributions in excess of current and
accumulated earnings and profits exceed the adjusted basis
of a shareholder's stock, such distributions will be
included in income as long-term capital gain (or short-term
capital gain if the shares of stock have been held for one
year or less) assuming the shares of stock are capital
assets in the hands of the shareholder. In addition, any
distribution declared by the Company in October, November or
December of any year and payable to a shareholder of record
on a specified 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 distribution 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. Instead, such losses would be carried over by
the Company for potential offset against its future income
(subject to certain limitations). Taxable distributions
from the Company and gain from the disposition of the stock
will not be treated as passive activity income and,
therefore, shareholders generally will not be able to apply
any "passive activity losses" (such as losses from certain
types of limited partnerships in which the shareholder is a
limited partner) against such income. In addition, taxable
distributions from the Company generally will be treated as
investment income for purposes of the investment interest
limitations. Capital gains from the disposition of stock
(or distributions treated as such) will be treated as
investment income only if the shareholder so elects, in
which case such capital gains will be taxed at ordinary
income rates. The Company will notify shareholders after
the close of the Company's taxable year as to the portions
of the distributions attributable to that year that
constitute ordinary income, return of capital and capital
gain.
Taxation of Shareholders on the Disposition of the Common or
Preferred Stock.
In general, any gain or loss realized upon a taxable
disposition of the stock by a shareholder who is not a
dealer in securities will be treated as long-term capital
gain or loss if the shares of stock have been held for more
than one year and otherwise as short-term capital gain or
loss. However, any loss upon a sale or exchange of shares
of stock by a shareholder who has held such shares for six
months or less (after applying certain holding period
rules), will be treated as a long-term capital loss to the
extent of distributions from the Company required to be
treated by such shareholder as long-term capital gain. All
or a portion of any loss realized upon a taxable disposition
of shares of stock may be disallowed if other shares of
stock are purchased within 30 days before or after the
disposition.
Capital Gains and Losses.
A capital asset generally must be held for more than
one year in order for gain or loss derived from its sale or
exchange to be treated as long-term capital gain or loss.
The highest marginal individual income tax rate is 39.6%,
and the tax rate on net capital gains applicable to
individuals is 28% for capital assets held for less than 18
months and 20% for capital assets held for at least 18
months. Thus, the tax rate differential between capital
gain and ordinary income for individuals may be significant.
In addition, the characterization of income as capital or
ordinary may affect the deductibility of capital losses.
Capital losses not offset by capital gains may be deducted
against an individual's ordinary income only up to a maximum
annual amount of $3,000. Unused capital losses may be
carried forward. All net capital gain of a corporate
taxpayer is subject to tax at ordinary corporate rates. A
corporate taxpayer can deduct capital losses only to the
extent of capital gains, with unused losses being carried
back three years and forward five years.
Information Reporting Requirements and Backup Withholding.
The Company will report to its U.S. shareholders and to
the Service the amount of distributions paid during each
calendar year, and the amount of tax withheld, if any.
Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with
respect to distributions paid unless such holder (i) is a
corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or (ii) provides
a taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies
with the applicable requirements of the backup withholding
rules. A shareholder who does not provide the Company with
his correct taxpayer identification number also may be
subject to penalties imposed by the Service. 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 to any shareholders who fail to certify
their non-foreign status to the Company. The Service issued
proposed regulations in April 1996 regarding the backup
withholding rules as applied to Non-U.S. Shareholders.
These proposed regulations would alter the current system of
backup withholding compliance and are proposed to be
effective for distributions made after December 31, 1997.
See "Federal Income Tax Considerations -- Taxation of Non-
U.S. Shareholders."
Taxation of Tax-exempt Shareholders.
Tax-exempt entities, including qualified employee
pension and profit sharing trusts and individual retirement
accounts ("Exempt Organizations"), generally are exempt from
federal income taxation. However, they are subject to
taxation on their unrelated business taxable income
("UBTI"). While many investments in real estate generate
UBTI, the Service has issued a published ruling that
dividend distributions by a REIT to an exempt employee
pension trust do not constitute UBTI, provided that the
shares of the REIT are not otherwise used in an unrelated
trade or business of the exempt employee pension trust.
Based on that ruling, amounts distributed by the Company to
Exempt Organizations generally should not constitute UBTI.
However, if an Exempt Organization finances its acquisition
of stock with debt, a portion of its income from the Company
will constitute UBTI pursuant to the "debt-financed
property" rules. Furthermore, 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, in certain circumstances, a pension trust that
owns more than 10% of the Company's stock is required to
treat a percentage of the dividends from the Company as UBTI
(the "UBTI Percentage"). The UBTI Percentage is the gross
income derived by the Company from an unrelated trade or
business (determined as if the Company were a pension trust)
divided by the gross income of the Company for the year in
which the dividends are paid. The UBTI rule applies to a
pension trust holding more than 10% of the Company's stock
only if (i) the UBTI Percentage is at least 5%, (ii) the
Company qualifies as a REIT by reason of the modification of
the 5/50 Rule that allows the beneficiaries of the pension
trust to be treated as holding shares of the Company in
proportion to their actuarial interests in the pension trust
and (iii) either (A) one pension trust owns more than 25% of
the value of the Company's shares or (B) a group of pension
trusts individually holding more than 10% of the value of
the Company's shares collectively own more than 50% of the
value of the Company's shares.
