As filed with the Securities and Exchange Commission on July 31, 1998
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 62-1543819
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6584 Poplar Avenue, Suite 340
Memphis, Tennessee 38138
(901) 682-6600
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive office)
George E. Cates
6584 Poplar Avenue, Suite 340
Memphis, Tennessee 38138
(901) 682-6600
(Name, address, including zip code and telephone number, including
area code, 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 the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. [X].
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum Amount
Amount Offering Aggregate of
Title of Securities Being Price Per Offering Registration
Being Registered Registered (1) Unit (3) Price Fee
- ----------------------- --------------- ---------- --------- ------------
Debt Securities (1)(2)
Preferred Stock,
$.01 par value (1)(4)
Common Stock,
$.01 par value (1)(5)
Depositary Shares (1)(6) ______________ __________ ____________ ___________
$200,000,000 N/A $200,000,000 $59,000 (7)
(Footnotes on next 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 $31,518,781 Debt Securities, Preferred Stock, Common Stock and
Securities Warrants registered on Form S-3, Registration No. 333-34775.
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,
Common Stock or Depository Shares. Such contracts may be issued
together with the specific 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) Omitted pursuant to General Instruction II.D of Form S-3.
(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 Depositary Shares, to be evidenced by Depositary
Receipts issued pursuant to a Deposit Agreement and representing an
interest in all or a specified portion of a share of Preferred Stock or
Debt Securities, as may be sold from time to time by the Registrant.
(7) Calculated pursuant to Rule 457(o) of the rules and regulations
under the Securities Act of 1933, as amended.
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell these securities and it is not soliciting any offer to
buy these securities in any state where the offer and sale is not
permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED July 31, 1998
PROSPECTUS
MID-AMERICA APARTMENT COMMUNITIES, INC.
$231,518,781
Debt Securities, Preferred Stock,
Common Stock and Depositary Shares
Mid-America Apartment Communities, Inc. is a real estate investment
trust focused on developing, owning and operating apartment communities.
As of June 30, 1998, we owned and operated 120 apartment communities
containing 31,791 apartment units in 13 states. We also manage but do not
own 43 properties containing 5,387 apartment units.
The New York Stock Exchange lists our Common Stock (symbol: MAA), 9.5%
Series A Cumulative Preferred Stock (symbol: MAA PrA), 8 7/8% Series B
Cumulative Preferred Stock (symbol: MAA PrB), and 9 3/8% Series C
Cumulative Redeemable Preferred Stock (symbol: MAA PrC).
We are offering and selling up to $231,518,781 of debt securities,
preferred stock, common stock, and depositary shares. We will provide
specific terms of these securities in supplements to this prospectus. You
should read this prospectus and any supplement carefully before you invest.
To ensure that we qualify as a REIT, no person may own more than 9.9% of
the total value of our outstanding capital stock, with certain exceptions.
See "Description of Capital Stock -- Ownership Limitations."
See "Risk Factors" beginning on page 2 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.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is August , 1998.
<PAGE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we
filed with the SEC utilizing a "shelf" registration process. Over
the next two years, we may sell any combination of the securities
described in this prospectus in one or more offerings up to a
total dollar amount of $231,518,781. This prospectus provides
you with a general description of the securities we may offer.
Each time we sell securities, we will provide a prospectus
supplement that will describe the securities being offered and
the terms of that offering. The prospectus supplement may also
add to, update or change information contained in this
prospectus. You should read both this prospectus and any
prospectus supplement. You should also read the additional
information described under the heading WHERE YOU CAN FIND MORE
INFORMATION.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy
statements and other information with the SEC. Our SEC filings
are available to the public over the Internet at the SEC's web
site at http://www.sec.gov. You may also read and copy documents
at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference
rooms.
The SEC allows us to "incorporate by reference" the
information we file with them, which means that we can disclose
important information to you by referring you to those documents.
The information incorporated by reference is an important part
of this prospectus, and information that we file later with the
SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below. We also
incorporate all future filings made with the SEC under Sections
13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until we have sold all of the securities.
* Annual Report on Form 10-K for the year ended December 31,
1997, as amended by Forms 10-K/A filed with the SEC on April 2,
1998 and April 27, 1998;
* Quarterly Report on Form 10-Q for the quarter ended March
31, 1998;
* Amended Quarterly Reports on Form 10-Q/A for the quarter
ended March 31, 1997, dated February 2, 1998, and the quarter
ended June 30, 1997, dated February 2, 1998.
* Current Reports on Form 8-K filed with the SEC on February
19, 1998, March 13, 1998, April 30, 1998, May 26, 1998, June 12,
1998 (2 filed), June 16, 1998, June 24, 1998, June 29, 1998, July
1, 1998, and July 28, 1998;
* Amended Current Reports on Form 8-K/A filed with the SEC on
February 5, 1998, May 26, 1998 and July 30, 1998;
* Proxy Statement for the Company's 1998 Annual Meeting of
Shareholders filed with the SEC on April 30, 1998;
* the description of the Company's common stock contained in
Form 8-A filed with the SEC on December 14, 1993;
* the description of the Company's 9.5% Series A Cumulative
Preferred Stock contained in Form 8-A/A filed with the SEC on
October 11, 1996;
* the description of the Company's 8 7/8% Series B Cumulative
Preferred Stock contained in Form 8-A/A filed with the SEC on
November 19, 1997; and
* the description of the Company's 9 3/8% Series C Cumulative
Redeemable Preferred Stock contained in Form 8-A/A filed with the
SEC on June 26, 1998.
You may request a copy of these filings at no cost, by writing
or telephoning us at the following address: Corporate Secretary,
Mid-America Apartment Communities, Inc., 6584 Poplar Avenue,
Suite 340, Memphis, Tennessee 38138, (901) 682-6600.
You should rely only on the information incorporated by
reference or provided in this prospectus or any prospectus
supplement. We have not authorized anyone else to provide you
with different information. We are making offers of these
securities only in states where the offer is permitted. You
should not assume that the information in this prospectus or any
prospectus supplement is accurate as of any date other than the
date on the front of those documents.
<PAGE>
THE COMPANY
We are a Memphis, Tennessee-based REIT. As of June 30, 1998,
we owned and operated 120 apartment communities containing 31,791
apartment units in 13 states. We also manage but do not own 43
properties containing 5,387 apartment units.
In November 1997, we acquired Flournoy Development Company,
certain of its affiliated entities and apartment communities
owned by Flournoy Development Company and such affiliates. As a
result of these transactions, we now own, manage, develop and
build apartment communities throughout the Southeast and in
Texas.
Our primary operating subsidiaries are:
* Mid-America Apartments, L.P., which owns outright and
operates 41 apartment communities and which has an ownership
interest in and, as noted below, operates 73 additional apartment
communities through subsidiary limited partnerships of which we
or another of our subsidiaries is general partner;
* Mid-America Apartments of Texas, L.P., which owns 8
apartment communities, all located in Texas. Our wholly owned
subsidiary is a 1% general partner, and Mid-America Apartments,
L.P. is the sole 99% limited partner of Mid-America Apartments of
Texas, L.P.
* Mid-America Capital Partners, L.P., which owns 23 apartment
communities and 3 separate apartment phases. Our wholly owned
subsidiary is a 1% general partner, and Mid-America Apartments,
L.P. is the sole 99% limited partner of Mid America Capital
Partners, L.P.;
In addition, we own outright and operate 2 apartment
communities and own 4 through "qualified REIT subsidiaries." We
are the sole general partner and Mid-America Apartments, L.P. is
the sole limited partner of 52 limited partnerships that own 42
apartment communities. We have preserved each of those limited
partnerships either to maintain favorable financing or to
preserve the status of the Flournoy Development Company merger as
a tax-free reorganization.
We seek to acquire and develop apartment communities appealing
to middle and upper income residents primarily in mid-size cities
in the southeastern United States and Texas. Approximately 71%
of our apartment units are located in Tennessee, Georgia, Florida
and Texas markets. Our strategic focus is to provide our
residents high quality apartment units in attractive community
settings, characterized by extensive landscaping and attention to
aesthetic detail. We utilize our experience and expertise in
maintenance, landscaping and management to raise occupancy levels
and per unit average rentals. The following table set forth
certain of our operating data for the periods indicated.
