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<SEC-DOCUMENT>0000912057-02-012966.txt : 20020415
<SEC-HEADER>0000912057-02-012966.hdr.sgml : 20020415
ACCESSION NUMBER: 0000912057-02-012966
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020401
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: MID AMERICA APARTMENT COMMUNITIES INC
CENTRAL INDEX KEY: 0000912595
STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798]
IRS NUMBER: 621543819
STATE OF INCORPORATION: TN
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-12762
FILM NUMBER: 02597006
BUSINESS ADDRESS:
STREET 1: 6584 POPLAR AVE
STREET 2: STE 340
CITY: MEMPHIS
STATE: TN
ZIP: 38138
BUSINESS PHONE: 9016826600
MAIL ADDRESS:
STREET 1: 6584 POPLAR AVE
STREET 2: SUITE 340
CITY: MEMPHIS
STATE: TN
ZIP: 38138
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>a2074950z10-k405.txt
<DESCRIPTION>10-K405
<TEXT>
<Page>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
<Table>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</Table>
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
COMMISSION FILE NUMBER: 1-12762
MID-AMERICA APARTMENT COMMUNITIES, INC.
(Exact Name of Registrant as Specified in Charter)
<Table>
<S> <C>
TENNESSEE 62-1543819
(State of Incorporation) (I.R.S. Employer Identification Number)
</Table>
6584 POPLAR AVENUE, SUITE 300
MEMPHIS, TENNESSEE 38138
(Address of principal executive offices)
(901) 682-6600
Registrant's telephone number, including area code
Securities registered pursuant to Section 12 (b) of the Act:
<Table>
<Caption>
NAME OF EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ------------------------
<S> <C>
Common Stock, par value $.01 per share New York Stock Exchange
Series A Cumulative Preferred Stock, par value $.01 per
share New York Stock Exchange
Series B Cumulative Preferred Stock, par value $.01 per
share New York Stock Exchange
Series C Cumulative Redeemable Preferred Stock, par value
$.01 per share New York Stock Exchange
</Table>
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
None
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in PART III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, (based on the closing price of such stock ($25.84 per share), as
reported on the New York Stock Exchange, on March 15, 2002) was approximately
$396,000,000 (for purposes of this calculation, directors and executive officers
are treated as affiliates).
The number of shares outstanding of the Registrant's common stock as of
March 15, 2002, was 17,480,545 shares, of which approximately 2,160,635 were
held by affiliates.
The Registrant's definitive proxy statement in connection with the 2002
Annual Meeting of Shareholders (to be filed pursuant to Regulation 14A) is
incorporated by reference into Part III of this Annual Report on Form 10-K.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Page>
MID-AMERICA APARTMENT COMMUNITIES, INC.
TABLE OF CONTENTS
<Table>
<Caption>
ITEM PAGE
- ---- --------
<S> <C> <C>
PART I
1. Business.................................................... 2
2. Properties.................................................. 6
3. Legal Proceedings........................................... 11
4. Submission of Matters to Vote of Security Holders........... 11
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 11
6. Selected Financial Data..................................... 12
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 23
8. Financial Statements and Supplementary Data................. 24
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 24
PART III
10. Directors and Executive Officers of the Registrant.......... 24
11. Executive Compensation...................................... 24
12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 24
13. Certain Relationships and Related Transactions.............. 24
PART IV
14. Exhibits, Financial Statement Schedule and Reports on Form
8-K......................................................... 24
</Table>
<Page>
This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. These statements
include, but are not limited to, the plans and objectives of management for
future operations and the future financial performance of Mid-America Apartment
Communities, Inc. (the "Company), including plans and objectives relating to
capital expenditures, rehabilitation costs on the apartment communities, future
development, anticipated growth rates of revenues and expenses, and anticipated
share repurchases. Words such as "expects," "plans," "estimates," "projects,"
"objectives," "goals" and similar expressions are intended to identify
forward-looking statements. Although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could be inaccurate and, therefore, there can be no assurance that the forward-
looking statements included in the Annual Report on Form 10-K will prove to be
accurate. A variety of factors, including but not limited to those discussed in
this report under the headings "Strategies," "Competition," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations", could
cause actual results to differ materially from the anticipated results and other
expectations expressed in the forward-looking statements. Other factors set
forth from time to time in the Company's reports and registration statements
filed with the Securities and Exchange Commission should also be considered. In
light of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives of the Company will be achieved.
The Company does not assume any obligation to update the forward-looking
statements contained in this report or the reasons why actual results could
differ from those projected in such forward-looking statements.
PART I
ITEM 1. BUSINESS
THE COMPANY
Founded in 1994, Mid-America Apartment Communities, Inc. (the "Company") is
a Memphis, Tennessee-based self-administered and self-managed umbrella
partnership real estate investment trust ("REIT") that focuses on acquiring,
constructing, developing, owning and operating apartment communities. Between
1994 and December 31, 2001, the Company increased the number of properties of
which it is the sole owner from 22 to 112 properties with 30,618 apartment
units, representing an increase of 25,038 apartment units. The Company is also a
participant in a joint venture (the "Joint Venture") with Blackstone Real Estate
Acquisitions, LLC ("Blackstone"). The Joint Venture owned 10 properties,
representing 2,793 apartment units at December 31, 2001. The Company retains a
33.33% ownership interest in the Joint Venture and has an agreement to manage
the operations of the communities for a fee of 4% of revenues.
The Company's business is conducted principally through Mid-America
Apartments, L.P. (the "Operating Partnership"). The Company is the sole general
partner of the Operating Partnership, holding 180,404 common units of
partnership interest ("Common Units") comprising a 1% general partnership
interest in the Operating Partnership as of December 31, 2001. The Company's
wholly-owned qualified REIT subsidiary, MAC II of Delaware, Inc., a Delaware
corporation, is a limited partner in the Operating Partnership and, as of
December 31, 2001, held 14,928,568 Common Units, or 82.75% of all outstanding
Common Units.
The Company employed 987 full time and 118 part time employees at
December 31, 2001.
2
<Page>
OPERATING PHILOSOPHY
INVESTMENT FOCUS. Depending on opportunities and the real estate cycle,
Company management uses its real estate skills and experience to invest
profitably. Between 1994 and 1997, the Company focused on the acquisition and
redevelopment of existing apartments. Between 1998 and 2000, its concentration
was on development of new apartments. In 1999, the Company established a joint
venture and sold assets to that joint venture. Between August 1999 and
December 2001, the Company repurchased approximately 1.86 million shares of its
common stock, funded in part by asset sales. The Company's present focus is on
the acquisition of properties that it believes can be repositioned with
approporiate use of capital and its operating management skills. The Company is
also interested in increasing its investment in properties in larger and faster
growing markets within its current market area, and intends to do this through
acquiring apartment communities with the potential for above average growth and
return through investments in joint ventures and in direct purchases. The
Company will continue its established process of the sale of mature assets, and
will adapt its investment focus to opportunities and markets.
HIGH QUALITY ASSETS. The Company maintains its assets in excellent
condition, believing that continuous maintenance will lead to higher long-run
returns on investment. It believes that being recognized by third parties for
its quality of properties, landscaping, and property management will lead to
higher rents and profitability. The Company sells assets selectively in order to
ensure that its portfolio consists only of high quality, well-located assets
within its market area.
DIVERSIFIED MARKET FOCUS. The Company focuses on owning, operating,
developing, constructing and acquiring apartment communities (the "Communities")
throughout the southeastern United States and Texas.
INTENSIVE MANAGEMENT FOCUS. The Company strongly emphasizes on-site
property management. Particular attention is paid to opportunities to increase
rents, raise average occupancy rates, and control costs, with property managers
and regional management being given the responsibility for monitoring market
trends and the discretion to react to such trends. The Company, as part of its
intense management focus, has established regional training facilities to
produce highly trained property managers, leasing consultants and service
technicians who work on-site at each of the Communities.
DECENTRALIZED OPERATIONAL STRUCTURE. The Company's operational structure is
organized on a decentralized basis. Management believes that its decentralized
operating structure capitalizes on specific market knowledge, increases personal
accountability relative to a centralized structure and is beneficial in the
acquisition, redevelopment and development processes.
PROACTIVE BALANCE SHEET AND PORTFOLIO MANAGEMENT
The Company focuses on maximizing the return on assets and adding to the
intrinsic underlying value of each share, routinely reviewing each asset based
on its determined value and selling those which no longer fit its investment
criteria. The Company constantly evaluates the effectiveness of its capital
allocations and makes adjustments to its strategy, including investing in
acquisitions and new development, debt retirement, and repurchases of shares of
the Company's common stock.
STRATEGIES
The Company seeks to increase operating cash flow and earnings per share to
maximize shareholder value through a balanced strategy of internal and external
growth.
OPERATING GROWTH STRATEGY. Management's goal is to maximize the Company's
return on investment in each Community by increasing rental rates and reducing
operating expenses while
3
<Page>
maintaining high occupancy levels. The Company seeks higher net rental revenues
by enhancing and maintaining the competitiveness of the Communities and manages
expenses through its system of detailed management reporting and accountability
in order to achieve increases in operating cash flow. The steps taken to meet
these objectives include:
- empowering the Company's property managers to adjust rents in response to
local market conditions and to concentrate resident turnover in peak
rental demand months;
- offering new services to residents, including telephone, cable, and
internet access, on which it generates fee and commission income;
- implementing programs to control expenses through investment in
cost-saving initiatives, such as the installation of individual apartment
unit water and utility meters in certain Communities;
- improving the "curb appeal" of the Communities through extensive
landscaping and exterior improvements and repositioning Communities from
time to time to maintain market leadership positions;
- compensating employees through performance-based compensation and stock
ownership programs;
- maintaining a hands-on management style and "flat" organizational
structure that emphasizes senior management's continued close contact with
the market and employees; and
- selling or exchanging underperforming assets and repurchasing common stock
when cost of capital and asset values permit.
DEVELOPMENT STRATEGY. In late 1997, the Company's emphasis shifted from
acquisitions to development because of its belief that under then-current market
conditions, such development would generate higher quality assets and higher
long-term investment returns. In 2002, the Company will complete a four-year
$300 million construction program of high quality apartments in multiple
markets. This represents the completion of the development pipeline initiated in
1997. In 1999, management decided to exit the construction and development
business upon completion of the Company's existing development pipeline after
determining that market conditions were changing, making it unlikely that future
proposed projects would meet the Company's profitability targets.
In 2001, the Company completed the Grande View development project in
Nashville, Tennessee, consisting of 433 apartment units, which are currently in
lease-up.
At December 31, 2001, the Company had one uncompleted development property
with 244 apartment units in various stages of lease-up and construction, all
scheduled to be completed and leased in 2002. The Company anticipates an
additional capital investment in this development of approximately $537,000 in
2002, which will be funded through use of its outstanding lines of credit.
ACQUISITION STRATEGY. One of the Company's strategies is to acquire and
redevelop apartment communities that meet its investment criteria and focus as
discussed above. The Company has extensive experience and research-based skills
in the acquisition and repositioning of multifamily properties. While the
markets were not conducive to the acquisition of properties in 2001, the Company
will evaluate opportunities that arise, and will utilize this strategy to
increase the share of its assets in faster growing and larger markets in the
Southeast and Texas.
JOINT VENTURE STRATEGY. One of the Company's strategies is to co-invest
with joint venture partners in joint venture opportunities which enable it to
obtain a higher return on its investment through management (and other) fees,
which leverages the Company's recognized skills in acquiring, repositioning,
redeveloping and managing multifamily investments. The Company is actively
seeking
4
<Page>
attractively priced opportunities in which it and joint venture partners can
invest. The Company established a joint venture in 1999 with Blackstone.
DISPOSITION STRATEGY. The Company is committed to the selective disposition
of mature assets, defined as those apartment communities that no longer meet the
Company's investment criteria and long-term strategic objectives. Typically, the
Company selects assets for disposition that do not meet its present investment
criteria including future return on investment, location, market, potential for
growth, and capital needs.
The following apartment communities, containing an aggregate of 572
apartment units, were sold during 2001:
<Table>
<Caption>
GROSS
PROPERTY LOCATION NUMBER OF UNITS DATE PROCEEDS
- ------------------------------ ------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C>
Canyon Creek.................. St. Louis, MO 320 July 2, 2001 $15,600,000
Advantages.................... Jackson, MS 252 August 22, 2001 6,900,000
--- -----------
Total........................................ 572 $22,500,000
=== ===========
</Table>
SHARE REPURCHASE PROGRAM
In 1999, the Company's Board of Directors approved an increase in the number
of shares of the Company's common stock authorized to be repurchased to
4 million shares. As of December 31, 2001 the Company had repurchased a total of
approximately 1.86 million shares (8% of the shares of common stock and Common
Units outstanding). From time to time the Company intends to sell assets based
on its disposition strategy outlined in this Annual Report and use the proceeds
to repurchase shares when it believes that shareholder value is enhanced.
Factors affecting this determination include the share price, asset dispositions
and pricing, financing agreements and rates of return of alternative
investments.
COMPETITION
All of the Company's Communities are located in areas that include other
apartment communities. Occupancy and rental rates are affected by the number of
competitive apartment communities in a particular area. The Company's properties
compete with numerous other multifamily properties, the owners of which may have
greater resources than the Company and whose management may have more experience
than the Company's management. Moreover, single-family rental housing,
manufactured housing, condominiums and the new and existing home markets provide
housing alternatives to potential residents of apartment communities.
Apartment communities compete on the basis of monthly rent, discounts, and
facilities offered such as apartment size and internal amenities, and apartment
community amenities, including recreational facilities, management services, and
physical property condition. The Company makes capital improvements to both the
communities and individual apartments on a regular basis in order to maintain a
competitive position in each individual market.
ENVIRONMENTAL MATTERS
The Company generally obtains environmental audits on all of its Communities
from various outside environmental engineering firms. The purpose of these
audits is to identify potential sources of contamination at the communities and
to assess the status of environmental regulatory compliance. These audits
generally include historical reviews of the community, reviews of certain public
records, preliminary investigations of the site and surrounding properties,
visual inspection for the presence of asbestos, PCBs and underground storage
tanks and the preparation and issuance of a written report.
5
<Page>
Depending on the results of these audits, more invasive procedures, such as soil
sampling or ground water analysis, will be performed to investigate potential
sources of contamination. These audits must be satisfactorily completed before
the Company takes ownership of an acquisition property, however, no assurance
can be given that the audits identify all significant environmental problems.
Under various federal, state and local laws and regulations, an owner or
operator of real estate may be liable for the costs or removal or remediation of
certain hazardous or toxic substances on properties. Such laws often impose such
liability without regard to whether the owner caused or knew of the presence of
hazardous or toxic substances and whether or not the storage of such substances
was in violation of a resident's lease. Furthermore, the cost of remediation and
removal of such substances may be substantial, and the presence of such
substances, or the failure to promptly remediate such substances, may adversely
affect the owner's abiltity to sell such real estate or to borrow using such
real estate as collateral.
The Company is aware of environmental concerns specifically relating to
potential issues resulting from mold in residential properties and has in place
an active management and preventive maintenance program that includes procedures
specifically related to mold. The Company has also purchased a $2 million
insurance policy that covers remediation and exposure to mold. The Company,
therefore, believes that its exposure to this issue is limited and controlled.
The environmental audit reports received by the Company do not reveal any
material environmental liability. The Company is not aware of any existing
conditions that would currently be considered an environmental liability.
Nevertheless, it is possible that the audit reports do not reveal all
environmental liabilities or that there are material environmental liabilties of
which the Company is unaware. Moreover, no assurance can be given concerning
future laws, ordinances or regulations, or the potential introduction of
hazardous or toxic substances by neighboring properties or residents.
The Company believes that its Communities are in compliance in all material
respects with all applicable federal, state and local ordinances and regulations
regarding hazardous or toxic substances and other environmental matters.
RECENT DEVELOPMENTS
In January 2002, the Company announced a quarterly distribution to common
shareholders of $.585 per share, paid on January 31, 2002.
ITEM 2. PROPERTIES
The Company seeks to acquire and develop apartment communities located in
the southeastern United States and Texas that are appealing to middle and upper
income residents with the potential for above average growth and return on
investment. Approximately 73% of the Company's apartment units are located in
Georgia, Florida, Tennessee and Texas markets. The Company's strategic focus is
to provide its residents high quality apartment units in attractive community
settings, characterized by extensive landscaping and attention to aesthetic
detail. The Company utilizes its experience and expertise in maintenance,
landscaping, marketing and management to effectively "reposition" many of the
apartment communities it acquires to raise occupancy levels and per unit average
rentals.
The following table sets forth certain historical information for the
communities the Company owned or maintained an ownership interest in, including
the 10 properties containing 2,793 apartment units owned by the Joint Venture,
at December 31, 2001:
6
<Page>
<Table>
<Caption>
APPROXIMATE AVERAGE
YEAR RENTABLE UNIT
YEAR MANAGEMENT NUMBER AREA SIZE
PROPERTY LOCATION COMPLETED COMMENCED OF UNITS (SQUARE FT.) (SQUARE FT.)
- -------- --------------------- ------------- ---------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
COMPLETED AND OWNED:
Eagle Ridge......................... Birmingham, AL 1986 1998 200 181,400 907
Abbington Place..................... Huntsville, AL 1987 1998 152 162,792 1,071
Paddock Club--Huntsville............ Huntsville, AL 1998/99 1997 392 414,736 1,058
Paddock Club Montgomery I&II........ Montgomery, AL 1999 1998 208 230,880 1,110
------ ---------- -----
952 989,808 1,040
------ ---------- -----
Calais Forest....................... Little Rock, AR 1987 1994 260 195,000 750
Napa Valley......................... Little Rock, AR 1984 1996 240 183,120 763
Westside Creek I.................... Little Rock, AR 1984 1997 142 147,964 1,042
Westside Creek II................... Little Rock, AR 1986 1997 166 172,972 1,042
------ ---------- -----
808 699,056 865
------ ---------- -----
Tiffany Oaks........................ Altamonte Springs, FL 1985 1996 288 234,144 813
Marsh Oaks.......................... Atlantic Beach, FL 1986 1995 120 93,240 777
Indigo Point........................ Brandon, FL 1989 2000 240 194,640 811
Paddock Club--Brandon I & II........ Brandon, FL 1997/99 1997 440 516,120 1,173
Anatole............................. Daytona Beach, FL 1986 1995 208 149,136 717
Paddock Club-Gainsville............. Gainsville, FL 1999 1998 264 293,040 1,110
Cooper's Hawk....................... Jacksonville, FL 1987 1995 208 218,400 1,050
Hunter's Ridge at Deerwood.......... Jacksonville, FL 1987 1997 336 295,008 878
Lakeside............................ Jacksonville, FL 1985 1996 416 344,032 827
Paddock Club-Jacksonville
I,II&III............................ Jacksonville, FL 1989/96 1997 440 475,200 1,080
Paddock Club-Mandarin............... Jacksonville, FL 1998 1998 288 330,336 1,147
St. Augustine....................... Jacksonville, FL 1987 1995 400 304,400 761
Woodbridge at the Lake.............. Jacksonville, FL 1985 1994 188 166,004 883
Woodhollow.......................... Jacksonville, FL 1986 1997 450 342,000 760
Paddock Club-Lakeland............... Lakeland, FL 1988/90 1997 464 505,296 1,089
Savannahs at James Landing.......... Melbourne, FL 1990 1995 256 238,592 932
Paddock Park-Ocala I................ Ocala, FL 1986 1997 200 202,200 1,011
Paddock Park-Ocala II............... Ocala, FL 1988 1997 280 283,080 1,011
Paddock Club-Panama City............ Panama City, FL 2000 1998 254 283,972 1,118
Paddock Club-Tallahassee I.......... Tallahassee, FL 1990 1997 192 207,936 1,083
Paddock Club-Tallahassee II......... Tallahassee, FL 1995 1997 112 121,296 1,083
Belmere............................. Tampa, FL 1984 1994 210 202,440 964
Links at Carrollwood................ Tampa, FL 1980 1998 230 214,820 934
------ ---------- -----
6,484 6,215,332 959
------ ---------- -----
High Ridge.......................... Athens, GA 1987 1997 160 186,560 1,166
Bradford Pointe..................... Augusta, GA 1986 1997 192 156,288 814
Shenandoah Ridge.................... Augusta, GA 1975/84 1994 272 222,768 819
Westbury Creek...................... Augusta, GA 1984 1997 120 107,040 892
Fountain Lake....................... Brunswick, GA 1983 1997 110 129,800 1,180
Park Walk........................... College Park, GA 1985 1997 124 112,716 909
Whisperwood Spa and Club............ Columbus, GA 1980/86/88/98 1997 1,008 1,220,688 1,211
Willow Creek........................ Columbus, GA 1968/78 1997 285 246,810 866
<Caption>
ENCUMBRANCES AT
RENT PER AVERAGE DECEMBER 31, 2001
UNIT OCCUPANCY ---------------------------------
UNIT AT % AT MORTGAGE
DECEMBER 31, DECEMBER 31, PRINCIPAL INTEREST MATURITY
PROPERTY 2001 2001 (000'S) RATE DATE
- -------- ------------- ------------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
COMPLETED AND OWNED:
Eagle Ridge......................... $637 93.00% $ --(1) (1) (1)
Abbington Place..................... $575 90.79% $ --(1) (1) (1)
Paddock Club--Huntsville............ $653 94.39% $ --(1) (1) (1)
Paddock Club Montgomery I&II........ $726 95.67% $ --(1) (1) (1)
---- ------ --------
$653 93.80% $ --
---- ------ --------
Calais Forest....................... $595 91.92% $ --(1) (1) (1)
Napa Valley......................... $591 90.42% $ --(2) (2) (2)
Westside Creek I.................... $672 87.32% $ --(2) (2) (2)
Westside Creek II................... $625 92.77% $ 4,776 8.760% 10/1/2006
---- ------ --------
$614 90.84% $ 4,776
---- ------ --------
Tiffany Oaks........................ $645 94.44% $ --(2) (2) (2)
Marsh Oaks.......................... $608 98.33% $ --(2) (2) (2)
Indigo Point........................ $682 92.92% $ --(3) (3) (3)
Paddock Club--Brandon I & II........ $823 94.32% $ --(1) (1) (1)
Anatole............................. $625 96.63% $ 7,000 2.650% 12/1/2027
Paddock Club-Gainsville............. $820 94.32% $ --(1) (1) (1)
Cooper's Hawk....................... $708 90.87% $ --(5) (5) (5)
Hunter's Ridge at Deerwood.......... $671 90.77% $ --(6) (6) (6)
Lakeside............................ $639 95.91% $ --(2) (2) (2)
Paddock Club-Jacksonville
I,II&III............................ $762 92.27% $ --(7) (7) (7)
Paddock Club-Mandarin............... $793 93.06% $ --(1) (1) (1)
St. Augustine....................... $584 95.50% $ --(5) (5) (5)
Woodbridge at the Lake.............. $655 94.68% $ --(1) (1) (1)
Woodhollow.......................... $646 93.56% $ 9,359 7.500% 9/1/2002
Paddock Club-Lakeland............... $693 83.41% $ --(7) (7) (7)
Savannahs at James Landing.......... $637 99.22% $ --(5) (5) (5)
Paddock Park-Ocala I................ $670 97.50% $ 6,805 7.500% 10/1/2008
Paddock Park-Ocala II............... $701 8.93% $ --(1) (1) (1)
Paddock Club-Panama City............ $796 93.70% $ --(1) (1) (1)
Paddock Club-Tallahassee I.......... $763 96.35% $ --(1) (1) (1)
Paddock Club-Tallahassee II......... $760 98.21% $ --(1) (1) (1)
Belmere............................. $701 93.81% $ --(2) (2) (2)
Links at Carrollwood................ $713 95.22% $ 5,502 8.750% 2/1/2003
---- ------ --------
$700 93.89% $ 28,665
---- ------ --------
High Ridge.......................... $784 82.50% $ --(2) (2) (2)
Bradford Pointe..................... $575 94.79% $ 4,760 2.600% 6/1/2028
Shenandoah Ridge.................... $505 94.12% $ --(2) (2) (2)
Westbury Creek...................... $585 96.67% $ 3,019 7.594% 11/1/2024
Fountain Lake....................... $686 90.91% $ --
Park Walk........................... $694 100.00% $ 3,235 6.370% 11/1/2025
Whisperwood Spa and Club............ $688 95.63% $ --(1) (1) (1)
Willow Creek........................ $542 92.28% $ --(2) (2) (2)
</Table>
7
<Page>
<Table>
<Caption>
APPROXIMATE AVERAGE
YEAR RENTABLE UNIT
YEAR MANAGEMENT NUMBER AREA SIZE
PROPERTY LOCATION COMPLETED COMMENCED OF UNITS (SQUARE FT.) (SQUARE FT.)
- -------- --------------------- ------------- ---------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Terraces at Fieldstone.............. Conyers, GA 1999 1998 316 351,076 1,111
Whispering Pines.................... LaGrange, GA 1982/84 1997 216 223,128 1,033
Westbury Springs.................... Lilburn, GA 1983 1997 150 137,700 918
Austin Chase........................ Macon, GA 1996 1997 256 292,864 1,144
The Vistas.......................... Macon, GA 1985 997 144 153,792 1,068
Georgetown Grove.................... Savannah, GA 1997 1998 220 239,800 1,090
Island Retreat...................... St. Simons Island, GA 1978 1998 112 129,584 1,157
Wildwood I.......................... Thomasville, GA 1980 1997 120 123,960 1,033
Wildwood II......................... Thomasville, GA 1984 1997 96 99,168 1,033
Hidden Lake I....................... Union City, GA 1985 1997 160 171,200 1,070
Hidden Lake II...................... Union City, GA 1987 1997 160 171,200 1,070
Three Oaks I........................ Valdosta, GA 1983 1997 120 123,960 1,033
Three Oaks II....................... Valdosta, GA 1984 1997 120 123,960 1,033
Huntington Chase.................... Warner Robins, GA 1997 2000 200 218,400 1,092
Southland Station I................. Warner Robins, GA 1987 1997 160 186,720 1,167
Southland Station II................ Warner Robins, GA 1990 1997 144 168,048 1,167
Terraces at Towne Lake.............. Woodstock, GA 1998 1997 264 286,968 1,087
Terraces at Towne Lake II........... Woodstock, GA 1999 1998 238 272,986 1,147
------ ---------- -----
5,467 5,857,184 1,071
------ ---------- -----
Fairways at Hartland................ Bowling Green, KY 1996 1997 240 251,280 1,047
Paddock Club Florence............... Florence, KY 1994 1997 200 207,000 1,035
Lakepointe.......................... Lexington, KY 1986 1994 118 90,624 768
Mansion, The........................ Lexington, KY 1989 1994 184 138,736 754
Village, The........................ Lexington, KY 1987 1994 252 182,700 725
Stonemill Village................... Louisville, KY 1985 1994 384 324,096 844
------ ---------- -----
1,378 1,194,436 867
------ ---------- -----
Riverhills.......................... Grenada, MS 1972 1985 96 81,984 854
Crosswinds.......................... Jackson, MS 1988/89 1996 360 443,160 1,231
Pear Orchard........................ Jackson, MS 1985 1994 389 338,430 870
Reflection Pointe................... Jackson, MS 1986 1988 296 254,856 861
Somerset............................ Jackson, MS 1980 1995 144 126,864 881
Woodridge........................... Jackson, MS 1987 1988 192 175,104 912
------ ---------- -----
1,477 1,420,398 962
------ ---------- -----
Hermitage at Beechtree.............. Cary, NC 1988 1997 194 169,750 875
Corners, The........................ Winston-Salem. NC 1982 1993 240 173,520 723
------ ---------- -----
434 343,270 791
------ ---------- -----
Fairways at Royal Oak............... Cincinnati, OH 1988 1994 214 214,428 1,002
------ ---------- -----
Woodwinds........................... Aiken, SC 1988 1997 144 165,168 1,147
<Caption>
ENCUMBRANCES AT
RENT PER AVERAGE DECEMBER 31, 2001
UNIT OCCUPANCY ---------------------------------
UNIT AT % AT MORTGAGE
DECEMBER 31, DECEMBER 31, PRINCIPAL INTEREST MATURITY
PROPERTY 2001 2001 (000'S) RATE DATE
- -------- ------------- ------------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Terraces at Fieldstone.............. $861 91.14% $ --(1) (1) (1)
Whispering Pines.................... $590 86.57% $ 2,390 6.150% 12/1/2024
Westbury Springs.................... $719 92.00% $ --(1) (1) (1)
Austin Chase........................ $690 96.48% $ --(6) (6) (6)
The Vistas.......................... $620 7.22% $ 3,885 6.230% 3/1/2028
Georgetown Grove.................... $744 96.82% $ 10,358 7.750% 7/1/2037
Island Retreat...................... $727 87.50% $ 3,243 7.215% 3/1/2003
Wildwood I.......................... $526 97.50% $ --(1) (1) (1)
Wildwood II......................... $551 95.83% $ 1,916 6.573% 7/1/2024
Hidden Lake I....................... $711 93.13% $ 4,310 6.340% 12/1/2026
Hidden Lake II...................... $687 94.38% $ --(2) (2) (2)
Three Oaks I........................ $551 95.00% $ --(1) (1) (1)
Three Oaks II....................... $568 93.33% $ 2,780 6.259% 7/1/2024
Huntington Chase.................... $690 97.50% $ 9,397 6.850% 11/1/2008
Southland Station I................. $673 91.88% $ --(2) (2) (2)
Southland Station II................ $695 90.28% $ --(1) (1) (1)
Terraces at Towne Lake.............. $844 87.50% $ 14,997 8.250% 1/1/2037
Terraces at Towne Lake II........... $852 85.71% $ --(1) (1) (1)
---- ------ --------
$680 93.10% $ 64,291
---- ------ --------
Fairways at Hartland................ $621 96.67% $ --(1) (1) (1)
Paddock Club Florence............... $763 86.50% $ 9,502 7.250% 2/1/2036
Lakepointe.......................... $593 97.46% $ --(2) (2) (2)
Mansion, The........................ $596 97.83% $ --(1) (1) (1)
Village, The........................ $606 90.08% $ --(2) (2) (2)
Stonemill Village................... $618 91.67% $ --(1) (1) (1)
---- ------ --------
$632 92.82% $ 9,502
---- ------ --------
Riverhills.......................... $407 91.67% $ --(1) (1) (1)
Crosswinds.......................... $630 93.89% $ --(2) (2) (2)
Pear Orchard........................ $607 92.03% $ --(2) (2) (2)
Reflection Pointe................... $609 95.95% $ 5,880 5.037% 6/15/2008
Somerset............................ $533 94.44% $ --(2) (2) (2)
Woodridge........................... $548 96.35% $ 4,549 6.500% 10/1/2027
---- ------ --------
$585 94.04% $ 10,429
---- ------ --------
Hermitage at Beechtree.............. $716 91.75% $ --(2) (2) (2)
Corners, The........................ $590 93.75% $ 3,818 7.850% 6/15/2003
---- ------ --------
$646 92.86% $ 3,818
---- ------ --------
Fairways at Royal Oak............... $661 88.32% $ --(2) (2) (2)
---- ------ --------
Woodwinds........................... $655 98.61% $ 3,387 8.840% 6/1/2005
</Table>
8
<Page>
<Table>
<Caption>
APPROXIMATE AVERAGE
YEAR RENTABLE UNIT
YEAR MANAGEMENT NUMBER AREA SIZE
PROPERTY LOCATION COMPLETED COMMENCED OF UNITS (SQUARE FT.) (SQUARE FT.)
- -------- --------------------- ------------- ---------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Tanglewood.......................... Anderson, SC 1980 1994 168 140,784 838
Paddock Club-Columbia............... Columbia, SC 1989/95 1997 336 367,584 1,094
The Fairways........................ Columbia, SC 1992 1994 240 213,840 891
Highland Ridge...................... Greenville, SC 1984 1995 168 143,976 857
Howell Commons...................... Greenville, SC 1986/88 1997 348 292,668 841
Paddock Club-Greenville............. Greenville, SC 1996 1997 208 212,160 1,020
Park Haywood........................ Greenville, SC 1983 1993 208 156,832 754
Spring Creek........................ Greenville, SC 1985 1995 208 182,000 875
Runaway Bay......................... Mt. Pleasant, SC 1988 1995 208 177,840 855
Park Place.......................... Spartanburg, SC 1987 1997 184 195,224 1,061
------ ---------- -----
2,420 2,248,076 929
------ ---------- -----
Steeplechase........................ Chattanooga, TN 1986 1991 108 98,604 913
Windridge........................... Chattanooga, TN 1984 1997 174 238,728 1,372
Oaks, The........................... Jackson, TN 1978 1993 100 87,500 875
Post House Jackson.................. Jackson, TN 1987 1989 150 163,650 1,091
Post House North.................... Jackson, TN 1987 1989 144 144,720 1,005
Bradford Chase...................... Jackson, TN 1987 1994 148 121,360 820
Woods at Post House................. Jackson, TN 1997 1995 122 118,950 975
Crossings........................... Memphis, TN 1973 1991 80 90,000 1,125
Eastview............................ Memphis, TN 1973 1984 432 356,400 825
Gleneagles.......................... Memphis, TN 1975 1990 184 189,520 1,030
Greenbrook Memphis, TN 1980 1988 1,037 939,522 906
Hickory Farm........................ Memphis, TN 1985 1994 200 150,200 751
Kirby Station....................... Memphis, TN 1978 1994 371 310,156 836
Lincoln on the Green................ Memphis, TN 1988/98 1994 618 535,188 866
Park Estate......................... Memphis, TN 1974 1977 82 96,924 1,182
Reserve at Dexter Lake I............ Memphis, TN 1999 998 252 262,332 1,041
River Trace I....................... Memphis, TN 1981 1997 244 205,692 843
River Trace II...................... Memphis, TN 1985 1997 196 165,228 43
Savannah Creek...................... Memphis, TN 1989 1996 204 237,048 1,162
Sutton Place........................ Memphis, TN 1991 1996 253 268,686 1,062
Paddock Club-Murfreesboro........... Murfreesboro, TN 1999 1998 240 268,800 1,120
Brentwood Downs..................... Nashville, TN 1986 1994 286 220,220 770
Park at Hermitage................... Nashville, TN 1987 1995 440 392,480 892
------ ---------- -----
6,065 5,661,908 934
------ ---------- -----
Balcones Woods...................... Austin, TX 1983 1997 384 313,728 817
Stassney Woods...................... Austin, TX 1985 1995 288 248,832 864
Travis Station...................... Austin, TX 1987 1995 304 249,888 822
Celery Stalk........................ Dallas, TX 1978 1994 410 374,740 914
Courtyards at Campbell.............. Dallas, TX 1986 1998 232 168,200 725
Deer Run............................ Dallas, TX 1985 1998 304 206,720 680
Lodge at Timberglen................. Dallas, TX 1983 1994 260 226,200 870
Westborough Crossing................ Katy, TX 1984 1994 274 197,280 720
Kenwood Club........................ Katy, TX 2000 1999 320 318,080 994
Highwood............................ Plano, TX 1983 1998 196 156,800 800
Cypresswood Court................... Spring, TX 1984 1994 208 160,576 772
<Caption>
ENCUMBRANCES AT
RENT PER AVERAGE DECEMBER 31, 2001
UNIT OCCUPANCY ---------------------------------
UNIT AT % AT MORTGAGE
DECEMBER 31, DECEMBER 31, PRINCIPAL INTEREST MATURITY
PROPERTY 2001 2001 (000'S) RATE DATE
- -------- ------------- ------------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Tanglewood.......................... $563 94.05% $ 2,216 7.600% 11/15/2002
Paddock Club-Columbia............... $702 97.02% $ --(1) (1) (1)
The Fairways........................ $648 92.92% $ 7,735 5.287% 6/15/2008
Highland Ridge...................... $533 89.88% $ --(8) (8) (8)
Howell Commons...................... $545 91.09% $ --(2) (2) (2)
Paddock Club-Greenville............. $721 89.90% $ --(1) (1) (1)
Park Haywood........................ $569 88.46% $ --(2) (2) (2)
Spring Creek........................ $571 91.83% $ --(8) (8) (8)
Runaway Bay......................... $735 95.19% $ --(8) (8) (8)
Park Place.......................... $628 95.65% $ --(2) (2) (2)
---- ------ --------
$626 93.10% $ 13,337
---- ------ --------
Steeplechase........................ $599 97.22% $ --(2) (2) (2)
Windridge........................... $681 93.68% $ 5,202 6.314% 12/1/2024
Oaks, The........................... $552 84.00% $ --(1) (1) (1)
Post House Jackson.................. $617 88.00% $ 4,949 8.170% 10/1/2027
Post House North.................... $623 88.89% $ 3,375 5.037% 6/15/2008
Bradford Chase...................... $562 93.24% $ --(2) (2) (2)
Woods at Post House................. $666 96.72% $ 5,189 7.250% 9/1/2035
Crossings........................... $752 83.75% $ --
Eastview............................ $538 84.72% $ 11,481 7.320% 4/1/2009
Gleneagles.......................... $622 88.04% $ --(1) (1) (1)
Greenbrook $582 84.96% $ --(3) (3) (3)
Hickory Farm........................ $585 96.00% $ --(1) (1) (1)
Kirby Station....................... $622 90.84% $ --(2) (2) (2)
Lincoln on the Green................ $678 85.92% $ --(7) (7) (7)
Park Estate......................... $832 91.46% $ --(3) (3) (3)
Reserve at Dexter Lake I............ $800 92.06% $ --(4) (4) (4)
River Trace I....................... $555 99.18% $ --(1) (1) (1)
River Trace II...................... $586 96.94% $ 5,407 6.380% 2/1/2026
Savannah Creek...................... $657 93.63% $ --(2) (2) (2)
Sutton Place........................ $642 91.70% $ --(2) (2) (2)
Paddock Club-Murfreesboro........... $797 94.17% $ --(1) (1) (1)
Brentwood Downs..................... $689 95.45% $ --(1) (1) (1)
Park at Hermitage................... $630 92.27% $ 7,300 5.790% 2/1/2019
---- ------ --------
$634 90.21% $ 42,899
---- ------ --------
Balcones Woods...................... $766 93.23% $ --(1) (1) (1)
Stassney Woods...................... $689 96.88% $ 4,340 6.600% 4/1/2019
Travis Station...................... $636 93.09% $ 3,835 6.600% 4/1/2019
Celery Stalk........................ $678 92.20% $ 8,460 9.006% 12/1/2004
Courtyards at Campbell.............. $689 89.66% $ --(1) (1) (1)
Deer Run............................ $644 92.11% $ --(1) (1) (1)
Lodge at Timberglen................. $690 87.31% $ 4,740 9.006% 12/1/2004
Westborough Crossing................ $576 94.16% $ 3,958 9.006% 12/1/2004
Kenwood Club........................ $804 97.19% $ --(1) (1) (1)
Highwood............................ $713 89.29% $ --(3) (3) (3)
Cypresswood Court................... $577 97.60% $ 3,330 9.006% 12/1/2004
</Table>
9
<Page>
<Table>
<Caption>
APPROXIMATE AVERAGE
YEAR RENTABLE UNIT
YEAR MANAGEMENT NUMBER AREA SIZE
PROPERTY LOCATION COMPLETED COMMENCED OF UNITS (SQUARE FT.) (SQUARE FT.)
- -------- --------------------- ------------- ---------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Green Tree Place.................... Woodlands, TX 1984 1994 200 152,200 761
------ ---------- -----
3,380 2,773,244 820
------ ---------- -----
Township............................ Hampton, VA 1987 1995 296 248,048 838
------ ---------- -----
TOTAL COMPLETED AND OWNED
PROPERTIES.................... 29,375 27,865,188 949
------ ---------- -----
JOINT VENTURE PROPERTIES:
Colony at South Park................ Aiken , SC 1989/91 1997 184 174,800 950
Lane at Towne Crossing.............. Mesquite, TX 1983 1994 384 277,632 723
Northwood........................... Arlington, TX 1980 1998 270 224,100 830
Walden Run.......................... McDonough, GA 1997 998 240 271,200 1,130
Woods, The.......................... Austin, TX 1977 1997 278 214,060 770
Woodstream.......................... Greensboro, NC 1983 1994 304 217,056 714
Cedar Mill.......................... Memphis, TN 1973/86 1982/94 276 297,804 1,079
Hamilton Pointe..................... Chattanooga, TN 1989 1992 361 256,671 711
Hidden Creek........................ Chattanooga, TN 1987 1988 300 259,200 864
Lakeshore Landing................... Ridgeland, MS 1974 1994 196 171,108 873
------ ---------- -----
TOTAL JOINT VENTURE
PROPERTIES.................... 2,793 2,363,631 846
------ ---------- -----
DEVELOPMENT PROPERTIES:
Reserve at Dexter Lake Phase II..... Memphis, TN 2000 1999 244 257,176 1,054
Reserve at Dexter Lake Phase III.... Memphis, TN 2001 2000 196 206,584 1,054
Grand Reserve Lexington............. Lexington, KY 2000 1999 370 432,530 1,169
Grand View Nashville................ Nashville, TN 2001 1999 433 479,331 1,107
------ ---------- -----
TOTAL DEVELOPMENT PROPERTIES.... 1,243 1,375,621 1,107
------ ---------- -----
TOTAL PROPERTIES................ 33,411 31,604,440 946
====== ========== =====
<Caption>
ENCUMBRANCES AT
RENT PER AVERAGE DECEMBER 31, 2001
UNIT OCCUPANCY ---------------------------------
UNIT AT % AT MORTGAGE
DECEMBER 31, DECEMBER 31, PRINCIPAL INTEREST MATURITY
PROPERTY 2001 2001 (000'S) RATE DATE
- -------- ------------- ------------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Green Tree Place.................... $631 100.00% $ 3,180 9.006% 12/1/2004
---- ------ --------
$680 93.49% $ 31,843
---- ------ --------
Township............................ $674 98.31% $ 10,800 2.900% 2/1/2028
---- ------ --------
TOTAL COMPLETED AND OWNED
PROPERTIES.................... $660 92.73% $220,360
---- ------ --------
JOINT VENTURE PROPERTIES:
Colony at South Park................ $632 97.83% N/A
Lane at Towne Crossing.............. $599 89.32% N/A
Northwood........................... $578 97.04% N/A
Walden Run.......................... $766 89.17% N/A
Woods, The.......................... $774 95.32% N/A
Woodstream.......................... $582 94.74% N/A
Cedar Mill.......................... $611 90.22% N/A
Hamilton Pointe..................... $500 95.84% N/A
Hidden Creek........................ $515 95.67% N/A
Lakeshore Landing................... $559 95.41% N/A
---- ------ --------
TOTAL JOINT VENTURE
PROPERTIES.................... $605 93.84% $ --
---- ------ --------
DEVELOPMENT PROPERTIES:
Reserve at Dexter Lake Phase II..... $847 87.04% $ --(4) (4) (4)
Reserve at Dexter Lake Phase III.... $802 8.16% $ --(4) (4) (4)
Grand Reserve Lexington............. $977 82.97% $ --(4) (4) (4)
Grand View Nashville................ $954 77.08% $ --(4) (4) (4)
---- ------ --------
TOTAL DEVELOPMENT PROPERTIES.... $916 69.92% $ --
---- ------ --------
TOTAL PROPERTIES................ $665 91.98% $220,360
==== ====== ========
</Table>
- ----------------------------------
(1) Encumbered by the FNMA Facility, with an outstanding balance of $81.7
million with a variable interest rate of 2.782%, $65 million with a fixed
rate of 7.712%, $25 million with a fixed rate of 6.920%, $20 million with a
fixed rate of 5.770% and four interest rate swap agreements all for $25
million at 7.4125%, 7.390%, 6.195% and 6.330% at December 31, 2001.