Taxation of Non-U.S. Shareholders.
The rules governing U.S. federal income taxation of
nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign shareholders (collectively,
"Non-U.S. Shareholders") are complex and no attempt will be
made herein to provide more than a summary of such rules.
PROSPECTIVE NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR
OWN TAX ADVISORS TO DETERMINE THE IMPACT OF FEDERAL, STATE
AND LOCAL INCOME TAX LAWS WITH REGARD TO AN INVESTMENT IN
THE COMMON OR PREFERRED STOCK, INCLUDING ANY REPORTING
REQUIREMENTS.
Distributions to Non-U.S. Shareholders that are not
attributable to gain from sales or exchanges by the Company
of U.S. real property interests and are not designated by
the Company as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are
made out of current or accumulated earnings and profits of
the Company. Such distributions ordinarily will be subject
to a withholding tax equal to 30% of the gross amount of the
distribution unless an applicable tax treaty reduces or
eliminates that tax. However, if income from the investment
in the stock is treated as effectively connected with the
Non-U.S. Shareholder's conduct of a U.S. trade or business,
the Non-U.S. Shareholder generally will be subject to
federal income tax at graduated rates, in the same manner as
U.S. shareholders are taxed with respect to such
distributions (and also may be subject to the 30% branch
profits tax in the case of a Non-U.S. Shareholder that is a
non-U.S. corporation). The Company expects to withhold U.S.
income tax at the rate of 30% on the gross amount of any
such distributions made to a Non-U.S. Shareholder unless (i)
a lower treaty rate applies and any required form evidencing
eligibility for that reduced rate is filed with the Company
or (ii) the Non-U.S. Shareholder files an IRS Form 4224 with
the Company claiming that the distribution is effectively
connected income. The Service issued proposed regulations
is April 1996 that would modify the manner in which the
Company complies with the withholding requirements.
Distributions in excess of current and accumulated earnings
and profits of the Company will not be taxable to a
shareholder to the extent that such distributions do not
exceed the adjusted basis of the shareholder's shares of
stock, but rather will reduce the adjusted basis of such
shares. To the extent that distributions in excess of
current and accumulated earnings and profits exceed the
adjusted basis of a Non-U.S. Shareholder's stock, such
distributions will give rise to tax liability if the Non-
U.S. Shareholder would otherwise be subject to tax on any
gain from the sale or disposition of his shares of 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, the entire amount of any distribution
normally will be subject to withholding at the same rate as
a dividend. However, a Non-U.S. Shareholder can file a
claim for refund with the Service for the overwithheld
amount to the extent it is determined subsequently that such
distribution was, in fact, in excess of the current and
accumulated earnings and profits of the Company.
In August 1996, the U.S. Congress passed the Small
Business Job Protection Act of 1996, which requires the
Company to withhold 10% of any distribution in excess of its
current and accumulated earnings and profits. Consequently,
although the Company intends to withhold at a rate of 30% on
the entire amount of any distribution, to the extent that
the Company does not do so, any portion of a distribution
not subject to withholding at a rate of 30% will be subject
to withholding at a rate of 10%.
For any year in which the Company qualifies as a REIT,
distributions that are attributable to gain from sales or
exchanges by the Company of U.S. real property interests
will be taxed to a Non-U.S. Shareholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, distributions attributable to
gain from sales of U.S. real property interests are taxed to
a Non-U.S. Shareholder as if such gain were effectively
connected with a U.S. business. Non-U.S. Shareholders thus
would be taxed at the normal capital gain rates applicable
to U.S. shareholders (subject to applicable alternative
minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals). Distributions
subject to FIRPTA also may be subject to a 30% branch
profits tax in the hands of a foreign corporate shareholder
not entitled to treaty relief or exemption. The Company is
required to withhold 35% of any distribution that is
designated by the Company as a capital gains dividend. The
amount withheld is creditable against the Non-U.S.
Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale
of his shares of 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. Because
the stock is publicly traded, no assurance can be given that
the Company is or will be a "domestically controlled REIT."
In addition, a Non-U.S. Shareholder that owns, actually and
constructively, 5% or less of the Company's shares
throughout a specified "look-back" period will not recognize
gain on the sale of his shares taxable under FIRPTA if the
shares are traded on an established securities market.