1997 1996 1995
----- ----- -----
Apartment units at year end 30,579 19,280 18,220
Average monthly rental per
apartment unit at year end $568 $529 $508
Average occupancy for the year 94.7% 95.4% 95.2%
As of June 30, 1998, our executive officers and directors
owned approximately 18% of our combined outstanding Common Stock
and common units of limited partnership interest in Mid-America
Apartments, L.P., which are redeemable for our common stock on a
one-for-one basis or, at our option, for cash. We use stock-
based and other incentive compensation plans to motivate
employees to meet long-term management goals that are consistent
with creating value for our shareholders.
Our principal executive offices are located at 6584 Poplar
Avenue, Suite 340, Memphis, Tennessee 38128 and its telephone
number is (901) 682-6600.
<PAGE>
RISK FACTORS
Before you invest in our securities, you should be aware that
your investment is subject to various risks, including those
described below. You should consider carefully these risks
together with all of the other information included in this
Prospectus before you decide to purchase any of our securities.
Some of the information in this prospectus or any prospectus
supplement may contain forward-looking statements. Such
statements can be identified by the use of forward-looking words
such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. These statements discuss
future expectations or contain projections. When considering
such forward-looking statements, you should keep in mind the
following risk factors. The risk factors could cause our actual
results to differ materially from those contained in any
forward-looking statement.
Increase in Development Activity
We have increased our financial and management commitment to
the development and construction of new apartment communities as
well as purchasing existing apartment communities. In connection
with development and construction of an apartment community, we
run the risk that:
* construction costs will exceed our budget, which could make
completion of the apartment community uneconomical;
* the newly completed apartment community will not generate
the profits we anticipate; and
* we can not obtain all necessary zoning, land-use, building,
occupancy, and other required governmental permits and
authorizations.
Any of these events could adversely affect the return on our
investment in developed apartment communities and could require
us to use cash reserves or cash flows from other apartment
communities to cover shortfalls. Such shortfalls could prevent
us from making expected distributions.
Real Estate Investment Risks
Our ability to make distributions to you depends on our
ability to generate funds from operations in excess of scheduled
principal payments on debt and capital expenditure requirements.
Funds from operations and the value of our properties may be
adversely affected by events or conditions which are beyond our
control. Such events or conditions could include:
* competition from other apartment communities;
* overbuilding of new apartment units in our markets, which
might adversely affect apartment occupancy or rental rates;
* increases in operating costs (including real estate taxes)
due to inflation and other factors, which may not necessarily be
offset by increased rents;
* our inability to rent properties on favorable economic
terms;
* changes in governmental regulations and the related costs of
compliance;
* changes in tax laws and housing laws including the enactment
of rent control laws or other laws regulating multifamily
housing;
* changes in interest rate levels and the availability of
financing, which could lead renters to purchase homes (if
interest rates drop and home loans are available more readily) or
increase our acquisition and operating costs (if interest rates
increase and financing is less readily available); and
* the relative illiquidity of real estate investments.
Financing Risks
Risks Associated with Debt Financing
We currently have a substantial amount of debt. Payments of
principal and interest on borrowings may leave us with
insufficient cash resources to operate the apartment communities
or pay distributions required to be paid in order for us to
maintain our qualification as a REIT. We intend to keep our
total debt below 60% of the undepreciated book value of our
assets, although our charter and bylaws do not limit our debt
levels. Circumstances may cause us to exceed that target from
time to time. As of June 30, 1998, our ratio of debt to
undepreciated book value was approximately 50%. Our Board of
Directors can modify this policy at any time which could allow us
to become more highly leveraged and decrease our ability to make
distributions to our shareholders. Currently, our operating cash
flow is insufficient to finance our development activities.
Therefore, we will have to borrow more money to pay for our
development activities.
Variable Interest Rates
At June 30, 1998, $78 million of our debt bore interest at a
variable rate. In addition, we may incur additional debt in the
future that also bears interest at variable rates. Variable-rate
debt creates higher debt service requirements if market interest
rates increase, which would adversely affect our cash flow and
the amounts available to pay distributions to shareholders.
Regulatory Matters
Environmental Matters
Various Federal, state and local laws require property owners
or operators to pay for the costs of removal or remediation of
certain hazardous substances released on a property. Such laws
often impose liability without regard to whether the owner or
operator knew of, or was responsible for, the release of the
hazardous substances. The presence of hazardous substances may
adversely affect occupancy of any contaminated apartment
communities and our ability to sell or borrow against
contaminated properties. In addition to the costs associated
with investigation and remediation actions brought by
governmental agencies, the presence of hazardous wastes on a
property could result in personal injury or similar claims by
private plaintiffs. Various laws also impose, on persons who
arrange for the disposal or treatment of hazardous or toxic
substances, liability for the cost of removal or remediation of
hazardous substances at the disposal or treatment facility. These
laws often impose liability whether or not the person arranging
for the disposal ever owned or operated the disposal facility.
Phase I environmental site assessments have been obtained on
all of our apartment communities. The purpose of Phase I
environmental site assessments is to identify potential sources
of contamination for which a company may be responsible and to
assess the status of environmental regulatory compliance. The
phase I environmental site assessments did not reveal any
environmental condition, liability or compliance concern that we
believe would have a material adverse affect on our business,
assets or results of operations, nor are we aware of any such
condition, liability or concern by any other means. However, it
is possible that the environmental site assessments relating to
any one of the properties did not reveal all environmental
conditions, liabilities or compliance concerns. It is also
possible that there are material environmental conditions,
liabilities or compliance concerns that arose at a property after
the related review was completed.
Americans with Disabilities Act Compliance
Under the Americans with Disabilities Act of 1990 (the "ADA"),
all public accommodations and commercial facilities must meet
certain Federal requirements related to access and use by
disabled persons. Compliance with the ADA requirements could
require removal of access barriers, and non-compliance could
result in the U.S. government imposing fines or private litigants
winning damages. The ADA does not consider 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. We believe that our properties are
substantially in compliance with these requirements.
Fair Housing Amendments Act Compliance
The Fair Housing Amendments Act of 1988 (the "FHA") requires
apartment communities first occupied after March 13, 1990 to be
accessible to the handicapped. Non-compliance with the FHA could
result in the U.S. government imposing fines or private litigants
winning damages. We believe that our properties are
substantially in compliance with these requirements.
Tax Risks
Consequences of the Failure to Qualify as a REIT
We believe that we operate in a manner that enables us to
meet the requirements for qualification as a REIT for Federal
income tax purposes. We have not requested, and do not plan to
request, a ruling from the Internal Revenue Service that we
qualify as a REIT. We have, however, received an opinion from
the law firm of Baker, Donelson, Bearman & Caldwell that we met
the requirements for qualification as a REIT for the taxable
years ended December 31, 1994 through 1997, and that we are in a
position to continue such qualification.
You should be aware that opinions of counsel are not binding
on the IRS or any court. Furthermore, the conclusions stated in
the opinion are conditioned on, and our continued qualification
as a REIT will depend on, our meeting various requirements. Such
requirements are discussed in more detail under the heading
"Federal Income Tax Considerations -- Requirements for
Qualification".
If we fail to qualify as a REIT, we would not be allowed a
deduction for distributions to shareholders in computing our
taxable income and would be required to pay substantial federal
and state income taxes. We also could be subject to the Federal
alternative minimum tax. Therefore, if we lose our REIT status,
the funds available for distribution to you would be reduced
substantially for each of the years involved. Unless we were
entitled to relief under specific statutory provisions, we could
not elect to be taxed as a REIT for four taxable years following
the year during which we were disqualified. Therefore, if we lose
our REIT status, the funds available for distribution to you
would be reduced substantially for each of the years involved.
See "Federal Income Tax Considerations -- Failure to Qualify,".
Effect of Distribution Requirements
As a REIT, we are subject to annual distribution requirements,
which limit the amount of cash we have available for other
business purposes, including amounts to fund our growth. See
"Federal Income Tax Considerations -- Annual Distribution
Requirements".
