AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1999
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
(STATE OR OTHER JURISDICTION OF 62-1543819
INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER 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:
ROBERT J. DELPRIORE, ESQ.
BAKER, DONELSON, BEARMAN & CALDWELL
165 MADISON AVENUE, 20TH FLOOR
MEMPHIS, TENNESSEE 38103
TELEPHONE (901) 577-2194
<TABLE>
<CAPTION>
==========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES BEING AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE REGISTRATION FEE(2)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value......... 1,600,000 $23.38 $21,893,500 $6,086.40
==========================================================================================================================
</TABLE>
(1) Pursuant to the Rule 429 under the Securities Act of 1993, as amended, the
prospectus included in this Registration Statement relates also to 663,580
shares of Common Stock registered on Form S-3, registration no. 333-20221.
(2) The registration fee has been calculated and in accordance with Rule 457(c)
under the Securities Act and based upon the average of the high and low
sales prices of the Common Stock as reported on the New York Stock Exchange
on January 26, 1999.
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 [ ].
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.
================================================================================
<PAGE>
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.
SUBJECT TO COMPLETION, DATED JANUARY , 1999
MID-AMERICA APARTMENT COMMUNITIES, INC.
DIRECT STOCK PURCHASE AND DISTRIBUTION
REINVESTMENT PLAN
The plan gives you:
o the ability to reinvest all or part of your distributions from your
Mid-America common stock, preferred stock or limited partnership interests
in Mid-America Apartments, L.P.; and
o the opportunity to buy additional shares through optional cash investments
You:
o do not have to be a current Mid-America shareholder to participate in the
plan
o can begin participating with an initial investment of as little as $250 or
more; and
o do not have to return a new enrollment form if you are currently
participating in Mid-America's current plan
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, unless our Board of Directors
waives this limitation.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS IS DATED JANUARY , 1999.
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE PLAN,
YOU SHOULD CAREFULLY READ THIS DOCUMENT. YOU SHOULD READ THE "SUMMARY OF THE
PLAN" ON PAGE 16, AND "THE PLAN" BEGINNING ON PAGE 17 FOR A MORE COMPLETE
DESCRIPTION OF THE OPERATION OF THE PLAN. YOU SHOULD ALSO READ THE DOCUMENTS WE
HAVE REFERRED YOU TO IN WHERE YOU CAN FIND MORE INFORMATION ON PAGE 3 FOR
INFORMATION ON MID-AMERICA AND OUR FINANCIAL STATEMENTS.
MID-AMERICA APARTMENT COMMUNITIES, INC.
We are a Memphis, Tennessee-based REIT. As of September 30, 1998, we owned
and operated 125 apartment communities containing 33,009 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, a privately
held company and as a result:
o acquired 30 apartment communities containing 8,641 apartment units,
including 950 units under development; and
o increased our ability to build our own apartment communities rather than
acquiring existing apartment communities or relying on third party
developers.
We own, manage, develop and build 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.
We operate in an umbrella partnership REIT structure. In this structure,
properties are owned and operated by one or more operating partnerships in which
the REIT is general partner and owns a substantial interest. Our primary
operating partnership is Mid-America Apartments, L.P. Most of our operations are
conducted through Mid-America Apartments, L.P. Common units of limited
partnership interest in Mid-America Apartments, L.P. are redeemable for our
common stock on a one-for-one basis or, at our option, for cash.
As of September 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. 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 our telephone number is (901) 682-6600.
THE PLAN
The plan gives you a convenient and attractive method of investing cash
distributions and optional cash payments in our common stock without paying
brokerage commissions or service charges. The price you will pay for the common
stock bought directly from us under the plan will be discounted between 0% and
5% from the market price of the common stock. If we have to buy the shares on
the open market, you will not receive a discount. We may change the discount at
our discretion; however it will not vary from the range of between 0% and 5%. We
have set the initial discount at 3%.
o ENROLLMENT. New shareholders can join by making an initial investment of
at least $250. If you were enrolled in our dividend reinvestment and stock
purchase plan on December 31, 1998, you will continue to be enrolled in the
revised Plan. If not, you can participate by submitting a completed
Authorization Form. If you are a limited partner of Mid-America Apartments,
L.P., you can invest your cash distributions in the Plan. If your shares
are held
2
<PAGE>
in a brokerage account, you may participate directly by registering some or
all of your shares in your name.
o REINVESTMENT OF DISTRIBUTIONS. You can reinvest all or a portion of your
cash distributions towards the purchase of common stock without paying
brokerage commissions.
o OPTIONAL CASH INVESTMENTS. After you are enrolled in the Plan, you can buy
additional shares of common stock without paying any brokerage commissions.
You can invest between $250 and $5,000 per month. We may allow purchases in
excess of $5,000 per month at our discretion.
o FULL INVESTMENT. Full investment of your optional cash investments and
distributions is possible because we will credit your account with both
whole and fractional shares. We pay distributions on both whole shares and
fractional shares participating in the Plan.
o GIFTS OR TRANSFERS OF SHARES. You can give or transfer your shares to
others.
o SELL SHARES CONVENIENTLY. If you choose to sell the common stock held in
your Plan account, you will generally pay fees lower than those typically
charged by stockbrokers.
o TRACKING YOUR INVESTMENT. You will receive a statement after each
transaction you make under the Plan. These statements will provide the
details of the particular transaction and show the share balance in your
Plan account.
o ADMINISTRATOR. First Union National Bank of North Carolina
o REQUESTS FOR INFORMATION. All written requests and notices should be
mailed as follows:
First Union National Bank of North Carolina Shareholder Services Group 1525
West WT Harris Blvd., Ste. 3C3 Charlotte, North Carolina 28288-1153
Telephone Numbers: (704)590-0394, or Toll-Free (800)829-8432
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 common stock covered by this
prospectus.
o 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;
o Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998, June
30, 1998, and September 30, 1998;
o 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, July 28, 1998, and
November 2, 1998, December 23, 1998, December 31, 1998, and January 1,
1999;
o Amended Current Reports on Form 8-K/A filed with the SEC on February 5,
1998 and May 26, 1998, July 30, 1998, August 12, 1998, and September 29,
1998;
o Proxy Statement for the Company's 1998 Annual Meeting of Shareholders filed
with the SEC on April 30, 1998;
o the description of the Company's common stock contained in Form 8-A filed
with the SEC on December 14, 1993;
o the description of the Company's 9.5% Series A Cumulative Preferred Stock
contained in
3
<PAGE>
Form 8-A/A filed with the SEC on October 11, 1996;
o 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
o 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.
4
<PAGE>
RISK FACTORS
BEFORE YOU INVEST IN OUR COMMON STOCK, 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 COMMON
STOCK.
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.
OUR DEVELOPMENT ACTIVITIES MAY BE MORE COSTLY THAN ANTICIPATED.
We have increased our financial and management commitment to the
development and construction of new apartment communities in addition to
purchasing existing apartment communities. In connection with development and
construction of an apartment community, we run the risk that:
o construction costs will exceed our budget;
o the newly completed apartment community will not generate the profits we
anticipate; and
o 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, which could
prevent us from making expected distributions.
OUR ABILITY TO MAKE DISTRIBUTIONS MAY BE ADVERSELY AFFECTED BY FACTORS BEYOND
OUR CONTROL.
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 less because of factors which are beyond our control. Such
events or conditions could include:
o competition from other apartment communities;
o overbuilding of new apartment units in our markets, which might adversely
affect apartment occupancy or rental rates;
o increases in operating costs (including real estate taxes) due to inflation
and other factors, which may not be offset by increased rents;
o our inability to rent properties on favorable economic terms;
o changes in governmental regulations and the related costs of compliance;
o changes in tax laws and housing laws including the enactment of rent
control laws or other laws regulating multifamily housing;
o 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
o the relative illiquidity of real estate investments.
o any decline in our funds from operations or property values because of
these factors which are beyond our control could adversely affect our
ability to make distributions to you.
5
<PAGE>
HIGH DEBT LEVEL MAY AFFECT OVERALL OPERATING RESULTS.
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 September 30, 1998, our ratio of debt to
undepreciated book value was approximately 52.7%. 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 MAY PREVENT US FROM MAKING DISTRIBUTIONS.
At September 30, 1998, $188.3 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.
NONCOMPLIANCE WITH GOVERNMENT REGULATIONS MAY AFFECT OPERATING RESULTS.
ENVIRONMENTAL MATTERS
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 we 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
effect 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. If environmental contamination exists or existed at an
apartment community, we may be liable for the costs of removal or remediation of
the contamination and may be liable for personal injury or similar claims by
private plaintiffs. Moreover, the existence of an environmental contamination at
an apartment community could adversely affect the occupancy of the apartment
community and our ability to sell or borrow against that apartment community.
AMERICANS WITH DISABILITIES ACT COMPLIANCE
Under the Americans with Disabilities Act of 1990, 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 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.
6
<PAGE>
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.
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.
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:
o will consider the transfer to be null and void;
o will not reflect the transaction on our books;
o may institute legal action to enjoin the transaction;
o will not pay dividends or other distributions with respect to those shares;
o will not recognize any voting rights for those shares;
o will consider the shares held in trust for the benefit of the Company; and
o 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 person to whom you sell 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:
o you may lose your power to dispose of the shares;
o you may not recognize profit from the sale of such shares if the market
price of the shares increases; and
o 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, which could affect our
ability to make distributions.
7
<PAGE>
PROVISIONS OF OUR CHARTER AND TENNESSEE LAW MAY LIMIT THE ABILITY OF A THIRD
PARTY TO ACQUIRE CONTROL OF THE COMPANY.
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.
PREFERRED STOCK
Our charter authorize 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:
o 2,000,000 shares of 9.5% Series A Cumulative Preferred Stock;
o 1,938,830 shares of 8 7/8% Series B Cumulative Preferred Stock; and
o 2,000,000 shares of 9 3/8% Series C Cumulative Redeemable Preferred Stock
o 1,000,000 shares of 9.5% Series E Cumulative Redeemable Preferred Stock
TENNESSEE ANTI-TAKEOVER STATUTES
As a Tennessee corporation, we are subject to various legislative acts
which impose restrictions on and require compliance with procedures designed to
protect shareholders against unfair or coercive mergers and acquisitions. 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
We will contribute the net proceeds of any sale of common stock under the
plan to Mid-America Apartments, L.P. in exchange for class a common units of
limited partnership interest. 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.
8
<PAGE>
DESCRIPTION OF CAPITAL STOCK
THE SUMMARY OF THE TERMS OF THE SHARES OF THE CAPITAL STOCK OF MID-AMERICA
APARTMENT COMMUNITIES, INC. (THE "COMPANY") 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.
REFERENCES TO THE "TBCA" ARE TO THE TENNESSEE BUSINESS CORPORATION ACT, AS
AMENDED.
GENERAL
The authorized capital stock of the Company consists of 50,000,000 shares
of common stock, $.01 par value per share ("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"), 8 7/8% Series C Cumulative Redeemable
Preferred Stock (the "Series C Preferred Stock), 9.5% Series E Cumulative
Redeemable Preferred Stock (the "Series E 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.
