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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 26, 1999
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SUMMIT PROPERTIES INC.
AND SUMMIT PROPERTIES PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
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SUMMIT PROPERTIES INC. -- MARYLAND 56-1857807
SUMMIT PROPERTIES PARTNERSHIP, L.P. -- DELAWARE 56-1857809
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
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212 SOUTH TRYON STREET, SUITE 500, CHARLOTTE, NORTH CAROLINA 28281
(704) 334-3000
(Address and telephone number of principal executive offices)
WILLIAM F. PAULSEN, CHIEF EXECUTIVE OFFICER
SUMMIT PROPERTIES INC., 212 SOUTH TRYON STREET, SUITE 500, CHARLOTTE, NORTH
CAROLINA 28281
(704) 334-3000
(Name, address and telephone number, including area code, of agent for service)
copy to:
DAVID W. WATSON, P.C.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109
(617) 570-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after this registration statement becomes effective.
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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 used to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED(1) REGISTERED(2) PER UNIT(3) OFFERING PRICE(4) FEE
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Summit Properties Inc........................ $250,000,000 N.A. $250,000,000 $ 0(7)
Preferred Stock(5)
Common Stock(6)
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Summit Properties Partnership, L.P. ......... $250,000,000 N.A. $250,000,000 $65,330(8)
Debt Securities
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(1) This Registration Statement also relates to Rights to purchase shares of
Series A Junior Participating Cumulative Preferred Stock of Summit
Properties Inc. which are attached to all shares of Common Stock issued,
pursuant to the terms of Summit Properties Inc.'s Shareholder Rights
Agreement dated December 14, 1998. Until the occurrence of certain
prescribed events, the Rights are not exercisable, are evidenced by the
certificates for the Common Stock and will be transferred with and only
with such stock. Because no separate consideration is paid for the
Rights, the registration fee therefor is included in the fee for the
Common Stock. This Registration Statement also covers contracts which may
be issued by Summit Properties Inc. or Summit Properties Partnership,
L.P. under which the counter party may be required to purchase Preferred
Stock and/or Common Stock of Summit Properties Inc. or Debt Securities of
Summit Properties Partnership, L.P., which contracts would be issued with
Preferred Stock and/or Common Stock of Summit Properties Inc. or Debt
Securities of Summit Properties Partnership, L.P. registered hereby, as
the case may be. In addition, the securities registered hereunder may be
sold separately, together or as units with other securities registered
hereunder.
(2) The amount to be registered consists of up to $250,000,000 of an
indeterminate amount of Preferred Stock and/or Common Stock to be issued
by Summit Properties Inc. and up to $250,000,000 of Debt Securities to be
issued by Summit Properties Partnership, L.P. There is also being
registered hereunder such currently indeterminate number of shares of
Common Stock as may be issued upon conversion of Preferred Stock
registered hereby. Pursuant to Rule 429 under the Securities Act of 1933,
as amended, this amount includes (i) $250,000,000 of Preferred Stock and
Common Stock and (ii) $15,000,000 of Debt Securities covered by the
Registration Statement on Form S-3 (No. 333-25575), which have not been
sold.
(3) The proposed maximum offering price per unit has been omitted pursuant to
Securities Act Release No. 6964. The registration fee has been calculated
in accordance with Rule 457(o) under the Securities Act of 1933, as
amended, and reflects the offering price rather than the principal amount
of any Debt Securities issued at a discount.
(4) Estimated solely for purposes of computing the registration fee. No
separate consideration will be received for Common Stock issued upon
conversion of Preferred Stock.
(5) Including such indeterminate number of shares of Preferred Stock as may
be issued from time to time at indeterminate prices.
(6) Including such indeterminate number of shares of Common Stock as may be
issued from time to time at indeterminate prices or upon conversion of
Preferred Stock registered hereby.
(7) The total registration fee for all $250,000,000 of these securities is
$69,500. Pursuant to Rule 429 under the Securities Act of 1933, as
amended, the amount of $250,000,000 of such securities covered by the
earlier Registration Statement on Form S-3 (No. 333-25575) is being
carried forward and the corresponding registration fee of $69,500 that
was previously paid at the time of filing shall be applied to the fee
payable pursuant to this Registration Statement. Accordingly, no amount
is being paid simultaneously with this filing with respect to the Common
Stock and Preferred Stock being registered hereunder.
(8) The total registration fee for all $250,000,000 of these securities is
$69,500. Pursuant to Rule 429 under the Securities Act of 1933, as
amended, the amount of $15,000,000 of such securities covered by the
earlier Registration Statement on Form S-3 (No. 333-25575) is being
carried forward and the corresponding registration fee of $4,170 that was
previously paid at the time of filing shall be applied to the fee payable
pursuant to this Registration Statement. Accordingly, an amount of
$65,330 is being paid simultaneously with this filing with respect to the
Debt Securities being registered hereunder.
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The Prospectus contained in this Registration Statement relates to and
constitutes a post-effective amendment to the Registration Statement on Form S-3
(No. 333-25575) of the registrants, and it is intended to be the combined
prospectus referred to in Rule 429 under the Securities Act of 1933, as amended.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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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 AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 26, 1999
PROSPECTUS
$250,000,000
SUMMIT PROPERTIES INC.
PREFERRED STOCK
COMMON STOCK
$250,000,000
SUMMIT PROPERTIES PARTNERSHIP, L.P.
DEBT SECURITIES
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This prospectus provides you with a general description of equity
securities that Summit Properties Inc. may offer and debt securities that Summit
Properties Partnership, L.P. may offer. Each time we sell securities we will
provide a prospectus supplement that will contain specific information about the
terms of that sale and may add to or update the information in this prospectus.
Our common stock is listed on the New York Stock Exchange under the symbol
"SMT."
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Beginning on page 2, we have listed several "Risk Factors" that you should
consider.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is July , 1999.
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Unless the context otherwise requires, all references to "we," us" or "our
company" in this prospectus refer collectively to Summit Properties Inc., a
Maryland corporation, and its subsidiaries, including Summit Properties
Partnership, L.P., a Delaware limited partnership, and their respective
predecessor entities for the applicable periods, considered as a single
enterprise.
RISK FACTORS
Before you invest in our securities, you should be aware that there are
various risks, including those described below. You should consider carefully
these risk factors together with all of the information included or incorporated
by reference in this prospectus or any prospectus supplement before you decide
to purchase our securities. This section includes or refers to certain
forward-looking statements; you should refer to the explanation of the
qualifications and limitations on such forward-looking statements discussed in
the accompanying prospectus supplement.
DEVELOPMENT AND CONSTRUCTION RISKS COULD AFFECT OUR PROFITABILITY.
We intend to continue to develop and construct apartment communities. Our
development and construction activities may be exposed to the following risks:
-- We may be unable to obtain, or suffer delays in obtaining, necessary
zoning, land-use, building, occupancy, and other required
governmental permits and authorizations. This could result in
increased costs and could require us to abandon our activities
entirely with respect to the project for which we are unable to
obtain permits or authorizations.
-- We may abandon development opportunities that we have already begun
to explore. If we abandon a development opportunity, we may fail to
recover expenses already incurred in exploring that development
opportunity.
-- We may incur construction costs for a community which exceed our
original estimates due to increased costs for materials or labor or
other costs that were unexpected. Increased or unexpected costs
could make completion of a community uneconomical because we may not
be able to increase rents to compensate for those construction
costs.
-- Because occupancy rates and rents at a newly completed development
may fluctuate, we may not be able to meet our profit estimates for
that community. Fluctuations in occupancy rates or rents could be
caused by a number of factors, including market and economic
conditions.
-- We may not be able to obtain financing with favorable terms for the
development of a community, which may make us unable to proceed with
its development.
-- We may be unable to complete construction and lease-up of a
community on schedule, resulting in increased debt service expense
and construction or reconstruction costs.
Construction costs have been increasing in our markets, and the cost to
update acquired communities has, in some cases, exceeded our original estimates.
We may experience similar cost increases in the future. If we are not able to
charge rents that will be sufficient to offset the effects of any increases in
construction costs, our profitability could be less than anticipated.
ACQUISITIONS MAY NOT YIELD ANTICIPATED RESULTS.
We intend to continue to acquire apartment communities on a select basis.
Our acquisition activities and their success may be exposed to the following
risks:
-- Before acquiring a community, we estimate the return on our
investment based on expected occupancy and rental rates. If the
community is unable to achieve the expected occupancy and rental
rates, it may fail to perform as we expected in analyzing our
investment.
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-- When we acquire an apartment community, we often reposition or
redevelop that community with the goal of increasing profitability.
Our estimate of the costs of repositioning or redeveloping an
acquired community may prove inaccurate. If costs are greater than
expected, it may not be possible to meet our profitability goals.
WE COULD CHANGE OUR POLICY OF LIMITING OUR DEBT LEVEL.
Our current policy is not to incur debt that would make our ratio of
debt-to-total-market-capitalization greater than 55%. However, our Amended and
Restated Articles of Incorporation, as amended, and Bylaws do not contain any
such limitations. Our ratio of debt-to-total-market-capitalization as of June
30, 1999 was approximately 46.7%. Throughout this prospectus we refer to our
Amended and Restated Articles of Incorporation, as amended, as our "articles of
incorporation" and to our Bylaws as our "bylaws." Because we do not have any
debt incurrence restrictions in our articles of incorporation or bylaws, we
could increase the amount of outstanding debt at any time. In the event that the
price of our common stock increases, we could incur additional debt without
increasing the ratio of debt-to-total-market-capitalization and without a
concurrent increase in our ability to service that additional debt.
INCURRENCE OF ADDITIONAL DEBT AND RELATED ISSUANCE OF EQUITY MAY DILUTE EXISTING
STOCKHOLDERS' INTERESTS.
The future issuance of additional equity may dilute the interests of
existing stockholders. For example, if we finance future developments and
acquisitions with new equity securities instead of additional debt, the
interests of our existing stockholders could be diluted. Our ability to execute
our business strategy depends on our access to appropriate amounts of debt
financing, including unsecured lines of credit and other forms of secured and
unsecured debt, and equity financing, including common and preferred stock. Debt
or equity financing may not be available to us on favorable terms or at all.
INSUFFICIENT CASH FLOW COULD AFFECT OUR DEBT FINANCING AND CREATE REFINANCING
RISK.
We are subject to the risks normally associated with debt financing,
including the risk that our cash flow will be insufficient to meet required
payments of principal and interest. Typically we repay only a small portion of
the principal of our debt before it is due at maturity. Although we may be able
to repay a portion of our debt by using our cash flows, we do not expect to have
sufficient cash flows available to make all required principal payments and
still satisfy our distribution requirements to maintain our status as a real
estate investment trust. Therefore, we are likely to need to refinance at least
a portion of our outstanding debt as it matures. There is a risk that we may not
be able to refinance existing debt or that the terms of any refinancing will not
be as favorable as the terms of the existing debt.
RISING INTEREST RATES WOULD INCREASE INTEREST COSTS AND COULD AFFECT THE MARKET
PRICE OF OUR SECURITIES.
We currently have, and may in the future incur, variable interest rate debt
under credit facilities as we acquire, construct and reconstruct apartment
communities, as well as for other purposes. If interest rates increase, our
interest costs will also rise, unless we have made arrangements that hedge the
risk of rising interest rates. In addition, an increase in market interest rates
may lead purchasers of our securities to demand a higher annual yield, which
could adversely affect the market price of our outstanding securities.
INTEREST RATE HEDGING CONTRACTS MAY INVOLVE MATERIAL CHANGES AND MAY NOT PROVIDE
ADEQUATE PROTECTION.
From time to time when we anticipate offerings of debt securities, we may
seek to decrease our exposure to fluctuations in interest rates during the
period before the pricing of the securities by entering into interest rate
hedging contracts. We may do so to increase the predictability of our financing
costs. Also, from time to time, we may rely on interest rate hedging contracts
to offset our exposure to moving interest rates on variable rate debt. The
settlement of interest rate hedging contracts may involve charges to earnings
that may be material in amount. These charges are typically related to the
extent and timing of fluctuations in interest rates. Despite our efforts to
minimize our exposure to interest rate fluctuations, we
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cannot guarantee that we will maintain coverage for all of our outstanding
indebtedness at any particular time. If we do not effectively protect ourselves
from this risk, we may be subject to increased interest costs resulting from
interest rate fluctuations.
BOND FINANCING COMPLIANCE REQUIREMENTS COULD LIMIT OUR INCOME, RESTRICT THE USE
OF COMMUNITIES AND CAUSE FAVORABLE FINANCING TO BECOME UNAVAILABLE.
We have financed some of our apartment communities with obligations issued
by local government agencies or organizations. Because holders of this debt
financing are generally exempt from federal income taxes on the interest that we
pay on this financing, the interest rate is typically lower than it would be for
other debt financing. These obligations are commonly referred to as "tax-exempt
bonds." The compliance requirements for our current tax-exempt bonds, and the
requirements of any future tax-exempt bond financings, may limit our income from
communities that are subject to this financing. Under the terms of our current
tax-exempt bonds, we must comply with restrictions on the use of the communities
that we financed with these bonds, including a requirement that we make some of
the apartments available to low and middle income households.
In addition, some of our tax-exempt bond financing documents require us to
obtain a guarantee of payment from a financial institution. The guarantee may
take the form of a letter of credit, surety bond, guarantee agreement or other
additional collateral. If the financial institution defaults in its guarantee
obligations, or if we are unable to repay the indebtedness, renew the applicable
guarantee or otherwise post satisfactory collateral, a default will occur under
the applicable tax-exempt bonds and the community could be foreclosed upon.
FAILURE TO GENERATE SUFFICIENT REVENUE COULD LIMIT CASH FLOW AVAILABLE FOR
DISTRIBUTIONS TO STOCKHOLDERS.
If our communities do not generate revenues sufficient to meet our
operating expenses, including debt service and capital expenditures, our cash
flow will decrease. This could have an adverse effect on our ability to pay
distributions to our stockholders. Insufficient revenues from a community could
result in a loss of that community or other communities. Significant
expenditures associated with our communities, such as debt service payments,
real estate taxes, insurance and maintenance costs, are generally not reduced
when circumstances cause a reduction in revenues from a community. If we
mortgage a community to secure payment of debt and are unable to meet the
mortgage payments, we could sustain a loss as a result of foreclosure on the
community or the exercise of other remedies by the mortgagee.
UNFAVORABLE CHANGES IN MARKET AND ECONOMIC CONDITIONS COULD HURT OCCUPANCY OR
RENTAL RATES.
The market and economic conditions in metropolitan areas of the southeast,
southwest, mid-atlantic and mid-west regions of the United States may
significantly affect apartment home occupancy or rental rates. Occupancy and
rental rates in those markets, in turn, may significantly affect our
profitability and our ability to satisfy our financial obligations. The risks
that may affect conditions in those markets include the following:
-- plant closings, industry slowdowns and other factors that adversely
affect the local economy and the demand for apartment communities;
-- an oversupply of apartment homes;
-- a decline in household formation that adversely affects occupancy or
rental rates;
-- the inability or unwillingness of residents to pay rent increases;
and
-- rent control or rent stabilization laws, or other laws regulating
housing, on any of our communities, which could prevent us from
raising rents to offset increases in operating costs.
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Any of these risks could adversely affect:
-- our ability to achieve our desired yields on our communities;
-- our ability to pay interest or principal on our debt; and
-- our ability to make expected distributions to our stockholders.
DIFFICULTY OF SELLING APARTMENT COMMUNITIES COULD LIMIT FLEXIBILITY.
Real estate in the metropolitan areas of the southeast, southwest,
mid-atlantic and mid-west regions of the United States can be hard to sell,
especially if market conditions are poor. This may limit our ability to sell
apartment communities in our portfolio promptly in response to changes in
economic or other conditions. In addition, federal tax laws limit our ability to
sell communities that we have owned for fewer than four years, and this may
affect our ability to sell communities without adversely affecting returns to
our stockholders.
ATTRACTIVE INVESTMENT OPPORTUNITIES MAY NOT BE AVAILABLE WHICH COULD ADVERSELY
AFFECT OUR PROFITABILITY.
We expect that other real estate investors will compete with us to acquire
existing properties and to develop new properties. These competitors include
insurance companies, pension and investment funds, partnerships, investment
companies and other apartment real estate investment trusts. This competition
could increase prices for properties of the type we would likely pursue and our
competitors may have greater resources than we do. As a result, we may not be
able or have the opportunity to make suitable investments on favorable terms in
the future, which could adversely affect our profitability.
FAILURE TO SUCCEED IN NEW MARKETS MAY LIMIT GROWTH.
We may make selected acquisitions outside of our current market areas from
time to time, if appropriate opportunities arise. Our historical experience is
in the southeast, southwest, mid-atlantic and mid-west regions of the United
States and we may not be able to operate successfully in other market areas new
to us. We may be exposed to a variety of risks if we choose to enter into new
markets. These risks include, among others:
-- a lack of market knowledge and understanding of the local economies;
-- an inability to obtain land for development or to identify
acquisition opportunities;
-- an inability to obtain construction tradespeople; and
-- an unfamiliarity with local governmental and permitting procedures.
INCREASED COMPETITION COULD LIMIT OUR ABILITY TO LEASE APARTMENT HOMES OR
INCREASE OR MAINTAIN RENTS.
Our apartment communities compete with other housing alternatives to
attract residents, including other rental apartments, condominiums and
single-family homes that are available for rent, as well as new and existing
single-family homes for sale. Competitive residential housing in a particular
area could adversely affect our ability to lease apartment homes and to increase
or maintain rents.
OUR SHARE OWNERSHIP LIMIT MAY PREVENT TAKEOVERS BENEFICIAL TO STOCKHOLDERS.
For us to maintain our qualification as a real estate investment trust for
federal income tax purposes, not more than 50% in value of our outstanding
capital stock may be owned, directly or indirectly, by five or fewer
individuals. As defined for federal income tax purposes, the term "individuals"
includes a number of specified entities. See "Federal Income Tax Considerations
and Consequences of Your Investment" beginning on page 39. Our articles of
incorporation include restrictions regarding transfers of our capital stock and
ownership limits that are intended to assist us in satisfying the real estate
investment trust ownership limit. The ownership limit in our articles of
incorporation may have the effect of delaying, deferring or preventing someone
from taking control of us, even though a change of control could involve a
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premium price for our stockholders or otherwise could be in our stockholders'
best interests. See "Limits on Ownership of Capital Stock" beginning on page 34.
FAILURE TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST WOULD CAUSE US TO BE TAXED
AS A CORPORATION, WHICH WOULD SIGNIFICANTLY LOWER CASH AVAILABLE FOR
DISTRIBUTION TO STOCKHOLDERS.
If we fail to qualify as a real estate investment trust for federal income
tax purposes, we will be taxed as a corporation. We believe that we are
organized and qualified as a real estate investment trust, and intend to operate
in a manner that will allow us to continue to qualify as a real estate
investment trust. However, we cannot assure you that we are qualified as a real
estate investment trust, or that we will remain qualified in the future.
Qualification as a real estate investment trust involves the application of
highly technical and complex provisions of the Internal Revenue Code for which
there are only limited judicial and administrative interpretations. It also
involves the determination of a variety of factual matters and circumstances not
entirely within our control. In addition, future legislation, new regulations,
administrative interpretations or court decisions may significantly change the
requirements for qualification as a real estate investment trust or the income
tax consequences of such qualification.
If, in any taxable year, we fail to qualify as a real estate investment
trust, we will be subject to federal income tax on our taxable income at regular
corporate rates, plus any applicable alternative minimum tax. In addition,
unless we are entitled to relief under applicable law, we would be disqualified
from treatment as a real estate investment trust for the four taxable years
following the year in which we lose our qualification. The additional tax
liability resulting from the failure to qualify as a real estate investment
trust would significantly reduce or eliminate the amount of cash available for
distribution to our stockholders. Furthermore, we would no longer be required to
make distributions to our stockholders. See "Federal Income Tax Considerations
and Consequences of Your Investment" beginning on page 39.
YEAR 2000 ISSUES MAY DISRUPT OUR OPERATIONS.
"Year 2000" issues refer to the problems that may result from the improper
processing by computer systems of dates after 1999. These problems could result
in systems failures or miscalculations causing disruptions of operations. Our
efforts to address our Year 2000 issues are focused on three areas:
-- reviewing and taking any necessary steps to attempt to correct our
computer information systems;
-- evaluating and making any necessary modifications to other computer
systems that do not relate to information technology but include
embedded technology, such as telecommunication, security, elevator,
fire and safety, and heating, ventilation and air conditioning
systems; and
-- communicating with our important service providers to determine
whether there will be any interruption to their systems which could
affect us.
We believe that our own systems will be Year 2000 compliant by December 31,
1999. Although we are still in the process of evaluating potential disruptions
or complications that might result from Year 2000-related problems, we have not
identified any specific business functions that are likely to suffer material
disruptions. Due to the unique and pervasive nature of Year 2000 issues,
however, we are not able to anticipate every Year 2000 event that might affect
us, particularly those outside of our company. While our efforts to address Year
2000 issues will involve additional costs, we believe that these costs will not
have a material impact on our financial results. If we do not complete our
efforts on time or if the costs of updating or replacing our systems exceed our
estimates, Year 2000 issues could have a material adverse effect on our
business, financial condition and results of operations.
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THE ABILITY OF OUR STOCKHOLDERS TO CONTROL OUR POLICIES AND AFFECT A CHANGE OF
CONTROL OF OUR COMPANY IS LIMITED, WHICH MAY NOT BE IN OUR STOCKHOLDERS' BEST
INTERESTS.
ARTICLES OF INCORPORATION AND BYLAW PROVISIONS
There are provisions in our articles of incorporation and bylaws which may
discourage a third party from making a proposal to acquire us, even if some of
our stockholders might consider the proposal to be in their best interests.
These provisions include the following:
-- Our articles of incorporation provide for three classes of directors
with the term of office of one class expiring each year, commonly
referred to as a "staggered board." By preventing stockholders from
voting on the election of more than one class of directors at any
annual meeting of stockholders, this provision may have the effect
of keeping the current members of our board of directors in control
for a longer period of time than stockholders may desire.
-- Our articles of incorporation authorize our board of directors to
issue up to 25 million shares of preferred stock without stockholder
approval and to establish the preferences and rights of any
preferred stock issued, which would allow the board to issue one or
more classes or series of preferred stock that could discourage or
delay a tender offer or change in control.
-- To maintain our qualification as a real estate investment trust for
federal income tax purposes, not more than 50% in value of our
outstanding capital stock may be owned, directly or indirectly, by
five or fewer individuals at any time during the last half of any
year. Our articles of incorporation generally prohibit ownership,
directly or by virtue of the attribution provisions of the Internal
Revenue Code, by any single stockholder of more than 9.8% of the
issued and outstanding shares of our stock. In general, pension
plans and mutual funds may actually and beneficially own up to 15%
of the outstanding shares of our stock. Our board of directors may
waive or modify the ownership limit for one or more persons if it is
satisfied that ownership in excess of this limit will not jeopardize
our status as a real estate investment trust for federal income tax
purposes. These ownership limits may prevent or delay a change in
control and, as a result, could adversely affect our stockholders'
ability to realize a premium for their shares of common stock.
SUMMIT PROPERTIES PARTNERSHIP, L.P.'S PARTNERSHIP AGREEMENT
Summit Properties Partnership, L.P. may not sell or transfer all or
substantially all of its assets:
-- or enter into any other similar transaction which would result in
the recognition of significant taxable gain by the holders of the
common units, without the approval of holders of 85% of all
outstanding common units; or
-- without the approval of holders of two-thirds of all outstanding
preferred units if the transaction would materially and adversely
affect the rights and privileges of these unitholders.
As of July 20, 1999, Summit held approximately 86.2% of the outstanding common
units and none of the outstanding preferred units. These consent requirements
could limit the possibility of an acquisition or change in control of Summit
Properties Partnership, L.P.
SHAREHOLDER RIGHTS PLAN
On December 14, 1998, we adopted a shareholder rights plan. Under the terms
of the shareholder rights plan, our board of directors can in effect prevent a
person or group from acquiring more than 15% of the outstanding shares of our
common stock. Unless our board approves of such person's purchase, after that
person acquires more than 15% of our outstanding common stock, all other
stockholders will have the right to purchase securities from us at a price that
is less than their then fair market value. These purchases by the other
stockholders would substantially reduce the value and influence of the shares of
our common stock owned by the acquiring person. Our board of directors, however,
can prevent the
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shareholder rights plan from operating in this manner. This gives our board
significant discretion to approve or disapprove of a person's efforts to acquire
a large interest in us.
MARYLAND LAW
As a Maryland corporation, we are subject to the provisions of the Maryland
General Corporation Law. Maryland law imposes restrictions on some business
combinations and requires compliance with statutory procedures before some
mergers and acquisitions can occur. Maryland law may delay or prevent offers to
acquire us or increase the difficulty of completing an acquisition of us, even
if the acquisition is in our stockholders' best interests. See "Important
Provisions of Maryland Law" beginning on page 37.
POTENTIAL LIABILITY FOR ENVIRONMENTAL CONTAMINATION COULD RESULT IN SUBSTANTIAL
COSTS.
We are in the business of acquiring, owning, operating and developing
apartment communities. From time to time we will sell some of our properties to
third parties. Federal, state and local environmental laws may require us, often
regardless of our knowledge or responsibility but solely because of our current
or previous ownership or operation of real estate, to investigate and remediate
the effects of hazardous or toxic substances or petroleum product releases at
our properties. We also may be held liable to a governmental entity or to third
parties for property damage and for investigation and clean-up costs incurred by
us in connection with any contamination. These costs could be substantial. The
presence of these substances or the failure to properly remediate the
contamination may materially and adversely affect our ability to borrow against,
sell or rent the affected property. In addition, environmental laws create liens
on contaminated sites in favor of the government for damages and costs it
incurs.
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<PAGE> 10
ABOUT THIS PROSPECTUS AND WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-3 under the Securities Act of 1933, as amended, with respect
to the securities offered under this prospectus. Throughout this prospectus we
will refer to the common stock, the preferred stock and the debt securities
offered hereunder as the "securities." This prospectus is part of the
registration statement. This prospectus does not contain all the information
contained in the registration statement because we have omitted parts of the
registration statement in accordance with the rules and regulations of the
Securities and Exchange Commission. For further information, we refer you to the
registration statement, which you may read and copy at the public reference
facilities maintained by the Securities and Exchange Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
Securities and Exchange Commission's Regional Offices at 7 World Trade Center,
13th Floor, New York, New York 10048, and Citicorp Center, 500 W. Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. You may also obtain copies at
the prescribed rates from the Public Reference Section of the Securities and
Exchange Commission at its principal office in Washington, D.C. You may call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information
about the public reference rooms. The Securities and Exchange Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants, including Summit Properties Inc. and
Summit Properties Partnership, L.P., that file electronically with the
Securities and Exchange Commission. You may access the Securities and Exchange
Commission's web site at http://www.sec.gov.
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and we are required to file reports and proxy
statements and other information with the Securities and Exchange Commission.
Such reports, proxy statements and other information can be inspected and copied
at the locations described above. Copies of such materials can be obtained by
mail from the Public Reference Section of the Securities and Exchange Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
at prescribed rates. Our common stock is listed on the New York Stock Exchange
under the symbol "SMT." You may also read our reports, proxy and other
information statements and other information which we file at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Securities and Exchange Commission allows us to incorporate by
reference the information that we file with them. Incorporation by reference
means that we can disclose important information to you by referring you to
other documents that are legally considered to be part of this prospectus, and
later information that we file with the Securities and Exchange Commission will
automatically update and supersede the information in this prospectus and the
documents listed below. We incorporate by reference the specific documents
listed below for Summit Properties Inc. and Summit Properties Partnership, L.P.
and any future filings made with the Securities and Exchange Commission under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act until we sell
all of the securities.
<TABLE>
<CAPTION>
SUMMIT PROPERTIES INC. SEC FILINGS
(FILE NO. 001-12792) PERIOD
- ---------------------------------- ------
<S> <C>
Annual Report on Form 10-K................................ Year ended December 31, 1998
Quarterly Report on Form 10-Q............................. Quarter ended March 31, 1999
</TABLE>
<TABLE>
<CAPTION>
SUMMIT PROPERTIES PARTNERSHIP, L.P. SEC FILINGS
(FILE NO. 000-22411) PERIOD
- ----------------------------------------------- ------
<S> <C>
Annual Report on Form 10-K................................ Year ended December 31, 1998
Quarterly Report on Form 10-Q............................. Quarter ended March 31, 1999
</TABLE>
In addition, we are incorporating by reference the descriptions of our
common stock and the related preferred stock purchase rights under our
shareholder rights plan and the common units of limited partnership interest of
Summit Properties Partnership, L.P. from registration statements we have
previously filed under Section 12 of the Securities Exchange Act, including any
amendments or reports filed for the purpose of updating these descriptions.