Recent and Pending Legislation
The recently enacted Taxpayer Relief Act of 1997 made certain
changes to the requirements to qualify as a REIT. President
Clinton's budget proposal for fiscal year 1999 contains two
provisions which could effect us. See Federal Income Tax
Considerations -- Recent and Pending Legislation" for a description
of such items.
Other Tax Liabilities
Even if we qualify as a REIT, we and our subsidiaries may
be subject to certain Federal, state, and local taxes on our
income and property that could reduce operating cash flow.
Possible Adverse Consequences of Limits on Ownership of Shares
Our charter limits ownership of our capital stock by any single
shareholder to 9.9% of the value of all outstanding shares of our
capital stock, both common and preferred. The charter also
prohibits anyone from buying shares if the purchase would result
in us losing our REIT status. This could happen if a share
transaction results in fewer than 100 persons owning all of our
shares or in five or fewer persons, applying certain broad
attribution rules of the Internal Revenue Code, owning 50% or
more of our shares. If you acquire shares in excess of the
ownership limit or in violation of the ownership requirements of
the Internal Revenue Code for REITs, we:
* will consider the transfer to be null and void;
* will not reflect the transaction on our books;
* may institute legal action to enjoin the transaction;
* will not pay dividends or other distributions with respect
to those shares;
* will not recognize any voting rights for those shares;
* will consider the shares held in trust for the benefit of
the Company; and
* will either direct you to sell the shares and turn over any
profit to us, or we will redeem the shares. If we redeem the
shares, you will be paid a price equal to the lesser of:
(a) the price paid by the transferee of the shares or
(b) the average of the last reported sales prices on
the New York Stock Exchange on the ten trading days immediately
preceding the date fixed for redemption by our Board of
Directors.
If you acquire shares in violation of the limits on ownership
described above (i) you may lose your power to dispose of the
shares, (ii) you may not recognize profit from the sale of such
shares if the market price of the shares increases and (iii) you
may be required to recognize a loss from the sale of such shares
if the market price decreases.
Ability of Board of Directors to Change Certain Policies
Our major policies, including our policies with respect to
acquisitions, financing, growth, operations, debt capitalization
and distributions, will be determined by the Board of Directors.
The Board of Directors may amend or revise these policies from
time to time without your consent.
Limitations on Acquisition and Change in Control
Ownership Limit
The 9.9% ownership limit discussed above may have the effect
of precluding acquisition of control of us by a third party
without the consent of our Board of Directors. See "Description
of Capital Stock -- Ownership Limitations".
Preferred Stock
Our charter authorizes our Board of Directors to issue up to
20 million shares of preferred stock. The Board of Directors may
establish the preferences and rights of any preferred shares
issued. The issuance of preferred stock could have the effect of
delaying or preventing someone from taking control of us, even if
a change in control were in our shareholders' best interests.
Currently, we have the following amounts of preferred stock
issued and outstanding:
* 2,000,000 shares of 9.5% Series A Cumulative Preferred
Stock;
* 1,938,830 shares of 8 7/8% Series B Cumulative Preferred
Stock; and
* 2,000,000 shares of 9 3/8% Series C Cumulative Redeemable
Preferred Stock
See "Description of the Capital Stock".
Tennessee Anti-Takeover Statutes
As a Tennessee corporation, we are subject to various
legislative acts which impose certain restrictions and require
certain procedures with respect to certain takeover offers and
business combinations, including combinations with interested
shareholders and share repurchases from certain shareholders.
These statutes may delay or prevent offers to acquire us and
increase the difficulty of consummating any such offers, even if
our acquisition would be in our shareholders' best interests.
USE OF PROCEEDS
Unless otherwise described in a prospectus supplement, we will
contribute the net proceeds of any sale of the offered securities
to Mid-America Apartments, L.P. in exchange for units of limited
partnership interests having characteristics similar to those of
the offered securities. Mid-America Apartments, L.P. will use
the net proceeds for general purposes, which may include the
acquisition or development of apartment communities, the
improvement of our apartment communities and the repayment of
debt.
CONSOLIDATED RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DISTRIBUTIONS AND
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
The consolidated ratio of earnings to combined fixed charges
and preferred stock distributions and the consolidated ratio of
earnings to combined fixed charges for each of the periods
indicated is as follows:
Six Months
Year Ended December 31, Ended June 30
-------------------------------- -------------
1993 1994 1995 1996 1997 1998
Ratio of Earnings
to Combined Fixed
Charges and
Preferred Stock
Distributions 1.32x 1.82x 1.50x 1.52x 1.45x 1.28x
Ratio of Earnings
to Fixed Charges 1.32x 1.82x 1.50x 1.57x 1.70x 1.51x
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
50,000,000 shares of Common Stock and 20,000,000 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 Company's 9.5%
Series A Cumulative Preferred Stock (the "Series A Preferred
Stock"), 8 7/8% Series B Cumulative Preferred Stock (the "Series
B Preferred Stock"), 9 3/8% Series C Cumulative Redeemable
Preferred Stock (the "Series C 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, the Series B Preferred Stock, the Series C
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 following description of the terms of the Preferred Stock
sets forth general terms and provisions of the Preferred Stock to
which a Prospectus Supplement may relate. Specific terms of any
series of Preferred Stock offered by a Prospectus Supplement will
be described in that Prospectus Supplement. The description set
forth below is subject to and qualified in its entirety by
reference to the Articles of Amendment to the Charter fixing the
preferences, limitations and relative rights of a particular
series of Preferred Stock.
General
Under the Charter, the Board of Directors of the Company is
authorized, without further shareholder action, to provide for
the issuance of up to 20,000,000 shares of Preferred Stock, in
such series, with such preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends,
qualifications or other provisions, as may be fixed by the Board
of Directors. As a result, the Board of Directors may afford the
holders of any series or class of Preferred Stock preferences,
powers, and rights, voting or otherwise, senior to the rights of
holders of Common Stock.
The Preferred Stock will have the dividend, liquidation,
redemption, conversion and voting rights set forth below unless
otherwise provided in the Prospectus Supplement relating to a
particular series of Preferred Stock. Reference is made to the
Prospectus Supplement relating to the particular series of
Preferred Stock offered thereby for specific terms, including:
(i) the title and liquidation preference per share of such
Preferred Stock and the number of shares offered; (ii) the price
at which such series will be issued; (iii) the dividend rate (or
method of calculation), the dates on which dividends shall be
payable and the dates from which dividends shall commence to
accumulate; (iv) any redemption or sinking fund provisions of
such series; (v) any conversion provisions of such series; and
(vi) any additional dividend, liquidation, redemption, sinking
fund and other rights, preferences, privileges, limitations and
restrictions of such series.
The Preferred Stock will, when issued, be fully paid and
nonassessable. Unless otherwise specified in the Prospectus
Supplement relating to a particular series of Preferred Stock,
each series will rank on a parity as to dividends and
distributions in the event of a liquidation with each other
series of Preferred Stock and, in all cases, will be senior to
the Common Stock.
Dividend Rights
Holders of Preferred Stock of each series will be entitled to
receive, when, as and if declared by the Board of Directors, out
of assets of the Company legally available therefor, cash
dividends at such rates and on such dates as are set forth in the
Prospectus Supplement relating to such series of Preferred Stock.
Such rate may be fixed or variable or both and may be cumulative,
noncumulative or partially cumulative.
If the applicable Prospectus Supplement so provides, as long
as any shares of Preferred Stock are outstanding, no dividends
will be declared or paid or any distributions be made on the
Common Stock, other than a dividend payable in Common Stock,
unless the accrued dividends on each series of Preferred Stock
have been fully paid or declared and set apart for payment and
the Company will have set apart all amounts, if any, required to
be set apart for all sinking funds, if any, for each series of
Preferred Stock.
If the applicable Prospectus Supplement so provides, when
dividends are not paid in full upon any series of Preferred Stock
and any other series of Preferred Stock ranking on a parity as to
dividends with such series of Preferred Stock, all dividends
declared upon such series of Preferred Stock and any other series
of Preferred Stock ranking on a parity as to dividends will be
declared pro rata so that the amount of dividends declared per
share on such series of Preferred Stock and such other series
will in all cases bear to each other the same ratio that accrued
dividends per share on such series of Preferred Stock and such
other series bear to each other.