THE SERIES A PREFERRED STOCK
MATURITY
The Series A Preferred Stock has no stated maturity and is not 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).
9
<PAGE>
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).
10
<PAGE>
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).
11
<PAGE>
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.
SERIES E PREFERRED STOCK
MATURITY
The Series E Preferred Stock has no stated maturity and is not subject to
any sinking fund or mandatory redemption.
RANK
The Series E 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 E 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 E 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 E 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).
12
<PAGE>
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, the holders of shares of Series E 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 E Preferred Stock as to liquidation rights.
REDEMPTION
The Series E Preferred Stock is not redeemable by the Company other than
upon the request of a holder of Series E Preferred Stock. Any holder of Series E
Preferred Stock may request, at any time, that the Company redeem such holder's
shares of the Series E Preferred Stock, in whole or in part, at any time or from
time to time for cash at a redemption price per share equal to the amount that
would be payable to the holder of such shares if the Company were liquidated,
dissolved or wound up on the date of redemption; provided, however, that a
holder may only redeem his shares prior to August 1, 2003 if (i) the Company
undergoes a change in control or (ii) upon the occurrence and during the
continuance of an event of non-compliance with respect to the terms of the
Series E Preferred Stock. The Company may elect to redeem shares of Series E
Preferred Stock in shares of Common Stock in lieu of cash or to make such
redemption partially in Common Stock and partially in cash.
VOTING RIGHTS
Holders of Series E Preferred Stock generally will have no voting rights
except as required by law. However, upon the occurrence of an event of
noncompliance with respect to the terms of the Series E Preferred Stock, the
number of directors constituting the Board of Directors shall be adjusted by the
number, if any, necessary to permit, and the holders of the Series E Preferred
Stock will be entitled to vote separately as a class for the election of, a
total of two additional directors of the Company until all events of
noncompliance with respect to the Series E Preferred Stock have been cured. In
addition, certain changes to the terms of the Series E Preferred Stock that
would be materially adverse to the rights of holders of the Series E Preferred
Stock cannot be made, and certain corporate events cannot occur, without the
affirmative vote of the holders of at least two-thirds of the outstanding Series
E Preferred Stock.
CONVERSION
The Series A Preferred Stock is not convertible into or exchangeable for
any other property or securities of the Company.
CHARTER AND BYLAW PROVISIONS
Shareholders' rights and related matters are governed by the TBCA, the
Company's Charter and its Bylaws. Certain provisions of the Charter and Bylaws
of the Company, which are summarized below, may make it more difficult to change
the composition of the Board of Directors and may discourage or make more
difficult any attempt by a person or group to obtain control of the Company.
VOTING REQUIREMENT
The Company's Charter may not be amended without the affirmative vote of at
least a majority of the shares entitled to vote generally in the election of
directors, voting as a single voting group. The Company's Bylaws may be amended
by either the affirmative vote of a majority of all shares outstanding and
entitled to vote generally in the election of directors, voting as a single
group, or by an affirmative vote of a majority of the Board of Directors then
holding office, unless the shareholders prescribe that any such bylaw may not be
amended or repealed by the Board of Directors. Notwithstanding the foregoing,
the Company cannot take any action intended to terminate its qualification as a
REIT without the affirmative vote of at least two-thirds of the outstanding
shares of Common Stock.
13
<PAGE>
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
14
<PAGE>
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
15
<PAGE>
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 First
Union National Bank, Charlotte, North Carolina.
16
<PAGE>
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.
SUMMARY OF THE PLAN
The Plan provides investors with a convenient and attractive method of
investing cash distributions and optional cash payments in additional Common
Stock without payment of any brokerage commission or service charge. The price
to be paid for Common Stock purchased under the Plan will be a price reflecting
a discount ranging between 0% and 5% (the "Discount") from the Market Price
(as defined) to the extent shares are purchased directly from the Company. The
Discount is subject to change (but will not vary from the range of between 0%
and 5%) from time to time or discontinuance at the Company's discretion after a
review of current market conditions, the level of participation in the Plan and
the Company's current and projected capital needs.
Subject to the availability of Common Stock registered for issuance under
the Plan, there is no minimum or maximum limitation on the amount of
distributions a Participant may reinvest under the Plan. See Question 2.
Participants electing to invest optional cash payments in additional Common
Stock are subject to a minimum per month purchase limit of $250 and a maximum
per month purchase limit of $5,000 (subject to waiver). See Question 17.
Optional cash payments in excess of $5,000 may be made only upon acceptance by
the Company of a completed Request for Waiver form from a Participant. See
Question 17. Each month, at least three business days prior to each record date
(as defined in Question 18), the Company will establish the Discount and
Threshold Price, if any (each as defined in Question 17), applicable to optional
cash payments that exceed $5,000. The Discount, which may vary each month, will
be established in the Company's sole discretion after a review of current market
conditions, the level of participation in the Plan and the Company's current and
projected capital needs. With respect to optional cash payments that exceed
$5,000 only, for each Trading Day of the related Pricing Period (each as defined
in Question 12) on which the Threshold Price is not satisfied, one-tenth of a
Participant's optional cash payment will be returned without interest. Optional
cash payments that do not exceed $5,000 and the reinvestment of distributions in
additional Common Stock will not be subject to the Threshold Price, if any.
Optional cash payments of less than $250 and that portion of any optional cash
payment which exceeds the maximum monthly purchase limit of $5,000, unless such
limit has been waived, are subject to return to the Participant without
interest. Participants may request that any or all shares held in the Plan be
sold by the Plan Administrator on behalf of such Participants. See Question 27.
Subject to the availability of Common Stock registered for issuance under
the Plan, there is no total maximum number of shares that can be issued pursuant
to the reinvestment of distributions and no pre-established maximum limit
applies to optional cash payments that may be made pursuant to Requests for
Waiver. As of the date hereof, 1,600,000 Common Stock have been registered and
are available for sale under the Plan.
The Company expects to grant Requests for Waiver to financial
intermediaries, including brokers and dealers, and other Participants in the
future. Grants of Requests for Waiver will be made in the sole discretion of the
Company based on a variety of factors, which may include: the Company's current
and projected capital needs, the alternatives available to the Company to meet
those needs, prevailing market prices for Common Stock, general economic and
market conditions, expected aberrations in the price or trading volume of the
Common Stock, the potential disruption of the price of the Common Stock by a
financial intermediary, the number of shares of Common Stock held by the
Participant submitting the waiver request, the past actions of a Participant
under the Plan, the aggregate amount of optional cash payments for which such
waivers have been submitted and the administrative constraints associated with
granting such waivers. If such Requests for Waiver are granted, a portion of the
Common Stock available
17
<PAGE>
for issuance under the Plan will be purchased by Participants (including brokers
or dealers) who, in connection with any resales of such Common Stock, may be
deemed to be underwriters within the meaning of the Securities Act. To the
extent that Requests for Waiver are granted, it is expected that a greater
number of Common Stock will be issued under the optional cash payment feature of
the Plan as opposed to the distribution reinvestment feature of the Plan.
Financial intermediaries may purchase a significant portion of the Common
Stock issued pursuant to the optional cash payment feature of the Plan. The
Company does not have any formal or informal understanding with any such
organizations and, therefore, the extent of such financial intermediaries'
participation under the Plan cannot be estimated at this time. Participants that
are financial intermediaries that acquire Common Stock under the Plan with a
view to distribution of such Common Stock or that offer or sell Common Stock for
the Company in connection with the Plan may be deemed to be underwriters within
the meaning of the Securities Act.
From time to time, financial intermediaries, including brokers and dealers,
may engage in positioning transactions in order to benefit from the discount
from the Market Price of the Common Stock acquired through the cash payment
feature of the Plan. Such transactions may cause fluctuations in the price or
trading volume of the Common Stock. Financial intermediaries which engage in
positioning transactions may be deemed to be underwriters within the meaning of
the Securities Act. The Plan is intended for the benefit of investors in the
Company and not for individuals or investors who engage in transactions which
may cause aberrations in the price or trading volume of the Common Stock.
THE PLAN
The Plan, as amended, was adopted by the Board of Directors of the Company
on November 11, 1998. The following questions and answers explain and constitute
the Plan. Shareholders and Unit holders who do not participate in the Plan will
receive cash distributions, as declared, and paid in the usual manner.
PURPOSE
1. WHAT IS THE PURPOSE OF THE PLAN?
The primary purpose of the Plan is to provide eligible holders of Common
Stock and Preferred Stock of the Company, holders of Class A units of limited
partnership interest of the Operating Partnership ("Units") and interested new
investors (collectively, "Participants") with a convenient and simple method
of increasing their investment in the Company by investing cash distributions in
additional Common Stock without payment of any brokerage commission or service
charge, to the extent shares are purchased directly from the Company, and by
investing optional cash payments in additional Common Stock without payment of
any brokerage commission or service charge. See Question 5 for a description of
the holders who are eligible to participate in the Plan. The Plan may also be
used by the Company to raise additional capital through the sale each month of a
portion of the Common Stock available for issuance under the Plan to current
holders and interested new investors (including brokers or dealers) who, in
connection with any resales of such shares, may be deemed to be underwriters.
These sales will be effected through the Company's ability to waive limitations
applicable to the amounts which Participants (as defined in Question 2) may
invest pursuant to the Plan's optional cash payment feature.
See Question 17 for information concerning limitations applicable to
optional cash payments and certain of the factors considered by the Company in
granting waivers. To the extent shares are purchased from the Company under the
Plan, it will receive additional funds to purchase additional multifamily
properties and for general corporate purposes. The Plan is intended for the
benefit of investors in the Company and not for individuals or investors who
engage in transactions which may cause aberrations in the price or trading
volume of Common Stock. From time to time, financial intermediaries may engage
in positioning transactions in order to benefit from the discount from the
Market Price of the Common Stock acquired through the reinvestment of
distributions or optional cash payments under the Plan. Such transactions may
cause fluctuations in the price or trading volume of the Common Stock. The
Company reserves the right to modify, suspend or terminate participation in the
Plan by otherwise eligible holders of
18
<PAGE>
Common Stock, Preferred Stock, Units or interested new investors in order to
eliminate practices which are, in the sole discretion of the Company, not
consistent with the purposes or operation of the Plan or which adversely affect
the price of the Common Stock.
OPTIONS AVAILABLE TO PARTICIPANTS
2. WHAT OPTIONS ARE AVAILABLE TO ENROLLED PARTICIPANTS?
Eligible holders of Common Stock, Preferred Stock and Units may elect to
have cash distributions paid on all or a portion of their Common Stock,
Preferred Stock or Units automatically reinvested in additional Common Stock.
Subject to the availability of Common Stock registered for issuance under the
Plan, there is no minimum limitation on the amount of distributions a
Participant may reinvest under the distribution reinvestment feature of the
Plan.
Each month, Participants may also elect to invest optional cash payments in
additional Common Stock, subject to a minimum per month purchase limit of $250
and a maximum per month purchase limit of $5,000, subject to waiver. See
Question 17 for information concerning limitations applicable to optional cash
payments and the availability of waivers with respect to such limitations.
Participants may make optional cash payments each month even if distributions on
their Common Stock are not being reinvested and whether or not a distribution
has been declared.