(2) Encumbered by a $142 million bond with a maturity of March 3, 2003 and an
average interest rate of 6.376%
(3) Encumbered, along with one corporate property, by a $35.1 million mortgage
with a maturity of October 1, 2006 and an interest rate of 6.05%
(4) Encumbered by the AmSouth Credit Line, with no outstanding balance at
December 31, 2001,with a variable interest rate of 3.23125%.
(5) Encumbered by a $15.2 million mortgage securing a tax-exempt bond amortizing
over 25 years with an average interest rate of 5.750%
(6) Encumbered by a $13.5 million mortgage securing a tax-exempt bond amortizing
over 25 years with an average interest rate of 5.281%
(7) Encumbered by a $47.5 million mortgage with a maturity of December 15, 2004
and an interest rate of 6.040%
(8) Encumbered by a $9.4 million mortgage securing a tax-exempt bond amortizing
over 25 years with an average interest rate of 6.090%
10
<Page>
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently subject to any material litigation nor, to the
Company's knowledge, is any material litigation threatened against the Company,
other than routine litigation arising in the ordinary course of business, some
of which is expected to be covered by liability insurance and none of which is
expected to have a material adverse effect on the business, financial condition,
liquidity or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock has been listed and traded on the New York Stock
Exchange ("NYSE") under the symbol "MAA" since its initial public offering in
February 1994. On March 15, 2002, the reported last sale price of the Company's
common stock on the NYSE was $25.84 per share, and there were approximately
1,700 holders of record of the common stock. The Company estimates there are
approximately 14,500 beneficial owners of its common stock. The following table
sets forth the quarterly high and low sales prices of the Company's common stock
as reported on the NYSE and the dividends declared by the Company with respect
to the periods indicated.
<Table>
<Caption>
SALES PRICES
------------------- DIVIDENDS
HIGH LOW DECLARED
-------- -------- ---------
<S> <C> <C> <C>
2000:
First Quarter.................................... $23.375 $22.000 $.580
Second Quarter................................... $24.500 $22.375 $.580
Third Quarter.................................... $24.875 $23.000 $.580
Fourth Quarter................................... $23.875 $21.250 $.585
2001:
First Quarter.................................... $23.875 $21.730 $.585
Second Quarter................................... $25.750 $22.420 $.585
Third Quarter.................................... $26.420 $24.400 $.585
Fourth Quarter................................... $26.760 $24.400 $.585
</Table>
The Company's quarterly dividend rate is currently $0.585 per common share.
The Board of Directors reviews and declares the dividend rate quarterly. Actual
dividends made by the Company will be affected by a number of factors, including
the gross revenues received from the Communities, the operating expenses of the
Company, the interest expense incurred on borrowings and unanticipated capital
expenditures.
The Company pays a preferential regular distribution on the Series A,
Series B, Series C and Series E Preferred Stock at annual rates of $2.375,
$2.21875, $2.34375 and $2.375 per share, respectively. No distribution may be
made on the Company's common stock unless all accrued distributions have been
made with respect to each series of preferred stock. No assurance can be given
that the Company will be able to maintain its distribution rate on its common
stock or make required distributions with respect to the Series A, Series B,
Series C, and Series E Preferred Stock.
Future distributions by the Company will be at the discretion of the Board
of Directors and will depend on the actual funds available for distribution of
the Company, its financial condition, capital requirements, the annual
distribution requirements under the REIT provisions of the Internal Revenue Code
and such other factors as the Board of Directors deems relevant.
11
<Page>
In 1999, the Company implemented the Direct Stock Purchase and Distribution
Reinvestment Plan (the "DSPDRP") under which holders of common stock (and
Series A, Series B, Series C and Series E Preferred Stock) can elect
automatically to reinvest their distributions in additional shares of common
stock and/or to make optional purchases of common stock free of brokerage
commissions and charges. Shares purchased directly from the Company pursuant to
the DSPDRP are purchased at up to a 5% discount from their fair market value at
the Company's discretion. To fulfill its obligations under the DSPDRP, the
Company may either issue additional shares of common stock or repurchase common
stock in the open market. During 2001, no shares were purchased at a discount.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data on an historical
basis for the Company. This data should be read in conjunction with the
consolidated financial statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Annual Report on Form 10-K.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues.................................. $ 228,039 $ 224,640 $ 226,322 $ 215,543 $ 139,116
Expenses:
Property operating expenses................... 84,584 83,446 84,885 79,917 52,404
Depreciation and amortization................. 52,051 51,844 49,903 46,021 27,737
General and administrative and property
management expenses......................... 16,083 14,826 14,479 11,960 6,602
Interest...................................... 52,598 50,736 48,302 45,704 28,943
Amortization of deferred financing costs...... 2,352 2,758 2,854 2,348 888
Gain on dispositions, net....................... 11,933 11,587 10,237 408 --
---------- ---------- ---------- ---------- ----------
Income before minority interest in operating
partnership income and extraordinary items...... 32,304 32,617 36,136 30,001 22,542
Minority interest in operating partnership
income.......................................... (2,573) (2,626) (2,497) (2,254) (2,693)
Extraordinary items............................... (1,033) (204) (67) (990) (8,622)
---------- ---------- ---------- ---------- ----------
Net income........................................ 28,698 29,787 33,572 26,757 11,227
Preferred dividends............................... 16,113 16,114 16,114 11,430 5,252
---------- ---------- ---------- ---------- ----------
Net income available for common shareholders...... $ 12,585 $ 13,673 $ 17,458 $ 15,327 $ 5,975
========== ========== ========== ========== ==========
PER SHARE DATA:
Basic and diluted:
Before extraordinary items.................... $ 0.78 $ 0.79 $ 0.93 $ 0.87 $ 1.05
Extraordinary items........................... (0.06) (0.01) -- (0.05) (0.62)
---------- ---------- ---------- ---------- ----------
Net income available per common share......... $ 0.72 $ 0.78 $ 0.93 $ 0.82 $ 0.43
========== ========== ========== ========== ==========
Dividends declared.............................. $ 2.340 $ 2.325 $ 2.305 $ 2.225 $ 2.155
BALANCE SHEET DATA:
Real estate owned, at cost...................... $1,449,720 $1,430,378 $1,396,743 $1,434,733 $1,211,693
Real estate owned, net.......................... $1,216,933 $1,244,475 $1,248,051 $1,315,368 $1,134,704
Total assets.................................... $1,263,488 $1,303,771 $1,298,823 $1,366,427 $1,193,870
Total debt...................................... $ 779,664 $ 781,089 $ 744,238 $ 753,427 $ 632,213
Minority interest............................... $ 46,431 $ 51,383 $ 56,060 $ 61,441 $ 62,865
Shareholders' equity............................ $ 395,829 $ 433,993 $ 463,884 $ 517,299 $ 461,300
Weighted average common shares (000's):
Basic......................................... 17,427 17,544 18,784 18,725 13,892
Diluted....................................... 17,532 17,597 18,808 18,770 13,955
</Table>
12
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OTHER DATA (AT END OF PERIOD):
Market capitalization (shares and units)........ $ 709,224 $ 634,903 $ 639,095 $ 670,123 $ 710,175
Ratio of total debt to total
capitalization(1)............................. 52.4% 55.2% 53.8% 52.9% 47.1%
Number of properties with ownership interest.... 122 124 129 129 116
Number of apartment units with ownership
interest...................................... 33,411 33,612 33,901 33,831 30,579
</Table>
- --------------------------
(1) Total capitalization is total debt and market capitalization of preferred
shares (value based on $25 per share liquidation preference), common shares
and partnership units (value based on common stock equivalency).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following discussion and analysis of financial condition and results of
operations are based upon the Company's consolidated financial statements, and
the notes thereto, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these consolidated financial statements requires the Company to make a number
of estimates and assumptions that affect the reported amounts and disclosures in
the consolidated financial statements. On an ongoing basis, the Company
evaluates its estimates and assumptions based upon historical experience and
various other factors and circumstances. The Company believes that its estimates
and assumptions are reasonable in the circumstances; however, actual results may
differ from these estimates and assumptions under different future conditions.
The Company believes that the estimates and assumptions that are most
important to the portrayal of its financial condition and results of operations,
in that they require the most subjective judgments, form the basis of accounting
policies deemed to be most critical. These critical accounting policies include
capitalization of expenditures and depreciation of assets, impairment of
long-lived assets, including goodwill, and fair value of derivative financial
instruments.
CAPITALIZATION OF EXPENDITURES AND DEPRECIATION OF ASSETS
The Company carries its real estate assets at their depreciated cost.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the related assets, which range from 8 to 40 years for land
improvements and buildings, to 5 years for furniture, fixtures, and equipment,
all of which are judgmental determinations. Repairs and maintenance costs are
expensed as incurred while significant improvements, renovations, and
replacements are capitalized. The cost to complete any deferred repairs and
maintenance at properties acquired by the Company in order to elevate the
condition of the property to the Company's standards are capitalized as
incurred.
IMPAIRMENT OF LONG-LIVED ASSETS, INCLUDING GOODWILL
The Company accounts for long-lived assets, including goodwill, in
accordance with the provisions of SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Company
periodically evaluates its long-lived assets, including its investments in real
estate and goodwill, for indicators that would suggest that the carrying amount
of the assets may not be recoverable. The judgments regarding the existence of
such indicators are based on factors such as operating performance, market
conditions, costs to complete development projects, and legal factors. Future
events could occur which would cause the Company to conclude that impairment
indicators exist and that the Company should record an impairment loss.
13
<Page>
FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes certain derivative financial instruments during the
normal course of business to manage, or hedge, its interest rate risk associated
with the Company's variable rate debt or as hedges in anticipation of future
debt transactions to manage well-defined interest rate risk associated with the
transaction. The valuation of the derivative financial instruments under SFAS
No. 133 requires the Company to make estimates and judgments that affect the
fair value of the instruments.
OVERVIEW
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the years ended December 31, 2001,
2000, and 1999. This discussion should be read in conjunction with all of the
consolidated financial statements included in this Annual Report on Form 10-K.
As of December 31, 2001, the total number of apartment units the Company
owned or had an ownership interest in, including the 10 properties containing
2,793 apartment units owned by the Joint Venture was 33,411 in 122 Communities,
compared to the 33,612 units in 124 Communities owned at December 31, 2000 and
33,901 in 129 Communities owned at December 31, 1999. For properties owned 100%
by the Company, the average monthly rental per apartment unit, excluding units
in lease-up, increased to $660 at December 31, 2001 from $642 at December 31,
2000 and $610 at December 31, 1999. For these same units, overall occupancy at
December 31, 2001, 2000 and 1999 was 92.7%, 94.2% and 94.6%, respectively.
FUNDS FROM OPERATIONS
Funds from operations ("FFO") represents net income (computed in accordance
with accounting principles generally accepted in the United States of America,
or "GAAP") excluding extraordinary items, minority interest in Operating
Partnership income, gain or loss on disposition of real estate assets, plus
depreciation and amortization related to real estate, and adjustments for the
Joint Venture to reflect FFO on the same basis. This definition of FFO is in
accordance with the National Association of Real Estate Investment Trust's
("NAREIT") recommended definition.
The Company's policy is to expense the cost of interior painting, vinyl
flooring, and blinds as incurred for stabilized properties. During the
stabilization period for acquisition properties, these items are capitalized as
part of the total repositioning program of newly acquired properties, and, thus
are not deducted in calculating FFO.
FFO should not be considered as an alternative to net income or any other
GAAP measurement of performance, as an indicator of operating performance or as
an alternative to cash flow from operating, investing, and financing activities
as a measure of liquidity. The Company believes that FFO is helpful in
understanding the Company's results of operations in that such calculation
reflects the Company's ability to support interest payments and general
operating expenses before the impact of certain activities such as changes in
other assets and accounts payable. The Company's calculation of FFO may differ
from the methodology for calculating FFO utilized by other REITs and,
accordingly, may not be comparable to such other REITs.
FFO decreased during 2001 by approximately $244,000 to $57,212,000 versus
$57,456,000 in 2000, principally because revenue increases were insufficient to
completely offset the impact of property dispositions and the carrying cost of
asset still in lease-up and development. Over the last three years, the Company
has sold a total of 6,405 units under its disposition strategy, discussed
earlier in this Annual Report, and reallocated the majority of the proceeds from
those sales to the reduction of debt, the share repurchase program and the
completion of the development pipeline, all uses which management believes have
increased remaining shareholder value.
14
<Page>
For the three years ended December 31, 2001, 2000 and 1999, FFO is
calculated as follows (dollars in thousands):
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
------------------------------
2001 2000 1999
-------- -------- --------
<S> <C> <C> <C>
Net income available for common shareholders................ $12,585 $13,673 $17,458
Real estate depreciation and amortization................... 51,457 51,330 49,188
Adjustment for joint venture depreciation................... 1,268 1,210 741
Minority interest........................................... 2,573 2,626 2,497
Gain on dispositions, net................................... (11,933) (11,587) (10,237)
Gain on sale of non-depreciable assets...................... 229 -- --
Extraordinary items--loss on early extinguishment of debt... 1,033 204 67
------- ------- -------
Funds from operations....................................... $57,212 $57,456 $59,714
======= ======= =======
Weighted average shares and units:
Basic..................................................... 20,359 20,498 21,794
Diluted................................................... 20,464 20,551 21,817
</Table>
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2001 TO THE YEAR ENDED DECEMBER 31,
2000
During 2001 the Company completed development of 365 total apartment units
in 2 existing communities and sold 2 communities containing 572 total units.
Property revenues for 2001 increased by approximately $3,738,000 due
primarily to increases of (i) $7,041,000 from the development communities,
(ii) $1,395,000 from the communities owned throughout both periods, and
(iii) $1,157,000 from the acquisitions of the Huntington Chase and Indigo Point
apartments in 2000 ("2000 Acquisitions"). These increases were partially offset
by decreases of (i) $4,382,000 due to the sales of the Pine Trails, MacArthur
Ridge, Clearbrook Village, McKellar Woods, Winchester Square, Whispering Oaks,
2000 Wynnton, Riverwind and Hollybrook apartments in 2000 ("2000 Dispositions"),
and (ii) $1,473,000 due to the sales of the Advantages and Canyon Creek
apartments in 2001 ("2001 Dispositions").
Property revenues in 2000 included approximately $787,000 of one-time
ancillary income fees from an agreement made with an internet service provider.
This agreement was terminated early in 2001.
Property operating expenses include costs for property personnel, building
repairs and maintenance, real estate taxes and insurance, utilities, landscaping
and other property related costs. As a percentage of total property revenues,
property operating expenses remained relatively flat at 37.4% in 2001 compared
to 37.5% in 2000. Property operating expenses for 2001 increased by
approximately $1,138,000 due primarily to increases of (i) $2,614,000 due to the
development communities, (ii) $646,000 due to the communities owned throughout
both periods, and (iii) $331,000 due to the 2000 Acquisitions. These increases
were partially offset by decreases of (i) $1,980,000 from the 2000 Dispositions,
and (ii) $473,000 from the 2001 Dispositions.
Depreciation and amortization expense increased by approximately $207,000
primarily due to increases of (i) $971,000 due to the development communities,
(ii) $353,000 due to communities owned throughout both periods, and
(iii) $288,000 due to the 2000 Acquisitions. These increases were partially
offset by decreases of (i) $1,099,000 from the 2000 Dispositions, and
(ii) $306,000 from the 2001 Dispositions. Amortization of costs in excess of
fair value of net assets ("goodwill") acquired was $259,000 and $312,000, for
2001 and 2000, respectively, which is included in depreciation and amortization
in the accompanying consolidated statements of operations.
15
<Page>
General and administrative expense increased 10.6% or $562,000 as compared
to the prior year. The most significant items contributing to the increase were
airplane costs, which increased $312,000 due to unusually high repair and
maintenance experienced during the current year coupled with other travel costs
while the repairs were being made, D&O insurance, which increased $110,000 due
to increasing premiums, and bank service charges, which increased $140,000 due
to the reduction of cash balances held by the Company throughout the year.
Management remains focused on maintaining the efficiency of the support
functions, and based on current plans expects general and administrative costs
to sustain inflationary level increases over the next year.
Property management expenses increased 7.3% or $695,000 as compared to the
prior year. The most significant items contributing to the increase were
landscape expenses, which increased by $306,000 predominantly due to increased
vendor charges, and franchise and excise taxes, which increased by $261,000 as a
result of the settlement of disputed prior years' tax assessments.
Interest expense increased $1,862,000 due primarily to the movement of
capitalized interest to interest expense as development properties were
completed in 2001. This increase was partially offset by the Company's ability
to take advantage of the fall in interest rates in the second half of 2001. The
Company's average borrowing cost at December 31, 2001 was 6.3% as compared to
7.1% on December 31, 2000. The average maturity on the Company's debt was
10.0 years at December 31, 2001. Amortization of deferred financing costs was
$2,352,000 and $2,758,000 for 2001 and 2000, respectively.
For the year ended December 31, 2001, the Company recorded a net gain on
disposition of assets totaling $11,933,000 primarily related to the disposition
of the two properties during the year. For the year ended December 31, 2000, the
Company recorded a net gain on disposition of assets totaling $11,587,000
primarily related to the disposition of the nine properties during the year of
which two were non-taxable exchanges.
In 2001, the Company recorded an extraordinary loss of approximately
$1,033,000, net of minority interest, from the early extinguishment of debt
related to the property dispositions during the year. In 2000, the Company
recorded an extraordinary loss of approximately $204,000, net of minority
interest, from the early extinguishment of debt related to the property
dispositions during the year.
As a result of the foregoing, income before minority interest and
extraordinary items for the year ended December 31, 2001 decreased by $313,000
over 2000.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2000 TO THE YEAR ENDED DECEMBER 31,
1999
During 2000 the Company completed development of 1,173 total apartment units
in 2 new communities and 4 existing communities, sold 9 communities containing
1,902 total units and purchased 2 communities containing 440 units.
Property revenues for 2000 decreased by approximately $1,682,000 due
primarily to decreases of (i) $6,710,000 due to the sale of 10 properties to the
BRE/MAAC Associates, L.L.C. joint venture ("Joint Venture") in 1999,
(ii) $5,241,000 from the sale of the Hidden Oaks, Sailwinds at Lake Magdalene
and Regency Club apartments ("1999 Dispositions") in 1999, and (iii) $6,913,000
from the sale or exchange of the Pine Trails, MacArthur Ridge, Clearbrook
Village, Winchester Square, McKellar Woods, Whispering Oaks, Riverwind, 2000
Wynnton and Hollybrook apartments ("2000 Dispositions") in 2000. These decreases
were partially offset by increases of (i) $8,993,000 from the development
communities, (ii) $2,441,000 from the purchase of the Huntington Chase and
Indigo Point apartments ("2000 Acquisitions") in 2000, and (iii) $5,748,000 from
the communities owned throughout both periods.
Property revenues in 2000 included approximately $787,000 of ancillary
income from an agreement made with an internet service provider. This agreement
was terminated early in 2001.
16
<Page>
Property operating expenses include costs for property personnel, building
repairs and maintenance, real estate taxes and insurance, utilities, landscaping
and other property related costs. As a percentage of total property revenues,
property operating expenses decreased to 37.5% in 2000 from 37.9% in 1999. The
majority of the decrease is due to utility expenses that dropped from 4.1% of
property revenues in 1999 to 3.4% in 2000 as the Company continued to see
savings from its program to submeter units for water usage. Property operating
expenses for 2000 decreased by approximately $1,439,000 due primarily to
decreases of (i) $2,755,000 from the sale of 10 properties to the Joint Venture
in 1999, (ii) $2,578,000 from the 1999 Dispositions, and (iii) $3,018,000 from
the 2000 Dispositions. These decreases were partially offset by increases of
(i) $3,502,000 due to the development communities, (ii) $992,000 due to the 2000
Acquisitions, and (iii) $2,418,000 due to the communities owned throughout both
periods.
Depreciation and amortization expense increased by approximately $1,941,000
primarily due to (i) $494,000 from the 2000 Acquisitions, (ii) $3,538,000 from
the development communities, and (iii) $2,355,000 from the communities owned
throughout both periods. These increases were partially offset by decreases of
(i) $1,623,000 due to the sale of 10 properties to the Joint Venture in 1999,
(ii) $1,426,000 due to the 1999 Dispositions, and (iii) $1,397,000 due to the
2000 Dispositions. Amortization of costs in excess of fair value of net assets
("goodwill") acquired was $312,000 and $849,000, for 2000 and 1999,
respectively, which is included in depreciation and amortization in the
accompanying consolidated statements of operations. The decrease is primarily
related to reduction of goodwill originally recorded in connection with the
Flournoy Development Company ("Flournoy") acquisition, a large portion of which
was written off in June 1999 when the development and construction assets were
sold back to the former Flournoy principals.
Property management expenses increased 1.6% or $149,000 as compared to the
prior year.
General and administrative expense increased 3.9% or $198,000 as compared to
the prior year. The most significant item contributing to the increase was
airplane costs, which increased due to unusually high repair and maintenance
experienced during the current year coupled with other travel costs while the
repairs were being made. Management remains focused on maintaining the
efficiency of the support functions, and based on current plans expects general
and administrative costs to sustain inflationary level increases over the next
year.
Interest expense increased approximately $2,434,000 due primarily to
increased average borrowings related to the funding of the development pipeline
and the higher short term interest rate environment experienced during the early
quarters of 2000, which increased the cost of the Company's variable rate debt.
As the interest rate environment improved near the end of 2000, the Company
locked the rate on 86% of all outstanding debt versus 76% at December 31, 1999.
The Company's average borrowing cost at December 31, 2000 was 7.14% as compared
to 7.06% on December 31, 1999. The average maturity on the Company's debt was
10.9 years at December 31, 2000. Amortization of deferred financing costs was
$2,758,000 and $2,854,000 for 2000 and 1999, respectively.
For the year ended December 31, 2000, the Company recorded a net gain on
disposition of assets totaling $11,587,000 primarily related to the disposition
of the nine properties during the year of which two were non-taxable exchanges.
For the year ended December 31, 1999, the Company recorded a net gain on
disposition of assets totaling $10,237,000 from gains of (i) $9,264,000 from the
sale of ten communities to the Company's joint venture with Blackstone and
(ii) $5,004,000 from the sale of three communities during the year. These gains
were partially offset by a $4,031,000 loss on the sale of Flournoy Development
Company.
17
<Page>
In 2000, the Company recorded an extraordinary loss of approximately
$204,000, net of minority interest, from the early extinguishment of debt
related to the property dispositions during the year. In 1999, the Company
recorded an extraordinary loss of approximately $67,000, net of minority
interest, related to the early extinguishment of the mortgage for the Eastview
apartments.
As a result of the foregoing, income before minority interest and
extraordinary items for the year ended December 31, 2000 decreased by $3,519,000
over 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow provided by operating activities increased to $90,641 in 2001
from $71,164 in 2000 primarily related to the elimination of required escrow
accounts resulting from debt refinancings and refundings that occurred during
2001.
During 2001, the Company invested $16,497,000 in construction of new assets,
reduced from $53,389,000 during 2000. The Company expects to fund $537,000
during 2002 to complete the entire $300 million development program begun in
1997.
The following table summarizes the Company's remaining communities in
various stages of lease-up and construction as of December 31, 2001 (Dollars in
000's):
<Table>
<Caption>
ANTICIPATED
TOTAL COSTS TO FINISH INITIAL STABIL-
LOCATION UNITS DATE DATE OCCUPANCY IZATION
------------- -------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
COMPLETED COMMUNITIES IN
LEASE-UP:
Grand Reserve Lexington.................... Lexington, KY 370 $31,288 3Q 2000 4Q 1999 2Q 2002
Reserve at Dexter Lake II.................. Memphis, TN 244 15,973 2Q 2001 1Q 2000 2Q 2002
Grand View Nashville....................... Nashville, TN 433 36,313 2Q 2001 3Q 2000 2Q 2002
</Table>
<Table>
<Caption>
ANTICIPATED ANTICIPATED
TOTAL FORECASTED COSTS TO FINISH INITIAL STABIL-
LOCATION UNITS COST DATE DATE OCCUPANCY IZATION
------------- -------- ---------- -------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
DEVELOPMENT COMMUNITIES
UNDER CONSTRUCTION:
Reserve at Dexter Lake III....... Memphis, TN 244 $15,541 $15,004 1Q 2002 2Q 2001 4Q 2002
</Table>
The Company's projections assume that the three properties completed but
still under lease-up will substantially stabilize during 2002. At December 31,
2001, 847 of the 1,047 apartments were leased, and the Company believes that the
completion of stabilization of these properties in 2002 is highly likely. The
Company does not anticipate that its liquidity will be impacted should these
properties fail to stabilize in 2002.
The one remaining property that was still under construction at year-end had
22 of 244 units leased. The Company has forecast that this property will
stabilize late in 2002. Again, the Company does not anticipate any material lack
of liquidity should the property fail to stabilize in 2002, but it has
incorporated revenues from the lease-up into its 2002 projections. These
revenues are projected to total $470,000.
18
<Page>
Capital improvements to existing properties during 2001 totaled $19,365,000
of which the Company classified $11,567,000 as "Recurring Capital". Actual
capital expenditures are summarized below (Dollars in 000's):
<Table>
<Caption>
2001 2000
-------- --------
<S> <C> <C>
Recurring capital at stabilized properties................ $12,348 $12,697
Revenue enhancing capital at stabilized properties........ 6,173 3,973
Capital improvements to pre-stabilized properties......... -- 164
Corporate/Commercial capital improvements................. 844 635
------- -------
$19,365 $17,469
======= =======
</Table>
Net cash used in financing activities increased from $42,199,000 in the year
ending December 31, 2000 to $71,301,000 during 2001. During 2001 the Company
paid down its total debt outstanding by $2,614,000, mainly as a result of
property dispositions and by reducing its cash and restricted cash outstanding.
Also during 2001, the Company used a net of $3,280,000 to repurchase shares of
its common stock and distributed a total of $63,806,000 to unitholders, common
shareholders, and preferred shareholders.
At December 31, 2001, the Company had $291,719,000 outstanding of a
$295,000,000 secured credit facility with Prudential Mortgage Capital,
credit-enhanced by FNMA ("FNMA Facility"), which matures in 2009. The FNMA
facility provides for both fixed and variable rate borrowings, and at year-end
was fully drawn under the terms of the borrowing base calculations in effect.
The interest rate on the variable portion renews every 90 days and is based on
the FNMA Discount Mortgage Backed Security ("DMBS") rate on the date of renewal,
which has typically approximated three-month Libor less an average spread of
0.09%, plus a credit enhancement fee of 0.67% based on the outstanding
borrowings. The variable interest rate was 2.78% at December 31, 2001. Fixed
rate borrowings under the facility totaled $110 million at December 31, 2001, at
interest rates (inclusive of credit-enhancement fees) from 5.77% to 7.71%, and
maturities from 2006 to 2009.
Borrowings under the FNMA Facility were increased from $198,070,000 at the
end of 2000 to $291,719,000 at the end of 2001. The increase was used to
refinance borrowings during the year, including current maturities of debt of
$39,550,000 with Prudential and various other individual mortgages.
In June 2001, the Company completed the refinancing of three tax-free bonds
totaling $16,990,000 as part of a new tax-free bond credit facility with
Prudential Mortgage Capital, credit-enhanced by Fannie Mae (the "Tax-Free Bond
Facility").
During 2001, as a result of completing the majority of its construction
program, the Company reduced its credit facility with a group of banks from
$85 million to $70 million. At year-end, $32,035,070 was available to be
borrowed under the terms of this facility, and there were no outstanding amounts
under this facility except for $24,403,000 of letters of credit, predominately
used to credit-enhance certain tax-free bonds.
Compass Bank provides an unsecured credit facility to the Company from time
to time; there was $5 million outstanding under this facility at year-end.
The Company uses interest rate swaps to manage its current and future
interest rate risk. The Company has $100 million of interest rate swaps
outstanding of three-month Libor fixed leg and $25 million of interest rate
swaps outstanding of one-month Libor fixed leg, with expirations between 2003
and 2007, and which have to date proven to be highly efficient hedges of the
Company's variable rate debt. Through the use of these swaps the Company
believes it has effectively fixed the rate during these periods of $125 million
of variable rate borrowings issued through the FNMA Facility and
19
<Page>
Compass Bank, leaving only $61,719,000 of the FNMA Facility of which the
interest rate has not been hedged. The Company also issued a $16,990,000 swap of
the BMA Municipal index, expiring in June, 2008, effectively setting the rate of
the Tax-Free Bond Facility at 5.15% through this period, which is a highly
effective hedge. In 2001, the Company executed two $25 million forward interest
rate swaps of three-month Libor fixed leg: a two-year swap effective
March 2003, and a four-year swap effective September, 2003. These are intended
to reduce the interest rate risk of future planned refinancings.
The weighted average interest rate and the weighted average maturity at
December 31, 2001, for the $779.66 million of debt outstanding were 6.3% and
10.0 years, compared to 7.1% and 10.9 years at December 31, 2000.
In 2002, the Company has two individual mortgages that mature totaling
$11.6 million. The Company plans to refinance these mortgages, and in the event
of a sudden lack of liquidity in the debt markets, would pay off the mortgages
using its bank credit facility. The Company also has $4.0 million of scheduled
principal payments on amortizing mortgage debt, which it anticipates will be
funded from operating cash flow and the Company's credit facilities.
In 2003, the Company has debt maturities approximating $151 million, which
it anticipates will be funded by replacement debt issued at comparable interest
rates. There is both interest rate and financing risk associated with these
refinancings; however, the Company believes it to be extremely unlikely that
there will be a refinancing problem due to the large amount of collateral
available to support the amount of debt. In the highly unlikely event of a
complete collapse of the debt markets, the Company could be faced with liquidity
concerns.
Beginning in December 2003, with six months' notice, the holder of the
Series E Preferred, (totaling $25 million), has the option of redeeming all or
part of the shares for cash or an equivalent value in the Company's common stock
(at the Company's choice). The Company anticipates that the Series "E" Preferred
will not be redeemed for common stock, and plans to maintain credit facilities
and balance sheet capacity sufficient to redeem the entire series for cash
should the opportunity for repurchase be presented.
The Company believes that it has adequate resources to fund both its current
operations, regular annual refurbishment of its properties, and incremental
investment in new apartment properties. The Company believes that the income
from the full lease-up and stabilization of its development properties and its
growth of same-store NOI will create greater asset values, which enables it to
increase its borrowing capacity while lowering or maintaining its loan to value
ratio. The Company is relying on the efficient operation of the financial
markets to finance debt maturities, and also is heavily reliant on the
creditworthiness of FNMA, which provides credit enhancement for over
$300 million of its debt. The market for FNMA DMBS, which in the Company's
experience is highly effective with three-month Libor fixed leg, is also an
important component of the Company's liquidity and swap effectiveness. In the
event that these markets became less efficient, or the credit of FNMA became
impaired, the Company would seek alternative sources of debt financing.
The Company believes that cash provided by operations is adequate and
anticipates that it will continue to be adequate in both the short and long-term
to meet operating requirements (including recurring capital expenditures at the
Communities) and payment of distributions by the Company in accordance with REIT
requirements under the Internal Revenue Code. The Company has loan covenants
that limit the total amount of distributions, but believes that it is unlikely
that these will be a limiting factor on the Company's future levels of
distributions. The Company expects to meet its long-term liquidity requirements,
such as scheduled mortgage debt maturities, property acquisitions, preferred
stock redemptions, expansions, and non-recurring capital expenditures, through
long and medium term collateralized fixed rate borrowings, issuance of debt or
additional equity securities in the Company, potential joint venture
transactions and the Company's credit facilities.
20
<Page>
The following table reflects the Company's total contractual cash
obligations as of December 31, 2001 (Dollars in 000's):
<Table>
<Caption>
TOTAL 2002 2003 2004 2005 2006 THEREAFTER
-------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt and Capital Leases... $779,664 $20,346 $157,860 $75,030 $7,301 $40,176 $478,951
Operating Leases.................... 1,776 588 588 343 257 -- --
-------- ------- -------- ------- ------ ------- --------
Total Contractual Cash
Obligations....................... $781,440 $20,934 $158,448 $75,373 $7,558 $40,176 $478,951
</Table>
At December 31, 2001 and 2000, the Company did not have any relationships
with unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes. The Company's joint venture
with Blackstone was established in order to sell assets to fund development
while acquiring management fees to help offset the reduction in revenues from
the sale. In addition, the Company does not engage in trading activities
involving non-exchange traded contracts. As such, the Company is not materially
exposed to any financing, liquidity, market, or credit risk that could arise if
it had engaged in such relationships. The Company does not have any
relationships or transactions with persons or entities that derive benefits from
their non-independent relationships with the Company or its related parties
other than what is disclosed in Item 8. Financial Statements and Supplementary
Data--Notes to Consolidated Financial Statements Note 11.
INSURANCE
In the opinion of management, property and casualty insurance is in place
which provides adequate coverage to provide financial protection against normal
insurable risks such that it believes that any loss experienced would not have a
significant impact on the Company's liquidity, financial position, or results of
operations.
INFLATION
Substantially all of the resident leases at the Communities allow, at the
time of renewal, for adjustments in the rent payable thereunder, and thus may
enable the Company to seek rent increases. The substantial majority of these
leases are for one year or less. The short-term nature of these leases generally
serves to reduce the risk to the Company of the adverse effects of inflation.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that any
purchase price allocable to an assembled workforce may not be accounted for
separately. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that intangible assets with estimable useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with FAS
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of.
The Company adopted the provisions of Statement 141 as of July 1, 2001,
except with regard to business combinations initiated prior to July 1, 2001. The
Company will adopt the provisions of Statement 142 effective January 1, 2002.
Furthermore, goodwill and intangible assets determined to
21
<Page>
have an indefinite useful life acquired in a purchase business combination
completed after June 30, 2001, but before Statement 142 is adopted in full will
not be amortized, but will continue to be evaluated for impairment in accordance
with the appropriate pre-Statement 142 accounting literature. Goodwill and
intangible assets acquired in business combinations completed before July 1,
2001 will continue to be amortized and tested for impairment in accordance with
the appropriate pre-Statement 142 accounting requirements prior to the adoption
of Statement 142.
Statement 141 will require upon adoption of Statement 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired,
and make any necessary amortization period adjustments by the end of the first
interim period after adoption. In addition, to the extent an intangible asset is
identified as having an indefinite useful life, the Company will be required to
test the intangible asset for impairment in accordance with the provisions of
Statement 142 within the first interim period. Any impairment loss will be
measured as of the date of adoption and recognized as the cumulative effect of a
change in accounting principle in the first interim period.
As of the date of adoption, the Company expects to have unamortized goodwill
of approximately $5,800,000, which will be subject to the transition provisions
of Statements 141 and 142. Amortization expense related to goodwill was $264,000
and $317,000 for the years ended December 31, 2001 and 2000, respectively.
Because of the extensive effort needed to comply with adopting Statements 141
and 142, it is not practicable to reasonably estimate the impact of adopting
these Statements on the Company's financial statements at the date of this
report, including whether it will be required to recognize any transitional
impairment losses as the cumulative effect of a change in accounting principle.
In August 2001, FASB issued Statement No. 144, ACCOUNTING FOR THE IMPAIRMENT
OR DISPOSAL OF LONG-LIVED ASSETS (Statement 144), which supersedes both FASB
Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF (Statement 121) and the accounting and
reporting provisions of APB Opinion No. 30, REPORTING THE RESULTS OF
OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND
EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS
(Opinion 30), for the disposal of a segment of a business (as previously defined
in that Opinion). Statement 144 retains the fundamental provisions in Statement
121 for recognizing and measuring impairment losses on long-lived assets held
for use and long-lived assets to be disposed of by sale, while also resolving
significant implementation issues associated with Statement 121. For example,
Statement 144 provides guidance on how a long-lived asset that is used as part
of a group should be evaluated for impairment, establishes criteria for when a
long-lived asset is held for sale, and prescribes the accounting for a
long-lived asset that will be disposed of other than by sale. Statement 144
retains the basic provisions of Opinion 30 on how to present discontinued
operations in the income statement but broadens that presentation to include a
component of an entity (rather than a segment of a business). Unlike Statement
121, an impairment assessment under Statement 144 will not result in a
write-down of goodwill. Rather, goodwill is evaluated for impairment under
Statement No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS.
The Company is required to adopt Statement 144 no later than the year
beginning after December 15, 2001, and plans to adopt its provisions for the
quarter ending March 31, 2002. Management does not expect the adoption of
Statement 144 for long-lived assets held for use to have a material impact on
the Company's financial statements because the impairment assessment under
Statement 144 is largely unchanged from Statement 121. The provisions of the
Statement for assets held for sale or other disposal generally are required to
be applied prospectively after the adoption date to newly initiated disposal
activities. Therefore, management cannot determine the potential effects that
adoption of Statement 144 will have on the Company's financial statements.
22
<Page>
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
The Management's Discussion and Analysis of Financial Condition and Results
of Operations contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. These statements include, but are not limited
to, the plans and objectives of management for future operations, including
plans and objectives relating to capital expenditures, rehabilitation costs on
the apartment communities, future development, anticipated growth rates of
revenues and expenses, and anticipated share repurchases. Although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be inaccurate and, therefore, there can
be no assurance that such forward-looking statements included in this report on
Form 10-K will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is to changes in interest rates
obtainable on its secured and unsecured borrowings. At December 31, 2001, 52% of
the Company's total capitalization consisted of borrowings. The Company's
interest rate risk objective is to limit the impact of interest rate
fluctuations on earnings and cash flows and to lower its overall borrowing
costs. To achieve this objective, the Company manages its exposure to
fluctuations in market interest rates for its borrowings through the use of
fixed rate debt instruments to the extent that reasonably favorable rates are
obtainable with such arrangements and may enter into derivative financial
instruments such as interest rate swaps, caps and treasury locks to mitigate its
interest rate risk on a related financial instrument or to effectively lock the
interest rate on a portion of its variable debt. The Company does not enter into
derivative or interest rate transactions for trading purposes. Approximately 89%
of the Company's outstanding debt was subject to fixed rates with a weighted
average of 6.8% at December 31, 2001. The Company regularly reviews interest
rate exposure on its outstanding borrowings in an effort to minimize the risk of
interest rate fluctuations.
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. Weighted average variable
rates are based on rates in effect at the reporting date (Dollars in 000's).
<Table>
<Caption>
TOTAL FAIR
2002 2003 2004 2005 2006 THEREAFTER TOTAL VALUE
-------- -------- -------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term Debt
Fixed Rate..................... $15,346 $157,860 $75,030 $ 7,302 $60,176 $237,681 $553,395 $515,002
Average interest rate.......... 7.52% 6.51% 7.03% 8.84% 6.17% 6.99% 6.81%
Variable Rate*................. $ 5,000 $ -- $ -- $ -- $ -- $241,269 $246,269 $246,269
Average interest rate.......... 3.27% 0.00% 0.00% 0.00% 0.00% 2.96% 2.97%
Interest Rate Swaps
Variable to Fixed.............. $ -- $ -- $ -- $50,000 $25,000 $ 66,990 $141,990 $ (8,756)
Average pay rate............. 0.00% 0.00% 0.00% 6.81% 7.39% 6.34% 6.69%
</Table>
- ------------------------------
* Excluding the effect of interest rate swap agreements.
23
<Page>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Independent Auditors' Report, Consolidated Financial Statements and
Selected Quarterly Financial Information are set forth on pages F-1 to F-27 of
this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements with the Company's independent accountants
on any matter of accounting principles or practices or financial statement
disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<Table>
<S> <C> <C> <C>
(a) The following documents are filed as part of this Annual Report
on Form 10-K:
1. Independent Auditors' Report..................................... F-1
Consolidated Balance Sheets as of December 31, 2001 and 2000..... F-2
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999............................... F-3
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 2001, 2000 and 1999......................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999............................... F-5
Notes to Consolidated Financial Statements for the years ended
December 31, 2001, 2000 and 1999............................... F-6
2. Financial Statement Schedule required to be filed by Item 8 and
Paragraph (d) of this Item 14:
Schedule III--Real Estate Investments and Accumulated
Depreciation as of December 31, 2001........................... F-23
3. The exhibits required by Item 601 of Regulation S-K, except as
otherwise noted, have been filed with previous reports by the
registrant and are herein incorporated by reference.
</Table>
24
<Page>
<Table>
<Caption>
EXHIBIT
NUMBERS EXHIBIT DESCRIPTION
- ------- --------------------------------------------------------------------------------------------------------------
<S> <C>
3.1+ Amended and Restated Charter of Mid-America Apartment Communities, Inc. dated as of January 10, 1994, as filed
with the Tennessee Secretary of State on January 25, 1994
3.2****** Articles of Amendment to the Charter of Mid-America Apartment Communities, Inc. dated as of January 28, 1994,
as filed with the Tennessee Secretary of State on January 28, 1994
3.3** Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter Designating
and Fixing the Rights and Preferences of a Series of Preferred Stock dated as of October 9, 1996, as filed
with the Tennessee Secretary of State on October 10, 1996
3.4+ Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter dated
November 17, 1997, as filed with the Tennessee Secretary of State on November 18, 1997
3.5*** Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter Designating
and Fixing the Rights and Preferences of a Series of Preferred Stock dated as of November 17, 1997, as filed
with the Tennessee Secretary of State on November 18, 1997
3.6+ Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter dated
December 15, 1997, as filed with the Tennessee Secretary of State on December 31, 1997
3.7++ Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter dated June
25, 1998, as filed with the Tennessee Secretary of State on June 30, 1998
3.8++++ Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter dated
December 28, 1998, as filed with the Tennessee Secretary of State on December 28, 1998
3.9* Bylaws of Mid-America Apartment Communities, Inc.