Finally, gain not subject to FIRPTA will be taxable to a Non-
U.S. Shareholder if (i) investment in the stock is
effectively connected with the Non-U.S. Shareholder's U.S.
trade or business, in which case the Non-U.S. Shareholder
will be subject to the same treatment as U.S. shareholders
with respect to such gain, or (ii) the Non-U.S. Shareholder
is a nonresident alien individual who was present in the
United States for 183 days or more during the taxable year
and certain other conditions apply, in which case the
nonresident alien individual will be subject to a 30% tax on
the individual's capital gains [New 1997 Act]. If the gain
on the sale of the stock were to be subject to taxation
under FIRPTA, the Non-U.S. Shareholder will be subject to
the same treatment as U.S. shareholders with respect to such
gain (subject to applicable alternative minimum tax, a
special alternative minimum tax in the case of nonresident
alien individuals, and the possible application of the 30%
branch profits tax in the case of non-U.S. corporations).
Other Tax Considerations
The Company, the QRSs, the Property Partnerships and
the Company's 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 Property Partnerships
The following discussion summarizes certain federal
income tax considerations applicable to the Company's direct
or indirect investment in the Property 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 Partnerships' income and
to deduct its distributive share of the Property
Partnerships' losses only if the Property Partnerships are
classified for Federal income tax purposes as partnerships
rather than as associations taxable as corporations. An
entity will be classified as a partnership, rather than as
a corporation or an association taxable as a corporation for
federal income tax purposes if the entity (i) is treated as
a partnership under Treasury Regulations, effective January
1, 1997, relating to entity classification (the "Check-the-
Box Regulations") and (ii) is not a "publicly traded"
partnership.
In general, under the Check-the-Box Regulations, an
unincorporated entity with at least two members may elect to
be classified either as an association taxable as a
corporation or as a partnership. If such an entity fails to
make an election, it generally will be treated as a
partnership for federal income tax purposes. The federal
income tax classification of an entity that was in existence
prior to January 1, 1997, such as the Operating Partnership,
the Texas Operating Partnership and all but one of the
Subsidiary Partnerships, will be respected for all periods
prior to January 1, 1997 if (i) the entity had a reasonable
basis for its claimed classification, (ii) the entity and
all members of the entity recognized the federal tax
consequences of any changes in the entity's classification
within the 60 months prior to January 1, 1997, and (iii)
neither the entity nor any member of the entity was notified
in writing by a taxing authority on or before May 8, 1996
that the classification of the entity was under examination.
The Property Partnerships in existence prior to January 1,
1997 reasonably claimed partnership classification under the
Treasury regulations relating to entity classification in
effect prior to January 1, 1997 and such classification
should be respected for federal income tax purposes. The
Property Partnerships intend to continue to be classified as
partnerships for federal income tax purposes and no Property
Partnership will elect to be treated as an association
taxable as a corporation under the Check-the-Box
Regulations.
Notwithstanding the Operating Partnership's
classification as a partnership, the Operating Partnership
could be treated as a corporation for federal income tax
purposes if it were a "publicly traded partnership" (PTP")
within the meaning of Section 7704 of the Code. Under
Section 7704 of the Code, a partnership is classified as a
PTP if interests in the partnership are traded on an
established securities market or are readily tradable on a
secondary market or the substantial equivalent thereof. If
so classified, the PTP is taxable as a corporation unless it
qualifies for a special "90% qualifying income exception" in
Section 7704(c) of the Code. Under that exception, a PTP is
not subject to corporate-level tax if 90% or more of its
gross income consists of dividends, interest, "rents from
real property" (as that term is defined for purposes of the
REIT rules, with certain modifications), gain from the sale
or other disposition of real property, and certain other
types of income. If the PTP fails to meet the 90%
qualifying income exception for a taxable year, and (i) the
IRS determines that the failure was inadvertent, (ii) the
partnership takes steps to once again comply with the 90%
qualifying income exception, and (iii) the partnership makes
sure adjustments or payments (including with respect to the
partners) as may be required by the IRS, then the
partnership will be treated as continuing to satisfy the 90%
qualifying income exception.
The Regulations under Section 7704 (the "PTP
Regulations") provide rules for determining whether a
partnership is a PTP and provide certain safe harbors which,
if satisfied, preclude a partnership from being so
classified. However, under a special transitional rule in
the PTP Regulations, a partnership that was actively engaged
in an activity before December 4, 1995 is not subject to the
PTP Regulations, but rather may comply with the requirements
of IRS Notice 88-75, for all taxable years beginning on or
before December 31, 2005, provided that the partnership does
not add a substantial new line of business that does not
give rise to qualifying income. Under a "private placement"
safe harbor contained in IRS Notice 88-75, a partnership is
not classified as a PTP if none of he interests therein was
issued in a transaction registered under the Securities Act
of 1933 and the partnership at all times does not have more
than 500 partners (taking into account for this purpose the
beneficial owners of interests in any upper-tier
partnerships, S corporations or grantor trust that own an
interest in the subject partnership).