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<PAGE> 11
YOU MAY REQUEST A COPY OF THESE FILINGS, AND ANY EXHIBITS WE HAVE
SPECIFICALLY INCORPORATED BY REFERENCE AS AN EXHIBIT IN THIS PROSPECTUS, AT NO
COST BY WRITING OR TELEPHONING US AT THE FOLLOWING ADDRESS: MICHAEL G. MALONE,
ESQ., SUMMIT PROPERTIES INC., 212 SOUTH TRYON STREET, SUITE 500, CHARLOTTE,
NORTH CAROLINA 28281. TELEPHONE REQUESTS MAY BE DIRECTED TO MR. MALONE AT (704)
334-3000.
10
<PAGE> 12
SUMMIT PROPERTIES INC. AND SUMMIT PROPERTIES PARTNERSHIP, L.P.
-- Summit Properties Inc. is one of the largest developers and
operators of luxury garden apartment communities in the
southeastern, southwestern and mid-atlantic United States. We are a
fully integrated organization, which means that we combine
multifamily development, construction, acquisition and management
expertise. As of July 20, 1999, we owned, or held an ownership
interest in, and managed 72 apartment communities with 18,842
apartment homes.
-- Summit Properties Inc. is the sole general partner of and conducts
all of its principal operations through Summit Properties
Partnership, L.P., a Delaware limited partnership. As of July 20,
1999, Summit Properties Inc. held approximately 86.2% of the
outstanding common units in Summit Properties Partnership, L.P. We
conduct our third party management and construction and other
businesses through our indirect subsidiaries, Summit Management
Company and Summit Apartment Builders, Inc.
-- Summit Properties Inc. is a Maryland corporation and a self-managed
real estate investment trust. Our common stock is listed on the New
York Stock Exchange under the symbol "SMT."
-- Our offices are located at 212 South Tryon Street, Suite 500,
Charlotte, North Carolina 28281 and our telephone number is (704)
334-3000.
USE OF PROCEEDS
We are required by the terms of the partnership agreement of Summit
Properties Partnership, L.P. to invest the net proceeds of any sale of common
stock or preferred stock of Summit Properties Inc. in Summit Properties
Partnership, L.P. in exchange for additional common or preferred units in Summit
Properties Partnership, L.P., as the case may be. We intend to use the net
proceeds from the sale of securities for one or more of the following:
-- repayment of indebtedness;
-- acquisition or development of new properties;
-- maintenance of currently owned properties; and
-- general corporate purposes.
The prospectus supplement will include the allocation of the net proceeds
from the sale of securities among the various uses listed above.
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<PAGE> 13
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios of earnings to fixed
charges of Summit Properties Inc. and the predecessor to Summit Properties Inc.
for the periods shown. The ratios of earnings to fixed charges were computed by
dividing earnings by fixed charges. For this purpose, earnings consist of net
income before minority interest and extraordinary items, plus interest expense
and amortization of deferred financing costs. Fixed charges consist of interest
expense, capitalized interest, rental fixed charges and amortization of deferred
financing costs.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996 1995 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Ratios..................................... 2.51x 1.93x 1.78x 1.65x 1.52x
</TABLE>
To date, we have not issued any preferred stock. Therefore, the ratios of
earnings to combined fixed charges and preferred dividends are the same as the
ratios of earnings to fixed charges presented above.
We will provide you with information in the applicable prospectus
supplement as to the ratio of earnings to fixed charges and the ratio of
earnings to combined fixed charges and preferred dividends of Summit Properties
Inc. as of its most recent fiscal quarter.
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<PAGE> 14
DESCRIPTION OF DEBT SECURITIES
The following is a description of the material terms of the debt
securities. Because Summit Properties Inc. conducts its business principally
through Summit Properties Partnership, L.P., Summit Properties Partnership,
L.P., and not Summit Properties Inc., will issue the debt securities. Therefore,
references to "we" and "us" in this section refer to Summit Properties
Partnership, L.P. and not Summit Properties Inc. The debt securities may be
either senior debt securities or subordinated debt securities. We will provide
specific terms of a series of debt securities and the extent to which these
provisions apply to that series in a supplement to this prospectus. Accordingly,
for a description of the terms of any series of debt securities, reference must
be made to both this prospectus and any accompanying prospectus supplement.
The senior debt securities will be issued under an indenture, dated as of a
date prior to such issuance, between us and First Union National Bank, as
trustee. We will refer to any such indenture throughout this prospectus as the
"senior indenture." The subordinated debt securities will be issued under a
separate indenture, dated as of a date prior to such issuance, between us and
the trustee. We will refer to any such indenture throughout this prospectus as
the "subordinated indenture" and to a trustee under any senior or subordinated
indenture as the "trustee." The trustee is one of the lenders to our unsecured
line of credit, and may, from time to time, enter into other commercial
relationships with us. The senior indenture and the subordinated indenture are
sometimes collectively referred to in this prospectus as the "indentures." The
indentures will be subject to and governed by the Trust Indenture Act of 1939,
as amended. Copies of the indentures are filed as exhibits to our registration
statement and are incorporated into this prospectus by reference. The following
summarizes the material provisions of the indentures but may not contain all of
the information that is important to you. Except as otherwise indicated, the
terms of the indentures are identical. As used under this caption, the term
"debt securities" includes the debt securities being offered by this prospectus
and all other debt securities issued by us under the indentures. Capitalized
terms used herein and not defined shall have the meanings assigned to them in
the applicable indenture.
GENERAL
The indentures:
-- do not limit the amount of debt securities that we may issue;
-- allow us to issue debt securities in one or more series;
-- do not require us to issue all of the debt securities of a series at
the same time;
-- allow us to reopen series to issue additional debt securities
without the consent of the debt security holders of such series; and
-- provide that the debt securities will be unsecured.
Unless we give you different information in the prospectus supplement, the
senior debt securities will be our unsubordinated obligations and will rank
equally with all of our other unsecured and unsubordinated indebtedness.
Payments on the subordinated debt securities will be subordinated to the prior
payment in full of all of our senior indebtedness, as described under
"-- Subordination" and in the applicable prospectus supplement.
Each indenture provides that we may, but need not, designate more than one
trustee thereunder. Any trustee under an indenture may resign or be removed and
a successor trustee may be appointed to act with respect to the series of debt
securities administered by the resigning or removed trustee. If two or more
persons are acting as trustee with respect to different series of debt
securities, each such trustee shall be a trustee of a trust under the applicable
indenture separate and apart from the trust administered by any other trustee.
Except as otherwise indicated herein, any action described herein to be taken by
each trustee may be taken by each such trustee with respect to, and only with
respect to, the one or more series of debt securities for which it is trustee
under the applicable indenture.
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<PAGE> 15
The prospectus supplement for each offering will provide the following
terms, where applicable:
-- the title of the debt securities and whether they are senior or
subordinated;
-- the aggregate principal amount of the debt securities being offered,
the aggregate principal amount of the debt securities outstanding as
of the most recent practicable date and any limit on their aggregate
principal amount, including the aggregate principal amount of debt
securities authorized;
-- the price at which the debt securities will be issued expressed as a
percentage of the principal;
-- the portion of the principal payable upon declaration of
acceleration of the maturity, if other than the principal amount;
-- the date or dates, or the method for determining the date or dates,
on which the principal of the debt securities will be payable;
-- the fixed or variable interest rate or rates of the debt securities,
or the method by which the rate or rates is determined;
-- the date or dates, or the method for determining the date or dates,
from which interest will accrue;
-- the dates on which interest will be payable;
-- the record dates for interest payment dates, or the method by which
we will determine those dates;
-- the persons to whom interest will be payable;
-- the basis upon which interest will be calculated if other than that
of a 360-day year of twelve 30-day months;
-- the place or places where the principal of, and any premium and
interest on, the debt securities will be payable;
-- where the debt securities may be surrendered for registration of
transfer or exchange;
-- where notices or demands to or upon us in respect of the debt
securities and the applicable indenture may be served;
-- the times, prices and other terms and conditions upon which we may
redeem the debt securities;
-- any obligation we have to redeem, repay or purchase the debt
securities pursuant to any sinking fund or analogous provision or at
the option of holders of the debt securities, and the times and
prices at which we must redeem, repay or purchase the debt
securities pursuant to such an obligation;
-- the currency or currencies in which the debt securities are
denominated and payable if other than United States dollars, which
may be a foreign currency or units of two or more foreign currencies
or a composite currency or currencies and the terms and conditions
relating thereto;
-- whether the principal of, and any premium or interest on, the debt
securities of the series are to be payable, at our election or at
the election of a holder, in a currency or currencies other than
that in which the debt securities are denominated or stated to be
payable and other related terms and conditions;
-- whether the amount of payments of principal of, and any premium or
interest on, the debt securities may be determined according to an
index, formula or other method and how such amounts will be
determined;
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<PAGE> 16
-- information with respect to the procedures for computerized
recording if there is no physical delivery of the debt securities
and instead the debt securities and any transactions thereon are
evidenced by a computerized entry in the records of a depository
company;
-- whether the debt securities will be in registered or bearer form and
(1) if in registered form, the denominations, if other than $1,000
or any integral multiple, or (2) if in bearer form, the
denominations and any other terms and conditions;
-- any restrictions applicable to the offer, sale or delivery of
securities in bearer form and the terms upon which securities in
bearer form of the series may be exchanged for securities in
registered form of the series and vice versa if permitted by
applicable laws and regulations;
-- whether any debt securities of the series are to be issuable
initially in temporary global form and whether any debt securities
of the series are to be issuable in permanent global form with or
without coupons and, if so, whether beneficial owners of interests
in any such permanent global security may exchange their interests
for other debt securities of the series;
-- the identity of the depository for securities in registered form, if
such series are to be issuable as a global security;
-- the applicability, if any, of the defeasance and covenant defeasance
provisions described here or in the applicable indenture;
-- whether and under what circumstances we will pay any additional
amounts on the debt securities in respect of any tax, assessment or
governmental charge and, if so, whether we will have the option to
redeem the debt securities in lieu of making such a payment;
-- the circumstances, if any, in the applicable prospectus supplement,
under which beneficial owners of interests in the global security
may obtain definitive debt securities and the manner in which
payments on a permanent global debt security will be made if any
debt securities are issuable in temporary or permanent global form;
and
-- with respect to any debt securities that provide for optional
redemption or prepayment upon the occurrence of events such as a
change of control of Summit Properties Partnership, L.P., among
others:
-- the possible effects of such provisions on the market price of
the securities or in deterring particular mergers, tender offers
or other takeover attempts, and the intention of Summit
Properties Partnership, L.P. to comply with the requirements of
Rule 14e-1 under the Securities Exchange Act and any other
applicable securities laws in connection with such provisions;
-- whether the occurrence of the specified events may give rise to
cross-defaults on other indebtedness such that payment on such
debt securities may be effectively subordinated;
-- the existence of any limitation on Summit Properties
Partnership, L.P.'s financial or legal ability to repurchase
such debt securities upon the occurrence of such an event and
the impact, if any, under the indenture of such a failure,
including whether and under what circumstances such a failure
may constitute an event of default;
-- the name of the applicable trustee and the nature of any
material relationship with Summit Properties Partnership, L.P.
or with any of its affiliates, and the percentage of debt
securities of the class necessary to require the trustee to take
action;
-- any deletions from, modifications of, or additions to the events
of default or covenants of Summit Properties Partnership, L.P.,
and any change in the right of any trustee or any of the holders
to declare the principal amount of any of such debt securities
due and payable; and
-- any other terms of such debt securities not inconsistent with
the provisions of the applicable indenture.
We may issue debt securities at a discount below their principal amount and
provide for less than the entire principal amount thereof to be payable upon
declaration of acceleration of the maturity thereof. We
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<PAGE> 17
will refer to any such debt securities throughout this prospectus as "original
issue discount securities." The applicable prospectus supplement will describe
the federal income tax consequences and other relevant considerations applicable
to original issue discount securities.
Except as described under "-- Merger, consolidation or sale of assets" or
as may be set forth in any prospectus supplement, the debt securities will not
contain any provisions that (1) would limit our ability to incur indebtedness or
(2) would afford holders of debt securities protection in the event of (a) a
highly leveraged or similar transaction involving us, Summit Properties Inc. or
any of our respective affiliates or (b) a change of control or reorganization,
restructuring, merger or similar transaction involving us that may adversely
affect the holders of the debt securities. In the future, we may enter into
transactions, such as the sale of all or substantially all of our assets or a
merger or consolidation, that may have an adverse effect on our ability to
service our indebtedness, including the debt securities, by, among other things,
substantially reducing or eliminating our assets.
Neither Maryland General Corporation Law nor the governing instruments of
Summit Properties Inc. and Summit Properties Partnership, L.P. define the term
"substantially all" in connection with the sale of assets. Additionally,
Maryland cases interpreting the words "substantially all" rely heavily upon the
facts and circumstances of each particular case. Consequently, to determine
whether a sale of "substantially all" of our assets has occurred, a holder of
debt securities must review the financial and other information that we
disclosed to the public. Summit Properties Inc.'s articles of incorporation
contain restrictions on ownership and transfers of its capital stock that are
designed to preserve its status as a real estate investment trust and,
therefore, may act to prevent or hinder a change of control. See "Limits on
Ownership of Capital Stock" beginning on page 34.
We will provide you with more information in the applicable prospectus
supplement regarding any deletions, modifications, or additions to the events of
default or covenants that are described below, including any addition of a
covenant or other provision providing event risk or similar protection.
PAYMENT
Unless we give you different information in the applicable prospectus
supplement, the principal of, and any premium and interest on, any series of the
debt securities will be payable at the corporate trust office of the trustee. We
will provide you with the address of the trustee in the applicable prospectus
supplement. We may also pay interest by mailing a check to the address of the
person entitled to it as it appears in the applicable register for the debt
securities or by wire transfer of funds to that person at an account maintained
within the United States.
All monies that we pay to a paying agent or a trustee for the payment of
the principal, any premium or interest on any debt security will be repaid to us
if unclaimed at the end of two years after the obligation underlying payment
becomes due and payable. After funds have been returned to us, the holder of the
debt security may look only to us for payment.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable prospectus supplement, the
debt securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof.
Subject to the limitations imposed upon debt securities issued that are
evidenced by a computerized entry in the records of a depository company instead
of by physical delivery, a holder of debt securities of any series may:
-- exchange them for any authorized denomination of other debt
securities of the same series and of a like aggregate principal
amount and kind upon surrender of such debt securities at the
corporate trust office of the applicable trustee or at the office of
any transfer agent that we designate for such purpose; and
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<PAGE> 18
-- surrender them for registration of transfer or exchange at the
corporate trust office of the applicable trustee or at the office of
any transfer agent that we designate for such purpose.
Every debt security surrendered for registration of transfer or exchange
must be duly endorsed or accompanied by a written instrument of transfer, and
the person requesting such action must provide evidence of title and identity
satisfactory to the applicable trustee or transfer agent. Payment of a service
charge will not be required for any registration of transfer or exchange of any
debt securities, but we or the trustee may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
If in addition to the applicable trustee, the applicable prospectus supplement
refers to any transfer agent initially designated by us with respect to any
series of debt securities, we may at any time rescind the designation of any
such transfer agent or approve a change in the location through which any such
transfer agent acts, except that we will be required to maintain a transfer
agent in each place of payment for such series. We may at any time designate
additional transfer agents with respect to any series of debt securities.
Neither we nor any trustee shall be required to:
-- issue, register the transfer of or exchange debt securities of any
series during a period beginning at the opening of business 15 days
before the day that the notice of redemption of any debt securities
selected for redemption is mailed and ending at the close of
business on the day of such mailing;
-- register the transfer of or exchange any debt security, or portion
thereof, so selected for redemption, in whole or in part, except the
unredeemed portion of any debt security being redeemed in part; and
-- issue, register the transfer of or exchange any debt security that
has been surrendered for repayment at the option of the holder,
except the portion, if any, of such debt security not to be so
repaid.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The indentures provide that we may, without the consent of the holders of
any outstanding debt securities, (1) consolidate with, (2) sell, lease or convey
all or substantially all of our assets to, or (3) merge with or into any other
entity provided that:
-- either we are the continuing entity, or the successor entity, if
other than us, assumes our obligations (A) to pay the principal of,
and any premium and interest on, all of the debt securities and (B)
pursuant to the covenants and conditions contained in each
indenture;
-- immediately after giving effect to such transaction and treating any
indebtedness that becomes our obligation or the obligation of any of
our subsidiaries as having been incurred by us or by such subsidiary
at the time of such transaction, no event of default under the
indentures, and no event which, after notice or the lapse of time,
or both, would become such an event of default, occurs and
continues; and
-- an officers' certificate and legal opinion covering such conditions
are delivered to each trustee.
COVENANTS
Existence. Except as permitted under "-- Merger, consolidation or sale of
assets," the indentures require us to do or cause to be done all things
necessary to preserve and keep in full force and effect our existence, rights
and franchises. However, the indentures do not require us to preserve any right
or franchise if we determine that any right or franchise is no longer desirable
in the conduct of our business.
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<PAGE> 19
Maintenance of properties. If we deem it to be necessary to properly and
advantageously carry on our business, the indentures require us to:
-- cause all of our material properties used or useful in the conduct
of our business or the business of any of our subsidiaries to be
maintained and kept in good condition, repair and working order and
supplied with all necessary equipment; and
-- cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof.
However, the indentures do not prohibit us or our subsidiaries from selling
or otherwise disposing of our respective properties for value in the ordinary
course of business.
Insurance. The indentures require us and our subsidiaries' insurable
properties to be insured against loss or damage in an amount at least equal to
their then full insurable value with insurers of recognized responsibility and,
if described in the applicable prospectus supplement, having a specified rating
from a recognized insurance rating service.
Payment of taxes and other claims. The indentures require us to pay or,
discharge or cause to be paid or discharged, before they become delinquent:
-- all taxes, assessments and governmental charges levied or imposed on
us, our subsidiaries or our subsidiaries' income, profits or
property; and
-- all lawful claims for labor, materials and supplies which, if
unpaid, might by law become a lien upon our or our subsidiaries'
property.
However, we will not be required to pay, discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is contested in good faith.
Additional covenants. The prospectus supplement relating thereto will set
forth any additional covenants of Summit Properties Partnership, L.P. with
respect to any series of debt securities.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless the applicable prospectus supplement states otherwise, when we refer
to "events of default" as defined in the indentures with respect to any series
of debt securities issued thereunder, we mean:
-- default for 30 days in the payment of any installment of interest on
any debt security of such series;
-- default in the payment of principal of or any premium on any debt
security of such series at its maturity;
-- default in making any sinking fund payment as required for any debt
security of such series;
-- default in the performance or breach of any other covenant or
warranty of Summit Properties Partnership, L.P. contained in the
indenture continuing for 60 days after written notice as provided in
the applicable indenture;
-- (1) a default under any bond, debenture or note having an aggregate
principal amount in excess of $25,000,000; or
(2) a default under any indenture or instrument under which there
may be issued, secured or evidenced any existing or later
created indebtedness for money borrowed by us or our
subsidiaries in an aggregate principal amount in excess of
$25,000,000,
if such default results in the indebtedness becoming or being
declared due and payable prior to the date it otherwise would have,
without such indebtedness having been discharged, or such
acceleration having been rescinded or annulled;
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<PAGE> 20
-- bankruptcy, insolvency or reorganization, or court appointment of a
receiver, liquidator or trustee of Summit Properties Partnership,
L.P. or any significant subsidiary of Summit Properties Partnership,
L.P.; and
-- any other event of default provided with respect to a particular
series of debt securities.
When we use the term "significant subsidiary," we refer to the meaning
ascribed to such term in Regulation S-X promulgated under the Securities Act.
If an event of default occurs and is continuing with respect to debt
securities of any series outstanding, then the applicable trustee or the holders
of 25% or more in principal amount of the debt securities of that series will
have the right to declare the principal amount of all the debt securities of
that series to be due and payable. If the debt securities of that series are
original issue discount securities or indexed securities, then the applicable
trustee or the holders of 25% or more in principal amount of the debt securities
of that series will have the right to declare the portion of the principal
amount as may be specified in the terms thereof to be due and payable. However,
at any time after such a declaration of acceleration has been made, but before a
judgment or decree for payment of the money due has been obtained by the
applicable trustee, the holders of a minimum of a majority in principal amount
of outstanding debt securities of such series or of all debt securities then
outstanding under the applicable indenture may rescind and annul such
declaration and its consequences if:
-- we have deposited with the applicable trustee all required payments
of the principal, any premium, and interest, plus applicable fees,
expenses, disbursements and advances of the applicable trustee; and
-- all events of default, other than the non-payment of accelerated
principal or a specified portion thereof have been cured or waived.
The indentures also provide that the holders of at least a majority in
principal amount of the outstanding debt securities of any series or of all debt
securities then outstanding under the applicable indenture, may waive any past
default with respect to such series and its consequences, except a default:
-- in the payment of the principal, any premium or interest; or
-- in respect of a covenant or provision contained in the applicable
indenture that cannot be modified or amended without the consent of
the holders of the outstanding debt securities affected thereby.
The indentures require each trustee to give notice to the holders of debt
securities within 90 days of a default unless such default has been cured or
waived. However, the trustee may withhold notice if specified responsible
officers of such trustee consider such withholding to be in the interest of the
holders of debt securities. The trustee may not withhold notice of a default in
the payment of principal, any premium or interest on any debt security of such
series or in the payment of any sinking fund installment in respect of any debt
security of such series.
The indentures provide that holders of debt securities of any series may
not institute any proceedings, judicial or otherwise, with respect to such
indenture or for any remedy thereunder, unless the trustee fails to act for a
period of 60 days after the trustee has received a written request to institute
proceedings in respect of an event of default from the holders of 25% or more in
principal amount of the outstanding debt securities of such series, as well as
an offer of indemnity reasonably satisfactory to the trustee. However, this
provision will not prevent any holder of debt securities from instituting suit
for the enforcement of payment of the principal of, and any premium and interest
on, such debt securities at the respective due dates thereof.
The indentures provide that, subject to provisions in each indenture
relating to its duties in case of default, a trustee has no obligation to
exercise any of its rights or powers at the request or direction of any holders
of any series of debt securities then outstanding under such indenture, unless
such holders have offered to the trustee reasonable security or indemnity. The
holders of at least a majority in principal
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amount of the outstanding debt securities of any series or of all debt
securities then outstanding under an indenture shall have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the applicable trustee, or of exercising any trust or power conferred upon
such trustee. However, a trustee may refuse to follow any direction which:
-- is in conflict with any law or the applicable indenture;
-- may involve such trustee in personal liability; or
-- may be unduly prejudicial to the holders of debt securities of such
series not joining therein.
Within 120 days after the close of each fiscal year, we will be required to
deliver to each trustee a certificate, signed by one of several specified
officers of Summit Properties Inc., as our general partner, stating whether or
not such officer has knowledge of any default under the applicable indenture. If
the officer has knowledge of any default, the notice must specify the nature and
status of the default.
MODIFICATION OF THE INDENTURES
The indentures provide that modifications and amendments may be made only
with the consent of the affected holders of at least a majority in principal
amount of all outstanding debt securities issued under such indenture. However,
no such modification or amendment may, without the consent of the holders of the
debt securities affected thereby:
-- change the stated maturity of the principal of, or any installment
of interest or premium on, any such debt security;
-- reduce the principal amount of, the rate or amount of interest on or
any premium payable on redemption of any such debt security;
-- reduce the amount of principal of an original issue discount
security that would be due and payable upon declaration of
acceleration of the maturity thereof or would be provable in
bankruptcy, or adversely affect any right of repayment of the holder
of any such debt security;
-- change the place of payment or the coin or currency for payment of
principal of, and premium, if any, or interest on, any such debt
security;
-- impair the right to institute suit for the enforcement of any
payment on or with respect to any such debt security;
-- reduce the above-stated percentage of any outstanding debt
securities necessary to modify or amend the applicable indenture
with respect to such debt securities, to waive compliance with
particular provisions thereof or defaults and consequences
thereunder or to reduce the quorum or voting requirements set forth
in the applicable indenture; and
-- modify any of the foregoing provisions or any of the provisions
relating to the waiver of particular past defaults or covenants,
except to increase the required percentage to effect such action or
to provide that some of the other provisions may not be modified or
waived without the consent of the holder of such debt security.
The holders of a majority in aggregate principal amount of the outstanding
debt securities of each series may, on behalf of all holders of debt securities
of that series, waive, insofar as that series is concerned, our compliance with
material restrictive covenants of the applicable indenture.
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Summit Properties Partnership, L.P. and the respective trustee thereunder
may make modifications and amendments of an indenture without the consent of any
holder of debt securities for any of the following purposes:
-- to evidence the succession of another person to us as obligor under
such indenture;
-- to add to the covenants of Summit Properties Partnership, L.P. for
the benefit of the holders of all or any series of debt securities
or to surrender any right or power conferred upon us in such
indenture;
-- to add events of default for the benefit of the holders of all or
any series of debt securities;
-- to add or change any provisions of an indenture (1) to facilitate
the issuance of, or to liberalize specified terms of, debt
securities in bearer form, or (2) to permit or facilitate the
issuance of debt securities in uncertificated form, provided that
such action shall not adversely affect the interests of the holders
of the debt securities of any series in any material respect;
-- to change or eliminate any provisions of an indenture, provided that
any such change or elimination shall become effective only when
there are no debt securities outstanding of any series created prior
thereto which are entitled to the benefit of such provision;
-- to secure the debt securities;
-- to establish the form or terms of debt securities of any series;
-- to provide for the acceptance of appointment by a successor trustee
or facilitate the administration of the trusts under an indenture by
more than one trustee;
-- to cure any ambiguity, defect or inconsistency in an indenture,
provided that such action shall not adversely affect the interests
of holders of debt securities of any series issued under such
indenture; and
-- to supplement any of the provisions of an indenture to the extent
necessary to permit or facilitate defeasance and discharge of any
series of such debt securities, provided that such action shall not
adversely affect the interests of the holders of the outstanding
debt securities of any series.
The indentures provide that in determining whether the holders of the
requisite principal amount of outstanding debt securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of debt
securities:
-- the principal amount of an original issue discount security that
shall be deemed to be outstanding shall be the amount of the
principal thereof that would be due and payable as of the date of
such determination upon declaration of acceleration of the maturity
thereof;
-- the principal amount of any debt security denominated in a foreign
currency that shall be deemed outstanding shall be the United States
dollar equivalent, determined on the issue date for such debt
security, of the principal amount or, in the case of an original
issue discount security, the United States dollar equivalent on the
issue date of such debt security of the amount determined as
provided in the preceding bullet point;
-- the principal amount of an indexed security that shall be deemed
outstanding shall be the principal face amount of such indexed
security at original issuance, unless otherwise provided with
respect to such indexed security pursuant to such indenture; and
-- debt securities owned by us or any other obligor upon the debt
securities or by any affiliate of ours or of such other obligor
shall be disregarded.
The indentures contain provisions for convening meetings of the holders of
debt securities of a series. A meeting will be permitted to be called at any
time by the applicable trustee, and also, upon request, by us or the holders of
at least 10% in principal amount of the outstanding debt securities of such
series, in
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any such case upon notice given as provided in such indenture. Except for any
consent that must be given by the holder of each debt security affected by the
modifications and amendments of an indenture described above, any resolution
presented at a meeting or adjourned meeting duly reconvened at which a quorum is
present may be adopted by the affirmative vote of the holders of a majority in
principal amount of the outstanding debt securities of that series.
Notwithstanding the preceding paragraph, except as referred to above, any
resolution relating to a request, demand, authorization, direction, notice,
consent, waiver or other action that may be made, given or taken by less than a
majority in principal amount of the outstanding debt securities of a series may
be adopted at a meeting or adjourned meeting duly reconvened at which a quorum
is present by the affirmative vote of such holders.
Any resolution passed or decision taken at any properly held meeting of
holders of debt securities of any series will be binding on all holders of such
series. The quorum at any meeting called to adopt a resolution, and at any
reconvened meeting, will be persons holding or representing a majority in
principal amount of the outstanding debt securities of a series. However, if any
action is to be taken relating to a consent or waiver which may be given by the
holders of at least a specified percentage in principal amount of the
outstanding debt securities of a series, the persons holding such percentage
will constitute a quorum.
Notwithstanding the foregoing provisions, the indentures provide that if
any action is to be taken at a meeting with respect to any request, demand,
authorization, direction, notice, consent, waiver and other action that such
indenture expressly provides may be made, given or taken by the holders of a
specified percentage in principal amount of all outstanding debt securities
affected thereby, or of the holders of such series and one or more additional
series:
-- there shall be no minimum quorum requirement for such meeting; and
-- the principal amount of the outstanding debt securities of such
series that vote in favor of such request, demand, authorization,
direction, notice, consent, waiver or other action shall be taken
into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action
has been made, given or taken under such indenture.
SUBORDINATION
Unless otherwise provided in the applicable prospectus supplement,
subordinated securities will be subject to the following subordination
provisions.