4.1+ Form of Common Share Certificate
4.2**** Form of 9.5% Series A Cumulative Preferred Stock Certificate
4.3***** Form of 8 7/8% Series B Cumulative Preferred Stock Certificate
4.4+++ Form of 9.375% Series C Cumulative Preferred Stock Certificate
4.5++++ Form of 9.5% Series E Cumulative Preferred Stock Certificate
4.6++++ Shareholder Protection Rights Plan dated March 1, 1999
10.1 Second Amended and Restated Agreement of Limited Partnership of Mid-America Apartments, L.P., a Tennessee
limited partnership
10.2+++++ Employment Agreement between the Registrant and George E. Cates dated December , 1999
10.3+++++ Employment Agreement between the Registrant and H. Eric Bolton dated December , 1999
</Table>
25
<Page>
<Table>
<S> <C>
10.4+++++ Employment Agreement between the Registrant and Simon R.C. Wadsworth dated December , 1999
10.5# Third Amended and Restated 1994 Restricted Stock and Stock Option Plan
10.6++++ Revolving Credit Agreement between the Registrant and AmSouth Bank dated March 16, 1998
10.7+++++ Sixth Amendment to Revolving Credit Agreement between the Registrant and AmSouth Bank dated November 12, 1999
10.8## Seventh Amendment to Revolving Credit Agreement between the Registrant and AmSouth Bank dated July 21, 2000
10.9 Eighth Amendment to Revolving Credit Agreement between the Registrant and AmSouth Bank dated April 19, 2001
10.10+++++ Master Credit Facility Agreement between the Registrant and WMF Washington Mortgage Corp. dated November 10,
1999
10.11+ Note Purchase Agreement of the Operating Partnership and the Registrant and Prudential Insurance Company of
America
10.12+ Amendment 1 to Note Purchase Agreement of the Operating Partnership and the Registrant and Prudential
Insurance Company of America
11.1 Statement re: computation of per share earnings (included within the Form 10-K)
12.1 Statement re: computation of ratios (definition of ratios used are disclosed as footnotes on the related
table(s) within the Form 10-K)
21.1 List of Subsidiaries
23.1 Consent of KPMG LLP
</Table>
- ------------------------
<Table>
<S> <C>
* Filed as an exhibit to the Registrant's Registration
Statement on Form S-11/A (SEC File No. 33-69434) filed on
January 21, 1994
** Filed as Exhibit 1 to the Registrant's Registration
Statement on Form 8-A filed with the Commission on October
11, 1996
*** Filed as Exhibit 4.1 to the Registrant's Registration
Statement on Form 8-A filed with the Commission on November
19, 1997
**** Filed as Exhibit 2 to the Registrant's Registration
Statement on Form 8-A filed with the Commission on October
11, 1996
***** Filed as Exhibit 4.3 to the Registrant's Registration
Statement on Form 8-A filed with the Commission on November
19, 1997
****** Filed as an exhibit to the 1996 Annual Report of the
Registrant on Form 10-K for the year ended December 31, 1996
******* Filed as an exhibit to the Registration Statement on Form
S-11 (SEC File No. 33-81970), as amended, of the Registrant
filed on August 17, 1994
+ Filed as an exhibit to the 1997 Annual Report of the
Registrant on Form 10-K for the year ended December 31, 1997
++ Filed as Exhibit 4.3 to the Registrant's Registration
Statement on Form 8-A filed with the Commission on June 26,
1998
+++ Filed as Exhibit 4.2 to the Registrant's Registration
Statement on Form 8-A filed with the Commission on June 26,
1998
++++ Filed as an exhibit to the 1998 Annual Report of the
Registrant on Form 10-K for the year ended December 31, 1998
</Table>
26
<Page>
<Table>
<S> <C>
+++++ Filed as an exhibit to the 1999 Annual Report of the
Registrant on Form 10-K for the year ended December 31, 1999
# Filed as an exhibit to the Registrant's Proxy Statement for
the 2000 Annual Meeting of Shareholders
## Filed as an exhibit to the 2000 Annual Report of the
Registrant on Form 10-K for the year ended December 31, 2000
</Table>
(b) Reports on Form 8-K
The following reports were filed on Form 8-K by the registrant during the
fourth quarter of 2001:
<Table>
<Caption>
FORM EVENTS REPORTED DATE OF REPORT
- ---- ------------------------------------------------------------ --------------
<S> <C> <C>
8-K Announcement of effective succession of CEO................. 10/1/2001
8-K Announcement of revision of earnings estimate............... 10/16/2001
Third quarter 2001 conference call transcript with third
8-K quarter 2001 earnings release and supplemental data....... 11/2/2001
</Table>
(c) Exhibits:
See Item 14(a)(3) above.
(d) Financial Statement Schedules:
See Item 14(a)(2) above.
27
<Page>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
<Table>
<S> <C>
MID-AMERICA APARTMENT COMMUNITIES, INC.
Date: March 27, 2002 /s/ H. ERIC BOLTON, JR.
------------------------------------------------
H. Eric Bolton, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
</Table>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
<Table>
<S> <C>
Date: March 27, 2002 /s/ GEORGE E. CATES
---------------------------------------------
George E. Cates
Chairman of the Board of Directors
Date: March 27, 2002 /s/ H. ERIC BOLTON, JR.
---------------------------------------------
H. Eric Bolton, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 27, 2002 /s/ SIMON R.C. WADSWORTH
---------------------------------------------
Simon R.C. Wadsworth
Executive Vice President and Chief Financial
Officer
(Principal Financial and Accounting Officer)
Date: March 27, 2002 /s/ JOHN F. FLOURNOY
---------------------------------------------
John F. Flournoy
Director
Date: March 27, 2002 /s/ ROBERT F. FOGELMAN
---------------------------------------------
Robert F. Fogelman
Director
</Table>
28
<Page>
<Table>
<S> <C>
Date: March 27, 2002 /s/ JOHN S. GRINALDS
---------------------------------------------
John S. Grinalds
Director
Date: March 27, 2002 /s/ O. MASON HAWKINS
---------------------------------------------
O. Mason Hawkins
Director
Date: March 27, 2002 /s/ RALPH HORN
---------------------------------------------
Ralph Horn
Director
Date: March 27, 2002 /s/ MICHAEL S. STARNES
---------------------------------------------
Michael S. Starnes
Director
</Table>
29
<Page>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Mid-America Apartment Communities, Inc.
We have audited the accompanying consolidated balance sheets of Mid-America
Apartment Communities, Inc. and subsidiaries (the "Company") as of December 31,
2001 and 2000 and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 2001. In connection with our audits of the
consolidated financial statements, we have also audited the accompanying
financial statement Schedule III: Real Estate and Accumulated Depreciation.
These financial statements and the financial statement schedule are the
responsibility of the management of the Company. Our responsibility is to
express an opinion on these consolidated financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects the financial position of the Company
as of December 31, 2001 and 2000, and the results of the their operations and
their cash flows for each of the years in the three-year period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, the related financial
statement schedule when considered in relationship to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
Memphis, Tennessee
February 13, 2002
F-1
<Page>
MID-AMERICA APARTMENT COMMUNTIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
2001 2000
---------- ----------
<S> <C> <C>
ASSETS:
REAL ESTATE ASSETS:
Land...................................................... $ 124,993 $ 124,867
Buildings and improvements................................ 1,265,327 1,231,603
Furniture, fixtures and equipment......................... 32,290 29,094
Construction in progress.................................. 10,915 28,523
---------- ----------
1,433,525 1,414,087
Less accumulated depreciation............................. (229,913) (183,652)
---------- ----------
1,203,612 1,230,435
Land held for future development.......................... 1,366 1,366
Commercial properties, net................................ 4,910 5,044
Investment in and advances to real estate joint venture... 7,045 7,630
---------- ----------
REAL ESTATE ASSETS, NET................................. 1,216,933 1,244,475
Cash and cash equivalents................................... 12,192 16,095
Restricted cash............................................. 11,240 17,472
Deferred financing costs, net............................... 10,415 9,700
Other assets................................................ 12,708 16,029
---------- ----------
TOTAL ASSETS............................................ $1,263,488 $1,303,771
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Notes payable............................................. $ 779,664 $ 781,089
Accounts payable.......................................... 1,219 1,740
Accrued expenses and other liabilities.................... 31,691 26,589
Security deposits......................................... 4,514 4,611
Deferred gain on disposition of properties................ 4,140 4,366
---------- ----------
TOTAL LIABILITIES AND DEFERRED GAIN..................... 821,228 818,395
MINORITY INTEREST........................................... 46,431 51,383
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 20,000,000 shares
authorized, $173,470,750 or $25 per share liquidation
preference:
2,000,000 shares at 9.5% Series A Cumulative............ 20 20
1,938,830 shares at 8.875% Series B Cumulative.......... 19 19
2,000,000 shares at 9.375% Series C Cumulative.......... 20 20
1,000,000 shares at 9.5% Series E Cumulative............ 10 10
Common stock, $.01 par value authorized 50,000,000 shares;
issued 17,452,678 and 17,506,968 shares at December 31,
2001 and 2000, respectively............................. 175 175
Additional paid-in capital................................ 550,176 551,809
Other..................................................... (774) (1,171)
Accumulated distributions in excess of net income......... (145,061) (116,889)
Accumulated other comprehensive income (loss)............. (8,756) --
---------- ----------
TOTAL SHAREHOLDERS' EQUITY.............................. 395,829 433,993
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $1,263,488 $1,303,771
========== ==========
</Table>
See accompanying notes to consolidated financial statements.
F-2
<Page>
MID-AMERICA APARTMENT COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<Table>
<Caption>
2001 2000 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Rental revenues........................................... $223,410 $219,039 $221,342
Other property revenues................................... 2,860 3,493 2,872
-------- -------- --------
Total property revenues................................... 226,270 222,532 224,214
Interest and other non-property income.................... 1,310 1,526 1,388
Management and development income, net.................... 755 739 751
Equity in loss of real estate joint venture............... (296) (157) (31)
-------- -------- --------
Total revenues............................................ 228,039 224,640 226,322
-------- -------- --------
Expenses:
Property operating expenses:
Personnel............................................... 24,704 24,268 25,239
Building repairs and maintenance........................ 9,443 9,701 10,107
Real estate taxes and insurance......................... 26,594 25,021 24,561
Utilities............................................... 7,164 7,635 9,119
Landscaping............................................. 6,278 6,027 5,634
Other operating......................................... 10,401 10,794 10,225
Depreciation and amortization........................... 52,051 51,844 49,903
-------- -------- --------
136,635 135,290 134,788
Property management expenses.............................. 10,204 9,509 9,360
General and administrative expenses....................... 5,879 5,317 5,119
Interest expense.......................................... 52,598 50,736 48,302
Amortization of deferred financing costs.................. 2,352 2,758 2,854
-------- -------- --------
Total expenses............................................ 207,668 203,610 200,423
-------- -------- --------
Income before gain on dispositions, minority interest in
operating partnership income and extraordinary items...... 20,371 21,030 25,899
Gain on dispositions, net................................... 11,933 11,587 10,237
-------- -------- --------
Income before minority interest in operating partnership
income and extraordinary items............................ 32,304 32,617 36,136
Minority interest in operating partnership income........... 2,573 2,626 2,497
-------- -------- --------
Income before extraordinary items........................... 29,731 29,991 33,639
Extraordinary items--loss on debt extinguishment, net of
minority interst.......................................... (1,033) (204) (67)
-------- -------- --------
Net income.................................................. 28,698 29,787 33,572
Preferred dividend distribution............................. 16,113 16,114 16,114
-------- -------- --------
Net income available for common shareholders................ $ 12,585 $ 13,673 $ 17,458
======== ======== ========
Net income available per common share:
Basic (in thousands):
Average common shares outstanding....................... 17,427 17,544 18,784
======== ======== ========
Basic earnings per share:
Net income available per common share before
extraordinary items.................................... $ 0.78 $ 0.79 $ 0.93
Extraordinary items..................................... (0.06) (0.01) --
-------- -------- --------
Net income available per common share................... $ 0.72 $ 0.78 $ 0.93
======== ======== ========
Diluted (in thousands):
Average common shares outstanding....................... 17,427 17,544 18,784
Effect of dilutive stock options........................ 105 53 24
-------- -------- --------
Average dilutive common shares outstanding.............. 17,532 17,597 18,808
======== ======== ========
Diluted earnings per share:
Net income available per common share before
extraordinary items.................................... $ 0.78 $ 0.79 $ 0.93
Extraordinary items..................................... (0.06) (0.01) --
-------- -------- --------
Net income available per common share................... $ 0.72 $ 0.78 $ 0.93
======== ======== ========
</Table>
See accompanying notes to consolidated financial statements.
F-3
<Page>
MID-AMERICA APARTMENT COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS AND SHARES IN THOUSANDS)
<Table>
<Caption>
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DISTRIBUTIONS
------------------- ------------------- PAID-IN IN EXCESS OF TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL OTHER NET INCOME STOCK
-------- -------- -------- -------- ---------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1998.......... 6,939 $69 18,878 $189 $583,154 $(2,237) $ (63,876) $ --
Repurchase of common shares
(Note 8)......................... -- -- (1,118) (11) (25,072) -- -- (7,990)
Issuance of common shares.......... -- -- 154 2 3,516 -- -- --
Exercise of stock options.......... -- -- -- -- 27 -- -- --
Notes receivable issued for shares
(Note 9)......................... -- -- 9 -- -- (100) -- --
Payments received on notes
receivable (Note 9).............. -- -- -- -- -- 343 -- --
Amortization of LESOP Provision
employee advances (Note 9)....... -- -- -- -- -- 447 -- --
Shares issued in exchange for
units............................ -- -- 49 -- 922 -- -- --
Amortization of unearned
compensation..................... -- -- -- -- -- 494 -- --
Dividends on common stock ($2.30
per share)....................... -- -- -- -- -- -- (43,451) --
Dividends on preferred stock....... -- -- -- -- -- -- (16,114) --
Net income......................... -- -- -- -- -- -- 33,572 --
----- --- ------ ---- -------- ------- --------- -------
BALANCE DECEMBER 31, 1999.......... 6,939 69 17,972 180 562,547 (1,053) (89,869) (7,990)
Retire treasury stock.............. -- -- (356) (4) (7,986) -- -- 7,990
Repurchase of common shares
(Note 8)......................... -- -- (259) (3) (6,087) -- -- --
Issuance of common shares.......... -- -- 60 1 1,371 -- -- --
Exercise of stock options.......... -- -- 1 -- 22 -- -- --
Restricted shares issued to
officers and directors
(Note 9)......................... -- -- 16 -- 359 (359) -- --
Notes receivable issued for shares
(Note 9)......................... -- -- 53 1 1,218 (206) -- --
Amortization of LESOP Provision
employee advances (Note 9)....... -- -- -- -- -- 327 -- --
Shares issued in exchange for
units............................ -- -- 20 -- 365 -- -- --
Amortization of unearned
compensation..................... -- -- -- -- -- 120 -- --
Dividends on common stock ($2.32
per share)....................... -- -- -- -- -- -- (40,693) --
Dividends on preferred stock....... -- -- -- -- -- -- (16,114) --
Net income......................... -- -- -- -- -- -- 29,787 --
----- --- ------ ---- -------- ------- --------- -------
BALANCE DECEMBER 31, 2000.......... 6,939 69 17,507 175 551,809 (1,171) (116,889) --
Repurchase of common shares
(Note 8)......................... -- -- (129) (1) (3,279) -- -- --
Issuance of common shares.......... -- -- 39 1 969 -- -- --
Exercise of stock options.......... -- -- 5 -- 124 -- -- --
Restricted shares issued to
officers and directors
(Note 9)......................... -- -- 5 -- 120 (120) -- --
Amortization of LESOP Provision
employee advances (Note 9)....... -- -- -- -- -- 372 -- --
Shares issued in exchange for
units............................ -- -- 26 -- 433 -- -- --
Amortization of unearned
compensation..................... -- -- -- -- -- 145 -- --
Derivative instruments--cash flow
hedges........................... -- -- -- -- -- -- -- --
Dividends on common stock ($2.34
per share)....................... -- -- -- -- -- -- (40,757) --
Dividends on preferred stock....... -- -- -- -- -- -- (16,113) --
Net income......................... -- -- -- -- -- -- 28,698 --
----- --- ------ ---- -------- ------- --------- -------
BALANCE DECEMBER 31, 2001.......... 6,939 $69 17,453 $175 $550,176 $ (774) $(145,061) $ --
===== === ====== ==== ======== ======= ========= =======
<Caption>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS) TOTAL
-------------- --------
<S> <C> <C>
BALANCE DECEMBER 31, 1998.......... $ -- $517,299
Repurchase of common shares
(Note 8)......................... -- (33,073)
Issuance of common shares.......... -- 3,518
Exercise of stock options.......... -- 27
Notes receivable issued for shares
(Note 9)......................... -- (100)
Payments received on notes
receivable (Note 9).............. -- 343
Amortization of LESOP Provision
employee advances (Note 9)....... -- 447
Shares issued in exchange for
units............................ -- 922
Amortization of unearned
compensation..................... -- 494
Dividends on common stock ($2.30
per share)....................... -- (43,451)
Dividends on preferred stock....... -- (16,114)
Net income......................... -- 33,572
------- --------
BALANCE DECEMBER 31, 1999.......... -- 463,884
Retire treasury stock.............. -- --
Repurchase of common shares
(Note 8)......................... -- (6,090)
Issuance of common shares.......... -- 1,372
Exercise of stock options.......... -- 22
Restricted shares issued to
officers and directors
(Note 9)......................... -- --
Notes receivable issued for shares
(Note 9)......................... -- 1,013
Amortization of LESOP Provision
employee advances (Note 9)....... -- 327
Shares issued in exchange for
units............................ -- 365
Amortization of unearned
compensation..................... -- 120
Dividends on common stock ($2.32
per share)....................... -- (40,693)
Dividends on preferred stock....... -- (16,114)
Net income......................... -- 29,787
------- --------
BALANCE DECEMBER 31, 2000.......... -- 433,993
Repurchase of common shares
(Note 8)......................... -- (3,280)
Issuance of common shares.......... -- 970
Exercise of stock options.......... -- 124
Restricted shares issued to
officers and directors
(Note 9)......................... -- --
Amortization of LESOP Provision
employee advances (Note 9)....... -- 372
Shares issued in exchange for
units............................ -- 433
Amortization of unearned
compensation..................... -- 145
Derivative instruments--cash flow
hedges........................... (8,756) (8,756)
Dividends on common stock ($2.34
per share)....................... -- (40,757)
Dividends on preferred stock....... -- (16,113)
Net income......................... -- 28,698
------- --------
BALANCE DECEMBER 31, 2001.......... $(8,756) $395,829
======= ========
</Table>
See accompanying notes to consolidated financial statement.
F-4
<Page>
MID-AMERICA APARTMENT COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
2001 2000 1999
--------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 28,698 $29,787 $ 33,572
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 54,403 54,602 52,757
Amortization of unearned stock compensation............. 145 120 494
Equity in loss of real estate joint venture............. 296 157 31
Minority interest in operating partnership income....... 2,573 2,626 2,497
Extraordinary items..................................... 1,033 204 67
Gain on dispositions, net............................... (11,933) (11,587) (10,237)
Changes in assets and liabilities:
Restricted cash....................................... 6,232 (4,935) (3,300)
Other assets.......................................... 3,062 (2,475) (4,591)
Accounts payable...................................... (521) (382) (4,459)
Accrued expenses and other liabilities................ 6,750 3,175 8,325
Security deposits..................................... (97) (128) (178)
--------- ------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... 90,641 71,164 74,978
--------- ------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of real estate assets......................... (251) (14,799) --
Improvements to properties.............................. (19,365) (17,469) (34,377)
Construction of units in progress and future
development............................................ (16,497) (53,389) (71,563)
Proceeds from disposition of real estate assets......... 12,581 58,428 134,977
Proceeds from sale of development and construction
assets................................................. -- -- 18,134
Distributions from (contributions to) real estate joint
venture................................................ 289 267 (8,085)
--------- ------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES..... (23,243) (26,962) 39,086
--------- ------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in credit lines.............................. (12,432) (32,393) 56,389
Proceeds from notes payable............................. 110,641 75,000 11,760
Principal payments on notes payable..................... (100,823) (15,559) (75,989)
Payment of deferred financing costs..................... (3,067) (2,186) (3,420)
Repurchase of common stock.............................. (3,280) (6,090) (33,073)
Proceeds from issuances of common shares and units...... 1,466 2,734 3,549
Distributions to unitholders............................ (6,936) (6,898) (6,860)
Dividends paid on common shares......................... (40,757) (40,693) (43,451)
Dividends paid on preferred shares...................... (16,113) (16,114) (16,114)
--------- ------- ---------
NET CASH USED IN FINANCING ACTIVITIES................... (71,301) (42,199) (107,209)
--------- ------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... (3,903) 2,003 6,855
--------- ------- ---------
Cash and cash equivalents, beginning of period.............. 16,095 14,092 7,237
--------- ------- ---------
Cash and cash equivalents, end of period.................... $ 12,192 $16,095 $ 14,092
========= ======= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid............................................. $ 52,658 $50,277 $ 49,375
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Assumption of debt related to property acquisitions....... $ -- $ 9,559 $ --
Conversion of units for common shares..................... $ 433 $ 365 $ 922
Issuance of advances in exchange for common shares and
units................................................... $ 120 $ 238 $ 100
Interest capitalized...................................... $ 1,382 $ 3,730 $ 3,967
</Table>
See accompanying notes to consolidated financial statements.
F-5
<Page>
MID-AMERICA APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND FORMATION OF THE COMPANY
Mid-America Apartment Communities, Inc. ("Mid-America") is a
self-administrated and self-managed real estate investment trust which owns,
develops, constructs, acquires and operates multifamily apartment communities
mainly in the southeastern United States, and in Texas. The company owns and
operates 112 apartment communities principally through its majority owned
subsidiary, Mid-America Apartments, L.P. (the "Operating Partnership") and its
subsidiary, Mid-America Capital Partners, L.P. ("MACP"). MACP is a special
purpose entity established in 1997 to issue first mortgage bonds. The Company
also owns a 33.33% interest in a real estate joint venture which owns 10
apartment communities, for which the Company provides management services. From
the period November 1997 through June 1999, the company conducted third party
property management, construction and development activities through its service
corporation, Flournoy Development Corporation.
BASIS OF PRESENTATION
The consolidated financial statements presented herein include the accounts
of Mid-America, the Operating Partnership, MACP, and all other subsidiaries
("the Company"). The Company owns 51% to 100% of all consolidated subsidiaries.
The Company uses the equity method of accounting for its investments in 20 to
50 percent-owned entities for which the Company does not have the ability to
exercise control. All significant intercompany accounts and transactions have
been eliminated in consolidation.
MINORITY INTEREST
Minority interest in the accompanying consolidated financial statements
relates to the ownership interest in the Operating Partnership by the holders of
Class A Common Units of the Operating Partnership ("Operating Partnership
Units"). Mid-America is the sole general partner of the Operating Partnership.
Net income is allocated to the minority interest based on their respective
ownership percentage of the Operating Partnership. Issuance of additional common
shares or Operating Partnership Units changes the ownership of both the minority
interest and Mid-America. Such transactions and the proceeds therefrom are
treated as capital transactions and result in an allocation between
shareholders' equity and minority interest to account for the change in the
respective percentage ownership of the underlying equity of the Operating
Partnership.
The Company's Board of Directors established economic rights in respect to
each Operating Partnership Unit that were equivalent to the economic rights in
respect to each share of common stock. The holder of each unit may redeem their
units in exchange for one share of common stock or cash, at the option of the
Company. The Operating Partnership has followed the policy of paying the same
per unit distribution in respect to the units as the per share distribution in
respect to the common stock. Operating Partnership net income for 2001, 2000 and
1999 was allocated approximately 16.2%, 16.3% and 15.6%, respectively, to
holders of Operating Partnership Units and 83.8%, 83.7% and 84.4%, respectively,
to Mid-America.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported
F-6
<Page>
amounts of revenues and expenses to prepare these financial statements in
conformity with accounting principles generally accepted in the United States of
America. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company leases multifamily residential apartments under operating leases
primarily with terms of one year or less. Rental and other revenues are recorded
when earned.
The Company records all gains and losses on real estate in accordance with
SFAS No. 66.
RENTAL COSTS
Costs associated with rental activities are expensed as incurred. Certain
costs associated with the lease-up of development projects, including cost of
model units, their furnishings, signs, and "grand openings" are capitalized and
amortized over their respective estimated useful lives. All other costs relating
to renting development projects are expensed as incurred.
CASH AND CASH EQUIVALENTS
The Company considers cash, investments in money market accounts and
certificates of deposit with original maturities of three months or less to be
cash equivalents.
RESTRICTED CASH
Restricted cash consists of escrow deposits held by lenders for property
taxes, insurance, debt service and replacement reserves.
REAL ESTATE ASSETS AND DEPRECIATION
Real estate assets are carried at depreciated cost. Repairs and maintenance
costs are expensed as incurred while significant improvements, renovations, and
replacements are capitalized. The cost of interior painting, vinyl flooring and
blinds are expensed as incurred.
In conjunction with acquisitions of properties, the Company's policy is to
provide in its acquisition budgets adequate funds to complete any deferred
maintenance items to bring the properties to the required standard, including
the cost of replacement appliances, carpet, interior painting, vinyl flooring
and blinds. These costs are capitalized.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the related assets which range from 8 to 40 years for land improvements
and buildings and 5 years for furniture, fixtures and equipment.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Development projects and the related carrying costs, including interest,
property taxes, insurance and allocated development overhead during the
construction period, are capitalized and reported in the accompanying balance
sheet as "construction in progress" during the construction period. Upon
F-7
<Page>
completion and certification for occupancy of individual units within a
development, amounts representing the completed unit's portion of total
estimated development costs for the project are transferred to land, buildings,
and furniture, fixtures and equipment as real estate held for investment.
Capitalization of interest, property taxes, insurance and allocated development
overhead costs ceases upon the transfer, and the assets are depreciated over
their estimated useful lives. Total interest capitalized during 2001, 2000 and
1999 was $1,382,000, $3,730,000 and $3,967,000, respectively.
LAND HELD FOR FUTURE DEVELOPMENT
Real estate held for future development are sites intended for future
multifamily developments.
INVESTMENT IN AND ADVANCES TO REAL ESTATE JOINT VENTURE
The Company's investment in an unconsolidated real estate joint venture is
recorded on the equity method as the Company does not have a controlling
interest in the joint venture. The portion of the gain realized upon the
Company's sale of apartment communities to a joint venture was deferred in
proportion to the Company's ownership interest in the joint venture. The
deferred gain will be amortized over 20 years, which approximates the useful
life of the joint venture's real estate assets.
DEFERRED COSTS AND OTHER INTANGIBLES
Deferred financing costs are amortized over the terms of the related debt
using a method which approximates the interest method. Cost in excess of fair
value of net assets acquired is amortized using the straight-line method over
30 years.
DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business, the Company uses certain derivative
financial instruments to manage, or hedge, the interest rate risk associated
with the Company's variable rate debt or as hedges in anticipation of future
debt transactions to manage well-defined interest rate risk associated with the
transaction.
The Company does not use derivative financial instruments for speculative or
trading purposes. Further, the Company has a policy of entering into contracts
with major financial institutions based upon their credit rating and other
factors. When viewed in conjunction with the underlying and offsetting exposure
that the derivatives are designated to hedge, the Company has not sustained any
material loss from those instruments nor does it anticipate any material adverse
effect on its net income or financial position in the future from the use of
derivatives.
On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Certain Hedging Activities." SFAS 133, as amended,
established accounting and reporting standards for derivative instruments.
Specifically, SFAS No. 133 requires an entity to recognize all derivatives as
either assets or liabilities in the balance sheet and to measure those
instruments at fair value. Additionally, the fair value adjustments will affect
either shareholders' equity or net income depending on whether the derivative
instrument qualifies as a hedge for accounting purposes and, if so, the nature
of the hedging activity.
As of January 1, 2001, the adoption of the new standard resulted in
derivative instruments reported on the balance sheet as liabilities of
$2,184,000 and an increase of $2,184,000 to "Accumulated Other Comprehensive
Income." The adoption did not impact the Company's results of operations or cash
flows for any period presented in the accompanying financial statements.
The Company requires that hedging derivatives instruments are effective in
reducing the interest rate risk exposure that they are designated to hedge. This
effectiveness is essential for qualifying for hedge accounting. Instruments that
meet these hedging criteria are formally designated as hedges at the
F-8
<Page>
inception of the derivative contract. The Company formally documents all
relationships between hedging instruments and hedged items, as well as its
risk-management objective and strategy for undertaking the hedge transaction.
This process includes linking all derivatives that are designated as fair-value
or cash flow hedges to specific assets and liabilities on the balance sheet or
to specific firm commitments or forecasted transactions. The Company also
formally assesses, both at the hedges inception and on an ongoing basis, whether
the derivatives used are highly effective in offsetting changes in fair values
or cash flows of hedged items. When it is determined that a derivative is not
highly effective as a hedge or that it has ceased to be a highly effective
hedge, the Company discontinues hedge accounting prospectively.
All of the Company's derivative financial instruments that are reported at
fair value and are represented on the balance sheet were characterized as cash
flow hedges. These transactions hedge the future cash flows of debt transactions
through interest rate swaps that convert variable payments to fixed payments.
The unrealized gains/losses in the fair value of these hedges are reported on
the balance sheet with a corresponding adjustment to accumulated other
comprehensive income, with any ineffective portion of the hedging transaction
reclassified to earnings. During the year ended December 31, 2001, the
ineffective portion of the hedging transaction was not significant. Within the
next twelve months, the Company expects to reclassify to earnings an estimated
$100,000 of the current balance held in accumulated other comprehensive income.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that any
purchase price allocable to an assembled workforce may not be accounted for
separately. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that intangible assets with estimable useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of.
The Company is required to adopt the provisions of Statement 141
immediately, except with regard to business combinations initiated prior to
July 1, 2001, which it expects to account for using the pooling-of-interests
method, and Statement 142 effective January 1, 2002. Furthermore, goodwill and
intangible assets determined to have an indefinite useful life acquired in a
purchase business combination completed after June 30, 2001, but before
Statement 142 is adopted in full will not be amortized, but will continue to be
evaluated for impairment in accordance with the appropriate pre-Statement 142
accounting literature. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 will continue to be amortized and
tested for impairment in accordance with the appropriate pre-Statement 142
accounting requirements prior to the adoption of Statement 142.
Statement 141 will require upon adoption of Statement 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired,
and make any necessary amortization period adjustments by the end of the first
interim period after adoption. In addition, to the extent an intangible asset is
identified as having an indefinite useful life, the Company will be required to
test the intangible asset for impairment in accordance with the provisions of
Statement 142
F-9
<Page>
within the first interim period. Any impairment loss will be measured as of the
date of adoption and recognized as the cumulative effect of a change in
accounting principle in the first interim period.
As of the date of adoption, the Company expects to have unamortized goodwill
of approximately $5,800,000, which will be subject to the transition provisions
of Statements 141 and 142. Amortization expense related to goodwill was $264,000
and $317,000 for the years ended December 31, 2001 and 2000, respectively.
Because of the extensive effort needed to comply with adopting Statements 141
and 142, it is not practicable to reasonably estimate the impact of adopting
these Statements on the Company's financial statements at the date of this
report, including whether it will be required to recognize any transitional
impairment losses as the cumulative effect of a change in accounting principle.
In August 2001, FASB issued Statement No. 144, ACCOUNTING FOR THE IMPAIRMENT
OR DISPOSAL OF LONG-LIVED ASSETS (Statement 144), which supersedes both FASB
Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF (Statement 121) and the accounting and
reporting provisions of APB Opinion No. 30, REPORTING THE RESULTS OF
OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND
EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS
(Opinion 30), for the disposal of a segment of a business (as previously defined
in that Opinion). Statement 144 retains the fundamental provisions in Statement
121 for recognizing and measuring impairment losses on long-lived assets held
for use and long-lived assets to be disposed of by sale, while also resolving
significant implementation issues associated with Statement 121. For example,
Statement 144 provides guidance on how a long-lived asset that is used as part
of a group should be evaluated for impairment, establishes criteria for when a
long-lived asset is held for sale, and prescribes the accounting for a
long-lived asset that will be disposed of other than by sale. Statement 144
retains the basic provisions of Opinion 30 on how to present discontinued
operations in the income statement but broadens that presentation to include a
component of an entity (rather than a segment of a business). Unlike Statement
121, an impairment assessment under Statement 144 will not result in a
write-down of goodwill. Rather, goodwill is evaluated for impairment under
Statement No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS.
The Company is required to adopt Statement 144 no later than the year
beginning after December 15, 2001, and plans to adopt its provisions for the
quarter ending March 31, 2002. Management does not expect the adoption of
Statement 144 for long-lived assets held for use to have a material impact on
the Company's financial statements because the impairment assessment under
Statement 144 is largely unchanged from Statement 121. The provisions of the
Statement for assets held for sale or other disposal generally are required to
be applied prospectively after the adoption date to newly initiated disposal
activities. Therefore, management cannot determine the potential effects that
adoption of Statement 144 will have on the Company's financial statements.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to 2001
presentation. The reclassifications had no effect on net income available for
common shareholders.
2. SALE OF DEVELOPMENT, CONSTRUCTION AND FEE MANAGEMENT BUSINESSES
On June 30, 1999, the Company sold its development, construction and fee
management businesses back to the principals of Flournoy Development Company
("Flournoy"). The Company received net proceeds of $18.1 million for these
assets and recorded a net loss of approximately $4.0 million, relating mainly to
the write-off of goodwill related to the original purchase transaction. In the
transaction, Flournoy reacquired the development businesses, related fixed
assets including single family development, land and property held for sale, and
the fee management business of 5,131 tax credit apartment units. The Company has
contracted with Flournoy to complete the remaining portion of its development
pipeline, which was estimated to be approximately $537,000 at December 31, 2001.
F-10
<Page>
3. REAL ESTATE JOINT VENTURE
The Company currently owns a 33.33% interest in a joint venture (the "JV")
with Blackstone Real Estate Acquisitions, LLC ("Blackstone") which was formed in
1999 when the Company sold 10 apartment communities containing 2,793 apartment
units to the JV for $97.9 million. The following is a summary of the financial
position of the JV as of December 31, 2001 (Dollars in 000's):
<Table>
<S> <C>
Assets
Real Estate Assets, Gross................................... $104,100
Real Estate Assets, Net..................................... 94,427
Other Assets................................................ 4,187
--------
Total Assets................................................ $ 98,614
Liabilities and Equity
Mortgage Debt............................................... $ 81,330
Debt--Mid-America Apartments, LP............................ 3,418
Other Liabilities........................................... 3,330
Equity...................................................... 10,536
--------
Total Liabilities and Equity................................ $ 98,614
Total Revenues.............................................. $ 18,927
Net Operating Income........................................ $ 10,485
Depreciation Expense........................................ $ 3,808
Net Loss.................................................... $ 194
</Table>
The Company earns interest on its loan to the JV at an average interest rate
of 9.6% and manages the communities for a fee of 4% of revenues. Upon the
original sale of the assets to the JV, Mid-America recognized a gain of
approximately $9.0 million and deferred gains for the Company's retained
interest of approximately $4.8 million. Distributions to Blackstone from one of
the properties is subject to a minimum threshold, supported by Mid-America's
share of distributions from the JV, which reduced Mid-America's share of total
distributions by $218,000 in 2001. Effective April 2002, each partner's interest
is subject to a "right of first offer" in which the Offeror can offer to sell
its investment in any one or more properties to the other partner (the Offeree).
In the event the Offeree declines to purchase the Offeror's investment, the
property is then put up for sale.
4. BORROWINGS
The Company maintains a $70 million secured credit facility with a group of
banks led by AmSouth Bank (the "AmSouth Credit Line"). The AmSouth Credit Line
bears interest at a rate of LIBOR plus a spread ranging from 1.35% to 1.75%
(1.35% at December 31, 2001) based on certain quarterly coverage calculations
established by the agreement. This credit line expires in May 2003 and is
subject to certain borrowing base calculations that effectively reduce the
amount that may be borrowed. At December 31, 2001, the Company had
$32.0 million available to be borrowed under the AmSouth Credit Line agreement.
There were no outstanding amounts under this facility except for $24,403,000 of
letters of credit, predominately used to credit-enhance certain tax-free bonds.
The Company also maintains a $295 million secured credit facility with
Prudential Mortgage Capital, credit-enhanced by FNMA (the "FNMA Facility") which
matures in 2009. The FNMA Facility provides for both fixed and variable rate
borrowings. The interest rate on the variable portion renews every 90 days and
is based on the FNMA discount mortgage backed security rate on the date of
renewal, which, for the Company, has historically approximated three-month LIBOR
less an average of .09%, plus a fee of .67%. Borrowings under the FNMA Facility
totaled $291.7 million at December 31,
F-11
<Page>
2001, consisting of $110 million under the fixed portion at a rate of 7.179% and
the remaining $181.7 million under the variable rate portion of the facility.
The Company has five interest rate swap agreements, totaling $125 million to
lock the interest rate on a portion of the variable rate borrowings outstanding
under the FNMA Facility at approximately 6.9%. The FNMA Facility is subject to
certain borrowing base calculations that effectively reduce the amount that may
be borrowed. The total amount available under these calculations was outstanding
as of December 31, 2001.
The Company also had outstanding at December 31, 2001 a $5 million unsecured
short-term note payable with Compass Bank, which matures in January 2002.
At December 31, 2001, the Company had $61.7 million (after considering the
interest rate swaps) variable rate debt outstanding at an average interest rate
of 2.8% and an additional $23 million of tax-free variable rate debt outstanding
at an average rate of 2.8%. The interest rate on all other debt was hedged or
fixed at an average interest rate of 6.8%.
During 2001, the Company refinanced multiple properties and moved them under
the FNMA facility. The Company also refinanced three tax-free bonds and moved
them into a new tax-free bond credit facility with Prudential Mortgage Capital,
credit-enhanced by FNMA. The Company issued a seven-year $16,990,000 swap in
order to lock the interest rate on all of the outstsanding balance during this
period at 5.15%. The Company incurred a prepayment penalty of approximately
$1,033,000, net of minority interest, related to the early extinguishment of the
debt which is included in "Extraordinary items--loss on early extinguishment of
debt" in the accompanying financial statements.
The Company had approximately $482.9 million and $565.6 million at
December 31, 2001 and 2000, respectively, outstanding under various mortgage
notes and bonds payable secured by real estate assets.
The Company had outstanding $142 million aggregate principal amount of
6.376% bonds due in 2003 (the "Bonds"). The Bonds are secured by a first
priority deed of trust, security agreement and assignment of rents and leases in
26 mortgaged properties.
During 2000, the Company paid off a portion of its note payable to
Prudential Mortgage, which is secured by several properties. The payment was
related to the disposition of one of the properties securing the note, and the
Company incurred a prepayment penalty of approximately $204,000, net of minority
interest, related to the early extinguishment of the mortgage. During 1999, the
Company paid certain borrowings prior to maturity and incurred prepayment costs
of $67,000, net of minority interest, related to the early extinguishment. For
2000 and 1999, these costs are included in "Extraordinary items--loss on early
extinguishment of debt" in the accompanying financial statements.
As of December 31, 2001, the Company estimated that the weighted average
interest rate on the Company's debt was 6.3% with an average maturity of
10.0 years.
F-12
<Page>
The following table summarizes the Company's indebtedness at December 31,
2001, and 2000.
<Table>
<Caption>
ACTUAL AVERAGE
INTEREST RATES INTEREST RATE MATURITY 2001 2000
-------------- ------------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Fixed Rate:
Taxable................................ 5.770-9.006% 6.923% 2002-2037 $451.5 $504.3
Tax-exempt 5.281-8.170% 6.277% 2008-2028 101.9 94.5
Interest rate swaps.................... 5.037-7.413% 6.899% 2005-2008 142.0 75.0
------ ------
$695.4 $673.8
------ ------
Variable Rate:
Taxable................................ 2.782% 2.782% 2009 $ 61.7 $ 75.5
Tax-exempt............................. 2.600-2.900% 2.759% 2027-2028 22.6 31.8
------ ------
$ 84.3 $107.3
------ ------
$779.7 $781.1
====== ======
</Table>
Scheduled principal repayments on the borrowings at December 31, 2001 are as
follows (Dollars
in 000's):
<Table>
<Caption>
YEAR AMORTIZATION MATURITIES TOTAL
- ---- ------------ ---------- --------
<S> <C> <C> <C>
2002........................................ $ 3,956 $ 16,390 $ 20,346
2003........................................ 3,740 154,120 157,860
2004........................................ 3,862 71,168 75,030
2005........................................ 4,086 3,215 7,301
2006........................................ 4,166 36,010 40,176
Thereafter.................................. 129,755 349,196 478,951
-------- -------- --------
$149,565 $630,099 $779,664
======== ======== ========
</Table>
The Company's indebtedness includes various restrictive financial covenants.
The Company believes that it was in compliance with these covenants as of
December 31, 2001.
5. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, restricted cash, accounts payable, accrued
expenses and other liabilities and security deposits are carried at amounts
which reasonably approximate their fair value due to their short term nature.
Fixed rate notes payable at December 31, 2001 and 2000 total $695.4 million
and $673.8 million, respectively, and have an estimated fair value of
$506.2 million and $602.9 million (excluding prepayment penalties) based upon
interest rates available for the issuance of debt with similar terms and
remaining maturities as of December 31, 2001 and 2000. The carrying value of
variable rate notes payable at December 31, 2001 and 2000 total $84.3 million
and $107.3 million, respectively, which reasonably approximates their fair value
because the related variable interest rates available for the issuance of debt
with similar terms and remaining maturities reasonably approximate market rates.
The Company has six interest rate swap agreements totalling $142.0 million
notional amount which were outstanding as of December 31, 2001. The Company
estimates that at December 31, 2001, the combined fair market value of all the
interest rate swaps outstanding was $(8.8) million.
The fair value estimates presented herein are based on information available
to management as of December 31, 2001 and 2000. Although management is not aware
of any factors that would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively
F-13
<Page>
revalued for purposes of these financial statements since that date, and current
estimates of fair value may differ significantly from the amounts presented
herein.
6. COMMITMENTS AND CONTINGENCIES
The Company is not presently subject to any material litigation nor, to the
Company's knowledge, with advice of legal counsel, is any material litigation
threatened against the Company, other than routine litigation arising in the
ordinary course of business, some of which is expected to be covered by
liability insurance and none of which is expected to have a material adverse
effect on the consolidated financial statements of the Company.
The Company had total expenses related to operating leases for the years
ended December 31, 2001, 2000, and 1999 of $527,000, $407,000, and $256,000,
respectively.
The Company's commitments for the next five years under operating lease
agreements outstanding at December 31, 2001 are as follows (in Dollars):
<Table>
<Caption>
YEAR
- ----
<S> <C>
2002........................................................ $ 587,971
2003........................................................ 587,971
2004........................................................ 342,919
2005........................................................ 257,189
2006........................................................ --
----------
Total....................................................... $1,776,050
==========
</Table>
7. INCOME TAXES
No provision for federal income taxes has been made in the accompanying
consolidated financial statements. The Company has made an election to be taxed
as a Real Estate Investment Trust ("REIT") under Sections 856 through 860 of the
Code. As a REIT, the Company generally is not subject to Federal income tax to
the extent it distributes 95% (through December 31, 2000 and 90% thereafter) of
its REIT taxable income to its shareholders and meets certain other tests
relating to the number of shareholders, types of assets and allocable income. If
the Company fails to qualify as a REIT in any taxable year, the Company will be
subject to the Federal income tax (including any applicable alternative minimum
tax) on its taxable income at regular corporate rates. Even though the Company
qualifies for taxation as a REIT, the Company may be subject to certain Federal,
state and local taxes on its income and property and to Federal income and
excise tax on its undistributed income.