ADVANTAGES AND DISADVANTAGES
3. WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF THE PLAN?
ADVANTAGES:
(a) The Plan provides Participants with the opportunity to reinvest cash
distributions paid on all or a portion of their Common Stock,
Preferred Stock or Units in additional Common Stock without payment
of any brokerage commission or service charge to the extent shares
are purchased directly from the Company, which purchases may be made
at a Discount to the Market Price at the discretion of the Company.
(b) The Plan provides Participants with the opportunity to make monthly
investments of optional cash payments, subject to minimum and
maximum amounts, for the purchase of additional shares of Common
Stock without payment of any brokerage commission or service charge
if such shares of Common Stock are purchased directly from the
Company, which purchases may be made at a Discount to the Market
Price at the discretion of the Company.
(c) Subject to the availability of Common Stock registered for issuance
under the Plan, all cash distributions paid on Participants' Common
Stock can be fully invested in additional Common Stock because the
Plan permits fractional shares to be credited to Plan accounts.
Distributions on such fractional shares, as well as on whole shares,
will also be reinvested in additional shares which will be credited
to Plan accounts.
(d) The Plan Administrator, at no charge to Participants, provides for
the safekeeping of the Common Stock credited to each Plan account.
(e) Periodic statements reflecting all current activity, including share
purchases and latest Plan account balance, simplify Participants'
record keeping. See Question 22 for information concerning reports
to Participants.
DISADVANTAGES:
(a) No interest will be paid by the Company or the Plan Administrator on
distributions or optional cash payments held pending reinvestment or
investment. See Question 11. In addition, optional cash payments in
excess of $5,000 may be subject to return to the Participant without
interest in the event that the Threshold Price, if any, is not met
for any Trading Day during the related Pricing Period. See Question
17.
19
<PAGE>
(b) With respect to optional cash payments, the actual number of shares
to be issued to a Participant's Plan account will not be determined
until after the end of the relevant Pricing Period. Therefore,
during the Pricing Period Participants will not know the actual
number of shares they have purchased.
(c) With respect to optional cash payments, the Market Price may exceed
the price at which Common Stock is trading after the Investment
Date.
(d) Because optional cash payments must be received by the Plan
Administrator prior to the related Pricing Period, such payments may
be exposed to changes in market conditions for a longer period of
time than in the case of typical secondary market transactions. In
addition, optional cash payments once received by the Plan
Administrator will not be returned to Participants unless a written
request is directed to the Plan Administrator at least five business
days prior to the record date for the Investment Date with respect
to which optional cash payments have been delivered by such
Participant. See Questions 18 and 20.
(e) Resales of Common Stock credited to a Participant's account under
the Plan will involve a nominal fee per transaction paid to the Plan
Administrator (if such resale is made by the Plan Administrator at
the request of a Participant), a brokerage commission and any
applicable share transfer taxes on the resales. See Questions 21 and
27.
(f) Prospective investors in Common Stock should carefully consider the
matters described above in "Risk Factors" prior to making an
investment in the Common Stock.
ADMINISTRATION
4. WHO ADMINISTERS THE PLAN?
The Company has retained First Union National Bank, as plan administrator
(the "Plan Administrator"), to administer the Plan, keep records, send
statements of account activity to each Participant and perform other duties
relating to the Plan. See Question 22 for information concerning reports to
Participants. Shares purchased under the Plan and held by the Plan Administrator
will be registered in the Plan Administrator's name or the name of its nominee
for the benefit of the Participants. In the event that the Plan Administrator
resigns or otherwise ceases to act as plan administrator, the Company will
appoint a new plan administrator to administer the Plan.
The Plan Administrator also acts as distribution disbursing agent, transfer
agent and registrar for the Company's Common Stock.
PARTICIPATION
For purposes of this section, responses will generally be based upon the
method by which the holder holds his or her Common Stock, Preferred Stock or
Units. Generally, holders are either Record Owners or Beneficial Owners. A
Record Owner is a holder who owns Common Stock, Preferred Stock or Units in his
or her own name. A Beneficial Owner is a holder who beneficially owns Common
Stock, Preferred Stock or Units that are registered in a name other than his or
her own name (for example, the shares are held in the name of a broker, bank or
other nominee). A Record Owner may participate directly in the Plan, whereas a
Beneficial Owner will have to either become a Record Owner by having one or more
shares transferred into his or her own name or coordinate his or her
participation in the Plan through the broker, bank or other nominee in whose
name the Beneficial Owner's shares are held. If a Beneficial Owner who desires
to become a Participant encounters any difficulties in coordinating his or her
participation in the Plan with his or her broker, bank or other nominee, he or
she should call the Company's Investor Relations department at (901) 682-6600.
5. WHO IS ELIGIBLE TO PARTICIPATE?
All Record Owners or Beneficial Owners of at least one share of Common
Stock or Preferred Stock or one Unit are eligible to participate in the Plan. A
Record Owner may participate directly in the Plan. A Beneficial Owner must
either become a Record Owner by having one or more shares transferred into his
or
20
<PAGE>
her own name or arrange with the broker, bank or other nominee who is the record
holder to participate on his or her behalf. In addition, interested new
investors may participate in the optional cash payment feature of the Plan. See
Question 6.
To facilitate participation by Beneficial Owners, the Company has made
arrangements with the Plan Administrator to reinvest distributions, on a per
distribution basis, and accept optional cash payments under the Plan by record
holders such as brokers, banks and other nominees, on behalf of beneficial
owners. See Question 6.
The Company may terminate, by written notice, at any time any Participant's
individual participation in the Plan if such participation would be in violation
of the restrictions contained in the Charter or Bylaws, each as amended and/or
restated from time to time, of the Company. Such restrictions prohibit any
person or group of persons from acquiring or holding, directly or indirectly,
ownership of a number of shares of beneficial interest of any class or series of
shares of beneficial interest of the Company in excess of 9.9% of the number or
value of the outstanding shares of such class or series. The meanings ascribed
to the terms "group" and "ownership" may cause a person who individually
owns less than 9.9% of the shares outstanding to be deemed to be holding shares
in excess of the foregoing limitation. See "Risk Factors -- Possible Adverse
Consequences of Limits on Ownership of Shares." Under the Charter, certain
transfers or attempted transfers that would jeopardize the qualification of the
Company as a real estate investment trust for tax purposes may be void to the
fullest extent permitted by law.
6. HOW DOES AN ELIGIBLE SHAREHOLDER OR INTERESTED NEW INVESTOR PARTICIPATE?
Record Owners may join the Plan by completing and signing the Authorization
Form included with the Plan and returning it to the Plan Administrator. A
non-postage-paid return envelope is provided for this purpose. Authorization
Forms may be obtained at any time by written request to the Plan Administrator
or by telephoning the Plan Administrator at (800) 829-8432.
Beneficial Owners who wish to join the Plan must instruct their broker,
bank or other nominee to complete and sign the Authorization Form. The broker,
bank or other nominee will forward the completed Authorization Form to its
securities depository and the securities depository will provide the Plan
Administrator with the information necessary to allow the Beneficial Owner to
participate in the Plan. See Question 8 for a discussion of the Broker and
Nominee form (the "B&N Form"), which is required to be used for optional cash
payments of a Beneficial Owner whose broker, bank or other nominee holds the
Beneficial Owner's shares in the name of a major securities depository. See also
Question 16.
If a Record Owner or the broker, bank or other nominee on behalf of a
Beneficial Owner submits a properly executed Authorization Form without electing
an investment option, such Authorization Form will be deemed to indicate the
intention of such Record Owner or Beneficial Owner, as the case may be, to apply
all cash distributions and optional cash payments, if applicable, toward the
purchase of additional Common Stock. See Question 7 for investment options.
Interested new investors may join the Plan by requesting a copy of the Plan
from the Plan Administrator by telephoning the Plan Administrator at (800)
829-8432. Upon receipt of the Plan, interested new investors must complete and
sign the Authorization Form included with the Plan and return it to the Plan
Administrator. A non-postage-paid return envelope will be provided for this
purpose.
7. WHAT DOES THE AUTHORIZATION FORM PROVIDE?
The Authorization Form appoints the Plan Administrator as agent for the
Participant and directs the Company to pay to the Plan Administrator each
Participant's cash distributions on all or a specified number of shares of
Common Stock, Preferred Stock or number of Units owned by the Participant on the
applicable record date ("Participating Shares"), as well as on all whole and
fractional Common Stock credited to a Participant's Plan account ("Plan
Shares"). The Authorization Form directs the Plan Administrator to purchase on
the Investment Date (as defined in Question 11) additional Common Stock with
such distributions and optional cash payments, if any, made by the Participant.
See Question 8 for a discussion of the B&N Form which is required to be used for
optional cash payments of a Beneficial Owner whose broker, bank or other nominee
holds the Beneficial Owner's shares in the name of a major securities
21
<PAGE>
depository. The Authorization Form also directs the Plan Administrator to
reinvest automatically all subsequent distributions with respect to Plan Shares.
Distributions will continue to be reinvested on the number of Participating
Shares and on all Plan Shares until the Participant specifies otherwise by
contacting the Plan Administrator, withdraws from the Plan (see Questions 26 and
27), or the Plan is terminated. See Question 6 for additional information about
the Authorization Form.
The Authorization Form provides for the purchase of additional Common Stock
through the following investment options:
(1) If "Full Distribution Reinvestment" is elected, the Plan
Administrator will apply all cash distributions on all Common Stock ,
Preferred Stock or Units then or subsequently registered in the
Participant's name, and all cash distributions on all Plan Shares,
together with any optional cash payments, toward the purchase of
additional Common Stock.
(2) If "Partial Distribution Reinvestment" is elected, the Plan
Administrator will apply all cash distributions on only the number of
shares of Common Stock, Preferred Stock or number of Units registered
in the Participant's name and specified on the Authorization Form and
all cash distributions on all Plan Shares, together with any optional
cash payments, toward the purchase of additional Common Stock.
(3) If "Optional Cash Payments Only" is elected, the Participant will
continue to receive cash distributions on Common Stock, Preferred
Stock or Units registered in that Participant's name, if any, in the
usual manner. However, the Plan Administrator will apply all cash
distributions on all Plan Shares, together with any optional cash
payments received from the Participant, toward the purchase of
additional Common Stock. See Question 8 for a discussion of the B&N
Form which is required to be used for optional cash payments of a
Beneficial Owner whose broker, bank or other nominee holds the
Beneficial Owner's shares in the name of a major securities
depository.
Each Participant may select any one of these three options. In each case,
distributions will be reinvested on all Participating Shares and on all Plan
Shares held in the Plan account, including distributions on Common Stock
purchased with any optional cash payments, until a Participant specifies
otherwise by contacting the Plan Administrator, or withdraws from the Plan
altogether (see Questions 26 and 27), or until the Plan is terminated. If a
Participant would prefer to receive cash payments of distributions paid on Plan
Shares rather than reinvest such distributions, those shares must be withdrawn
from the Plan by written notification to the Plan Administrator. See Questions
26 and 27 regarding withdrawal of Plan Shares.