Upon any distribution to our creditors in a liquidation, dissolution or
reorganization, the payment of the principal of and interest on any subordinated
securities will be subordinated to the extent provided in the applicable
indenture in right of payment to the prior payment in full of all senior debt.
However, our obligation to make payments of the principal of and interest on
such subordinated securities otherwise will not be affected. No payment of
principal or interest will be permitted to be made on subordinated securities at
any time if a default on senior debt exists that permits the holders of such
senior debt to accelerate its maturity and the default is the subject of
judicial proceedings or we receive notice of the default. After all senior debt
is paid in full and until the subordinated securities are paid in full, holders
of subordinated securities will be subrogated to the rights of holders of senior
debt to the extent that distributions otherwise payable to holders of
subordinated securities have been applied to the payment of senior debt. The
subordinated indenture will not restrict the amount of senior debt or other
indebtedness of Summit Properties Partnership, L.P. and its subsidiaries. As a
result of these subordination provisions, in the event of a distribution of
assets upon insolvency, holders of subordinated securities may recover less,
ratably, than our general creditors.
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"Senior Debt" will be defined in the applicable indenture as the principal
of and interest on, or substantially similar payments to be made by us in
respect of, the following, whether outstanding at the date of execution of the
applicable indenture or thereafter incurred, created or assumed:
-- indebtedness incurred by us for money borrowed or represented by
purchase-money obligations;
-- indebtedness incurred by us evidenced by notes, debentures, bonds,
or other securities issued under the provisions of an indenture,
fiscal agency agreement or other agreement;
-- obligations as lessee under leases of property either made as part
of any sale and leaseback transaction to which we are a party or
otherwise;
-- indebtedness, obligations and liabilities of others in respect of
which we are liable contingently or otherwise to pay or advance
money or property or as guarantor, endorser or otherwise or which we
have agreed to purchase or otherwise acquire; and
-- any binding commitment we have to fund any real estate investment or
to fund any investment in any entity making such real estate
investment.
In each case, the following will not be Senior Debt:
-- any such indebtedness, obligation or liability referred to in the
preceding clauses (1) that is outstanding and (2) if the instrument
creating or evidencing such indebtedness, obligation or liability
provides that the same is not superior to or ranks on an equal basis
with the subordinated securities with respect to right of payment;
-- any such indebtedness, obligation or liability that is subordinated
to indebtedness incurred by us to substantially the same extent as
or to a greater extent than the subordinated securities are
subordinated; and
-- the subordinated securities.
No restrictions will be included in any indenture relating to subordinated
securities upon the creation of additional senior debt.
If this prospectus is being delivered in connection with a series of
subordinated securities, the accompanying prospectus supplement or the
information incorporated herein by reference will set forth the approximate
amount of senior debt outstanding as of the end of our most recent fiscal
quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable prospectus supplement, the
indentures allow us to discharge our obligations to holders of any series of
debt securities issued under any indenture that:
-- have not already been delivered to the applicable trustee for
cancellation; and
-- have become due and payable, are scheduled for redemption or will
become due and payable within one year by irrevocably depositing
with the applicable trustee, in trust, funds in such currency or
currencies, currency unit or units or composite currency or
currencies in which such debt securities are payable in an amount
sufficient to pay the entire indebtedness on such debt securities in
respect of principal, any premium and interest to the date of such
deposit if such debt securities have become due and payable or, if
they have not, to the stated maturity or redemption date.
Unless otherwise indicated in the applicable prospectus supplement, the
indentures provide that, upon our irrevocable deposit with the applicable
trustee, in trust, of an amount, in such currency or currencies, currency unit
or units or composite currency or currencies in which such debt securities are
payable at stated maturity, or government obligations, or both, applicable to
such debt securities, which through the scheduled payment of principal and
interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of, and any premium and interest on, such debt
securities, and any
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mandatory sinking fund or analogous payments thereon, on the scheduled due dates
therefor, we may elect either:
-- to defease and be discharged from any and all obligations with
respect to such debt securities; or
-- to be released from our obligations with respect to such debt
securities under the applicable indenture or, if provided in the
applicable prospectus supplement, our obligations with respect to
any other covenant, and any omission to comply with such obligations
shall not constitute an event of default with respect to such debt
securities.
Notwithstanding the above, we may not elect to defease and be discharged
from the obligation to pay any additional amounts upon the occurrence of
particular events of tax, assessment or governmental charge with respect to
payments on such debt securities and the obligations to register the transfer or
exchange of such debt securities, to replace temporary or mutilated, destroyed,
lost or stolen debt securities, to maintain an office or agency in respect of
such debt securities, or to hold monies for payment in trust.
The indentures only permit us to establish the trust described in the
paragraph above if, among other things, we have delivered to the applicable
trustee an opinion of counsel to the effect that the holders of such debt
securities will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance or covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance or covenant defeasance
had not occurred. Such opinion of counsel, in the case of defeasance, will be
required to refer to and be based upon a ruling received from or published by
the Internal Revenue Service or a change in applicable federal income tax law
occurring after the date of the indenture. In the event of such defeasance, the
holders of such debt securities would thereafter be able to look only to such
trust fund for payment of principal, any premium, and interest.
When we use the term "government obligations," we mean securities that are:
-- direct obligations of the United States or the government that
issued the foreign currency in which the debt securities of a
particular series are payable, for the payment of which its full
faith and credit is pledged; or
-- obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States or other government
that issued the foreign currency in which the debt securities of
such series are payable, the payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United
States or such other government, which are not callable or
redeemable at the option of the issuer thereof and shall also
include a depository receipt issued by a bank or trust company as
custodian with respect to any such government obligation or a
specific payment of interest on or principal of any such government
obligation held by such custodian for the account of the holder of a
depository receipt. However, except as required by law, such
custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount
received by the custodian in respect of the government obligation or
the specific payment of interest on or principal of the government
obligation evidenced by such depository receipt.
Unless otherwise provided in the applicable prospectus supplement, if after
we have deposited funds and/or government obligations to effect defeasance or
covenant defeasance with respect to debt securities of any series, (a) the
holder of a debt security of such series is entitled to, and does, elect
pursuant to the applicable indenture or the terms of such debt security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such debt security, or
(b) a conversion event occurs in respect of the currency, currency unit or
composite currency in which such deposit has been made, the indebtedness
represented by such debt security will be deemed to have been, and will be,
fully discharged and satisfied through the payment of the principal of, and
premium and interest on, such debt security as they become due out of the
proceeds yielded by converting the amount so deposited in respect of such debt
security into the currency, currency unit or composite currency in
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which such debt security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange rate.
When we use the term "conversion event," we mean the cessation of use of:
-- a currency, currency unit or composite currency both by the
government of the country that issued such currency and for the
settlement of transactions by a central bank or other public
institutions of or within the international banking community;
-- the European Currency Unit both within the European Monetary System
and for the settlement of transactions by public institutions of or
within the European Communities; or
-- any currency unit or composite currency other than the European
Currency Unit for the purposes for which it was established.
Unless otherwise provided in the applicable prospectus supplement, all
payments of principal of, and premium, if any, and interest on, any debt
security that is payable in a foreign currency that ceases to be used by its
government of issuance shall be made in United States dollars.
In the event that (a) we effect covenant defeasance with respect to any
debt securities and (b) such debt securities are declared due and payable
because of the occurrence of any event of default, the amount in such currency,
currency unit or composite currency in which such debt securities are payable,
and government obligations on deposit with the applicable trustee, will be
sufficient to pay amounts due on such debt securities at the time of their
stated maturity but may not be sufficient to pay amounts due on such debt
securities at the time of the acceleration resulting from such event of default.
However, we would remain liable to make payment of such amounts due at the time
of acceleration. Notwithstanding the first sentence of this paragraph, events of
default in (b) above shall not include the event of default described in (1) the
fourth bullet point under "-- Events of default, notice and waiver" with respect
to specified sections of an indenture or (2) the seventh bullet point under
"-- Events of default, notice and waiver" with respect to any other covenant as
to which there has been covenant defeasance.
The applicable prospectus supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the debt
securities of or within a particular series.
NO CONVERSION RIGHTS
The debt securities will not be convertible into or exchangeable for any
capital stock of Summit Properties Inc. or any equity interest in Summit
Properties Partnership, L.P.
GLOBAL SECURITIES
The debt securities of a series may be issued in whole or in part in the
form of one or more global securities that will be deposited with, or on behalf
of, a depository identified in the applicable prospectus supplement relating to
such series. We may issue global securities in either registered or bearer form
and in either temporary or permanent form. We will describe the specific terms
of the depository arrangement with respect to a series of debt securities in the
applicable prospectus supplement relating to such series.
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DESCRIPTION OF PREFERRED STOCK
The following is a description of the material terms and provisions of our
preferred stock. It may not contain all of the information that is important to
you. You can access complete information by referring to our articles of
incorporation and bylaws and to any applicable amendment to the articles of
incorporation designating terms of a series of preferred stock. You should note
that Summit Properties Inc., not Summit Properties Partnership, L.P., will issue
preferred stock. Therefore, references to "we" and "us" in this section refer to
Summit Properties Inc. and not Summit Properties Partnership, L.P.
GENERAL
Under our articles of incorporation, we have authority to issue up to 25
million shares of preferred stock, par value $.01 per share. A description of
our preferred stock reserved for issuance and its general terms is set forth
below:
-- Series A Junior Participating Cumulative Preferred Stock. We
currently have no Series A shares outstanding. However, we have
reserved 350,000 Series A shares for issuance under our shareholder
rights plan. Under the shareholder rights plan, a preferred stock
purchase right is attached to each share of our common stock. If the
preferred stock purchase right becomes exercisable, the holder of
the right will be able to purchase from us a unit of preferred stock
equal to one one-thousandth of a Series A share. See "Shareholder
Rights Plan" on page 36.
-- 8.95% Series B Cumulative Redeemable Perpetual Preferred Stock. We
currently have no Series B shares outstanding. However, we have
reserved 3,400,000 Series B shares for issuance upon exercise by the
holders of Summit Properties Partnership, L.P.'s 3,400,000 Series B
preferred units of their right to exchange such Series B preferred
units for the Series B shares on a one-for-one basis. Holders of the
Series B preferred units may exercise their exchange right in whole
or in part, in minimum amounts of 850,000 units, (a) at any time on
or after April 29, 2009, (b) at any time if full quarterly
distributions are not made for six quarters, or (c) upon the
occurrence of particular specified events related to the treatment
of Summit Properties Partnership, L.P. or the Series B preferred
units for federal income tax purposes. Distributions on the Series B
preferred units are, and dividends on the Series B shares, if and
when issued, will be, cumulative from the date of original issuance
and are, or will be, payable quarterly at the rate of 8.95% per
annum of the $25.00 original capital contribution. We may redeem the
Series B preferred units and the Series B shares at any time on or
after April 29, 2009 for cash at a redemption price of $25.00 per
unit or share, plus all accumulated, accrued and unpaid
distributions or dividends. At our option, we may also redeem the
Series B preferred units for Series B shares. The Series B preferred
units and the Series B shares have no stated maturity, are not
subject to any sinking fund or mandatory redemption and are not
convertible into any other securities of Summit Properties Inc. or
Summit Properties Partnership, L.P.
We did not have any other preferred stock reserved for issuance as of the
date of this prospectus. We may issue preferred stock from time to time, in one
or more series, as authorized by our board of directors. Prior to issuance of
shares of each series, the board of directors is required by the Maryland
General Corporation Law and our articles of incorporation to fix for each
series, subject to the provisions of our articles of incorporation regarding
excess stock, the terms, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms or conditions of redemption, as are permitted by Maryland law. When
issued, the preferred stock will be fully paid and nonassessable and will have
no preemptive rights. Our board of directors could authorize the issuance of
preferred stock with terms and conditions that could have the effect of
discouraging a takeover or other transaction that holders of common stock might
believe to be in their best interests or in which holders of some, or a
majority, of the common stock might receive a premium for their shares over the
then market price of such common stock.
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TERMS
You should refer to the prospectus supplement relating to the preferred
stock offered thereby for specific terms, including:
-- their title and stated value;
-- the number of shares of preferred stock offered, the liquidation
preference per share and the offering price;
-- the applicable dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof;
-- the date from which dividends on such preferred stock shall
accumulate, if applicable;
-- any procedures for auction and remarketing;
-- any provision for a sinking fund;
-- any applicable provision for redemption;
-- any securities exchange listing;
-- the terms and conditions of convertibility into common stock,
including the conversion price or rate or manner of calculation
thereof;
-- any other specific terms, preferences, rights, limitations or
restrictions;
-- a discussion of applicable federal income tax considerations;
-- the relative ranking and preference as to dividend rights and rights
upon our liquidation, dissolution or the winding up of our affairs;
-- any limitations on issuance of any series of preferred stock ranking
senior to or on a parity with such series of preferred stock as to
dividend rights and rights upon our liquidation, dissolution or the
winding up of our affairs; and
-- any limitations on direct or beneficial ownership and restrictions
on transfer, in each case as may be appropriate to preserve our
status as a real estate investment trust.
RANK
Unless otherwise specified in the prospectus supplement, the preferred
stock will, with respect to dividend rights and rights upon a liquidation,
dissolution or winding up of our affairs, rank:
-- senior to all classes or series of our common stock, and to all
equity securities ranking junior to such preferred stock with
respect to dividend rights or rights upon liquidation, dissolution
or winding up of our affairs;
-- on a parity with all equity securities issued by us, the terms of
which specifically provide that such equity securities rank on a
parity with the preferred stock with respect to dividend rights or
rights upon liquidation, dissolution or winding up of our affairs;
and
-- junior to all equity securities issued by us, the terms of which
specifically provide that such equity securities rank senior to the
preferred stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of our affairs.
The term "equity securities" does not include convertible debt securities.
DIVIDENDS
Holders of the preferred stock of each series will be entitled to receive
cash dividends when, as and if declared by our board of directors. We will pay
dividends out of assets that are legally available for
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payment of dividends. We will specify the rate(s) of dividends and the dates
that we will pay dividends in the applicable prospectus supplement. Dividends
will be payable to holders of record as they appear on our stock transfer books
on such record dates as fixed by our board of directors.
Dividends on any series of the preferred stock may be cumulative or
non-cumulative, as provided in the applicable prospectus supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable prospectus supplement. If our board of directors fails to declare a
dividend payable on a dividend payment date on any series of the preferred stock
for which dividends are non-cumulative, then the holders of that series of the
preferred stock will have no right to receive a dividend in respect of the
dividend period ending on that dividend payment date. Accordingly, we will have
no obligation to pay the dividend accrued for that period, whether or not
dividends on that series are declared payable on any future dividend payment
date.
If preferred stock of any series is outstanding, we will not declare, pay
or set aside funds to pay dividends on any other series of our capital stock
ranking, as to dividends, on a parity with or junior to the preferred stock of
such series for any period unless:
-- if that series of preferred stock has a cumulative dividend, we have
declared and paid or contemporaneously declare and pay or set aside
funds to pay full cumulative dividends on the preferred stock of
such series for all past dividend periods and the then current
dividend period; or
-- if that series of preferred stock does not have a cumulative
dividend, we have declared and paid or contemporaneously declare and
pay or set aside funds to pay full dividends on the preferred stock
of such series for the then current dividend period.
We must declare all dividends pro rata on all series of preferred stock
that rank on a parity with the series of preferred stock upon which we paid
dividends if we did not pay or set aside funds to pay dividends on the series of
preferred stock in full. We must declare dividends pro rata to ensure that the
amount of dividends declared per share of preferred stock bears in all cases the
same ratio that accrued dividends per share of preferred stock bears to each
other. We will not accumulate unpaid dividends for prior dividend periods with
respect to accrued dividends on preferred stock that does not have cumulative
dividends. No interest, or sum of money in lieu of interest, will be payable in
respect of any payments that may be in arrears.
Except as provided in the immediately preceding paragraph, unless:
-- if such series of preferred stock has a cumulative dividend, we have
declared and paid or contemporaneously declare and pay or set aside
funds to pay full cumulative dividends for all past dividend periods
and the then current dividend period; or
-- if such series of preferred stock does not have a cumulative
dividend, we have declared and paid or contemporaneously declare and
pay or set aside funds to pay full dividends for the then current
dividend period,
we will not: (1) declare, pay or set aside funds to pay dividends; (2) declare
or make any other distribution upon the common stock or any other shares of our
capital stock ranking junior to or on a parity with the preferred stock of such
series as to dividends or upon liquidation; (3) redeem, purchase or otherwise
acquire for any consideration any common stock, or any other shares of our
capital stock ranking junior to or on a parity with the preferred stock of such
series as to dividends; nor (4) pay any monies to or make any monies available
for a sinking fund to redeem any such shares, except by conversion into or
exchange for other shares of our capital stock ranking junior to the preferred
stock of such series as to dividends or liquidation. Notwithstanding the
preceding sentence, we may declare or set aside dividends in common stock or
other shares of capital stock ranking junior to the preferred stock of such
series as to dividends and upon liquidation.
Any dividend payment we make on a series of preferred stock shall first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such series which remains payable.
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REDEMPTION
If so provided in the applicable prospectus supplement, the preferred stock
will be subject to mandatory redemption or redemption at our option, in whole or
in part, upon the terms, at the times and at the redemption prices set forth in
such prospectus supplement.
The prospectus supplement relating to a series of preferred stock that is
subject to mandatory redemption will specify the number of shares that will be
redeemed in each year commencing after a specified date at a specified
redemption price per share, together with an amount equal to all accrued and
unpaid dividends thereon to the date of redemption. Unless the shares have a
cumulative dividend, such accrued dividends will not include any accumulation in
respect of unpaid dividends for prior dividend periods. We may pay the
redemption price in cash or other property, as specified in the applicable
prospectus supplement. If the redemption price for preferred stock of any series
is payable only from the net proceeds of the issuance of shares of our capital
stock, the terms of such preferred stock may provide that, if no such shares of
our capital stock have been issued or to the extent the net proceeds from any
issuance are insufficient to pay in full the aggregate redemption price then
due, such preferred stock will automatically and mandatorily convert into the
applicable shares of our capital stock pursuant to conversion provisions
specified in the applicable prospectus supplement.
Notwithstanding the foregoing, we will not redeem any preferred stock of a
series unless:
-- if that series of preferred stock has a cumulative dividend, we have
declared and paid or contemporaneously declare and pay or set aside
funds to pay full cumulative dividends on the preferred stock for
the past and current dividend periods; or
-- if that series of preferred stock does not have a cumulative
dividend, we have declared and paid or contemporaneously declare and
pay or set aside funds to pay full dividends on the preferred stock
for the current dividend period.
However, in no case will we redeem any preferred stock of a series unless
we redeem all outstanding preferred stock of such series simultaneously.
In addition, we will not acquire any preferred stock of a series unless:
-- if that series of preferred stock has a cumulative dividend, we have
declared and paid or contemporaneously declare and pay or set aside
funds to pay full cumulative dividends on all outstanding shares of
such series of preferred stock for all past dividend periods and the
then current dividend period; or
-- if that series of preferred stock does not have a cumulative
dividend, we have declared and paid or contemporaneously declare and
pay or set aside funds to pay full dividends on the preferred stock
of such series for the then current dividend period.
However, at any time we may purchase or acquire preferred stock of that
series (1) to preserve our status as a real estate investment trust, (2)
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding preferred stock of such series or (3) by conversion into or
exchange for shares of our capital stock ranking junior to the preferred stock
of such series as to dividends and upon liquidation.
If fewer than all of the outstanding shares of preferred stock of any
series are to be redeemed, we will determine the number of shares that may be
redeemed pro rata from the holders of record of such shares in proportion to the
number of such shares held or for which redemption is requested by such holder
or by any other equitable manner that we determine. Such determination will
reflect adjustments to avoid redemption of fractional shares.
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We will mail notice of redemption at least 30 days but not more than 60
days before the redemption date to each holder of record of preferred stock to
be redeemed at the address shown on our stock transfer books. Each notice shall
state:
-- the redemption date;
-- the number of shares and series to be redeemed;
-- the redemption price;
-- the place or places where certificates are to be surrendered for
payment of the redemption price;
-- that dividends on the shares to be redeemed will cease to accrue on
such redemption date;
-- the date upon which the holder's conversion rights, if any, as to
such shares shall terminate; and
-- the specific number of shares to be redeemed from each such holder
if fewer than all the shares of any series are to be redeemed.
If notice of redemption has been given and we have set aside the funds
necessary for such redemption in trust for the benefit of the holders of any
shares so called for redemption, then from and after the redemption date,
dividends will cease to accrue on such shares, and all rights of the holders of
such shares will terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
our affairs, then, before we make any distribution or payment to the holders of
any common stock or any other class or series of our capital stock ranking
junior to the preferred stock in the distribution of assets upon any
liquidation, dissolution or winding up of our affairs, the holders of each
series of preferred stock will be entitled to receive, out of assets legally
available for distribution to stockholders, liquidating distributions in the
amount of the liquidation preference per share set forth in the applicable
prospectus supplement, plus any accrued and unpaid dividends thereon. Such
dividends will not include any accumulation in respect of unpaid noncumulative
dividends for prior dividend periods. After full payment of their liquidating
distributions, holders will have no right or claim to any of our remaining
assets. Upon any such voluntary or involuntary liquidation, dissolution or
winding up, if our available assets are insufficient to pay the amount of the
liquidating distributions on all outstanding preferred stock and the
corresponding amounts payable on all other classes or series of our capital
stock ranking on a parity with the preferred stock in the distribution of
assets, then the holders of the preferred stock and all other such classes or
series of capital stock will share ratably in any such distribution of assets in
proportion to the full liquidating distributions to which they would otherwise
be entitled.
Upon liquidation, dissolution or winding up and if we have made liquidating
distributions in full to all holders of preferred stock, we will distribute our
remaining assets among the holders of any other classes or series of capital
stock ranking junior to the preferred stock according to their respective rights
and preferences and, in each case, according to their respective number of
shares. For such purposes, our consolidation or merger with or into any other
corporation, trust or entity, or the sale, lease or conveyance of all or
substantially all of our property or business will not be deemed to constitute a
liquidation, dissolution or winding up of our affairs.
VOTING RIGHTS
Holders of preferred stock will have no voting rights, except as described
in the next paragraph, as otherwise from time to time required by law or as
indicated in the applicable prospectus supplement.
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Unless otherwise provided for any series of preferred stock, so long as any
preferred stock of a series remains outstanding, we will not, without the
affirmative vote or consent of the holders of at least two-thirds of the
preferred stock of such series outstanding at the time, given in person or by
proxy, either in writing or at a meeting with each of such series voting
separately as a class:
-- authorize or create, or increase the authorized or issued amount of,
any class or series of shares of capital stock ranking senior to
such series of preferred stock with respect to payment of dividends
or the distribution of assets upon liquidation, dissolution or
winding up, or reclassify any of our authorized shares of capital
stock into such shares, or create, authorize or issue any obligation
or security convertible into or evidencing the right to purchase any
such shares; or
-- amend, alter or repeal the provisions of our articles of
incorporation or the amendment to our articles of incorporation
designating the terms for such series of preferred stock, whether by
merger, consolidation or otherwise, so as to materially and
adversely affect any right, preference, privilege or voting power of
such series of preferred stock or the holders thereof.
Notwithstanding the preceding bullet point, if the preferred stock remains
outstanding with the terms thereof materially unchanged, the occurrence of any
of the events described shall not be deemed to materially and adversely affect
the rights, preferences, privileges or voting power of holders of preferred
stock, even if upon the occurrence of such an event we may not be the surviving
entity. In addition, any increase in the amount of (1) authorized preferred
stock or the creation or issuance of any other series of preferred stock, or (2)
authorized shares of such series or any other series of preferred stock, in each
case ranking on a parity with or junior to the preferred stock of such series
with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up, shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required will be
effected, we have redeemed or called for redemption all outstanding shares of
such series of preferred stock and, if called for redemption, have deposited
sufficient funds in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions upon which any series of preferred stock is
convertible into common stock will be set forth in the applicable prospectus
supplement relating thereto. Such terms will include the number of shares of
common stock into which the shares of preferred stock are convertible, the
conversion price, rate or manner of calculation thereof, the conversion period,
provisions as to whether conversion will be at our option or at the holders'
option, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption.
RESTRICTIONS ON OWNERSHIP
For us to qualify as a real estate investment trust under the Internal
Revenue Code, a maximum of 50% in value of our outstanding capital stock may be
owned, directly or indirectly, by five or fewer individuals during the last half
of a taxable year. To assist us in meeting this requirement, we may take actions
to limit the beneficial ownership, directly or indirectly, by a single person of
our outstanding equity securities, including any of our preferred stock.
Therefore, the amendment to our articles of incorporation designating each
series of preferred stock may contain provisions restricting the ownership and
transfer of the preferred stock. The applicable prospectus supplement will
specify any additional ownership limitation relating to a series of preferred
stock. See "Limits on Ownership of Capital Stock" beginning on page 34.
TRANSFER AGENT
The transfer agent and registrar for the preferred stock will be set forth
in the applicable prospectus supplement.
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DESCRIPTION OF COMMON STOCK
The following is a description of the material terms and provisions of our
common stock. It may not contain all the information that is important to you.
You can access complete information by referring to our articles of
incorporation and bylaws. You should note that Summit Properties Inc., not
Summit Properties Partnership, L.P., will issue common stock. Therefore,
references to "we" and "us" in this section refer to Summit Properties Inc. and
not Summit Properties Partnership, L.P.
GENERAL
Under our articles of incorporation, we have authority to issue 100 million
shares of common stock, par value $.01 per share. Under Maryland law,
stockholders generally are not responsible for a corporation's debts or
obligations. As of July 20, 1999, we had 27,716,998 shares of common stock
issued and outstanding.
DIVIDENDS
Subject to the preferential rights of any other class or series of stock
and to the provisions of our articles of incorporation regarding excess stock,
which are described below, stockholders will be entitled to receive dividends on
shares of common stock out of assets that we can legally use to pay dividends,
when and if, they are authorized and declared by our board of directors.
VOTING RIGHTS
Subject to the provisions of our articles of incorporation regarding excess
stock, holders of common stock have the exclusive power to vote on all matters
presented to our stockholders, including the election of directors, unless
Maryland law or the terms of any other shares of capital stock provide
otherwise. Holders of common stock are entitled to one vote per share. Our board
of directors is divided into three classes. The members of each class serve for
a term of three years. The terms for the three classes are staggered, so that
the term of only one class of directors expires each year. There is no
cumulative voting in the election of our directors, which means that at any
meeting of our stockholders, the holders of a majority of the outstanding shares
of common stock can elect all of the directors then standing for election and
the votes held by the holders of the remaining shares of common stock will not
be sufficient to elect any director.
LIQUIDATION/DISSOLUTION RIGHTS
Subject to the preferential rights of any other class or series of stock
and to the provisions of our articles of incorporation regarding excess stock,
stockholders share in the same proportion as other stockholders out of assets
that we can legally use to pay distributions in the event we are liquidated,
dissolved or our affairs are wound up after we pay or make adequate provision
for all of our known debts and liabilities.
OTHER RIGHTS
Subject to the provisions of our articles of incorporation regarding excess
stock, all shares of our common stock have equal dividend, distribution,
liquidation and other rights, and have no preference, appraisal or exchange
rights, except for any appraisal rights provided by Maryland law.
Holders of shares of our common stock have no conversion, sinking fund or
redemption rights, or preemptive rights to subscribe for any of our securities.
Our articles of incorporation prohibit us from merging or selling all or
substantially all of our assets without the approval of a majority of the
outstanding shares that are entitled to vote on such matters. In addition,
Summit Properties Partnership, L.P.'s partnership agreement requires that these
types of transactions be approved by holders of two-thirds of the preferred
units if they will be materially and adversely affected by the transaction and
by holders of 85% of the common units.
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RESTRICTIONS ON OWNERSHIP
For us to qualify as a real estate investment trust under the Internal
Revenue Code, no more than 50% in value of our outstanding capital stock may be
owned, directly or indirectly, by five or fewer individuals during the last half
of a taxable year. To assist us in meeting this requirement, we may take actions
such as the automatic exchange of shares in excess of this ownership restriction
into shares of excess stock to limit the beneficial ownership of our outstanding
equity securities, directly or indirectly, by one individual. See "Limits on
Ownership of Capital Stock" beginning on page 34.
TRANSFER AGENT
The transfer agent and registrar for our common stock is First Union
National Bank.