Earnings and profits, which determine the taxability of dividends to
shareholders, differ from net income reported for financial reporting purposes
primarily because of differences in depreciable lives, bases of certain assets
and liabilities and in the timing of recognition of earnings upon disposition of
properties. For federal income tax purposes, the following summarizes the
taxability of cash distributions paid on the common shares in 2000 and 1999 and
the estimated taxability for 2001:
<Table>
<Caption>
2001 2000 1999
-------- -------- --------
<S> <C> <C> <C>
Per common share
Ordinary income...................................... $1.28 $1.31 $1.40
Capital gains........................................ .32 .25 .18
Return of capital.................................... .74 .76 .72
----- ----- -----
Total.............................................. $2.34 $2.32 $2.30
===== ===== =====
</Table>
F-14
<Page>
8. SHAREHOLDERS' EQUITY
SERIES A PREFERRED STOCK
Series A Cumulative Preferred Stock ("Series A Preferred Stock") has a
$25.00 per share liquidation preference and a preferential cumulative annual
distribution of $2.375 per share, payable monthly. The Company has outstanding
2,000,000 Series A Preferred shares for which it received net proceeds of
$47.8 million. Since November 1, 2001, the Series A Preferred shares have been
redeemable for cash at the option of the Company, in whole or in part, at a
redemption price equal to the liquidation preference plus dividends accrued and
unpaid to the redemption date.
SERIES B PREFERRED STOCK
Series B Cumulative Preferred Stock ("Series B Preferred Stock") has a
$25.00 per share liquidation preference and a preferential cumulative annual
distribution of $2.21875 per share, payable monthly. The Company has outstanding
1,938,830 Series B Preferred shares for which it received net proceeds of
$46.6 million. On and after December 1, 2002, the Series B Preferred shares will
be redeemable for cash at the option of the Company, in whole or in part, at a
redemption price equal to the liquidation preference plus dividends accrued and
unpaid to the redemption date.
SERIES C PREFERRED STOCK
Series C Cumulative Redeemable Preferred Stock ("Series C Preferred Stock")
has a $25.00 per share liquidation preference and a preferential cumulative
annual distribution of $2.34375 per share, payable quarterly. The Company has
outstanding 2,000,000 Series C Preferred shares for which it received net
proceeds of $48.1 million. On and after June 30, 2003, the Series C Preferred
shares will be redeemable for cash at the option of the Company, in whole or in
part, at a redemption price equal to the liquidation preference plus dividends
accrued and unpaid to the redemption date.
SERIES D PREFERRED STOCK--SHAREHOLDERS RIGHTS PLAN
During December 1998, the Board of Directors authorized a Shareholders
Rights Plan (the "Rights Plan"). In implementing the Rights Plan, the Board
declared a distribution of one right for each of the Company's outstanding
common shares which would become exercisable only if a person or group (the
"Acquiring Person") becomes the beneficial owner of 10% or more of the common
shares or announces a tender or exchange offer that would result in ownership of
10% of the Company's common shares. The rights will trade with the Company's
common stock until exercisable. Each holder of a right, other than the Acquiring
Person, is in that event entitled to purchase one common share of the Company
for each right at one half of the then current price.
SERIES E PREFERRED STOCK
Series E Cumulative Preferred Stock ("Series E Preferred Stock") has a
$25.00 per share liquidation preference and a preferential cumulative annual
distribution of $2.375 per share, payable monthly. The Company has outstanding
1,000,000 Series E Preferred shares issued in a direct placement with a private
investor. The Company received net proceeds of $24.7 million. In December 2003,
the securities may be required by the purchaser to be redeemed by the Company in
cash or common stock, at the Company's option, at the then market price. The
Series E Preferred Stock is equal in rank with the Company's other series of
Preferred Stock with respect to the payment of dividends and amounts upon
liquidation, dissolution or winding up.
F-15
<Page>
DIRECT STOCK PURCHASE AND DISTRIBUTION REINVESTMENT PLAN
The Company has a Direct Stock Purchase and Distribution Reinvestment Plan
("DSPDRP") pursuant to which the Company's shareholders have the ability to
reinvest all or part of distributions from Mid-America common stock, preferred
stock or limited partnership interests in Mid-America Apartments, L.P. Also, the
plan provides the opportunity for shareholders to buy additional shares through
an optional cash investment. The Company has registered with the Securities and
Exchange Commission the offer and sale of up to 1,600,000 shares of common stock
pursuant to the DSPDRP. Additional shares will be purchased at the market price
on the "Investment Date" each month, which shall in no case be later than ten
business days following the distribution payment date. Common stock shares
totaling 27,090, in 2001, 25,242 in 2000, and 111,637 in 1999 were acquired by
shareholders.
STOCK REPURCHASE PLAN
In 1999, the Company's Board of Directors approved a stock repurchase plan
to acquire up to a total of 4.0 million shares of the Company's common shares.
Through December 31, 2001, the Company has repurchased and retired approximately
1.9 million shares of common stock for a cost of approximately $42 million at an
average price per common share of $22.54.
EARNINGS PER SHARE
The computation of basic earnings per share is based on the weighted average
number of common shares outstanding. The computation of diluted earnings per
share is based on the weighted average number of common shares outstanding plus
the shares resulting from the assumed exercise of all dilutive outstanding
options using the treasury stock method.
A reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations for the years ended December 31, 2001, 2000 and
1999 is presented on the Consolidated Statements of Operations.
9. EMPLOYEE BENEFIT PLANS
401 (K) SAVINGS PLAN
The Mid-America Apartment Communities, Inc. 401(k) Savings Plan is a defined
contribution plan that satisfies the requirements of Section 401(a) and 401(k)
of the Code. The Company may, but is not obligated to, make a matching
contribution of $.50 for each $1.00 contributed, up to 6% of the participant's
compensation. The Company's contribution to this plan was $240,000, $216,000 and
$204,200 in 2001, 2000 and 1999, respectively.
NON-QUALIFIED DEFERRED COMPENSATION PLAN
The Company has adopted a non-qualified deferred compensation plan for key
employees who are not qualified for participation in the Company's 401(k)
Savings Plan. Under the terms of the plan, employees may elect to defer a
percentage of their compensation and the Company matches a portion of their
salary deferral. The plan is designed so that the employees' investment earnings
under the non-qualified plan should be the same as the earning assets in the
Company's 401(k) Savings Plan. The Company's match to this plan in 2001, 2000
and 1999 was $30,200, $27,800 and $17,300, respectively.
EMPLOYEE STOCK PURCHASE PLAN
The Mid-America Apartment Communities, Inc. Employee Stock Purchase Plan
(the "ESPP") provides a means for employees to purchase common stock of the
Company. The Board has authorized the issuance of 150,000 shares for the plan.
The ESPP is administered by the Compensation Committee who may annually grant
options to employees to purchase annually up to an aggregate of 15,000 shares
F-16
<Page>
of common stock at a price equal to 85% of the market price of the common stock.
During 2001, 2000 and 1999, the ESPP purchased 4,163, 4,326 and 6,721 shares,
respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
The Mid-America Apartment Communities, Inc. Employee Stock Ownership Plan
(the "ESOP") is a non-contributory stock bonus plan that satisfies the
requirements of Section 401(a) of the Internal Revenue Code. Each employee of
the Company is eligible to participate in the ESOP after attaining the age of
21 years and completing one year of service with the Company. Participants' ESOP
accounts will be 100% vested after five years of continuous service, with no
vesting prior to that time. The Company contributed 22,500 shares of common
stock to the ESOP upon conclusion of the Initial Offering. During 2001, 2000 and
1999, the Company contributed approximately $600,000, $600,000 and $640,000,
respectively, to the ESOP which purchased an additional 22,562, 25,967 and
28,233 shares, respectively.
STOCK OPTION PLAN
The Company has adopted the 1994 Restricted Stock and Stock Option Plan (the
"Plan") to provide incentives to attract and retain independent directors,
executive officers and key employees. The Plan provides for the grant of options
to purchase a specified number of shares of common stock ("Options") or grants
of restricted shares of common stock ("Restricted Stock"). The Plan also allows
the Company to grant options to purchase Operating Partnership Units at the
price of the common stock on the New York Stock Exchange on the day prior to
issuance of the units (the "LESOP Provision"). The Plan authorizes the issuance
of 2,000,000 common shares or options to acquire shares which vest over five
years. Under the terms of the Plan, the Company can advance directors, executive
officers, and key employees a portion of the cost of the common stock or units.
The employee advances mature five years from date of issuance and accrue
interest, payable in arrears, at a rate established at the date of issuance. The
Company has also entered into supplemental bonus agreements with the employees
which are intended to fund the payment of a portion of the advances over a five
year period. Under the terms of the supplemental bonus agreements, the Company
will pay bonuses to these employees equal to 3% of the original note balance on
each anniversary date of the advance, limited to 15% of the aggregate purchase
price of the shares and units. The advances become due and payable and the bonus
agreement will terminate if the employees voluntarily terminate their employment
with the Company. The Company also agreed to pay a bonus to certain executive
officers in an amount equal to the debt service on the advances for as long as
they remain employed by the Company.
As of December 31, 2001, the Company had advances outstanding relating to
the Plan totaling $782,000, which is presented as a reduction to shareholders'
equity in the accompanying consolidated balance sheets. Advances to executive
officers totaled $535,000 at interest rates ranging from 5.59%-6.49% and
maturing at various dates from 2002 to 2005. Advances to key employees totaled
$247,000 at interest rates ranging from 7.5%-9.0% maturing at various dates from
2002 to 2005.
Additionally in 2001, the Company issued 5,450 restricted shares to current
independent directors at a price of $22.14 per share. These shares will vest in
one year. In 2000, 5,450 restricted shares were also issued to independent
directors at a price of $22.1875. In 2000, the Company issued 10,750 restricted
shares to executive officers at a price of $22.1875. These shares will vest 10%
each over the next ten years. The executive officers have the option to
accelerate the vesting in lieu of bonuses.
F-17
<Page>
A summary of changes in Options to acquire shares of the Company's common
stock and Operating Partnership Units, including grants and exercises pursuant
to the LESOP provision, for the three years ended December 31, 2001 is as
follows:
<Table>
<Caption>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1998................... 795,319 26.87
Granted.......................................... 371,750 22.25
Forfeited........................................ (243,800) 25.86
---------
Outstanding at December 31, 1999................... 923,269 25.35
Granted.......................................... 401,000 22.29
Exercised........................................ (54,350) 22.93
Forfeited........................................ (70,325) 24.78
---------
Outstanding at December 31, 2000................... 1,199,594 24.47
Granted.......................................... 341,700 22.14
Exercised........................................ (69,900) 20.84
Forfeited........................................ (241,900) 23.81
---------
Outstanding at December 31, 2001................... 1,229,494 23.94
---------
Options exercisable:
December 31, 1999................................ 285,694 23.34
December 31, 2000................................ 381,744 24.25
December 31, 2001................................ 425,694 25.24
</Table>
Exercise prices for options outstanding as of December 31, 2001 ranged from
$19.75 to $29.50. The weighted average remaining contractual life of those
options is 6.8 years.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", which requires either the (i) fair value of employee stock-based
compensation plans be recorded as a component of compensation expense in the
statement of operations as of the date of grant of awards related to such plans,
or (ii) impact of such fair value on net income and earnings per share be
disclosed on a pro forma basis in a footnote to financial statements for awards
granted after December 15, 1994, if the accounting for such awards continues to
be in accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," ("APB 25"). The Company will continue such
accounting under the provisions of APB 25. If the fair value method of
accounting allowed under SFAS No. 123 had been used by the Company, the pro
forma net income available to common shareholders would have been $12,398,000,
$13,494,000, $17,254,000 for 2001, 2000 and 1999, respectively. The pro forma
diluted net income available per common share would have been $0.71, $0.77 and
$0.92 for 2001, 2000 and 1999, respectively. The calculation was prepared using
the Black-Scholes option pricing model using the following factors: 1) risk free
interest rate of 4.86%, 5.28% and 6.38% for 2001, 2000 and 1999, respectively,
2) expected life of 6.8 years, 7.0 years, and 7.3 years for 2001, 2000 and 1999,
respectively, 3) expected volatility of 13.65%, 14.05% and 19.14% for 2001, 2000
and 1999, respectively, and 4) expected dividends of 8.90%, 10.16% and 10.16%
for 2001, 2000 and 1999, respectively. The weighted average fair value of all
options granted during the year is $7,565,000 at a weighted average option price
of $22.14 per share.
10. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company occasionally
utilizes derivative financial instruments as hedges in anticipation of future
debt transactions to manage well-defined interest rate risk or as protection to
F-18
<Page>
hedge the interest rate risk of the Company's variable rate debt by locking the
effective rate on portions of the outstanding lines of credit.
During 2001, the Company entered two interest rate swap agreements, each
with a notional amount of $25 million, to effectively lock the interest rate on
$50 million of the FNMA Facility at approximately 6.3%. The swap agreements
expire in December 2005, and June 2007. The Company also entered into a
$16.99 million interest rate swap agreement expiring in June 2008 to effectively
fix the rate at 5.15% on a new tax-free bond credit facility with Prudential
Mortgage Capital, credit-enhanced by FNMA.
Also during 2001, the Company entered into two forward interest rate swaps.
Both swaps begin in 2003 and have a notional amount of $25 million of
three-month LIBOR fixed leg. These interest rate swaps will effectively lock the
interest rate at approximately 5.9%
During 2000, the Company entered two interest rate swap agreements, each
with a notional amount of $25 million, to effectively lock the interest rate on
$50 million of the FNMA Credit Facility at approximately 7.4%. The swap
agreements expire in September of 2005 and 2006.
In 1998, the Company entered an interest rate swap agreement which expires
on May 23, 2003 that effectively locks the interest rate the Company pays on a
portion of its AmSouth Credit Line. As of December 31, 2001, $25 million
notional amount was outstanding on this agreement with a fixed interest rate
paid by the Company of 7.17%.
At December 31, 2001 all of these interest rate swaps were designated as
cash flow hedges in accordance with SFAS No. 133 and have a net liabiltity fair
value of ($8,756,000).
11. RELATED PARTY TRANSACTIONS
Pursuant to a management contract with the Joint Venture, the Company
manages the operations of the 10 Joint Venture apartment communities for a fee
of 4% of the revenues of the Joint Venture. The Company received approximately
$755,000, $739,000 and $453,000 as management fees from the Joint Venture in
2001, 2000 and 1999, respectively.
As described in Note 2, the Company sold its development, construction and
management fee business in June 1999 to a director of the Company. The director
was a former principal of Flournoy, which was acquired by the Company in
November 1997. The Company has contracted with Flournoy to complete the
remaining portion of its development pipeline, which is expected to be
accomplished during 2002.
The Company has a line of credit with a group of banks led by AmSouth Bank.
First Tennessee Bank, the principal banking subsidiary of First Tennessee
National Corporation ("FTNC"), has committed approximately $20 million towards
this line of credit. The Company has also entered into a forward interest rate
swap agreement with FTNC for a notional amount of $25 million with a three-
month LIBOR fixed leg. One of the Company's directors, Mr. Horn, is Chairman,
Chief Executive Officer and President of FTNC. The line of credit was entered
into in the ordinary course of business on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions between unrelated parties.
The Company's 401(k) is invested in three Longleaf Partners funds. One of
the Company's directors, Mr. Hawkins, is the Chairman and Chief Executive
Officer of Southeastern Asset Management, Inc, which serves as the investment
advisor for Longleaf Partners Funds Trust. Mr. Hawkins is also a director of
Longleaf Partners Funds Trust. The performance of the 401(k) is routinely
reviewed by the trustees of the plan in conjunction with the plan's independent
administrative consultants. The investments were entered into in the ordinary
course of business on substantially the
F-19
<Page>
same terms, including fees and costs, as those prevailing at the time for
comparable transactions between unrelated parties.
12. SEGMENT INFORMATION
At December 31, 2001, the Company owned or had an ownership interest in 122
multifamily apartment communities, including the 10 apartment communities owned
by the Joint Venture, in 12 different states from which it derives all
significant sources of earnings and operating cash flows. The Company's
operational structure is organized on a decentralized basis, with individual
property managers having overall responsibility and authority regarding the
operations of their respective properties. Each property manager individually
monitors local and area trends in rental rates, occupancy percentages, and
operating costs. Property managers are given the on-site responsibility and
discretion to react to such trends in the best interest of the Company. The
Company's chief operating decision maker evaluates the performance of each
individual property based on its contribution to net operating income in order
to ensure that the individual property continues to meet the Company's return
criteria and long term investment goals. The Company defines each of its
multifamily communities as an individual operating segment. It has also
determined that all of its communities have similar economic characteristics and
also meet the other criteria which permit the communities to be aggregated into
one reportable segment, which is acquisition, development, and operation of the
multifamily communities owned.
The revenues, net operating income, assets and real estate investment
capital expenditures for the aggregated multifamily segment are summarized as
follows for the years ended as of December 31, 2001, 2000 and 1999 (Dollars in
000's): For purposes of this disclosure, multifamily revenues, net operating
income and real estate assets include amounts related to the 10 properties owned
by the unconsolidated Joint Venture.
F-20
<Page>
<Table>
<Caption>
2001 2000 1999
---------- ---------- --------
<S> <C> <C> <C>
Multifamily rental revenues................................. $ 242,189 $ 237,330 $233,442
Other multifamily revenues.................................. 3,008 3,670 2,116
---------- ---------- --------
Segment revenues.......................................... 245,197 241,000 235,558
Reconciling items to consolidated revenues:
Joint Venture revenues.................................... (18,927) (18,468) (11,344)
Interest income and other revenues........................ 1,310 1,526 1,388
Management and development income, net.................... 755 739 751
Equity in loss of real estate joint venture............... (296) (157) (31)
---------- ---------- --------
Total revenues.......................................... $ 228,039 $ 224,640 $226,322
========== ========== ========
Multifamily net operating income............................ 152,171 149,288 145,874
Reconciling items to net income:
Joint Venture net operating income........................ (10,485) (10,202) (6,545)
Interest income and other revenues........................ 1,310 1,526 1,388
Management and development income, net.................... 755 739 751
Equity in loss of real estate joint venture............... (296) (157) (31)
Depreciation and amortization............................. (52,051) (51,844) (49,903)
Property management expenses.............................. (10,204) (9,509) (9,360)
General and administrative expenses....................... (5,879) (5,317) (5,119)
Interest expense.......................................... (52,598) (50,736) (48,302)
Amortization of deferred financing costs.................. (2,352) (2,758) (2,854)
Gain on dispositions, net................................. 11,933 11,587 10,237
Extraordinary items--loss on early extinguishment of
debt.................................................... (1,033) (204) (67)
Minority interest in operating partnership income......... (2,573) (2,626) (2,497)
Dividends on preferred shares............................. (16,113) (16,114) (16,114)
---------- ---------- --------
Net income available for common shareholders............ $ 12,585 $ 13,673 $ 17,458
========== ========== ========
</Table>
<Table>
<Caption>
2001 2000
---------- ----------
<S> <C> <C> <C>
ASSETS:
Multifamily real estate assets.............................. $1,537,625 $1,516,096
Accumulated depreciation--multifamily assets................ (239,586) (189,516)
---------- ----------
1,298,039 1,326,580
Reconciling items to total assets:
Joint Venture multifamily real estate assets, net......... 94,427 96,145
Land held for future development.......................... 1,366 1,366
Commercial properties, net................................ 4,910 5,044
Investment in and advances to real estate joint venture... 7,045 7,630
Cash and restricted cash.................................. 23,432 33,567
Other assets.............................................. 23,123 25,729
---------- ----------
Total Assets............................................ $1,263,488 $1,303,771
========== ==========
</Table>
<Table>
<Caption>
2001 2000 1999
---------- ---------- --------
<S> <C> <C> <C>
Multifamily expenditures for property improvements,
acquisitions and construction............................. $ 37,953 $ 96,674 $107,508
Less reconciling items:
Joint Venture property improvements....................... (2,091) (1,458) (1,568)
---------- ---------- --------
Total expenditures for property improvements,
acquisitions and construction......................... $ 35,862 $ 95,216 $105,940
========== ========== ========
</Table>
13. SUBSEQUENT EVENT
DECLARATION OF DIVIDEND
The Company declared a 2001 fourth quarter common stock dividend of $0.585
per share in January 2002 to be paid January 31, 2002 to holders of record on
January 24, 2002.
F-21
<Page>
14. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
MID-AMERICA APARTMENT COMMUNITIES, INC.
QUARTERLY FINANCIAL DATA (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2001
-----------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues.......................................... $56,611 $58,107 $57,177 $56,144
Income before minority interest in operating partnership
income and extraordinary items........................ $ 4,963 $ 5,194 $15,126 $ 7,021
Minority interest in operating partnership income....... $ 102 $ 149 $ 1,853 $ 469
Extraordinary items, net of minority interest........... $ -- $ (443) $ (183) $ (407)
Net income available for common shareholders............ $ 833 $ 573 $ 9,062 $ 2,117
Per share:
Basic and diluted:
Net income available per common shares
Before extraordinary items............................ $ 0.05 $ 0.06 $ 0.53 $ 0.14
Extraordinary items................................... -- (0.03) (0.01) (0.02)
------- ------- ------- -------
Net income available per common share................. $ 0.05 $ 0.03 $ 0.52 $ 0.12
======= ======= ======= =======
Dividend declared....................................... $ 0.585 $ 0.585 $ 0.585 $ 0.585
</Table>
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2000
-----------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues.......................................... $55,408 $55,601 $56,937 $56,694
Income before minority interest in operating partnership
income and extraordinary items........................ $ 7,912 $12,195 $ 5,964 $ 6,546
Minority interest in operating partnership income....... $ 540 $ 1,403 $ 337 $ 346
Extraordinary items, net of minority interest........... $ (56) $ (148) $ -- $ --
Net income available for common shareholders............ $ 3,286 $ 6,615 $ 1,599 $ 2,173
Per share:
Basic and diluted:
Net income available per common shares
Before extraordinary items............................ $ 0.19 $ 0.38 $ 0.09 $ 0.13
Extraordinary items................................... -- (0.01) -- --
------- ------- ------- -------
Net income available per common share................. $ 0.19 $ 0.37 $ 0.09 $ 0.13
======= ======= ======= =======
Dividend declared....................................... $ 0.580 $ 0.580 $ 0.580 $ 0.585
</Table>
F-22
<Page>
MID-AMERICA APARTMENT COMMUNITIES, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2001
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
COST CAPITALIZED
SUBSEQUENT TO
INITIAL COST ACQUISITION
--------------------- --------------------
BUILDINGS BUILDINGS
AND AND
PROPERTY LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES
- ------------------------------ ---------------------- -------------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Completed Properties
Eagle Ridge................... Birmingham, AL $ --(1) $ 851 $ 7,667 $ -- $ 737
Abbington Place............... Huntsville, AL --(1) 524 4,724 -- 861
Paddock Club--Huntsville I.... Huntsville, AL --(1) 830 7,470 -- 648
Paddock Huntsville, AL
Club--Huntsville II......... --(1) 909 10,152 -- 99
Paddock Club Montgomery, AL
Montgomery I&II............. --(1) 965 13,190 -- 382
Calais Forest................. Little Rock, AR --(1) 1,026 9,244 -- 1,878
Napa Valley................... Little Rock, AR --(2) 960 8,642 -- 1,079
Westside Creek I.............. Little Rock, AR --(2) 616 5,559 -- 702
Westside Creek II............. Little Rock, AR 4,776 654 5,904 -- 331
Tiffany Oaks.................. Altamonte Springs, FL --(2) 1,024 9,219 -- 1,510
Marsh Oaks.................... Atlantic Beach, FL --(2) 244 2,829 -- 774
Indigo Point.................. Brandon, FL --(3) 1,167 10,500 -- 886
Paddock Club--Brandon Brandon, FL
I & II...................... --(1) 2,896 26,111 -- 259
Anatole....................... Daytona Beach, FL 7,000 1,227 5,879 -- 842
Paddock Club--Gainsville...... Gainsville, FL --(1) 1,800 15,879 -- 38
Cooper's Hawk................. Jacksonville, FL --(5) 854 7,500 -- 1,054
Hunter's Ridge at Deerwood.... Jacksonville, FL --(6) 1,533 13,835 -- 706
Lakeside...................... Jacksonville, FL --(2) 1,431 12,883 (1) 3,616
Paddock Club-- Jacksonville, FL
Jacksonville I,II&III....... --(7) 2,294 20,750 (2) 640
Paddock Club--Mandarin........ Jacksonville, FL --(1) 1,410 14,967 -- 250
St. Augustine................. Jacksonville, FL --(5) 2,858 6,475 (1) 2,487
Woodbridge at the Lake........ Jacksonville, FL --(1) 645 5,804 -- 1,568
Woodhollow.................... Jacksonville, FL 9,359 1,686 15,179 -- 2,207
Paddock Club--Lakeland........ Lakeland, FL --(7) 2,254 20,452 -- 1,523
Savannahs at James Landing.... Melbourne, FL --(5) 582 7,868 -- 1,843
Paddock Park--Ocala I......... Ocala, FL 6,805 901 8,177 -- 1,089
Paddock Park--Ocala II........ Ocala, FL --(1) 1,383 12,547 -- 661
Paddock Club--Panama City..... Panama City, FL --(1) 898 14,276 -- 67
<Caption>
GROSS AMOUNT
CARRIED AT
DECEMBER 31, LIFE USED TO
2001(10) COMPUTE
--------------------- DEPRECIATION
BUILDINGS IN LATEST
AND ACCUMULATED DATE OF INCOME
PROPERTY LAND FIXTURES TOTAL DEPRECIATION NET CONSTRUCTION STATEMENT(9)
- ------------------------------ -------- ---------- ---------- ------------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Completed Properties
Eagle Ridge................... $ 851 $ 8,404 $ 9,255 $ (1,143) $ 8,112 1986 5 - 40
Abbington Place............... 524 5,585 6,109 (844) 5,265 1987 5 - 40
Paddock Club--Huntsville I.... 830 8,118 8,948 (1,050) 7,898 1989 5 - 40
Paddock
Club--Huntsville II......... 909 10,251 11,160 (1,136) 10,024 1998 5 - 40
Paddock Club
Montgomery I&II............. 965 13,572 14,537 (1,211) 13,326 1999 5 - 40
Calais Forest................. 1,026 11,122 12,148 (2,925) 9,223 1987 5 - 40
Napa Valley................... 960 9,721 10,681 (1,881) 8,800 1984 5 - 40
Westside Creek I.............. 616 6,261 6,877 (1,113) 5,764 1984 5 - 40
Westside Creek II............. 654 6,235 6,889 (988) 5,901 1986 5 - 40
Tiffany Oaks.................. 1,024 10,729 11,753 (2,054) 9,699 1985 5 - 40
Marsh Oaks.................... 244 3,603 3,847 (987) 2,860 1986 5 - 40
Indigo Point.................. 1,167 11,386 12,553 (650) 11,903 1989 5 - 40
Paddock Club--Brandon
I & II...................... 2,896 26,370 29,266 (3,417) 25,849 1997/99 5 - 40
Anatole....................... 1,227 6,721 7,948 (1,702) 6,246 1986 5 - 40
Paddock Club--Gainsville...... 1,800 15,917 17,717 (1,279) 16,438 1999 5 - 40
Cooper's Hawk................. 854 8,554 9,408 (2,190) 7,218 1987 5 - 40
Hunter's Ridge at Deerwood.... 1,533 14,541 16,074 (1,954) 14,120 1987 5 - 40
Lakeside...................... 1,430 16,499 17,929 (3,947) 13,982 1985 5 - 40
Paddock Club--
Jacksonville I,II&III....... 2,292 21,390 23,682 (2,934) 20,748 1989/96 5 - 40
Paddock Club--Mandarin........ 1,410 15,217 16,627 (1,464) 15,163 1998 5 - 40
St. Augustine................. 2,857 8,962 11,819 (2,711) 9,108 1987 5 - 40
Woodbridge at the Lake........ 645 7,372 8,017 (1,973) 6,044 1985 5 - 40
Woodhollow.................... 1,686 17,386 19,072 (3,281) 15,791 1986 5 - 40
Paddock Club--Lakeland........ 2,254 21,975 24,229 (3,309) 20,920 1988/90 5 - 40
Savannahs at James Landing.... 582 9,711 10,293 (2,410) 7,883 1990 5 - 40
Paddock Park--Ocala I......... 901 9,266 10,167 (1,439) 8,728 1986 5 - 40
Paddock Park--Ocala II........ 1,383 13,208 14,591 (2,039) 12,552 1988 5 - 40
Paddock Club--Panama City..... 898 14,343 15,241 (1,761) 13,480 2000 5 - 40
</Table>
F-23
<Page>
<Table>
<Caption>
COST CAPITALIZED
SUBSEQUENT TO
INITIAL COST ACQUISITION
--------------------- --------------------
BUILDINGS BUILDINGS
AND AND
PROPERTY LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES
- ------------------------------ ---------------------- -------------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Paddock Tallahassee, FL
Club--Tallahassee I......... --(1) 950 8,550 -- 356
Paddock Tallahassee, FL
Club--Tallahassee II........ --(1) 530 4,805 -- 156
Belmere....................... Tampa, FL --(2) 851 7,667 1 2,005
Links at Carrollwood.......... Tampa, FL 5,502 817 7,355 110 2,395
High Ridge.................... Athens, GA --(2) 884 7,958 -- 444
Bradford Pointe............... Augusta, GA 4,760 772 6,949 -- 718
Shenandoah Ridge.............. Augusta, GA --(2) 650 5,850 8 2,210
Westbury Creek................ Augusta, GA 3,019 400 3,626 -- 507
Fountain Lake................. Brunswick, GA -- 502 4,551 -- 943
Park Walk..................... College Park, GA 3,235 536 4,859 -- 387
Whisperwood Spa and Club...... Columbus, GA --(1) 4,290 42,722 (4) 3,434
Willow Creek.................. Columbus, GA --(2) 614 5,523 -- 1,126
Terraces at Fieldstone........ Conyers, GA --(1) 1,284 15,819 -- 70
Whispering Pines.............. LaGrange, GA 2,390 824 7,470 -- 784
Westbury Springs.............. Lilburn, GA --(1) 665 6,038 -- 584
Austin Chase.................. Macon, GA --(6) 1,409 12,687 -- (183)
The Vistas.................... Macon, GA 3,885 595 5,403 -- 562
Georgetown Grove.............. Savannah, GA 10,358 1,288 11,579 -- 387
Island Retreat................ St. Simons Island, GA 3,243 510 4,594 -- 611
Wildwood I.................... Thomasville, GA --(1) 438 3,971 -- 401
Wildwood II................... Thomasville, GA 1,916 372 3,372 -- 204
Hidden Lake I................. Union City, GA 4,310 675 6,128 -- 796
Hidden Lake II................ Union City, GA --(2) 621 5,587 -- 250
Three Oaks I.................. Valdosta, GA --(1) 462 4,188 -- 609
Three Oaks II................. Valdosta, GA 2,780 460 4,170 -- 300
Huntington Chase.............. Warner Robins, GA 9,397 1,160 10,437 -- 351
Southland Station I........... Warner Robins, GA --(2) 777 6,992 -- 799
Southland Station II.......... Warner Robins, GA --(1) 693 6,292 -- 404
Terraces at Towne Lake........ Woodstock, GA 14,997 1,689 15,321 -- 288
Terraces at Towne Lake II..... Woodstock, GA --(1) 1,331 11,918 -- 29
Fairways at Hartland.......... Bowling Green, KY --(1) 1,038 9,342 -- 1,113
Paddock Club Florence......... Florence, KY 9,502 1,209 10,969 -- 528
Lakepointe.................... Lexington, KY --(2) 411 3,699 -- 792
Mansion, The.................. Lexington, KY --(1) 694 6,242 -- 1,232
Village, The.................. Lexington, KY --(2) 900 8,097 -- 1,366
Stonemill Village............. Louisville, KY --(1) 1,169 10,518 -- 2,274
Riverhills.................... Grenada, MS --(1) 153 2,092 -- 546
Crosswinds.................... Jackson, MS --(2) 1,535 13,826 -- 1,489
Pear Orchard.................. Jackson, MS --(2) 1,352 12,168 (1) 1,984
Reflection Pointe............. Jackson, MS 5,880 710 8,770 140 2,859
Somerset...................... Jackson, MS --(2) 477 4,294 -- 845
<Caption>
GROSS AMOUNT
CARRIED AT
DECEMBER 31, LIFE USED TO
2001(10) COMPUTE
--------------------- DEPRECIATION
BUILDINGS IN LATEST
AND ACCUMULATED DATE OF INCOME
PROPERTY LAND FIXTURES TOTAL DEPRECIATION NET CONSTRUCTION STATEMENT(9)
- ------------------------------ -------- ---------- ---------- ------------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paddock
Club--Tallahassee I......... 950 8,906 9,856 (1,359) 8,497 1990 5 - 40
Paddock
Club--Tallahassee II........ 530 4,961 5,491 (727) 4,764 1995 5 - 40
Belmere....................... 852 9,672 10,524 (2,559) 7,965 1984 5 - 40
Links at Carrollwood.......... 927 9,750 10,677 (1,142) 9,535 1980 5 - 40
High Ridge.................... 884 8,402 9,286 (1,267) 8,019 1987 5 - 40
Bradford Pointe............... 772 7,667 8,439 (1,150) 7,289 1986 5 - 40
Shenandoah Ridge.............. 658 8,060 8,718 (2,314) 6,404 1975/84 5 - 40
Westbury Creek................ 400 4,133 4,533 (652) 3,881 1984 5 - 40
Fountain Lake................. 502 5,494 5,996 (917) 5,079 1983 5 - 40
Park Walk..................... 536 5,246 5,782 (800) 4,982 1985 5 - 40
Whisperwood Spa and Club...... 4,286 46,156 50,442 (6,508) 43,934 1980/86/88/98 5 - 40
Willow Creek.................. 614 6,649 7,263 (1,063) 6,200 1968/78 5 - 40
Terraces at Fieldstone........ 1,284 15,889 17,173 (1,363) 15,810 1999 5 - 40
Whispering Pines.............. 824 8,254 9,078 (1,301) 7,777 1982/84 5 - 40
Westbury Springs.............. 665 6,622 7,287 (991) 6,296 1983 5 - 40
Austin Chase.................. 1,409 12,504 13,913 (1,403) 12,510 1996 5 - 40
The Vistas.................... 595 5,965 6,560 (908) 5,652 1985 5 - 40
Georgetown Grove.............. 1,288 11,966 13,254 (1,542) 11,712 1997 5 - 40
Island Retreat................ 510 5,205 5,715 (622) 5,093 1978 5 - 40
Wildwood I.................... 438 4,372 4,810 (668) 4,142 1980 5 - 40
Wildwood II................... 372 3,576 3,948 (555) 3,393 1984 5 - 40
Hidden Lake I................. 675 6,924 7,599 (1,021) 6,578 1985 5 - 40
Hidden Lake II................ 621 5,837 6,458 (881) 5,577 1987 5 - 40
Three Oaks I.................. 462 4,797 5,259 (798) 4,461 1983 5 - 40
Three Oaks II................. 460 4,470 4,930 (650) 4,280 1984 5 - 40
Huntington Chase.............. 1,160 10,788 11,948 (626) 11,322 1997 5 - 40
Southland Station I........... 777 7,791 8,568 (1,231) 7,337 1987 5 - 40
Southland Station II.......... 693 6,696 7,389 (1,015) 6,374 1990 5 - 40
Terraces at Towne Lake........ 1,689 15,609 17,298 (2,225) 15,073 1998 5 - 40
Terraces at Towne Lake II..... 1,331 11,947 13,278 (1,036) 12,242 1999 5 - 40
Fairways at Hartland.......... 1,038 10,455 11,493 (1,752) 9,741 1996 5 - 40
Paddock Club Florence......... 1,209 11,497 12,706 (1,679) 11,027 1994 5 - 40
Lakepointe.................... 411 4,491 4,902 (1,235) 3,667 1986 5 - 40
Mansion, The.................. 694 7,474 8,168 (1,949) 6,219 1989 5 - 40
Village, The.................. 900 9,463 10,363 (2,600) 7,763 1987 5 - 40
Stonemill Village............. 1,169 12,792 13,961 (3,540) 10,421 1985 5 - 40
Riverhills.................... 153 2,638 2,791 (976) 1,815 1972 5 - 40
Crosswinds.................... 1,535 15,315 16,850 (3,198) 13,652 1988/89 5 - 40
Pear Orchard.................. 1,351 14,152 15,503 (3,909) 11,594 1985 5 - 40
Reflection Pointe............. 850 11,629 12,479 (2,979) 9,500 1986 5 - 40
Somerset...................... 477 5,139 5,616 (1,392) 4,224 1980 5 - 40
</Table>
F-24
<Page>
<Table>
<Caption>
COST CAPITALIZED
SUBSEQUENT TO
INITIAL COST ACQUISITION
--------------------- --------------------
BUILDINGS BUILDINGS
AND AND
PROPERTY LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES
- ------------------------------ ---------------------- -------------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Woodridge..................... Jackson, MS 4,549 471 5,522 -- 610
Hermitage at Beechtree........ Cary, NC --(2) 900 8,099 -- 1,060
Corners, The.................. Winston-Salem. NC 3,818 685 6,165 -- 939
Fairways at Royal Oak......... Cincinnati, OH --(2) 814 7,335 -- 1,121
Woodwinds..................... Aiken, SC 3,387 503 4,540 -- 537
Tanglewood.................... Anderson, SC 2,216 427 3,853 -- 945
Paddock Club--Columbia........ Columbia, SC --(1) 1,840 16,560 -- 760
The Fairways.................. Columbia, SC 7,735 910 8,207 -- 447
Highland Ridge................ Greenville, SC --(8) 482 4,337 -- 562
Howell Commons................ Greenville, SC --(2) 1,304 11,740 -- 841
Paddock Club--Greenville...... Greenville, SC --(1) 1,200 10,800 -- 434
Park Haywood.................. Greenville, SC --(2) 325 2,925 35 2,867
Spring Creek.................. Greenville, SC --(8) 597 5,374 -- 806
Runaway Bay................... Mt. Pleasant, SC --(8) 1,085 7,269 -- 1,073
Park Place.................... Spartanburg, SC --(2) 723 6,504 -- 1,005
Steeplechase.................. Chattanooga, TN --(2) 217 1,957 -- 1,457
Windridge..................... Chattanooga, TN 5,202 817 7,416 -- 629
Oaks, The..................... Jackson, TN --(1) 177 1,594 -- 855
Post House Jackson............ Jackson, TN 4,949 443 5,078 -- 1,034
Post House North.............. Jackson, TN 3,375 381 4,299 (57) 1,130
Williamsburg Village.......... Jackson, TN --(2) 523 4,711 -- 740
Woods at Post House........... Jackson, TN 5,189 240 6,839 -- 773
Crossings..................... Memphis, TN -- 554 2,216 -- 867
Eastview...................... Memphis, TN 11,481 700 9,646 -- 2,175
Gleneagles.................... Memphis, TN --(1) 443 3,983 -- 2,129
Greenbrook.................... Memphis, TN --(3) 2,100 24,468 25 12,831
Hickory Farm.................. Memphis, TN --(1) 580 5,220 (19) 1,134
Kirby Station................. Memphis, TN --(2) 1,148 10,337 -- 2,692
Lincoln on the Green.......... Memphis, TN --(7) 1,498 20,483 -- 8,544
Park Estate................... Memphis, TN --(3) 178 1,141 -- 2,640
Reserve at Dexter Lake I...... Memphis, TN --(4) 1,260 16,043 -- 44
River Trace I................. Memphis, TN --(1) 881 7,996 -- 1,254
River Trace II................ Memphis, TN 5,407 741 6,727 -- 426
Savannah Creek................ Memphis, TN --(2) 778 7,013 -- 948
Sutton Place.................. Memphis, TN --(2) 894 8,053 -- 1,211
Paddock Club--Murfreesboro.... Murfreesboro, TN --(1) 915 14,774 -- 60
Brentwood Downs............... Nashville, TN --(1) 1,193 10,739 -- 1,029
Park at Hermitage............. Nashville, TN 7,300 1,524 14,800 -- 2,148
Balcones Woods................ Austin, TX --(1) 1,598 14,398 -- 1,951
Stassney Woods................ Austin, TX 4,340 1,621 7,501 -- 1,912
Travis Station................ Austin, TX 3,835 2,282 6,169 (1) 1,468
<Caption>
GROSS AMOUNT
CARRIED AT
DECEMBER 31, LIFE USED TO
2001(10) COMPUTE
--------------------- DEPRECIATION
BUILDINGS IN LATEST
AND ACCUMULATED DATE OF INCOME
PROPERTY LAND FIXTURES TOTAL DEPRECIATION NET CONSTRUCTION STATEMENT(9)
- ------------------------------ -------- ---------- ---------- ------------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Woodridge..................... 471 6,132 6,603 (1,584) 5,019 1987 5 - 40
Hermitage at Beechtree........ 900 9,159 10,059 (1,473) 8,586 1988 5 - 40
Corners, The.................. 685 7,104 7,789 (2,022) 5,767 1982 5 - 40
Fairways at Royal Oak......... 814 8,456 9,270 (2,258) 7,012 1988 5 - 40
Woodwinds..................... 503 5,077 5,580 (822) 4,758 1988 5 - 40
Tanglewood.................... 427 4,798 5,225 (1,305) 3,920 1980 5 - 40
Paddock Club--Columbia........ 1,840 17,320 19,160 (2,549) 16,611 1989/95 5 - 40
The Fairways.................. 910 8,654 9,564 (2,275) 7,289 1992 5 - 40
Highland Ridge................ 482 4,899 5,381 (1,139) 4,242 1984 5 - 40
Howell Commons................ 1,304 12,581 13,885 (2,305) 11,580 1986/88 5 - 40
Paddock Club--Greenville...... 1,200 11,234 12,434 (1,666) 10,768 1996 5 - 40
Park Haywood.................. 360 5,792 6,152 (1,481) 4,671 1983 5 - 40
Spring Creek.................. 597 6,180 6,777 (1,441) 5,336 1985 5 - 40
Runaway Bay................... 1,085 8,342 9,427 (2,062) 7,365 1988 5 - 40
Park Place.................... 723 7,509 8,232 (1,194) 7,038 1987 5 - 40
Steeplechase.................. 217 3,414 3,631 (1,118) 2,513 1986 5 - 40
Windridge..................... 817 8,045 8,862 (1,177) 7,685 1984 5 - 40
Oaks, The..................... 177 2,449 2,626 (758) 1,868 1978 5 - 40
Post House Jackson............ 443 6,112 6,555 (1,596) 4,959 1987 5 - 40
Post House North.............. 324 5,429 5,753 (1,377) 4,376 1987 5 - 40
Williamsburg Village.......... 523 5,451 5,974 (1,440) 4,534 1987 5 - 40
Woods at Post House........... 240 7,612 7,852 (2,456) 5,396 1997 5 - 40
Crossings..................... 554 3,083 3,637 (1,116) 2,521 1973 5 - 40
Eastview...................... 700 11,821 12,521 (3,991) 8,530 1973 5 - 40
Gleneagles.................... 443 6,112 6,555 (2,750) 3,805 1975 5 - 40
Greenbrook.................... 2,125 37,299 39,424 (10,099) 29,325 1980 5 - 40
Hickory Farm.................. 561 6,354 6,915 (1,723) 5,192 1985 5 - 40
Kirby Station................. 1,148 13,029 14,177 (3,521) 10,656 1978 5 - 40
Lincoln on the Green.......... 1,498 29,027 30,525 (6,340) 24,185 1988/98 5 - 40
Park Estate................... 178 3,781 3,959 (1,192) 2,767 1974 5 - 40
Reserve at Dexter Lake I...... 1,260 16,087 17,347 (1,048) 16,299 1999 5 - 40
River Trace I................. 881 9,250 10,131 (1,438) 8,693 1981 5 - 40
River Trace II................ 741 7,153 7,894 (1,096) 6,798 1985 5 - 40
Savannah Creek................ 778 7,961 8,739 (1,658) 7,081 1989 5 - 40
Sutton Place.................. 894 9,264 10,158 (1,962) 8,196 1991 5 - 40
Paddock Club--Murfreesboro.... 915 14,834 15,749 (1,171) 14,578 1999 5 - 40
Brentwood Downs............... 1,193 11,768 12,961 (3,223) 9,738 1986 5 - 40
Park at Hermitage............. 1,524 16,948 18,472 (4,182) 14,290 1987 5 - 40
Balcones Woods................ 1,598 16,349 17,947 (3,064) 14,883 1983 5 - 40
Stassney Woods................ 1,621 9,413 11,034 (2,392) 8,642 1985 5 - 40
Travis Station................ 2,281 7,637 9,918 (1,877) 8,041 1987 5 - 40
</Table>
F-25
<Page>
<Table>
<Caption>
COST CAPITALIZED
SUBSEQUENT TO
INITIAL COST ACQUISITION
--------------------- --------------------
BUILDINGS BUILDINGS
AND AND
PROPERTY LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES
- ------------------------------ ---------------------- -------------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Celery Stalk.................. Dallas, TX 8,460 1,463 13,165 (1) 2,821
Courtyards at Campbell........ Dallas, TX --(1) 988 8,893 -- 939
Deer Run...................... Dallas, TX --(1) 1,252 11,271 -- 1,212
Lodge at Timberglen........... Dallas, TX 4,740 825 7,422 (1) 2,170
Kenwood Club.................. Katy, TX --(1) 1,002 17,288 -- --
Westborough Crossing.......... Katy, TX 3,958 677 6,091 (1) 1,122
Highwood...................... Plano, TX --(3) 864 7,783 -- 910
Cypresswood Court............. Spring, TX 3,330 577 5,190 (1) 1,190
Green Tree Place.............. Woodlands, TX 3,180 539 4,850 -- 948
Township...................... Hampton, VA 10,800 1,509 8,189 -- 2,635
-------- -------- ---------- ---- --------
TOTAL COMPLETED
PROPERTIES................ $220,360 $116,767 $1,069,053 $229 $145,727
-------- -------- ---------- ---- --------
CONSTRUCTION OF UNITS IN
LEASE-UP
Reserve at Dexter Lake Memphis, TN
Phase II.................... --(4) 951 15,827 -- (171)
Reserve at Dexter Lake Katy, TX
Phase III................... $ --(4) $ 2,059 $ 12,994 $ -- $ --
Grand Reserve Lexington....... Lexington, KY --(4) 2,024 30,870 -- --
Grand View Nashville.......... Nashville, TN --(4) 2,963 33,348 -- 884
-------- -------- ---------- ---- --------
TOTAL CONSTRUCTION OF UNITS
IN LEASE-UP............... $ -- $ 7,997 $ 93,039 $ -- $ 713
-------- -------- ---------- ---- --------
TOTAL PROPERTIES.......... $220,360 $124,764 $1,162,092 $229 $146,440
-------- -------- ---------- ---- --------
LAND HELD FOR FUTURE Various
DEVELOPMENTS................ $ -- $ 1,366 $ -- $ --
COMMERCIAL PROPERTIES......... Various 300 2,769 -- 4,092
-------- -------- ---------- ---- --------
TOTAL OTHER................. $ -- $ 300 $ 4,135 $ -- $ 4,092
-------- -------- ---------- ---- --------
TOTAL REAL ESTATE
ASSETS.................. $220,360 $125,064 $1,166,227 $229 $150,532
======== ======== ========== ==== ========
<Caption>
GROSS AMOUNT
CARRIED AT
DECEMBER 31, LIFE USED TO
2001(10) COMPUTE
--------------------- DEPRECIATION
BUILDINGS IN LATEST
AND ACCUMULATED DATE OF INCOME
PROPERTY LAND FIXTURES TOTAL DEPRECIATION NET CONSTRUCTION STATEMENT(9)
- ------------------------------ -------- ---------- ---------- ------------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Celery Stalk.................. 1,462 15,986 17,448 (4,346) 13,102 1978 5 - 40
Courtyards at Campbell........ 988 9,832 10,820 (1,232) 9,588 1986 5 - 40
Deer Run...................... 1,252 12,483 13,735 (1,649) 12,086 1985 5 - 40
Lodge at Timberglen........... 824 9,592 10,416 (2,692) 7,724 1983 5 - 40
Kenwood Club.................. 1,002 17,288 18,290 (951) 17,339 2000 5 - 40
Westborough Crossing.......... 676 7,213 7,889 (1,960) 5,929 1984 5 - 40
Highwood...................... 864 8,693 9,557 (1,158) 8,399 1983 5 - 40
Cypresswood Court............. 576 6,380 6,956 (1,735) 5,221 1984 5 - 40
Green Tree Place.............. 539 5,798 6,337 (1,585) 4,752 1984 5 - 40
Township...................... 1,509 10,824 12,333 (1,801) 10,532 1987 5 - 40
-------- ---------- ---------- --------- ----------
TOTAL COMPLETED
PROPERTIES................ $116,996 $1,214,780 $1,331,776 $(226,745) $1,105,031
-------- ---------- ---------- --------- ----------
CONSTRUCTION OF UNITS IN
LEASE-UP
Reserve at Dexter Lake
Phase II.................... 951 15,656 16,607 (632) 15,975 2000 5 - 40
Reserve at Dexter Lake
Phase III................... $ 2,059 $ 12,994 $ 15,053 $ (48) $ 15,005 2001 5 - 40
Grand Reserve Lexington....... 2,024 30,870 32,894 (1,607) 31,287 2000 5 - 40
Grand View Nashville.......... 2,963 34,232 37,195 (881) 36,314 2001 5 - 40
-------- ---------- ---------- --------- ----------
TOTAL CONSTRUCTION OF UNITS
IN LEASE-UP............... $ 7,997 $ 93,752 $ 101,749 $ (3,168) $ 98,581
-------- ---------- ---------- --------- ----------
TOTAL PROPERTIES.......... $124,993 $1,308,532 $1,433,525 $(229,913) $1,203,612
-------- ---------- ---------- --------- ----------
LAND HELD FOR FUTURE
DEVELOPMENTS................ $ -- $ 1,366 $ 1,366 $ -- $ 1,366 N/A N/A
COMMERCIAL PROPERTIES......... 300 6,861 7,161 (2,251) 4,910 Various 5 - 40
-------- ---------- ---------- --------- ----------
TOTAL OTHER................. $ 300 $ 8,227 $ 8,527 $ (2,251) $ 6,276
-------- ---------- ---------- --------- ----------
TOTAL REAL ESTATE
ASSETS.................. $125,293 $1,316,759 $1,442,052 $(232,164) $1,209,888
======== ========== ========== ========= ==========
</Table>
- ----------------------------------------
(1) Encumbered by the FNMA Facility, with an outstanding balance of
$81.7 million with a variable interest rate of 2.782%, $65 million with a
fixed rate of 7.712%, $25 million with a fixed rate of 6.920%, $20 million
with a fixed rate of 5.770% and four interest rate swap agreements all for
$25 million at 7.4125%, 7.390%, 6.195% and 6.330% at December 31, 2001.