Participants may change their investment options at any time by requesting
a new Authorization Form and returning it to the Plan Administrator at the
address set forth in Question 37. See Question 11 for the effective date for any
change in investment options.
8. WHAT DOES THE B&N FORM PROVIDE?
The B&N Form provides the only means by which a broker, bank or other
nominee holding shares of a Beneficial Owner in the name of a major securities
depository may invest optional cash payments on behalf of such Beneficial Owner.
A B&N Form must be delivered to the Plan Administrator each time such broker,
bank or other nominee transmits optional cash payments on behalf of a Beneficial
Owner. B&N Forms will be furnished at any time upon request of the Company's
Investor Relations Department at (901) 682-6600.
Prior to submitting the B&N Form, the broker, bank or other nominee for a
Beneficial Owner must submit a completed Authorization Form on behalf of the
Beneficial Owner. See Questions 6 and 7.
THE B&N FORM AND APPROPRIATE INSTRUCTIONS MUST BE RECEIVED BY THE PLAN
ADMINISTRATOR NOT LATER THAN THE APPLICABLE RECORD DATE OR THE OPTIONAL CASH
PAYMENT WILL NOT BE INVESTED UNTIL THE FOLLOWING INVESTMENT DATE.
9. IS PARTIAL PARTICIPATION POSSIBLE UNDER THE PLAN?
Yes. Record Owners or the broker, bank or other nominee for Beneficial
Owners may designate on the Authorization Form a number of shares for which
distributions are to be reinvested. Distributions will
22
<PAGE>
thereafter be reinvested only on the number of shares specified, and the Record
Owner or Beneficial Owner, as the case may be, will continue to receive cash
distributions on the remainder of the shares.
10. WHEN MAY AN ELIGIBLE SHAREHOLDER OR INTERESTED NEW INVESTOR JOIN THE PLAN?
A Record Owner, Beneficial Owner or interested new investor may join the
Plan at any time. Once in the Plan, a Participant remains in the Plan until he
or she withdraws from the Plan, the Company terminates his or her participation
in the Plan or the Company terminates the Plan. See Question 27 regarding
withdrawal from the Plan.
11. WHEN WILL DISTRIBUTIONS BE REINVESTED AND/OR OPTIONAL CASH PAYMENTS BE
INVESTED?
When shares are purchased from the Company, such purchases will be made on
the "Investment Date" in each month. The Investment Date with respect to
Common Stock acquired directly from the Company and relating to a distribution
reinvestment will be either the distribution payment date relating to the Common
Stock or Units, or, if a distribution payment date relating to any series of
Preferred Stock is later in the month than such Common Stock distribution
payment date, such later distribution payment date relating to such Preferred
Stock, each as declared by the Board of Directors, as the case may be (unless
such date is not a business day in which case it is the first business day
immediately thereafter) or, in the case of open market purchases, no later than
ten business days following the distribution payment date.
The Investment Date with respect to Common Stock acquired directly from the
Company and relating to optional cash payments of $5,000 or less shall be the
last day (or Pricing Period conclusion date) of a Pricing Period (as defined
below).
The Investment Date with respect to Common Stock acquired directly from the
Company and relating to an optional cash payment of greater than $5,000 made
pursuant to a Request for Waiver will be on each day on which the NYSE is open
for business in a Pricing Period, on which date 1/10 of a Participant's optional
cash payment in each month will be invested, or, in the case of open market
purchases, no later than 30 days from the corresponding Record Date. With
respect to all optional cash payments, regardless of the amount being invested,
the period encompassing the ten consecutive Investment Dates in each month
constitutes the relevant "Pricing Period." See Schedule A attached hereto for
a list of the expected Pricing Period commencement dates and conclusion dates
(with the Pricing Period conclusion date being the Investment Date for optional
cash payments of $5,000 or less).
When open market purchases are made by the Plan Administrator, such
purchases may be made on any securities exchange where the shares are traded, in
the over-the-counter market or by negotiated transactions, and may be subject to
such terms with respect to price, delivery and other matters as agreed to by the
Plan Administrator. Neither the Company nor any Participant shall have any
authorization or power to direct the time or price at which shares will be
purchased or the selection of the broker or dealer through or from whom
purchases are to be made by the Plan Administrator. However, when open market
purchases are made by the Plan Administrator, the Plan Administrator shall use
its reasonable best efforts to purchase the shares at the lowest possible price.
If the Authorization Form is received prior to the record date for a
distribution payment, the election to reinvest distributions will begin with
that distribution payment. If the Authorization Form is received on or after any
such record date, reinvestment of distributions will begin on the distribution
payment date following the next record date if the Participant is still a
Shareholder of record. Record dates for payment of distributions normally
precede payment dates by approximately two weeks.
See Question 17 for information concerning limitations on the minimum and
maximum amounts of optional cash payments that may be made each month and
Question 18 for information as to when optional cash payments must be received
to be invested on each Investment Date.
Shares will be allocated and credited to Participants' accounts as follows:
(1) shares purchased from the Company will be allocated and credited as of
the appropriate Investment Date; and
23
<PAGE>
(2) shares purchased in market transactions will be allocated and credited
as of the date on which the Plan Administrator completes the purchases
of the aggregate number of shares to be purchased on behalf of all
Participants with distributions to be reinvested or optional cash
payments, as the case may be, during the month.
NO INTEREST WILL BE PAID ON CASH DISTRIBUTIONS OR OPTIONAL CASH PAYMENTS PENDING
INVESTMENT OR REINVESTMENT UNDER THE TERMS OF THE PLAN. SINCE NO INTEREST IS
PAID ON CASH HELD BY THE PLAN ADMINISTRATOR, IT NORMALLY WILL BE IN THE BEST
INTEREST OF A PARTICIPANT TO DEFER OPTIONAL CASH PAYMENTS UNTIL SHORTLY BEFORE
COMMENCEMENT OF THE PRICING PERIOD.
PURCHASES AND PRICES OF SHARES
12. WHAT WILL BE THE PRICE TO PARTICIPANTS OF SHARES PURCHASED UNDER THE PLAN?
With respect to reinvested distributions, the price per Common Stock
acquired directly from the Company will be 100% (subject to change) of the
average of the high and low sales prices, computed to four decimal places, of
the Common Stock on the NYSE on the Investment Date (as defined in Question 11),
or if no trading occurs in the Common Stock on the Investment Date, the average
of the high and low sales prices for the first trading day immediately preceding
the Investment Date for which trades are reported.
The price per Common Share acquired through open market purchases with
reinvested distributions will be the weighted average of the actual prices paid,
computed to four decimal places, for all of the Common Stock purchased by the
Plan Administrator with all Participants' reinvested distributions for the
related quarter. Additionally, each Participant will be charged a pro rata
portion of any brokerage commissions or other fees or charges paid by the Plan
Administrator in connection with such open market purchases. (If a Participant
desires to opt out of the distribution reinvestment feature of the Plan when the
Common Stock relating to distribution reinvestments will be purchased in the
open market, a Participant must notify the Plan Administrator no later than the
record date for the related distribution payment date. For information as to the
source of the Common Stock to be purchased under the Plan see Question 15.)
With respect to optional cash payments, the price per share of the Common
Stock acquired directly from the Company will be 100% (subject to change) of the
average of the daily high and low sale prices, computed to four decimal places,
of the Common Stock as reported on the NYSE for the Trading Day relating to each
Investment Date (as defined in Question 11 above) or, if no trading occurs in
the Common Stock on such Trading Day, for the Trading Day immediately preceding
such Investment Date for which trades are reported, less the applicable
Discount, if any. A "Trading Day" means a day on which trades in the Common
Stock are reported on the NYSE.
Each month, at least three business days prior to the applicable Record
Date (as defined in Question 18), the Company may establish the Discount from
the Market Price and will notify the Plan Administrator of the same. Such
Discount may be between 0% and 5% of the Market Price and may vary each month,
but once established will apply uniformly to all payments made during that
month. The Discount will be established in the Company's sole discretion after a
review of current market conditions, the level of participation in the Plan, and
the Company's current and projected capital needs. The Discount applies only to
optional cash payments. Neither the Company nor the Plan Administrator shall be
required to provide any written notice to Participants as to the Discount, but
current information regarding the Discount applicable to the next Pricing Period
may be obtained by contacting the Company at (901) 682-6600. Setting a Discount
for an Investment Date shall not affect the setting of a Discount for any
subsequent Investment Date. The Discount feature discussed above applies only to
the issuance of Common Stock by the Company pursuant to optional cash payments
and does not apply to open market purchases made with optional cash payments or
the reinvestment of distributions.
The price per Common Stock acquired through open market purchases with
optional cash payments will be 100% of the weighted average of the actual prices
paid, computed to four decimal places, for all of
24
<PAGE>
the Common Stock purchased by the Plan Administrator with all Participants'
optional cash payments for the related month.
Neither the Company nor any Participant shall have any authorization or
power to direct the time or price at which shares will be purchased or the
selection of the broker or dealer through or from whom purchases are to be made
by the Plan Administrator. However, when open market purchases are made by the
Plan Administrator, the Plan Administrator shall use its best efforts to
purchase the shares at the lowest possible price.
All references in the Plan to the "Market Price" when it relates to
distribution reinvestments which will be reinvested in Common Stock acquired
directly from the Company shall mean the average of the high and low sales
prices, computed to four decimal places, of the Common Stock on the NYSE on the
Investment Date, or if no trading occurs in the Common Stock on the Investment
Date, the average of the high and low sales prices for the first Trading Day
immediately preceding the Investment Date for which trades are reported. With
respect to distribution reinvestments which will be reinvested in Common Stock
purchased in the open market, "Market Price" shall mean the weighted average
of the actual prices paid, net of commissions, computed to four decimal places,
for all of the Common Stock purchased by the Plan Administrator with all
Participants' reinvested distributions for the related quarter. All references
in the Plan to the "Market Price" for optional cash payments which will be
invested in Common Stock acquired directly from the Company shall mean the
average of the daily high and low sales prices of the Common Stock as reported
on the NYSE on the Trading Day relating to each Investment Date or, if no
trading occurs in the Common Stock on such Investment Date, for the first
Trading Day immediately preceding such Investment Date for which trades are
reported.
With respect to optional cash payments which will be reinvested in Common
Stock purchased in the open market, "Market Price" shall mean the weighted
average of the actual prices paid, computed to four decimal places, for all of
the Common Stock purchased by the Plan Administrator with all Participants'
optional cash payments for the related month.
13. WHAT ARE THE RECORD DATES AND INVESTMENT DATES FOR DISTRIBUTION
REINVESTMENT?
For the reinvestment of distributions, the "Record Date" is the record
date declared by the Board of Directors for such distribution. Likewise, the
distribution payment date declared by the Board of Directors constitutes the
Investment Date applicable to the reinvestment of such distribution with respect
to Common Stock acquired directly from the Company, provided, however, that if a
distribution payment date relating to any series of Preferred Stock is later in
the month than the applicable Common Stock distribution payment date, such later
distribution payment date relating to such Preferred Stock shall constitute the
Investment Date relating thereto, and provided further that if any such date is
not a business day, the first business day immediately preceding such date shall
be the Investment Date. The Investment Date with respect to Common Stock
purchased in open market transactions will be no later than ten business days
following the distribution payment date. Distributions will be reinvested on the
Investment Date using the applicable Market Price (as defined in Question 12).