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LIMITS ON OWNERSHIP OF CAPITAL STOCK
OWNERSHIP LIMITS
Among the requirements that we must meet to qualify as a real estate
investment trust under the Internal Revenue Code is that not more than 50% in
value of our outstanding capital stock may be owned, directly or indirectly, by
five or fewer individuals during the last half of a taxable year. Additionally,
such shares of capital stock must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. To protect us against the risk of
losing our status as a real estate investment trust due to a concentration of
ownership among our stockholders, our articles of incorporation provide that no
holder who is an individual may own, or be deemed to own by virtue of the
attribution provisions of the Internal Revenue Code, more than 9.8% of our
capital stock. Notwithstanding the preceding sentence, the board of directors at
their option and in their discretion may approve such ownership by selected
persons. Our board of directors does not expect that it would waive the 9.8%
ownership limit in the absence of evidence satisfactory to the board of
directors that the waiver of the limit will not jeopardize our status as a real
estate investment trust and the board of directors otherwise decides that such
action is in our best interests. Any transfer of shares of capital stock
including any security convertible into shares of capital stock that would
create a direct or indirect ownership of shares of capital stock in excess of
the 9.8% ownership limit or that would result in our disqualification as a real
estate investment trust, including any transfer that results in the shares of
beneficial interest being owned by fewer than 100 persons or that results in us
being "closely held" within the meaning of Section 856(h) of the Internal
Revenue Code, shall be void and have no effect. The intended transferee will
acquire no rights to the shares of capital stock. The foregoing restrictions
will not apply if our board of directors determines that it is no longer in our
best interests to attempt to qualify, or to continue to qualify, as a real
estate investment trust.
Pursuant to the Internal Revenue Code, some types of entities, such as
pension plans described in Section 401(a) of the Internal Revenue Code and
mutual funds registered under the Investment Company Act of 1940, will be
looked-through for purposes of the five or fewer test described above. Our
articles of incorporation limit these entities to holding no more than 15% of
the total value of our shares of capital stock.
SHARES OWNED IN EXCESS OF THE OWNERSHIP LIMIT
Capital stock owned, or deemed to be owned, or transferred to a stockholder
in excess of the applicable ownership limit will be automatically converted into
shares of excess stock that will be transferred, by operation of law, to us as
trustee of a trust for the exclusive benefit of the transferees to whom such
capital stock may be ultimately transferred without violating the applicable
ownership limit. While the shares of excess stock are held in trust:
-- they will not be entitled to vote;
-- they will not be considered for purposes of any stockholder vote or
the determination of a quorum for such vote; and
-- except upon liquidation, they will not be entitled to participate in
dividends or other distributions.
Any dividend or distribution paid on excess stock prior to discovery by us
that capital stock has been transferred in violation of the applicable ownership
limit shall be repaid to us on demand. Shares of excess stock are not treasury
stock, but rather constitute a separate class of issued and outstanding stock.
The original transferee-stockholder may, at any time the shares of excess stock
are held by us in trust, transfer the interest in the trust representing the
excess stock to any individual whose ownership of the capital
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stock converted into such excess stock would be permitted under the applicable
ownership limit, at a price per share not in excess of:
-- the price per share paid by the original transferee-stockholder for
the capital stock that was converted into excess stock; or
-- if the original transferee-stockholder received the shares through a
gift, devise or other transaction in which such stockholder did not
give value, the average closing price per share for the class of
shares from which the shares of excess stock were converted for the
10 days immediately preceding the transfer.
Immediately upon the transfer to the permitted transferee, the excess stock will
automatically be converted into capital stock of the class from which it was
converted. If these transfer restrictions are determined to be void or invalid
by virtue of any legal decision, statute, rule or regulation, then the intended
transferee of any excess stock may be deemed, at our option, to have acted as an
agent on our behalf in acquiring the excess stock and to hold the excess stock
on behalf of us.
RIGHT TO PURCHASE EXCESS STOCK
In addition to the foregoing transfer restrictions, we have the right, for
a period of 90 days during the time any shares of excess stock are held by us in
trust, to purchase all or any portion of the excess stock from the original
transferee-stockholder for a price per share equal to the lesser of:
-- the price per share initially paid for the capital stock by the
original transferee-stockholder, or if the original
transferee-stockholder received the shares through a gift, devise or
other transaction in which such stockholder did not give value, the
average of the closing price per share for the class of shares from
which the shares of excess stock were converted for the 10 days
immediately preceding the transfer; and
-- the average closing price per share for the class of shares from
which the shares of excess stock were converted for the 10 days
immediately preceding the date we elect to purchase the shares.
The 90-day period begins on the date of the purported transfer that violated the
applicable ownership limit if the original transferee-stockholder gives notice
to us of the transfer or, if no notice is given, the date our board of directors
determines that such a transfer has been made.
Our stockholders are required upon demand to disclose to us in writing any
information with respect to their direct, indirect and constructive ownership of
capital stock as our board of directors deems necessary to comply with the
provisions of the Internal Revenue Code applicable to real estate investment
trusts, to comply with the requirements of any taxing authority or governmental
agency or to determine any such compliance.
This ownership limitation may have the effect of precluding the acquisition
of control of Summit Properties Inc. unless our board of directors determines
that our maintenance of real estate investment trust status is no longer in our
best interests.
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SHAREHOLDER RIGHTS PLAN
On December 14, 1998, our board of directors adopted a shareholder rights
plan and entered into a shareholder rights agreement with First Union National
Bank, as rights agent. The purpose of the shareholder rights plan is to enhance
the board of director's ability to protect our stockholders' interests by
encouraging potential acquirors to negotiate with our board of directors prior
to attempting a takeover bid and to provide our board with leverage in
negotiating on behalf of all of our stockholders the terms of any proposed
takeover. The rights may discourage, delay or prevent hostile takeovers. They
are not intended, however, to interfere with any merger or other business
combination approved by our board of directors.
Under the shareholder rights plan, each of our stockholders received a
dividend of one preferred stock purchase right for each outstanding share of our
common stock that the stockholder owned on December 15, 1998, the time of the
rights dividend. We refer to these preferred stock purchase rights as the
"rights." A right is automatically attached to each share of common stock issued
after our common stockholders received the rights dividend. The holder of a
right does not have the powers and privileges of a stockholder with respect to
the right. The rights trade with our shares of common stock and become
exercisable only under the circumstances described below.
In general, the rights will separate from the common stock and become
exercisable when the first of the following events happens:
-- ten calendar days after a public announcement that a person or group
has acquired beneficial ownership of 15% or more of our common
stock; or
-- ten business days, or a later date if determined by our board, after
the beginning of a tender offer or exchange offer that would result
in a person or group beneficially owning 15% or more of our
outstanding common stock.
If the rights become exercisable, the holder of a right will be able to
purchase from us a unit of preferred stock equal to one one-thousandth of a
share of our Series A Junior Participating Cumulative Preferred Stock at a price
of $45 per unit, subject to adjustment to prevent dilution.
We may redeem the rights in whole, but not in part, at a price of $.01 per
right payable in cash, our common stock or other consideration deemed
appropriate by our board at any time before the earlier of:
-- the time at which any person or group has acquired beneficial
ownership of 15% or more of our common stock; or
-- the expiration date of the shareholder rights agreement.
The rights will expire at the close of business on December 14, 2008 unless we
redeem or exchange them before that date.
The above description of our shareholder rights plan is not intended to be
a complete description. For a full description of the shareholder rights plan,
you should read the shareholder rights agreement. The shareholder rights
agreement was included as an exhibit to the registration statement of which this
prospectus is a part. You may obtain a copy of this agreement at no charge by
writing to us at the address listed on page 10.
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IMPORTANT PROVISIONS OF MARYLAND LAW
The following is a summary of important provisions of Maryland law which
affect us and our stockholders. The description below is intended only as a
summary. You can access complete information by referring to the Maryland
General Corporation Law.
MARYLAND BUSINESS COMBINATION STATUTE
Maryland law establishes special requirements with respect to "business
combinations" between Maryland corporations and "interested stockholders" unless
exemptions are applicable. Among other things, the law prohibits for a period of
five years a merger and other specified or similar transactions between a
company and an interested stockholder and requires a supermajority vote for such
transactions after the end of the five-year period.
"Interested stockholders" are all persons owning beneficially, directly or
indirectly, more than 10% of the outstanding voting stock of the Maryland
corporation. "Business combinations" include any merger or similar transaction
subject to a statutory vote and additional transactions involving transfers of
assets or securities in specified amounts to interested stockholders or their
affiliates. Unless an exemption is available, transactions of these types may
not be consummated between a Maryland corporation and an interested stockholder
or its affiliates for a period of five years after the date on which the
stockholder first became an interested stockholder. Thereafter, the transaction
may not be consummated unless recommended by the board of directors and approved
by the affirmative vote of at least 80% of the votes entitled to be cast by all
holders of outstanding voting shares and two-thirds of the votes entitled to be
cast by all holders of outstanding voting shares other than the interested
stockholder. A business combination with an interested stockholder that is
approved by the board of directors of a Maryland corporation at any time before
an interested stockholder first becomes an interested stockholder is not subject
to the special voting requirements. An amendment to a Maryland corporation's
charter electing not to be subject to the foregoing requirements must be
approved by the affirmative vote of at least 80% of the votes entitled to be
cast by all holders of outstanding voting shares and two-thirds of the votes
entitled to be cast by holders of outstanding voting shares who are not
interested stockholders. Any such amendment is not effective until 18 months
after the vote of stockholders and does not apply to any business combination of
a corporation with a stockholder who was an interested stockholder on the date
of the stockholder vote. Our articles of incorporation exempt from the Maryland
business combination statute any business combination with William B. McGuire,
Jr., William F. Paulsen, Raymond V. Jones and David F. Tufaro, or current or
future affiliates, associates or other persons acting in concert as a group with
any of the foregoing persons.
MARYLAND CONTROL SHARE ACQUISITION STATUTE
Maryland law provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter by stockholders. "Control shares" are voting shares which, if aggregated
with all other shares of stock previously acquired by the acquiring person,
would entitle the acquiring person to exercise voting power in electing
directors within one of the following ranges of voting power:
(1) one-fifth or more but less than one-third,
(2) one-third or more but less than a majority, or
(3) a majority of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A "control
share acquisition" means the acquisition of control shares, subject to
applicable exceptions.
A person who has made or proposes to make a control share acquisition may
compel the board of directors to call a special meeting of stockholders to be
held within 50 days of demand to consider voting rights for the shares, upon
satisfaction of relevant conditions, including an undertaking to pay expenses.
If
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no request for a meeting is made, the corporation may itself present the
question at any stockholder meeting.
If voting rights for control shares are not approved at the meeting or if
the acquiring person does not deliver an acquiring person statement as required
by the statute with respect to the control shares, then, subject to applicable
conditions and limitations, the corporation may redeem any or all of the control
shares for fair value determined, without regard to the absence of voting rights
for the control shares, as of the date of the last control share acquisition by
the acquiring person or of any meeting of stockholders at which the voting
rights of such shares are considered and not approved. If voting rights for
control shares are approved at a stockholder meeting and the acquiring person
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiring person in the control share
acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the articles of
incorporation or bylaws of the corporation. Our articles of incorporation and
bylaws exempt from the Maryland control share acquisition statute any
transactions otherwise subject to the statute by Messrs. McGuire, Paulsen, Jones
and Tufaro or current or future affiliates, associates or other persons acting
in concert or as a group with any of the foregoing persons.
The business combination statute and the control share acquisition statute
could have the effect of discouraging offers to acquire us and of increasing the
difficulty of consummating any such offer.
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FEDERAL INCOME TAX CONSIDERATIONS AND
CONSEQUENCES OF YOUR INVESTMENT
The following is a general summary of the material federal income tax
considerations and consequences associated with an investment in the securities.
The following discussion is not exhaustive of all possible tax considerations
and is not tax advice. Moreover, this summary does not deal with all tax aspects
or consequences that might be relevant to a particular prospective
securityholder in light of his/her personal circumstances; nor does it deal with
particular types of securityholders that are subject to special treatment under
the Internal Revenue Code, such as insurance companies, financial institutions
and broker-dealers. The Internal Revenue Code provisions governing the federal
income tax treatment of real estate investment trusts are highly technical and
complex, and this summary is qualified in its entirety by the applicable
Internal Revenue Code provisions, rules and regulations promulgated thereunder,
and administrative and judicial interpretations thereof. The following
discussion is based on current law and on representations from us concerning our
compliance with the requirements for qualification as a real estate investment
trust.
WE URGE YOU, AS A PROSPECTIVE INVESTOR, TO CONSULT YOUR OWN TAX ADVISOR
WITH RESPECT TO THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES TO YOU OF THE PURCHASE, HOLDING AND SALE OF OUR SECURITIES.
FEDERAL INCOME TAXATION
We believe that we have been organized in conformity with the requirements
for qualification as a real estate investment trust under the Internal Revenue
Code, and our method of operation will enable us to continue to meet the
requirements for qualification and taxation as a real estate investment trust
under the Internal Revenue Code, provided that we have operated and continue to
operate in accordance with various assumptions and factual representations made
by us concerning our business, properties and operations. We may not, however,
have met or continue to meet such requirements. Qualification as a real estate
investment trust depends upon us having met and continuing to meet the various
requirements imposed under the Internal Revenue Code through actual operating
results, as discussed below.
If we have qualified and continue to qualify for taxation as a real estate
investment trust, we generally will not be subject to federal corporate income
taxes on that portion of our ordinary income or capital gain that is currently
distributed to stockholders. The real estate investment trust provisions of the
Internal Revenue Code generally allow a real estate investment trust to deduct
dividends paid to its stockholders. This deduction for dividends paid to
stockholders substantially eliminates the federal double taxation of investment
earnings that C corporations would be required to pay. When we use the term
"double taxation," we refer to taxation of corporate income at two levels,
taxation at the corporate level when the corporation must pay tax on the income
it has earned and taxation again at the stockholder level when the stockholder
pays taxes on the distributions it receives from the corporation's income in the
way of dividends. Additionally, a real estate investment trust may elect to
retain and pay taxes on a designated amount of its net long-term capital gains,
in which case the stockholders of the real estate investment trust will include
their proportionate share of the undistributed long-term capital gains in income
and receive a credit or refund for their share of the tax paid by the real
estate investment trust.
Even if we qualify for taxation as a real estate investment trust, we will
continue to be subject to federal income tax, as follows:
-- First, we will be taxed at regular corporate rates on our
undistributed real estate investment trust taxable income, including
undistributed net capital gains.
-- Second, we may be subject to the alternative minimum tax.
-- Third, if we have net income from the sale or other disposition of
foreclosure property that is held primarily for sale to customers in
the ordinary course of business or other non-qualifying income from
foreclosure property, we will be subject to tax at the highest
corporate rate on
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such income. Foreclosure property is, in general, any real property
and any personal property incident to such real property acquired
through foreclosure or deed in lieu of foreclosure.
-- Fourth, if we have net income from prohibited transactions, such
income will be subject to a 100% tax. Prohibited transactions are,
in general, sales or other dispositions of property other than
foreclosure property held primarily for sale to customers in the
ordinary course of business.
-- Fifth, if we should fail to satisfy either the 75% or 95% gross
income test but have nonetheless maintained our qualification as a
real estate investment trust because other requirements have been
met, we will be subject to a 100% tax on the net income attributable
to the greater of the amount by which we fail the 75% or 95% test,
multiplied by a fraction intended to reflect our profitability.
-- Sixth, if we fail to distribute during each year at least the sum of
(a) 85% of our ordinary income for such year, (b) 95% of our capital
gain net income for such year and (c) any undistributed taxable
income from prior periods, we will be subject to a 4% excise tax on
the excess of such required distribution over the amounts actually
distributed.
-- Seventh, if we should acquire any asset from a C corporation in a
carryover-basis transaction and we subsequently recognize gain on
the disposition of such asset during the ten-year period beginning
on the date on which we acquired the asset, then, to the extent of
any built-in gain, such gain will be subject to tax at the highest
regular corporate rate, pursuant to guidelines issued by the
Internal Revenue Service. Built-in gain means the excess of (a) the
fair market value of the asset as of the beginning of the applicable
recognition period over (b) the adjusted basis in such asset as of
the beginning of such recognition period. A C corporation is a
corporation generally subject to full corporate-level tax.
REQUIREMENTS FOR QUALIFICATION
We elected to be taxable as a real estate investment trust for federal
income tax purposes for our taxable year ended December 31, 1994. In order to
have so qualified, we must have met and continue to meet the requirements
discussed below, relating to our organization, sources of income, nature of
assets and distributions of income to stockholders.
Organizational requirements. The Internal Revenue Code defines a real
estate investment trust as a corporation, trust or association that meets the
following conditions:
(1) is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares
or by transferable certificates of beneficial interest;
(3) would be taxable as a domestic corporation but for the real estate
investment trust requirements;
(4) is neither a financial institution nor an insurance company subject to
applicable provisions of the Internal Revenue Code;
(5) the beneficial ownership of which is held by 100 or more persons; and
(6) during the last half of each taxable year, five or fewer individuals do
not own, directly or indirectly, more than 50% in value of the
outstanding stock, taking into account the applicable attribution
rules.
In addition, other tests, described below, regarding the nature of income
and assets of the real estate investment trust also must be satisfied. The Code
provides that conditions (1) through (4), inclusive, must be met during the
entire taxable year. Condition (5) must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. Conditions (5) and (6) will not apply until after the first
taxable year for which an election is made to be taxed as a real estate
investment trust. For purposes of conditions (5) and (6), pension funds and
particular other
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tax-exempt entities are treated as individuals, subject to an exception in the
case of condition (6) that looks through the fund or entity to actual
participants of the fund or the entity to its beneficial owners in determining
the number of owners of the outstanding stock.
Our articles of incorporation currently includes restrictions regarding
transfers of common stock and preferred stock, which restrictions are intended,
among other things, to assist us in continuing to satisfy conditions (5) and
(6). There can be no assurance, however, that the restrictions in our articles
of incorporation will, as a matter of law, preclude us from failing to satisfy
these conditions or that a transfer in violation of these restrictions would not
cause us to fail these conditions.
In addition, a corporation may not elect to become a real estate investment
trust unless its taxable year is the calendar year. We have a calendar year
taxable year.
If a real estate investment trust owns a qualified real estate investment
trust subsidiary, the Internal Revenue Code provides that the qualified real
estate investment trust subsidiary is disregarded for federal income tax
purposes. Thus, all assets, liabilities and items of income, deduction and
credit of the qualified real estate investment trust subsidiary are treated as
assets, liabilities and such items of the real estate investment trust itself.
When we use the term "qualified real estate investment trust subsidiary," we
mean a corporation in which all of its shares of beneficial interest are held by
the real estate investment trust. Unless the context requires otherwise, all
references to "we," "us" and "our company" in this "Federal Income Tax
Considerations and Consequences of Your Investment" section, refer to Summit
Properties Inc. and its qualified real estate investment trust subsidiaries.
In the case of a real estate investment trust that is a partner in a
partnership, regulations issued by the United States Treasury Department provide
that the real estate investment trust will be deemed to own its proportionate
share of the assets of the partnership and will be deemed to be entitled to the
income of the partnership attributable to such share. A real estate investment
trust's proportional share of the assets of the partnership will be determined
based on the real estate investment trust's capital interest in the partnership.
In addition, the character of the assets and gross income of the partnership
shall retain the same character in the hands of the real estate investment trust
for purposes of Section 856 of the Internal Revenue Code, including satisfying
the gross income tests and asset tests. Thus, our proportionate share of the
assets, liabilities and items of income of Summit Properties Partnership, L.P.
and any other entity taxable as a partnership for federal income tax purposes in
which we hold an interest will be treated as our assets and liabilities and our
items of income for purposes of applying the requirements described herein. The
assets, liabilities and items of income of Summit Properties Partnership, L.P.
include Summit Properties Partnership, L.P.'s share of the assets and
liabilities and items of income with respect to any partnership in which it
holds an interest.
Income tests. To maintain qualification as a real estate investment trust,
two gross income requirements must be satisfied annually.
-- First, at least 75% of our gross income, excluding gross income from
prohibited transactions, for each taxable year must be derived
directly or indirectly from investments relating to real property or
mortgages on real property including rents from real property and,
in particular circumstances, interest or from particular types of
temporary investments.
-- Second, at least 95% of our gross income for each taxable year must
be derived from such real property investments and from dividends,
interest and gain from the sale or disposition of stock or
securities or from any combination of the foregoing. For purposes of
this test, gross income excludes gross income from prohibited
transactions.
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Additionally, with respect to each of our tax years beginning on or before
January 1, 1997, short-term gain from the sale or other disposition of stock or
securities, gain from prohibited transactions and gain from the sale or other
disposition of real property held for less than four years apart from
involuntary conversions and sales of foreclosure property must have represented
less than 30% of our gross income including gross income from prohibited
transactions for each such taxable year. Rents received or deemed to be received
by us will qualify as rents from real property in satisfying the gross income
requirements for a real estate investment trust described above only if the
following conditions are met.
-- Rents received generally must not be based in whole or in part on
the income or profits derived from any person.
-- Rents received must not be from a related party tenant. A tenant is
a related party tenant if the real estate investment trust, directly
or indirectly, actually or constructively owns 10% or more of such
tenant.
-- Rents attributable to personal property that is leased in connection
with a lease of real property must not be greater than 15% of total
rent received under the lease. If so, the portion of rent
attributable to the personal property will not qualify as rents from
real property.
-- The real estate investment trust generally must not operate or
manage the property or furnish or render services to tenants.
However, the real estate investment trust may:
-- provide services that are usually or customarily rendered in
connection with the rental of a room or other space for
occupancy only and are not otherwise considered rendered to the
occupant;
-- provide or furnish non-customary services through an independent
contractor if the independent contractor is adequately
compensated and the real estate investment trust derives no
income from the independent contractor; and
-- for taxable years beginning after August 5, 1997, provide
non-customary services with respect to its properties if the
income from the provision of such services with respect to any
particular property does not exceed 1% of all amounts received
by the real estate investment trust from such property.
We have not charged, and do not anticipate charging, rent that is based in
whole or in part on the income or profits of any person. We have not derived,
and do not anticipate deriving, rent attributable to personal property leased in
connection with real property that exceeds 15% of the total rents.
We have provided and will provide services with respect to the multifamily
apartment communities. We believe that the services with respect to our
communities that have been and will be provided by us are usually or customarily
rendered in connection with the rental of space for occupancy only and are not
otherwise rendered to particular tenants; or, for tax years beginning after
August 5, 1997, income from the provision of other kinds of services with
respect to a given property has not and will not exceed 1% of all amounts
received by us from such property. Therefore, we believe that the provision of
such services has not and will not cause rents received with respect to our
communities to fail to qualify as rents from real property. We believe that
services with respect to our communities that we believe may not be provided by
us directly without jeopardizing the qualification of rent as rents from real
property have been and will be performed by independent contractors, which do
not include any management companies owned by Summit Properties Partnership,
L.P.
Generally the management company owned by Summit Properties Partnership,
L.P. receives fees in consideration of the performance of property management
services with respect to properties owned by third parties. Any such fee income
is taxable to the management company. Summit Properties Partnership, L.P. may
have received and may continue to receive fees in consideration of the
performance of property management services with respect to properties not owned
entirely by Summit Properties Partnership, L.P. A portion of such fees
corresponding to that portion of a property owned by a third party will not
qualify under the 75% or 95% gross income tests.
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Summit Properties Partnership, L.P. also has received and may continue to
receive other types of income with respect to the properties it owns that will
not qualify for the 75% or 95% gross income tests. In addition, interest
payments on some of the notes of the management company held by Summit
Properties Partnership, L.P. and dividends on Summit Properties Partnership,
L.P.'s stock in the management company will not qualify under the 75% gross
income test. We believe, however, that the aggregate amount of such fees and
other nonqualifying income in any taxable year will not cause us to exceed the
limits on nonqualifying income under the real estate investment trust gross
income tests.
If we fail to satisfy one or both of the 75% or 95% gross income test for
any taxable year, we may nevertheless qualify as a real estate investment trust
for that year if we are eligible for relief under the Internal Revenue Code.
These relief provisions generally will be available if:
-- our failure to meet these tests was due to reasonable cause and not
due to willful neglect;
-- we attach a schedule of the sources of our income to our federal
income tax return; and
-- any incorrect information on the schedule is not due to fraud with
intent to evade tax.
It is not possible, however, to state whether, in all circumstances, we
would be entitled to the benefit of these relief provisions. For example, if we
fail to satisfy the gross income tests because nonqualifying income that we
intentionally incur exceeds the limits on such income, the Internal Revenue
Service could conclude that our failure to satisfy the tests was not due to
reasonable cause. As discussed above in "Federal Income Tax Considerations and
Consequences of Your Investment -- Federal income taxation," even if these
relief provisions apply, a tax would be imposed with respect to the excess net
income. No similar mitigation provision provides relief if we failed the 30%
gross income test in a taxable year beginning on or before January 1, 1997, and
any such failure to qualify would have caused us to fail to qualify as a real
estate investment trust. See the discussion below on the consequences of failing
to qualify as a real estate investment trust in "Federal Income Tax
Considerations and Consequences of Your Investment -- Failure to qualify."
Asset tests. At the close of each quarter of our taxable year, we also
must satisfy three tests relating to the nature and diversification of our
assets.
-- First, at least 75% of the value of our total assets must be
represented by real estate assets, cash, cash items and government
securities.
-- Second, no more than 25% of our total assets may be represented by
securities other than those in the 75% asset class.
-- Third, of the investments included in the 25% asset class, the value
of any one issuer's securities owned by us may not exceed 5% of the
value of our total assets, and we may not own more than 10% of any
one issuer's outstanding voting securities.
By virtue of our ownership of units in Summit Properties Partnership, L.P.,
we will be considered to own our pro rata share of the stock of the management
company and, through the management company, its wholly owned subsidiary, the
construction company. Neither we nor Summit Properties Partnership, L.P.,
however, owns more than 1% of the voting securities of the management company or
the construction company owned, directly or indirectly, by Summit Properties
Partnership, L.P. In addition, we and our senior management do not believe that
our pro rata share of the value of the securities of the management company,
which includes in part the value of the securities of the construction company,
owned by Summit Properties Partnership, L.P. exceeds 5% of the total value of
our assets. Our belief is based in part upon our analysis of the estimated value
of the securities of the management company owned by Summit Properties
Partnership, L.P. relative to the estimated value of the other assets owned by
Summit Properties Partnership, L.P. We have not obtained any independent
appraisals to support this conclusion. There can be no assurance that the
Internal Revenue Service might not contend that the value of such securities of
the management company owned by Summit Properties Partnership, L.P. held by our
Company through Summit Properties Partnership, L.P. exceeds the 5% value
limitation.
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The 5% test referred to above generally must be met for any quarter in
which we acquire securities of an issuer. Thus, the 5% value requirement must be
satisfied not only on the date we acquire equity and debt securities of the
management company owned by Summit Properties Partnership, L.P., but also each
time we increase our ownership of such securities of the management company,
including as a result of increasing our interest in Summit Properties
Partnership, L.P. as limited partners exercise their redemption rights. Although
we plan to take steps to ensure that we satisfy the 5% value test for any
quarter with respect to which retesting occurs, such steps may not always be
successful or may require a reduction in our overall interest in the management
company owned by Summit Properties Partnership, L.P.
After initially meeting the asset tests at the close of any quarter, we
will not lose our status as a real estate investment trust for failure to
satisfy the asset tests at the end of a later quarter solely by reason of
changes in asset values. If the failure to satisfy the asset tests results from
an acquisition of securities or other property during a quarter, the failure can
be cured by disposition of sufficient nonqualifying assets within 30 days after
the close of that quarter. We intend to maintain and believe that we have
maintained adequate records of the value of our assets to ensure compliance with
the asset tests and to take such other actions within 30 days after the close of
any quarter as may be required to cure any noncompliance.
Annual distribution requirements. In order to be taxed as a real estate
investment trust, we are required to distribute dividends, other than capital
gain dividends, to our stockholders in an amount at least equal to
(a) the sum of (1) 95% of our real estate investment trust taxable income,
which is computed without regard to the dividends-paid deduction and
our capital gain, and (2) 95% of the net income, if any, from
foreclosure property in excess of the special tax on income from
foreclosure property, minus
(b) the sum of particular items of noncash income.
Such distribution must be paid in the taxable year to which it relates, or
in the following taxable year if declared before we timely file our federal
income tax return for such year and if paid on or before the first regular
dividend payment after such declaration. Capital gain dividends are not included
in the calculation to determine whether we satisfy the above-described
distribution requirement. In general, a capital gain dividend is a dividend
attributable to net capital gain recognized by us and properly designated as
such.
Even if we satisfy the foregoing distribution requirements, to the extent
that we do not distribute all of our net capital gain or real estate investment
trust taxable income as adjusted, we will be subject to tax thereon at regular
capital gains or ordinary corporate tax rates. Furthermore, if we should fail to
distribute during each calendar year at least the sum of
(a) 85% of our ordinary income for that year,
(b) 95% of our capital gain net income for that year, and
(c) any undistributed taxable income from prior periods,
we would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. In addition, during our
recognition period, if we dispose of any asset subject to the rules regarding
built-in gain, pursuant to guidance issued by the Internal Revenue Service, we
will be required to distribute at least 95% of any after tax built-in gain
recognized on the disposition of the asset. As stated above, the term
"built-in-gain" refers to the excess of (a) the fair market value of the asset
as of the beginning of the applicable recognition period over (b) the adjusted
basis in such asset as of the beginning of such recognition period.