Each series of Preferred Stock will be entitled to dividends
as described in the Prospectus Supplement relating to such
series, which may be based upon one or more methods of
determination. Different series of Preferred Stock may be
entitled to dividends at different dividend rates or based upon
different methods of determination. Except as provided in the
applicable Prospectus Supplement, no series of Preferred Stock
will be entitled to participate in the earnings or assets of the
Company.
Rights upon Liquidation
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of each
series of Preferred Stock will be entitled to receive out of the
assets of the Company available for distribution to shareholders
the amount stated or determined on the basis set forth in the
Prospectus Supplement relating to such series, which may include
accrued dividends, if such liquidation, dissolution or winding up
is involuntary or may equal the current redemption price per
share (otherwise than for the sinking fund, if any provided for
such series) provided for such series set forth in such
Prospectus Supplement, if such liquidation, dissolution or
winding up is voluntary, and on such preferential basis as is set
forth in such Prospectus Supplement. If, upon any voluntary or
involuntary liquidation, dissolution or winding up of the
Company, the amounts payable with respect to Preferred Stock of
any series and any other shares of stock of the Company ranking
as to any such distribution on a parity with such series of
Preferred Stock are not paid in full, the holders of Preferred
Stock of such series and of such other shares will share ratably
in any such distribution of assets of the Company in proportion
to the full respective preferential amounts to which they are
entitled or on such other basis as is set forth in the applicable
Prospectus Supplement. The rights, if any, of the holders of any
series of Preferred Stock to participate in the assets of the
Company remaining after the holders of other series of Preferred
Stock have been paid their respective specified liquidation
preferences upon any liquidation, dissolution or winding up of
the Company will be described in the Prospectus Supplement
relating to such series.
Redemption
A series of Preferred Stock may be redeemable, in whole or in
part, at the option of the Company, and may be subject to
mandatory redemption pursuant to a sinking fund, in each case
upon terms, at the times, the redemption prices and for the types
of consideration set forth in the Prospectus Supplement relating
to such series. The Prospectus Supplement relating to a series
of Preferred Stock which is subject to mandatory redemption shall
specify the number of shares of such series that shall be
redeemed by the Company in each year commencing after a date to
be specified, at a redemption price per share to be specified,
together with an amount equal to any accrued and unpaid dividends
thereon to the date of redemption.
If, after giving notice of redemption to the holders of a
series of Preferred Stock, the Company deposits with a designated
bank funds sufficient to redeem such Preferred Stock, then from
and after such deposit, all shares called for redemption will no
longer be outstanding for any purpose, other than the right to
receive the redemption price and the right to convert such shares
into other classes of stock of the Company. The redemption price
will be stated in the Prospectus Supplement relating to a
particular series of Preferred Stock.
Except as indicated in the applicable Prospectus Supplement,
the Preferred Stock is not subject to any mandatory redemption at
the option of the holder.
Sinking Fund
The Prospectus Supplement for any series of Preferred Stock
will state the terms, if any, of a sinking fund for the purchase
or redemption of that series.
Conversion and Preemptive Rights
The Prospectus Supplement for any series of Preferred Stock
will state the terms, if any, on which shares of that series are
convertible into or redeemable for shares of Common Stock or
another series of Preferred Stock. The Preferred Stock will have
no preemptive rights.
Voting Rights
Except as indicated in the Prospectus Supplement relating to a
particular series of Preferred Stock, or except as expressly
required by Tennessee law, a holder of Preferred Stock will not
be entitled to vote. Except as indicated in the Prospectus
Supplement relating to a particular series of Preferred Stock, in
the event the Company issues full shares of any series of
Preferred Stock, each such share will be entitled to one vote on
matters on which holders of such series of Preferred Stock are
entitled to vote.
Under Tennessee law, the affirmative vote of the holders of a
majority of the outstanding shares of all series of Preferred
Stock entitled to vote, voting as a separate voting group, or of
all outstanding votes of all series of Preferred Stock equally
affected, as a voting group, will be required for (i) the
authorization of any class of stock ranking prior to or on a
parity with Preferred Stock or the increase in the number of
authorized shares of any such stock, (ii) any increase in the
number of authorized shares of Preferred Stock and (iii) certain
amendments to the Charter that may be adverse to the rights of
Preferred Stock outstanding.
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.
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.
Series B Preferred Stock
- ------------------------
Maturity
The Series B Preferred Stock has no stated maturity and is not
subject to any sinking fund or mandatory redemption.
Rank
The Series B 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 of the Company, and to all equity securities ranking junior
to the Series B Preferred Stock with respect to dividend rights
or rights upon liquidation, dissolution or winding up of the
Company; (ii) on a parity with the equity securities of the
Company ranking in parity with the Series B Preferred Stock; and
(iii) junior to all existing and future indebtedness of the
Company.
Dividends
Holders of shares of the Series B 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 dividends at the rate of 8 7/8% per annum of the $25
liquidation preference per share (equivalent to a fixed annual
amount of $2.21875 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 B 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 dividends 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 B
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 B Preferred Stock
is not redeemable prior to December 1, 2002. On and after such
date, the Series B 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 B Preferred Stock generally will have no
voting rights except as required by law. However, whenever
distributions on any shares of Series B 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 B 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 B Preferred Stock that would be
materially adverse to the rights of holders of the Series B
Preferred Stock cannot be made without the affirmative vote of
the holders of at least two-thirds of the outstanding Series B
Preferred Stock.
Conversion
The Series B Preferred Stock is not convertible into or
exchangeable for any other property or securities of the Company.
Series C Preferred Stock
- ------------------------
Maturity
The Series C Preferred Stock has no stated maturity and is not
subject to any sinking fund or mandatory redemption.
Rank
The Series C 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 of the Company, and to all equity securities ranking junior
to the Series C Preferred Stock with respect to dividend rights
or rights upon liquidation, dissolution or winding up of the
Company; (ii) on a parity with the equity securities of the
Company ranking in parity with the Series C Preferred Stock; and
(iii) junior to all existing and future indebtedness of the
Company.
Dividends
Holders of shares of the Series C 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 dividends at the rate of 9 3/8% per annum of the $25
liquidation preference per share (equivalent to a fixed annual
amount of $2.34375 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 C 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 dividends 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 C
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 C Preferred Stock
is not redeemable prior to June 30, 2003. On and after such
date, the Series C 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.
The redemption price (other than the portion thereof consisting
of accrued and unpaid dividends) will be payable solely out of
proceeds of the sale of other capital stock of the Company, which
may include other series of the Company's Preferred Stock, and
from no other source.
Voting Rights
Holders of Series C Preferred Stock generally will have no
voting rights except as required by law. However, whenever
distributions on any shares of Series C 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 C 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 C Preferred Stock that would be
materially adverse to the rights of holders of the Series C
Preferred Stock cannot be made without the affirmative vote of
the holders of at least two-thirds of the outstanding Series C
Preferred Stock.
Conversion
The Series C 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.
A "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.
An "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.
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. 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, 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.
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.
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.
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. 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.
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.
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.
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.
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.
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.
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.
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.
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.
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. 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.
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.
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. 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.
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. 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.
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.
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.
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.
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.
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 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.
The Indenture contains provisions for convening meetings of
the holders of Debt Securities of a series. 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. 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.
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.
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.
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 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") or (b) to be released from its obligations with
respect to such Debt Securities under the Indenture (being the
restrictions described under "Certain Covenants") or, if provided
pursuant to 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"), 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.
"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.
Unless otherwise provided in the applicable Prospectus
Supplement, if after the Company has deposited funds and/or
Government Obligations to effect defeasance or covenant
defeasance with respect to Debt Securities of any series, (a) the
holder of a Debt Security of such series is entitled to, and
does, elect pursuant to the 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. "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.
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
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
depositary (the "Depositary") identified in the applicable
Prospectus Supplement relating to such series. Global Securities
may be issued in either registered or bearer form and in either
temporary or permanent form. The specific terms of the
depositary arrangement with respect to a series of Debt
Securities will be described in the applicable Prospectus
Supplement relating to such series. The laws of some
jurisdictions require that certain purchasers of securities take
physical delivery 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 DEPOSITARY SHARES
General
The Company may, at its option, elect to offer fractional
shares of Preferred Stock, rather than full shares of Preferred
Stock. In such event, the Company will issue to the public
receipts for Depositary Shares, each of which will represent a
fraction (to be set forth in the Prospectus Supplement relating
to a particular series of Preferred Stock) of a share of a
particular series of Preferred Stock as described below.