Generally, record dates for quarterly distributions on the Common Stock will
precede the distribution payment dates by approximately two weeks. See Schedule
A for a list of the future distribution record dates and payment dates. Please
refer to Question 18 for a discussion of the Record Dates and Investment Dates
applicable to optional cash payments.
14. HOW WILL THE NUMBER OF SHARES PURCHASED FOR A PARTICIPANT BE DETERMINED?
A Participant's account in the Plan will be credited with the number of
shares, including fractions computed to four decimal places, equal to the total
amount to be invested on behalf of such Participant divided by the purchase
price per share as calculated pursuant to the methods described in Question 12,
as applicable. The total amount to be invested will depend on the amount of any
distributions paid on the number of Participating Shares and Plan Shares in such
Participant's Plan account and available for investment on the related
Investment Date, or the amount of any optional cash payments made by such
Participant and available for investment on the related Investment Date. Subject
to the availability of
25
<PAGE>
Common Stock registered for issuance under the Plan, there is no total maximum
number of shares available for issuance pursuant to the reinvestment of
distributions.
15. WHAT IS THE SOURCE OF COMMON STOCK PURCHASED UNDER THE PLAN?
Plan Shares will be purchased either directly from the Company, in which
event such shares will be authorized but unissued shares, or on the open market,
or by a combination of the foregoing, at the option of the Company, after a
review of current market conditions and the Company's current and projected
capital needs. The Company will determine the source of the Common Stock to be
purchased under the Plan at least three business days prior to the relevant
Record Date, and will notify the Plan Administrator of the same. Neither the
Company nor the Plan Administrator shall be required to provide any written
notice to Participants as to the source of the Common Stock to be purchased
under the Plan, but current information regarding the source of the Common Stock
may be obtained by contacting the Company's Investor Relations Department at
(901) 682-6600.
16. HOW DOES THE OPTIONAL CASH PAYMENT FEATURE OF THE PLAN WORK?
All Record Holders and interested new investors who have timely submitted
signed Authorization Forms indicating their intention to participate in this
feature of the Plan, and all Beneficial Owners whose brokers, banks or other
nominees have timely submitted signed Authorization Forms indicating their
intention to participate in this feature of the Plan (except for Beneficial
Owners whose brokers, banks or other nominees hold the shares of the Beneficial
Owners in the name of a major securities depository), are eligible to make
optional cash payments during any month, whether or not a distribution is
declared. If a broker, bank or other nominee holds shares of a Beneficial Owner
in the name of a major securities depository, optional cash payments must be
made through the use of the B&N Form. See Question 8. Optional cash payments
must be accompanied by an Authorization Form or a B&N Form, as applicable. Each
month the Plan Administrator will apply any optional cash payment received from
a Participant no later than one business day prior to the commencement of that
month's Pricing Period (as defined in Question 12) to the purchase of additional
Common Stock for the account of the Participant on the following Investment Date
(as defined in Question 11).
17. WHAT LIMITATIONS APPLY TO OPTIONAL CASH PAYMENTS?
Each optional cash payment is subject to a minimum per month purchase limit
of $250 and a maximum per month purchase limit of $5,000. For purposes of these
limitations, all Plan accounts under the common control or management of a
Participant (which shall be determined at the sole discretion of the Company)
will be aggregated. Generally, optional cash payments of less than $250 and that
portion of any optional cash payment which exceeds the maximum monthly purchase
limit of $5,000, unless such limit has been waived by the Company, will be
returned to Participants without interest at the end of the relevant Pricing
Period.
Participants may make optional cash payments of up to $5,000 each month
without the prior approval of the Company, subject to the Company's right to
modify, suspend or terminate participation in the Plan by otherwise eligible
holders of Common Stock, Preferred Stock, Units or interested new investors in
order to eliminate practices which are, in the sole discretion of the Company,
not consistent with the purposes or operation of the Plan or which adversely
affect the price of the Common Stock. Optional cash payments in excess of $5,000
may be made by a Participant only upon acceptance by the Company of a completed
Request for Waiver form from such Participant and receipt of such form by the
Plan Administrator. There is no pre-established maximum limit applicable to
optional cash payments that may be made pursuant to accepted Requests for
Waiver. A Request for Waiver form must be received by the Company and the Plan
Administrator and accepted by the Company each month no later than the Record
Date (as defined in Question 18) for the applicable Investment Date. Request for
Waiver forms will be furnished at any time upon request to the Plan
Administrator at the address or telephone number specified in Question 37.
Waivers will be accepted only with respect to actual record Participants and not
for the benefit of Beneficial Owners or multiple Participants. Participants
interested in obtaining further information about a Request for Waiver should
contact the Company at (901) 682-6600.
26
<PAGE>
Waivers will be considered on the basis of a variety of factors, which may
include the Company's current and projected capital needs, the alternatives
available to the Company to meet those needs, prevailing market prices for
Common Stock and other Company securities, general economic and market
conditions, expected aberrations in the price or trading volume of the Common
Stock, the potential disruption of the price of the Common Stock by a financial
intermediary, the number of Common Stock held by the Participant submitting the
waiver request, the past actions of a Participant under the Plan, the aggregate
amount of optional cash payments for which such waivers have been submitted and
the administrative constraints associated with granting such waivers. Grants of
waivers will be made in the absolute discretion of the Company.
PARTICIPANTS IN THE PLAN ARE NOT OBLIGATED TO PARTICIPATE IN THE OPTIONAL CASH
PAYMENT FEATURE OF THE PLAN AT ANY TIME. OPTIONAL CASH PAYMENTS NEED NOT BE IN
THE SAME AMOUNT EACH MONTH.
Unless it waives its right to do so, the Company may establish for any
Pricing Period a minimum price (the "Threshold Price") applicable only to the
investment of optional cash payments that exceed $5,000 and that are made
pursuant to Requests for Waiver, in order to provide the Company with the
ability to set a minimum price at which the Common Stock will be sold under the
Plan each month pursuant to such requests. A Threshold Price will only be
established when Common Stock will be purchased directly from the Company on the
applicable Investment Date. The Company will, at least three business days prior
to each Record Date (as defined in Question 18), determine whether to establish
a Threshold Price and, if a Threshold Price is established, its amount and so
notify the Plan Administrator. The determination whether to establish a
Threshold Price and, if a Threshold Price is established, its amount will be
made by the Company at its discretion after a review of current market
conditions, the level of participation in the Plan and the Company's current and
projected capital needs. Neither the Company nor the Plan Administrator shall be
required to provide any written notice to Participants as to whether a Threshold
Price has been established for any Pricing Period, but current information
regarding the Threshold Price may be obtained by contacting the Company at (901)
682-6600.
The Threshold Price for optional cash payments made pursuant to Requests
for Waiver, if established for any Pricing Period, will be a stated dollar
amount that the average of the high and low sale prices of the Common Stock on
the NYSE for each Trading Day of the relevant Pricing Period must equal or
exceed. In the event that the Threshold Price is not satisfied for a Trading Day
in the Pricing Period, then that Trading Day will be excluded from that Pricing
Period and no investment will occur on the corresponding Investment Date. For
each Trading Day on which the Threshold Price is not satisfied, 1/10 of each
optional cash payment made by a Participant pursuant to a Request for Waiver
will be returned to such Participant, without interest, as soon as practicable
after the end of the applicable Pricing Period. Thus, for example, if the
Threshold Price is not satisfied for three of the ten Trading Days in a Pricing
Period. 3/10 of each Participant's optional cash payment made pursuant to a
Request for Waiver will be returned to such Participant by check, without
interest, as soon as practicable after the end of the applicable Pricing Period.
The Plan Administrator expects to mail such checks within five to ten business
days from the end of the applicable Pricing Period. This return procedure will
only apply when shares are purchased directly from the Company for optional cash
payments made pursuant to Requests for Waiver and the Company has set a
Threshold Price with respect to the relevant Pricing Period. See Question 15.
Setting a Threshold Price for a Pricing Period shall not affect the setting
of a Threshold Price for any subsequent Pricing Period. The Threshold Price
concept and return procedure discussed above apply only to optional cash
payments made pursuant to Requests for Waiver.
For any Pricing Period, the Company may waive its right to set a Threshold
Price for optional cash payments made pursuant to Requests for Waiver.
Participants may ascertain whether the Threshold Price applicable to a given
Pricing Period has been set or waived, as applicable, by contacting the Company
at (901) 682-6600.
For a list of expected dates by which the Threshold Price will be set in
1999 and 2000, see Schedule A.
27
<PAGE>
Each month, at least three business days prior to the applicable Record
Date (as defined in Question 18), the Company may establish the Discount from
the Market Price applicable to optional cash payments during the corresponding
Pricing Period and will notify the Plan Administrator of the same. Such Discount
may be between 0% and 5% of the Market Price and may vary each month, but once
established will apply uniformly to all optional cash payments made during that
month. The Discount will be established in the Company's sole discretion after a
review of current market conditions, the level of participation in the Plan, and
the Company's current and projected capital needs. The Discount applies only to
optional cash payments. Neither the Company nor the Plan Administrator shall be
required to provide any written notice to Participants as to the Discount, but
current information regarding the Discount applicable to the next Pricing Period
may be obtained by contacting the Company at (901) 682-6600. Setting a Discount
for a Pricing Period shall not affect the setting of a Discount for any
subsequent Pricing Period. The Discount feature discussed above applies only to
optional cash payments and does not apply to the reinvestment of distributions.
THE THRESHOLD PRICE CONCEPT AND RETURN PROCEDURE DISCUSSED ABOVE APPLY ONLY TO
OPTIONAL CASH PAYMENTS MADE PURSUANT TO REQUESTS FOR WAIVER WHEN COMMON STOCK IS
TO BE PURCHASED FROM THE COMPANY ON THE APPLICABLE INVESTMENT DATE. ALL OTHER
OPTIONAL CASH PAYMENTS WILL BE MADE AT THE MARKET PRICE LESS THE DISCOUNT
(SUBJECT TO CHANGE), IF ANY, WITHOUT REGARD TO ANY THRESHOLD PRICE.
18. WHAT ARE THE RECORD DATES AND INVESTMENT DATES FOR OPTIONAL CASH PAYMENTS?
Optional cash payments will be invested every month as of the related
Investment Date. The "Record Date" for optional cash payments is one business
day prior to the commencement of the related Pricing Period and the "Investment
Date" for optional cash payments of $5,000 or less is the last day of the
Pricing Period (or Pricing Period conclusion date), and for optional cash
payments of greater than $5,000 made pursuant to Requests for Waiver, the
"Investment Date" is each day on which the NYSE is open for business in a
Pricing Period.
Optional cash payments received by the Plan Administrator by the Record
Date will be applied to the purchase of Common Stock on the Investment Dates
which relate to that Pricing Period. No interest will be paid by the Company or
the Plan Administrator on optional cash payments held pending investment.
Generally, optional cash payments received after the Record Date will be held
for investment on the Investment Date relating to the next applicable pricing
period; optional cash payments will not earn interest pending investment.