We believe that we have made and intend to continue to make timely
distributions sufficient to satisfy the annual distribution requirements. In
this regard, Summit Properties Partnership, L.P.'s partnership agreement
authorizes Summit Properties Inc., as general partner, to take such steps as may
be necessary
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to cause Summit Properties Partnership, L.P. to distribute to its partners an
amount sufficient to permit us to meet these distribution requirements.
It is expected that our real estate investment trust taxable income has
been and will be less than our cash flow due to the allowance of depreciation
and other noncash charges in computing real estate investment trust taxable
income. Accordingly, we anticipate that we will generally have sufficient cash
or liquid assets to enable us to satisfy the 95% distribution requirement. It is
possible, however, that we, from time to time, may not have sufficient cash or
other liquid assets to meet the 95% distribution requirement or to distribute
such greater amount as may be necessary to avoid income and excise taxation, due
to timing differences between (a) the actual receipt of income and the actual
payment of deductible expenses and (b) the inclusion of such income and the
deduction of such expenses in arriving at our taxable income, or as a result of
nondeductible expenses such as principal amortization or capital expenditures in
excess of noncash deductions. In the event that such timing differences occur,
we may find it necessary to arrange for borrowings or, if possible, pay taxable
stock dividends in order to meet the dividend requirement.
Under some circumstances, we may be able to rectify a failure to meet the
distribution requirement for a year by paying dividends to stockholders in a
later year, which may be included in our deduction for dividends paid for the
earlier year. We will refer to such dividends as "deficiency dividends." Thus,
we may be able to avoid being taxed on amounts distributed as deficiency
dividends. We will, however, be required to pay interest based upon the amount
of any deduction taken for deficiency dividends.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a real estate investment trust in any
taxable year and the relief provisions do not apply, we will be subject to tax
on our taxable income at regular corporate rates, including any applicable
alternative minimum tax. Distributions to stockholders in any year in which we
fail to qualify will not be deductible by us nor will they be required to be
made. In such event, to the extent of current or accumulated earnings and
profits, all distributions to stockholders will be dividends, taxable as
ordinary income, and subject to limitations of the Internal Revenue Code,
corporate distributees may be eligible for the dividends-received deduction.
Unless we are entitled to relief under specific statutory provisions, we also
will be disqualified from taxation as a real estate investment trust for the
four taxable years following the year during which qualification was lost. It is
not possible to state whether in all circumstances we would be entitled to such
statutory relief. For example, if we fail to satisfy the gross income tests
because nonqualifying income that we intentionally incur exceeds the limit on
such income, the Internal Revenue Service could conclude that our failure to
satisfy the tests was not due to reasonable cause.
TAXATION OF UNITED STATES STOCKHOLDERS AND POTENTIAL TAX CONSEQUENCES OF THEIR
INVESTMENT IN THE SECURITIES
When we refer to a United States stockholder, we mean a holder of common
stock or preferred stock that is for federal income tax purposes
-- an individual who is a citizen or resident of the United States,
-- a corporation created or organized in or under the laws of the
United States, any state thereof or the District of Columbia, or
-- a partnership, trust or estate treated as a domestic partnership,
trust or estate.
For any taxable year for which we qualify for taxation as a real estate
investment trust, amounts distributed to taxable United States stockholders will
be taxed as follows.
Distributions generally. Distributions other than capital gain dividends
to United States stockholders will be taxable as dividends to the extent of our
current or accumulated earnings and profits as determined for federal income tax
purposes. For purposes of determining whether distributions are out of current
or
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accumulated earnings and profits, our earnings and profits will be allocated
first to any of our outstanding preferred stock and then to our common stock.
Such dividends will be taxable to the holders as ordinary income and will not be
eligible for the dividends-received deduction for corporations. To the extent
that we make a distribution to a United States stockholder in excess of current
or accumulated earnings and profits, the distribution will be treated first as a
tax-free return of capital with respect to the shares, reducing the United
States stockholder's tax basis in the shares, and the distribution in excess of
a United States stockholder's tax basis in the shares will be taxable as gain
realized from the sale of the shares. Dividends declared by our company in
October, November or December of any year payable to a stockholder of record on
a specified date in any such month shall be treated as both paid by us and
received by the stockholder on December 31 of the year, provided that the
dividend is actually paid by us during January of the following calendar year.
United States stockholders may not include on their own federal income tax
returns any of our tax losses.
The Internal Revenue Service will deem us to have sufficient earnings and
profits to treat as a dividend any distribution by us up to the amount required
to be distributed in order to avoid imposition of the 4% excise tax discussed in
"Federal Income Tax Considerations and Consequences of Your
Investment -- Federal income taxation" above. Moreover, any deficiency dividend
will be treated as an ordinary or capital gain dividend, as the case may be,
regardless of our earnings and profits. As a result, stockholders may be
required to treat particular distributions that would otherwise result in a
tax-free return of capital as taxable dividends.
Capital gain dividends. Dividends to United States stockholders that are
properly designated by us as capital gain dividends will be treated as long-term
capital gains, to the extent they do not exceed our actual net capital gains,
for the taxable year without regard to the period for which the stockholder has
held his stock. However, corporate stockholders may be required to treat up to
20% of particular capital gain dividends as ordinary income. Capital gain
dividends are not eligible for the dividends-received deduction for
corporations.
Retained capital gains. A real estate investment trust may elect to
retain, rather than distribute, its net long-term capital gains received during
the year. To the extent designated by the real estate investment trust in a
notice to its stockholders, the real estate investment trust will pay the income
tax on such gains, and the real estate investment trust stockholders must
include their proportionate share of the undistributed long-term capital gains
so designated in income. Each real estate investment trust stockholder will be
deemed to have paid its share of the tax paid by the real estate investment
trust, which will be credited or refunded to the stockholder. The basis of each
stockholder's real estate investment trust shares will be increased by its
proportionate amount of the undistributed long-term capital gains, net of the
tax paid by the real estate investment trust, included in such stockholder's
long-term capital gains.
Passive activity loss and investment interest limitations. Distributions,
including deemed distributions of undistributed long-term capital gains, from
our company and gain from the disposition of the securities will not be treated
as passive activity income, and therefore stockholders may not be able to apply
any passive losses against such income. Dividends from our company, to the
extent they do not constitute a return of capital, will generally be treated as
investment income for purposes of the investment income limitation on the
deductibility of investment interest. However, net capital gain from the
disposition of the securities or capital gain dividends, including deemed
distributions of undistributed long-term capital gains, generally will be
excluded from investment income.
Sale of the securities. Upon the sale or exchange of the securities, the
holder will generally recognize gain or loss equal to the difference between the
amount realized on such sale and the tax basis of such securities. Assuming such
securities are held as a capital asset, such gain or loss will be a long-term
capital gain or loss if the securities have been held for more than one year.
However, any loss recognized by a holder on the sale of common stock or
preferred stock held for not more than six months and with respect to which
capital gains were required to be included in such holder's income will be
treated as a long-term capital loss to the extent of the amount of such capital
gains so included.
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Treatment of tax-exempt security holders. Distributions, including deemed
distributions of undistributed long-term capital gains, from our company to a
tax-exempt employee pension trust or other domestic tax-exempt stockholder
generally will not constitute unrelated business taxable income unless the
stockholder has borrowed to acquire or carry its common stock or preferred
stock. However, qualified trusts that hold more than 10% by value of the shares
of particular real estate investment trusts may be required to treat a specified
percentage of these distributions, including deemed distributions of
undistributed long-term capital gains, as unrelated business taxable income. The
percentage of any real estate investment trust dividend, including deemed
distributions of undistributed long-term capital gains, treated as unrelated
business taxable income is equal to the ratio of (1) the unrelated business
taxable income earned by the real estate investment trust and treating the real
estate investment trust as if it were a qualified trust and therefore subject to
tax on unrelated business taxable income to (2) the total gross income, less
particular associated expenses, of the real estate investment trust. An
exception applies where the ratio set forth in the preceding sentence is less
than 5% for any year. For these purposes, a qualified trust is any trust
described in section 401(a) of the Internal Revenue Code and exempt from tax
under section 501(a) of the Internal Revenue Code.
The requirement that a percentage of dividends be treated as unrelated
business taxable income will apply only if (a) the real estate investment trust
would not qualify as such for federal income tax purposes but for the
application of an exception to the five or fewer requirement applicable to
shares held by qualified trusts that looks through to the actual participants in
the qualified trust to determine the number of owners and (b) the real estate
investment trust is predominantly held by qualified trusts. A real estate
investment trust is predominantly held by qualified trusts if either (a) a
single qualified trust holds more than 25% by value of the real estate
investment trust interests or (b) one or more qualified trusts, each owning more
than 10% by value of the real estate investment trust interests, hold in the
aggregate more than 50% of the real estate investment trust interests.
Distributions by Summit Properties Partnership, L.P. to a tax-exempt holder
of debt securities will generally not constitute unrelated business taxable
income unless the acquisition of such debt securities is debt financed within
the meaning of section 514(c) of the Internal Revenue Code.
TAXATION OF HOLDERS OF DEBT SECURITIES AND POTENTIAL TAX CONSEQUENCES OF THEIR
INVESTMENT IN THE DEBT SECURITIES
Stated interest and market discount. Holders of debt securities will be
required to include stated interest on the debt securities in gross income for
federal income tax purposes in accordance with their methods of accounting for
tax purposes. Purchasers of debt securities should be aware that the holding and
disposition of debt securities may be affected by the market discount provisions
of the Internal Revenue Code. These rules generally provide that if a holder of
a debt instrument purchases it at a market discount and thereafter recognizes
gain on a disposition of the debt instrument, including a gift or payment on
maturity, the lesser of such gain or appreciation, in the case of a gift, and
the portion of the market discount that accrued while the debt instrument was
held by such holder will be treated as ordinary interest income at the time of
the disposition. For this purpose, a purchase at a market discount includes a
purchase after original issuance at a price below the debt instrument's stated
principal amount. The market discount rules also provide that a holder who
acquires a debt instrument at a market discount and who does not elect to
include such market discount in income on a current basis may be required to
defer a portion of any interest expense that may otherwise be deductible on any
indebtedness incurred or maintained to purchase or carry such debt instrument
until the holder disposes of the debt instrument in a taxable transaction.
A holder of a debt instrument acquired at a market discount may elect to
include the market discount in income as the discount thereon accrues, either on
a straight line basis or, if elected, on a constant interest rate basis. The
current inclusion election, once made, applies to all market discount
obligations acquired by such holder on or after the first day of the first
taxable year to which the election applies and may not be revoked without the
consent of the Securities and Exchange Commission or the Internal Revenue
Service. If a holder of a debt security elects to include market discount in
income in accordance
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with the preceding sentence, the foregoing rules with respect to the recognition
of ordinary income on a sale or particular other dispositions of such debt
security and the deferral of interest deductions on indebtedness related to such
debt security would not apply.
Amortizable bond premium. Generally, if the tax basis of an obligation
held as a capital asset exceeds the amount payable at maturity of the
obligation, such excess may constitute amortizable bond premium that the holder
may elect to amortize under the constant interest rate method and deduct the
amortized premium over the period from the holder's acquisition date to the
obligation's maturity date. A holder who elects to amortize bond premium must
reduce the tax basis in the related obligation by the amount of the aggregate
deductions allowable for amortizable bond premium.
The amortizable bond premium deduction is treated as an offset to interest
income on the related security for federal income tax purposes. Each prospective
purchaser is urged to consult his tax advisor as to the consequences of the
treatment of such premium as an offset to interest income for federal income tax
purposes.
Disposition. In general, a holder of a debt security will recognize gain
or loss upon the sale, exchange, redemption, payment upon maturity or other
taxable disposition of the debt security. The gain or loss is measured by the
difference between (a) the amount of cash and the fair market value of property
received and (b) the holder's tax basis in the debt security as increased by any
market discount previously included in income by the holder and decreased by any
amortizable bond premium deducted over the term of the debt security. However,
the amount of cash and the fair market value received excludes cash or other
property attributable to the payment of accrued interest not previously included
in income, which amount will be taxable as ordinary income. Subject to the
market discount and amortizable bond premium rules above, any such gain or loss
will generally be long-term capital gain or loss, provided the debt security was
a capital asset in the hands of the holder and had been held for more than one
year.
BACKUP WITHHOLDING ON SECURITIES
Under the backup withholding rules, a domestic holder of securities may be
subject to backup withholding at the rate of 31% with respect to interest or
dividends paid on, and gross proceeds from the sale of, the securities unless
such holder (a) is a corporation or comes within other specific exempt
categories and, when required, demonstrates this fact or (b) provides a correct
taxpayer identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A holder of securities who does not provide us with his
current taxpayer identification number may be subject to penalties imposed by
the Commissioner of the Internal Revenue Service. Any amount paid as backup
withholding will be creditable against the holder's income tax liability.
We will report to holders of securities and the Internal Revenue Service
the amount of any interest or dividends paid and any amount withheld with
respect to the securities during the calendar year.
OTHER TAX CONSIDERATIONS
Effect of tax status of Summit Properties Partnership, L.P. on real estate
investment trust qualification. Substantially all of our investments are
through Summit Properties Partnership, L.P. Summit Properties Partnership, L.P.
may involve special tax considerations. Such considerations include
-- the allocations of income and expense items of Summit Properties
Partnership, L.P., which could affect the computation of our taxable
income,
-- the status of Summit Properties Partnership, L.P. as a partnership
as opposed to an association taxable as a corporation for income tax
purposes, and
-- the taking of actions by Summit Properties Partnership, L.P. that
could adversely affect our qualifications as a real estate
investment trust.
In addition, Summit Properties Partnership, L.P. owns properties through
subsidiary partnerships. These partnerships have been structured in a manner
that is intended to qualify them for taxation as partnerships for federal income
tax purposes. If Summit Properties Partnership, L.P. or any other
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<PAGE> 50
partnership in which Summit Properties Partnership, L.P. has an interest were
treated as an association taxable as a corporation, we would fail to qualify as
a real estate investment trust for a number of reasons.
Tax allocations with respect to the properties. When property is
contributed to a partnership in exchange for an interest in the partnership, the
partnership generally takes a carryover basis in that property for tax purposes
equal to the adjusted basis of the contributing partner in the property, rather
than a basis equal to the fair market value of the property at the time of
contribution. Pursuant to section 704(c) of the Internal Revenue Code, income,
gain, loss and deduction attributable to such contributed property must be
allocated in a manner such that the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. The amount of such unrealized
gain or unrealized loss is generally equal to the difference between the fair
market value of the contributed property at the time of contribution and the
adjusted tax basis of such property at the time of contribution. We will refer
to this allocation as the "book-tax difference." Such allocations are solely for
federal income tax purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners.
Summit Properties Partnership, L.P. was formed by way of contributions of
appreciated property, including some of the multifamily apartment communities or
interests therein. Consequently, Summit Properties Partnership, L.P.'s
partnership agreement requires tax allocations to be made in a manner consistent
with section 704(c) of the Internal Revenue Code. The Treasury regulations under
section 704(c) of the Internal Revenue Code provide partnerships with a choice
of several methods of accounting for book-tax differences for property
contributed on or after December 21, 1993, including the retention of the
traditional method that was available under prior law or the election of
particular alternative methods. Summit Properties Partnership, L.P. has
generally elected the traditional method of section 704(c) allocations. Under
the traditional method, which is the least favorable method from our
perspective, the carryover basis of contributed interests in the multifamily
apartment communities in the hands of Summit Properties Partnership, L.P. could
cause us (a) to be allocated lower amounts of depreciation deductions for tax
purposes than would be allocated to us if all our communities were to have a tax
basis equal to their fair market value at the time of the contribution and (b)
to be allocated taxable gain in the event of a sale of such contributed
interests in our communities in excess of the economic or book income allocated
to us as a result of such sale, with a corresponding benefit to the other
partners in Summit Properties Partnership, L.P. These allocations possibly could
cause us to recognize taxable income in excess of cash proceeds, which might
adversely affect our ability to comply with real estate investment trust
distribution requirements. However, we do not anticipate that this adverse
effect will occur.
Interests in the multifamily apartment communities purchased by Summit
Properties Partnership, L.P., other than in exchange for interests in Summit
Properties Partnership, L.P., simultaneously with or subsequent to our admission
to Summit Properties Partnership, L.P. acquired an initial tax basis equal to
their fair market value. Thus, section 704(c) of the Internal Revenue Code will
not apply to such interests.
Management and construction companies. A portion of the amounts to be used
to fund distributions to stockholders is expected to come from the management
company and, indirectly, the construction company through dividends on stock of
these companies held, directly or indirectly, by Summit Properties Partnership,
L.P. and interest on the debt securities of these companies held, directly or
indirectly, by Summit Properties Partnership, L.P. In general, the management
and construction companies conduct activities, such as property management for
third parties and in-house construction operations, that generate nonqualifying
income for purposes of the real estate investment trust income tests described
above. The management and construction companies will not qualify as real estate
investment trusts and will pay federal, state and local income taxes on their
taxable incomes at normal corporate rates. We anticipate that, initially,
deductions for interest and amortization will largely offset the otherwise
taxable income of the management or construction companies owned, directly or
indirectly, by Summit Properties Partnership, L.P., but there can be no
assurance that this will be the case or that the Internal Revenue Service will
not challenge such deductions. Moreover, such deductions may not be available
for any additional management and construction companies owned by Summit
Properties Partnership, L.P., if any,
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<PAGE> 51
established by us. Any federal, state or local income taxes that the management
and construction companies owned, directly or indirectly, by Summit Properties
Partnership, L.P. are required to pay will reduce the cash available for
distribution by us to our stockholders.
As described above, the value of the equity and debt securities of the
management company held by us cannot exceed 5% of the value of our assets at a
time when a holder of common units in Summit Properties Partnership, L.P.
exercises his redemption right or we otherwise are considered to acquire
additional securities of the management company owned by Summit Properties
Partnership, L.P. See "Federal Income Tax Considerations and Consequences of
Your Investment -- Requirements for qualification" above. This limitation may
restrict the ability of the management company, and indirectly the construction
company, owned by Summit Properties Partnership, L.P. to increase the size of
its business unless the value of our assets is increasing at a commensurate
rate.
SPECIAL TAX CONSIDERATIONS OF NON-UNITED STATES STOCKHOLDERS AND POTENTIAL TAX
CONSEQUENCES OF THEIR INVESTMENT IN THE SECURITIES
The rules governing federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
stockholders are complex and no attempt will be made herein to provide more than
a summary of such rules. IF YOU ARE A PROSPECTIVE NON-UNITED STATES STOCKHOLDER,
YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISORS TO DETERMINE THE IMPACT OF
FEDERAL, STATE AND LOCAL INCOME TAX LAWS WITH REGARD TO AN INVESTMENT BY YOU IN
THE SECURITIES, INCLUDING ANY REPORTING REQUIREMENTS.
Distributions not attributable to gain from the sale or exchange of a
United States real property interest. Distributions to non-United States
stockholders that are not attributable to gain from sales or exchanges by us of
United States real property interests and are not designated by us as capital
gains dividends will be treated as dividends of ordinary income to the extent
that they are made out of our current or accumulated earnings and profits. 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 common stock
or preferred stock is treated as effectively connected with the non-United
States stockholder's conduct of a United States trade or business, the
non-United States stockholder generally will be subject to federal income tax at
graduated rates, in the same manner as United States stockholders are taxed with
respect to such distributions. In the case of a non-United States stockholder
that is a non-United States corporation, the holder may also be subject to the
30% branch profits tax. Distributions in excess of our current and accumulated
earnings and profits will not be taxable to a stockholder to the extent that
such distributions do not exceed the adjusted basis of the stockholder's common
stock or preferred stock, but rather will reduce the adjusted basis of such
shares. To the extent that such distributions in excess of current and
accumulated earnings and profits exceed the adjusted basis of a non-United
States stockholder's shares of common stock or preferred stock, such
distributions will give rise to tax liability if the non-United States
stockholder otherwise would be subject to tax on any gain from the sale or
disposition of his common stock or preferred stock.
Distributions attributable to gain from the sale or exchange of a United
States real property interest. For any year in which we qualify as a real estate
investment trust, distributions that are attributable to gain from sales or
exchanges by us of United States real property interests will be taxed to a
non-United States stockholder under the provisions of the Foreign Investment in
Real Property Tax Act of 1980. Under the Real Property Tax Act, distributions
attributable to gain from sales of United States real property interests are
taxed to a non-United States stockholder as if such gain were effectively
connected with United States business. Non-United States stockholders thus would
be taxed at the normal capital gain rates applicable to United States
stockholders, subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals.
Distributions subject to the Real Property Tax Act also may be subject to a 30%
branch profits tax in the hands of a non-United States corporate stockholder not
entitled to treaty relief or exemption.
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Withholding obligations from distributions to foreign
stockholders. Although tax treaties may reduce our withholding obligations, we
generally will be required to withhold from distributions to non-United States
stockholders, and remit to the Internal Revenue Service, (a) 35% of designated
capital gain dividends, or, if greater, 35% of the amount of any distributions
that could be designated as capital gain dividends and (b) 30% of ordinary
dividends paid out of earnings and profits. In addition, if we designate prior
distributions as capital gain dividends, subsequent distributions, up to the
amount of such prior distributions, will be treated as capital gain dividends
for purposes of withholding. A distribution in excess of our earnings and
profits will be subject to 30% dividend withholding if at the time of the
distribution it cannot be determined whether the distribution will be in an
amount in excess of our current or accumulated earnings and profits. If the
amount of tax withheld by our Company with respect to a distribution to a
non-United States stockholder exceeds the stockholder's United States tax
liability with respect to such distribution, the non-United States stockholder
may file for a refund of such excess from the Internal Revenue Service.
Furthermore, the United States Treasury Department has issued final Treasury
regulations governing information reporting and certification procedures
regarding withholding and backup withholding on certain amounts paid to
non-United States stockholders. These withholding regulations, which will apply
to covered payments after December 31, 1999, may alter the procedure for
claiming the benefits of an income treaty.
Sales of common stock or preferred stock by a non-United States
stockholder. Gain recognized by a non-United States stockholder upon a sale of
his common stock or preferred stock generally will not be taxed under the
Foreign Investment in Real Property Tax Act of 1980 if we are a domestically
controlled real estate investment trust. A domestically controlled real estate
investment trust is defined generally as a real estate investment trust 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-United States persons. It is
currently anticipated that we will be a domestically controlled real estate
investment trust, and, therefore, sales of common stock or preferred stock will
not be subject to taxation under the Real Property Tax Act. However, because the
common stock will, and the preferred stock may, be traded publicly, we may not
continue to be a domestically controlled real estate investment trust.
Furthermore, gain not subject to the Real Property Tax Act will be taxable to a
non-United States stockholder if (a) investment in the common stock or preferred
stock is effectively connected with the non-United States stockholder's United
States trade or business, in which case the non-United States stockholder will
be subject to the same treatment as United States stockholders with respect to
such gain, or (b) the non-United States stockholder is a nonresident alien
individual who was present in the United States for 183 days or more during the
taxable year and 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 common stock or preferred stock were to be subject to
taxation under the Real Property Tax Act, the non-United States stockholder will
be subject to the same treatment as United States stockholders with respect to
such gain. The non-United States stockholder may, however, be 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-United States corporations. In addition, a
purchaser of common stock or preferred stock subject to taxation under the Real
Property Tax Act would generally be required to deduct and withhold a tax equal
to 10% of the amount realized on the disposition by a non-United States
stockholder. Any amount withheld would be creditable against the non-United
States stockholder's Foreign Investment in Real Property Tax Act of 1980 tax
liability. See "-- Withholding obligations from distributions to foreign
stockholders" of this section for a discussion of the withholding regulations.
STATE AND LOCAL TAX
Our company and its stockholders may be subject to state and local tax in
various states and localities, including those in which it or they transact
business, own property or reside. The tax treatment of our company and the
stockholders in such jurisdictions may differ from the federal income tax
treatment described above. Consequently, as a prospective investor, you should
consult your own tax advisors regarding the effect of state and local tax laws
on an investment in our securities.
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PLAN OF DISTRIBUTION
Summit Properties Inc. may sell preferred stock and common stock. Summit
Properties Partnership, L.P. may sell debt securities to or through one or more
underwriters or dealers for public offering and sale by or through them,
directly to one or more individual, institutional or other purchasers, through
agents or through a combination of any such methods of sale. Any such
underwritten offering may be on a best efforts or a firm commitment basis. We
may also make direct sales to investors through subscription rights distributed
to our stockholders on a pro rata basis, which may or may not be transferrable.
In connection with any distribution of subscription rights to stockholders, if
all of the underlying securities are not subscribed for, we may then sell the
unsubscribed securities directly to third parties or may engage the services of
one or more underwriters, dealers or agents, including standby underwriters, to
sell the unsubscribed securities to third parties.
The distribution of the securities may be effected from time to time in one
or more transactions (1) at a fixed price or prices, which may be changed, (2)
at market prices prevailing at the time of sale, (3) at prices related to such
prevailing market prices, or (4) at negotiated prices. Any of the prices may
represent a discount from the prevailing market prices.
In connection with the sale of the securities, underwriters or agents may
receive compensation from us or from purchasers of the securities, for whom they
may act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell the securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers and agents that participate in the distribution of
the securities may be deemed to be underwriters under the Securities Act of
1933, and any discounts or commissions they receive from us and any profit on
the resale of securities they realize may be deemed to be underwriting discounts
and commissions under the Securities Act. The applicable prospectus supplement
will, where applicable:
-- identify any such underwriter or agent;
-- describe any compensation in the form of discounts, concessions,
commissions or otherwise received from us by each such underwriter
or agent and in the aggregate to all underwriters and agents;
-- identify the amounts underwritten; and
-- identify the nature of the underwriter's obligation to take the
securities.
Unless otherwise specified in the related prospectus supplement, each
series of securities will be a new issue with no established trading market,
other than the common stock which is listed on the New York Stock Exchange. Any
common stock sold pursuant to a prospectus supplement will be listed on the New
York Stock Exchange, subject to official notice of issuance. We may elect to
list any series of debt securities or preferred stock, respectively, on an
exchange, but we are not obligated to do so. It is possible that one or more
underwriters may make a market in a series of securities, but such underwriters
will not be obligated to do so and may discontinue any market making at any time
without notice. Therefore, no assurance can be given as to the liquidity of, or
the trading market for, any series of debt securities or preferred stock.
Until the distribution of the securities is completed, rules of the
Securities and Exchange Commission may limit the ability of any underwriters and
selling group members to bid for and purchase the securities. As an exception to
these rules, underwriters are permitted to engage in some transactions that
stabilize the price of the securities. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
securities.
If any underwriters create a short position in the securities in connection
with an offering whereby they sell more securities than are set forth on the
cover page of the applicable prospectus supplement, the underwriters may reduce
that short position by purchasing the securities in the open market.
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The lead underwriters may also impose a penalty bid on other underwriters
and selling group members participating in an offering. This means that if the
lead underwriters purchase securities in the open market to reduce the
underwriters' short position or to stabilize the price of the securities, they
may reclaim the amount of any selling concession from the underwriters and
selling group members who sold those securities as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security before the distribution is completed.
We do not make any representation or prediction as to the direction or
magnitude of any effect that the transactions described above might have on the
price of the securities. In addition, we do not make any representation that
underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Under agreements into which we may enter, underwriters, dealers and agents
who participate in the distribution of the securities may be entitled to
indemnification by us against some liabilities, including liabilities under the
Securities Act.
Underwriters, dealers and agents may engage in transactions with us,
perform services for us or be our tenants in the ordinary course of business.
If so indicated in the applicable prospectus supplement, we will authorize
underwriters or other persons acting as our agents to solicit offers by
institutions to purchase the securities from us at the public offering price set
forth in such prospectus supplement pursuant to delayed delivery contracts
providing the payment and delivery on the date or dates stated in such
prospectus supplement. Institutions with which such contracts, when authorized,
may be made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions and others,
but in all cases we must approve such institutions. The obligations of any
purchaser under any such contracts will be subject to the condition that the
purchase of the securities shall not at the time of delivery be prohibited under
the laws of the jurisdiction to which such purchaser is subject. The
underwriters and such other agents will not have any responsibility in respect
of the validity or performance of such contracts.