(2) Encumbered by a $142 million bond with a maturity of March 3, 2003 and an
average interest rate of 6.376%
(3) Encumbered, along with one corporate property, by a $35.1 million mortgage
with a maturity of October 1, 2006 and an interest rate of 6.05%
(4) Encumbered by the AmSouth Credit Line, with no outstanding balance at
December 31, 2001,with a variable interest rate of 3.23125%.
(5) Encumbered by a $15.2 million mortgage securing a tax-exempt bond
amortizing over 25 years with an average interest rate of 5.750%
(6) Encumbered by a $13.5 million mortgage securing a tax-exempt bond
amortizing over 25 years with an average interest rate of 5.281%
(7) Encumbered by a $47.5 million mortgage with a maturity of December 15, 2004
and an interest rate of 6.040%
(8) Encumbered by a $9.4 million mortgage securing a tax-exempt bond amortizing
over 25 years with an average interest rate of 6.090%
(9) Depreciation is on a straight line basis over the estimated useful asset
life which ranges from 8 to 40 years for land improvements and buildings
and 5 years for furniture, fixtures and equipment.
(10) The aggregate cost for Federal income tax purposes was approximately
$1,482 million at December 31, 2001. The total gross amount of real estate
assets for book purposes exceeds the aggregate cost for Federal income tax
purposes, principally due to purchase accounting adjustments recorded
under accounting principles generally accepted in the United States of
America.
F-26
<Page>
MID-AMERICA APARTMENT COMMUNITIES, INC.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
A summary of activity for real estate investments and accumulated
depreciation is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------------
2001 2000 1999
---------- ---------- ----------
DOLLARS IN THOUSANDS
<S> <C> <C> <C>
Real estate investments:
Balance at beginning of year........................... $1,430,378 $1,396,743 $1,434,733
Acquisitions........................................... -- 24,358 --
Improvement and development............................ 35,862 70,858 105,940
Disposition of real estate assets...................... (15,935) (61,157) (152,015)
Investment in and advances to real estate joint
venture.............................................. (585) (424) 8,085
---------- ---------- ----------
Balance at end of year............................... $1,449,720 $1,430,378 $1,396,743
========== ========== ==========
Accumulated depreciation:
Balance at beginning of year........................... $ 183,652 $ 146,611 $ 117,773
Depreciation........................................... 52,273 50,985 48,687
Disposition of real estate assets...................... (6,012) (13,944) (19,849)
---------- ---------- ----------
Balance at end of year............................... $ 229,913 $ 183,652 $ 146,611
========== ========== ==========
</Table>
The Company's consolidated balance sheet at December 31, 2001 includes
accumulated depreciation of $2,874 in the caption "Commercial properties, net".
See accompanying independent auditors' report.
F-27
<Page>
[LOGO OF MID-AMERICA APARTMENT COMMUNITIES]
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>a2074950zex-10_1.txt
<DESCRIPTION>EXHIBIT 10.1
<TEXT>
<Page>
Exhibit 10.1
SECOND AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
MID-AMERICA APARTMENTS, L.P.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE 1
<S> <C> <C>
DEFINED TERMS.................................................................................... 1
ARTICLE 2
ORGANIZATIONAL MATTERS........................................................................... 9
2.1 Continuation......................................................................... 9
2.2 Application of the Act............................................................... 9
2.3 Purpose and Business................................................................. 9
2.4 Powers............................................................................... 9
2.5 Name, Office and Registered Agent.................................................... 9
2.6 Partners............................................................................. 9
2.7 Term................................................................................. 10
2.8 Filing of Certificate and Perfection of Limited Partnership......................... 10
ARTICLE 3
CAPITAL CONTRIBUTIONS AND ACCOUNTS............................................................... 10
3.1 Capital Contributions................................................................ 10
3.2 Admission of Additional Limited Partners............................................. 10
3.3 No Preemptive Rights................................................................. 11
3.4 Capital Accounts of the Partners..................................................... 11
ARTICLE 4
DISTRIBUTIONS.................................................................................... 13
4.1 Requirement and Characterization of Distributions.................................... 13
4.2 Amounts Withheld..................................................................... 13
4.3 Withholding.......................................................................... 13
4.4 Distributions Upon Liquidation....................................................... 14
4.5 REIT Distribution Requirements....................................................... 14
ARTICLE 5
ALLOCATIONS...................................................................................... 15
5.1 Allocations of Net Income and Net Loss............................................... 15
5.2 Special Allocation Rules............................................................. 16
</Table>
i
<Page>
<Table>
<S> <C> <C>
5.3 Allocations for Tax Purposes......................................................... 17
5.4 No Right to Distributions in Kind.................................................... 18
5.5 Limitations on Return of Capital Contributions....................................... 18
5.6 Substantial Economic Effect.......................................................... 18
ARTICLE 6
RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER............................................ 18
6.1 Management of the Partnership........................................................ 18
6.2 Restriction on General Partner's Authority........................................... 20
6.3 Delegation of Authority.............................................................. 20
6.4 Indemnification and Exculpation of Indemnitees....................................... 20
6.5 Liability of the General Partner..................................................... 21
6.6 Reimbursement of General Partner..................................................... 22
6.7 Outside Activities................................................................... 22
6.8 Employment or Retention of Affiliates................................................ 22
6.9 Loans to the Partnership............................................................. 23
6.10 Distributions........................................................................ 23
6.11 Approval of or Prohibition Against Sale of Certain Properties........................ 23
ARTICLE 7
CHANGES IN GENERAL PARTNER....................................................................... 24
7.1 Transfer of the General Partner's Partnership Interest............................... 24
7.2 Admission of a Substitute or Successor General....................................... 24
7.3 Effect of Bankruptcy, Withdrawal, Death or Dissolution of a General Partner......... 24
7.4 Removal of a General Partner......................................................... 25
ARTICLE 8
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS................................................... 26
8.1 Management of the Partnership........................................................ 26
8.2 Power of Attorney.................................................................... 26
8.3 Limitation on Liability of Limited Partners.......................................... 26
8.4 Ownership by Limited Partner of Corporate General Partner or Affiliate.............. 26
8.5 Redemption Right..................................................................... 26
ARTICLE 9
TRANSFERS OF PARTNERSHIP INTERESTS............................................................... 27
9.1 Purchase for Investment.............................................................. 27
9.2 Restrictions on Transfer of Limited Partnership Interests........................... 27
9.3 Admission of Substitute Limited Partner.............................................. 28
9.4 Rights of Assignees of Partnership Interests......................................... 28
9.5 Effect of Bankruptcy, Death, Incompetence or Termination of a Limited Partner....... 29
9.6 Joint Ownership of Interests......................................................... 29
ARTICLE 10
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS....................................................... 29
10.1 Books and Records.................................................................... 29
10.2 Custody of Partnership Funds; Bank Accounts.......................................... 29
10.3 Fiscal and Taxable Year.............................................................. 30
10.4 Annual Tax Information and Report.................................................... 30
</Table>
ii
<Page>
<Table>
<S> <C> <C>
10.5 Tax Matters Partner; Tax Elections; Special Basis Adjustments....................... 30
10.6 Reports to Limited Partners.......................................................... 30
ARTICLE 11
AMENDMENT OF AGREEMENT........................................................................... 31
ARTICLE 12
CONSOLIDATION, MERGER OR SALE OF ASSETS OF THE GENERAL PARTNER................................... 31
12.1 Triggering Events.................................................................... 31
12.2 From and After the Occurrence of a Triggering Event.................................. 31
12.3 Additional Issuer Covenants.......................................................... 35
12.4 Application to Later Transactions.................................................... 36
12.5 Waivers and Amendments............................................................... 36
ARTICLE 13
DISSOLUTION AND LIQUIDATION...................................................................... 36
13.1 Dissolution.......................................................................... 36
13.2 Winding up........................................................................... 36
13.3 Compliance with Timing Requirements of Regulations; Allowance for
Contingent or Unforeseen Liabilities or Obligations.................................. 37
13.4 Deficit Capital Account Restoration.................................................. 38
13.5 Deemed Distribution and Recontribution............................................... 38
13.6 Rights of Limited Partners........................................................... 38
13.7 Notice of Dissolution................................................................ 38
13.8 Cancellation of Certificate of Limited Partnership................................... 39
13.9 Reasonable Time for Winding-Up....................................................... 39
ARTICLE 14
GENERAL PROVISIONS............................................................................... 39
14.1 Notices.............................................................................. 39
14.2 Successors........................................................................... 39
14.3 Additional Documents................................................................. 39
14.4 Severability......................................................................... 39
14.5 Entire Agreement..................................................................... 39
14.6 Pronouns and Plurals................................................................. 39
14.7 Headings............................................................................. 39
14.8 Counterparts......................................................................... 39
14.9 Governing Law........................................................................ 39
</Table>
EXHIBIT AND SCHEDULES
<Table>
<S> <C>
Exhibit A Notice of Exercise of Redemption Right
Schedule 2.4(c) List of Class A Limited Partners and Number of Class A
Common Units held by such Class A Limited Partners
</Table>
iii
<Page>
<Table>
<S> <C>
Schedule 4.2(b)(1) Description of 9.5% Series A Cumulative Preferred Units
Schedule 4.2(b)(2) Description of 8 7/8% Series B Cumulative Preferred Units
Schedule 6.11(f) List of Properties subject to Restrictions on Sale
Schedule 13.4(a) Class A Limited Partners with a Deficit Capital
Account Restoration Obligation and the Maximum Amount of
such Obligation, if any
</Table>
iv
<Page>
SECOND AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
MID-AMERICA APARTMENTS, L.P.
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
("Agreement") is made and entered into as of the ___ day of November, 1997 by
and among MID-AMERICA APARTMENT COMMUNITIES, INC., a Tennessee corporation (the
"General Partner"), MAC II OF DELAWARE, INC., a Delaware corporation (the
"Class B Limited Partner"), and each of the Persons listed on Schedule 2.4(c)
hereof, together with all Persons who shall hereafter be admitted as Additional
Limited Partners and/or Substitute Limited Partners and who shall hereafter
execute a counterpart to this Agreement (collectively, the "Class A Limited
Partners").
RECITALS
WHEREAS, Mid-America Apartments, L.P. (the "Partnership") was formed as a
limited partnership under the laws of the State of Tennessee by a Certificate of
Limited Partnership filed with the Secretary of State of the State of Tennessee
on September 22, 1993; and
WHEREAS, pursuant to Article XI of the First Amended and Restated Agreement
of Limited Partnership of the Partnership (the "First Amendment"), the General
Partner desires to amend and restate the First Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, of mutual covenants
between the parties hereto, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree to amend and restate the First Amendment in its entirety as follows and to
continue the operation of the Partnership on the terms and subject to the
conditions set forth herein:
ARTICLE 1
DEFINED TERMS
The following defined terms used in this Agreement shall have the meanings
specified below:
"AAA" has the meaning provided in Section 12.2(d)(i) hereof.
"ACT" means the Tennessee Revised Uniform Limited Partnership Act, as it
may be amended from time to time.
"ADDITIONAL LIMITED PARTNER" means a Person admitted to this Partnership as
a Limited Partner pursuant to Section 3.2 hereof.
"ADJUSTED CAPITAL ACCOUNT" means the Capital Account maintained for each
Partner as of the end of each Partnership Year (i) increased by any amounts
which such Partner is obligated to restore pursuant to any provision of this
Agreement or is deemed obligated to restore pursuant to the penultimate
sentences of Regulations Section 1.704-2(g)(1) and 1.704-2(i)(5) and (ii)
decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Partner, the
deficit balance, if any, in such Partner's Adjusted Capital Account as of the
end of the relevant Partnership Year.
1
<Page>
"ADJUSTED PROPERTY" means any property the Carrying Value of which has been
adjusted pursuant to Section 3.4 hereof.
"AFFILIATE" means, (i) any Person that, directly or indirectly, controls or
is controlled by or is under common control with such Person, (ii) any other
Person that owns, beneficially, directly or indirectly, 5% or more of the
outstanding capital stock, shares or equity interests of such Person, or (iii)
any officer, director, employee, partner or trustee of such Person or any Person
controlling, controlled by or under common control with such Person (excluding
trustees and persons serving in similar capacities who are not otherwise an
Affiliate of such Person). For the purposes of this definition, "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities, partnership interests or other equity interests.
"AGREED VALUE" means (i) in the case of any Contributed Property, (a) the
agreed-upon value of such property at the time of its contribution to the
Partnership as set forth pursuant to an admission agreement or other agreement
between the Partnership and the contributing Partner or (b) if there is no such
admission or other agreement, the 704(c) Value of such property or other
consideration, reduced by any liabilities either assumed by the Partnership upon
such contribution or to which such property is subject when contributed; and
(ii) in the case of any property distributed to a Partner by the Partnership,
the Partnership's Carrying Value of such property at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such distribution or to which such property is subject at the time of
distribution as determined under Section 752 of the Code and the regulations
thereunder.
"AGREEMENT" has the meaning provided in the preamble hereof.
"APPOINTMENT DATE" has the meaning provided in Section 12.2(d)(i) hereof.
"ARBITRATOR" has the meaning provided in Section 12.2(d)(i) hereof.
"AVAILABLE CASH" means with respect to any period for which such
calculation is being made:
(a) all cash revenue and funds received by the Partnership from
whatever source (excluding the proceeds of any Capital Contribution) plus
the amount of any reduction (including, without limitation, a reduction
resulting because the General Partner determines such amounts are no longer
necessary) in reserves of the Partnership, which reserves are referred to
in clause (b)(v) below;
(b) less the sum of the following (except to the extent made with the
proceeds of any Capital Contribution and except to the extent taken into
account in determining Capital Transaction Proceeds), all of which shall be
paid subject to Section 6.9:
(i) all interest, principal and other debt payments made during such
period by the Partnership,
(ii) all dividends and other distributions in respect of Preferred
Units,
(iii) all other cash expenditures (including capital expenditures)
made by the Partnership during such period,
(iv) investments in any entity (including loans made thereto) to the
extent that such investments are not otherwise described in clauses (b)(i)
through (iii), and
(v) the amount of any increase in reserves established during such
period which the General Partner determines is necessary or appropriate, in
its sole and absolute discretion.
Notwithstanding the foregoing, Available Cash shall not include any cash
received or reductions in reserves or take into account any disbursements made
or reserves established, after commencement of the dissolution and liquidation
of the Partnership.
2
<Page>
"AVERAGE TRADING PRICE" has the meaning provided in Section 12.2(c) hereof.
"BENEFICIAL OWNER" has the meaning provided in Section 12.1 hereof.
"BOOK-TAX DISPARITIES" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Section 3.4 and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
"BUSINESS DAY" means any day other than a Saturday, Sunday or a day on
which banking institutions in the City of New York are authorized or obligated
by law or executive order to close.
"CAPITAL ACCOUNT" shall mean an account for each Partner established and
maintained in accordance with Section 1.704-1(b)(2)(iv) of the Regulations and
Section 3.4 hereof.
"CAPITAL CONTRIBUTION" means, with respect to any Partner, any cash, cash
equivalents or the Agreed Value of Contributed Property which such Partner
contributes or is deemed to contribute to the Partnership pursuant to Section
3.1 or 3.2 hereof and which shall be treated as a contribution to the
Partnership pursuant to Section 721(a) of the Code.
"CAPITAL TRANSACTION" means a sale, exchange or other disposition (other
than in liquidation of the Partnership) of property or a financing or
refinancing by the Partnership.
"CAPITAL TRANSACTION PROCEEDS" means the net cash proceeds of a Capital
Transaction, after deducting all expenses incurred in connection therewith which
are paid out of such proceeds and after application of any proceeds, at the sole
discretion of the General Partner, toward the payment of any indebtedness of the
Partnership secured by the property that is the subject of that Capital
Transaction, the purchase, improvement or expansion of Partnership property, or
the establishment of any reserves deemed reasonably necessary by the General
Partner; provided, however, that if the Partnership obtains financing for
Partnership properties for which no permanent financing has previously been
obtained, the proceeds of such financing shall not be deemed to be Capital
Transaction Proceeds if and to the extent that the General Partner determines to
reinvest such proceeds in additional and existing real property investments of
the Partnership.
"CARRYING VALUE" means (i) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such Property (or in the case of an
Adjusted Property, the fair market value of such property at the time of its
latest adjustment under Section 3.4(c)) reduced (but not below zero) by all
Depreciation with respect to such property charged to the Partners' Capital
Accounts and (ii) with respect to any other Partnership property, the adjusted
basis of such property for federal income tax purposes, all as of the time of
determination. The Carrying Value of any property shall be adjusted from time to
time in accordance with Section 3.4 hereof, and to reflect changes, additions or
other adjustments to the Carrying Value for dispositions and acquisitions of
Partnership properties, as deemed appropriate by the General Partner.
"CASH AMOUNT" means an amount of cash per Partnership Unit equal to the
value of the REIT Shares Amount on the date of receipt by the General Partner of
a Notice of Redemption. The value of the REIT Shares Amount shall be equal to
the REIT Shares Amount times the Average Trading Price. In the event the REIT
Shares Amount includes rights that a holder of REIT Shares would be entitled to
receive, then the value of such rights shall be determined by the General
Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate.
"CERTIFICATE" means any instrument or document which is required under the
laws of the State of Tennessee, or any other jurisdiction wherein the
Partnership conducts business, to be signed and sworn to by the Partners of the
Partnership (either by themselves or pursuant to the power-of-attorney granted
to the General Partner
3
<Page>
in Section 8.02) and filed for recording in the appropriate public offices
within the State of Tennessee or such other jurisdiction to perfect or maintain
the Partnership as a limited partnership, to effect the admission, withdrawal,
or substitution of any Partner of the Partnership, or to protect the limited
liability of the Limited Partners as limited partners under the laws of the
State of Tennessee or such other jurisdiction.
"CHARTER" means the Charter of the General Partner filed with the Secretary
of State of the State of Tennessee on September 22, 1993, as amended and
restated from time to time.
"CLASS A COMMON UNITS" means all Common Units issued to Class A Limited
Partners.
"CLASS A LIMITED PARTNERS" has the meaning provided in the preamble hereof.
"CLASS B COMMON UNITS" means all Common Units issued to the General
Partner, the Class B Limited Partner and all Affiliates.
"CLASS B LIMITED PARTNER" has the meaning provided in the preamble hereof,
and shall include any other Affiliate of the General Partner in addition thereto
who shall hereafter own Class B Common Units as a Limited Partner.
"CODE" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision of
the Code shall mean that provision in the Code at the date hereof and any
succeeding provision of the Code.
"COMMON STOCK" has the meaning provided in Section 12.2(a) hereof.
"COMMON UNITS" means all Partnership Interests that are not specifically
designated as Preferred Units pursuant to Section 3.2(c).
"CONSENT" means with respect to Limited Partners holding any class of Units
entitled to vote on any matter, the written consent of those Limited Partners
holding a majority of such Units at the time in question, except to the extent
this Agreement shall require more or less than such majority.
"CONTRIBUTED PROPERTY" means each property or other asset (but excluding
cash), in such form as may be permitted by the Act contributed or deemed
contributed to the Partnership. Once the Carrying Value of a Contributed
Property is adjusted pursuant to Section 3.4(c) hereof, such property shall no
longer constitute a Contributed Property for purposes of Section 3.4(c) hereof,
but shall be deemed an Adjusted Property for such purposes.
"CONVERSION FACTOR" shall mean the digit 1, adjusted from time to time in
an appropriate manner to take into account any REIT Capital Change, and further
adjusted after a Trigger Occurrence in the manner set forth in Section 12.2(b).
"COURT" has the meaning provided in Section 12.2(d)(i) hereof.
"CUMULATIVE UNPAID PRIORITY DISTRIBUTION ACCOUNT" means, with respect to
any Class A Limited Partner, an amount equal to (i) the aggregate of all
Priority Distribution Amounts with respect to the Class A Common Units held by
such Class A Limited Partner, less (ii) the cumulative amount of Available Cash
and the cumulative amount of any Capital Transaction Proceeds distributed with
respect to such Class A Common Units pursuant to Sections 4.1(b)(i) and (ii) and
4.1(c)(i) hereof.
"DEPRECIATION" means for any Partnership Year or other period, an amount
equal to the federal income tax depreciation, amortization, or other cost
recovery deduction allowable with respect to an asset for such year or other
period, except that if the Carrying Value of an asset differs from its adjusted
basis for federal income tax purposes at the beginning of such year or other
period, Depreciation shall be an amount which bears the same ratio to such
beginning Carrying Value as the federal income tax depreciation, amortization,
or other cost recovery deduction for such year or period bears to such beginning
adjusted tax basis; PROVIDED HOWEVER, that if the federal income tax
4
<Page>
depreciation, amortization, or other cost recovery for such year is zero,
Depreciation shall be determined with reference to such beginning Carrying Value
using any reasonable method selected by the General Partner, except that in the
case of a zero basis Contributed Property, such property shall be depreciated
for book purposes over a period of not more than ten years.
"DEFICIT RESTORATION OBLIGATION" has the meaning provided in Section 13.4
hereof.
"DETERMINATION" has the meaning provided in Section 12.2(d)(ii)(4) hereof.
"EVENT OF BANKRUPTCY" as to any Person means the filing of a petition for
relief as to such Person as debtor or bankrupt under the Bankruptcy Code of 1978
or similar provision of law of any jurisdiction (except if such petition is
contested by such Person and has been dismissed within 90 days); insolvency of
such Person as finally determined by a court proceeding; filing by such Person
of a petition or application to accomplish the same or for the appointment of a
receiver or a trustee for such Person or a substantial part of his assets;
commencement of any proceedings relating to such Person as a debtor under any
other reorganization, arrangement, insolvency, adjustment of debt or liquidation
law of any jurisdiction, whether now in existence or hereinafter in effect,
either by such Person or by another, provided that if such proceeding is
commenced by another, such Person indicates his approval of such proceeding,
consents thereto or acquiesces therein, or such proceeding is contested by such
Person and has not been finally dismissed within 90 days.
"EXCHANGE ACT" has the meaning provided in Section 12.1 hereof.
"GENERAL PARTNER" means Mid-America Apartment Communities, Inc., and any
Person who becomes a substitute or additional General Partner as provided
herein, and any of their successors as General Partner.
"GENERAL PARTNER INTEREST" means a Partnership Interest held by the General
Partner that is a general partnership interest.
"INDEMNITEE" means (i) any Person made a party to a proceeding by reason of
his status as (A) the General Partner, or (B) a director or officer of the
Partnership or the General Partner, and (ii) such other Persons (including
Affiliates of the General Partner or the Partnership) as the General Partner may
designate from time to time, in its sole and absolute discretion.
"ISSUER" has the meaning provided in Section 12.2(a) hereof.
"LIMITED PARTNER" means any Person who shall have been duly admitted as a
Limited Partner pursuant hereto and who becomes a Substitute or Additional
Limited Partner, in such Person's capacity as a Limited Partner in the
Partnership.
"LIMITED PARTNERSHIP INTEREST" means the ownership interest of a Limited
Partner in the Partnership at any particular time, including the right of such
Limited Partner to any and all benefits to which such Limited Partner may be
entitled as provided in this Agreement and in the Act, together with the
obligations of such Limited Partner to comply with all the provisions of this
Agreement and of such Act. A Limited Partnership Interest may be expressed as a
number of Partnership Units.
"LIQUIDATING TRANSACTION" means any sale or other disposition of all or
substantially all of the assets of the Partnership following the adoption by the
General Partner of a plan of liquidation for the Partnership.
"LIQUIDATOR" has the meaning provided in Section 13.2(a).
"MARKET CAPITALIZATION" has the meaning provided in Section 12.2(a) hereof.
"NET INCOME" and "NET LOSS" means for any taxable period an amount equal to
the Partnership's taxable income or loss for such taxable period determined in
accordance with Section 703(a) of the Code (for this purpose all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code shall be included in taxable income or loss), with
the following adjustments:
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(a) Except as otherwise provided in Regulations Section
1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss
and deduction shall be made without regard to any election under Section
754 of the Code which may be made by the Partnership; provided, however,
that the amounts of any adjustments to the adjusted bases of assets of the
Partnership made pursuant to Section 734 of the Code as a result of the
distribution of property by the Partnership to a Partner (to the extent
that such adjustments have not previously been reflected in the Partners'
Capital Accounts) shall be reflected in the Capital Accounts of the
Partners in the manner and subject to the limitations prescribed in
Regulations Section 1.704-1(b)(2)(iv)(m).
(b) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Net Income or Net
Loss pursuant to this definition shall be added to such Net Income or Net
Loss.
(c) The computation of all items of income, gain, loss and deduction
shall be made without regard to the fact that items described in Sections
705(a)(1)(B) or 705(a)(2)(B) of the Code are not includable in gross income
or are neither currently deductible nor capitalized for federal income tax
purposes.
(d) Any income, gain or loss attributable to the taxable disposition
of any Partnership property shall be determined as if the adjusted basis of
such property as of such date of disposition were equal in amount to the
Partnership's Carrying Value with respect to such property as of such date.
(e) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such fiscal year.
(f) In the event the Carrying Value of any Partnership asset is
adjusted pursuant to Section 3.4(c) hereof, the amount of any such
adjustment shall be taken into account as gain or loss from the disposition
of such asset.
(g) Any items specially allocated under Sections 5.1(a), 5.2 and 5.3
hereof shall not be taken into account.
"NONRECOURSE DEDUCTIONS" has the meaning provided in Regulations Section
1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(c).
"NONRECOURSE LIABILITY" has the meaning provided in Regulations Section
1.752-1(a)(2).
"NOTICE OF REDEMPTION" means the Notice of Exercise of Redemption Right
substantially in the form attached as Exhibit A hereto.
"PARTNER" means any General Partner or Limited Partner.
"PARTNER MINIMUM GAIN" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"PARTNER NONRECOURSE DEBT" has the meaning provided in Regulations Section
1.704-2(b)(4).
"PARTNER NONRECOURSE DEDUCTIONS" has the meaning provided in Regulations
Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with
respect to a Partner Nonrecourse Debt for a Partnership Year shall be determined
in accordance with the rules of Regulations Section 1.704-2(i)(2).
"PARTNERSHIP" has the meaning provided in the first Recital hereof, and
shall include any successor thereto.
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"PARTNERSHIP INTEREST" means an ownership interest in the Partnership held
by either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement.
"PARTNERSHIP MINIMUM GAIN" has the meaning provided in Regulations Section
1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net
increase or decrease in Partnership Minimum Gain, for a Partnership Year shall
be determined in accordance with the rules of Regulations Section 1.704-2(d). A
Partner's share of Partnership Minimum Gain shall be determined in accordance
with Regulations Section 1.704-2(g)(1).
"PARTNERSHIP RECORD DATE" means the record date established by the General
Partner for the distribution of Available Cash pursuant to Section 4.1(b)
hereof, which record date shall be the same as the record date established by
the General Partner for a distribution to its shareholders of some or all of its
portion of such distribution.
"PARTNERSHIP UNIT" or "UNIT" means a Common Unit or a Preferred Unit.
"PARTNERSHIP YEAR" means the fiscal year of the Partnership, which shall be
the calendar year.
"PERCENTAGE INTEREST" means, with respect to Common Units or Preferred
Units, as the context requires, the percentage ownership interest in the
Partnership of each Partner, as determined by dividing the Partnership Units of
such class owned by a Partner by the total number of Partnership Units of such
class then outstanding.
"PERSON" means any individual, partnership, limited liability company,
corporation, trust or other entity.
"PREFERRED UNITS" means all Partnership Interests designated as Preferred
Units and issued by the General Partner from time to time in accordance with the
provisions of Section 3.2(c).
"PREFERRED UNIT DISTRIBUTIONS" has the meaning provided in Section 4.1
hereof.
"PRIORITY DISTRIBUTION AMOUNT" means with respect to each Class A Common
Unit outstanding on a Partnership Record Date (i) the cash dividend per share of
Common Stock (including any dividend designated by the General Partner as a
capital gain dividend pursuant to Section 857(b)(3)(C) of the Code) declared by
the General Partner on the Partnership Record Date, multiplied by (ii) the
Conversion Factor in effect on such Partnership Record Date.
"PROPERTY" means any apartment community or other investment or property in
which the Partnership holds an ownership interest.
"RECAPTURE INCOME" means any gain recognized by the Partnership (computed
without regard to any adjustment required by Section 734 or Section 743 of the
Code) upon the disposition of any property or asset of the Partnership, which
gain is characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"RECOURSE LIABILITIES" has the meaning provided in Regulations
Section 1.752-1(a)(1).
"REDEEMING PARTNER" has the meaning provided in Section 8.5(a) hereof.
"REDEMPTION AMOUNT" means either the Cash Amount or the REIT Shares Amount.
"REDEMPTION RIGHT" has the meaning provided in Section 8.5(a) hereof.
"REDEMPTION VALUE" means the value of a Partnership Unit at the time a
Notice of Redemption is delivered by a Partner to the Partnership, as determined
by agreement between the Partner and the General Partner, or if no such
agreement can be reached, as determined by an appraiser which shall be the
corporate finance
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department of a regional or national investment banking firm selected by the
General Partner which firm has experience in providing fairness opinions in
business transactions, or such other qualified securities appraiser having
experience in appraising securities such as the Partnership Units, as the
General Partner may, in its discretion, select.
"REGISTERED COMMON STOCK" has the meaning provided in Section 12.2(a)
hereof.
"REGULATIONS" means the Federal Income Tax Regulations issued under the
Code, as amended and as hereafter amended from time to time. Reference to any
particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any succeeding provision of the Regulations.
"REIT" means a real estate investment trust under Sections 856 through 860
of the Code.
"REIT CAPITAL CHANGE" means any stock split, stock dividend, reverse stock
split, recapitalization, reorganization or other transaction, the consummation
of which would result in additional REIT Shares being issued to existing holders
in respect of then-outstanding REIT Shares or the conversion of then-outstanding
REIT Shares into a lesser number of REIT Shares or securities of a different
character or nature than REIT Shares.
"REIT SHARE" means a share of the common stock of the General Partner or
any option, warrant or right to purchase or subscribe for such share.
"REIT SHARES AMOUNT" means a number of REIT Shares equal to the number of
Partnership Units offered for redemption by a Redeeming Partner; provided,
however that in the event the General Partner issues to all holders of REIT
Shares rights, options, warrants of convertible or exchangeable securities
entitling the shareholders to subscribe for or purchase REIT Shares, or any
other security or property (collectively, the "rights"), then the REIT Shares
Amount shall also include such rights that a holder of that number of REIT
Shares would be entitled to receive. The REIT Shares Amount shall be adjusted,
as appropriate, for any REIT Capital Change to the extent that an identical
capital change shall not be made in respect to the Class A Common Units
outstanding at the time of the REIT Capital Change, to equal the number of REIT
Shares arrived at by multiplying (i) the number of Partnership Units that are
the subject of such Notice of Redemption times (ii) the Conversion Factor.
"REPLACEMENT SHARES" has the meaning provided in Section 12.2(a) hereof.
"SERVICE" means the Internal Revenue Service.
"704(c) VALUE" of any Contributed Property means the fair market value of
such property or other consideration at the time of contribution determined by
the General Partner in its discretion using such reasonable method of valuation
as it may adopt. The General Partner shall use such method as it deems
reasonable and appropriate in its sole and absolute discretion to allocate the
aggregate of the 704(c) Value of Contributed Properties received in a single or
integrated transaction among each separate property on a basis proportional to
its fair market value.
"SPECIFIED REDEMPTION DATE" means the first business day that is at least
five (5) business days after the receipt by the General Partner of the Notice of
Redemption.
"SUBMISSION DATE" has the meaning provided in Section 12.2(d)(ii)(5)
hereof.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, limited liability company, or other entity of which a majority of
(i) the voting power of the voting equity securities or (ii) the outstanding
equity interests is owned, directly or indirectly, by such Person.
"SUBSTITUTE LIMITED PARTNER" means any Person admitted to the Partnership
as a Limited Partner pursuant to Section 9.3 hereof.
"TRADING DAY" has the meaning provided in Section 12.2(c) hereof.
"TRIGGERING EVENT" has the meaning provided in Section 12.1 hereof.
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"TRIGGERING OCCURRENCE" has the meaning provided in Section 12.2 hereof.
"UNREALIZED GAIN" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (i) the fair market
value of such property (as determined under Section 3.4 hereof) as of such date,
over (ii) the Carrying Value of such property (prior to any adjustment to be
made pursuant to Section 3.4 hereof) as of such date.
"UNREALIZED LOSS" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (i) the Carrying Value
of such Property (prior to any adjustment to be made pursuant to Section 3.4
hereof) as of such date, over (ii) the fair market value of such Property (as
determined under Section 3.4 hereof) as of such date.
ARTICLE 1
ORGANIZATIONAL MATTERS
1.1 CONTINUATION. The Partners hereby agree to continue the Partnership
pursuant to the Act and upon the terms and conditions set forth in this
Agreement.
1.2 APPLICATION OF THE ACT. The Partnership is a limited partnership
organized and existing pursuant to the provisions of the Act and upon the terms
and conditions set forth in this Agreement. Except as expressly provided herein
to the contrary, the rights and obligations of the Partners and the
administration and termination of the Partnership shall be governed by the Act.
No Partner has any interest in any Partnership property, and the Partnership
Interest of each Partner shall be personal property for all purposes.
1.3 PURPOSE AND BUSINESS. The purpose and nature of the business to be
conducted by the Partnership is (i) to conduct any business that may be lawfully
conducted by a limited partnership organized pursuant to the Act, provided,
however, that such business shall qualify and be limited to and conducted in
such a manner as to permit the General Partner at all times to be classified as
a REIT, unless the General Partner ceases to qualify as a REIT, (ii) to enter
into any partnership, joint venture or other similar arrangement to engage in
any of the foregoing or the ownership of interests in any entity engaged in any
of the foregoing and (iii) to do anything necessary or incidental to the
foregoing.
1.4 POWERS. The Partnership shall be empowered to do any and all acts
and things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of the purposes and business
described herein and for the protection and benefit of the Partnership;
provided, however, that the Partnership shall not take, or refrain from taking,
any action which, in the judgment of the General Partner, (i) could adversely
affect the ability of the General Partner to continue to qualify as a REIT,
unless the General Partner provides notice to the Partnership that it intends to
cease or has ceased to qualify as a REIT, (ii) could subject the General Partner
to any additional taxes under Section 857 or Section 4981 of the Code, or (iii)
could violate any law or regulation of any governmental body or agency having
jurisdiction over the General Partner or its securities, unless such action (or
inaction) shall have been specifically consented to by the General Partner in
writing.