For a schedule of expected Record Dates and Pricing Period commencement
dates and conclusion dates in 1999 and 2000, see Schedule A.
19. WHEN MUST OPTIONAL CASH PAYMENTS BE RECEIVED BY THE PLAN ADMINISTRATOR?
Each month the Plan Administrator will apply any optional cash payment for
which good funds are timely received to the purchase of Common Stock for the
account of the Participant during the next Pricing Period. See Question 18. In
order for funds to be invested during the next Pricing Period, the Plan
Administrator must have received a check, money order or wire transfer by the
end of the business day immediately preceding the first Trading Day of the
ensuing Pricing Period and such check, money order or wire transfer must have
cleared on or before the first Investment Date in such Pricing Period. Wire
transfers may be used only if approved verbally in advance by the Plan
Administrator. Checks and money orders are accepted subject to timely collection
as good funds and verification of compliance with the terms of the Plan. Checks
or money orders should be made payable to First Union National Bank and
submitted together with, initially, the Authorization Form or, subsequently, the
form for additional investments attached to Participant's statements. Checks
returned for any reason will not be resubmitted for collection.
NO INTEREST WILL BE PAID BY THE COMPANY OR THE PLAN ADMINISTRATOR ON OPTIONAL
CASH PAYMENTS HELD PENDING INVESTMENT. SINCE NO INTEREST IS PAID ON CASH HELD BY
THE PLAN ADMINISTRATOR, IT NORMALLY WILL BE IN THE
28
<PAGE>
BEST INTEREST OF A PARTICIPANT TO DEFER OPTIONAL CASH PAYMENTS UNTIL SHORTLY
BEFORE COMMENCEMENT OF THE PRICING PERIOD.
In order for payments to be invested on the first Investment Date in a
Pricing Period, in addition to the receipt of good funds by the first Investment
Date in a Pricing Period, the Plan Administrator must be in receipt of an
Authorization Form or a B&N Form, as appropriate, as of the same date. See
Questions 6 and 8.
20. MAY OPTIONAL CASH PAYMENTS BE RETURNED?
Upon telephone or written request to the Plan Administrator received at
least five business days prior to the Record Date for the Investment Date with
respect to which optional cash payments have been delivered to the Plan
Administrator, such optional cash payments will be returned to the Participant
as soon as practicable. Requests received less than five business days prior to
such date will not be returned but instead will be invested on the next related
Investment Date. Additionally, a portion of each optional cash payment will be
returned by check, without interest, as soon as practicable after the end of the
Pricing Period for each Trading Day that does not meet the Threshold Price, if
any, applicable to optional cash payments made pursuant to Requests for Waiver.
See Question 17. Also, each optional cash payment, to the extent that it does
not either conform to the limitations described in Question 18 or clear within
the time limit described in Question 19, will be subject to return to the
Participant as soon as practicable.
21. ARE THERE ANY EXPENSES TO PARTICIPANTS IN CONNECTION WITH THEIR
PARTICIPATION UNDER THE PLAN?
Participants will have to pay brokerage fees or commissions on Common Stock
to sell shares purchased with reinvested distributions or optional cash payments
on the open market, which will be first deducted before determining the number
of shares to be purchased. Participants will incur no brokerage commissions or
service charges in connection with the reinvestment of distributions or optional
cash payments when Common Stock are acquired directly from the Company. The
Company will pay all other costs of administration of the Plan. However,
Participants that request that the Plan Administrator sell all or any portion of
their shares (see Question 27) must pay a nominal fee per transaction to the
Plan Administrator, any related brokerage commissions and applicable share
transfer taxes. Transfers of Common Stock purchased pursuant to Requests for
Waiver to Participants or their designated accounts will also be subject to a
nominal fee as set forth in such Requests for Waiver and will be made only at
the conclusion of the relevant Pricing Period.
REPORTS TO PARTICIPANTS
22. WHAT KIND OF REPORTS WILL BE SENT TO PARTICIPANTS IN THE PLAN?
Each Participant in the Plan will receive a statement of his or her account
following each purchase of additional shares. These statements are Participants'
continuing record of the cost of their purchases and should be retained for
income tax purposes. In addition, Participants will receive copies of other
communications sent to holders of the Common Stock, including the Company's
annual report to its shareholders, the notice of annual meeting and proxy
statement in connection with its annual meeting of shareholders and Internal
Revenue Service information for reporting distributions paid.
DISTRIBUTIONS ON FRACTIONAL SHARES
23. WILL PARTICIPANTS BE CREDITED WITH DISTRIBUTIONS ON FRACTIONS OF SHARES?
Yes.
CERTIFICATES FOR COMMON STOCK
24. WILL CERTIFICATES BE ISSUED FOR SHARES PURCHASED?
No. Common Stock purchased for Participants will be held in the name of the
Plan Administrator or its nominee. No certificates will be issued to
Participants for shares in the Plan unless a Participant submits a written
request to the Plan Administrator or until participation in the Plan is
terminated. At any time, a Participant may request the Plan Administrator to
send a certificate for some or all of the whole shares
29
<PAGE>
credited to a Participant's account. This request should be mailed to the Plan
Administrator at the address set forth in the answer to Question 37. Any
remaining whole shares and any fractions of shares will remain credited to the
Plan account. Certificates for fractional shares will not be issued under any
circumstances.
25. IN WHOSE NAME WILL CERTIFICATES BE REGISTERED WHEN ISSUED?
Each Plan account is maintained in the name in which the related
Participant's certificates were registered at the time of enrollment in the
Plan. Share certificates for whole shares purchased under the Plan will be
similarly registered when issued upon a Participant's request. If a Participant
is a Beneficial Owner, such request should be placed through such Participant's
banker, broker or other nominee. See Question 6. A Participant who wishes to
pledge shares credited to such Participant's Plan account must first withdraw
such shares from the account.
WITHDRAWALS AND TERMINATION
26. WHEN MAY PARTICIPANTS WITHDRAW FROM THE PLAN?
A Participant may withdraw from the Plan with respect to all or a portion
of the shares held in his or her account in the Plan at any time. If the request
to withdraw is received prior to a distribution record date set by the Board of
Directors for determining shareholders of record entitled to receive a
distribution, the request will be processed on the day following receipt of the
request by the Plan Administrator.
If the request to withdraw is received by the Plan Administrator on or
after a distribution record date, but before payment date, the Plan
Administrator, in its sole discretion, may either pay such distribution in cash
or reinvest it in shares for the Participant's account. The request for
withdrawal will then be processed as promptly as possible following such
distribution payment date. All distributions subsequent to such distribution
payment date or Investment Date will be paid in cash unless a shareholder
re-enrolls in the Plan, which may be done at any time.
Any optional cash payments which have been sent to the Plan Administrator
prior to a request for withdrawal will also be invested on the next Investment
Date unless a Participant expressly requests return of that payment in the
request for withdrawal, and the request for withdrawal is received by the Plan
Administrator at least two business days prior to the first day of the Pricing
Period.
27. HOW DOES A PARTICIPANT WITHDRAW FROM THE PLAN?
A Participant who wishes to withdraw from the Plan with respect to all or a
portion of the shares held in his or her account in the Plan must notify the
Plan Administrator in writing at its address set forth in the answer to Question
37. Upon a Participant's withdrawal from the Plan or termination of the Plan by
the Company, certificates for the appropriate number of whole shares credited to
his or her account under the Plan will be issued. A cash payment will be made
for any fraction of a share.
Upon withdrawal from the Plan, a Participant may also request in writing
that the Plan Administrator sell all or part of the shares credited to his or
her account in the Plan. The Plan Administrator will sell the shares as
requested within ten business days after processing the request for withdrawal.
The Participant will receive the proceeds of the sale, less a nominal fee per
transaction paid to the Plan Administrator, any brokerage fees or commissions
and any applicable share transfer taxes, generally within five business days of
the sale.
28. ARE THERE ANY AUTOMATIC TERMINATION PROVISIONS?
Participation in the Plan will be terminated if the Plan Administrator
receives written notice of the death or adjudicated incompetence of a
Participant, together with satisfactory supporting documentation of the
appointment of a legal representative, at least five business days before the
next Record Date for purchases made through the reinvestment of distributions or
optional cash payments, as applicable. In the event written notice of death or
adjudicated incompetence and such supporting documentation is received by the
Plan Administrator less than five business days before the next Record Date for
purchases made through the reinvestment of distributions or optional cash
payments, as applicable, shares will be purchased for the Participant with the
related cash distribution or optional cash payment and participation in the Plan
30
<PAGE>
will not terminate until after such distribution or payment has been reinvested.
Thereafter, no additional purchase of shares will be made for the Participant's
account and the Participant's shares and any cash distributions paid thereon
will be forwarded to such Participant's legal representative.
THE COMPANY RESERVES THE RIGHT TO MODIFY, SUSPEND OR TERMINATE PARTICIPATION IN
THE PLAN BY OTHERWISE ELIGIBLE HOLDERS OF COMMON STOCK, PREFERRED STOCK OR
INTERESTED NEW INVESTORS IN ORDER TO ELIMINATE PRACTICES WHICH ARE, IN THE SOLE
DISCRETION OF THE COMPANY, NOT CONSISTENT WITH THE PURPOSES OR OPERATION OF THE
PLAN OR WHICH ADVERSELY AFFECT THE PRICE OF THE COMMON STOCK.
OTHER INFORMATION
29. WHAT HAPPENS IF A PARTICIPANT SELLS OR TRANSFERS ALL OF THE SHARES
REGISTERED
IN THE PARTICIPANT'S NAME?
If a Participant disposes of all shares registered in his or her name, and
is not shown as a Record Owner on a distribution record date, the Participant
may be terminated from the Plan as of such date and such termination treated as
though a withdrawal notice had been received prior to the record date.
30. WHAT HAPPENS IF THE COMPANY DECLARES A DISTRIBUTION PAYABLE IN SHARES
OR DECLARES A SHARE SPLIT?
Any distribution payable in shares and any additional shares distributed by
the Company in connection with a share split in respect of shares credited to a
Participant's Plan account will be added to that account. Share distributions or
split shares which are attributable to shares registered in a Participant's own
name and not in his or her Plan account will be mailed directly to the
Participant as in the case of shareholders not participating in the Plan.
31. HOW WILL SHARES HELD BY THE PLAN ADMINISTRATOR BE VOTED AT MEETINGS OF
SHAREHOLDERS?
If the Participant is a Record Owner, the Participant will receive a proxy
card covering both directly held shares and shares held in the Plan. If the
Participant is a Beneficial Owner, the Participant will receive a proxy covering
shares held in the Plan through his or her broker, bank or other nominee.
If a proxy is returned properly signed and marked for voting, all the
shares covered by the proxy will be voted as marked. If a proxy is returned
properly signed but no voting instructions are given, all of the Participant's
shares will be voted in accordance with recommendations of the Board of
Directors of the Company, unless applicable laws require otherwise. If the proxy
is not returned, or if it is returned unexecuted or improperly executed, shares
registered in a Participant's name may be voted only by the Participant in
person.
32. WHAT ARE THE RESPONSIBILITIES OF THE COMPANY AND THE PLAN ADMINISTRATOR
UNDER THE PLAN?