If so indicated in the applicable prospectus supplement, we will authorize
underwriters or other persons acting as our agents to solicit offers by
particular institutions to purchase debt securities from Summit Properties
Partnership, L.P. at the public offering price set forth in such prospectus
supplement pursuant to delayed delivery contracts providing for payment and
delivery on the date or dates stated in such prospectus supplement. Each delayed
delivery contract will be for an amount no less than, and the aggregate
principal amounts of debt securities sold pursuant to delayed delivery contracts
shall be not less nor more than, the respective amounts stated in the applicable
prospectus supplement. Institutions with which such contracts, when authorized,
may be made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions and others,
but will in all cases be subject to our approval. The obligations of any
purchaser under any such contract will be subject to the conditions that (a) the
purchase of the debt securities shall not at the time of delivery be prohibited
under the laws of any jurisdiction in the United States to which such purchaser
is subject, and (b) if the debt securities are being sold to underwriters,
Summit Properties Partnership, L.P. shall have sold to such underwriters the
total principal amount of the debt securities less the principal amount thereof
covered by Summit Properties Partnership, L.P. contracts. The underwriters and
such other agents will not have any responsibility in respect of the validity or
performance of such contracts.
To comply with applicable state securities laws, the securities offered
hereby will be sold, if necessary, in such jurisdictions only through registered
or licensed brokers or dealers. In addition, securities may not be sold in some
states unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
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LEGAL MATTERS
Particular legal matters, including the legality of the securities, will be
passed upon for us by Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
EXPERTS
The financial statements and the related financial statement schedules
incorporated by reference in this prospectus from Summit Properties Inc.'s and
Summit Properties Partnership, L.P.'s Annual Reports on Form 10-K for the year
ended December 31, 1998 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, which are incorporated herein by
reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
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You should rely on the information incorporated by reference or contained
in this prospectus or any supplement. We have not authorized anyone else to
provide you with different or additional information. We are not making an offer
of these securities in any state where the offer is not permitted. You should
not assume that the information in this prospectus or any supplement is accurate
as of any date other than the date on the front of those documents.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk Factors........................... 2
About This Prospectus and
Where You Can Find More
Information.......................... 9
Summit Properties Inc. and
Summit Properties Partnership,
L.P.................................. 11
Use of Proceeds........................ 11
Ratios of Earnings to Fixed Charges.... 12
Description of Debt Securities......... 13
Description of Preferred Stock......... 26
Description of Common Stock............ 32
Limits on Ownership of Capital Stock... 34
Shareholder Rights Plan................ 36
Important Provisions of Maryland Law... 37
Federal Income Tax Considerations and
Consequences of Your Investment...... 39
Plan of Distribution................... 52
Legal Matters.......................... 54
Experts................................ 54
</TABLE>
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$250,000,000
SUMMIT PROPERTIES INC.
PREFERRED STOCK
COMMON STOCK
$250,000,000
SUMMIT PROPERTIES
PARTNERSHIP, L.P.
DEBT SECURITIES
-------------
PROSPECTUS
-------------
JULY , 1999
------------------------------------------------------
------------------------------------------------------
<PAGE> 57
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated fees and expenses payable by
Summit Properties Inc. and Summit Properties Partnership, L.P. in connection
with the issuance and distribution of the securities registered hereby. All
amounts are estimated except the registration fee.
<TABLE>
<S> <C>
Registration fee (net)...................................... $ 65,330
Printing and duplicating expenses........................... 200,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 80,000
Blue sky fees and expenses.................................. 25,000
Trustee fees................................................ 18,000
Miscellaneous............................................... 61,670
--------
Total............................................. $700,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The articles of incorporation and bylaws of Summit Properties Inc. limit
the liability of Summit Properties Inc.'s directors and officers. Summit
Properties Inc.'s articles of incorporation and bylaws require Summit Properties
Inc. to indemnify its directors, officers and, as authorized by the board of
directors, certain other parties to the fullest extent permitted from time to
time by Maryland law. Maryland law presently permits a corporation to indemnify
its directors, officers and certain other parties for judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding, except if it is established that (i) the
indemnified party actually received an improper personal benefit in money,
property or services, (ii) the act or omission of the indemnified party was
committed in bad faith or was the result of active and deliberate dishonesty and
was material to the matter giving rise to the proceeding, or (iii) in the case
of a criminal proceeding, the indemnified party had reasonable cause to believe
that the act or omission was unlawful. This provision does not limit the ability
of Summit Properties Inc. or Summit Properties Inc.'s stockholders to obtain
other relief, such as an injunction or rescission.
Summit Properties Partnership, L.P.'s partnership agreement limits the
liability of the general partner and its officers and directors for losses
sustained or liabilities incurred as a result of errors in judgment or of any
act or omission if the general partner acted in good faith. The agreement also
requires Summit Properties Partnership, L.P. to indemnify the general partner
and its directors and officers and certain other parties to the fullest extent
permitted from time to time by Delaware law.
Pursuant to the authority granted in Summit Properties Inc.'s articles of
incorporation and bylaws and Summit Properties Partnership, L.P.'s partnership
agreement, Summit Properties Inc. and Summit Properties Partnership, L.P. have
entered into indemnification agreements with Summit Properties Inc.'s directors
and executive officers. The indemnification agreements require, among other
matters, that Summit Properties Inc. and Summit Properties Partnership, L.P.
indemnify Summit Properties Inc.'s executive officers and directors to the
fullest extent permitted by law and advance to such officers and directors all
related expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. Summit Properties Inc. and Summit Properties
Partnership, L.P. must also indemnify and pay certain expenses incurred by such
officers and directors seeking to enforce their rights under the indemnification
agreements and, to the extent that Summit Properties Inc. maintains directors'
and officers' liability insurance, must cover such officers and directors under
such insurance policy. Although the form of indemnification agreement offers
substantially the same scope of coverage afforded by law, it provides assurance
to directors and officers that indemnification will be available, because, as a
contract, it cannot be modified unilaterally in the future by the board of
directors or the stockholders to eliminate the rights it provides.
II-1
<PAGE> 58
ITEM 16. EXHIBITS
<TABLE>
<C> <C> <S>
4.1 -- Amended and Restated Articles of Incorporation of Summit
Properties Inc. (incorporated herein by reference to Exhibit
3.1 to Summit Properties Inc.'s Registration Statement on
Form S-11, Registration No. 33-90706).
4.2 -- Bylaws of Summit Properties Inc. (incorporated herein by
reference to Exhibit 3.2 to Summit Properties Inc.'s
Registration Statement on Form S-11, Registration No.
33-90706).
4.3 -- Shareholder Rights Agreement, dated as of December 14, 1998,
between Summit Properties Inc. and First Union National
Bank, as Rights Agent (incorporated herein by reference to
Exhibit 4.1 to Summit Properties Inc.'s Registration
Statement on Form 8-A, filed on December 16, 1998).
4.4 -- Articles Supplementary to Amended and Restated Articles of
Incorporation of Summit Properties Inc. designating 8.95%
Series B Cumulative Redeemable Perpetual Preferred Stock
(incorporated herein by reference to Exhibit 3.1 to Summit
Properties Inc.'s Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1999, File No. 001-12792).
4.5 -- Agreement of Limited Partnership of Summit Properties
Partnership, L.P., as amended (incorporated herein by
reference to Exhibit 3.1 to Summit Properties Partnership,
L.P.'s Registration Statement on Form 10, dated April 21,
1997, File No. 000-22411).
4.6 -- Tenth Amendment to Agreement of Limited Partnership of
Summit Properties Partnership, L.P. (incorporated herein by
reference to Exhibit 10.1 to Summit Properties Partnership,
L.P.'s Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1997, File No. 001-12792).
4.7 -- Eleventh Amendment to Agreement of Limited Partnership of
Summit Properties Partnership, L.P. (incorporated herein by
reference to Exhibit 3.1 to Summit Properties Partnership,
L.P.'s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1998, File No. 000-22411).
4.8 -- Twelfth Amendment to Agreement of Limited Partnership of
Summit Properties Partnership, L.P. (incorporated herein by
reference to Exhibit 3.1 to Summit Properties Partnership,
L.P.'s Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1998, File No. 000-22411).
4.9 -- Thirteenth Amendment to Agreement of Limited Partnership of
Summit Properties Partnership, L.P. (incorporated herein by
reference to Exhibit 3.1 to Summit Properties Inc.'s Current
Report on Form 8-K filed on November 13, 1998, File No.
001-12792).
4.10 -- Fourteenth Amendment to Agreement of Limited Partnership of
Summit Properties Partnership, L.P. (incorporated herein by
reference to Exhibit 3.1 to Summit Properties Partnership,
L.P.'s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1999, File No. 000-22411).
4.11 -- Fifteenth Amendment to Agreement of Limited Partnership of
Summit Properties Partnership, L.P. (incorporated herein by
reference to Exhibit 3.2 to Summit Properties Partnership,
L.P.'s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1999, File No. 000-22411).
4.12 -- Sixteenth Amendment to Agreement of Limited Partnership of
Summit Properties Partnership, L.P. (incorporated herein by
reference to Exhibit 3.3 to Summit Properties Partnership,
L.P.'s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1999, File No. 000-22411).
4.13 -- Indenture dated as of August 7, 1997 between Summit
Properties Partnership, L.P. and First Union National Bank
(incorporated herein by reference to Exhibit 4.1 to Summit
Properties Partnership, L.P.'s Current Report on Form 8-K
filed on August 11, 1997, File No. 000-22411).
</TABLE>
II-2
<PAGE> 59
<TABLE>
<C> <C> <S>
4.14 -- Supplemental Indenture No. 1, dated as of August 12, 1997,
between Summit Properties Partnership, L.P. and First Union
National Bank (incorporated herein by reference to Exhibit
4.1 to Summit Properties Partnership, L.P.'s Amended Current
Report on Form 8-K/A-1 filed on August 18, 1997, File No.
000-22411).
4.15 -- Supplemental Indenture No. 2, dated as of December 17, 1997,
between Summit Properties Partnership, L.P. and First Union
National Bank (incorporated herein by reference to Exhibit
4.1 to Summit Properties Partnership, L.P.'s Amended Current
Report on Form 8-K/A-1 filed on December 17, 1997, File No.
000-22411).
4.16 -- Supplemental Indenture No. 3, dated as of May 29, 1998,
between Summit Properties Partnership, L.P. and First Union
National Bank (incorporated herein by reference to Exhibit
4.2 to Summit Properties Partnership, L.P.'s Current Report
on Form 8-K filed on June 2, 1998, File No. 000-22411).
4.17 -- Form of Senior Debt Security (included in Exhibit 4.13).
4.18 -- Indenture for Subordinated Debt Securities (incorporated
herein by reference to Exhibit 4.5 to Summit Properties
Inc.'s and Summit Properties Partnership, L.P.'s
Registration Statement on Form S-3 (File No. 333-25575)).
4.19 -- Form of Subordinated Debt Security (included in Exhibit
4.18).
*5.1 -- Opinion of Goodwin, Procter & Hoar LLP as to the legality of
the securities being registered.
*8.1 -- Opinion of Goodwin, Procter & Hoar LLP as to certain tax
matters.
*12.1 -- Calculation of Ratios of Earnings to Fixed Charges.
*23.1 -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of Goodwin, Procter & Hoar LLP (included as part of
Exhibits 5.1 and 8.1 hereto).
24.1 -- Powers of Attorney (included on signature pages of
Registration Statement).
*25.1 -- Statement of Eligibility and Qualification of Senior and
Subordinated Trustee under the Trust Indenture Act of 1939.
</TABLE>
- ---------------
* Filed herewith
ITEM 17. UNDERTAKINGS
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any acts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in "Calculation of Registration Fee"
table in the effective registration statement; and
(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;
II-3
<PAGE> 60
(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; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
respective registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act 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.
(c) The undersigned registrants hereby undertake to supplement the
prospectus, after the expiration of the subscription period, to set forth the
results of the subscription offer, the transactions by the underwriters during
the subscription period, the amount of unsubscribed securities to be purchased
by the underwriters, and the terms of any subsequent reoffering thereof. If any
public offering by the underwriters is to be made on terms differing from those
set forth on the cover page of the prospectus, a post-effective amendment will
be filed to set forth the terms of such offering.
(d) The undersigned registrants hereby undertake to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the provisions described under Item 15 above, or
otherwise, the registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the respective registrant of 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, such
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 Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(f) The undersigned registrants hereby undertake 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 Act.
II-4
<PAGE> 61
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrants
certify that they have reasonable grounds to believe that they meet all of the
requirements for filing on Form S-3 and have duly caused this Registration
Statement to be signed on their behalf by the undersigned, thereunto duly
authorized, in the City of Charlotte, State of North Carolina, on this 26th day
of July, 1999.
SUMMIT PROPERTIES INC.
By: /s/ WILLIAM F. PAULSEN
------------------------------------
William F. Paulsen
Chief Executive Officer
SUMMIT PROPERTIES PARTNERSHIP, L.P.
By: Summit Properties Inc., as General
Partner
By: /s/ WILLIAM F. PAULSEN
------------------------------------
William F. Paulsen
Chief Executive Officer
KNOW ALL BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints each of William B. McGuire, Jr. and William F.
Paulsen as such person's true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, for such person in such person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement (or any
Registration Statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933), and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that any said attorney-in-fact and agent, or any
substitute or substitutes of any of them, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person listed below has signed this
Registration Statement (a) in their capacity as an officer or director of Summit
Properties Inc. and (b) as an officer or director of Summit Properties Inc., in
its capacity as the general partner of Summit Properties Partnership, L.P.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM B. MCGUIRE, JR. Chairman of the Board of July 26, 1999
- ----------------------------------------------------- Directors
William B. McGuire, Jr.
/s/ WILLIAM F. PAULSEN Chief Executive Officer and July 26, 1999
- ----------------------------------------------------- Director (Principal Executive
William F. Paulsen Officer)
/s/ STEVEN R. LEBLANC President, Chief Operating July 26, 1999
- ----------------------------------------------------- Officer and Director
Steven R. LeBlanc
</TABLE>
II-5
<PAGE> 62
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MICHAEL L. SCHWARZ Executive Vice President and July 26, 1999
- ----------------------------------------------------- Chief Financial Officer
Michael L. Schwarz (Principal Financial Officer)
/s/ JAMES M. ALLWIN Director July 26, 1999
- -----------------------------------------------------
James M. Allwin
/s/ HENRY H. FISHKIND Director July 26, 1999
- -----------------------------------------------------
Henry H. Fishkind
/s/ JAMES H. HANCE, JR. Director July 26, 1999
- -----------------------------------------------------
James H. Hance, Jr.
/s/ NELSON SCHWAB III Director July 26, 1999
- -----------------------------------------------------
Nelson Schwab III
</TABLE>
II-6
<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
4.1 -- Amended and Restated Articles of Incorporation of Summit
Properties Inc. (incorporated herein by reference to Exhibit
3.1 to Summit Properties Inc.'s Registration Statement on
Form S-11, Registration No. 33-90706).
4.2 -- Bylaws of Summit Properties Inc. (incorporated herein by
reference to Exhibit 3.2 to Summit Properties Inc.'s
Registration Statement on Form S-11, Registration No.
33-90706).
4.3 -- Shareholder Rights Agreement, dated as of December 14, 1998,
between Summit Properties Inc. and First Union National
Bank, as Rights Agent (incorporated herein by reference to
Exhibit 4.1 to Summit Properties Inc.'s Registration
Statement on Form 8-A, filed on December 16, 1998).
4.4 -- Articles Supplementary to Amended and Restated Articles of
Incorporation of Summit Properties Inc. designating 8.95%
Series B Cumulative Redeemable Perpetual Preferred Stock
(incorporated herein by reference to Exhibit 3.1 to Summit
Properties Inc.'s Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1999, File No. 001-12792).
4.5 -- Agreement of Limited Partnership of Summit Properties
Partnership, L.P., as amended (incorporated herein by
reference to Exhibit 3.1 to Summit Properties Partnership,
L.P.'s Registration Statement on Form 10, dated April 21,
1997, File No. 000-22411).
4.6 -- Tenth Amendment to Agreement of Limited Partnership of
Summit Properties Partnership, L.P. (incorporated herein by
reference to Exhibit 10.1 to Summit Properties Partnership,
L.P.'s Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1997, File No. 001-12792).
4.7 -- Eleventh Amendment to Agreement of Limited Partnership of
Summit Properties Partnership, L.P. (incorporated herein by
reference to Exhibit 3.1 to Summit Properties Partnership,
L.P.'s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1998, File No. 000-22411).
4.8 -- Twelfth Amendment to Agreement of Limited Partnership of
Summit Properties Partnership, L.P. (incorporated herein by
reference to Exhibit 3.1 to Summit Properties Partnership,
L.P.'s Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1998, File No. 000-22411).
4.9 -- Thirteenth Amendment to Agreement of Limited Partnership of
Summit Properties Partnership, L.P. (incorporated herein by
reference to Exhibit 3.1 to Summit Properties Inc.'s Current
Report on Form 8-K filed on November 13, 1998, File No.
001-12792).
4.10 -- Fourteenth Amendment to Agreement of Limited Partnership of
Summit Properties Partnership, L.P. (incorporated herein by
reference to Exhibit 3.1 to Summit Properties Partnership,
L.P.'s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1999, File No. 000-22411).
4.11 -- Fifteenth Amendment to Agreement of Limited Partnership of
Summit Properties Partnership, L.P. (incorporated herein by
reference to Exhibit 3.2 to Summit Properties Partnership,
L.P.'s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1999, File No. 000-22411).
4.12 -- Sixteenth Amendment to Agreement of Limited Partnership of
Summit Properties Partnership, L.P. (incorporated herein by
reference to Exhibit 3.3 to Summit Properties Partnership,
L.P.'s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1999, File No. 000-22411).
4.13 -- Indenture dated as of August 7, 1997 between Summit
Properties Partnership, L.P. and First Union National Bank
(incorporated herein by reference to Exhibit 4.1 to Summit
Properties Partnership, L.P.'s Current Report on Form 8-K
filed on August 11, 1997, File No. 000-22411).
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
4.14 -- Supplemental Indenture No. 1, dated as of August 12, 1997,
between Summit Properties Partnership, L.P. and First Union
National Bank (incorporated herein by reference to Exhibit
4.1 to Summit Properties Partnership, L.P.'s Amended Current
Report on Form 8-K/A-1 filed on August 18, 1997, File No.
000-22411).
4.15 -- Supplemental Indenture No. 2, dated as of December 17, 1997,
between Summit Properties Partnership, L.P. and First Union
National Bank (incorporated herein by reference to Exhibit
4.1 to Summit Properties Partnership, L.P.'s Amended Current
Report on Form 8-K/A-1 filed on December 17, 1997, File No.
000-22411).
4.16 -- Supplemental Indenture No. 3, dated as of May 29, 1998,
between Summit Properties Partnership, L.P. and First Union
National Bank (incorporated herein by reference to Exhibit
4.2 to Summit Properties Partnership, L.P.'s Current Report
on Form 8-K filed on June 2, 1998, File No. 000-22411).
4.17 -- Form of Senior Debt Security (included in Exhibit 4.13).
4.18 -- Indenture for Subordinated Debt Securities (incorporated
herein by reference to Exhibit 4.5 to Summit Properties
Inc.'s and Summit Properties Partnership, L.P.'s
Registration Statement on Form S-3 (File No. 333-25575)).
4.19 -- Form of Subordinated Debt Security (included in Exhibit
4.18).
*5.1 -- Opinion of Goodwin, Procter & Hoar LLP as to the legality of
the securities being registered.
*8.1 -- Opinion of Goodwin, Procter & Hoar LLP as to certain tax
matters.
*12.1 -- Calculation of Ratios of Earnings to Fixed Charges.
*23.1 -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of Goodwin, Procter & Hoar LLP (included as part of
Exhibits 5.1 and 8.1 hereto).
24.1 -- Powers of Attorney (included on signature pages of
Registration Statement).
*25.1 -- Statement of Eligibility and Qualification of Senior and
Subordinated Trustee under the Trust Indenture Act of 1939.
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1
EXHIBIT 5.1
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
July 26, 1999
Summit Properties Inc.
Summit Properties Partnership, L.P.
212 South Tryon Street, Suite 500
Charlotte, North Carolina 28281
Re: Legality of Securities to be Registered Under
Registration Statement on Form S-3
Ladies and Gentlemen:
This opinion is furnished in connection with the registration statement
on Form S-3 (the "Registration Statement") pursuant to the Securities Act of
1933, as amended (the "Securities Act"), relating to an indeterminate amount of
(i) shares of common stock, par value $.01 per share ("Common Stock"), and
shares of preferred stock, par value $.01 per share ("Preferred Stock"), of
Summit Properties Inc., a Maryland corporation (the "Company"), with an
aggregate public offering price of up to $250,000,000 and (ii) debt securities
(the "Debt Securities") of Summit Properties Partnership, L.P., a Delaware
limited partnership (the "Operating Partnership"), with an aggregate public
offering price of up to $250,000,000 (such securities being referred to
collectively as the "Securities"). The Registration Statement provides that the
Securities may be offered separately or together, in separate series, in
amounts, at prices and on terms to be set forth in one or more prospectus
supplements (each a "Prospectus Supplement") to the Prospectus contained in the
Registration Statement.
In connection with rendering this opinion, we have examined (i) the
Amended and Restated Articles of Incorporation of the Company, as amended to the
date hereof and on file with the Maryland State Department of Assessments and
Taxation, (ii) the Bylaws of the Company, as amended to the date hereof, (iii)
the Agreement of Limited Partnership of the Operating Partnership, as amended to
the date hereof, (iv) such records of the corporate and partnership proceedings
of the Company and the Operating Partnership, respectively, as we deemed
material, (v) the Registration Statement and the exhibits thereto, and (vi) such
other certificates, receipts, records and documents as we considered necessary
for the purposes of this opinion. In our examination, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as certified, photostatic or
facsimile copies, the authenticity of the originals of such copies and the
authenticity
<PAGE> 2
Summit Properties Inc.
Summit Properties Partnership, L.P.
July 26, 1999
Page 2
of telephonic confirmations of public officials and others. As to facts material
to our opinion, we have relied upon certificates or telephonic confirmations of
public officials and certificates, documents, statements and other information
of the Company or the Operating Partnership or respective representatives or
officers thereof.
We are attorneys admitted to practice in The Commonwealth of
Massachusetts. We express no opinion concerning the laws of any jurisdictions
other than the laws of the United States of America and The Commonwealth of
Massachusetts, the Maryland General Corporation Law and the Delaware Revised
Uniform Limited Partnership Act, and also express no opinion with respect to the
blue sky or securities laws of any state, including Massachusetts, Maryland and
Delaware.
Based upon the foregoing, we are of the opinion that:
(1) Under the Maryland General Corporation Law, pursuant to which the
Company was incorporated, when specifically authorized for issuance by the
Company's Board of Directors or an authorized committee thereof (the "Board
Authorization") and when issued as described in the Registration Statement and a
Prospectus Supplement that is consistent with the Board Authorization, and upon
receipt by the Company of the consideration provided for in the Board
Authorization (which consideration is not less than the $.01 par value per
share), the Common Stock and the Preferred Stock covered by the Registration
Statement will be legally issued, fully paid and nonassessable.
(2) Under the Delaware Revised Uniform Limited Partnership Act,
pursuant to which the Operating Partnership was formed, when specifically
authorized for issuance by the general partner of the Operating Partnership (the
"General Partner Authorization") and when issued as described in the
Registration Statement and a Prospectus Supplement that is consistent with the
General Partner Authorization, upon execution and authentication of the Debt
Securities as provided in the relevant indentures, and upon receipt by the
Operating Partnership of the consideration provided for in the General Partner
Authorization, the Debt Securities will be binding obligations of the Operating
Partnership, enforceable in accordance with their terms, except that (i)
enforcement of the rights and remedies created thereby may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and by equitable principles which may limit the right to obtain the remedy of
specific performance or other injunctive relief and (ii) we express no opinion
as to the legality, validity or binding nature of any choice of law provision.
<PAGE> 3
Summit Properties Inc.
Summit Properties Partnership, L.P.
July 26, 1999
Page 3
The foregoing assumes that all requisite steps will be taken to comply
with the requirements of the Securities Act and applicable requirements of state
laws regulating the offer and sale of securities.
We hereby consent to being named as counsel to the Company and the
Operating Partnership in the Registration Statement, to the reference therein to
our firm under the caption "Legal Matters" and to the inclusion of this opinion
as an exhibit to the Registration Statement. In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE> 1
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
July 26, 1999
Summit Properties Inc.
212 South Tryon Street, Suite 500
Charlotte, NC 21281
Re: Certain Federal Income Tax Matters
Ladies and Gentlemen:
This opinion is delivered to you in our capacity as counsel to Summit
Properties Inc., a Maryland corporation (the "Company"), in connection with the
registration statement on Form S-3 (the "Registration Statement") pursuant to
the Securities Act of 1933, as amended, relating to an indeterminate amount of
(i) shares of common stock, par value $.01 per share, and shares of preferred
stock, par value $.01 per share, of the Company with an aggregate public
offering price of up to $250,000,000 and (ii) debt securities of Summit
Properties Partnership, L.P., a Delaware limited partnership (the "Operating
Partnership"), with an aggregate public offering price of up to $250,000,000
(collectively, the "Securities"). The Registration Statement provides that the
Securities may be offered separately or together, in separate series, in
amounts, at prices and on terms to be set forth in one or more prospectus
supplements to the Prospectus contained in the Registration Statement. This
opinion relates to the Company's qualification for federal income tax purposes
as a real estate investment trust (a "REIT") under the Internal Revenue Code of
1986, as amended (the "Code"), and the accuracy of the statements set forth
under the heading "Federal Income Tax Considerations and Consequences of Your
Investment" in the Prospectus.
In rendering the following opinions, we have reviewed the Prospectus
and the descriptions set forth therein of the Company and its current and
proposed investments and activities. We have also examined the Articles of
Incorporation and Bylaws of the Company, each as amended, the Company's federal
income tax returns for each of its taxable years ended December 1994, December
1995, December 1996, and December 1997, as filed on Forms 1120-REIT, and such
other records, certificates and documents as we have deemed necessary or
appropriate for purposes of rendering the opinions set forth herein. The
foregoing documents, including the Prospectus, are referred to herein as the
"Documents."
We have relied upon the representations of individuals who are senior
officers of the Company, the Operating Partnership, and Summit Management
Company regarding the manner in which the Company has been and will continue to
be owned and operated and with
<PAGE> 2
Summit Properties Inc.
July 26, 1999
Page 2
respect to the Company's continued compliance with the asset composition, source
of income, shareholder diversification, distribution, and other requirements of
the Code necessary for a corporation to qualify as a REIT. We also have relied
upon the statements contained in the Documents regarding the operation and
ownership of the Company, the Operating Partnership, Summit Management Company,
and their affiliates. We have neither independently investigated nor verified
such representations or statements, and we assume that such representations and
statements are true, correct, and complete and that all representations and
statements made "to the best knowledge and belief" of any person(s) or parties
or with similar qualification are and will be true, correct, and complete as if
made without such qualification. We assume that the Company has been and will be
operated in accordance with applicable laws and the terms and conditions of
applicable documents, and that the descriptions of the Company and its
investments, and the proposed investments, activities, operations and governance
of the Company set forth in the Prospectus and in all prior registration
statements filed with the Securities and Exchange Commission continue to be
true. In addition, we have relied on certain additional facts and assumptions
described below.
In rendering the opinions set forth herein, we have assumed (i) the
genuineness of all signatures on documents we have examined, (ii) the
authenticity of all documents submitted to us as originals, (iii) the conformity
to the original documents of all documents submitted to us as copies, (iv) the
conformity of final documents to all documents submitted to us as drafts, (v)
the authority and capacity of the individual or individuals who executed any
such documents on behalf of any person, (vi) the accuracy and completeness of
all records made available to us, and (vii) the factual accuracy of all
representations, warranties and other statements made by all parties. We have
also assumed, without investigation, that all documents, certificates,
warranties and covenants on which we have relied in rendering the opinion set
forth below and that were given or dated earlier than the date of this letter
continue to remain accurate, insofar as relevant to the opinions set forth
herein, from such earlier date through and including the date of this letter.
* * *
Based upon and subject to the foregoing, and provided that the Company
continues to meet the applicable asset composition, source of income,
shareholder diversification, distribution, and other requirements of the Code
necessary for a corporation to qualify as a REIT, we are of the opinion that:
1. For its taxable years ended December 31, 1994, through
December 31, 1998, the Company has been organized in
conformity with the requirements for
<PAGE> 3
Summit Properties Inc.
July 26, 1999
Page 3
qualification as a "real estate investment trust" under the
Code, and its method of operation has enabled it to and will
enable it to continue to meet the requirements for
qualification and taxation as a "real estate investment trust"
under the Code.
2. The statements set forth under the headings "Federal Income
Tax Considerations and Consequences of Your Investment" in the
Prospectus, to the extent such information constitutes matters
of law, summaries of legal matters, or legal conclusions, have
been reviewed by us and are accurate in all material respects.