1.5 NAME, OFFICE AND REGISTERED AGENT. The name of the Partnership
shall be Mid-America Apartments, L.P. The specified office and place of business
of the Partnership shall be 6584 Poplar Avenue, Suite 340, Memphis, Shelby
County, Tennessee 38119. The General Partner may at any time change the location
of such office, provided the General Partner gives notice to the Partners of any
such change. The name and address of the Partnership's registered agent is
George E. Cates, 6584 Poplar Avenue, Memphis, Shelby County, Tennessee 38119.
The sole duty of the registered agent as such is to forward to the Partnership
any notice that is served on him as registered agent.
1.6 PARTNERS.
(a) The General Partner of the Partnership is Mid-America Apartment
Communities, Inc. Its principal place of business shall be the same as that of
the Partnership. The Partnership Interest of the General Partner consists of
171,009 Class B Common Units. Moreover, the Partnership Interest of the General
Partner shall include
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such Preferred Units owned by the General Partner from time to time as reflected
in the ownership records of the Partnership.
(b) The sole Class B Limited Partner is MAC II of Delaware, Inc., a
Delaware corporation which is a wholly owned subsidiary of the General Partner.
The Partnership Interest of the Class B Limited Partner as of the date hereof
consists of 14,402,053 Class B Common Units.
(c) The Class A Limited Partners consist of the Persons listed on
Schedule 2.6(c) hereof, each holding the number of Class A Common Units set
forth therein, which Schedule 2.6(c) shall be amended from time to time to
reflect (i) Class A Limited Partners duly admitted as Additional Limited
Partners pursuant to Section 3.2 hereof, (ii) Class A Limited Partners duly
admitted as Substitute Limited Partners pursuant to Section 9.3 hereof, and
(iii) increases and decreases in the number of Class A Common Units owned by the
Class A Limited Partners.
1.7 TERM. The term of the Partnership shall continue in full force and
effect until December 31, 2053, unless it shall be dissolved sooner pursuant to
the provisions of Article 13 or as otherwise provided by law.
1.8 FILING OF CERTIFICATE AND PERFECTION OF LIMITED PARTNERSHIP. The
General Partner shall execute, acknowledge, record and file, at the expense of
the Partnership, the Certificate and any and all amendments thereto and all
requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each state
or other jurisdiction in which the Partnership conducts business.
ARTICLE 2
CAPITAL CONTRIBUTIONS AND ACCOUNTS
2.1 CAPITAL CONTRIBUTIONS. As of the date hereof, the Partners have
made Capital Contributions in exchange for the Units described in Section 2.4
above, and the General Partner has determined that all such Units are fully paid
and nonassessable. The General Partner and any Subsidiary thereof may contribute
cash and/or property to the capital of the Partnership at such times, in such
amounts and in such manner as it may from time to time to elect, and may receive
additional Class B Common Units in exchange therefor. In addition thereto, the
General Partner may make additional capital contributions in exchange for
Preferred Units designated in accordance with Section 3.2(b) hereof.
2.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS.
(a) The General Partner is hereby authorized to cause the Partnership
to admit such additional Limited Partners and/or to issue such additional
Limited Partnership Interests in the form of Class A Common Units for any
Partnership purpose at any time or from time to time, to the Partners or to
other Persons for such consideration, which may include cash and/or Property,
and on such terms and conditions as shall be established by the General Partner
in its sole and absolute discretion, all without the approval of any Limited
Partner. In causing the Partnership to issue additional Limited Partnership
Interests, the General Partner shall make a good faith determination that the
Partnership will receive adequate consideration therefor. The General Partner's
determination that consideration is adequate shall be conclusive insofar as the
adequacy of consideration relates to whether the Limited Partnership Interests
are validly issued, fully paid and nonassessable. Except for any Preferred Units
issued pursuant to Section 3.2(b) hereof, any Partnership Interest acquired by
the Class B Limited Partner, the General Partner or any Affiliate of such
Partners shall be Class B Common Units or, if originally Class A Common Units,
shall be converted to Class B Common Units at the time of acquisition.
(b) The Partnership also may from time to time issue Preferred Units in
one or more classes, or one or more series of any of such classes, with such
designations, preferences and relative, participating, optional or other special
rights, powers and duties, including rights, powers and duties senior to then
existing or later issued Limited Partnership Interests, all as shall be
determined by the General Partner, subject to Tennessee law. Without limiting
the generality of the foregoing sentence, the General Partner shall, in its sole
discretion, with respect to such Preferred Units, establish and fix, (i) the
allocations of items of Partnership income, gain, loss, deduction and credit to
each such class or series of Partnership Interest; (ii) the right of each such
class or series of Partnership Interest to share in Partnership distributions;
and (iii) the rights of each such class or series of Partnership Interest upon
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dissolution and liquidation of the Partnership, provided that, in any event (x)
the additional Partnership Interests are issued in connection with an issuance
of shares of the General Partner, which shares have designations, preferences
and other rights, all such that the economic interests are substantially similar
to the designations, preferences and other rights of the additional Partnership
Interests issued to the General Partner in accordance with this Section 4.2(b),
and (y) the General Partner shall make a Capital Contribution to the Partnership
in an amount equal to the net proceeds raised in connection with the issuance of
such shares of the General Partner. Attached hereto as Schedules 4.2(b)(1) and
4.2(b)(2) to this Agreement are the designations of the Partnership's 9.5%
Series A Cumulative Preferred Units and 8 7/8% Series B Cumulative Preferred
Units. Subsequent designations of Preferred Units shall be reflected in
schedules attached to this Agreement in like manner.
(c) Nothing contained herein shall restrict the General Partner's right
to issue additional REIT Shares; provided, however, that in the event that REIT
Shares are issued by the General Partner to finance an investment in an
apartment community or other property by the Partnership, (i) the General
Partner shall cause the Partnership to issue to the General Partner or its
designee an equivalent number of Class B Common Units or rights, options,
warrants or convertible or exchangeable securities of the Partnership having
designations, preferences and other rights, all such that the economic interests
are substantially similar to those of the REIT Shares so issued, and (ii) the
General Partner shall contribute to the Partnership the net proceeds from the
offering of such REIT Shares and from the exercise of rights contained in such
REIT Shares.
2.3 NO PREEMPTIVE RIGHTS. No Person shall have any preemptive,
preferential or other similar right with respect to (i) additional Capital
Contributions or loans to the Partnership or (ii) issuance or sale of any
Partnership Interests.
2.4 CAPITAL ACCOUNTS OF THE PARTNERS.
(a) GENERAL. The Partnership shall maintain for each Partner a separate
Capital Account in accordance with the rules of Regulations Section
1.704-l(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of
all Capital Contributions made by such Partner to the Partnership pursuant to
this Agreement and (ii) all items of Partnership income and gain (including
income and gain exempt from tax) allocated to such Partner pursuant to Sections
5.1 and 5.2 of this Agreement, and decreased by (x) the amount of cash or Agreed
Value of all actual and deemed distributions of cash or property made to such
Partner pursuant to this Agreement and (y) all items of Partnership deduction
and loss allocated to such Partner pursuant to Sections 5.1 and 5.2 of this
Agreement.
(b) TRANSFERS OF PARTNERSHIP UNITS. A transferee of a Partnership
Interest shall succeed to a pro rata portion of the Capital Account of the
transferor.
(c) UNREALIZED GAINS AND LOSSES.
(i) Consistent with the provisions of Regulations
Section 1.704-l(b)(2)(iv)(f), and as provided in Section 3.4(c)(ii), the
Carrying Values of all Partnership assets shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized Loss attributable to
such Partnership property, as of the times of the adjustments provided in
Section 3.4(c)(ii) hereof, as if such Unrealized Gain or Unrealized Loss
had been recognized on an actual sale of each such property and allocated
pursuant to Section 5.1 of the Agreement.
(ii) Such adjustments shall be made as of the following times:
(i) immediately prior to the acquisition of an additional interest in the
Partnership by any new or existing Partner in exchange for more than a de
minimis Capital Contribution; (ii) immediately prior to the distribution by
the Partnership to a Partner of more than a de minimis amount of Property
as consideration for an interest in the Partnership; and (iii) immediately
prior to the liquidation of the Partnership or the General Partner's
interest in the Partnership within the meaning of Regulations Section
1.704-l(b)(2)(ii)(g); PROVIDED, HOWEVER, that adjustments pursuant to
clauses (i) and (ii) above shall be made only if the General Partner
determines such adjustments are necessary or appropriate to reflect the
relative economic interests of the Partners in the Partnership.
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(iii) In accordance with Regulations Section 1.704-l(b)(2)
(iv)(e), the Carrying Value of Partnership assets distributed in kind shall
be adjusted upward or downward to reflect any Unrealized Gain or Unrealized
Loss attributable to such Partnership property, as of the time any such
asset is distributed.
(iv) In determining such Unrealized Gain or Unrealized Loss the
aggregate cash amount and fair market value of all Partnership assets
(including cash or cash equivalents) shall be determined by the General
Partner using such reasonable method of valuation as it may adopt, or in
the case of a liquidating distribution pursuant to Article 13 of this
Agreement, be determined and allocated by the Liquidator using such
reasonable methods of valuation as it may adopt. The General Partner, or
the Liquidator, as the case may be, shall allocate such aggregate value
among the assets of the Partnership (in such manner as it determines to
arrive at fair market value for individual properties).
(d) MODIFICATION BY GENERAL PARTNER. The provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the General Partner shall
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto (including, without limitation, debits or
credits relating to liabilities which are secured by contributed or distributed
property or which are assumed by the Partnership, the General Partner, or any
Limited Partners), are computed in order to comply with such Regulations, the
General Partner may make such modification without regard to Article 11 of this
Agreement. The General Partner also shall (i) make any adjustments that are
necessary or appropriate to maintain equality between the Capital Accounts of
the Partners and the amount of Partnership capital reflected on the
Partnership's balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-l(b)(2)(iv)(q), and (ii) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-l(b).
(e) ADDITIONAL CAPITAL CONTRIBUTIONS OR ASSESSMENTS. No Partner shall
be assessed or be required to contribute additional funds or other property to
the Partnership, except for any such amount which a Limited Partner may be
obligated to repay under Section 4.3 or Section 13.4. Any additional funds
required by the Partnership, as determined by the General Partner in its
reasonable business judgment, may, at the option of the General Partner and
without an obligation to do so, be contributed by the General Partner as
additional Capital Contributions. If and as the General Partner or any other
Partner makes additional Capital Contributions to the Partnership, each such
Partner shall receive Preferred Units, Class A Common Units, Class B Common
Units, or other appropriate Partnership Interests, subject to the provisions of
Section 3.2, and such Partner's Capital Account shall be adjusted as provided in
Section 3.4.
(f) RETURN OF CAPITAL CONTRIBUTIONS. Except as otherwise expressly
provided herein, the Capital Contribution of each Partner shall be returned to
that Partner only in the manner and to the extent provided in Article 4 and
Article 13 hereof, and no Partner may withdraw from the Partnership or otherwise
have any right to demand or receive the return of its Capital Contribution to
the Partnership (as such), except as specifically provided herein. Under
circumstances requiring a return of any Capital Contribution, no Partner shall
have the right to receive property other than cash, except as specifically
provided herein. No Partner shall be entitled to interest on any Capital
Contribution or Capital Account notwithstanding any disproportion therein as
between the Partners. Except as specifically provided herein, the General
Partner shall not be liable for the return of any portion of the Capital
Contribution of any Limited Partner, and the return of such Capital Contribution
shall be made solely from Partnership assets. The General Partner may, but shall
not be obligated to, make Capital Contributions for the purpose of enabling the
Partnership to make distributions of Available Cash to Limited Partners.
(g) LIABILITY OF LIMITED PARTNERS. No Limited Partner shall have any
further personal liability to contribute money to, or in respect of, the
liabilities or the obligations of the Partnership, nor shall any Limited Partner
be personally liable for any obligation of the Partnership, except as otherwise
provided herein.
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ARTICLE 3
DISTRIBUTIONS
3.1 REQUIREMENT AND CHARACTERIZATION OF DISTRIBUTIONS.
(a) The General Partner shall cause the Partnership to distribute, when
and as declared by the General Partner out of funds legally available for the
payment thereof, preferential distributions ("Preferred Unit Distributions") in
respect of all series of Preferred Units of the Partnership in the aggregate
amount of dividends and other distributions in respect of the related preferred
stock (provided the net proceeds from the issuance of such preferred stock shall
have theretofore been contributed to the Partnership) paid by the General
Partner to holders of such preferred stock, contemporaneous with the payment of
such preferred stock dividends and other distributions.
(b) The General Partner shall cause the Partnership to distribute
quarterly an amount equal to 100% of Available Cash generated by the Partnership
during such quarter to the Partners who are Partners on the Partnership Record
Date with respect to such quarter as follows:
(i) First, one hundred percent (100%) to the Partners who shall
own Class A Common Units, pro rata based on the number of Class A Common
Units held by each such Partner on the applicable Partnership Record Date,
until each has received an amount equal to the Priority Distribution Amount
for the quarter for each such Unit;
(ii) Next, if any Partners holding Class A Common Units have a
positive Cumulative Unpaid Priority Distribution Account, one hundred
percent (100%) to such Partners, pro rata based on the relative amounts of
their Cumulative Unpaid Priority Distribution Accounts, until each such
Cumulative Unpaid Priority Distribution Account reaches zero; and
(iii) Thereafter, to the General Partner and any other holders of
Class B Common Units, pro rata in accordance with the relative number of
Class B Common Units held by each.
(c) The General Partner shall distribute Capital Transaction Proceeds
received by the Partnership within 30 days after the date of such Capital
Transaction provided that the General Partner has given the Limited Partners 20
days' prior written notice of the date for any such distribution, as follows:
(i) First, if any Limited Partners have a positive Cumulative
Unpaid Priority Distribution Account, one hundred percent (100%) to such
Limited Partners, pro rata based on the relative amounts of their
Cumulative Unpaid Priority Distribution Accounts, until each such
Cumulative Unpaid Priority Distribution Account reaches zero: and
(ii) Thereafter, to the General Partner and any other holders of
Class B Units, pro rata in accordance with the relative number of Class B
Units held by each.
3.2 AMOUNTS WITHHELD. All amounts withheld pursuant to the Code or any
provisions of any state or local tax law and Section 4.3 hereof with respect to
any allocation, payment or distribution to the General Partner, or any Limited
Partners or assignees shall be promptly paid, solely out of funds of the
Partnership (except as otherwise provided in Section 4.3 in connection with the
exercise by a Limited Partner of a Redemption Right), by the General Partner to
the appropriate taxing authority and treated as amounts distributed to the
General Partner or such Limited Partners or assignees pursuant to Section 4.1
for all purposes under this Agreement.
3.3 WITHHOLDING. Each Limited Partner hereby authorizes the Partnership
to withhold from or pay on behalf of or with respect to such Limited Partner any
amount of federal, state, local, or foreign taxes that the General Partner
determines that the Partnership is required to withhold or pay with respect to
any amount distributable or allocable to such Limited Partner pursuant to this
Agreement or with respect to the exercise by such Limited Partner of the
Redemption Rights set forth in Section 8.5, including, without limitation, any
taxes required to be withheld or paid by the Partnership pursuant to Section
1441, 1442, 1445, or 1446 of the Code. Any amount paid on behalf of
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or with respect to a Limited Partner shall constitute a loan by the Partnership
to such Limited Partner, which loan shall be repaid by such Limited Partner
within 15 days after notice from the General Partner that such payment must be
made unless (i) the Partnership withholds such payment from a distribution which
would otherwise be made to the Limited Partner or (ii) the General Partner
determines, in its sole and absolute discretion, that such payment may be
satisfied out of the available funds of the Partnership which would, but for
such payment, be distributed to the Limited Partner. Any amounts withheld
pursuant to the foregoing clauses (i) or (ii) shall be treated as having been
distributed to such Limited Partner and shall be promptly paid, solely out of
funds of the Partnership, by the General Partner to the appropriate taxing
authority. Each Limited Partner hereby unconditionally and irrevocably grants to
the Partnership a security interest in such Limited Partner's Partnership
Interest as to secure such Limited Partner's obligation to pay to the
Partnership any amounts required to be paid pursuant to this Section 4.3
(together with attorney's fees and other costs in enforcing the Partnership's
rights against the collateral). In the event that a Limited Partner or Redeeming
Partner fails to pay any amounts owed to the Partnership pursuant to this
Section 4.3 when due, the General Partner may, in its sole and absolute
discretion., elect to make the payment on behalf of such defaulting Partner, and
in such event shall be deemed to have loaned such amount to such defaulting
Partner and shall succeed to all rights and remedies of the Partnership as
against such defaulting Partner (including, without limitation, in the case of a
default by other than a Redeeming Partner the right to receive distributions
from the Partnership). Any amounts payable by a Limited Partner or a Redeeming
Partner hereunder shall bear interest at the Prime Rate, plus two percentage
points (but not higher than the maximum lawful rate) from the date such amount
is due (I.E., 15 days after demand) until such amount is paid in full. In the
event that the Partnership or the General Partner is required to withhold tax
with respect to the exercise by a Limited Partner of a Redemption Right, the
Limited Partner exercising the Redemption Right shall make arrangements with the
Partnership or the General Partner, as the case may be, to provide the funds to
the Partnership necessary to effect the required withholding. In the event that,
pursuant to applicable laws and regulations, the General Partner may withhold a
reduced amount pending a determination by applicable taxing authorities as to
whether any additional withholding tax must subsequently be deposited, the
General Partner shall have the right to require the Redeeming Partner to pledge
a first priority security interest in a portion of the Redemption Amount as
collateral for the Redeeming Partner's obligation to provide the funds necessary
to effect any subsequent required holding (together with attorney's fees and
other costs in enforcing the Partnership's rights against the collateral), in an
amount in the case of a REIT Shares Amount equal to REIT Shares having an
Average Trading Price on the date of the pledge equal to 125% of the maximum
possible subsequent required withholding (or 100% of the maximum possible
subsequent required withholding if the Redemption Amount is paid in the form of
the Cash Amount) (the "WITHHOLDING COLLATERAL"). The General Partner shall be
entitled to retain possession of the Withholding Collateral until either the
Redeeming Partner provides funds to the General Partner sufficient to make any
subsequent required withholding deposit or the General Partner receives a
determination from the applicable authorities that no subsequent withholding is
required. All dividends, distributions, interest or other income on the
Withholding Collateral while subject to the pledge hereunder shall be paid to
the Redeeming Partner pledging the Withholding Collateral. If the applicable
authorities advise that subsequent withholding is required and the Redeeming
Partner does not deliver the necessary funds to the General Partner within 20
days after receipt of the General Partner's request therefor, the General
Partner shall be entitled to exercise all rights and remedies of a secured party
under the Uniform Commercial Code in the State of Tennessee with respect to the
Withholding Collateral. Each Limited Partner and each Redeeming Partner shall
take such actions as the Partnership or the General Partner shall request in
order to perfect or enforce the security interest created hereunder.
3.4 DISTRIBUTIONS UPON LIQUIDATION. Notwithstanding anything contained
in Section 4.1 to the contrary, proceeds from a Liquidating Transaction shall be
distributed to the Partners in accordance with Section 13.2.
3.5 REIT DISTRIBUTION REQUIREMENTS. Unless the General Partner
determines that such a distribution would not be in the best interests of the
Partnership, it is the intent, but not the obligation, of the Partnership that a
cash distribution shall be made for each Partnership Year of the Partnership to
enable the General Partner (i) to meet its distribution requirement for
qualification as a REIT as set forth in Section 857(a)(1) of the Code and (ii)
to avoid the excise tax imposed by Section 4981 of the Code.
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ARTICLE 4
ALLOCATIONS
4.1 ALLOCATIONS OF NET INCOME AND NET LOSS. For purposes of maintaining
the Capital Accounts and in determining the rights of the Partners among
themselves, the Partnership's Net Income and Net Loss shall be allocated among
the Partners for each taxable year (or portion thereof) as provided herein
below.
(a) SPECIAL ALLOCATIONS OF GROSS INCOME.
(i) GROSS INCOME ALLOCATION TO PREFERRED UNITHOLDERS. Prior to
giving effect to any other allocation in Section 5.1(a) or (b), gross
income of the Partnership shall be allocated first to the holders of
Preferred Units in an amount equal to the excess (if any) of (i) the
cumulative distributions in respect of all classes of Preferred Units made
through the end of the taxable year for which such allocation shall be made
(other than distributions which are treated as being in satisfaction of the
liquidation preference of such Preferred Units), over (ii) the cumulative
allocations of gross income to the holders of such Preferred Units pursuant
to this Section 5.1(a) prior to such allocation for such taxable year.
(ii) GROSS INCOME ALLOCATION TO CLASS A COMMON UNITHOLDERS. In
the event of a sale by the Partnership of all or substantially all of the
Property and assets of the Partnership, prior to giving effect to any other
allocation in Section 5.1(a) or (b), gross income and gain from such sale
shall be allocated to the Class A Limited Partners in an amount equal to
the excess (if any) of (x) the cumulative distributions from the
Partnership to such Class A Limited Partners pursuant to Article 4 and
Section 13.2(a)(iii), over (y) the cumulative allocations of Net Income to
such Class A Limited Partners pursuant to Section 5.1(b)(vi) and (vii), pro
rata based on the number of Class A Common Units owned by each Class A
Limited Partner over the aggregate Class A Common Units outstanding at such
time.
(b) NET INCOME. After giving effect to the special allocations set
forth in Section 5.2 below, Net Income, if any (and each item thereof), shall be
allocated among the Partners as follows:
(i) First, to the General Partner until the cumulative
allocations of Net Income under this Section 5.1(b)(i) shall equal the
cumulative Net Losses allocated to the General Partner under Section 5.1(d)
hereof;
(ii) Second, to the Limited Partners until the cumulative
allocations of Net Income under this Section 5.1(b)(ii) shall equal the
cumulative Net Losses allocated to the Limited Partners under Section
5.1(d) hereof (such allocations of Net Income being made in the same
proportions and in the reverse order in which such allocations of Net
Losses were made);
(iii) Third, to the Class A Limited Partners until the cumulative
allocations of Net Income under this Section 5.1(b)(iii) shall equal the
cumulative allocations of Net Losses to the Class A Limited Partners under
Section 5.1(c)(iii);
(iv) Fourth, to the holders of Preferred Units until the
cumulative allocations of Net Income under this Section 5.1(b)(iv) shall
equal the cumulative allocations of Net Losses to such holders under
Section 5.1(c)(ii);
(v) Fifth, to the Partners until the cumulative allocations of
Net Income under this Section 5.1(b)(v) shall equal the cumulative
allocations of Net Losses thereto under Section 5.1(c)(ii);
(vi) Sixth, to the Partners until the cumulative allocations of
Net Income under this Section 5.1(b)(vi) and Section 5.1(b)(vii) shall
equal the cumulative distributions to the Partners under Article 4 (other
than Section 4.1(a) thereof) and Section 13.2(a)(iii), with such
allocations being made in proportion to the cumulative distributions to
each Partner; and
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(vii) Seventh, to the General Partner and any other holder of
Class B Common Units in proportion to their Percentage Interests in such
Class B Common Units.
(c) NET LOSSES. After giving effect to the special allocations set
forth in Section 5.2 below, Net Losses, if any (and each item thereof), shall be
allocated as follows:
(i) First, to the Partners in proportion to and to the extent
of their positive Adjusted Capital Accounts (reduced, in the case of a
holder of Preferred Units, by the unpaid liquidation preference in respect
of such Preferred Units);
(ii) Second, to the holders of Preferred Units to the extent of
their positive Adjusted Capital Accounts; and
(iii) Third, to the Class A Limited Partners who shall have a
Deficit Restoration Obligation, in proportion to their respective
Percentage Interests in Common Units.
(d) NET LOSS LIMITATION. Notwithstanding the foregoing, Net Losses
shall not be allocated to any Limited Partner pursuant to Section 5.1(c) to the
extent that such allocation would cause such Limited Partner to have an Adjusted
Capital Account Deficit at the end of such taxable year (or increase any
existing Adjusted Capital Account Deficit). All Net Losses in excess of the
limitation set forth in the preceding sentence of this Section 5.1(d) shall be
allocated to the other Limited Partners for whom such allocation would not cause
or increase an Adjusted Capital Account Deficit (such allocation being pro rata
in proportion to such Limited Partners' respective Percentage Interests in
Common Units), and so on, until no Net Losses can be allocated under this
Section 5.1(d) to any Limited Partner, and all remaining Net Losses shall be
allocated to the General Partner.
(e) NONRECOURSE LIABILITIES. The Partners agree that excess Nonrecourse
Liabilities of the Partnership (within the meaning of Section 1.752-3(a)(3) of
the Regulations) will be allocated among the Partners for purposes of Section
752 of the Code in accordance with their respective Percentage Interests in
Common Units.
(f) GAINS. Any gain allocated to the Partners upon the sale or other
taxable disposition of any Partnership asset shall to the extent possible, after
taking into account other required allocations of gain pursuant to Section 5.2
below, be characterized as Recapture Income in the same proportions and to the
same extent as such Partners have been allocated any deductions directly or
indirectly giving rise to the treatment of such gains as Recapture Income.
4.2 SPECIAL ALLOCATION RULES. Notwithstanding any other provision of
the Agreement, the following special allocations shall be made in the following
order:
(a) MINIMUM GAIN CHARGEBACK. Notwithstanding any other provisions of
Article 5, if there is a net decrease in Partnership Minimum Gain during any
Partnership Year, each Partner shall be specially allocated items of Partnership
income and gain for such year (and, if necessary, subsequent years) in an amount
equal to such Partner's share of the net decrease in Partnership Minimum Gain,
as determined under Regulations Section 1.704-2(g). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each Partner pursuant thereto. The items to be so allocated
shall be determined in accordance with Regulations Section 1.704-2(f)(6). This
Section 5.2(a) is intended to comply with the minimum gain chargeback
requirements in Regulations Section 1.704-2(f) and for purposes of this Section
5.2(a) only, each Partner's Adjusted Capital Account Deficit shall be determined
prior to any other allocations pursuant to Section 5.1 of the Agreement with
respect to such Partnership Year and without regard to any decrease in Partner
Minimum Gain during such Partnership Year.
(b) PARTNER MINIMUM GAIN CHARGEBACK. Notwithstanding any other
provision of Article 5 (except Section 5.2(a) hereof), if there is a net
decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt
during any Partnership Year, each Partner who has a share of the Partner Minimum
Gain attributable to such Partner Nonrecourse Debt, determined in accordance
with Regulations Section 1.704-2(i)(5), shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent years)
in an amount equal to such
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Partner's share of the net decrease in Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in accordance
with Regulations Section 1.701-2(i)(4). This Section 5.2(b) is intended to
comply with the minimum gain chargeback requirement in such Section of the
Regulations and shall be interpreted consistently therewith. Solely for purposes
of this Section 5.2(b), each Partner's Adjusted Capital Account Deficit shall be
determined prior to any other allocations pursuant to Article 5 of this
Agreement with respect to such Partnership Year, other than allocations pursuant
to Section 5.2(a) hereof.
(c) QUALIFIED INCOME OFFSET. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in Regulations
Sections 1.704-l(b)(2)(ii)(d)(4), 1.701-1(b)(2)(ii)(d)(5), or
1.704-l(b)(2)(ii)(d)(6), and after giving effect to the allocations required
under Sections 5.2(a) and 5.2(b) hereof, such Partner has an Adjusted Capital
Account Deficit, items of Partnership income and gain shall be specially
allocated to such Partner in an amount and manner sufficient to eliminate, to
the extent required by the Regulations, its Adjusted Capital Account Deficit
created by such adjustments, allocations or distributions as quickly as
possible.
(d) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any taxable
period shall be allocated to the Partners in accordance with their respective
Percentage Interests in Common Units.
(e) PARTNER NONRECOURSE DEDUCTIONS. Any Partner Nonrecourse Deductions
for any Partnership Year shall be specially allocated to the Partner who bears
the economic risk of loss with respect to the Partner Nonrecourse Debt to which
such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i)(2).
(f) CODE SECTION 754 ADJUSTMENTS. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b)
of the Code is required, pursuant to Regulations Section 1.704-l(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.
4.3 ALLOCATIONS FOR TAX PURPOSES.
(a) GENERAL. Except as otherwise provided in this Section 5.3, for
federal income tax purposes, each item of income, gain, loss and deduction shall
be allocated among the Partners in the same manner as its correlative item of
"book" income, gain loss or deduction is allocated pursuant to Sections 5.1 and
5.2 of this Agreement.
(b) TO ELIMINATE BOOK-TAX DISPARITIES. In an attempt to eliminate
Book-Tax Disparities attributable to a Contributed Property or Adjusted
Property, items of income, gain, loss, and deduction shall be allocated for
federal income tax purposes among the Partners as follows:
(i) To the extent that the fair market value of a Contributed
Property differed from its adjusted tax basis at the time it was originally
contributed to a partnership to which the Partnership shall have succeeded
to the assets (the "Original Book-Tax Disparity"), the allocation of tax
items with respect to such Contributed Property shall take into account any
remaining Original Book-Tax Disparity at the time such property is
contributed to the Partnership in a manner consistent with the principles
of Section 704(c) of the Code, using the "traditional method" under Section
1.704-3(b) of the Regulations, so that the Class A Limited Partners who
shall have contributed Property to the Partnership (or their
successors-in-interest) bear the tax burden (or benefit, if applicable) of
the remaining Original Book-Tax Disparity;
(ii) In the case of a Contributed Property, such items
attributable thereto shall be allocated, subject to Section 5.3(b)(i),
among the Partners consistent with the principles of Section 704(c) of the
Code that takes into account the variation between the 704(c) Value of such
property and its adjusted tax basis at the time of the contribution;
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(iii) In the case of an Adjusted Property, such items shall (A)
first, be allocated among the Partners in a manner consistent with the
principles of Section 704(c) of the Code to take into account the
Unrealized Gain or Unrealized Loss attributable to such property (prior to
any adjustments in the Carrying Value of such property under Section 3.4
hereof) and (B) second, in the event such property was originally a
Contributed Property, be allocated among the Partners consistent with
Section 5.3(b)(ii); and
(iv) All other items of income, gain, loss and deduction shall
be allocated among the Partners in the same manner as their correlative
item of "book" gain or loss is allocated pursuant to Sections 5.1 and 5.2
of this Agreement.
(c) POWER OF GENERAL PARTNER TO ELECT METHOD. The General Partner shall
elect the traditional method without curative allocations to be used by the
Partnership in eliminating Book-Tax Disparities under Section 704(c) of the Code
and the Regulations thereunder and such election shall be binding on all
Partners.
4.4 NO RIGHT TO DISTRIBUTIONS IN KIND. No Partner shall be entitled to
demand property other than cash in connection with any distributions by the
Partnership.
4.5 LIMITATIONS ON RETURN OF CAPITAL CONTRIBUTIONS. Notwithstanding any
of the provisions of this Article 5, no Partner shall have the right to receive,
and the General Partner shall not have the right to make, a distribution which
includes a return of all or part of a Partner's Capital Contributions, unless
after giving effect to the return of a Capital Contribution, all Partnership
liabilities, other than the liabilities to a Partner for the return of his
Capital Contribution, do not exceed the fair market value of the Partnership's
assets.
4.6 SUBSTANTIAL ECONOMIC EFFECT. It is the intent of the Partners that
the allocations of Net Income and Net Loss under the Agreement have substantial
economic effect (or be consistent with the Partners' interests in the
Partnership in the case of the allocation of losses attributable to nonrecourse
debt) within the meaning of Section 704(b) of the Code as interpreted by the
Regulations promulgated pursuant thereto. Article 5 and other relevant
provisions of this Agreement shall be interpreted in a manner consistent with
such intent.
ARTICLE 5
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER
5.1 MANAGEMENT OF THE PARTNERSHIP.
Except as otherwise expressly provided in this Agreement, the General Partner
shall have full, complete and exclusive discretion to manage and control the
business of the Partnership for the purposes herein stated, and shall make all
decisions affecting the business and assets of the Partnership. Subject to the
restrictions specifically contained in this Agreement, the powers of the General
Partner shall include, without limitation, the authority to take the following
actions on behalf of the Partnership:
(i) to acquire, purchase, own, lease and dispose of any real
property and any other property or assets that the General Partner
determines are necessary or appropriate or in the best interests of the
business of the Partnership;
(ii) to construct buildings and make other improvements on the
properties owned or leased by the Partnership;
(iii) to borrow money for the Partnership, issue evidences of
indebtedness in connection therewith, refinance, guarantee, increase the
amount of, modify, amend or change the terms of, or extend the time for the
payment of, any indebtedness or obligation to the Partnership, and secure
such indebtedness by mortgage, deed of trust, pledge or other lien on the
Partnership's assets;
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(iv) to pay, either directly or by reimbursement, for all
operating costs and general administrative expenses of the Partnership, to
third parties or, to the General Partner as set forth in this Agreement;
(v) to lease all or any portion of any of the Partnership's
assets, whether or not the terms of such leases extend beyond the
termination date of the Partnership and whether or not any portion of the
Partnership's assets so leased are to be occupied by the lessee, or, in
turn, subleased in whole or in part to others, for such consideration and
on such terms as the General Partner may determine;
(vi) to prosecute, defend, arbitrate, or compromise any and all
claims or liabilities in favor of or against the Partnership, on such terms
and in such manner as the General Partner may reasonably determine, and
similarly to prosecute, settle or defend litigation with respect to the
Partners, the Partnership, or the Partnership's assets; PROVIDED, HOWEVER,
that the General Partner may not, without the consent of all of the
Partners, confess a judgment against the Partnership;
(vii) to file applications, communicate, and otherwise deal with
any and all governmental agencies having jurisdiction over, or in any way
affecting, the Partnership's assets or any other aspect of the Partnership
business;
(viii) to make or revoke any election permitted or required of the
Partnership by any taxing authority;
(ix) to maintain such insurance coverage for public liability,
fire and casualty, and any and all other insurance for the protection of
the Partnership, for the conservation of Partnership assets, or for any
other purpose convenient or beneficial to the Partnership, in such amounts
and such types, as it shall determine from time to time;
(x) to determine whether or not to apply any insurance proceeds
for any property, to the restoration of such property or to distribute the
same;
(xi) to retain legal counsel, accountants, consultants, real
estate brokers, and such other persons, as the General Partner may deem
necessary or appropriate in connection with the Partnership business and to
pay therefor such reasonable remuneration as the General Partner may deem
reasonable and proper;
(xii) to retain other services of any kind or nature in
connection with the Partnership business, and to pay therefor such
remuneration as the General Partner may deem reasonable and proper;
(xiii) to negotiate and conclude agreements on behalf of the
Partnership with respect to any of the rights, powers and authority
conferred upon the General Partner;
(xiv) to maintain accurate accounting records and to file
promptly all federal, state and local income tax returns on behalf of the
Partnership;
(xv) to distribute Partnership cash or other Partnership assets
in accordance with this Agreement;
(xvi) to form or acquire an interest in, and contribute property
to, any further limited or general partnerships, joint ventures or other
relationships that it deems desirable (including, without limitation, the
acquisition of interests in, and the contributions of property to, its
Subsidiaries and any other Person in which it has an equity interest from
time to time);
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(xvii) to establish Partnership working capital reserves;
(xviii) to take such other action, execute, acknowledge, swear to
or deliver such other documents and instruments, and perform any and all
other acts the General Partner deems necessary or appropriate for the
formation, continuation and conduct of the business and affairs of the
Partnership and to possess and enjoy all of the rights and powers of a
general partner as provided by the Act; and
(xix) to execute and deliver or assume any note and mortgage
securing any loan insured by the Federal Home Administration (the "FHA"),
the U.S. Department of Housing and Urban Development ("HUD") or any other
public body (individually, an "Agency" and, collectively, "Agencies") over
which the Secretary of Housing and Urban Development (the "Secretary") has
oversight responsibility, and to execute any Regulatory Agreement and other
documents required by the Secretary or any Agency in connection with any
such loan. Any successor or substitute general partner or person duly
admitted as an additional general partner of the Partnership shall, as a
condition precedent to receiving an interest as a general partner in the
Partnership, agree to be bound by the terms and conditions of any note,
mortgage and/or Regulatory Agreement and other documents and instruments
required in connection with any FHA, HUD or other Agency insured loan to
the same extent and on the same terms and conditions as all other general
partners. Upon any dissolution of the Partnership, no title or right to
possession and control of any property subject to any FHA, HUD or Agency
insured loan, and no right to collect the rents therefrom, shall pass to
any person who is not bound by any Regulatory Agreement affecting such
property in a manner satisfactory to the Secretary or the appropriate
Agency.
5.2 RESTRICTION ON GENERAL PARTNER'S AUTHORITY. Without the consent of
all the Limited Partners, the General Partner may not:
(a) Take any action that would make it impossible to carry on the
ordinary business of the Partnership, except as otherwise provided in this
Agreement;
(b) Possess Partnership property for other than a Partnership purpose;
(c) Admit a Person as a Partner, except as otherwise provided in this
Agreement; or
(d) Perform any act that would subject a Limited Partner to liability
as a general partner.
5.3 DELEGATION OF AUTHORITY. The General Partner may delegate any or
all of its powers, rights and obligations hereunder, and may appoint, employ,
contract or otherwise deal with any Person for the transaction of the business
of the Partnership, which Person may, under supervision of the General Partner,
perform any acts or services for the Partnership as the General Partner may
approve.
5.4 INDEMNIFICATION AND EXCULPATION OF INDEMNITEES.
(a) The Partnership shall indemnify an Indemnitee from and against any
and all losses, claims, damages, liabilities, joint or several, expenses
(including reasonable legal fees and expenses), judgments, fines, settlements,
and other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate to
the operations of the Partnership as set forth in this Agreement in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, unless it is established that: (i) the act or omission of the
Indemnitee was material to the matter giving rise to the proceeding and either
was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal benefit
in money, property or services; or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 6.4(a). The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
an entry of an order of probation prior to judgment, creates a rebuttable
presumption that the Indemnitee acted in a manner contrary to that specified in
this Section 6.4(a). Any indemnification pursuant to this Section 6.4 shall be
made only out of the assets of the Partnership.
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(b) The Partnership may reimburse an Indemnitee for reasonable expenses
incurred by an Indemnitee who is a party to a proceeding in advance of the final
disposition of the proceeding upon receipt by the Partnership of (i) a written
affirmation by the Indemnitee of the Indemnitee's good faith belief that the
standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 6.4 has been met, and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
(c) The indemnification provided by this Section 6.4 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity.
(d) The Partnership may purchase and maintain insurance, on behalf of
the Indemnitees and such other Persons as the General Partner shall determine,
against any liability that may be asserted against or expenses that may be
incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
(e) For purposes of this Section 6.4, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of this Section 6.4; and actions taken
or omitted by the Indemnitee with respect to an employee benefit plan in the
performance of its duties for a purpose reasonably believed by it to be in the
interest of the participants and beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 6.3 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.4 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
5.5 LIABILITY OF THE GENERAL PARTNER.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership or any Partners 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.
(b) The Limited Partners expressly acknowledge that the General Partner
is acting on behalf of the Partnership and the General Partner's shareholders
collectively, that, except as otherwise expressly provided herein, the General
Partner is under no obligation to consider the separate interests of the Limited
Partners (including, without limitation, the tax consequences to Limited
Partners) in deciding whether to cause the Partnership to take (or decline to
take) any actions, and that the General Partner shall not be liable for monetary
damages for losses sustained, liabilities incurred, or benefits not derived by
Limited Partners in connection with such decisions, provided that the General
Partner has acted in good faith.
(c) Subject to its obligations and duties as General Partner set forth
in Section 6.1 hereof, the General Partner may exercise any of the powers
granted to it under this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents. The General Partner shall
not be responsible for any misconduct or negligence on the part of any such
agent appointed by it in good faith.
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(d) Notwithstanding any other provisions of this Agreement or the Act,
any action of the General Partner on behalf of the Partnership or any decision
of the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the General Partner to continue
to qualify as a REIT or (ii) to prevent the General Partner from incurring any
taxes under Section 857 or Section 4981 of the Code, is expressly authorized
under this Agreement and is deemed approved by all of the Limited Partners.
(e) Any amendment, modification or repeal of this Section 6.5 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's liability to the Partnership and the
Limited Partners under this Section 6.5 as in effect immediately prior to such
amendment, modification or repeal with respect to matters occurring, in whole or
in part, prior to such amendment, modification or repeal, regardless of when
claims relating to such matters may arise or be asserted.
5.6 REIMBURSEMENT OF GENERAL PARTNER.
(a) Except as provided in this Section 6.6 and elsewhere in this
Agreement (including the provisions of Articles 4 and 5 regarding distributions,
payments, reimbursements and allocations to which it may be entitled), the
General Partner shall not be compensated for its services as general partner of
the Partnership.
(b) The General Partner shall be reimbursed on a monthly basis, or such
other basis as the General Partner may determine in its sole and absolute
discretion, for all expenses it incurs relating to the ownership and operation
of, or for the benefit of, the Partnership. Such reimbursements shall be in
addition to any reimbursement to the General Partner as a result of
indemnification pursuant to Section 6.4 hereof.
(c) The General Partner also shall be reimbursed for all expenses it
incurs relating to the organization of the Partnership and any issuance of
additional Partnership Interests pursuant to Section 3.2.
5.7 OUTSIDE ACTIVITIES.
(a) Subject to the Charter and any agreements entered into by the
General Partner or its Affiliates with the Partnership or a Subsidiary, the
General Partner and any officer, director, employee, agent, trustee, Affiliate
or shareholder of the General Partner shall be entitled to and may have business
interests and engage in business activities in addition to those relating to the
Partnership, including business interests and activities substantially similar
or identical to those of the Partnership. Neither the Partnership nor any of the
Limited Partners shall have any rights by virtue of this Agreement in any
business ventures of the General Partner. None of the Limited Partners nor any
other Person shall have any rights by virtue of this Agreement or the
partnership relationship established hereby in any such business interests or
activities of the General Partner, and the General Partner shall have no
obligation pursuant to this Agreement to offer any interest in any such business
interests and activities to the Partnership or any Limited Partner, even if such
opportunity is of a character which, if presented to the Partnership or any
Limited Partner, could be taken by such Person. Except as set forth in a
separate agreement between such Person and the Partnership or any Affiliate of
the Partnership, any Limited Partner may have business interests and engage in
business activities in addition to those relating to the Partnership, including
business interests and activities substantially similar or identical to those of
the Partnership.
(b) In the event the General Partner exercises its rights under
Article 14 of the Charter to redeem REIT Shares, then the General Partner shall
cause the Partnership to purchase from it the same number of Partnership Units
(adjusted by the Conversion Factor) on the same terms that the General Partner
redeemed such REIT Shares.