The Company and the Plan Administrator will not be liable in administering
the Plan for any act done in good faith or required by applicable law or for any
good faith omission to act including, without limitation, any claim of liability
arising out of failure to terminate a Participant's account upon his or her
death, with respect to the prices at which shares are purchased and/or the times
when such purchases are made or with respect to any fluctuation in the market
value before or after purchase or sale of shares. Notwithstanding the foregoing,
nothing contained in the Plan limits the Company's liability with respect to
alleged violations of federal securities laws.
The Company and the Plan Administrator shall be entitled to rely on
completed forms and the proof of due authority to participate in the Plan,
without further responsibility of investigation or inquiry.
33. MAY THE PLAN BE CHANGED OR DISCONTINUED?
Yes. The Company may suspend, terminate, or amend the Plan at any time.
Notice will be sent to Participants of any suspension or termination, or of any
amendment that alters the Plan terms and conditions, as soon as practicable
after such action by the Company.
31
<PAGE>
The Company may substitute another administrator or agent in place of the
Plan Administrator at any time. Participants will be promptly informed of any
such substitution.
Any questions of interpretation arising under the Plan will be determined
by the Company, in its sole discretion, and any such determination will be
final.
34. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATION IN THE PLAN?
The following summarizes certain federal income tax considerations to
current shareholders and holders of Units who participate in the Plan. New
investors and current shareholders and holders of Units should consult the
discussion herein under the caption "Federal Income Tax Considerations" for a
summary of federal income tax considerations related to the ownership of Common
Stock.
The following summary is based upon an interpretation of current federal
tax law. Participants should consult their own tax advisors to determine
particular tax consequences, including state income tax (and non-income tax,
such as share transfer tax) consequences, which vary from state to state and
which may result from participation in the Plan and the subsequent disposition
of Common Stock acquired pursuant to the Plan. Income tax consequences to
Participants residing outside the United States will vary from jurisdiction to
jurisdiction.
CURRENT SHAREHOLDERS
In the case of Common Stock purchased by the Plan Administrator pursuant to
the reinvestment feature of the Plan, whether purchased from the Company or in
the open market, Participants will be treated for federal income tax purposes as
having received, on the distribution payment date, a distribution in an amount
equal to the amount of the cash distribution that was reinvested. Such
distribution will be taxable as a dividend to the extent of the Company's
current or accumulated earnings and profits. To the extent the distribution is
in excess of the Company's current or accumulated earnings and profits, the
distribution will be treated first as a tax-free return of capital, reducing the
tax basis in a Participant's shares, and the distribution in excess of a
Participant's tax basis will be taxable as gain realized from the sale of its
shares.
For Participants who are current shareholders of the Company, it is not
entirely clear under current law how purchases of Common Stock from the Company
pursuant to the optional cash purchase feature of the Plan should be treated for
federal income tax purposes. The Company currently intends to take the position
for tax reporting purposes either that no distribution from the Company has
occurred in connection with optional cash purchases, or, alternatively, that any
such distribution is not taxable as a dividend. It is possible, however, that
the Internal Revenue Service ("IRS") might contend that Participants who are
shareholders of the Company should be treated for federal income tax purposes as
having received a distribution from the Company in an amount equal to the
excess, if any, of the fair market value (determined as the average of the high
and low trading prices) of the Common Stock on the Investment Date less the
amount of the optional cash payment, and that all or a portion of such
distribution should be treated as a taxable dividend. In the future, the Company
may, in light of subsequent developments in the tax laws or for other reasons,
treat as a taxable dividend all, or a portion, of the excess of the fair market
value of the Common Stock credited to the Participant's Plan account on the
Investment Date less the amount of the optional cash payment. Participants are
encouraged to consult with their own tax advisors with regard to the tax
treatment of optional cash purchases.
In the case of Common Stock purchased by the Plan Administrator on the open
market pursuant to the optional cash payment feature of the Plan, Participants
should not be treated for federal income tax purposes as having received a
distribution from the Company.
CURRENT HOLDERS OF UNITS
The income tax treatment of holders of Units who participate in the Plan is
unclear because there is no clear legal authority regarding the income tax
treatment of a limited partner in a partnership who invests cash distributions
from the partnership in shares of another entity that is a partner in the
partnership. The following, however, sets forth the Company's view of the likely
tax treatment of holders of Units who participate in the Plan, and absent the
promulgation of authority to the contrary, the Company and the
32
<PAGE>
Operating Partnership intend to report the tax consequences of a holder's
participation in a manner consistent with the following.
In the case of Common Stock purchased by the Plan Administrator pursuant to
the distribution reinvestment feature of the Plan, whether purchased from the
Company or in the open market, holders of Units will be treated for federal
income tax purposes as having received, on the distribution payment date, a
distribution in an amount equal to the cash distribution that was invested.
A cash distribution from the Operating Partnership will reduce a holder's
basis in his Units by the amount distributed. Cash distributed to a holder of
Units in excess of his basis in his Units generally will be taxable as capital
gain. However, under Section 751(b) of the Code, to the extent that a
distribution is considered to be in exchange for a holder's interest in
substantially appreciated inventory items or unrealized receivables of the
Operating Partnership, that holder of Units may recognize ordinary income rather
than a capital gain.
For Participants who are holders of Units, it is not entirely clear under
current law how purchases of Common Stock from the Company pursuant to the
optional cash purchase feature of the Plan should be treated for federal income
tax purposes. The Operating Partnership currently intends to take the position
for tax reporting purposes that no distribution from the Operating Partnership
has occurred in connection with optional cash purchases. It is possible,
however, that the IRS might contend that Participants who are holders of Units
should be treated for federal income tax purposes as having received a
distribution from the Operating Partnership in an amount equal to the excess, if
any, of the fair market value (determined as the average of the high and low
trading prices) of the Common Stock credited to the Participant's Plan account
on the Investment Date less the amount of optional cash payment. In the future,
the Company may, in light of subsequent developments in the tax laws or for
other reasons, treat as a distribution from the Operating Partnership all, or a
portion, of the excess of the fair market value of the Common Stock credited to
the Participant's Plan account on the Investment Date less the amount of the
optional cash payment. Participants are encouraged to consult with their own tax
advisors with regard to the tax treatment of optional cash purchases.
In the case of Common Stock purchased on the open market by the Plan
Administrator through an optional cash payment from a holder of Units, the
holder should not be treated for federal income tax purposes as having received
a distribution from the Operating Partnership.
GENERAL
A Participant's holding period for Common Stock acquired pursuant to the
Plan will begin on the day following the Investment Date. A Participant will
have a tax basis in the Common Stock equal to the amount of cash used to
purchase the Common Stock.
A Participant will not realize any taxable income upon receipt of
certificates for whole Common Stock credited to the Participant's account,
either upon the Participant's request for certain of those Common Stock or upon
termination of participation in the Plan. A Participant will recognize gain or
loss upon the sale or exchange of Common Stock acquired under the Plan. A
Participant will also recognize gain or loss upon receipt, following termination
of participation in the Plan, of a cash payment for any fractional share
equivalent credited to the Participant's account. The amount of any such gain or
loss will be the difference between the amount that the Participant received for
the Common Stock or fractional share equivalent and the tax basis thereof.
35. HOW ARE INCOME TAX WITHHOLDING PROVISIONS APPLIED TO PARTICIPANTS IN THE
PLAN?
If a Participant fails to provide certain federal income tax certifications
in the manner required by law, distributions on Common Stock, Preferred Stock or
Units, proceeds from the sale of fractional shares and proceeds from the sale of
Common Stock held for a Participant's account will be subject to federal income
tax withholding at the rate of 31%. If withholding is required for any reason,
the appropriate amount of tax will be withheld. Certain shareholders (including
most corporations) are, however, exempt from the above withholding requirements.
33
<PAGE>
If a Participant is a foreign shareholder whose distributions are subject
to federal income tax withholding at the 30% rate (or a lower treaty rate), the
appropriate amount will be withheld and the balance in Common Stock will be
credited to such Participant's account. As a result of the Small Business Job
Protection Act of 1996, the Company intends to withhold 10% of any distribution
to a foreign shareholder to the extent it exceeds the Company's current and
accumulated earnings and profits.
36. WHO BEARS THE RISK OF MARKET FLUCTUATIONS IN THE COMPANY'S COMMON STOCK?
A Participant's investment in shares held in the Plan account is no
different from his or her investment in directly held shares. The Participant
bears the risk of any loss and enjoys the benefits of any gain from market price
changes with respect to such shares.
37. WHO SHOULD BE CONTACTED WITH QUESTIONS ABOUT THE PLAN?
All correspondence regarding the Plan should be directed to:
First Union National Bank
Shareholder Services Group
1525 West WT Harris Blvd. 3C3
Charlotte, North Carolina 28288-1153
Telephone Numbers: (704) 590-0394, or toll-free (800) 829-8432
Please mention Mid-America Apartment Communities, Inc. and this Plan in all
correspondence.
38. HOW IS THE PLAN INTERPRETED?
Any question of interpretation arising under the Plan will be determined by
the Company and any such determination will be final. The Company may adopt and
conditions of the Plan and its operation will be governed by the laws of the
State of Tennessee.
39. WHAT ARE SOME OF THE PARTICIPANT RESPONSIBILITIES UNDER THE PLAN?
Plan Shares are subject to escheat to the state in which the Participant
resides in the event that such shares are deemed, under such state's laws, to
have been abandoned by the Participant. Participants, therefore, should notify
the Plan Administrator promptly in writing of any change of address. Account
statements and other communications to Participants will be addressed to them at
the last address of record provided by Participants to the Plan Administrator.
Participants will have no right to draw checks or drafts against their Plan
accounts or to instruct the Plan Administrator with respect to any Common Stock
or cash held by the Plan Administrator except as expressly provided herein.
DISTRIBUTIONS
The Company has paid distributions since its incorporation. In order to
accommodate the provisions of this Plan, the Company anticipates that
distributions will be payable on or about the fifteenth day of April, July and
October and the last week of December.
PLAN OF DISTRIBUTION
Except to the extent the Plan Administrator purchases Common Stock in open
market transactions, the Common Stock acquired under the Plan will be sold
directly by the Company through the Plan. The Company may sell Common Stock to
owners of shares (including brokers or dealers) who, in connection with any
resales of such shares, may be deemed to be underwriters. In connection with any
such transaction, compliance with Regulation M under the Exchange Act would be
required. Such shares, including shares acquired pursuant to waivers granted
with respect to the optional cash payment feature of the Plan, may be resold in
market transactions (including coverage of short positions) on any national
securities exchange on which Common Stock trades or in privately negotiated
transactions. The Common Stock is currently listed on the New York Stock
Exchange. Under certain circumstances, it is expected that a portion of the
Common Stock available for issuance under the Plan will be issued pursuant to
such waivers. The difference between the price such owners pay to the Company
for Common Stock acquired under the Plan, after deduction of
34
<PAGE>
the applicable discount from the Market Price, and the price at which such
shares are resold, may be deemed to constitute underwriting commissions received
by such owners in connection with such transactions. Any such underwriter
involved in the offer and sale of the Common Stock will be named in an
applicable Prospectus Supplement. Any underwriting compensation paid by the
Company to underwriters or agents in connection with the offering of the Common
Stock, and any discounts, concessions or commissions allowed by underwriters to
participating dealers, will be set forth in an applicable Prospectus Supplement.