The Operating Partnership has been, and will be, in the
business of owning and leasing real property before December
4, 1995 and thereafter through the date of the closing of
the Offering. Thus, it should qualify for transitional
relief, and be subject to IRS Notice 88-75, provided it is
not deemed to have added a "substantial new line of
business" that gives rise to nonqualifying income. Assuming
the Operating Partnership is not considered to have added a
substantial new line of business in connection with the
Transaction, it will satisfy the private placement safe
harbor of IRS Notice 88-75 because it will have fewer than
500 partners (determined after looking through upper-tier
pass-through entities).
If the Operating Partnership is or becomes subject to
the PTP Regulations by reason of adding a substantial new
line of business, it will not satisfy the private placement
safe harbor of such regulations because such safe harbor
requires, among other things, that the partnership have no
more than 100 partners. The Operating Partnership presently
has, and is expected to have in the future, more than 100
partners. Moreover, the Operating Partnership may not be
able to satisfy any other safe harbor of the PTP
Regulations. Consequently, there is a risk that the ability
of holders of Class A Common Units to exchange their Class A
Common Units for shares of Common Stock could cause the
interests in Operating Partnership to be viewed as readily
tradable on a secondary market or the substantial equivalent
thereof. In the event, although the Operating Partnership
would be classified as a PTP, Counsel is of the opinion that
the Operating Partnership would satisfy the 90% qualifying
income exception and therefore be exempt from corporate-
level tax. However, under Section 469(k) of the Code, the
partners of Operating Partnership would be required to apply
the passive loss limitations of Section 469 separately to
the income and loss from the Operating Partnership, even
though it satisfies the 90% qualifying income exception.
In rendering its opinion that the Operating Partnership
will be treated for federal income tax purposes as a
partnership and not as a corporation or an association
taxable as a corporation, and that the Operating
Partnership, if it were classified as a publicly traded
partnership, would satisfy the 90% qualifying income
exception of Section 7704(c) of the Code, Counsel has relied
on the following factual representations made by the
Operating Partnership:
The Operating Partnership operate in accordance
with Tennessee law, the Partnership Agreement, and the
statements and representations made in this Prospectus.
No Units will be traded on an established
securities market or issued in a transaction registered
under the Securities Act of 1933, and the Operating
Partnership will at no time have more than 500 Partners
(determined by treating as a Partner each person indirectly
owning an interest through a partnership, a grantor trust,
or an S corporation).
Certain representations regarding the nature and
type of the Operating Partnership's expected sources of
income.
The Company has obtained an opinion of Baker, Donelson,
Bearman & Caldwell that each Property Partnership will be
classified as a partnership for federal income tax purposes
and not as a corporation or an association taxable as a
corporation or as a publicly traded partnership.
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 the
Texas Operating Partnership or 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 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 Property Partnership would not pass
through to its partners, and its partners would be treated
as stockholders for tax purposes. Consequently, the
Property 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 Property 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
Partnership's income, gains, losses, deductions, and credits
for any taxable year of the Property 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 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 item.
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 has issued
regulations requiring partnerships to use a "reasonable
method" for allocating 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
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 Partnership generally is equal to (i)
the amount of cash and the basis of any other property
contributed to the partnership by the Company; (ii)
increased by (A) its allocable share of the partnership's
income and (B) its allocable share of indebtedness of the
partnership and (iii) reduced, but not below zero, by (I)
the Company's allocable share of the Property Partnership's
loss and (II) the amount of cash distributed to the Company
and by constructive distributions resulting from a reduction
in the Company's share of indebtedness of the Property
Partnership.
If the allocation of the Company's distributive share
of a Property Partnership's loss would reduce the adjusted
tax basis of the Company's partnership interest in the
Property 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 Partnership's
distributions, or any decrease in the Company's share of the
indebtedness of the Property 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 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 Communities have been or will be
acquired in exchange for cash, the initial basis in the
Communities for federal income tax purposes generally was or
will be equal to the price paid to acquire the Communities.
The Property Partnerships depreciate 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 Property Partnerships use MACRS
for the furnishings and equipment in the Communities. Under
MACRS, the Property Partnerships generally depreciate
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 Property
Partnerships use ADS for the buildings and improvements
comprising the Communities. Under ADS, the Property
Partnerships generally depreciate 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 of limited partnership
interest, 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.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or
more underwriters or dealers for public offering and sale by
them in syndicated or non-syndicated public offerings or
distributions, block trades, or otherwise, or may sell the
Offered Securities to investors directly or through
designated agents. Any such underwriter, dealer or agent
involved in the offer and sale of the Offered Securities
will be named in the applicable Prospectus Supplement.
Underwriters may offer and sell the Offered
Securities at a fixed price or prices, which may be changed,
or from time to time at market prices prevailing at the time
of sale, at prices related to such prevailing market prices
or at negotiated prices. The Company also may, from time to
time, authorize underwriters acting as agents to offer and
sell the Offered Securities upon the terms and conditions
set forth in any Prospectus Supplement. Underwriters may
sell the Offered Securities to or through dealers, and such
dealers may receive compensation in the form of discounts,
concessions or commissions (which may be changed from time
to time) from the underwriters and/or from the purchasers
for whom they may act as agent. The Company may, from time
to time, offer and sell the Offered Securities directly to
dealers, for their own account, utilizing any of the pricing
mechanisms described in the first sentence of this
paragraph.