* * *
We express no opinion herein other than the opinions expressly set
forth above. You should recognize that our opinions are not binding on the
Internal Revenue Service and that a court or the Internal Revenue Service may
disagree with the opinions contained herein. Although we believe that our
opinions would be sustained if challenged, there can be no assurance that this
will be the case. The discussion and conclusions set forth above are based upon
current provisions of the Code, the Income Tax Regulations and Procedure and
Administration Regulations promulgated thereunder, and existing administrative
and judicial interpretations thereof, all of which are subject to change.
Changes in applicable law could adversely affect our opinions.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE> 1
EXHIBIT 12.1
SUMMIT PROPERTIES INC.
CALCULATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income before minority interest and
extraordinary items .................... $66,475 $31,934 $21,187 $15,051 $ 8,527
Interest:
Expense incurred ....................... 32,550 20,902 16,113 13,715 13,006
Amortization of deferred financing costs 956 1,057 1,025 1,087 1,061
------- ------- ------- ------- -------
Total(1) ........................... $99,981 $53,893 $38,325 $29,853 $22,594
======= ======= ======= ======= =======
Fixed charges:
Interest expense ....................... $32,550 $20,902 $16,113 $13,715 $13,006
Interest capitalized ................... 6,143 5,876 4,266 3,110 686
Rental fixed charges ................... 133 115 124 134 124
Amortization of deferred financing costs 956 1,057 1,025 1,087 1,061
------- ------- ------- ------- -------
Total(2) ........................... $39,782 $27,950 $21,528 $18,046 $14,877
======= ======= ======= ======= =======
Ratio of earnings to fixed
charges (1 divided by 2) ............... 2.51x 1.93x 1.78x 1.65x 1.52x
======= ======= ======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Summit Properties Inc. and Summit Properties Partnership, L.P. on Form S-3 of
our reports dated January 21, 1999, appearing in the Annual Reports on Form
10-K of Summit Properties Inc. and Summit Properties Partnership, L.P. for the
year ended December 31, 1998 and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
July 22, 1999
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
----------
FIRST UNION NATIONAL BANK
(Exact name of trustee as specified in its charter)
United States National Bank 22-1147033
(State of incorporation if (I.R.S. employer
not a national bank) identification no.)
First Union National Bank
230 South Tryon Street, 9th Floor
Charlotte, North Carolina 28288-1179
(Address of principal (Zip Code)
executive offices)
Same as above
(Name, address and telephone number, including
area code, of trustee's agent for service)
Summit Properties Partnership, L.P.
(Exact name of obligor as specified in its charter)
State of Delaware
(State or other jurisdiction of incorporation or organization)
56-1857809
(I.R.S. employer identification no.)
Mr. William F. Paulsen
212 S. Tryon Street
Suite 500
Charlotte, NC 28281
(704)334-3000
(Address, including zip code, of principal executive offices)
--------------------
Senior & Subordinated Debt Securities
(Title of the indenture securities)
------------------------------------------------
<PAGE> 2
1. General information. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising authority to
which it is subject
-----------------------------------------------------------------
Name Address
------------------------------------------------------------------
Federal Reserve Bank of Richmond, Richmond, VA
Comptroller of the Currency Washington, D.C.
Securities and Exchange Commission
Division of Market Regulation Washington, D.C.
Federal Deposit Insurance Corporation Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with obligor and underwriters. If the obligor or any
underwriter for the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
(See Note 1 on Page 4.)
Because the obligor is not in default on any securities issued under indentures
under which the applicant is trustee, Items 3 through 15 are not required
herein.
16. List of Exhibits.
All exhibits identified below are filed as a part of this statement of
eligibility.
1. A copy of the Articles of Association of First Union National Bank as
now in effect, which contain the authority to commence business and a grant of
powers to exercise corporate trust powers.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the Articles of Association.
<PAGE> 3
3. A copy of the authorization of the trustee to exercise corporate trust
powers, if such authorization is not contained in the documents specified in
exhibits (1) or (2) above.
4. A copy of the existing By-laws of First Union National Bank, or instruments
corresponding thereto.
5. Inapplicable.
6. The consent of the trustee required by Section 321(b) of the Trust Indenture
Act of 1939 is included at Page 4 of this Form T-1 Statement.
7. A copy of the latest report of condition of the trustee published pursuant to
law or to the requirements of its supervising or examining authority is attached
hereto.
8. Inapplicable.
9. Inapplicable.
3
<PAGE> 4
NOTE
Note 1: Inasmuch as this Form T-1 is filed prior to the ascertainment
by the Trustee of all facts on which to base a responsive answer to Item 2, the
answer to said Item is based on incomplete information. Item 2 may, however, be
considered correct unless amended by an amendment to this Form T-1.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, First Union National Bank, a national association
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Charlotte, and State of North Carolina, on the 26th day of July, 1999.
FIRST UNION NATIONAL BANK
(trustee)
By: /s/ Shannon Schwartz
--------------------------
Its: Asst. Vice President
CONSENT OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939, as amended, and in
connection with the proposed issuance by Summit Properties Partnership, L.P.,
First Union National Bank as the trustee herein named, hereby consents
that reports of examinations of said Trustee by Federal, State, Territorial
or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon requests therefor.
FIRST UNION NATIONAL BANK
By: /s/ Shannon Schwartz
-------------------------------
Name: Shannon Schwartz
Title: Assistant Vice President
Dated: July 26, 1999
4
<PAGE> 5
Charter No. 22693
FIRST UNION NATIONAL BANK
ARTICLES OF ASSOCIATION
(as restated effective February 26, 1998)
For the purpose of organizing an Association to carry on the business of banking
under the laws of the United States, the undersigned do enter into the following
Articles of Association:
FIRST. The title of this Association shall be FIRST UNION NATIONAL BANK.
SECOND. The main office of the Association shall be in Charlotte, County of
Mecklenburg, State of North Carolina. The general business of the Association
shall be conducted at its main office and its branches.
THIRD. The Board of Directors of this Association shall consist of not less
than five nor more than twenty-five directors, the exact number of directors
within such minimum and maximum limits to be fixed and determined from time to
time by resolution of a majority of the full Board of Directors or by resolution
of the shareholders at any annual or special meeting thereof. Unless otherwise
provided by the laws of the United States, any vacancy in the Board of Directors
for any reason, including an increase in the number thereof, may be filled by
action of the Board of Directors.
FOURTH. The annual meeting of the shareholders for the election of directors
and the transaction of whatever other business may be brought before said
meeting shall be held at the main office or such other place as the Board of
Directors may designate, on the day of each year specified therefor in the
By-Laws, but if no election is held on that day, it may be held on any
subsequent day according to the provisions of law; and all elections shall be
held according to such lawful regulations as may be prescribed by the Board of
Directors.
Nominations for election to the Board of Directors may be made by the Board
of Directors or by any stockholder of any outstanding class of capital stock of
the bank entitled to vote for election of directors. Nominations, other than
those made by or on behalf of the existing management of the bank, shall be made
in writing and shall be delivered or mailed to the President of the bank and to
the Comptroller of the Currency, Washington, D.C., not less than 14 days nor
more than 50 days prior to any meeting of stockholders called for the election
of directors, provided, however, that if less than 21 days' notice of the
meeting is given to shareholders, such nomination shall be mailed or delivered
to the President of the Bank and
<PAGE> 6
to the Comptroller of the Currency not later than the close of business on the
seventh day following the day on which the notice of meeting was mailed. Such
notification shall contain the following information to the extent known to the
notifying shareholder: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of
shares of capital stock of the bank that will be voted for each proposed
nominee; (d) the name and residence address of the notifying shareholder; and
(e) the number of shares of capital stock of the bank owned by the notifying
shareholder. Nominations not made in accordance herewith may, in his discretion,
be disregarded by the Chairman of the meeting, and upon his instructions, the
vote tellers may disregard all votes cast for each such nominee.
FIFTH.
(a) General. The amount of capital stock of this Association shall be (I)
25,000,000 shares of common stock of the par value of twenty dollars ($20.00)
each (the "Common Stock") and (ii) 160,540 shares of preferred stock of the par
value of one dollar ($1. 00) each (the "Non-Cumulative Preferred Stock"),
having the rights, privileges and preferences set forth below, but said capital
stock may be increased or decreased from time to time in accordance with the
provisions of the laws of the United States.
(b) Terms of the Non-Cumulative Preferred Stock.
1. General. Each share of Non-Cumulative Preferred Stock shall be identical
in all respects with the other shares of Non-Cumulative Preferred Stock. The
authorized number of shares of Non-Cumulative Preferred Stock may from time
to time be increased or decreased (but not below the number then
outstanding) by the Board of Directors. Shares of Non-Cumulative Preferred
Stock redeemed by the Association shall be canceled and shall revert to
authorized but unissued shares of Non-Cumulative Preferred Stock.
2. Dividends.
(a) General. The holders of Non-Cumulative Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of
Directors, but only out of funds legally available therefor,
non-cumulative cash dividends at the annual rate of $83.75 per share,
and no more, payable quarterly on the first days of December, March,
June and September, respectively, in each year with respect to the
quarterly dividend period (or portion thereof) ending on the day
preceding such respective dividend payment date, to shareholders of
record on the respective date, not exceeding fifty days preceding such
dividend payment date, fixed for that purpose by the Board of Directors
in advance of payment of each particular dividend. Notwithstanding the
foregoing, the cash dividend to be paid on the first dividend payment
date after the
2
<PAGE> 7
initial issuance of Non-Cumulative Preferred Stock and on any dividend
payment date with respect to a partial dividend period shall be $83.75
per share multiplied by the fraction produced by dividing the number of
days since such initial issuance or in such partial dividend period, as
the case may be, by 360.
(b) Non-cumulative Dividends. Dividends on the shares of Non-cumulative
Stock shall not be cumulative and no rights shall accrue to the holders
of shares of Non-Cumulative Preferred Stock by reason of the fact that
the Association may fail to declare or pay dividends on the shares of
Non-Cumulative Preferred Stock in any amount in any quarterly dividend
period, whether or not the earnings of the Association in any quarterly
dividend period were sufficient to pay such dividends in whole or in
part, and the Association shall have no obligation at any time to pay
any such dividend.
(c) Payment of Dividends. So long as any share of Non-Cumulative
Preferred Stock remains outstanding, no dividend whatsoever shall be
paid or declared and no distribution made on any junior stock other
than a dividend payable in junior stock, and no shares of junior stock
shall be purchased, redeemed or otherwise acquired for consideration by
the Association, directly or indirectly (other than as a result of a
reclassification of junior stock, or the exchange or conversion of one
junior stock for or into another junior stock, or other than through
the use of the proceeds of a substantially contemporaneous sale of
other junior stock), unless all dividends on all shares of
non-cumulative Preferred Stock and non-cumulative Preferred Stock
ranking on a parity as to dividends with the shares of Non-Cumulative
Preferred Stock for the most recent dividend period ended prior to the
date of such payment or declaration shall have been paid in full and
all dividends on all shares of cumulative Preferred Stock ranking on a
parity as to dividends with the shares of Non-Cumulative Stock
(notwithstanding that dividends on such stock are cumulative) for all
past dividend periods shall have been paid in full. Subject to the
foregoing, and not otherwise, such dividends (payable in cash, stock or
otherwise) as may be determined by the Board of Directors may be
declared and paid on any junior stock from time to time out of any
funds legally available therefor, and the Non-Cumulative Preferred
Stock shall not be entitled to participate in any such dividends,
whether payable in cash, stock or otherwise. No dividends shall be paid
or declared upon any shares of any class or series of stock of the
Association ranking on a parity (whether dividends on such stock are
cumulative or non-cumulative) with the Non-Cumulative Preferred Stock
in the payment of dividends for any period unless at or prior to the
time of such payment or declaration all dividends payable on the
Non-cumulative Preferred Stock for the most recent dividend period
ended prior to the date of such payment or declaration shall have been
paid in full. When dividends are not paid in full, as aforesaid, upon
the Non-Cumulative Preferred Stock and any other series of Preferred
Stock ranking on a parity as to dividends (whether dividends on such
stock are
3
<PAGE> 8
cumulative or non-cumulative) with the Non-Cumulative Preferred Stock,
all dividends declared upon the Non-Cumulative Preferred Stock and any
other series of Preferred Stock ranking on a parity as to dividends
with the Non-Cumulative Preferred Stock shall be declared pro rata so
that the amount of dividends declared per share on the Non-cumulative
Preferred Stock and such other Preferred Stock shall in all cases bear
to each other the same ratio that accrued dividends per share on the
Non-Cumulative Preferred Stock (but without any accumulation in respect
of any unpaid dividends for prior dividend periods on the shares of
Non-Cumulative Stock) and such other Preferred Stock bear to each
other. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the
Non-Cumulative Preferred Stock which may be in arrears.
3. Voting. The holders of Non-Cumulative Preferred Stock shall not have
any right to vote for the election of directors or for any other
purpose.
4. Redemption.
(a) Optional Redemption. The Association, at the option of the Board of
Directors, may redeem the whole or any part of the shares of
Non-Cumulative Preferred Stock at the time outstanding, at any time or
from time to time after the fifth anniversary of the date of original
issuance of the Non-Cumulative Preferred Stock, upon notice given as
hereinafter specified, at the redemption price per share equal to
$1,000 plus an amount equal to the amount of accrued and unpaid
dividends from the immediately preceding dividend payment date (but
without any accumulation for unpaid dividends for prior dividend
periods on the shares of Non-Cumulative Preferred Stock) to the
redemption date.
(b) Procedures. Notice of every redemption of shares of Non-Cumulative
Preferred Stock shall be mailed by first class mail, postage prepaid,
addressed to the holders of record of the shares to be redeemed at
their respective last addresses as they shall appear on the books of
the Association. Such mailing shall be at least 10 days and not more
than 60 days prior to the date fixed for redemption. Any notice which
is mailed in the manner herein provided shall be conclusively presumed
to have been duly given, whether or not the shareholder receives such
notice, and failure duly to give such notice by mail, or any defect in
such notice, to any holder of shares of Non-Cumulative Preferred Stock
designated for redemption shall not affect the validity of the
proceedings for the redemption of any other shares of Non-Cumulative
Preferred Stock.
In case of redemption of a part only of the shares of Non-Cumulative
Preferred Stock at the time outstanding the redemption may be either
pro rata or by lot or by such other means as the Board of Directors of
the Association in its discretion shall determine.
4
<PAGE> 9
The Board of Directors shall have full power and authority, subject to
the provisions herein contained, to prescribe the terms and conditions
upon which shares of the Non-Cumulative Preferred Stock shall be
redeemed from time to time.
If notice of redemption shall have been duly given, and, if on or
before the redemption date specified therein, all funds necessary for
such redemption shall have been set aside by the Association, separate
and apart from its other funds, in trust for the pro rata benefit of
the holders of the shares called for redemption, so as to be and
continue to be available therefor, then, notwithstanding that any
certificate for shares so called for redemption shall not have been
surrendered for cancellation, all shares so called for redemption shall
no longer be deemed outstanding on and after such redemption date, and
all rights with respect to such shares shall forthwith on such
redemption date cease and terminate, except only the right of the
holders thereof to, receive the amount payable on redemption thereof,
without interest.
If such notice of redemption shall have been duly given or if the
Association shall have given to the bank or trust company hereinafter
referred to irrevocable authorization promptly to give such notice,
and, if on or before the redemption date specified therein, the funds
necessary for such redemption shall have been deposited by the
Association with such bank or trust company in trust for the pro rata
benefit of the holders of the shares called for redemption, then,
notwithstanding that any certificate for shares so called for
redemption shall not have been surrendered for cancellation, from and
after the time of such deposit, all shares so called for redemption
shall no longer be deemed to be outstanding and all rights with respect
to such shares shall forthwith cease and terminate, except only the
right of the holders thereof to receive from such bank or trust company
at any time after the time of such deposit the funds so deposited,
without interest. The aforesaid bank or trust company shall be
organized and in good standing under the laws of the United States of
America or any state thereof, shall have capital, surplus and undivided
profits aggregating at least $50,000,000 according to its last
published statement of condition, and shall be identified in the notice
of redemption. Any interest accrued on such funds shall be paid to the
Association from time to time. In case fewer than all the shares of
Non-Cumulative Preferred Stock represented by a stock certificate are
redeemed, a new certificate shall be issued representing the unredeemed
shares without cost to the holder thereof.
Any funds so set aside or deposited, as the case may be, and unclaimed
at the end of the relevant escheat period under applicable state law
from such redemption date shall, to the extent permitted by law, be
released or repaid to the Association, after which repayment the
holders of the shares so called for redemption shall look only to the
Association for payment thereof.
5
<PAGE> 10
5. Liquidation.
(a) Liquidation Preference. In the event of any voluntary liquidation,
dissolution or winding up of the affairs of the Association, the
holders of Non-cumulative Preferred Stock shall be entitled, before any
distribution or payment is made to the holders of any junior stock, to
be paid in full an amount per share equal to an amount equal to $1,000
plus an amount equal to the amount of accrued and unpaid dividends per
share from the immediately preceding dividend payment date (but without
any accumulation for unpaid dividends for prior dividend periods on the
shares of Non-cumulative Preferred Stock) per share to such
distribution or payment date (the "liquidation amount").
In the event of any involuntary liquidation, dissolution or winding up
of the affairs of the Association, then, before any distribution or
payment shall be made to the holders of any junior stock, the holders
of Non-Cumulative Preferred Stock shall be entitled to be paid in full
an amount per share equal to the liquidation amount.
If such payment shall have been made in full to all holders of shares
of Non-Cumulative Preferred Stock, the remaining assets of the
Association shall be distributed among the holders of junior stock,
according to their respective rights and preferences and in each case
according to their respective numbers of shares.
(b) Insufficient Assets. In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, the available
assets of the Association are insufficient to pay such liquidation
amount on all outstanding shares of Non-cumulative Preferred Stock,
then the holders of Non-Cumulative Preferred Stock shall share ratably
in any distribution of assets in proportion to the full amounts to
which they would otherwise be respectively entitled.
(c) Interpretation. For the purposes of this paragraph 5, the
consolidation or merger of the Association with any other corporation
or association shall not be deemed to constitute a liquidation,
dissolution or winding up of the Association.
6. Preemptive Rights. The Non-Cumulative Preferred Stock is not entitled
to any preemptive, subscription, conversion or exchange rights in
respect of any securities of the Association.
7. Definitions. As used herein with respect to the Non-Cumulative
Preferred Stock, the following terms shall have the following meanings:
(a) The term "junior stock" shall mean the Common Stock and any other
class or series of shares of the Association hereafter authorized over
which the Non-
6
<PAGE> 11
Cumulative Preferred Stock has preference or priority in the payment of
dividends or in the distribution of assets on any liquidation,
dissolution or winding up of the Association.
(b) The term "accrued dividends", with respect to any share of any
class or series, shall mean an amount computed at the annual dividend
rate for the class or series of which the particular share is a part,
from, if such share is cumulative, the date on which dividends on such
share became cumulative to and including the date to which such
dividends are to be accrued, less the aggregate amount of all dividends
theretofore paid thereon and, if such share is noncumulative, the
relevant date designated to and including the date to which such
dividends are accrued, less the aggregate amount of all dividends
theretofore paid with respect to such period.
(c) The term "Preferred Stock" shall mean all outstanding shares of all
series of preferred stock of the Association as defined in this Article
Fifth of the Articles of Association, as amended, of the Association.
8. Restriction on Transfer. No shares of Non-Cumulative Preferred Stock,
or any interest therein, may be sold, pledged, transferred or otherwise
disposed of without the prior written consent of the Association. The
foregoing restriction shall be stated on any certificate for any shares
of Non-Cumulative Preferred Stock.
9. Additional Rights. The shares of Non-Cumulative Preferred Stock shall
not have any relative, participating, optional or other special rights
and powers other than as set forth herein.
SIXTH. The Board of Directors shall appoint one of its members President of
this Association, who shall be Chairman of the Board, unless the Board appoints
another director to be the Chairman. The Board of Directors shall have the power
to appoint one or more Vice Presidents; and to appoint a cashier or such other
officers and employees as may be required to transact the business of this
Association.
The Board of Directors shall have the power to define the duties of the
officers and employees of the Association, to fix the salaries to be paid to
them; to dismiss them, to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of the
Association shall be made; to manage and administer the business and affairs of
the Association; to make all By-Laws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a Board of
Directors to do and perform.
SEVENTH. The Board of Directors shall have the power to change the location
of the main office to any other place within the limits of Charlotte, North
Carolina, without the approval of
7
<PAGE> 12
the shareholders but subject to the approval of the Comptroller of the Currency;
and shall have the power to establish or change the location of any branch or
branches of the Association to any other location, without the approval of the
shareholders but subject to the approval of the Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
NINTH. The Board of Directors of this Association, or any three or more
shareholders owning, in the aggregate, not less than 10 percent of the stock of
this Association, may call a special meeting of shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of the time,
place, and purpose of every annual and special meeting of the shareholders shall
be given by first-class mail, postage prepaid, mailed at least ten days prior to
the date of such meeting to each shareholder of record at his address as shown
upon the books of this Association.
TENTH. Each director and executive officer of this Association shall be
indemnified by the association against liability in any proceeding (including
without limitation a proceeding brought by or on behalf of the Association
itself) arising out of his status as such or his activities in either of the
foregoing capacities, except for any liability incurred on account of activities
which were at the time taken known or believed by such person to be clearly in
conflict with the best interests of the Association. Liabilities incurred by a
director or executive officer of the Association in defending a proceeding shall
be paid by the Association in advance of the final disposition of such
proceeding upon receipt of an undertaking by the director or executive officer
to repay such amount if it shall be determined, as provided in the last
paragraph of this Article Tenth, that he is not entitled to be indemnified by
the Association against such liabilities.
The indemnity against liability in the preceding paragraph of this Article
Tenth, including liabilities incurred in defending a proceeding, shall be
automatic and self-operative.
Any director, officer or employee of this Association who serves at the
request of the Association as a director, officer, employee or agent of a
charitable, not-for-profit, religious, educational or hospital corporation,
partnership, joint venture, trust or other enterprise, or a trade association,
or as a trustee or administrator under an employee benefit plan, or who serves
at the request of the Association as a director, officer or employee of a
business corporation in connection with the administration of an estate or trust
by the Association, shall have the right to be indemnified by the Association,
subject to the provisions set forth in the following paragraph of this Article
Tenth, against liabilities in any manner arising out of or attributable to such
status or activities in any such capacity, except for any liability incurred on
account of activities which were at the time taken known or believed by such
person to be clearly in conflict with the best interests of the Association, or
of the
8
<PAGE> 13
corporation, partnership, joint venture, trust, enterprise, Association or plan
being served by such person.
In the case of all persons except the directors and executive officers of
the Association, the determination of whether a person is entitled to
indemnification under the preceding paragraph of this Article Tenth shall be
made by and in the sole discretion of the Chief Executive Officer of the
Association. In the case of the directors and executive officers of the
Association, the indemnity against liability in the preceding paragraph of this
Article Tenth shall be automatic and self-operative.
For purposes of this Article Tenth of these Articles of Association only,
the following terms shall have the meanings indicated:
(a) "Association" means First Union National Bank and its direct and
indirect wholly-owned subsidiaries.
(b) "Director" means an individual who is or was a director of the
Association.
(c) "Executive officer" means an officer of the Association who by
resolution of the Board of Directors of the Association has been determined to
be an executive officer of the Association for purposes of Regulation O of the
Federal Reserve Board.
(d) "Liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonable expenses, including counsel fees and expenses,
incurred with respect to a proceeding.
(e) "Party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(f) "Proceeding" means any threatened, pending, or completed claim,
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
The Association shall have no obligation to indemnify any person for an
amount paid in settlement of a proceeding unless the Association consents in
writing to such settlement.
The right to indemnification herein provided for shall apply to persons who
are directors, officers, or employees of banks or other entities that are
hereafter merged or otherwise combined with the Association only after the
effective date of such merger or other combination and only as to their status
and activities after such date.
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<PAGE> 14
The right to indemnification herein provided for shall inure to the benefit
of the heirs and legal representatives of any person entitled to such right.
No revocation of, change in, or adoption of any resolution or provision in
the Articles of Association or By-laws of the Association inconsistent with,
this Article Tenth shall adversely affect the rights of any director, officer,
or employee of the Association with respect to (i) any proceeding commenced or
threatened prior to such revocation, change, or adoption, or (ii) any proceeding
arising out of any act or omission occurring prior to such revocation, change,
or adoption, in either case, without the written consent of such director,
officer, or employee.
The rights hereunder shall be in addition to and not exclusive of any other
rights to which a director, officer, or employee of the Association may be
entitled under any statute, agreement, insurance policy, or otherwise.
The Association shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, or employee of the
Association, or is or was serving at the request of the Association as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, trade association, employee benefit plan, or other enterprise,
against any liability asserted against such director, officer, or employee in
any such capacity, or arising out of their status as such, whether or not the
Association would have the power to indemnify such director, officer, or
employee against such liability, excluding insurance coverage for a formal order
assessing civil money penalties against an Association director or employee.
Notwithstanding anything to the contrary provided herein, no person shall
have a right to indemnification with respect to any liability (i) incurred in an
administrative proceeding or action instituted by an appropriate bank regulatory
agency which proceeding or action results in a final order assessing civil money
penalties or requiring affirmative action by an individual or individuals in the
form of payments to the Association, (ii) to the extent such person is entitled
to receive payment therefor under any insurance policy or from any corporation,
partnership, joint venture, trust, trade association, employee benefit plan, or
other enterprise other than the Association, or (iii) to the extent that a court
of competent jurisdiction determines that such indemnification is void or
prohibited under state or federal law.
ELEVENTH. These Articles of Association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this Association, unless the vote of holders of a
greater amount of stock is required by law, and in that case, by the vote of the
holders of such greater amount.
10
<PAGE> 15
BY-LAWS OF
FIRST UNION NATIONAL BANK
Charter No. 22693
As Restated Effective February 26, 1998
<PAGE> 16
BY-LAWS OF
FIRST UNION NATIONAL BANK
ARTICLE I
Meetings of Shareholders
Section 1.1 Annual Meeting. The annual meeting of the shareholders for
the election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on the third Tuesday of April in
each year, commencing with the year 1998, except that the Board of Directors
may, from time to time and upon passage of a resolution specifically setting
forth its reasons, set such other date for such meeting during the month of
April as the Board of Directors may deem necessary or appropriate; provided,
however, that if an annual meeting would otherwise fall on a legal holiday, then
such annual meeting shall be held on the second business day following such
legal holiday. The holders of a majority of the outstanding shares entitled to
vote which are represented at any meeting of the shareholders may choose persons
to act as Chairman and as Secretary of the meeting.
Section 1.2 Special Meetings. Except as otherwise specifically provided
by statute, special meetings of the shareholders may be called for any purpose
at any time by the Board of Directors or by any three or more shareholders
owning, in the aggregate, not less than ten percent of the stock of the
Association. Every such special meeting, unless otherwise provided by law, shall
be called by mailing, postage prepaid, not less than ten days prior to the date
fixed for such meeting, to each shareholder at his address appearing on the
books of the Association, a notice stating the purpose of the meeting.
Section 1.3 Nominations for Directors. Nominations for election to the
Board of Directors may be made by the Board of Directors or by any stockholder
of any outstanding class of capital stock of the bank entitled to vote for the
election of directors. Nominations, other than those made by or on behalf of the
existing management of the bank, shall be made in writing and shall be delivered
or mailed to the President of the Bank and to the Comptroller of the Currency,
Washington, D. C., not less than 14 days nor more than 50 days prior to any
meeting of stockholders called for the election of directors, provided however,
that if less than 21 days' notice of such meeting is given to shareholders, such
nomination shall be mailed or delivered to the President of the Bank and to the
Comptroller of the Currency not later than the close of business on the seventh
day following the day on which the notice of meeting was mailed. Such
notification shall contain the following information to the extent known to the
notifying shareholder: (a) the name and address of each proposed nominee; (b)
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<PAGE> 17
the principal occupation of each proposed nominee; (c) the total number of
shares of capital stock of the bank that will be voted for each proposed
nominee; (d) the name and residence address of the notifying shareholder; and
(e) the number of shares of capital stock of the bank owned by the notifying
shareholder. Nominations not made in accordance herewith may, in his discretion,
be disregarded by the chairman of the meeting, and upon his instructions, the
vote tellers may disregard all votes cast for each such nominee.
Section 1.4 Judges of Election. The Board may at any time appoint from
among the shareholders three or more persons to serve as Judges of Election at
any meeting of shareholders; to act as judges and tellers with respect to all
votes by ballot at such meeting and to file with the Secretary of the meeting a
Certificate under their hands, certifying the result thereof.
Section 1.5 Proxies. Shareholders may vote at any meeting of the
shareholders by proxies duly authorized in writing, but no officer or employee
of this Association shall act as proxy. Proxies shall be valid only for one
meeting, to be specified therein, and any adjournments of such meeting. Proxies
shall be dated and shall be filed with the records of the meeting.