Subject to the availability of Common Stock registered for issuance under
the Plan, there is no total maximum number of shares that can be issued pursuant
to the reinvestment of distributions.
Except with respect to open market purchases of Common Stock relating to
reinvested distributions, the Company will pay any and all brokerage commissions
and related expenses incurred in connection with purchases of Common Stock under
the Plan. Upon withdrawal by a Participant from the Plan by the sale of Common
Stock held under the Plan, the Participant will receive the proceeds of such
sale less a nominal fee per transaction paid to the Plan Administrator (if such
resale is made by the Plan Administrator at the request of a Participant), any
related brokerage commissions and any applicable transfer taxes.
Common Stock may not be available under the Plan in all states. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, any Common Stock or other securities in any state or any other
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction.
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
35
<PAGE>
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 "alterative 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.
36
<PAGE>
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 -- 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 11 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, 100% of the capital stock of which is owned
by the REIT. 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 proportionate share. In addition, the character
of the assets and gross income of the partnership will retain the same character
in the hands of the REIT for purposes of Section 856 of the Code, including
satisfying the gross income and asset tests (as discussed below). Thus, the
Company's proportionate share of the assets, liabilities and items of income of
the Operating Partnership and 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
37
<PAGE>
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 its Communities and the Communities of the Property
Partnerships.
The Operating Partnership receives fees in consideration of the performance
of management, landscaping and administrative services with respect to
properties that are not wholly owned, directly or indirectly, by the Operating
Partnership. A portion of such fees generally will not qualify under the 75% or
95% gross income tests. The Company will also receive certain other types of
non-qualifying income, such as income from coin-operated laundry machines and
income from corporate and guests apartments. The Company believes, however, that
the aggregate amount of such fees and other non-qualifying income in any taxable
year will not cause the Company to exceed the limits on non-qualifying income
under the 75% and 95% gross income tests.
It is possible that, from time to time, the Company, the Operating
Partnership, or a 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, the Operating Partnership 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, the Operating Partnership 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.
38
<PAGE>
Fees to perform property management services for apartment properties that
the Company does not own will not qualify under the 75% or the 95% gross income
tests. Flournoy Development Company, in which the Company owns non-voting Common
Stock, receives these fees. In addition, the Company (or the Operating
Partnership) may receive certain other types of income with respect to the
Communities 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 Operating Partnership and the Property Partnerships or the stock
of a qualified REIT subsidiary as defined by Section 856(i) of the Code).
For purposes of the asset tests, the Company is deemed to own its
proportionate share of the assets of the Operating Partnership and the Property
Partnerships, rather that its partnership interests therein. The Company is
deemed to own all assets owned by qualified REIT subsidiaries. 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 the Operating Partnership or 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
39
<PAGE>
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 the Company's
qualification as a REIT, will rely on a representation by the Company with
respect to the value of the interests in Flournoy Development Company. 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 the Company increases its direct
or indirect ownership of securities of Flournoy Development Company (including
as a result of increasing its interest in the Operating Partnership). Although
the Company plans to take steps to ensure that it 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
40
<PAGE>
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.
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
Regulations (the "Anti-Abuse Rule") under the partnership provisions of
the Code (the "Partnership Provisions") authorize the Service, in certain
abusive transactions involving partnerships, to disregard the form of a
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 alterative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which the
Company fails to qualify will not be deductible by the Company, nor will they be
required to be made. In such event,
41
<PAGE>
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
42
<PAGE>
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 long-term capital gains applicable to noncorporate
taxpayers is 20%. 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% or 25% 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
43
<PAGE>
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
44
<PAGE>
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 the Company cannot exceed 5% of the value of the Company's
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 the Company's assets is also
increasing.
45
<PAGE>
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.
EXPERTS
The consolidated financial statements and financial statement schedule of
Mid-America Apartment Communities, Inc. and subsidiaries (the "Company") as of
December 31, 1997 and 1996, and for each of the years in the three-year period
ended December 31, 1997, included in Mid-America Apartment Community, Inc.'s
Annual Report or Form 10-K for the fiscal year ended December 31, 1997, as
amended, and incorporated by reference herein and in the registration statement
in reliance upon the report of KPMG LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing. Our report contains an explanatory
paragraph that states that the Company changed its accounting method to
capitalize replacement purchases for major appliances and carpet in 1996.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered pursuant to this
Prospectus 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.
46
<PAGE>
================================================================================
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 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 COMMON STOCK, 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
-----
Summary.............................. 2
Risk Factors......................... 5
Use of Proceeds...................... 8
Description of Capital Stock......... 9
Summary of the Plan.................. 17
The Plan............................. 18
Plan of Distribution................. 34
Federal Income Tax Considerations.... 35
Experts.............................. 46
Legal Matters........................ 46
1,600,000 SHARES
MID-AMERICA
APARTMENT
COMMUNITIES, INC.
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
JANUARY , 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the fees and expenses to be incurred in
connection with the issuance and distribution of the Offered Securities
registered hereby.
Registration fee to the SEC.......... $ 6,086
Printing expense..................... 50,000
Accounting fees and expenses......... 20,000
Legal fees and expenses.............. 20,000
Miscellaneous expenses............... 10,000
Total........................... $ 106,086
==========
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.
EXHIBIT
NUMBER DESCRIPTION
- -------------------------------------------------------------
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
II-1
<PAGE>
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
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)
23.1 -- Consent of KPMG LLP
23.2 -- Consent of Baker, Donelson, Bearman &
Caldwell (Included in Exhibit 5.1)
- ------------
** 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 Form 10-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
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-2
<PAGE>
(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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Memphis, State of Tennessee, on January 20, 1999.
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
Simon R.C. Wadsworth and Mark S. Martini, and each or either of them, with full
power to act without the other, 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 (until revoked in writing), to sign any and all
amendments to this Registration Statement (including post-effective amendments
and amendments thereto) and any registration statement relating to the same
offering as this Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act, and to file the same, 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, 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, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------------------- -------------------- -------------
<S> <C> <C> <C>
/s/GEORGE E. CATES Chairman of the Board of Directors, January 19, 1999
GEORGE E. CATES and Chief Executive Officer
/s/JOHN F. FLOURNOY Vice Chairman of the Board of January 19, 1999
JOHN F. FLOURNOY Directors
/s/H. ERIC BOLTON Director, President and Chief January 19, 1999
H. ERIN BOLTON Operating Officer
/s/SIMON R.C. WADSWORTH Director and Chief Financial Officer January 19, 1999
SIMON R.C. WADSWORTH (principal accounting and financial
officer)
/s/ROBERT F. FOGELMAN Director January 19, 1999
ROBERT F. FOGELMAN
/s/O. MASON HAWKINS Director January 19, 1999
O. MASON HAWKINS
/s/JOHN S. GRINALDS Director January 19, 1999
JOHN S. GRINALDS
/s/RALPH HORN Director January 19, 1999
RALPH HORN
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- -------------------------------------------------------------
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
5.1 -- Opinion of Baker, Donelson, Bearman &
Caldwell Regarding Legality
<PAGE>
8.1 -- Opinion of Baker, Donelson, Bearman &
Caldwell Regarding Certain Tax
Matters
12.1 -- Statements regarding computation of
ratios (Included in Prospectus)
23.1 -- Consent of KPMG LLP
23.2 -- Consent of Baker, Donelson, Bearman &
Caldwell (Included in Exhibit 5.1)
- ------------
** 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 Form 10-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
EXHIBIT 5.1
[BAKER, DONELSON BEARMAN & CALDWELL LETTER HEAD]
January 26, 1999
Board of Directors
Mid-America Apartment Communities, Inc.
6584 Poplar Avenue, Suite 340
Memphis, Tennessee 38138
Gentlemen:
We are acting as counsel for Mid-America Apartment Communities, Inc. (the
"Company") in connection with the registration under the Securities Act of 1933
of 1,600,000 shares of Common Stock, $.01 par value, of the Company (the
"Shares"). The Shares are described in the Registration Statement on Form S-3 of
the Company (the "Registration Statement") to be filed with the Securities and
Exchange Commission (the "Commission") on January 27, 1999. In connection with
the filing of the Registration Statement you have requested our opinion
concerning certain corporate matters.
We are of the opinion that:
1. The Company is a corporation duly organized and validly existing under
the laws of the State of Tennessee.
2. When the Shares have been issued and sold pursuant to the Company's
Dividend Reinvestment and Stock Purchase Plan described in the Registration
Statement, the Shares will be legally issued, fully paid
and nonassessable.
Our opinion is subject to the following qualifications and limitations:
(a) The opinions expressed herein are subject to the effect of
applicable bankruptcy, insolvency, reorganization or similar laws
affecting the enforcement of creditors' rights and equitable
principles limiting the availability of equitable remedies on the
enforeceability of contracts, agreements and instruments.
(b) Members of our firm are qualified to practice law in the States of
Tennessee and Mississippi and the District of Columbia and nothing
contained herein shall be deemed to be an opinion as to any law,
rule or regulation other than those of the federal laws
of the United States.
<PAGE>
Board of Directors
Mid-America Apartment Communities, Inc.
January 26, 1999
Page 2
(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
[BAKER DONELSON BEARMAN & CALDWELL LETTERHEAD]
January 26, 1999
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
1,600,000 shares of common stock, $.01 par value per share ("Common Stock"). The
Common Stock may be offered and sold by the Company pursuant to the Company's
Dividend Reinvestment and Stock Purchase Plan from time to time as set forth in
the prospectus which forms a part of the Registration Statement (the
"Prospectus"). In connection with the registration of the Common Stock, 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
<PAGE>
Board of Directors
Mid-America Apartment Communities, Inc
January 26, 1999
Page 2
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"); (7) the articles of incorporation of
Flournoy Development Company ("FDC"), the Company's unconsolidated subsidiary;
and (8) the Company's amended and restated dividend reinvestment and stock
purchase plan.
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
<PAGE>
Board of Directors
Mid-America Apartment Communities, Inc
January 26, 1999
Page 3
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.
<PAGE>
Board of Directors
Mid-America Apartment Communities, Inc
January 26, 1999
Page 4
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
<PAGE>
Board of Directors
Mid-America Apartment Communities, Inc
January 26, 1999
Page 5
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 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to incorporation by reference in the registration statement on
Form S-3 of Mid-America Apartment Communities, Inc. and to the reference to our
firm under the heading "Experts" of our report dated March 27, 1998 relating
to the consolidated balance sheets of Mid-America Apartment Communities, Inc.
and subsidiaries (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,
and the related financial statement schedule, which report is included in the
1997 annual report on Form 10-K of Mid-America Apartment Communities, Inc., as
amended. Our report contains an explanatory paragraph that states that the
Company changed its accounting method to capitalize replacement purchases for
major appliances and carpet in 1996.
/s/ KPMG LLP
KPMG LLP
Memphis, Tennessee
January 22, 1999