Any underwriting compensation paid by the Company to
underwriters or agents in connection with the offering of
the Offered Securities and any discounts, concessions or
commissions allowed by underwriters to participating dealers
will be set forth in the applicable Prospectus Supplement.
Underwriters, dealers and agents participating in the
distribution of the Offered Securities may be deemed to be
underwriters, and any discounts and commissions received by
them from the Company or from purchasers of the Offered
Securities and any profit realized by them on resale of the
Offered Securities may be deemed to be underwriting
discounts and commissions under the Securities Act.
Underwriters, dealers and agents may be entitled, under
agreements entered into with the Company, to indemnification
against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.
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 Offered 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 Offered Securities.
If a dealer is utilized in the sale of the Offered
Securities, the Company will sell such Offered Securities to
the dealer, as principal. The dealer may then resell such
Offered 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 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, 1996, 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.
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>
[LEFT SIDE OF BACK COVER]
No dealer, salesperson or other person has been
authorized to give any information or to make any
representations other than those contained or incorporated
by reference in this Prospectus or any Prospectus Supplement
in connection with the offering covered by this Prospectus
and, 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.
SUMMARY TABLE OF CONTENTS
Page
Prospectus
Prospectus Summary 1
Risk Factors 4
Use of Proceeds 10
Consolidated Ratio of Earnings to Fixed Charges
and Consolidated Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Distributions 10
Description of Capital Stock 10
Description of Debt Securities 16
Description of Securities Warrants 25
Federal Income Tax Considerations 27
Plan of Distribution 39
Experts 40
Legal Matters 40
[RIGHT SIDE OF BACK COVER]
Common Stock
Preferred Stock
Debt Securities
Warrants
MID-AMERICA
APARTMENT
COMMUNITIES, INC.
PROSPECTUS
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Set forth below is an estimate of the fees and expenses
to be incurred in connection with the issuance and
distribution of the Offered Securities registered hereby.
Registration fee to the SEC $ 60,607
Printing expense 100,000
Accounting fees and expenses 100,000
Legal fees and expenses 150,000
Miscellaneous expenses 39,393
-------
Total $450,000
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 Specimen Common Share 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
(incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-3, Registration No. 333-3274, as amended)
*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 of Baker, Donelson, Bearman & Caldwell
Regarding Legality
8.1 Opinion of Baker, Donelson, Bearman & Caldwell
Regarding Certain Tax Matters
12.1 Statements regarding computation of ratios
(Included in Prospectus)
24.1 Consent of KPMG Peat Marwick LLP
24.2 Consent of Baker, Donelson, Bearman & Caldwell
(Included in Exhibits 5.1 and 8.1)
*26.1 Form T-1 Statement of Eligibility and
Qualification
- -----------------
* 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 as Exhibit 3(B) to the Company's
Registration Statement on Form S-11 filed August 2, 1994.
*** Previously filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-3, Registration No. 333-
3274, as amended.
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;
(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.
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 this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Memphis, State of
Tennessee, on August 20, 1997.
MID-AMERICA APARTMENT COMMUNITIES, INC.
a Tennessee corporation (Registrant)
By: /s/ George E. Cates
-------------------------------
George E. Cates, Chairman of the Board and
Chief Executive Officer
By: /s/ Simon R.C. Wadsworth
--------------------------------
Simon R.C. Wadsworth, Director, Executive
Vice President and Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby
constitutes and appoints George E. Cates and Simon R.C.
Wadsworth, and each or either of them, his true and lawful
attorney-in-fact with full power of substitution and
resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration
Statement and to cause the same to be filed, with all
exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission,
hereby granting to said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform
each and every act and thing whatsoever requisite or
desirable to be done in and about the premises, as fully to
all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all acts and
things that said attorneys-in-fact and agents, or either of
them, or their substitutes or substitute, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of
1933, this Registration Statement has been signed by the
following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
/s/ George E. Cates Director and Chief Executive Officer August 23, 1997
George E. Cates (principal executive officer)
/s/ H. Eric Bolton Director, President and Chief August 25, 1997
H. Eric Bolton Operating Officer
/s/ Simon R.C. Wadsworth Director and Chief Financial Officer August 25, 1997
Simon R.C. Wadsworth (principal accounting and financial
officer)
- ----------------------- Director August __, 1997
John J. Byrne III
/s/ Robert F. Fogelman Director August 27, 1997
Robert F. Fogelman
- ----------------------- Director August __, 1997
O. Mason Hawkins
/s/ Michael B. Yanney Director August 27, 1997
Michael B. Yanney
<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 Specimen Common Share 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
(incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-3, Registration No. 333-3274, as amended)
*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 of Baker, Donelson, Bearman & Caldwell, a
professional corporation Regarding Legality
8.1 Opinion of Baker, Donelson, Bearman & Caldwell, a
professional corporation 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 Baker, Donelson (Included in Exhibits
5.1 and 8.1)
*26.1 Form T-1 Statement of Eligibility and
Qualification
----------------------------
* 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 as Exhibit 3(B) to the Company's
Registration Statement on Form S-11 filed August 2, 1994.