5.8 EMPLOYMENT OR RETENTION OF AFFILIATES.
(a) Any Affiliate of the General Partner may be employed or retained by
the Partnership and may otherwise deal with the Partnership (whether as a buyer,
lessor, lessee, manager, furnisher of goods or services, broker, agent, lender
or otherwise) and may receive from the Partnership any compensation, price, or
other payment therefor which the General Partner determines to be fair and
reasonable.
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(b) The Partnership may lend or contribute to its Subsidiaries or other
Persons in which it has an equity investment, and such Persons may borrow funds
from the Partnership, on terms and conditions established in the sole and
absolute discretion of the General Partner. The foregoing authority shall not
create any right or benefit in favor of any Subsidiary or any other Person.
(c) The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions as the
General Partner deems are consistent with this Agreement and applicable law.
(d) Except as expressly permitted by this Agreement, neither the
General Partner nor any of its Affiliates shall sell, transfer or convey any
property to, or purchase any property from, the Partnership, directly or
indirectly, except pursuant to transactions that are on terms that are fair and
reasonable to the Partnership.
5.9 LOANS TO THE PARTNERSHIP. If additional funds are required by the
Partnership for any purpose relating to the business of the Partnership or for
any of its obligations, expenses, costs, or expenditures, including operating
deficits, the Partnership may borrow such funds as are needed from the General
Partner or any Affiliate of the General Partner for such period of time and on
such terms as the General Partner or its Affiliate may agree, provided that the
terms shall be substantially equivalent to the terms that could be obtained from
a third party on an arm's-length basis.
5.10 DISTRIBUTIONS. Notwithstanding anything contained in this Agreement
to the contrary, the General Partner, acting as a fiduciary, shall use its
reasonable best efforts and act in good faith to operate the Partnership's
assets and manage the Partnership's business, including its indebtedness, so as
to produce sufficient Available Cash and Capital Transaction Proceeds to pay to
the Class A Limited Partners the Priority Distribution Amount on a current basis
and any balance in the Cumulative Unpaid Priority Distribution Accounts of the
Class A Limited Partners pursuant to Section 4.1 hereof.
5.11 APPROVAL OF OR PROHIBITION AGAINST SALE OF CERTAIN PROPERTIES.
(a) CEDAR MILL APARTMENTS. The Partnership shall not sell, exchange,
mortgage, hypothecate or otherwise convey or transfer the apartment community
known as Cedar Mill Apartments without the advance written consent of each
Person who was a partner in Cedar Mill Apartments, L.P. at the time of its
merger with and into the Partnership, which consent may be withheld for any
reason whatsoever, so long as such Persons continue to hold, in the aggregate,
at least 44,282.5 Class A Common Units.
(b) GREENBROOK APARTMENTS. The Partnership shall not sell, exchange,
mortgage, hypothecate or otherwise convey or transfer the apartment community
known as Greenbrook Apartments without the advance written consent of
Robert F. Fogelman, which consent may be withheld for any reason whatsoever, so
long as Mr. Fogelman continues to hold, in the aggregate, at least 217,500 Class
A Common Units. Notwithstanding any other provision in this Agreement to the
contrary, no provision of this Agreement shall supersede, modify, terminate or
replace (i) any provision of that certain Supplemental Agreement with respect to
Transfer of Property and Delivery of Guaranty dated as of November 10, 1993 by
and among Robert F. Fogelman, the Partnership and the General Partner, or (ii)
any restriction, negative covenant or other provision in those certain Warranty
Deeds of record as instrument nos. _____________, ___________, ___________, and
_____________ in the Register's Office of Shelby County, Tennessee, which
agreement, restrictions, negative covenants and other provisions shall remain in
full force and effect from and after the execution, delivery and effectiveness
of this Agreement.
(c) MCKELLER WOODS APARTMENTS. The Partnership shall not sell,
exchange, mortgage, hypothecate or otherwise convey or transfer the apartment
community known as McKeller Woods Apartments without the advance written consent
of each Person who was a partner in McKeller Woods Village Partnership, L.P. at
the time of its merger with and into the Partnership, which consent may be
withheld for any reason whatsoever, so long as such Persons continue to hold, in
the aggregate, at least 162,600 Class A Common Units.
(d) PARK ESTATE APARTMENTS. The Partnership shall not sell, exchange,
mortgage, hypothecate or otherwise convey or transfer the apartment community
known as Park Estate Apartments without the advance written consent of each
Person who was a partner in Park Estate Partnership, L.P. at the time of its
merger with and
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into the Partnership, which consent may be withheld for any reason whatsoever,
so long as such Persons continue to hold, in the aggregate, at least 19,238
Class A Common Units.
(e) WINCHESTER SQUARE APARTMENTS. The Partnership shall not sell,
exchange, mortgage, hypothecate or otherwise convey or transfer the apartment
community known as Winchester Square Apartments without the advance written
consent of each Person who was a partner in Winchester Square Partnership, L.P.
at the time of its merger with and into the Partnership, which consent may be
withheld for any reason whatsoever, so long as such Persons continue to hold, in
the aggregate, at least 89,159 Class A Common Units.
(f) FLOURNOY PROPERTIES. The Partnership shall not, or shall not permit
the owners thereof to, sell, exchange or otherwise convey or transfer the
apartment communities (or interests in the partnerships owning such apartment
communities) listed on Schedule 6.11(f) hereto for a period of two (2) years
from and after the date set forth in the preamble hereof. After such period
shall have expired, then the Partnership shall use its reasonable best efforts
to effect any such sale, exchange, conveyance or transfer of such assets in a
manner that qualifies for tax deferral pursuant to Section 1031 of the Code (or
any successor provision thereto). In the event that the Partnership conveys any
such property in such a tax-deferred exchange, the property acquired by the
Partnership in such exchange shall be subject to the same limitation.
Nothing contained in this Section 6.11 shall prevent any property from being
taken by condemnation or other involuntary conversion; PROVIDED, HOWEVER, that
in such event, the General Partner shall use every reasonable effort to reinvest
the proceeds from any such condemnation or involuntary conversion in a manner
that results in deferral of taxable income from such event pursuant to Section
1033 of the Code.
ARTICLE 6
CHANGES IN GENERAL PARTNER
6.1 TRANSFER OF THE GENERAL PARTNER'S PARTNERSHIP INTEREST. The General
Partner may not transfer any of its Partnership Interest or withdraw as General
Partner.
6.2 ADMISSION OF A SUBSTITUTE OR SUCCESSOR GENERAL PARTNER. A Person
shall be admitted as a substitute or successor General Partner of the
Partnership if otherwise permitted hereunder and only if the following terms and
conditions are satisfied:
(a) the Person to be admitted as a substitute or additional General
Partner shall have accepted and agreed to be bound by all the terms and
provisions of this Agreement by executing a counterpart thereof and such other
documents or instruments as may be required or appropriate in order to effect
the admission of such Person as a General Partner, and a certificate evidencing
the admission of such Person as a General Partner shall have been filed for
recordation and all other actions required by Section 2.6 in connection with
such admission shall have been performed;
(b) if the Person to be admitted as a substitute or additional General
Partner is a corporation or a partnership it shall have provided the Partnership
with evidence satisfactory to counsel for the Partnership of such Person's
authority to become a General Partner and to be bound by the terms and
provisions of this Agreement; and
(c) counsel for the Partnership shall have rendered an opinion (relying
on such opinions from other counsel and the state or any other jurisdiction as
may be necessary) that the admission of the person to be admitted as a
substitute or additional General Partner is in conformity with the Act, that
none of the actions taken in connection with the admission of such Person as a
substitute or additional General Partner will cause the termination of the
Partnership under Section 708 of the Code or will cause it to be classified
other than as a partnership for federal income tax purposes or will result in
the loss of any Limited Partner's limited liability.
6.3 EFFECT OF BANKRUPTCY, WITHDRAWAL, DEATH OR DISSOLUTION OF A GENERAL
PARTNER.
(a) Upon the occurrence of an Event of Bankruptcy as to a General
Partner (and its removal pursuant to Section 7.04(a)) or the withdrawal, removal
or dissolution of a General Partner (except that, if a General Partner is on the
date of such occurrence a partnership, the withdrawal, death, dissolution, Event
of Bankruptcy as to or
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removal of a partner in such partnership shall be deemed not to be a dissolution
of such General Partner if the business of such General Partner is continued by
the remaining partner or partners), the Partnership shall be dissolved and
terminated unless the Partnership is continued pursuant to Section 7.3(b).
(b) Following the occurrence of an Event of Bankruptcy as to a General
Partner (and its removal pursuant to Section 7.4(a)) or the withdrawal, removal
or dissolution of a General Partner (except that, if a General Partner is on the
date of such occurrence a Partnership, the withdrawal, death, dissolution, or
Event of Bankruptcy as to or removal of a partner in such partnership shall be
deemed not to be a dissolution of such General Partner if the business of such
General Partner is continued by the remaining partner or partners), the Limited
Partners, within 90 days after such occurrence, may elect to reconstitute the
Partnership and continue the business of the Partnership for the balance of the
term specified in Section 2.5 by selecting, subject to Section 7.2 and any other
provisions of this Agreement, a substitute General Partner by the affirmative
vote of a majority of the Percentage Interests of the Limited Partners. If the
Limited Partners elect to reconstitute the Partnership and admit a substitute
General Partner, the relationship with the Partners and of any Person who has
acquired an interest of a Partner in the Partnership shall be governed by this
Agreement.
6.4 REMOVAL OF A GENERAL PARTNER.
(a) Upon the occurrence of an Event of Bankruptcy as to, or the
dissolution of, a General Partner, such General Partner shall be deemed to be
removed automatically; provided, however, that if a General Partner is on the
date of such occurrence a partnership, the withdrawal, death, dissolution, or
Event of Bankruptcy as to or removal of a partner in such partnership shall be
deemed not to be a dissolution of the General Partner if the business of such
General Partner is continued by the remaining partner or partners.
(b) If a General Partner has been removed pursuant to this Section 7.4
and the Partnership is continued pursuant to Section 7.3, such General Partner
shall promptly transfer and assign its General Partner Interest in the
Partnership (i) to the substitute General Partner approved by the Limited
Partners in accordance with Section 7.3(b) and otherwise admitted to the
Partnership in accordance with Section 7.2. At the time of assignment, the
removed General Partner shall be entitled to receive from the substitute General
Partner the fair market value of the General Partner Interest of such removed
General Partner as reduced by any damages caused to the Partnership by such
General Partner. Such fair market value shall be determined by an appraiser
mutually agreed upon by the General Partner and the Limited Partners within 10
days following the removal of the General Partner. In the event that the parties
are unable to agree upon an appraiser, the General Partner and the Limited
Partners each shall select an appraiser, each of which appraisers shall complete
an appraisal of the fair market value of the General Partner's General Partner
Interest within 30 days of the General Partner's removal, and the fair market
value of the General Partner's General Partner Interest shall be the average of
the two appraisals; PROVIDED, HOWEVER, that if the higher appraisal exceeds the
lower appraisal by more than 20% of the amount of the lower appraisal, the two
appraisers, no later than 40 days after the removal of the General Partner,
shall select a third appraiser who shall complete an appraisal of the fair
market value of the General Partner's General Partner Interest no later than 60
days after the removal of the General Partner. In such case, the fair market
value of the General Partner's General Partner Interest shall be the average of
the two appraisals closest in value.
(c) The General Partner Interest of a removed General Partner, during
the time after default until transfer, shall be converted to that of a special
Limited Partner; provided, however, such removed General Partner shall not have
any rights to participate in the management and affairs of the Partnership, and
shall not be entitled to any portion of the income, expenses, profit, gain or
loss, Distributable Cash or allocations, as the case may be, payable or
allocable to the Limited Partners as such. Instead, such removed General Partner
shall retain the right to receive income, expenses, profit, gains or losses
which would be payable or allocable to its General Partner Interest, as the case
may be, if he were still a General Partner and such other items which it may
hold or receive in its capacity as General Partner, until the transfer is
effective pursuant to Section 7.4(b).
(d) All Partners shall have given and hereby do give such consents,
shall take such actions and shall execute such documents as shall be legally
necessary and sufficient to effect all the foregoing provisions of this Section.
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ARTICLE 7
RIGHTS AND OBLIGATIONS
OF THE LIMITED PARTNERS
7.1 MANAGEMENT OF THE PARTNERSHIP. The Limited Partners shall not
participate in the management or control of Partnership business nor shall they
transact any business for the Partnership, nor shall they have the power to sign
for or bind the Partnership, such powers being vested solely and exclusively in
the General Partner.
7.2 POWER OF ATTORNEY. Each Limited Partner hereby irrevocably appoints
the General Partner his true and lawful attorney-in-fact, who may act for each
Limited Partner and in his name, place and stead, and for his use and benefit,
to sign, acknowledge, swear to, deliver, file and record, at the appropriate
public offices, any and all documents (including, without limitation, amendments
to and restatements of this Agreement, to the extent permitted hereunder),
certificates, and instruments as may be deemed necessary or desirable by the
General Partner to carry out fully the provisions of this Agreement and the Act
in accordance with their terms, which power of attorney is coupled with an
interest and shall survive the death, dissolution or legal incapacity of the
Limited Partner, or the transfer by the Limited Partner of any part or all of
his Partnership Interest.
7.3 LIMITATION ON LIABILITY OF LIMITED PARTNERS. No Limited Partner
shall be liable for any debts, liabilities, contracts or obligations of the
Partnership. A Limited Partner shall be liable to the Partnership only to make
payments of his Capital Contribution and any amounts required to be contributed
pursuant to Deficit Restoration Obligations as defined in Section 13.4 below, if
any, as and when due hereunder. Other than such payments, no Limited Partner
shall, except as otherwise required by the Act or any contract, be required to
make any further Capital Contributions or other payments or lend any funds to
the Partnership.
7.4 OWNERSHIP BY LIMITED PARTNER OF CORPORATE GENERAL PARTNER OR
AFFILIATE. No Limited Partner shall at any time, either directly or indirectly,
own any stock or other interest in the General Partner or in any Affiliate
thereof, if such ownership by itself or in conjunction with other stock or other
interests owned by other Limited Partners would, in the opinion of counsel for
the Partnership, jeopardize the classification of the Partnership as a
partnership for federal income tax purposes. The General Partner shall be
entitled to make such reasonable inquiry of the Limited Partners as is required
to establish compliance by the Limited Partners with the provisions of this
Section.
7.5 REDEMPTION RIGHT.
(a) Subject to Section 8.5(c) and the provisions of Article 12 hereof,
each Limited Partner, other than the General Partner, shall have the right (the
"Redemption Right") to require the Partnership to redeem on (or, in the General
Partner's sole discretion, before) a Specified Redemption Date all or a portion
of the Partnership Units held by such Limited Partner at a redemption price
equal to and in the form of the Redemption Amount. The Redemption Right shall be
exercised pursuant to a Notice of Redemption delivered to the General Partner by
the Limited Partner who is exercising the Redemption Right (the "Redeeming
Partner"); PROVIDED, HOWEVER, that unless the General Partner, in its sole
discretion, shall waive this clause in writing, a Specified Redemption Date with
respect to any Class A Limited Partner who shall acquire Class A Common Units on
or after the date set forth in the preamble hereof shall not occur until after
six (6) months and one (1) day following the date in the preamble, or, if later,
until six (6) months and one (1) day following the issuance of Partnership Units
to a Limited Partner. A Limited Partner may not exercise the Redemption Right
for less than one thousand (1,000) Partnership Units or, if such Limited Partner
holds less than one thousand (1,000) Partnership Units, all of the Partnership
Units held by such Partner. The Redeeming Partner shall have no right, with
respect to any Partnership Units so redeemed, to receive any distributions paid
with respect to Partnership Units where the Partnership Record Date for such
distribution shall be after the date of redemption of the Partnership Units.
(b) Notwithstanding the provisions of Section 8.5(a), the General
Partner may, in its sole and absolute discretion, assume directly and satisfy a
Redemption Right by paying to the Redeeming Partner the Redemption Amount on or
before the Specified Redemption Date, whereupon the General Partner shall
acquire the Partnership Units offered for redemption by the Redeeming Partner
and shall be treated for all purposes of this Agreement as the owner of such
Partnership Units; PROVIDED, HOWEVER, that such Partnership Units shall
thereupon be converted into Class B Common Units. In the event the General
Partner shall exercise its right to satisfy the Redemption Right in
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the manner described in the preceding sentence, the Partnership shall have no
obligation to pay any amount to the Redeeming Partner with respect to such
Redeeming Partner's exercise of the Redemption Right, and each of the Redeeming
Partner, the Partnership, and the General Partner shall treat the transaction
between the General Partner and the Redeeming Partner as a sale of the Redeeming
Partner's Partnership Units to the General Partner for federal income tax
purposes. Each Redeeming Partner agrees to execute such documents as the General
Partner may reasonably require in connection with the exercise of the Redemption
Right.
(c) The Partnership or the General Partner, as the case may be, may
elect to pay the Cash Amount to a Redeeming Partner as the Redemption Amount for
such Partner. Such determination shall be made by the General Partner in its
sole discretion.
ARTICLE 8
TRANSFERS OF PARTNERSHIP INTERESTS
8.1 PURCHASE FOR INVESTMENT.
(a) Each Limited Partner hereby represents and warrants to the General
Partner and to the Partnership that the acquisition of his Partnership Interest
is made as a principal for his account for investment purposes only and not with
a view to the resale or distribution of such Partnership Interest.
(b) Each Limited Partner agrees that he will not sell, assign or
otherwise transfer his Partnership Interest or any fraction thereof, whether
voluntarily or by operation of law or at judicial sale or otherwise, to any
Person who does not make the representations and warranties to the General
Partner set forth in Section 9.1(a) above and similarly agrees not to sell,
assign or transfer such Partnership Interest or fraction thereof to any Person
who does not similarly represent, warrant and agree.
8.2 RESTRICTIONS ON TRANSFER OF LIMITED PARTNERSHIP INTERESTS.
(a) Except as otherwise provided in this Article 9, no Limited Partner
may offer, sell, assign, hypothecate, pledge or otherwise transfer his Limited
Partnership Interest, in whole or in part, whether voluntarily or by operation
of law or at judicial sale or otherwise (collectively, a "Transfer") without the
written consent of the General Partner, which consent may be withheld in the
sole discretion of the General Partner. The General Partner may require, as a
condition of any Transfer, that the transferor assume all costs incurred by the
Partnership in connection therewith.
(b) No Limited Partner may effect a Transfer of his Limited Partnership
Interest, in whole or in part, if, in the opinion of legal counsel for the
Partnership, such proposed Transfer would require the registration of the
Limited Partnership Interest under the Securities Act of 1933, as amended, or
would otherwise violate any applicable federal or state securities or "Blue Sky"
law (including investment suitability standards).
(c) No transfer by a Limited Partner of his Partnership Units, in whole
or in part, may be made to any Person if in the opinion of legal counsel for the
Partnership, the transfer would result in the Partnership's being treated as an
association taxable as a corporation (other than a qualified REIT subsidiary
within the meaning of Section 856(i) of the Code).
(d) Section 9.2(a) shall not apply to the following transactions,
except that the General Partner may require that the transferor assume all costs
incurred by the Partnership in connection therewith:
(i) any Transfer by a Limited Partner pursuant to the exercise
of its Redemption Right under Section 8.5;
(ii) any Transfer by a Limited Partner that is a corporation or
other business entity to any of its Affiliates or subsidiaries or to any
successor in interest of such Limited Partner;
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(iii) any donative Transfer by an individual Limited Partner to
his Immediate Family Members or any trust in which the individual or his
Immediate Family Members own, collectively, 100% of the beneficial
interests. For purposes of this Section 9.2(c)(iii), the term "Immediate
Family Member" shall be deemed to include only an individual Limited
Partner's brothers, sisters, nieces, nephews, spouse, parents, children,
grandchildren, and other descendants; or
(iv) any Transfer to a lender, where such Units are pledged to
secure a bona fide obligation of the Limited Partner and any transfer in
accordance with the rights of such lender under the instruments evidencing
such obligation (provided that the General Partner receives 10 days prior
written notice of any transfer pursuant to this subparagraph (iv)).
(e) Any Transfer in contravention of any of the provisions of this
Article 9 shall be void and ineffectual and shall not be binding upon, or
recognized by, the Partnership.
8.3 ADMISSION OF SUBSTITUTE LIMITED PARTNER.
(a) Subject to the other provisions of this Article 9, an assignee of
the Limited Partnership Interest of a Limited Partner (which shall be understood
to include any purchaser, transferee, donee, or other recipient of any
disposition of such Limited Partnership Interest) shall be deemed admitted as a
Limited Partner of the Partnership only upon the satisfactory completion of the
following:
(i) The assignee shall have accepted and agreed to be bound by
the terms and provisions of this Agreement by executing a counterpart or an
amendment thereof, and such other documents or instruments as the General
Partner may require in order to effect the admission of such Person as a
Limited Partner.
(ii) The assignee shall have delivered a letter containing the
representation set forth in Section 9.1(a) and the agreement set forth in
Section 9.1(b).
(iii) If the assignee is a corporation, partnership or trust, the
assignee shall have provided the General Partner with evidence satisfactory
to counsel for the Partnership of the assignee's authority to become a
Limited Partner under the terms and provisions of this Agreement.
(iv) The assignee shall have executed a power of attorney
containing the terms and provisions set forth in Section 8.2.
(v) The assignee shall have paid all reasonable legal fees of
the Partnership and the General Partner and filing and publication costs in
connection with his substitution as a Limited Partner.
(b) For the purpose of allocating profits and losses and distributing
cash received by the Partnership, a Substitute Limited Partner shall be treated
as having become, and appearing in the records of the Partnership as, a Partner
upon the date specified in the transfer documents or the date on which the
General Partner has received all necessary instruments of transfer and
substitution.
(c) The General Partner shall cooperate with the Person seeking to
become a Substitute Limited Partner by preparing the documentation required by
this Section and making all official filings and publications. The Partnership
shall take all such action as promptly as practicable after the satisfaction of
the conditions in this Article 9 to the admission of such Person as a Limited
Partner of the Partnership.
8.4 RIGHTS OF ASSIGNEES OF PARTNERSHIP INTERESTS.
(a) Subject to the provisions of Sections 9.1 and 9.2 hereof, except as
required by operation of law, the Partnership shall not be obligated for any
purposes whatsoever to recognize the assignment by any Limited Partner of his
Partnership Interest until the Partnership has received notice thereof.
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(b) Any Person who is the assignee of all or any portion of a Limited
Partner's Limited Partnership Interest, but does not become a Substitute Limited
Partner and desires to make a further assignment of such Limited Partnership
Interest, shall be subject to all the provisions of this Article 9 to the same
extent and in the same manner as any Limited Partner desiring to make an
assignment of his Limited Partnership Interest.
8.5 EFFECT OF BANKRUPTCY, DEATH, INCOMPETENCE OR TERMINATION OF A
LIMITED PARTNER. The occurrence of an Event of Bankruptcy as to a Limited
Partner, the death of a Limited Partner or a final adjudication that a Limited
Partner is incompetent (which term shall include, but not be limited to,
insanity) shall not cause the termination or dissolution of the Partnership, and
the business of the Partnership shall continue and if an order for relief in a
bankruptcy proceeding is entered against a Limited Partner, the trustee or
receiver of his estate or, if he dies, his executor, administrator or trustee,
or, if he is finally adjudicated incompetent, his committee, guardian or
conservator, shall have the rights of such Limited Partner for the purpose of
settling or managing his estate property and such power as the bankrupt,
deceased or incompetent Limited Partner possessed to assign all or any part of
his Partnership Interest and to join with the assignee in satisfying conditions
precedent to the admission of the assignee as a Substitute Limited Partner.
8.6 JOINT OWNERSHIP OF INTERESTS. A Partnership Interest may be
acquired by two individuals as joint tenants with right of survivorship,
provided that such individuals either are married or are related and share the
same home as tenants in common. The written consent or vote of both owners of
any such jointly held Partnership Interest shall be required to constitute the
action of the owners of such Partnership Interest; provided, however, that the
written consent of only one joint owner will be required if the Partnership has
been provided with evidence satisfactory to the counsel for the Partnership that
the actions of a single joint owner can bind both owners under the applicable
laws of the state of residence of such joint owners. Upon the death of one owner
of a Partnership Interest held in a joint tenancy with a right of survivorship,
the Partnership Interest shall become owned solely by the survivor as a Limited
Partner and not as an assignee. The Partnership need not recognize the death of
one of the owners of a jointly-held Partnership Interest until it shall have
received notice of such death. Upon notice to the General Partner from either
owner, the General Partner shall cause the Partnership Interest to be divided
into two equal Partnership Interests, which shall thereafter be owned separately
by each of the former owners.
ARTICLE 9
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
9.1 BOOKS AND RECORDS. At all times during the continuance of the
Partnership, the General Partner shall keep or cause to be kept at the
Partnership's specified office true and complete books of account in accordance
with generally accepted accounting principles as well as in accordance with the
accounting method followed by the Partnership for federal income tax purposes,
including: (a) a current list of the full name and last known business address
of each Partner, (b) a copy of the Certificate of Limited Partnership and all
certificates of amendment thereto, (c) copies of the Partnership's federal,
state and local income tax returns and reports, (d) copies of the Agreement and
any financial statements of the Partnership for the three most recent years and
(e) all documents and information required under the Act. Any Partner or his
duly authorized representative, upon paying the costs of collection, duplication
and mailing, shall be entitled to inspect or copy such records during ordinary
business hours.
9.2 CUSTODY OF PARTNERSHIP FUNDS; BANK ACCOUNTS.
(a) All funds of the Partnership not otherwise invested shall be
deposited in one or more accounts maintained in such banking or brokerage
institutions as the General Partner shall determine, and withdrawals shall be
made only on such signature or signatures as the General Partner may, from time
to time, determine.
(b) All deposits and other funds not needed in the operation of the
business of the Partnership may be invested by the General Partner in investment
grade instruments (or investment companies whose portfolio consists primarily
thereof), government obligations, certificates of deposit, bankers' acceptances
and municipal notes and bonds. The funds of the Partnership shall not be
commingled with the funds of any other Person except for such commingling as may
necessarily result from an investment in those investment companies permitted by
this Section 10.2(b).
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9.3 FISCAL AND TAXABLE YEAR. The fiscal and taxable year of the
Partnership shall be the calendar year.
9.4 ANNUAL TAX INFORMATION AND REPORT. Within 75 days after the end of
each fiscal year of the Partnership, the General Partner shall furnish to each
person who was a Limited Partner at any time during such year the tax
information necessary to file such Limited Partner's individual tax returns as
shall be reasonably required by law.
9.5 TAX MATTERS PARTNER; TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS.
(a) The General Partner shall be the Tax Matters Partner of the
Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax Matters
Partner, the General Partner shall have the right and obligation to take all
actions authorized and required, respectively, by the Code for the Tax Matters
Partner. The General Partner shall have the right to retain professional
assistance in respect of any audit of the Partnership by the Service and all
out-of-pocket expenses and fees incurred by the General Partner on behalf of the
Partnership as Tax Matters Partner shall constitute Partnership expenses. In the
event the General Partner receives notice of a final Partnership adjustment
under Section 6223(a)(2) of the Code, the General Partner shall either (i) file
a court petition for judicial review of such final adjustment within the period
provided under Section 6226(a) of the Code, a copy of which petition shall be
mailed to all Limited Partners on the date such petition is filed, or (ii) mail
a written notice to all Limited Partners, within such period, that describes the
General Partner's reasons for determining not to file such a petition.
(b) All elections required or permitted to be made by the Partnership
under the Code shall be made by the General Partner in its sole discretion.
(c) In the event of a transfer of all or any part of the Partnership
Interest of any Partner, the Partnership, at the option of the General Partner,
may elect pursuant to Section 754 of the Code to adjust the basis of the
Properties. Notwithstanding anything contained in Article 5 of this Agreement,
any adjustments made pursuant to Section 754 shall affect only the successor in
interest to the transferring Partner and in no event shall be taken into account
in establishing, maintaining or computing Capital Accounts for the other
Partners for any purpose under this Agreement. Each Partner will furnish the
Partnership with all information necessary to give effect to such election.
9.6 REPORTS TO LIMITED PARTNERS.
(a) The books of the Partnership shall be examined annually as of the
end of each fiscal year of the Partnership by accountants selected by the
General Partner, who shall be the same accountants responsible for the
examination of the General Partner's books. The General Partner shall determine
and prepare a statement of assets and liabilities and partners' capital as of
the end of such year, as well as statements of revenue and expenses
(collectively, the "Financial Statements"). As a note to such Financial
Statements, the General Partner shall prepare a schedule of all loans to the
Partnership. Such schedule shall demonstrate that loans have been made, used,
carried on the books of the Partnership (and repaid, if applicable) in
accordance with the provisions of this Agreement. Within 90 days after the end
of each fiscal year, the General Partner shall transmit the Financial Statements
to the Limited Partners. The General Partner also shall prepare quarterly
unreviewed Financial Statements and shall transmit such statements to the
Limited Partners within 45 days of the end of each fiscal quarter of the
Partnership.
(b) Any Partner shall further have the right to a private audit of the
books and records of the Partnership, provided such audit is made for
Partnership purposes, at the expense of the Partner desiring it and is made
during normal business hours.
(c) The General Partner shall deliver to each Limited Partner in a
timely manner all communications transmitted from time to time by the General
Partner to its shareholders.
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ARTICLE 10
AMENDMENT OF AGREEMENT
The General Partner, without the consent of the Limited Partners, may amend
this Agreement in any respect; provided, however, that the following amendments
shall require the consent of the Class A Limited Partners holding more than 66
2/3% of the Percentage Interests then held by all Class A Limited Partners:
(a) any amendment that would adversely affect the rights of the Class A
Limited Partners to receive the distributions payable to them hereunder;
(b) any amendment that would alter the Partnership's allocations of Net
Income and Net Losses in a manner adverse to the Class A Limited Partners;
(c) any amendment that would impose on the Limited Partners any
obligation to make additional Capital Contributions to the Partnership; or
(d) any amendment that would adversely affect the rights granted to the
Class A Limited Partners in Sections 3.2(a), 3.3, 3.4, 6.2, 6.10, 6.11, 8.5, 9.2
or Article 12 hereof.
ARTICLE 11
CONSOLIDATION, MERGER OR SALE OF ASSETS OF THE GENERAL PARTNER
11.1 TRIGGERING EVENTS. For the purposes of this Article 12, each of the
following events shall be deemed to be a "Triggering Event": (a) if the General
Partner consolidates with, or merges into, any other Person, and the General
Partner is not the continuing or surviving corporation of such consolidation or
merger, (b) if any Person consolidates with, or merges into, the General
Partner, and the General Partner is the continuing or surviving corporation of
such consolidation or merger and, in connection with such consolidation or
merger, all or part of the outstanding REIT Shares are converted into or
exchanged for stock or other securities of any other Person or cash or any other
property, (c) if any Person becomes the Beneficial Owner (as hereinafter
defined) of 33.3% or more of the outstanding REIT Shares or (d) if the General
Partner sells or otherwise transfers (or one or more of its Subsidiaries,
including the Partnership, sells or otherwise transfers) to any Person or
Persons, in one or more transactions, assets or earning power aggregating more
than 50% of the assets or earning power of the General Partner or the
Partnership. "Beneficial Owner" means any Person who, together with such
Person's affiliates (as defined in Rule 12b-2 of the Securities Exchange Act of
1934 as in effect on the date this Article 12 shall be adopted (including any
rules and regulations thereunder)) (the "Exchange Act") and associates (as
defined in Rule 12b-2 of the Exchange Act), (i) would be considered a
"beneficial owner" under Rule 13d-3 of the Exchange Act, other than (A) as a
result of a revocable proxy given in response to a proxy or consent solicitation
made pursuant to, and in accordance with, the Exchange Act or (B) as would not
be reportable by such Person on Schedule 13D under the Exchange Act, (ii) has
entered into any agreement, arrangement or understanding (whether or not in
writing), for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy or consent solicitation made pursuant to, and in accordance
with, the Exchange Act) or disposing of REIT Shares or (iii) has the right to
acquire (whether such right is exercisable immediately or only after the passage
of time or upon the satisfaction of conditions) REIT Shares pursuant to any
agreement, arrangement or understanding (whether or not in writing) or upon the
exercise of conversion rights, exchange rights, rights, warrants or options or
otherwise.
11.2 FROM AND AFTER THE OCCURRENCE OF A TRIGGERING EVENT. Effective on
the date of each Triggering Event, the Redemption Right shall be adjusted as
provided in this Section 12.2.
(a) From and after the occurrence of a Triggering Event (each such
occurrence, a "Trigger Occurrence") and until the occurrence, if any, of a
subsequent Triggering Event (in which case a further adjustment shall be made
pursuant to this Section 12.2 with respect to each such Triggering Event), each
and every reference contained in this Agreement to a "REIT Share" or "REIT
Shares" shall be deemed to be a reference to a share or shares, respectively
(each, a "Replacement Share"; collectively, "Replacement Shares"), of: (i) if,
as a result of any Triggering Event, all of the REIT Shares are converted solely
into Registered Common Stock (as hereinafter defined), such Registered Common
Stock and (ii) in all other cases, the common stock, or, if such Person shall
have no common stock, the equity securities or other equity interest having
power to control or direct the management
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(the "Common Stock") of (a) in the event of a Triggering Event described in
clause (a) or (b) of the first sentence of Section 12.1, (1) the Person that is
the issuer of any securities into which the REIT Shares are converted in such
merger or consolidation, or, if there is more than one such issuer, the issuer
who has the highest Market Capitalization (as hereinafter defined) and (2) if no
securities are so issued, the Person that is the other party to such merger or
consolidation, or if there is more than one such Person, the Person who has the
highest Market Capitalization or (b) in the event of a Triggering Event
described in clause (c) or (d) of the first sentence of Section 12.1, the Person
that is the party becoming the Beneficial Owner of the largest percentage of the
outstanding REIT Shares or receiving the largest portion of the assets or
earning power transferred pursuant to such transaction or transactions, or, if
each Person that is a party to such transaction or transactions or if the Person
becoming the Beneficial Owner of the largest portion of the REIT Shares or
receiving the largest portion of the assets or earning power cannot be
determined, whichever Person has the highest Market Capitalization; PROVIDED,
HOWEVER, that in any such case, (1) if the Common Stock of such Person is not at
such time and has not been continuously over the preceding twelve-month period
registered ("Registered Common Stock") under Section 12 of the Exchange Act, or
such Person is not a corporation, and such Person is a direct or indirect
Subsidiary of another Person that has Registered Common Stock outstanding,
"Replacement Shares" shall mean shares of the Common Stock of such other Person;
(2) if the Common Stock of such Person is not Registered Common Stock or such
Person is not a corporation, and such Person is a direct or indirect Subsidiary
of another Person but is not a direct or indirect Subsidiary of another Person
which has Registered Common Stock outstanding, "Replacement Shares" shall mean
shares of the Common Stock of the ultimate parent entity of such first-mentioned
Person; (3) if the Common Stock of such Person is not Registered Common Stock or
such Person is not a corporation, and such Person is directly or indirectly
controlled by more than one Person, and one of such other Persons has Registered
Common Stock outstanding, "Replacement Shares" shall mean shares of the Common
Stock of whichever of such other Persons is the issuer having the highest Market
Capitalization; and (4) if the Common Stock of such Person is not Registered
Common Stock or such Person is not a corporation, and such Person is directly or
indirectly controlled by more than one Person, and none of such other Persons
have Registered Common Stock outstanding, "Replacement Shares" shall mean shares
of the Common Stock of whichever ultimate parent entity is the corporation
having the highest aggregate shareholders' equity or, if no such ultimate parent
entity is a corporation, shall be deemed to refer to shares of the Common Stock
of whichever ultimate parent entity is the entity having the greatest net
assets. Any issuer of "Replacement Shares" shall be referred to as an "Issuer".
"Market Capitalization" means the dollar figure equal to the product of the
number of shares of Common Stock issued and outstanding on the date of the
Trigger Occurrence in question, on a fully diluted basis, not held by Affiliates
(as defined under the Exchange Act) multiplied by the Average Trading Price (as
hereinafter defined). The holders of a majority of the issued and outstanding
Class A Common Units may, within 90 days after the occurrence of a Triggering
Event described in clause (c) of the first sentence of Section 12.1, waive, in
writing, the adjustment to the Redemption Right provided for in this Section
12.2; PROVIDED, that (i) the Redemption Right shall remain in full force and
effect as provided in Section 8.5, (ii) such election shall be binding on all of
the Limited Partners and (iii) if the adjustment to the Redemption Right has
previously been waived pursuant to this sentence, a new Triggering Event shall
be deemed to occur each time a Person who is the Beneficial Owner of at least
33.3% of the outstanding REIT Shares becomes the Beneficial Owner of an
additional 2% or more of the outstanding REIT Shares.
(b) From and after a Trigger Occurrence, the "Conversion Factor" shall
be adjusted by multiplying the "Conversion Factor" existing on the day
immediately prior to such Trigger Occurrence as follows: (i) if the REIT Shares,
as a result of the Trigger Occurrence, have been converted solely into the right
to receive Registered Common Stock, by the number of shares of Registered Common
Stock which the holder of a single REIT Share was entitled to receive as a
result of the Trigger Occurrence or (ii) in all other cases, by a fraction, the
numerator of which shall be the Average Trading Price of a REIT Share as of such
Trigger Occurrence and the denominator of which shall be the Average Trading
Price of a Replacement Share as of such Trigger Occurrence. Following a Trigger
Occurrence, the Conversion Factor shall be further adjusted as provided in this
Section 12.2.
(c) For the purpose of any computation hereunder, the "Average Trading
Price" per share of Common Stock on any date shall be deemed to be the average
of the daily closing prices per share of such shares for the ten consecutive
trading days immediately prior to the third trading day prior to such date;
PROVIDED, HOWEVER, in the event the Triggering Event occurs as part of a series
of related transactions which also includes a tender offer, the ten trading day
period shall be the ten consecutive trading day period immediately prior to the
day REIT Shares are accepted for payment pursuant to such tender offer;
PROVIDED, HOWEVER, FURTHER, if prior to the expiration of such requisite ten
trading day period the issuer announces either (i) a dividend or distribution on
such shares payable in
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such shares or securities convertible into such shares or (ii) any subdivision,
combination or reclassification of such shares, then, following the ex-dividend
date for such dividend or the record date for such subdivision, as the case may
be, the "Average Trading Price" shall be properly adjusted to take into account
such event. The closing price for each day shall be, if the shares are listed
and admitted to trading on a national securities exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which such shares are
listed or admitted to trading or, if such shares are not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the high bid price in the over-the-counter market, as reported by the
Nasdaq Stock Market's National Market or such other system then in use, or, if
on any such date such shares are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in such shares selected by the holders of a
majority of the issued and outstanding Class A Common Units. If such shares are
not publicly held or not so listed or traded or if, for the ten days prior to
such date, no market maker is making a market in such shares, the Average
Trading Price of such shares on such date shall be deemed to be the fair value
of such shares as determined as set forth in Section 12.2(d). The term "trading
day" shall mean, if such shares are listed or admitted to trading on any
national securities exchange, a day on which the principal national securities
exchange on which such shares are listed or admitted to trading is open for the
transaction of business or, if such shares are not so listed or admitted, a
Business Day.
(d) In the event that on the date of a Trigger Occurrence, the shares
of a Person are not publicly held or not so listed or traded or if, for the ten
days prior to such date, no market maker is making a market in the shares of a
Person, the Average Trading Price of the shares of such Person shall be the fair
value of the shares as determined in good faith by the holders of a majority of
the issued and outstanding Class A Common Units and the General Partner, which
determination shall be binding on all of the Limited Partners. If the holders of
a majority of the issued and outstanding Class A Common Units and the General
Partner have not agreed on the fair value of the shares and executed and
delivered between them an agreement setting forth the same within twenty (20)
days after the Trigger Occurrence in question, then either the General Partner
or the holders of a majority of the issued and outstanding Class A Common Units
may notify the other that they or it desire to invoke the following arbitration
procedure:
(i) Notice of the holders of a majority of the issued and
outstanding Class A Common Units or the General Partner of such parties'
intention to seek arbitration shall be delivered to the other parties
within ten (10) days after which all parties shall, in good faith, attempt
to agree on a single arbitrator to determine the fair value of the shares
(the "Arbitrator"). If the holders of a majority of the issued and
outstanding Class A Common Units and the General Partner have not agreed on
the Arbitrator within ten (10) days after the giving of the Arbitration
Notice, then either, on behalf of both, may apply to the local office of
the American Arbitration Association or any organization which is the
successor thereof (the "AAA") for appointment of the Arbitrator, or, if the
AAA shall not then exist or shall fail, refuse or be unable to act such
that the Arbitrator is not appointed by the AAA within ten (10) days after
application therefor, then either party may apply to any court of competent
jurisdiction in the County of Shelby in the State of Tennessee (the
"Court") for the appointment of the Arbitrator and the other party shall
not raise any question as to the Court's full power and jurisdiction to
entertain the application and make the appointment. The date on which the
Arbitrator is appointed, by the agreement of the parties, by appointment by
the AAA or by appointment by the Court, is referred to herein as the
"Appointment Date". If any Arbitrator appointed hereunder shall be
unwilling or unable, for any reason, to serve, or continue to serve, a
replacement arbitrator shall be appointed in the same manner as the
original Arbitrator.
(ii) The arbitration shall be conducted in accordance with the
then prevailing commercial arbitration rules of the AAA, modified as
follows:
(1) To the extent that any statute imposes requirements
different than those of the AAA in order for the decision of the
Arbitrator to be enforceable in the courts of the State of
Tennessee, such requirements shall be complied with in the
arbitration.
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(2) The Arbitrator shall be disinterested and
impartial, shall not be affiliated with the Limited Partners or the
General Partner and shall have at least ten (10) years experience
in the market, industry and/or sector in which the applicable
Person transacts the majority of its business.
(3) Before hearing any testimony or receiving any
evidence, the Arbitrator shall be sworn to hear and decide the
controversy faithfully and fairly by an officer authorized to
administer an oath and a written copy thereof shall be delivered to
each of the Limited Partners and the General Partner.
(4) Within twenty (20) days after the Appointment Date,
the holders of a majority of the issued and outstanding Class A
Common Units and the General Partner shall deliver to the
Arbitrator two (2) copies of their respective written
determinations of the fair value of the shares (each, a
"Determination") together with such affidavits, appraisals, reports
and other written evidence relating thereto as the submitting party
deems appropriate. After the submission of any Determination, the
submitting party may not make any additions to or deletions from,
or otherwise change, such Determination or the affidavits,
appraisals, reports and other written evidence delivered therewith.