Section 1.6 Quorum. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law; but less than a quorum may
adjourn any meeting, from time to time, and the meeting may be held, as
adjourned, without further notice. A majority of the votes cast shall decide
every question or matter submitted to the shareholders at any meeting, unless
otherwise provided by law or by the Articles of Association.
ARTICLE II
Directors
Section 2.1 Board of Directors. The Board of Directors (hereinafter
referred to as the "Board"), shall have power to manage and administer the
business and affairs of the Association. Except as expressly limited by law, all
corporate powers of the Association shall be vested in and may be exercised by
said Board.
Section 2.2 Number. The Board shall consist of not less than five nor
more than twenty-five directors, the exact number within such minimum and
maximum limits to be fixed and determined from time to time by resolution of a
majority of the full Board or by resolution of the shareholders at any meeting
thereof; provided, however, that a majority of the full Board of Directors may
not increase the number of directors to a number which, (1) exceeds by more than
two the number of directors last elected by shareholders where such number was
fifteen or less, and (2) to a number which exceeds by more than four the number
of
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<PAGE> 18
directors last elected by shareholders where such number was sixteen or more,
but in no event shall the number of directors exceed twenty-five.
Section 2.3 Organization Meeting. The Secretary of the meeting upon
receiving the certificate of the judges, of the result of any election, shall
notify the directors-elect of their election and of the time at which they are
required to meet at the Main Office of the Association for the purpose of
organizing the new Board and electing and appointing officers of the Association
for the succeeding year. Such meeting shall be held as soon thereafter as
practicable. If, at the time fixed for such meeting, there shall not be a quorum
present, the directors present may adjourn the meeting from time to time, until
a quorum is obtained.
Section 2.4 Regular Meetings. Regular meetings of the Board of
Directors shall be held at such place and time as may be designated by
resolution of the Board of Directors. Upon adoption of such resolution, no
further notice of such meeting dates or the places or times thereof shall be
required. Upon the failure of the Board of Directors to adopt such a resolution,
regular meetings of the Board of Directors shall be held, without notice, on the
third Tuesday in February, April, June, August, October and December, commencing
with the year 1997, at the main office or at such other place and time as may be
designated by the Board of Directors. When any regular meeting of the Board
would otherwise fall on a holiday, the meeting shall be held on the next
business day unless the Board shall designate some other day.
Section 2.5 Special Meetings. Special meetings of the Board of
Directors may be called by the President of the Association, or at the request
of three (3) or more directors. Each member of the Board of Directors shall be
given notice stating the time and place, by telegram, letter, or in person, of
each such special meeting.
Section 2.6 Quorum. A majority of the directors shall constitute a
quorum at any meeting, except when otherwise provided by law; but a less number
may adjourn any meeting, from time to time, and the meeting may be held, as
adjourned, without further notice.
Section 2.7 Vacancies. When any vacancy occurs among the directors, the
remaining members of the Board, in accordance with the laws of the United
States, may appoint a director to fill such vacancy at any regular meeting of
the Board, or at a special meeting called for that purpose.
Section 2.8 Advisory Boards. The Board of Directors may appoint
Advisory Boards for each of the states in which the Association conducts
operations. Each such Advisory Board shall consist of as many persons as the
Board of Directors may determine. The duties of each Advisory Board shall be to
consult and advise with the Board of Directors and senior officers of the
Association in such state with regard to the best interests of the Association
and to perform such other duties as the Board of Directors may lawfully
delegate.
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The senior officer in such state, or such officers as directed by such senior
officer, may appoint advisory boards for geographic regions within such state
and may consult with the State Advisory Boards prior to such appointments.
ARTICLE III
Committees of the Board
Section 3.1 The Board of Directors, by resolution adopted by a majority
of the number of directors fixed by these By-Laws, may designate two or more
directors to constitute an Executive Committee and other committees, each of
which, to the extent authorized by law and provided in such resolution, shall
have and may exercise all of the authority of the Board of Directors and the
management of the Association. The designation of any committee and the
delegation thereto of authority shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility or liability imposed
upon it or any member of the Board of Directors by law. The Board of Directors
reserves to itself alone the power to act on (1) dissolution, merger or
consolidation, or disposition of substantially all corporate property, (2)
designation of committees or filling vacancies on the Board of Directors or on a
committee of the Board (except as hereinafter provided), (3) adoption, amendment
or repeal of By-laws, (4) amendment or repeal of any resolution of the Board
which by its terms is not so amendable or repealable, and (5) declaration of
dividends, issuance of stock, or recommendations to stockholders of any action
requiring stockholder approval.
The Board of Directors or the Chairman of the Board of Directors of the
Association may change the membership of any committee at any time, fill
vacancies therein, discharge any committee or member thereof either with or
without cause at any time, and change at any time the authority and
responsibility of any such committee.
A majority of the members of any committee of the Board of Directors
may fix such committee's rules of procedure. All action by any committee shall
be reported to the Board of Directors at a meeting succeeding such action,
except such actions as the Board may not require to be reported to it in the
resolution creating any such committee. Any action by any committee shall be
subject to revision, alteration, and approval by the Board of Directors, except
to the extent otherwise provided in the resolution creating such committee;
provided, however, that no rights or acts of third parties shall be affected by
any such revision or alteration.
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<PAGE> 20
ARTICLE IV
Officers and Employees
Section 4.1 Officers. The officers of the Association may be a Chairman
of the Board, a Vice Chairman of the Board, one or more Chairmen or Vice
Chairmen (who shall not be required to be directors of the Association), a
President, one or more Vice Presidents, a Secretary, a Cashier or Treasurer, and
such other officers, including officers holding similar or equivalent titles to
the above in regions, divisions or functional units of the Association, as may
be appointed by the Board of Directors. The Chairman of the Board and the
President shall be members of the Board of Directors. Any two or more offices
may be held by one person, but no officer shall sign or execute any document in
more than one capacity.
Section 4.2 Election, Term of Office, and Qualification. Each officer
shall be chosen by the Board of Directors and shall hold office until the annual
meeting of the Board of Directors held next after his election or until his
successor shall have been duly chosen and qualified, or until his death, or
until he shall resign, or shall have been disqualified, or shall have been
removed from office.
Section 4.2(a) Officers Acting as Assistant Secretary. Notwithstanding
Section 1 of these By-laws, any Senior Vice President, Vice President, or
Assistant Vice President shall have, by virtue of his office, and by authority
of the By-laws, the authority from time to time to act as an Assistant Secretary
of the Bank, and to such extent, said officers are appointed to the office of
Assistant Secretary.
Section 4.3 Chief Executive Officer. The Board of Directors shall
designate one of its members to be the President of this Association, and the
officer so designated shall be an ex officio member of all committees of the
Association except the Examining Committee, and its Chief Executive Officer
unless some other officer is so designated by the Board of Directors.
Section 4.4 Duties of Officers. The duties of all officers shall be
prescribed by the Board of Directors. Nevertheless, the Board of Directors may
delegate to the Chief Executive Officer the authority to prescribe the duties of
other officers of the corporation not inconsistent with law, the charter, and
these By-laws, and to appoint other employees, prescribe their duties, and to
dismiss them. Notwithstanding such delegation of authority, any officer or
employee also may be dismissed at any time by the Board of Directors.
Section 4.5 Other Employees. The Board of Directors may appoint from
time to time such tellers, vault custodians, bookkeepers, and other clerks,
agents, and employees as it may deem advisable for the prompt and orderly
transaction of the business of the Association, define their duties, fix the
salary to be paid them, and dismiss them. Subject to the authority of the Board
of Directors, the Chief Executive Officer or any other officer of the
Association authorized by him, may appoint and dismiss all such tellers, vault
custodians, bookkeepers and other clerks, agents, and employees, prescribe their
duties and the conditions of their employment, and from time to time fix their
compensation.
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<PAGE> 21
Section 4.6 Removal and Resignation. Any officer or employee of the
Association may be removed either with or without cause by the Board of
Directors. Any employee other than an officer elected by the Board of Directors
may be dismissed in accordance with the provisions of the preceding Section 4.5.
Any officer may resign at any time by giving written notice to the Board of
Directors or to the Chief Executive Officer of the Association. Any such
resignation shall become effective upon its being accepted by the Board of
Directors, or the Chief Executive Officer.
ARTICLE V
Fiduciary Powers
Section 5.1 Capital Management Group. There shall be an area of this
Association known as the Capital Management Group which shall be responsible for
the exercise of the fiduciary powers of this Association. The Capital Management
Group shall consist of four service areas: Fiduciary Services, Retail Services,
Investments and Marketing. The Fiduciary Services unit shall consist of personal
trust, employee benefits, corporate trust and operations. The General Office for
the Fiduciary Services unit shall be located in Charlotte, N.C., with City Trust
Offices located in such cities within the State of North Carolina as designated
by the Board of Directors.
Section 5.2 Trust Officers. There shall be a General Trust Officer of
this Association whose duties shall be to manage, supervise and direct all the
activities of the Capital Management Group. Further, there shall be one or more
Senior Trust Officers designated to assist the General Trust Officer in the
performance of his duties. They shall do or cause to be done all things
necessary or proper in carrying out the business of the Capital Management Group
in accordance with provisions of applicable law and regulation.
Section 5.3 Capital Management/General Trust Committee. There shall be
a Capital Management/General Trust Committee composed of not less than four (4)
members of the Board of Directors or officers of this Association who shall be
appointed annually or from time to time by the Board of Directors of the
Association. The General Trust Officer shall serve as an ex-officio member of
the Committee. Each member shall serve until his successor is appointed. The
Board of Directors or the Chairman of the Board may change the membership of the
Capital Management/General Trust Committee at any time, fill vacancies therein,
or discharge any member thereof with or without cause at any time. The Committee
shall counsel and advise on all matters relating to the business or affairs of
the Capital Management Group and shall adopt overall policies for the conduct of
the business of the Capital Management Group including but not limited to:
general administration, investment policies, new business development, and
review for approval of major assignments of functional responsibilities. The
Committee shall meet at least quarterly or as called for by its Chairman or any
three (3) members of the Committee. A quorum shall consist of three (3)
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<PAGE> 22
members. In carrying out its responsibilities, the Capital Management/General
Trust Committee shall review the actions of all officers, employees and
committees utilized by this Association in connection with the activities of the
Capital Management Group and may assign the administration and performance of
any fiduciary powers or duties to any of such officers or employees or to the
Investment Policy Committee, Personal Trust Administration Committee, Account
Review Committee, Corporate and Institutional Accounts Committee, or any other
committees it shall designate. One of the methods to be used in the review
process will be the thorough scrutiny of the Report of Examination by the Office
of the Comptroller of the Currency and the reports of the Audit Division of
First Union Corporation, as they relate to the activities of the Capital
Management Group. These reviews shall be in addition to reviews of such reports
by the Audit Committee of the Board of Directors. The Chairman of the Capital
Management/ General Trust Committee shall be appointed by the Chairman of the
Board of Directors. He shall cause to be recorded in appropriate minutes all
actions taken by the Committee. The minutes shall be signed by its Secretary and
approved by its Chairman. Further, the Committee shall summarize all actions
taken by it and shall submit a report of its proceedings to the Board of
Directors at its next regularly scheduled meeting following a meeting of the
Capital Management/General Trust Committee. As required by Section 9.7 of
Regulation 9 of the Comptroller of the Currency, the Board of Directors retains
responsibility for the proper exercise of the fiduciary powers of this
Association.
The Fiduciary Services unit of the Capital Management Group will
maintain a list of securities approved for investment in fiduciary accounts and
will from time to time provide the Capital Management/General Trust Committee
with current information relative to such list and also with respect to
transactions in other securities not on such list. It is the policy of this
Association that members of the Capital Management/General Trust Committee
should not buy, sell or trade in securities which are on such approved list or
in any other securities in which the Fiduciary Services unit has taken, or
intends to take, a position in fiduciary accounts in any circumstances in which
any such transaction could be viewed as a possible conflict of interest or could
constitute a violation of applicable law or regulation. Accordingly, if any such
securities are owned by any member of the Capital Management/General Trust
Committee at the time of appointment to such Committee, the Capital Management
Group shall be promptly so informed in writing. If any member of the Capital
Management/General Trust Committee intends to buy, sell, or trade in any such
securities while serving as a member of the Committee, he should first notify
the Capital Management Group in order to make certain that any proposed
transaction will not constitute a violation of this policy or of applicable law
or regulation.
Section 5.4 Investment Policy Committee. There shall be an Investment
Policy Committee composed of not less than seven (7) officers and/or employees
of this Association who shall be appointed annually or from time to time by the
Board of Directors. Each member shall serve until his successor is appointed.
Meetings shall be called by the Chairman or any two (2) members of the
Committee. A quorum shall consist of five (5) members. The
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Investment Policy Committee shall exercise such fiduciary powers and perform
such duties as may be assigned to it by the Capital Management/General Trust
Committee. All actions taken by the Investment Policy Committee shall be
recorded in appropriate minutes, signed by the Secretary thereof, approved by
its Chairman and submitted to the Capital Management/General Trust Committee at
its next ensuing regular meeting for its review and approval.
Section 5.5 Personal Trust Administration Committee. There shall be a
Personal Trust Administration Committee composed of not less than five (5)
officers, who shall be appointed annually or from time to time by the Board of
Directors. Each member shall serve until his successor is appointed. Meetings
shall be called by the Chairman or any three (3) members of the Committee. A
quorum shall consist of three (3) members. The Personal Trust Administration
Committee shall exercise such fiduciary powers and perform such duties as may be
assigned to it by the Capital Management/General Trust Committee. All action
taken by the Personal Trust Administration Committee shall be recorded in
appropriate minutes signed by the Secretary thereof, approved by its Chairman,
and submitted to the Capital Management/General Trust Committee at its next
ensuing regular meeting for its review and approval.
Section 5.6 Account Review Committee. There shall be an Account Review
Committee composed of not less than four (4) officers and/or employees of this
Association, who shall be appointed annually or from time to time by the Board
of Directors. Each member shall serve until his successor is appointed. Meetings
shall be called by the Chairman or any two (2) members of the Committee. A
quorum shall consist of three (3) members. The Account Review Committee shall
exercise such fiduciary powers and perform such duties as may be assigned to it
by the Capital Management/General Trust Committee. All actions taken by the
Account Review Committee shall be recorded in appropriate minutes, signed by the
Secretary thereof, approved by its Chairman and submitted to the Capital
Management/General Trust Committee at its next ensuing regular meeting for its
review and approval.
Section 5.7 Corporate and Institutional Accounts Committee. There shall
be a Corporate and Institutional Accounts Committee composed of not less than
five (5) officers and/or employees of this Association, who shall be appointed
annually, or from time to time, by the Capital Management/General Trust
Committee and approved by the Board of Directors. Meetings may be called by the
Chairman or any two (2) members of the Committee. A quorum shall consist of
three (3) members. The Corporate and Institutional Accounts Committee shall
exercise such fiduciary powers and duties as may be assigned to it by the
General Trust Committee. All actions taken by the Corporate and Institutional
Accounts Committee shall be recorded in appropriate minutes, signed by the
Secretary thereof, approved by its Chairman and made available to the General
Trust Committee at its next ensuing regular meeting for its review and approval.
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ARTICLE VI
Stock and Stock Certificates
Section 6.1 Transfers. Shares of stock shall be transferable on the
books of the Association, and a transfer book shall be kept in which all
transfers of stock shall be recorded. Every person becoming a shareholder by
such transfer shall, in proportion to his shares, succeed to all rights and
liabilities of the prior holder of such shares.
Section 6.2 Stock Certificates. Certificates of stock shall bear the
signature of the Chairman, the Vice Chairman, the President, or a Vice President
(which may be engraved, printed, or impressed), and shall be signed manually or
by facsimile process by the Secretary, Assistant Secretary, Cashier, Assistant
Cashier, or any other officer appointed by the Board of Directors for that
purpose, to be known as an Authorized Officer, and the seal of the Association
shall be engraved thereon. Each certificate shall recite on its face that the
stock represented thereby is transferable only upon the books of the Association
properly endorsed.
ARTICLE VII
Corporate Seal
Section 7.1 The President, the Cashier, the Secretary, or any Assistant
Cashier, or Assistant Secretary, or other officer thereunto designated by the
Board of Directors shall have authority to affix the corporate seal to any
document requiring such seal, and to attest the same. Such seal shall be
substantially in the following form.
ARTICLE VIII
Miscellaneous Provisions
Section 8.1 Fiscal Year. The fiscal year of the Association shall be
the calendar year.
Section 8.2 Execution of Instruments. All agreements, indentures,
mortgages, deeds, conveyances, transfers, certificates, declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, notices,
applications, schedules, accounts, affidavits, bonds, undertakings, proxies, and
other instruments or documents may be signed, executed,
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<PAGE> 25
acknowledged, verified, delivered or accepted in behalf of the Association by
the Chairman of the Board, the Vice Chairman of the Board, any Chairman or Vice
Chairman, the President, any Vice President or Assistant Vice President, the
Secretary or any Assistant Secretary, the Cashier or Treasurer or any Assistant
Cashier or Assistant Treasurer, or any officer holding similar or equivalent
titles to the above in any regions, divisions or functional units of the
Association, or, if in connection with the exercise of fiduciary powers of the
Association, by any of said officers or by any Trust Officer or Assistant Trust
Officer (or equivalent titles); provided, however, that where required, any such
instrument shall be attested by one of said officers other than the officer
executing such instrument. Any such instruments may also be executed,
acknowledged, verified, delivered or accepted in behalf of the Association in
such other manner and by such other officers as the Board of Directors may from
time to time direct. The provisions of this Section 8.2 are supplementary to any
other provision of these By-laws.
Section 8.3 Records. The Articles of Association, the By-laws, and the
proceedings of all meetings of the shareholders, the Board of Directors,
standing committees of the Board, shall be recorded in appropriate minute books
provided for the purpose. The minutes of each meeting shall be signed by the
Secretary, Cashier, or other officer appointed to act as Secretary of the
meeting.
ARTICLE IX
By-laws
Section 9.1 Inspection. A copy of the By-laws, with all amendments
thereto, shall at all times be kept in a convenient place at the Head Office of
the Association, and shall be open for inspection to all shareholders, during
banking hours.
Section 9.2 Amendments. The By-laws may be amended, altered or
repealed, at any regular or special meeting of the Board of Directors, by a vote
of a majority of the whole number of Directors.
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EXHIBIT A
First Union National Bank
Article X
Emergency By-laws
In the event of an emergency declared by the President of the United
States or the person performing his functions, the officers and employees of
this Association will continue to conduct the affairs of the Association under
such guidance from the directors or the Executive Committee as may be available
except as to matters which by statute require specific approval of the Board of
Directors and subject to conformance with any applicable governmental directives
during the emergency.
OFFICERS PRO TEMPORE AND DISASTER
Section 1. The surviving members of the Board of Directors or the
Executive Committee shall have the power, in the absence or disability of any
officer, or upon the refusal of any officer to act, to delegate and prescribe
such officer's powers and duties to any other officer, or to any director, for
the time being.
Section 2. In the event of a state of disaster of sufficient severity
to prevent the conduct and management of the affairs and business of this
Association by its directors and officers as contemplated by these By-laws, any
two or more available members of the then incumbent Executive Committee shall
constitute a quorum of that Committee for the full conduct and management of the
affairs and business of the Association in accordance with the provisions of
Article II of these By-laws; and in addition, such Committee shall be empowered
to exercise all of the powers reserved to the General Trust Committee under
Section 5.3 of Article V hereof. In the event of the unavailability, at such
time, of a minimum of two members of the then incumbent Executive Committee, any
three available directors shall constitute the Executive Committee for the full
conduct and management of the affairs and business of the Association in
accordance with the foregoing provisions of this section. This By-law shall be
subject to implementation by resolutions of the Board of Directors passed from
time to time for that purpose, and any provisions of these By-laws (other than
this section) and any resolutions which are contrary to the provisions of this
section or to the provisions of any such implementary resolutions shall be
suspended until it shall be determined by an interim Executive Committee acting
under this section that it shall be to the advantage of this Association to
resume the conduct and management of its affairs and business under all of the
other provisions of these By-laws.
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Officer Succession
BE IT RESOLVED, that if consequent upon war or warlike damage or
disaster, the Chief Executive Officer of this Association cannot be located by
the then acting Head Officer or is unable to assume or to continue normal
executive duties, then the authority and duties of the Chief Executive Officer
shall, without further action of the Board of Directors, be automatically
assumed by one of the following persons in the order designated:
Chairman
President
Division Head/Area Administrator - Within this officer class, officers
shall take seniority on the basis of length of service in such office
or, in the event of equality, length of service as an officer of the
Association.
Any one of the above persons who in accordance with this resolution
assumes the authority and duties of the Chief Executive Officer shall continue
to serve until he resigns or until five-sixths of the other officers who are
attached to the then acting Head Office decide in writing he is unable to
perform said duties or until the elected Chief Executive Officer of this
Association, or a person higher on the above list, shall become available to
perform the duties of Chief Executive Officer of the Association.
BE IT FURTHER RESOLVED, that anyone dealing with this Association may
accept a certification by any three officers that a specified individual is
acting as Chief Executive Officer in accordance with this resolution; and that
anyone accepting such certification may continue to consider it in force until
notified in writing of a change, said notice of change to carry the signatures
of three officers of the Association.
Alternate Locations
The offices of the Association at which its business shall be conducted
shall be the main office thereof in each city which is designated as a City
Office (and branches, if any), and any other legally authorized location which
may be leased or acquired by this Association to carry on its business. During
an emergency resulting in any authorized place of business of this Association
being unable to function, the business ordinarily conducted at such location
shall be relocated elsewhere in suitable quarters, in addition to or in lieu of
the locations heretofore mentioned, as may be designated by the Board of
Directors or by the Executive Committee or by such persons as are then, in
accordance with resolutions adopted from time to time by the Board of Directors
dealing with the exercise of authority in the time of such emergency, conducting
the affairs of this Association. Any temporarily relocated place of business of
this Association shall be returned to its legally authorized location as soon as
practicable and such temporary place of business shall then be discontinued.
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Acting Head Offices
BE IT RESOLVED, that in case of and provided because of war or warlike
damage or disaster, the General Office of this Association, located in
Charlotte, North Carolina, is unable temporarily to continue its functions, the
Raleigh office, located in Raleigh, North Carolina, shall automatically and
without further action of this Board of Directors, become the "Acting Head
Office of this Association";
BE IT FURTHER RESOLVED, that if by reason of said war or warlike damage
or disaster, both the General Office of this Association and the said Raleigh
Office of this Association are unable to carry on their functions, then and in
such case, the Asheville Office of this Association, located in Asheville, North
Carolina, shall, without further action of this Board of Directors, become the
"Acting Head Office of this Association"; and if neither the Raleigh Office nor
the Asheville Office can carry on their functions, then the Greensboro Office of
this Association, located in Greensboro, North Carolina, shall, without further
action of this Board of Directors, become the "Acting Head Office of this
Association"; and if neither the Raleigh Office, the Asheville Office, nor the
Greensboro Office can carry on their functions, then the Lumberton Office of
this Association, located in Lumberton, North Carolina, shall, without further
action of this Board of Directors, become the "Acting Head Office of this
Association". The Head Office shall resume its functions at its legally
authorized location as soon as practicable.
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Legal Title of Bank: First Union National Bank Call Date: 03/31/99 FFIEC 031
Address: Two First Union Center Page RC-1
City, State, Zip: Charlotte, NC 28288-0201
FDIC Certificate #: 33869
-----
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1999
All schedules are to be reported in thousands of dollars.
Unless otherwise indicated, report the amount outstanding
as of the last business day of the quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
C400
Dollar Amount in Thousands RCFD Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS //////////////
1. Cash and balances due from depository institutions (from Schedule RC-A): //////////////
a. Noninterest-bearing balances and currency and coin (1)...................................... 0081 11,400,000 1.a.
b. Interest-bearing balances (2)............................................................... 0071 454,000 1.b.
2. Securities: //////////////
a. Held-to-maturity securities (from Schedule RC-B, column A).................................. 1754 1,873,000 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D)................................ 1773 38,611,000 2.b.
3. Federal funds sold and securities purchased under agreements to resell.......................... 1350 3,359,000 3.
4. Loans and lease financing receivables //////////////
a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 131,165,000 ////////////// 4.a.
b. LESS: Allowance for loan and lease losses RCFD 3123 1,812,000 ////////////// 4.b.
c. LESS: Allocated transfer risk reserve RCFD 3128 0 //////////////
d. Loans and leases, net of unearned income, /////////////
allowance, and reserve (item 4.a minus 4.b and 4.c).......................................... 2125 129,353,000 4.d.
5. Trading assets (from Schedule RC-D.............................................................. 3545 4,725,000 5.
6. Premises and fixed assets (including capitalized leases)........................................ 2145 3,218,000 6.
7. Other real estate owned (from Schedule RC-M).................................................... 2150 126,000 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) 2130 321,000 8.
9. Customers' liability to this bank on acceptances outstanding.................................... 2155 769,000 9.
10. Intangible assets (from Schedule RC-M).......................................................... 2143 5,285,000 10.
11. Other assets (from Schedule RC-F)............................................................... 2160 9,176,000 11.
12. Total assets (sum of items 1 through 11)........................................................ 2170 208,670,000 12.
</TABLE>
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(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 30
Legal Title of Bank: First Union National Bank Call Date: 3/31/99 FFIEC 031
Address: Two First Union Center Page RC-2
City, State, Zip: Charlotte, NC 28288-0201
FDIC Certificate #: 33869
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<TABLE>
Schedule RC--Continued
Dollar Amounts in Thousands Bil Mil Thou
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES ///////////////////////
13. Deposits: ///////////////////////
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, ///////////////////////
part I)....................................................................... RCON 2200 128,512,000 13.a.
(1) Noninterest-bearing (1) RCON 6631 21,581,000 /////////////////////// 13.a.(1)
(2) Interest-bearing...................................RCON 6636 106,931,000 /////////////////////// 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs ///////////////////////
(from Schedule RC-E, part II).............................................. RCFN 2200 9,452,000 13.b.
(1) Noninterest-bearing................................RCFN 6631 553,000 /////////////////////// 13.b.(1)
(2) Interest-bearing...................................RCFN 6636 8,899,000 /////////////////////// 13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase...... RCFD 2800 19,561,000 14.
15. a. Demand notes issued to the U.S. Treasury.................................... RCON 2840 500,000 15.a.
b. Trading liabilities (from Schedule RC-D).................................... RCFD 3548 3,585,000 15.b.
16. Other borrowed money (includes mortgage indebtedness and obligations under ///////////////////////
capitalized leases):............................................................ ///////////////////////
a. With a remaining maturity of one year or less............................... RCFD 2332 12,891,000 16.a.
b. With a remaining maturity of more than one year through three years......... RCFD A547 3,583,000 16.b.
c. With a remaining maturity of more than three years.......................... RCFD A548 774,000 16.c.
17. Not applicable.................................................................. ///////////////////////
18. Bank's liability on acceptances executed and outstanding........................ RCFD 2920 769,000 18.
19. Subordinated notes and debentures (2)........................................... RCFD 3200 4,045,000 19.
20. Other liabilities (from Schedule RC-G).......................................... RCFD 2930 7,306,000 20.
21. Total liabilities (sum of items 13 through 20).................................. RCFD 2948 190,978,000 21.
22. Not applicable.................................................................. ///////////////////////
EQUITY CAPITAL ///////////////////////
23. Perpetual preferred stock and related surplus................................... RCFD 3838 161,000 23.
24. Common stock.................................................................... RCFD 3230 455,000 24.
25. Surplus (exclude all surplus related to preferred stock)........................ RCFD 3839 13,291,000 25.
26. a. Undivided profits and capital reserves...................................... RCFD 3632 3,768,000 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities...... RCFD 8434 22,000 26.b.
c. Accumulated net gains (losses) on cash flow hedges.......................... RCFD 4336 0 26 c.
27. Cumulative foreign currency translation adjustments............................. RCFD 3284 (5,000) 27.
28. Total equity capital (sum of items 23 through 27)............................... RCFD 3210 17,692,000 28.
29. Total liabilities and equity capital (sum of items 21 and 28)................... RCFD 3300 208,670,000 29.
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the
most comprehensive level of auditing work performed for the bank by independent external Number
auditors as of any date during 1997............................................ RCFD 6724 2 M.1.
</TABLE>
1 =Independent audit of the bank conducted in accordance with generally accepted
auditing standards by a certified public accounting firm which submits a report
on the bank
2 =Independent audit of the bank's parent holding company conducted
in accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company (but
not on the bank separately)
3 =Directors' examination of the bank conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm (may be required by state chartering authority)
4 =Directors' examination of the bank performed by other external auditors (may
be required by state chartering authority)
5 =Review of the bank's financial statements by external auditors
6 =Compilation of the bank's financial statements by external auditors
7 =Other audit procedures (excluding tax preparation work)
8 =No external audit work
- -------------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposit.
(2) Includes limited-life preferred stock and related surplus.