*** Previously filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-3, Registration No. 333-
3274, as amended.
BAKER, DONELSON, BEARMAN & CALDWELL,
a Professional Corporation
165 Madison Avenue, 20th Floor
Memphis, Tennessee 38103
August 29,1997
Board of Directors
Mid-America Apartment Communities, Inc.
6584 Poplar Avenue, Suite 340
Memphis, Tennessee 38138
Gentlemen:
We are acting as counsel to Mid-America Apartment
Communities, Inc., a Tennessee corporation (the "Company"), in
connection with its registration statement on Form S-3 (the
"Registration Statement") filed with the Securities and Exchange
Commission relating to the proposed public offering of up to
$233,875,000 in aggregate amount of its shares of common stock,
$.01 par value per share ("Common Stock"); one or more series of
its shares of preferred stock, $.01 par value per share (the
"Preferred Stock"); debt securities of the Company (the "Debt
Securities"); and warrants to purchase the Common Stock,
Preferred Stock and Debt Securities (the "Securities Warrants").
The Common Stock, the Preferred Stock, the Debt Securities and
the Securities Warrants are referred to collectively herein as
the "Securities", all of which Securities may be offered and sold
by the Company from time to time as set forth in the prospectus
which forms a part of the Registration Statement (the
"Prospectus"), and as to be set forth in one or more supplements
to the Prospectus (each, a "Prospectus Supplement"). This
opinion letter is furnished to you at your request to enable you
to fulfill the requirements of Item 601(b)(5) of Regulation S-K,
17 C.F.R. (S) 229.601(b)(5), in connection with the Registration
Statement.
We assume that the classification, terms and conditions,
amount, issuance and sale of the Securities to be offered from
time to time will be duly authorized and determined by proper
action by the Board of Directors of the Company consistent with
the procedures and terms described in the Registration Statement
(each, a "Board Action") and in accordance with the Company's
Amended and Restated Charter, as amended (the "Charter"), and
applicable Tennessee law. We further assume that prior to any
issuance of Preferred Shares, appropriate articles of amendment
shall be filed for recordation with the Tennessee Secretary of
State (each, "Articles of Amendment").
For purposes of this opinion letter, we have examined such
documents as we have deemed necessary, including copies of the
following documents:
1. An executed copy of the Registration Statement;
2. The Charter, as amended, as certified by the
Secretary of the Company on the date hereof as then
being complete, accurate and in effect.
3. The Amended and Restated Bylaws of the Company, as
certified by the Secretary of the Company on the date
hereof as then being complete, accurate and in effect.
In our examination of the aforesaid documents, we have
assumed the genuineness of all signatures, the legal capacity of
natural persons, the accuracy and completeness of all documents
submitted to us, the authenticity of all original documents, and
the conformity to authentic original documents of all documents
submitted to us as certified, telecopied, photostatic, or
reproduced copies. We have also assumed the accuracy,
completeness and authenticity of the foregoing certifications of
trust officers and statements of fact, on which we are relying,
and have made no independent investigations thereof. This opinion
letter is given, and all statements herein are made, in the
context of the foregoing.
We call your attention to the fact that our firm only
requires lawyers to be qualified to practice law in the States of
Tennessee and Mississippi and the District of Columbia and, in
rendering the foregoing opinions, we express no opinion with
respect to any laws relevant to this opinion other than the laws
and regulations identified herein.
Based upon, subject to and limited by the foregoing, we are
of the opinion that, as of the date hereof:
1. When the Registration Statement has become
effective under the Securities Act of 1933, as amended
(the "Act"), and when a series of the Preferred Stock
has been classified by applicable Board Action, in
accordance with the terms of the Charter and applicable
law, and appropriate Articles of Amendment have been
filed, and, when issuance of such Preferred Stock has
been appropriately authorized by applicable Board
Action and following issuance of any such series of
Preferred Stock against payment of valid consideration
therefor in accordance with the terms of such Board
Action and any applicable underwriting or purchase
agreement, as contemplated by the Registration
Statement and/or the applicable Prospectus Supplement,
such Preferred Stock will be validly issued, fully paid
and non-assessable under the Tennessee Business
Corporation Act (the "TBCA").
2. When the Registration Statement has become
effective under the Act, upon due authorization by
Board Action of an issuance of Common Stock, and
following issuance of any such Common Stock against
payment for valid consideration therefor in accordance
with the terms of such Board Action, and any applicable
underwriting or purchase agreement as contemplated by
the Registration Statement and/or the applicable
Prospectus Supplement such Common Stock will be validly
issued, fully paid and non-assessable under the TBCA.