The shares of any series of Preferred Stock represented by
Depositary Shares will be deposited under a Deposit Agreement
(the "Deposit Agreement") between the Company and the depositary
named in the applicable Prospectus Supplement (the "Depositary").
Subject to the terms of the Deposit Agreement, each owner of a
Depositary Share will be entitled, in proportion to the
applicable fraction of a share of Preferred Stock represented by
such Depositary Share, to all the rights and preferences of the
Preferred Stock represented thereby (including dividend, voting,
redemption and liquidation rights).
The Depositary Shares will be evidenced by depositary receipts
issued pursuant to the Deposit Agreement ("Depositary Receipts").
Depositary Receipts will be distributed to those persons
purchasing the fractional shares of Preferred Stock in accordance
with the terms of the offering. If Depositary Shares are issued,
copies of the forms of Deposit Agreement and Depositary Receipt
will be incorporated by reference in the Registration Statement
of which this Prospectus is a part, and the following summary is
qualified in its entirety by reference to such documents.
Pending the preparation of definitive engraved Depositary
Receipts, the Depositary may, upon the written order of the
Company, issue temporary Depositary Receipts substantially
identical to (and entitling the holders thereof to all the rights
pertaining to) the definitive Depositary Receipts but not in
definitive form. Definitive Depositary Receipts will be prepared
thereafter without unreasonable delay, and temporary Depositary
Receipts will be exchangeable for definitive Depositary Receipts
at the Company's expense.
Dividends and Other Distributions
The Depositary will distribute all cash dividends or other
cash distributions received in respect of the Preferred Stock to
the record holders of Depositary Shares relating to such
Preferred Stock in proportion to the number of such Depositary
Shares owned by such holders. The Depositary shall distribute
only such amount, however, as can be distributed without
attributing to any holder of Depositary Shares a fraction of one
cent, and the balance not so distributed shall be added to and
treated as part of the next sum received by the Depositary for
distribution to record holders of Depositary Shares.
In the event of a distribution other than in cash, the
Depositary will distribute property received by it to the record
holders of Depositary Shares entitled thereto, unless the
Depositary determines that it is not feasible to make such
distribution, in which case the Depositary may, with the approval
of the Company, sell such property and distribute the net
proceeds from such sale to such holders.
The Deposit Agreement will also contain provisions relating to
the manner in which any subscription or similar rights offered by
the Company to holders of the Preferred Stock shall be made
available to the holders of Depositary Shares.
Redemption of Depositary Shares
If a series of Preferred Stock represented by Depositary
Shares is subject to redemption, the Depositary Shares will be
redeemed from the proceeds received by the Depositary resulting
from the redemption, in whole or in part, of such series of
Preferred Stock held by the Depositary. The redemption price per
Depositary Share will be equal to the applicable fraction of the
redemption price per share payable with respect to such series of
Preferred Stock. Whenever the Company redeems shares of
Preferred Stock held by the Depositary, the Depositary will
redeem as of the same redemption date the number of Depositary
Shares representing the shares of Preferred Stock so redeemed.
If fewer than all the Depositary Shares are to be redeemed, the
Depositary Shares to be redeemed will be selected by lot or pro
rata as may be determined by the Depositary.
After the date fixed for redemption, the Depositary Shares so
called for redemption will no longer be outstanding and all
rights of the holders of the Depositary Shares will cease, except
the right to receive the money, securities or other property
payable upon such redemption and any money, securities or other
property to which the holders of such Depositary Shares were
entitled upon such redemption upon surrender to the Depositary of
the Depositary Receipts evidencing such Depositary Shares.
Voting the Preferred Stock
Upon receipt of notice of any meeting at which the holders of
Preferred Stock are entitled to vote, the Depositary will mail
the information contained in such notice of meeting to the record
holders of the Depositary Shares relating to such Preferred
Stock. Each record holder of such Depositary Shares on the
record date (which will be the same date as the record date for
the Preferred Stock) will be entitled to instruct the Depositary
as to the exercise of the voting rights pertaining to the amount
of Preferred Stock represented by such holder's Depositary
Shares. The Depositary will endeavor, insofar as practicable, to
vote the amount of Preferred Stock represented by such Depositary
Shares in accordance with such instructions, and the Company will
agree to take all action which may be deemed necessary by the
Depositary in order to enable the Depositary to do so. The
Depositary may abstain from voting shares of Preferred Stock to
the extent it does not receive specific instructions from the
holders of Depositary Shares representing such Preferred Stock.
Amendment and Termination of the Depositary Agreement
The form of Depositary Receipt evidencing the Depositary
Shares and any provision of the Deposit Agreement may at any time
be amended by agreement between the Company and the Depositary.
However, any amendment that materially and adversely alters the
rights of the holders of Depositary Shares will not be effective
unless such amendment has been approved by the holders of at
least a majority of the Depositary Shares then outstanding. The
Deposit Agreement may be terminated by the Company or the
Depositary only if (i) all outstanding Depositary Shares have
been redeemed or (ii) there has been a final distribution in
respect of the Preferred Stock in connection with any
liquidation, dissolution or winding up of the Company and such
distribution has been distributed to the holders of Depositary
Receipts.
Charges of Depositary
The Company will pay all transfer and other taxes and
governmental charges arising solely from the existence of the
depositary arrangements. The Company will pay charges of the
Depositary in connection with the initial deposit of the
Preferred Stock and any redemption of the Preferred Stock.
Holders of Depositary Receipts will pay other transfer and other
taxes and governmental charges and such other charges, including
a fee for the withdrawal of shares of Preferred Stock upon
surrender of Depositary Receipts, as are expressly provided in
the Deposit Agreement to be for their accounts.
Miscellaneous
The Depositary will forward to holders of Depository Receipts
all reports and communications from the Company that are
delivered to the Depositary and that the Company is required to
furnish to holders of Preferred Stock.
Neither the Depositary nor the Company will be liable if it is
prevented or delayed by law or any circumstance beyond its
control in performing its obligations under the Deposit
Agreement. The obligations of the Company and the Depositary
under the Deposit Agreement will be limited to performance in
good faith of their duties thereunder and they will not be
obligated to prosecute or defend any legal proceeding in respect
of any Depositary Shares or Preferred Stock unless satisfactory
indemnity is furnished. They may rely upon written advice of
counsel or accountants, or upon information provided by persons
presenting Preferred Stock for deposit, holders of Depositary
Receipts or other persons believed to be competent and on
documents believed to be genuine.
Resignation and Removal of the Depositary
The Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at
any time remove the Depositary, any such resignation or removal
to take effect upon the appointment of a successor Depositary and
its acceptance of such appointment. Such successor Depositary
must be appointed within 60 days after delivery of the notice of
resignation or removal.
Restrictions on Ownership
In order to safeguard the Company against an inadvertent loss
of REIT status, the Deposit Agreement will contain provisions
restricting the ownership and transfer of Depositary Shares. Such
restrictions will be described in the applicable Prospectus
Supplement and will be referenced on the applicable Depositary
Receipts.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax
considerations that may be relevant to a prospective holder of
the securities offered hereby ("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. and the term "Property Partnership" refers to all subsidiary
partnerships of the Company with the exception of Mid-America
Apartments, L.P., which is referred to as the "Operating
Partnership."
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.
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".
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 "-- 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 gross income attributable to the greater of the
amount by which the Company fails the 75% or 95% test, multiplied
by a fraction intended to reflect the Company's profitability.
Sixth, if the Company 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. To the
extent that the Company elects to retain and pay income tax on
its net capital gain, such retained amounts will be treated as
having been distributed for purposes of the 4% excise tax.
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. See "-- Recent and Pending Legislation."
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 860 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"); (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 10 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" are 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" and, consequently, not subject to
federal corporate income taxation, although they may be subject
to state and local taxation.