Our opinion is subject to the following qualifications and
limitations:
(a) The opinions expressed herein are
subject to the effect of applicable bankruptcy,
insolvency, reorganization or similar laws
affecting the enforcement of creditors' rights and
equitable principles limiting the availability of
equitable remedies on the enforeceability of
contracts, agreements and instruments.
(b) Members of our firm are qualified to
practice law in the States of Tennessee and
Mississippi and the District of Columbia and
nothing contained herein shall be deemed to be an
opinion as to any law, rule or regulation other
than those of the federal laws of the United
States.
(c) The opinions set forth herein are
expressed as of the date hereof and we disclaim
any undertaking to advise you of any changes which
may subsequently be brought to our attention in
the facts and the law upon which such opinions are
based.
This opinion letter has been prepared solely for your use in
connection with the filing of the Registration Statement on the
date of this opinion letter and should not be quoted in whole
or in part or otherwise be referred to, nor filed with or
furnished to any governmental agency or other person or entity,
without the prior written consent of this firm.
We hereby consent (i) to be named in the Registration
Statement, and in the Prospectus, as attorneys who will pass upon
the legality of the Securities to be sold thereunder and (ii) to
the filing of this opinion as an Exhibit to the Registration
Statement.
Very truly yours,
BAKER, DONELSON, BEARMAN & CALDWELL,
a professional corporation
By: /s/ John A. Good
------------------------
John A. Good, a Shareholder
BAKER, DONELSON, BEARMAN & CALDWELL
a Professional Corporation
165 Madison Ave., 20th Floor
Memphis, Tennessee 38103
August 29, 1997
Mid-America Apartment Communities, Inc.
6584 Poplar Ave., Suite 340
Memphis, Tennessee 38138
Re: Mid-America Apartment Communities, Inc.
Registration of Securities on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Mid-America Apartment
Communities, Inc., a Tennessee corporation (the "Company")
in connection with its registration statement on Form S-3
(the "Registration Statement") filed with the Securities and
Exchange Commission relating to the proposed public offering
of up to $233,875,000 in aggregate amount of its shares of
common stock, $.01 par value per share ("Common Stock"); one
or more series of its shares of preferred stock, $.01 par
value per share (the "Preferred Stock"); debt securities of
the Company (the "Debt Securities"); and warrants to
purchase the Common Stock, Preferred Stock and Debt
Securities (the "Securities Warrants"). The Common Stock,
the Preferred Stock, the Debt Securities and the Securities
Warrants are referred to collectively herein as the
"Securities", all of which Securities may be offered and
sold by the Company from time to time as set forth in the
prospectus which forms a part of the Registration Statement
(the "Prospectus"), and as to be set forth in one or more
supplements to the Prospectus (each, a "Prospectus
Supplement"). In connection with the registration of the
Securities, we have been asked to provide an opinion
regarding certain federal income tax matters related to the
Company. Capitalized terms used in this letter and not
otherwise defined herein have the meaning set forth in the
Registration Statement.
This opinion is based on various statements of fact and
assumptions, including the statements of fact set forth in
the Registration Statement concerning the business, assets
and governing documents of the Company. We have also been
furnished with, and with your consent have relied upon,
certain representations made by the Company with respect to
certain factual matters through a certificate of an officer
of the Company (the "Officer's Certificate").
The opinion set forth in this letter is based on
relevant provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations thereunder
(including proposed and temporary Regulations), and
interpretations of the foregoing as expressed in court
decisions, the legislative history, and existing
administrative rulings and practices of the Internal Revenue
Service (including its practices and policies in issuing
private letter rulings, which are not binding on the
Internal Revenue Service except with respect to a taxpayer
that receives such a ruling), all as of the date hereof.
These provisions and interpretations are subject to change,
which may or may not be retroactive in effect, that might
result in modifications of our opinion. Our opinion does not
foreclose the possibility of a contrary determination by the
Internal Revenue Service or a court of competent
jurisdiction, or of a contrary position by the Internal
Revenue Service or the Treasury Department in regulations or
rulings issued in the future.
In rendering our opinion, we have examined such
statutes, regulations, records, certificates and other
documents as we have considered necessary or appropriate as
a basis for such opinion, including the following: (1) the
Registration Statement; (2) the Amended and Restated Charter
of the Company (the "Charter"), as further amended by an
amendment designating the Company's 9.5%Series A Cumulative
Preferred Stock, all as in effect on the date hereof; (3)
the First Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement") of Mid-America
Apartments, L.P., a Tennessee limited partnership (the
"Operating Partnership"), dated January 27, 1994, as amended
by Amendments No. 1, 2, 3, and 4; (4) the Agreement of
Limited Partnership and Irrevocable Power of Attorney dated
September 30, 1994 of Mid-America Apartments of Texas, L.P.,
a Texas limited partnership (the "Texas Operating
Partnership"); (5) the partnership agreements of all other
partnerships in which the Operating Partnership has an
interest (collectively, the "Subsidiary Partnerships"); and
(6) the articles of incorporation, by-laws and stock
ownership information of the QRSs.
In our review, we have assumed, with your consent, that
all of the representations and statements set forth in the
documents we reviewed are true and correct, and all of the
obligations imposed by any such documents on the parties
thereto have been and will be performed or satisfied in
accordance with their terms. Moreover, we have assumed that
the Company, the Operating Partnership, the Texas Operating
Partnership, the Subsidiary Partnerships and the QRSs each
have been and will continue to be operated in the manner
described in the relevant partnership agreement, charter,
articles of incorporation or other organizational documents
and in the Prospectus. We also have assumed the genuineness
of all signatures, the proper execution of all documents,
the authenticity of all documents submitted to us as
originals, the conformity to originals of documentssubmitted
to us as copies, and the authenticity of the originals from
which any copies were made.
For the purposes of our opinion, we have not made an
independent investigation of the facts set forth in the
documents we reviewed. We consequently have assumed that the
information presented in such documents or otherwise
furnished to us accurately and completely describes all
material facts relevant to our opinion. No facts have come
to our attention, however, that would cause us to question
the accuracy and completeness of such facts or documents in
a material way.
We assume for the purposes of this opinion that the
Company is a validly organized and duly incorporated
corporation under the laws of the State of Tennessee, that
the QRSs are validly organized and duly incorporated
corporations under the laws of the states in which they are
incorporated, and that the Operating Partnership, the Texas
Operating Partnership, and the Subsidiary Partnerships are
duly organized and validly existing partnerships under the
laws of the states in which they are organized.
We are opining herein as to the effect on the subject
transaction only of the federal income tax laws of the
United States and we express no opinion with respect to the
applicability thereto, or the effect thereon, of other
federal laws, the laws of any other jurisdiction or as to
any matters of municipal law or the laws of any other local
agencies within any state.
Based on such statements of fact, assumptions and
representations, it is our opinion that:
I. Commencing with the Company's taxable year
ended December 31, 1994, and for each taxable year since
that taxable year, the Company has been organized and has
operated in conformity with the requirements for
qualification as a "real estate investment trust" under the
Code and its proposed method of operation, as described in
the statements of fact and representations of the Company
referred to above, should enable it to continue to meet the
requirements for qualification and taxation as a "real
estate investment trust" under the Code.
I. The discussion in the Prospectus under the
caption "Federal Income Tax Considerations" to the extent
such statements constitute matters of law, summaries of
legal matters, or legal conclusions, has been reviewed by us
and is accurate in all material respects.
No opinion is expressed as to any matter not discussed
herein.
This opinion is based on various statutory provisions,
regulations promulgated thereunder and interpretations
thereof by the Internal Revenue Service and the courts
having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively.
Any such change may affect the conclusions stated herein.
Also, any variation or difference in the facts from those
set forth in the statements of fact set forth in the
Registration Statement and the representations made by the
Company through the Officer's Certificate may affect the
conclusions stated herein. Moreover, the Company's
qualification and taxation as a real estate investment trust
depends upon the Company's ability to meet, through actual
annual operating results, distribution levels and diversity
of stock ownership, the various qualification tests imposed
under the Code, the results of which have not been and will
not be reviewed by Baker, Donelson, Bearman & Caldwell.
Accordingly, no assurance can be given that the actual
results of the Company's operation for any one taxable year
have satisfied or will satisfy such requirements.
This opinion is rendered only to you and is solely for
your benefit in connection with the Registration Statement.
This opinion may not be relied upon by you for any other
purpose, or furnished to, quoted to, or relied upon by any
other person, firm or corporation for any purpose, without
our prior written consent. We hereby consent to the filing
of this opinion as an exhibit to the Registration Statement
and to the use of our name under the caption "Legal Matters"
in the Registration Statement.
Very truly yours,
Baker, Donelson, Bearman & Caldwell,
a professional corporation
By: /s/ John A. Good
-------------------------
John A. Good, a Shareholder
EXHIBIT 24.1
CONSENT OF INDEPENDENT AUDITORS
We consent to incorporation by reference in the registration
statement on Form S-3 of Mid-America Apartment Communities,
Inc. of our report dated February 14, 1997 to the
consolidated balance sheets of Mid-America Apartment
Communities, Inc. (the Company) as of December 31, 1996 and
1995, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the years in
the three year period ended December 31, 1996, which report
is incorporated by reference in the 1996 annual report on
Form 10-K of Mid-America Apartment Communities, Inc. and to
the reference to our firm under the heading of "Experts" in
the Prospectus. Our report refers to the Company's change
in its accounting method to capitalize replacement purchases
for major appliances and carpet in 1996.
/s/ KPMG Peat Marwick LLP
Memphis, Tennessee
August 27, 1997