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 (based on the REIT's interest in
partnership capital) 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 Property
Partnerships shall be treated as assets, liabilities and items of
the Company for purposes of applying the requirements described
herein.
Income Tests
In order for the Company to maintain its qualification as a
REIT, there are two 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.
The specific application of these tests to the Company is
discussed below.
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; provided, however, that 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. 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.
Fees to perform property management services for apartment
properties that we do not own will not qualify under the 75% or
the 95% gross income tests. Flournoy Development Company, our
unconsolidated subsidiary, receives these fees. In addition, the
Company (or the Operating Partnership) may receive certain other
types of income with respect to our properties that will not
qualify for either of these tests. 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 for non-qualifying income under the
75% and 95% gross income tests.
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
also must 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 Property Partnerships or the stock of a
qualified REIT subsidiary as defined by Section 856(i) of the
Code). See "Recent and Pending Legislation."
For purposes of the asset tests, the Company is deemed to own
its proportionate share of the assets of the Property
Partnerships, and the qualified REITS subsidiaries, rather that
its partnership or shareholder interests therein. 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 of the Property Partnerships or the
qualified REIT subsidiaries to acquire or to dispose of, assets
in the future in a way that would cause it to violate either
asset test.
The Operating Partnership owns all of the nonvoting stock and
1% of the voting stock of Flournoy Development Company which
represents 95% of the equity of Flournoy Development Company with
the remaining equity interests currently owned by certain
officers of Mid-America Apartment Communities, Inc. The Company
is considered to own its pro rata share of the assets of the
Operating Partnership, including the securities of Flournoy
Development Company. The Operating Partnership will not own more
than 10% of the voting securities of Flournoy Development Company
and, therefore, the Company will not own more than 10% of the
voting securities of Flournoy Development Company. In addition,
the Company believes that its pro rata share of the value of the
securities of Flournoy Development Company will not exceed 5% of
the total value of its assets. The Company's belief is based in
part upon its analysis of the anticipated operating cash flows of
Flournoy Development Company. No independent appraisals will be
obtained to support this conclusion, and Baker, Donelson, Bearman
& Caldwell in rendering its opinion regarding our qualification
as a REIT, will rely on a representation by us with respect to
the value of Baker, Donelson, Bearman & Caldwell. There,
however, can be no assurance that the IRS will not contend that
the value of the securities of Flournoy Development Company
exceeds the 5% value limitation.
As noted above, the 5% value requirement must be satisfied at
or within 30 days after the end of each quarter during which we
increase our direct or indirect ownership of securities of
Flournoy Development Company (including as a result
of increasing our interest in the Operating Partnership).
Although we plan to take steps to ensure that we will satisfy the
5% value test for any quarter with respect to which retesting is
to occur, there can be no assurance that such steps always will
be successful or will not require a reduction in the Operating
Partnership's overall interest in Flournoy Development Company.
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 or retained capital gains) 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
dividends 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 may elect to retain and pay income tax
on the net long-term capital gain it receives in a taxable year.
Any such retained amounts would be treated as having been
distributed by the Company for purposes of the 4% excise tax.
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's 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.
Partnership Anti-Abuse Rule
The U.S. Department of the Treasury has issued a final
regulation (the "Anti-Abuse Rule") under the partnership
provisions of the Code (the "Partnership Provisions") that
authorizes the Service, in certain abusive transactions involving
partnerships, to disregard the form of the transaction and recast
it for federal tax purposes as the Service deems appropriate.
The Anti-Abuse Rule applies where a partnership is formed or
utilized in connection with a transaction (or series of related
transactions) with a principal purpose of substantially reducing
the present value of the partners' aggregate federal tax
liability in a manner inconsistent with the intent of the
Partnership Provisions. The Anti-Abuse Rule states that the
Partnership Provisions are intended to permit taxpayers to
conduct joint business (including investment) activities through
a flexible arrangement that accurately reflects the partners'
economic agreement and clearly reflects the partners' income
without incurring any entity-level tax. The purposes for
structuring a transaction involving a partnership are determined
based on all of the facts and circumstances, including a
comparison of the purported business purpose for a transaction
and the claimed tax benefits resulting from the transaction. A
reduction in the present value of the partners' aggregate federal
tax liability through the use of a partnership does not, by
itself, establish inconsistency with the intent of the
Partnership Provisions.
The Anti-Abuse Rule contains an example in which a corporation
that elects to be treated as a REIT contributes substantially all
of the proceeds from a public offering to a partnership in
exchange for a general partnership interest. The limited
partners of the partnership contribute real property assets to
the partnership, subject to liabilities that exceed their
respective aggregate bases in such property. In addition, some
of the limited partners have the right, beginning two years after
the formation of the partnership, to require the redemption of
their limited partnership interests in exchange for cash or REIT
stock (at the REIT's option) equal to the fair market value of
their respective interests in the partnership at the time of the
redemption. The example concludes that the use of the
partnership is not inconsistent with the intent of the
Partnership Provisions and, thus, cannot be recast by the
Service. However, the redemption rights held by the limited
partners of the Operating Partnership do not conform in all
respects to the redemption rights contained in the foregoing
example. In addition, because the Anti-Abuse Rule is
extraordinarily broad in scope and is applied based on an
analysis of all of the facts and circumstances, there can be no
assurance that the Service will not attempt to apply the
Anti-Abuse Rule to the Company. If the conditions of the
Anti-Abuse Rule are met, the Service is authorized to take
appropriate enforcement action, including disregarding the
Property Partnerships for federal tax purposes or treating one or
more of its partners as nonpartners. Any such action potentially
could jeopardize the Company's status as a REIT.
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.
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 or retained capital gains) 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. The Company may elect to retain and pay income tax on
the net long-term capital gain it receives in a taxable year. In
that case, the Company's shareholders would include in income
their proportionate share of the Company's undistributed long-
term capital gain. In addition, the shareholders would be deemed
to have paid their proportionate share of the tax paid by the
Company, which would be credited or refunded to the shareholders.
Each shareholder's basis in his stock would be increased by the
amount of the undistributed long-term capital gain, included in
the shareholder's income, less the shareholder's share of the tax
paid by the Company.
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%. The maximum tax rate on net
capital gains applicable to noncorporate taxpayers is 28% for
sales and exchange of assets held for more than one year but not
more than 18 months, and 20% for sales and exchanges of assets
held for more than 18 months. The maximum tax rate on long-term
capital gain from the sale or exchange of "section 1250 property"
(i.e., depreciable real property) held for more than 18 months is
25% to the extent that such gain would have been treated as
ordinary income if the property were "section 1245 property."
With respect to distribution designated by the Company as capital
gain dividends and any retained capital gains that the Company is
deemed to distribute, the Company may designate (subject to
certain limits) whether such a distribution is taxable to its
shareholders at a 20%, 25%, or 28% rate. 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 has issued final regulations
regarding the backup withholding rules as applied to Non-U.S.
Shareholders. These regulations alter the current system of
backup withholding compliance and are effective for distributions
made after December 31, 1998. 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
has issued final regulations that 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.
The Company is required 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 non-U.S., persons. However, because the shares of
stock are 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 "regularly
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. 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).
Flournoy Development Company
The Company expects a portion of the amounts it will use to
fund distributions to come from distributions on the stock of
Flournoy Development Company. Flournoy Development Company does
not qualify as a REIT, and it will pay federal, state, and local
income taxes on its taxable income at normal corporate rates.
Any federal, state, or local income taxes that Flournoy
Development Company pays will reduce the cash available for
distribution.
As described above, the value of the stock of Flournoy
Development Company that is attributed to us cannot exceed 5% of
the value of our assets at any time when a unit holder in the
Operating Partnership exercises his or her redemption
right. See " -- Requirements for Qualification -- Asset Tests".
The Company believes that it currently satisfy this limit though
this limitation may restrict the ability of Flournoy Development
Company to increase the size of its business unless the value of
our assets is also increasing.
Recent and Pending Legislation
The Taxpayer Relief Act of 1997, enacted August 5, 1997
(the "Taxpayer Relief Act") repealed the 30% gross income test
for REIT qualification for taxable years beginning after August
5, 1997 and made numerous changes to the Internal Revenue Code,
including reducing the maximum tax imposed on net capital gains
from the sale of assets held for more than 18 months by
individuals, trusts, and estates. In addition, the Taxpayer
Relief Act also makes certain changes to the taxation of REITs
and their shareholders.
For gains realized after July 28, 1997, and subject to certain
exceptions, the maximum rate of tax on net capital gains on
individuals, trusts and estates from the sale or exchange of
assets held for more than 18 months has been reduced to 20%, and
such maximum rate is further reduced to 18% for assets acquired
after December 31, 2000 and held for more than five years. For
15% bracket taxpayers, the maximum rate on net capital gains is
reduced to 10%, and such maximum rate is further reduced to 8%
for assets acquired and sold after December 31, 2000 and held for
more than five years. The maximum rate for net capital gains
attributable to the sale of depreciable real property held for
more than 18 months is 25% to the extent of the deductions for
depreciation with respect to such property. Long-term capital
gain allocated to a shareholder by Mid-America Apartment
Communities, Inc. will be subject to the 25% rate to the extent
that the gain does not exceed depreciation on real property sold
by Mid-America Apartment Communities, Inc. The maximum rate of
capital gains tax for capital assets held more than one year but
not more than 18 months remains at 28%. The taxation of capital
gains of corporations was not changed by the Taxpayer Relief Act.
As a result of these changes to the capital gains rates, the
IRS recently issued Notice 97-64 outlining (i) when a REIT may
designate its dividends as either a 20% rate gain distribution,
an unrecaptured section 1250 gain distribution (taxed at 25% as
noted in the preceding paragraph), or a 28% rate gain
distribution and (ii) how to calculate the amount of such
distributions, which may be subject to certain deferral or
bifurcation adjustments. Where a REIT designates a distribution
as a capital gain dividend, which is attributable to a taxable
year ending after May 7, 1997, for purposes of the annual
distribution requirement, the REIT also may designate such
dividend as a 20% rate gain distribution, an unrecaptured section
1250 gain distribution, or a 28% rate gain distribution. Where
no such designation is provided, the dividend will be treated as
a 28% rate gain distribution. These additional designations by
the REIT are effective only to the extent that they do not exceed
certain limitations. For example, the maximum amount of each
distribution that can be classified as either a 20% rate gain
distribution, an unrecaptured section 1250 gain distribution, or
a 28% rate gain distribution must be calculated in accordance
with the Code and the IRS Notice. SHAREHOLDERS SHOULD CONSULT
THEIR OWN TAX ADVISORS WITH RESPECT TO THE IMPLICATIONS OF THE
TAXPAYER RELIEF ACT.
On February 2, 1998, President Clinton released his budget
proposal for fiscal year 1999 (the "Proposal"). Two provisions
contained in the Proposal potentially could affect the Company if
enacted in final form. First, the Proposal would prohibit a REIT
from owning, directly or indirectly, more than 10% of the voting
power or value of all classes of a C corporation's stock (other
than the stock of a qualified REIT subsidiary). Currently, a
REIT may own no more than 10% of the voting stock of a C
corporation, but its ownership of the nonvoting stock of a C
corporation is not limited (other than by the rule that the value
of a REIT's combined equity and debt interests in a C corporation
may not exceed 5% of the value of a REIT's total assets). That
provision is proposed to be effective with respect to stock in a
C corporation acquired by a REIT on or after the date of "first
committee action" with respect to the provision. If enacted as
presently proposed, that provision would severely limit the use
by the Company of taxable subsidiaries to conduct businesses the
income from which would be nonqualifying income if received
directly by the Company.
Second, the Proposal would require recognition of any built-in
gain associated with the assets of a "large" C corporation (i.e.,
a C corporation whose stock has a fair market value of more than
$5 million) upon its conversion to REIT status or merger into a
REIT. That provision is proposed to be effective for conversions
to REIT status effective for taxable years beginning after
January 1, 1999 and mergers of C corporations into REITs that
occur after December 31, 1998. This provision would require
immediate recognition of the "built-in gain" of an acquired C
corporation that is determined to be "large" if, at any time
after December 31, 1998, the C corporation merges into the
Company.
Other Tax Considerations
The Company, the Property Partnerships and the QRSs, 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.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more
underwriters or dealers for public offering and sale by them 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.
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, 1997, 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
Risk Factors
Use of Proceeds
Consolidated Ratio of Earnings to Fixed Charges and
Consolidated Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Distributions
Description of Capital Stock
Description of Debt Securities
Description of Depositary Shares
Federal Income Tax Considerations
Plan of Distribution
Experts
Legal Matters
[RIGHT SIDE OF BACK COVER]
Common Stock
Preferred Stock
Debt Securities
Depositary Shares
MID-AMERICA APARTMENT
COMMUNITIES, INC.
PROSPECTUS
,1998
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 $ 59,000
Printing expense 100,000
Accounting fees and expenses 100,000
Legal fees and expenses 150,000
Miscellaneous expenses 40,000
--------
Total $449,000
========
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)
1.4* Form of Underwriting Agreement (for Depositary Shares)
2.1** Agreement and Plan of Reorganization made as of
September 15, 1997 by and among Mid-America Apartments,
L.P., Mid-America Apartment Communities, Inc. and
Flournoy Development Company
3.1*** Amended and Restated Charter of Mid-America Apartment
Communities, Inc. dated as of January 10, 1994, as
filed with the Tennessee Secretary of State on January
25, 1994
3.2*** Articles of Amendment to the Charter of Mid-America
Apartment Communities, Inc. dated as of January 28,
1994, as filed with the Tennessee Secretary of State on
January 28, 1994
3.3*** Articles of Merger of The Cates Company with and into
Mid-America Apartment Communities, Inc. dated February
2, 1994, as filed with the Tennessee Secretary of State
on February 3, 1994
3.4*** Articles of Merger of America First REIT Advisory
Company, a Nebraska corporation, with and into
Mid-America Apartment Communities, Inc., a Tennessee
corporation, dated June 29, 1995, as filed with the
Tennessee Secretary of State on June 29, 1995
3.5*** Mid-America Apartment Communities, Inc. Articles of
Amendment to the Amended and Restated Charter
Designating and Fixing the Rights and Preferences of A
Series of Preferred Stock dated as of October 9, 1996,
as filed with the Tennessee Secretary of State on
October 10, 1996
3.6*** Mid-America Apartment Communities, Inc. Articles of
Amendment to the Amended and Restated Charter dated
November 17, 1997, as filed with the Tennessee
Secretary of State on November 18, 1997
3.7*** Mid-America Apartment Communities, Inc. Articles of
Amendment to the Amended and Restated Charter
Designating and Fixing the Rights and Preferences of A
Series of Preferred Stock dated as of November 17,
1997, as filed with the Tennessee Secretary of State on
November 18, 1997
3.8*** Articles of Merger of Flournoy Development Company (a
Georgia corporation) with and into Mid-America
Apartment Communities, Inc. (a Tennessee corporation)
dated November 21, 1997, as filed with the Tennessee
Secretary of State on November 25, 1997
3.9*** Mid-America Apartment Communities, Inc. Articles of
Amendment to the Amended and Restated Charter dated
December 15, 1997, as filed with the Tennessee
Secretary of State on December 31, 1997
3.10*** Bylaws of Mid-America Apartment Communities, Inc.
4.1*** Form of Common Share Certificate
4.2*** Form of 9.5% Series A Cumulative Preferred Stock
Certificate
4.3*** Form of 8 7/8% Series B Cumulative Preferred Stock
Certificate
4.4*** Mid-America Apartment Communities, Inc. Articles of
Amendment to the Amended and Restated Charter
Designating and Fixing the Rights and Preferences of a
Series of Preferred Stock dated as of October 9, 1996,
as filed with the Tennessee Secretary of State on
October 10, 1996
4.5*** Mid-America Apartment Communities, Inc. Articles of
Amendment to the Amended and Restated Charter
Designating and Fixing the Rights and Preferences of a
Series of Preferred Stock dated as of November 17,
1997, as filed with the Tennessee Secretary of State on
November 18, 1997
4.6**** Form of 9 3/8% Series C Cumulative Preferred Stock
Certificate
4.7***** Mid-America Apartment Communities, Inc. Articles of
Amendment to the Amended and Restated Charter
Designating and Fixing the Rights and Preferences of a
Series of Preferred Stock, dated as of June 25, 1998,
as filed with the Tennessee Secretary of State on June
30, 1998
4.8* Form of Debt Security
4.9* Form of Preferred Share Certificate
4.10* Form of Depositary Share
4.11* Form of Depositary Receipt
4.12* Form of Depositary Agreement
4.13****** Form of Indenture governing the Debt Securities
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 Exhibit 5.1)
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.
** Filed as Exhibit 10.20 to the Registrant's Current
Report on Form 8-K, filed with the Commission on
September 19, 1997 (Commission File No. 1-12762)
*** Previously filed as exhibits to the Company's Annual
Report on Form10-K for the Year Ended December 31,
1997. Each Exhibit listed herein is similarly numbered
to the Exhibits filed with the Form 10-K.
**** Previously filed as Exhibit 4.2 to the Registrant's
Current Report on Form 8-A/A filed with the Commission
on June 26, 1998
***** Previously filed as Exhibit 4.2 to the Registrant's
Current Report on Form 8-A/A filed with the Commission
on June 26, 1998
****** Incorporated by reference to 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 July 31, 1998.
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
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 Chairman of the Board of Directors, July 31, 1998
George E. Cates and Chief Executive Officer
/s/ John F. Flournoy Vice Chairman of the Board July 31, 1998
John F. Flournoy of Directors
/s/ H. Eric Bolton Director, President and Chief July 31, 1998
H. Eric Bolton Operating Officer
/s/ Simon R. C. Wadsworth Director and Chief Financial Officer July 31, 1998
Simon R. C. Wadsworth (principal accounting and financial
officer)
/s/ Robert F. Fogelman Director July 31, 1998
Robert F. Fogelman
Director July __, 1998
O. Mason Hawkins
Director July __, 1998
John S. Grinalds
Director July __, 1998
Ralph Horn
/s/ Michael S. Starnes Director July 31, 1998
Michael S. Starnes
<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)
1.4* Form of Underwriting Agreement (for Depositary Shares)
2.1** Agreement and Plan of Reorganization made as of
September 15, 1997 by and among Mid-America Apartments,
L.P., Mid-America Apartment Communities, Inc. and
Flournoy Development Company
3.1*** Amended and Restated Charter of Mid-America Apartment
Communities, Inc. dated as of January 10, 1994, as
filed with the Tennessee Secretary of State on January
25, 1994
3.2*** Articles of Amendment to the Charter of Mid-America
Apartment Communities, Inc. dated as of January 28,
1994, as filed with the Tennessee Secretary of State on
January 28, 1994
3.3*** Articles of Merger of The Cates Company with and into
Mid-America Apartment Communities, Inc. dated February
2, 1994, as filed with the Tennessee Secretary of State
on February 3, 1994
3.4*** Articles of Merger of America First REIT Advisory
Company, a Nebraska corporation, with and into
Mid-America Apartment Communities, Inc., a Tennessee
corporation, dated June 29, 1995, as filed with the
Tennessee Secretary of State on June 29, 1995
3.5*** Mid-America Apartment Communities, Inc. Articles of
Amendment to the Amended and Restated Charter
Designating and Fixing the Rights and Preferences of A
Series of Preferred Stock dated as of October 9, 1996,
as filed with the Tennessee Secretary of State on
October 10, 1996
3.6*** Mid-America Apartment Communities, Inc. Articles of
Amendment to the Amended and Restated Charter dated
November 17, 1997, as filed with the Tennessee
Secretary of State on November 18, 1997
3.7*** Mid-America Apartment Communities, Inc. Articles of
Amendment to the Amended and Restated Charter
Designating and Fixing the Rights and Preferences of A
Series of Preferred Stock dated as of November 17,
1997, as filed with the Tennessee Secretary of State on
November 18, 1997
3.8*** Articles of Merger of Flournoy Development Company (a
Georgia corporation) with and into Mid-America
Apartment Communities, Inc. (a Tennessee corporation)
dated November 21, 1997, as filed with the Tennessee
Secretary of State on November 25, 1997
3.9*** Mid-America Apartment Communities, Inc. Articles of
Amendment to the Amended and Restated Charter dated
December 15, 1997, as filed with the Tennessee
Secretary of State on December 31, 1997
3.10*** Bylaws of Mid-America Apartment Communities, Inc.
4.1*** Form of Common Share Certificate
4.2*** Form of 9.5% Series A Cumulative Preferred Stock
Certificate
4.3*** Form of 8 7/8% Series B Cumulative Preferred Stock
Certificate
4.4*** Mid-America Apartment Communities, Inc. Articles of
Amendment to the Amended and Restated Charter
Designating and Fixing the Rights and Preferences of A
Series of Preferred Stock dated as of October 9, 1996,
as filed with the Tennessee Secretary of State on
October 10, 1996
4.5*** Mid-America Apartment Communities, Inc. Articles of
Amendment to the Amended and Restated Charter
Designating and Fixing the Rights and Preferences of A
Series of Preferred Stock dated as of November 17,
1997, as filed with the Tennessee Secretary of State on
November 18, 1997
4.6**** Form of 9 3/8% Series C Cumulative Preferred Stock
Certificate
4.7***** Mid-America Apartment Communities, Inc. Articles of
Amendment to the Amended and Restated Charter
Designating and Fixing the Rights and Preferences of a
Series of Preferred Stock, dated as of June 25, 1998,
as filed with the Tennessee Secretary of State on June
30, 1998
4.8* Form of Debt Security
4.9* Form of Preferred Share Certificate
4.10* Form of Depositary Share
4.11* Form of Depositary Receipt
4.12* Form of Depositary Agreement
4.13****** Form of Indenture governing the Debt Securities
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 Exhibit 5.1)
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.
** Filed as Exhibit 10.20 to the Registrant's Current
Report on Form 8-K, filed with the Commission on
September 19, 1997 (Commission File No. 1-12762)
*** Previously filed as exhibits to the Company's Annual
Report on Form10-K for the Year Ended December 31,
1997. Each Exhibit listed herein is similarly numbered
to the Exhibits filed with the Form 10-K.
**** Previously filed as Exhibit 4.2 to the Registrant's
Current Report on Form 8-K filed with the Commission on
June 26, 1998
***** Previously filed as Exhibit 4.1 to the Registrant's
Current Report on Form 8-A/A filed with the Commission
on June 26, 1998
****** Incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-3,
Registration No. 333-3274, as amended
Exhibit 5.1
[Baker, Donelson, Bearman & Caldwell Letterhead]
July 31, 1998
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
$231,518,781 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 Depositary Shares representing fractional
interests in shares of Preferred Stock (the "Depositary Shares").
The Common Stock, the Preferred Stock, the Debt Securities and
the Depositary Shares 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 enforceability 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
Exhibit 8.1
July 31, 1998
Board of Directors
Mid-America Apartment Communities, Inc.
6584 Poplar Avenue, Suite 340
Memphis, Tennessee 38138
RE: Mid-America Apartment Communities
Registration Statement on Form S-3
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
$231,518,781 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 depositary shares representing fraction
interests in Preferred Stock (the "Depositary Shares"). The
Common Stock, the Preferred Stock, the Debt Securities and the
Depositary Shares 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
in effect on the date hereof; (3) the Second Amended and Restated
Agreement of Limited Partnership (the "Partnership Agreement") of
Mid-America Apartments, L.P., a Tennessee limited partnership
(the "Operating Partnership"), as in effect on the date hereof;
(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"); (6) the articles
of incorporation, by-laws and stock ownership information of the
qualified REIT subsidiaries ("QRSs"); and (7) the articles of
incorporation of Flournoy Development Company ("FDC"), the
Company's unconsolidated subsidiary.
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, FDC 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
documents submitted 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 FDC and 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:
1. 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.
2. 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. our report dated March 27, 1998 to the consolidated
balance sheets of Mid-America Apartment Communities, Inc.
(the Company) as of December 31, 1997 and 1996, 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, 1997, which report is
incorporated by reference in the 1997 annual report on Form
10-K, as amended, 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
July 31, 1998