If either party fails to so deliver its Determination within such
time period, time being of the essence with respect thereto, such
party shall be deemed to have irrevocably waived its right to
deliver a Determination and the Arbitrator, without holding a
hearing, shall accept the Determination of the submitting party as
the fair value of the shares. If each party submits a Determination
with respect to the fair value of the shares within the twenty (20)
day period described above, the Arbitrator shall, promptly after
its receipt of the second Determination, deliver a copy of each
party's Determination to the other party.
(5) Not less than ten (10) days nor more than twenty
(20) days after the earlier to occur of (A) the expiration of the
twenty (20) day period provided for in clause (4) of this
subparagraph or (B) the Arbitrator's receipt of both of the
Determinations from the parties (such earlier date is referred to
herein as the "Submission Date") and upon not less than five (5)
days notice to the parties, the Arbitrator shall hold one or more
hearings with respect to the determination of the fair value of the
shares. The hearings shall be held in the Memphis metropolitan area
of Tennessee at such location and time as shall be specified by the
Arbitrator. Each of the parties shall be entitled to present all
relevant evidence and to cross-examine witnesses at the hearings.
The Arbitrator shall have the authority to adjourn any hearing to
such later date as the Arbitrator shall specify, provided that in
all events all hearings with respect to the determination of the
fair value of the shares shall be concluded not later than thirty
(30) days after the Submission Date.
(6) The Arbitrator shall be instructed, and shall be
empowered only, to select as the fair value of the shares that one
of the Determinations which the Arbitrator believes is the more
accurate determination of the Average Trading Price of the shares.
Without limiting the generality of the foregoing, in rendering his
or her decision, the Arbitrator shall not add to, subtract from or
otherwise modify the provisions of this Agreement or either of the
Determinations.
(7) The Arbitrator shall render his or her
determination as to the selection of a Determination in a signed
and acknowledged written instrument, original counterparts of which
shall be sent simultaneously to Limited Partners and the General
Partner, within ten (10) days after the conclusion of the
hearing(s) required by clause (5) of this Section.
(iii) This provision shall constitute a written agreement to
submit any dispute regarding the determination of the Average Trading Price
of the shares of a Person to arbitration.
(iv) The arbitration decision, determined as provided in this
Article, shall be conclusive and binding on the parties, shall constitute
an "award" by the Arbitrator within the meaning of the AAA rules and
applicable law, and judgment may be entered thereon in any court of
competent jurisdiction.
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(v) The Partnership shall pay all fees and expenses relating to
the arbitration (including, without limitation, the fees and expenses of
one counsel (including local counsel, if required) chosen by the holders of
a majority of the issued and outstanding Class A Common Units and of
experts and witnesses retained or called by the Limited Partners). The
Limited Partners' counsel chosen as set forth in the preceding sentence
shall represent the interests of all of the Limited Partners and the choice
of counsel shall be binding on all of the Limited Partners.
(e) From and after a Trigger Occurrence, each and every reference to
the "General Partner" in Section 8.5 shall be deemed to be a reference to the
Issuer of the Replacement Shares. From and after a Trigger Occurrence, the
Issuer shall assume or unconditionally guarantee the performance of the General
Partner's obligations, including the issuance of Replacement Shares upon any
redemption pursuant to Section 8.5, under this Agreement pursuant to an
instrument in form and substance satisfactory to the holders of a majority of
the issued and outstanding Class A Common Units. In the event that a Triggering
Event shall be a transaction wherein the Issuer of the Replacement Shares shall
not, by operation of law, assume the obligations of the General Partner in
respect of the redemption of Units pursuant to Section 8.5 hereunder, the
General Partner shall use its best efforts to obtain from such Issuer a written
instrument pursuant to which the obligations referred to in the second sentence
of this paragraph (e) shall be assumed and unconditionally guaranteed. In the
event that such assumption and/or guaranty shall not be obtained by the General
Partner, then the Redemption Amount defined herein shall be the Cash Amount,
adjusted as provided in this Article 12, increased by a factor equal to 1
divided by 1 minus the tax rate on long-term capital gains at the time of the
Triggering Event; provided, however, that at such time as the Issuer shall
execute and deliver the written instrument of assumption and/or guaranty
described above, the foregoing definition shall revert to that otherwise
described in this Agreement, as modified by this Article 12 (except this
sentence). From and after a Trigger Occurrence, the "Average Trading Price" of a
REIT Share or a Replacement Share, as applicable shall be substituted for the
"Value" of the same for the purposes of determining the Cash Amount.
11.3 ADDITIONAL ISSUER COVENANTS. The General Partner shall (i) not
enter in an agreement with any Person which would result in a Triggering Event
unless such agreement provides for each of the following and (ii) from and after
any Trigger Occurrence, comply with each of the following:
(a) Substantially contemporaneously with any Trigger Occurrence, the
General Partner, the Issuer and its Affiliates shall enter into, and, if
appropriate, cause the Partnership to enter into, such mergers, combinations,
conveyances or other transactions as shall be required to cause substantially
all of the assets of the General Partner (including those owned by the
Partnership and its Affiliates) and the Issuer and its Affiliates to be owned,
leased or held directly or indirectly by a single operating partnership in which
the Limited Partners shall hold partnership units having the rights specified by
this Agreement. The agreement governing the resulting operating partnership
shall be in a form substantially no less favorable to each of the Limited
Partners than is this Agreement.
(b) From and after a Trigger Occurrence, the General Partner shall not
take any action (including, without limitation, the prepayment of debt or the
selling of properties), other than a dividend or distribution in respect of all
of the Class A Common Units complying with Articles 4 and 13, or fail to take
any action, if such action, or failure to take action, would result in any
Limited Partner realizing a taxable gain, without the prior written consent of
the holders of a majority of the issued and outstanding Class A Common.
Notwithstanding the previous sentence, if the Issuer or the General Partner or
both, at the election of the holders of a majority of the issued and outstanding
Class A Common, shall agree, in writing, to indemnify each of the Limited
Partners against any taxes that the Limited Partners might incur a result of an
action, or failure to take action, on the part of the General Partner, such
action, or failure to take action, shall not require the consent of any of the
Limited Partners. Further, if the General Partner is a REIT, the General Partner
shall be permitted to take any action required by the Code or the Service to
allow the General Partner to remain a REIT without the consent of any of the
Limited Partners.
(c) From and after a Trigger Occurrence, in the event a dividend or
distribution consisting of cash or property (other than Replacement Shares) or
both is paid by the Issuer in respect of the Replacement Shares, the General
Partner shall cause the Partnership to distribute, in respect of each
Partnership Unit, the same amount of cash or property the holder of a
Partnership Unit would have received had such holder exercised its Redemption
Right and received Replacement Shares prior to such dividend or distribution.
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11.4 APPLICATION TO LATER TRANSACTIONS. This Article 12 shall apply to
the initial Triggering Event and shall continue to apply to each subsequent
Triggering Event.
11.5 WAIVERS AND AMENDMENTS
(a) The provisions of this Article 12 may be waived only upon the
written consent of the holders of a majority of the issued and outstanding Class
A Common Units.
(b) This Article 12 shall only be amended as provided in Section 11(d)
of this Agreement and shall be deemed included in such section for all purposes.
ARTICLE 12
DISSOLUTION AND LIQUIDATION
12.1 DISSOLUTION. The Partnership shall not be dissolved by the
admission of Substituted Limited Partners or Additional Limited Partners or by
the admission of a successor General Partner in accordance with the terms of
this Agreement. Upon the withdrawal of the General Partner, any successor
General Partner shall continue the business of the Partnership. Notwithstanding
anything contained herein to the contrary, except as provided below in this
Section 13.1, the General Partner and the Partnership shall not dissolve the
Partnership, adopt a plan of liquidation for the Partnership or sell all or
substantially all of the assets of the Partnership in a Liquidating Transaction
or otherwise without the consent of the Limited Partners holding a majority of
the issued and outstanding Class A Common Units. The Partnership shall dissolve,
and its affairs shall be wound up, upon the first to occur of any of the
following (each an "EVENT OF DISSOLUTION"):
(a) EXPIRATION OF TERM--the expiration of its term as provided in
Section 2.5 hereof;
(b) WITHDRAWAL OF GENERAL PARTNER--an event of withdrawal of the last
remaining General Partner, as defined in the Act (other than an event of
bankruptcy), unless, within 90 days after the withdrawal, remaining Class A
Limited Partners holding in the aggregate a majority of the issued and
outstanding Class A Common Units agree in writing to continue the business of
the Partnership and to the appointment, effective as of the date of withdrawal,
of a substitute General Partner;
(c) JUDICIAL DISSOLUTION DECREE-- the entry of a decree of judicial
dissolution of the Partnership pursuant to the provisions of the Act; or
(d) BANKRUPTCY OR INSOLVENCY OF GENERAL PARTNER--the last remaining
General Partner shall be incapacitated by reason of its bankruptcy unless,
within 90 days after the withdrawal, remaining Limited Partners holding in the
aggregate a majority of the issued and outstanding Class A Common Units agree in
writing to continue the business of the Partnership and to the appointment,
effective as of the date of withdrawal, of a substitute General Partner.
12.2 WINDING UP.
(a) GENERAL. The General Partner shall provide written notice to the
Limited Partners of the occurrence of an Event of Dissolution, giving them at
least 20 days in which to exercise their Redemption Right prior to the
distribution of any proceeds from the liquidation of the Partnership pursuant to
this Section 13.2(a). Upon the occurrence of an Event of Dissolution, the
Partnership shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Partners. No Partner shall take any action that is inconsistent
with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner (or, in the event there
is no remaining General Partner, any Person elected by a majority in interest of
the Limited Partners (the "LIQUIDATOR")) shall be responsible for overseeing the
winding up and dissolution of the Partnership and shall take full account of the
Partnership's liabilities and property and the Partnership property (subject to
Sections 13.2(b) and l 3.2(c)) shall be liquidated as promptly as is consistent
with obtaining the fair value thereof, and the proceeds therefrom shall be
applied and distributed in the following order:
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(i) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other than the Partners;
(ii) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the Partners, pro rata in accordance
with amounts owed to each such Partner, unless the General Partner elects
to treat such debts and liabilities on parity with the debts and
liabilities described in (i) above;
(iii) Third, one hundred percent ( 100%) to the Class A Limited
Partners, pro rata based on the number of Class A Common Units held by such
Class A Limited Partners, until each such Class A Limited Partner has
received an amount equal to the aggregate Priority Distribution Amounts for
each Partnership Record Date (if any) occurring subsequent to the Event of
Dissolution; and
(iv) The balance, if any, to the General Partner and Limited
Partners in accordance with their Capital Accounts, after giving effect to
all contributions, distributions, and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13.
(b) DEFERRED LIQUIDATION. Notwithstanding the provisions of
Section 13.2(a) hereof which require liquidation of the assets of the
Partnership, but subject to the order of priorities set forth therein, and
further subject to Section 13 2(c) hereof, if prior to or upon dissolution of
the Partnership the Liquidator determines that an immediate sale of part or all
of the Partnership's assets would be impractical or would cause undue loss to
the Partners, the Liquidator may, in its sole and absolute discretion, defer for
a reasonable time the liquidation of any assets except those necessary to
satisfy liabilities of the Partnership (including to those Partners as
creditors) and/or distribute to the Partners, in lieu of cash, as tenants in
common and in accordance with the provisions of Section 13.2(a) and Section
13.2(c) hereof, undivided interests in such Partnership assets as the Liquidator
deems not suitable for liquidation. Any such distributions in kind shall be made
only if, in the good faith judgment of the Liquidator, such distributions in
kind are in the best interest of the Partners, and shall be subject to such
conditions relating to the disposition and management of such properties as the
Liquidator deems reasonable and equitable and to any agreements governing the
operation of such properties at such time. The Liquidator shall determine the
fair market value of any property distributed in kind using such reasonable
method of valuation as it may adopt.
12.3 COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS; ALLOWANCE FOR
CONTINGENT OR UNFORESEEN LIABILITIES OR OBLIGATIONS. Notwithstanding anything to
the contrary in this Agreement, in the event the Partnership is "liquidated"
within the meaning of Regulations Section 1.704-l(b)(2)(ii)(g), distributions
shall be made pursuant to this Article 13 to the General Partner and Limited
Partners who have positive Capital Accounts in compliance with Regulations
Section 1.704-1(b)(2)(ii)(b)(2) (including any tuning requirements therein).
Except as provided in Section 13.4, if any Limited Partner has a deficit balance
in his Capital Account (after giving effect to all contributions, distributions
and allocations for all taxable years, including the year during which such
liquidation occurs), such Partner shall have no obligation to make any
contribution to the capital of the Partnership with respect to such deficit, and
such deficit shall not be considered a debt owed to the Partnership or to any
other Person for any purpose whatsoever. In the sole and absolute discretion of
the General Partner, a pro rata portion of the distributions that would
otherwise be made to the General Partner and Limited Partners pursuant to this
Article 13 may be: (i) distributed to a liquidating trust established for the
benefit of the General Partner and Limited Partners for the purposes of
liquidating Partnership assets, collecting amounts owed to the Partnership, and
paving any contingent or unforeseen liabilities or obligations of the
Partnership or of the General Partner arising out of or in connection with the
Partnership (the assets of any such trust shall be distributed to the General
Partner and Limited Partners from time to time, un the reasonable discretion of
the General Partner, in the same proportions as the amount distributed to such
trust by the Partnership would otherwise have been distributed to the General
Partner and Limited Partners pursuant to this Agreement); or (ii) withheld to
provide a reasonable reserve for Partnership liabilities (contingent or
otherwise) and to reflect the unrealized portion of any installment obligations
owed to the Partnership; PROVIDED, that such withheld amount shall be
distributed to the General Partner and Limited Partners as soon as practicable.
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12.4 DEFICIT CAPITAL ACCOUNT RESTORATION.
(a) Subject to Section 13.4(b), if a Class A Limited Partner listed on
Schedule 13.4(a) (an "Electing Partner") has a negative balance in his Capital
Account on the date of the "liquidation" of his interest in the Partnership
(within the meaning of Regulations Section 1.704-l(b)(2)(ii)(g) but excluding a
constructive liquidation resulting from a tax termination of the Partnership
under Section 708(b)(1)(B) of the Code)), then such Electing Partner shall
contribute in cash to the capital of the Partnership the lesser of (i) the
maximum amount (if any such maximum amount is stated) listed beside such
Electing Partner's name on Schedule 13.4(a) or (ii) the amount required to
increase his Capital Account as of such date to zero. Any such contribution
required of a Partner hereunder shall be made on or before the later of (i) the
end of the Partnership Year in which the interest of such Partner is liquidated
or (ii) the ninetieth (90th) day following the date of such liquidation.
Notwithstanding any provision hereof to the contrary, all amounts so contributed
by a Partner to the capital of the Partnership shall, upon the liquidation of
the Partnership under this Article 13, be first paid to any then creditors of
the Partnership, including Partners that are Partnership creditors (in the order
provided in Section 1 3.2(a)), and any remaining amount shall be distributed to
the other Partners then having positive balances in their respective Capital
Accounts in proportion to such positive balances.
(b) After the death of an Electing Partner, the executor of the estate
of such an Electing Partner may elect to reduce (or eliminate) the deficit
Capital Account restoration obligation of such an Electing Partner. Such
election may be made by such executor by delivering to the General Partner
within two hundred seventy (270) days of the death of such an Electing Partner a
written notice setting forth the maximum deficit balance in his Capital Account
that such executor agrees to restore under Section 13.4(a), if any. If such
executor does not make a timely election pursuant to this Section 13.4(b)
(whether or not the balance in his Capital Account is negative at such time),
then such Electing Partner's estate (and the beneficiaries thereof who receive
distributions of Partnership Units therefrom) shall be deemed to have a deficit
Capital Account restoration obligation as set forth under Section 13.4(a).
(c) If the General Partner, on the date of the "liquidation" of its
interest in the Partnership, within the meaning of Regulations Section 1.704-1
(b)(2)(ii)(g) (but excluding a constructive liquidation resulting from a tax
termination of the Partnership under Section 708(b)(1)(B) of the Code), has a
negative balance in its Capital Account, then the General Partner shall
contribute in cash to the capital of the Partnership the amount needed to
restore its Capital Account balance to zero. Any such contribution shall be made
by the General Partner on or before the later of (i) the end of the Partnership
Year in which the General Partner's interest is liquidated, or (ii) the
ninetieth (90th) calendar day following the date of such liquidation.
Notwithstanding any provision of this Agreement to the contrary, all amounts so
contributed to the capital of the Partnership in accordance with this Section
13.4 shall be distributed in accordance with Section 13.2(a).
12.5 DEEMED DISTRIBUTION AND RECONTRIBUTION. Notwithstanding any other
provision of this Article 13 (but subject to Section 13.3), in the event the
Partnership is liquidated within the meaning of Regulations Section
1.704-l(b)(2)(ii)(g) but no Event of Dissolution has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged, and the Partnership's affairs shall not be wound up.
Instead, the Partnership shall be deemed to have distributed the Property in
kind to the General Partner and Limited Partners, who shall be deemed to have
assumed and taken such property subject to all Partnership liabilities, all in
accordance with their respective Capital Accounts. Immediately thereafter, the
General Partner and Limited Partners shall be deemed to have recontributed the
Partnership property in kind to the Partnership, which shall be deemed to have
assumed and taken such property subject to all such liabilities.
12.6 RIGHTS OF LIMITED PARTNERS. Except as specifically provided in this
Agreement, each Limited Partner shall look solely to the assets of the
Partnership for the return of his Capital Contribution and shall have no right
or power to demand or receive property other than cash from the Partnership
Except as specifically provided in this Agreement, no Limited Partner shall have
priority over any other Limited Partner as to the return of his Capital
Contributions, distributions, or allocations.
12.7 NOTICE OF DISSOLUTION. In the event an Event of Dissolution or an
event occurs that would, but for the provisions of Section 13.1, result in a
dissolution of the Partnership, the General Partner shall within 30 days
thereafter, provide written notice thereof to each of the Partners and to all
other parties with whom the Partnership
38
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regularly conducts business (as determined in the sole and absolute discretion
of the General Partner) and shall publish notice thereof in a newspaper of
general circulation in each place in which the Partnership regularly conducts
business (as determined in the sole and absolute discretion of the General
Partner).
12.8 CANCELLATION OF CERTIFICATE OF LIMITED PARTNERSHIP. Upon the
completion of the liquidation of the Partnership as provided in Section 13.2
hereof, the Partnership shall be terminated and the Certificate and all
qualifications of the Partnership as a foreign limited partnership in
jurisdictions other than the State of Tennessee shall be canceled and such other
actions as may be necessary to terminate the Partnership shall be taken.
12.9 REASONABLE TIME FOR WINDING-UP. A reasonable time shall be allowed
for the orderly winding-up of the business and affairs of the Partnership and
the liquidation of its assets pursuant to Section 13.2 hereof, in order to
minimize any losses otherwise attendant upon such winding-up, and the provisions
of this Agreement shall remain in effect between the Partners during the period
of liquidation.
ARTICLE 13
GENERAL PROVISIONS
13.1 NOTICES. All communications required or permitted under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or upon deposit in the United States mail, registered,
postage prepaid return receipt requested, to the Partners at the addresses set
forth in the transfer records of the Partnership, and with respect to the
General Partner, at 6584 Poplar Avenue, Suite 340, Memphis, Tennessee, 38138;
provided, however, that any Partner may specify a different address by notifying
the General Partner in writing of such different address. Notices to the
Partnership shall be delivered at or mailed to its specified office.
13.2 SUCCESSORS. Subject to the provisions hereof limiting transfers,
this Agreement shall be binding upon and inure to the benefit of the Partners
and the Partnership and their respective legal representatives, successors,
transferees and assigns.
13.3 ADDITIONAL DOCUMENTS. Each Partner agrees to perform all further
acts and execute, swear to, acknowledge and deliver all further documents which
may be reasonable, necessary, appropriate or desirable to carry out the
provisions of this Agreement or the Act.
13.4 SEVERABILITY. If any provision of this Agreement shall be declared
illegal, invalid, or unenforceable in any jurisdiction, then such provision
shall be deemed to be severable from this Agreement (to the extent permitted by
law) and in any event such illegality, invalidity or unenforceability shall not
affect the remainder hereof.
13.5 ENTIRE AGREEMENT. This Agreement and exhibits attached hereto
constitute the entire Agreement of the Partners and supersede all prior written
agreements and prior and contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof.
13.6 PRONOUNS AND PLURALS. When the context in which words are used in
the Agreement indicates that such is the intent, words in the singular number
shall include the plural and the masculine gender shall include the neuter or
female gender as the context may require.
13.7 HEADINGS. The Article headings or sections in this Agreement are
for convenience only and shall not be used in construing the scope of this
Agreement or any particular Article.
13.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one and the same instrument binding on all
parties hereto, notwithstanding that all parties shall not have signed the same
counterpart.
13.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee.
39
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IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures, as of the ___ day of November, 1997.
GENERAL PARTNER:
MID-AMERICA APARTMENT COMMUNITIES, INC., a
Tennessee corporation
By:
----------------------------------------
President
40
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MID-AMERICA APARTMENTS, L.P.
EXHIBIT A TO SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
NOTICE OF EXERCISE OF REDEMPTION RIGHT
The undersigned hereby irrevocably (i) presents for redemption ________
Partnership Units in Mid-America Apartments, L.P. in accordance with the terms
of the Limited Partnership Agreement of Mid-America Apartments, L.P. and the
Redemption Right referred to in Section 8.05 thereof, (ii) represents that the
undersigned owns the Units so presented free and clear of all liens, claims and
encumbrances whatsoever, (iii) represents that the undersigned possess the
necessary capacity, power and authority to present the Units for redemption
hereunder and to transfer the Units, (iv) surrenders such Units and all right,
title and interest therein and to any and all proceeds therefrom (other than the
Redemption Amount attributable to the Units, as defined in the Partnership
Agreement, and (v) directs that the Redemption Amount, as determined pursuant to
the Partnership Agreement, deliverable upon exercise of the Redemption Right be
delivered to the address specified below.
Dated:
-------------
Name of Limited Partner:
---------------------------------------
(Signature of Limited Partner)
---------------------------------------
(Mailing Address)
---------------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
---------------------------------------
ACCEPTED:
- ---------------------------------
- ---------------------------------
- ---------------------------------
- ---------------------------------
Exhibit A - 1
<Page>
MID-AMERICA APARTMENTS, L.P.
SCHEDULE 4.2(b)(1) TO SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
DESIGNATION OF 9.5% SERIES A CUMULATIVE PREFERRED UNITS
(i) DESIGNATION AND NUMBER. A series of Preferred Units, designated the
"9.5% Series A Cumulative Preferred Units" (the "Series A Preferred
Units"), is hereby established. The number of Series A Preferred
Units shall be 2,000,000.
(ii) MATURITY. The Series A Preferred Units have no stated maturity and
will not be subject to any sinking fund or mandatory redemption.
(iii) RANK. The Series A Preferred Units will, with respect to
distribution rights and rights upon liquidation, dissolution or
winding up of the Partnership, rank (A) senior to all classes or
series of Common Units of the Partnership, and to all Partnership
Interests ranking junior to the Series A Preferred Units with
respect to distribution rights or rights upon liquidation,
dissolution or winding up of the Partnership; (B) on a parity with
all Partnership Interests issued by the Partnership the terms of
which specifically provide that such Partnership Interests rank on
a parity with the Series A Preferred Units with respect to
distribution rights or rights upon liquidation, dissolution or
winding up of the Partnership; and (C) junior to all existing and
future indebtedness of the Partnership. The term "Partnership
Interests" does not include convertible debt securities, which will
rank senior to the Series A Preferred Units prior to conversion.
(iv) DISTRIBUTIONS
(A) Holders of the Series A Preferred Units are entitled to receive, when
and as declared by the General Partner out of funds legally available for the
payment of distributions, preferential cumulative cash distributions at the rate
of 9.5% per annum of the Liquidation Preference (as defined below) per Series A
Preferred Unit (equivalent to a fixed annual amount of $2.375 per Series A
Preferred Unit). Distributions on the Series A Preferred Units shall be
cumulative from the date of original issue and shall be payable monthly in
arrears on or before the 15th day of each month, or, if not a business day, the
next succeeding business day (each, a "Distribution Payment Date"). The first
distribution, which will be paid on November 15, 1996, will be for less than a
full month. Such distribution and any distribution payable on the Series A
Preferred Units for any partial distribution period will be computed on the
basis of a 360-day year consisting of twelve 30-day months. Distributions will
be payable to holders of record as they appear in the ownership records of the
Partnership at the close of business on the applicable record date, which shall
be the first day of the calendar month in which the applicable Distribution
Payment Date falls or on such other date designated by the General Partner of
the Partnership for the payment of distributions that is not more than 30 nor
less than 10 days prior to such Distribution Payment Date (each, a "Distribution
Record Date").
(B) No distribution on Series A Preferred Units shall be declared by the
General Partner or paid or set apart for payment by the Partnership at such time
as the terms and provisions of any agreement of the Partnership, including any
agreement relating to its indebtedness, prohibits such declaration, payment or
setting apart for payment or provides that such declaration, payment or setting
apart for payment would constitute a breach thereof or a default thereunder, or
if such declaration or payment shall be restricted or prohibited by law.
(C) Notwithstanding the foregoing, distributions on the Series A Preferred
Units will accrue whether or not the Partnership has earnings, whether or not
there are funds legally available for the payment of such distributions and
whether or not such distributions are declared. Accrued but unpaid distributions
on the Series A Preferred Units will not bear interest and holders of the Series
A Preferred Units will not be entitled to any distribution in excess of full
cumulative distributions described above. Except as set forth in the next
sentence, no distribution will be declared or paid or set apart for payment on
any Partnership Interest or any other series of Preferred Units ranking, as to
distributions, on a parity with or junior to the Series A Preferred Units (other
than a distribution of the Partnership's Common Units or any other class of
Partnership Interests ranking junior to the Series A Preferred Units as to
distributions and upon liquidation) for any period unless full cumulative
distributions have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof is set apart for such payment on
the Series A Preferred Units for all past distribution periods and the then
current distribution
Schedule 4.2(b)(1) - 1
<Page>
period. When distributions are not paid in full (or a sum sufficient for such
full payment is not so set apart) upon the Series A Preferred Units and any
other series of Preferred Units ranking on a parity as to distributions with the
Series A Preferred Units, all distributions declared upon the Series A Preferred
Units and any other series of Preferred Units ranking on a parity as to
distributions with the Series A Preferred Units shall be declared pro rata so
that the amount of distributions declared per Series A Preferred Unit and such
other series of Preferred Units shall in all cases bear to each other the same
ratio that accrued distributions per Series A Preferred Unit and such other
series of Preferred Units (which shall not include any accrual in respect of
unpaid distributions for prior distribution periods if such Preferred Units does
not have a cumulative distribution) bear to each other.
(D) Except as provided in the immediately preceding paragraph, unless full
cumulative distributions on the Series A Preferred Units have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for payment for all past distribution periods and
the then current distribution period, no distribution (other than in Common
Units or other Partnership Interests ranking junior to the Series A Preferred
Units as to distributions and upon liquidation) shall be declared or paid or set
aside for payment nor shall any other distribution be declared or made upon the
Common Units, or any other Partnership Interest in the Partnership ranking
junior to or on a parity with the Series A Preferred Units as to distributions
or upon liquidation, nor shall any Common Unit, or any other Partnership
Interest in the Partnership ranking junior to or on a parity with the Series A
Preferred Units as to distributions or upon liquidation be redeemed, purchased
or otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Partnership. Holders of Series A Preferred Units shall not be entitled to any
distribution, whether payable in cash, property or securities, in excess of full
cumulative distributions on the Series A Preferred Units as provided above. Any
distribution payment made on Series A Preferred Units shall first be credited
against the earliest accrued but unpaid distribution due with respect to such
Series A Preferred Units which remains payable.
(v) LIQUIDATION PREFERENCE. Upon any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Partnership, the holders of Series A Preferred Units are entitled
to be paid out of the assets of the Partnership legally available
for distribution to its partners a liquidation preference of $25
per Series A Preferred Unit (the "Liquidation Preference"), plus an
amount equal to any accrued and unpaid distribution to the date of
payment, but without interest, before any distribution of assets is
made to holders of Common Units or any other class or series of
Partnership Interests in the Partnership that ranks junior to the
Series A Preferred Units as to liquidation rights. The Partnership
will promptly provide to the holders of Series A Preferred Units
written notice of any event triggering the right to receive such
Liquidation Preference. After payment of the full amount of the
Liquidation Preference, plus any accrued and unpaid distributions
to which they are entitled, the holders of Series A Preferred Units
will have no right or claim to any of the remaining assets of the
Partnership. The consolidation or merger of the Partnership with or
into any other partnership, corporation, trust or entity or of any
other partnership or corporation with or into the Partnership, or
the sale, lease or conveyance of all or substantially all of the
property or business of the Partnership, shall not be deemed to
constitute a liquidation, dissolution or winding up of the
Partnership.
(vi) REDEMPTION.
(A) The Series A Preferred Units are not redeemable prior to November 1,
2001. On and after November 1, 2001, the Partnership, at its option upon not
less than 30 nor more than 60 days' written notice, may redeem the Series A
Preferred Units, in whole or in part, at any time or from time to time, for cash
at a redemption price of $25 per Series A Preferred Unit, plus all accrued and
unpaid distributions thereon to the date fixed for redemption, without interest.
Holders of Series A Preferred Units to be redeemed shall surrender such Series A
Preferred Units at the place designated in such notice and shall be entitled to
the redemption price and all accrued and unpaid distributions payable upon such
redemption following such surrender. If notice of redemption of any Series A
Preferred Unit has been given and if the funds necessary for such redemption
have been set aside by the Partnership in trust for the benefit of the holders
of any Series A Preferred Unit so called for redemption, then from and after the
redemption date distributions will cease to accrue on such Series A Preferred
Units, such Series A Preferred Units shall no longer be deemed outstanding and
all rights of the holders of such series A Preferred Units will terminate,
except the right to receive the redemption price. If less than all of the
outstanding Series A Preferred Units are to be redeemed, the Series A Preferred
Units to be redeemed shall be selected pro rata (as nearly as may be practicable
Schedule 4.2(b)(1) - 2
<Page>
without creating fractional Series A Preferred Units) or by any other equitable
method determined by the General Partner.
(B) Unless full cumulative distributions on all Series A Preferred Units
shall have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past
distribution periods and the then current distribution period, no Series A
Preferred Units shall be redeemed unless all outstanding Series A Preferred
Units are simultaneously redeemed and the Partnership shall not purchase or
otherwise acquire directly or indirectly any Series A Preferred Units (except by
exchange for Partnership Interests of the Partnership ranking junior to the
Series A Preferred Units as to distributions and upon liquidation); provided,
however, that the foregoing shall not prevent the purchase or acquisition of
Series A Preferred Units pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding Series A Preferred Units.
(C) Notice of redemption will be given by publication in a newspaper of
general circulation in the City of New York, such publication to be made once a
week for two successive weeks commencing not less than 30 nor more than 60 days
prior to the redemption date. A similar notice will be mailed by the
Partnership, postage prepaid, not less than 30 nor more than 60 days prior to
the redemption date, addressed to the respective holders of record of the Series
A Preferred Units to be redeemed at their respective addresses as they appear on
the stock transfer records of the Partnership. No failure to give such notice or
any defect therein or in the mailing thereof shall affect the validity of the
proceedings for the redemption of any Series A Preferred Units except as to the
holder to whom notice was defective or not given. Each notice shall state: (i)
the redemption date; (ii) the redemption price; (iii) the number of Series A
Preferred Units to be redeemed; (iv) the place or places where the Series A
Preferred Units are to be surrendered for payment of the redemption price; and
(v) that distributions on the shares to be redeemed will cease to accrue on such
redemption date. If less than all of the Series A Preferred Units held by any
holder are to be redeemed, the notice mailed to such holder shall also specify
the number of Series A Preferred Units held by such holder to be redeemed.
(D) Immediately prior to any redemption of Series A Preferred Units, the
Partnership shall pay, in cash, any accumulated and unpaid distributions through
the redemption date, unless a redemption date falls after a Distribution Record
Date and prior to the corresponding Distribution Payment Date, in which case
each holder of Series A Preferred Units at the close of business on such
Distribution Record Date shall be entitled to the distribution payable on such
shares on the corresponding Distribution Payment Date notwithstanding the
redemption of such shares before such Distribution Payment Date.
(vii) VOTING RIGHTS. Holders of the Series A Preferred Units will not
have any voting rights.
(viii) CONVERSION. The Series A Preferred Units are not redeemable for,
convertible into or exchangeable for any other property or securities of the
Partnership.
Schedule 4.2(b)(1) - 3
<Page>
MID-AMERICA APARTMENTS, L.P.
SCHEDULE 4.2(b)(2) TO SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
DESIGNATION OF 8 7/8% SERIES B CUMULATIVE PREFERRED UNITS
(i) DESIGNATION AND NUMBER. A series of Preferred Units, designated the
"8 7/8% Series B Cumulative Preferred Units" (the "Series B
Preferred Units"), is hereby established. The number of Series B
Preferred Units shall be up 1,938,830
(ii) MATURITY. The Series B Preferred Units have no stated maturity and
will not be subject to any sinking fund or mandatory redemption.
(iii) RANK. The Series B Preferred Units, with respect to distribution
rights and rights upon liquidation, dissolution or winding up of
the Partnership, will rank (i) senior to all classes or series of
Common Units of the Partnership, and to all Partnership Interests
ranking junior to the Series B Preferred Units with respect to
distribution rights or rights upon liquidation, dissolution or
winding up of the Partnership; (ii) on a parity with all
Partnership Interests issued by the Partnership the terms of which
specifically provide that such Partnership Interests rank on a
parity with the Series B Preferred Units with respect to
distribution rights or rights upon liquidation, dissolution or
winding up of the Partnership (the "Parity Preferred Units"); and
(iii) junior to all existing and future indebtedness of the
Partnership. The term "Parity Preferred Units" does not include
convertible debt securities, which will rank senior to the Series B
Preferred Units prior to conversion.
(iv) DISTRIBUTIONS
(A) Holders of the Series B Preferred Units are entitled to receive,
when and as declared by the General Partner out of funds legally available for
the payment of distributions, preferential cumulative cash distributions at the
rate of 8?% per annum of the Liquidation Preference (as defined below) per
Series B Preferred Unit (equivalent to a fixed annual amount of $2.21875 per
Series B Preferred Unit). Distributions on the Series B Preferred Units shall be
cumulative from the date of original issue and shall be payable monthly in
arrears on or before the 15th day of each month, or, if not a business day, the
next succeeding business day (each, a "Distribution Payment Date"). The first
distribution, which will be payable on December 15, 1997, will be for less than
a full month. Such distribution and any distribution payable on the Series B
Preferred Units for any partial distribution period will be computed on the
basis of a 360-day year consisting of twelve 30-day months. Distributions will
be payable to holders of record as they appear in the ownership records of the
Partnership at the close of business on the applicable record date, which shall
be the first day of the calendar month in which the applicable Distribution
Payment Date falls or on such other date designated by the General Partner of
the Partnership for the payment of distributions that is not more than 30 nor
less than 10 days prior to such Distribution Payment Date (each, a "Distribution
Record Date").
(B) No distributions on Series B Preferred Units shall be declared by
the General Partner or paid or set apart for payment by the Partnership at such
time as the terms and provisions of any agreement of the Partnership, including
any agreement relating to its indebtedness, prohibits such declaration, payment
or setting apart for payment or provides that such declaration, payment or
setting apart for payment would constitute a breach thereof or a default
thereunder, or if such declaration or payment shall be restricted or prohibited
by law.
(C) Notwithstanding the foregoing, distributions on the Series B
Preferred Units will accrue whether or not the Partnership has earnings, whether
or not there are funds legally available for the payment of such distributions
and whether or not such distributions are declared. Accrued but unpaid
distributions on the Series B Preferred Units will not bear interest and holders
of the Series B Preferred Units will not be entitled to any distributions in
excess of full cumulative distributions described above. Except as set forth in
the next sentence, no distributions will be declared or paid or set apart for
payment on any Partnership Interests or any other series of Parity Preferred
Units or any series or class of equity securities ranking junior to the Series B
Preferred Units (other
Schedule 4.2(b)(2) - 1
<Page>
than a distribution of the Partnership's Common Units or any other class of
Partnership Interests ranking junior to the Series B Preferred Units as to
distributions and upon liquidation) for any period unless full cumulative
distributions have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof is set apart for such payment on
the Series B Preferred Units for all past distribution periods and the then
current distribution period. When distributions are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon the Series B
Preferred Units and any other series of Parity Preferred Units, all
distributions declared upon the Series B Preferred Units and any other series of
Parity Preferred Units shall be declared pro rata so that the amount of
distributions declared per Series B Preferred Unit and such other series of
Parity Preferred Units shall in all cases bear to each other the same ratio that
accrued distributions per Series B Preferred Unit and such other series of
Parity Preferred Units (which shall not include any accrual in respect of unpaid
distributions for prior distribution periods if such Parity Preferred Units does
not have a cumulative distribution) bear to each other.
(D) Except as provided in the immediately preceding paragraph, unless
full cumulative distributions on the Series B Preferred Units have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for payment for all past distribution periods and
the then current distribution period, no distributions (other than in Common
Units or other Partnership Interests ranking junior to the Series B Preferred
Units as to distributions and upon liquidation) shall be declared or paid or set
aside for payment nor shall any other distribution be declared or made upon the
Common Units, or any other Partnership Interests in the Partnership ranking
junior to or on a parity with the Series B Preferred Units as to distributions
or upon liquidation, nor shall any Common Units, or any other Partnership
Interests in the Partnership ranking junior to or on a parity with the Series B
Preferred Units as to distributions or upon liquidation be redeemed, purchased
or otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Partnership. Holders of Series B Preferred Units shall not be entitled to any
distribution, whether payable in cash, property or securities, in excess of full
cumulative distributions on the Series B Preferred Units as provided above. Any
distribution payment made on Series B Preferred Units shall first be credited
against the earliest accrued but unpaid distribution due with respect to such
Series B Preferred Units which remains payable.
(v) LIQUIDATION PREFERENCE. Upon any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Partnership, the holders of Series B Preferred Units are entitled
to be paid out of the assets of the Partnership legally available
for distribution to its partners a liquidation preference of $25
per Series B Preferred Unit (the "Liquidation Preference"), plus an
amount equal to any accrued and unpaid distributions to the date of
payment, but without interest, before any distribution of assets is
made to holders of Common Units or any other class or series of
Partnership Interests in the Partnership that ranks junior to the
Series B Preferred Units as to liquidation rights. The Partnership
will promptly provide to the holders of Series B Preferred Units
written notice of any event triggering the right to receive such
Liquidation Preference. After payment of the full amount of the
Liquidation Preference, plus any accrued and unpaid distributions
to which they are entitled, the holders of Series B Preferred Units
will have no right or claim to any of the remaining assets of the
Partnership. The consolidation or merger of the Partnership with or
into any other partnership, corporation, trust or entity or of any
other partnership or corporation with or into the Partnership, or
the sale, lease or conveyance of all or substantially all of the
property or business of the Partnership, shall not be deemed to
constitute a liquidation, dissolution or winding up of the
Partnership.
(vi) REDEMPTION.
(A) The Series B Preferred Units are not redeemable prior to
December 1, 2002. On and after December 1, 2002, the Partnership, at its option
upon not less than 30 nor more than 60 days' written notice, may redeem the
Series B Preferred Units, in whole or in part, at any time or from time to time,
for cash at a redemption price of $25 per Series B Preferred Unit, plus all
accrued and unpaid distributions thereon to the date fixed for redemption,
without interest. Holders of Series B Preferred Units to be redeemed shall
surrender such Series B Preferred Units at the place designated in such notice
and upon such surrender shall be entitled to the redemption price and any
accrued and unpaid distributions payable upon such redemption. If notice of
redemption of any Series B Preferred Units has been given and if the funds
necessary for such redemption have been set aside by the Partnership in trust
for the benefit of the holders of any Series B Preferred Units so called for
redemption, then from
Schedule 4.2(b)(2) - 2
<Page>
and after the redemption date distributions will cease to accrue on such
Series B Preferred Units, such Series B Preferred Units shall no longer be
deemed outstanding and all rights of the holders of such series B Preferred
Units will terminate, except the right to receive the redemption price. If less
than all of the outstanding Series B Preferred Units are to be redeemed, the
Series B Preferred Units to be redeemed shall be selected pro rata (as nearly as
may be practicable without creating fractional Series B Preferred Units) or by
any other equitable method determined by the General Partner.
(B) Unless full cumulative distributions on all Series B Preferred
Units shall have been or contemporaneously are declared and paid or declared and
a sum sufficient for the payment thereof set apart for payment for all past
distribution periods and the then current distribution period, no Series B
Preferred Units shall be redeemed unless all outstanding Series B Preferred
Units are simultaneously redeemed and the Partnership shall not purchase or
otherwise acquire directly or indirectly any Series B Preferred Units (except by
exchange for Partnership Interests of the Partnership ranking junior to the
Series B Preferred Units as to distributions and upon liquidation); provided,
however, that the foregoing shall not prevent the purchase or acquisition of
Series B Preferred Units pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding Series B Preferred Units.
(C) Notice of redemption will be given by publication in a newspaper of
general circulation in the City of New York, such publication to be made once a
week for two successive weeks commencing not less than 30 nor more than 60 days
prior to the redemption date. A similar notice will be mailed by the
Partnership, postage prepaid, not less than 30 nor more than 60 days prior to
the redemption date, addressed to the respective holders of record of the
Series B Preferred Units to be redeemed at their respective addresses as they
appear on the transfer records of the Partnership. No failure to give such
notice or any defect therein or in the mailing thereof shall affect the validity
of the proceedings for the redemption of any Series B Preferred Units except as
to the holder to whom notice was defective or not given. Each notice shall
state: (i) the redemption date; (ii) the redemption price; (iii) the number of
Series B Preferred Units to be redeemed; (iv) the place or places where the
Series B Preferred Units are to be surrendered for payment of the redemption
price; and (v) that distributions on the shares to be redeemed will cease to
accrue on such redemption date. If less than all of the Series B Preferred Units
held by any holder are to be redeemed, the notice mailed to such holder shall
also specify the number of Series B Preferred Units held by such holder to be
redeemed.
(D) Immediately prior to any redemption of Series B Preferred Units,
the Partnership shall pay, in cash, any accumulated and unpaid distributions
through the redemption date, unless a redemption date falls after a Distribution
Record Date and prior to the corresponding Distribution Payment Date, in which
case each holder of Series B Preferred Units at the close of business on such
Distribution Record Date shall be entitled to the distribution payable on such
shares on the corresponding Distribution Payment Date notwithstanding the
redemption of such shares before such Distribution Payment Date.
(vii) VOTING RIGHTS. Holders of the Series B Preferred Units will not
have any voting rights.
(viii) CONVERSION. The Series B Preferred Units are not redeemable for,
convertible into or exchangeable for any other property or securities of the
Partnership.
Schedule 4.2(b)(2) - 3
<Page>
MID-AMERICA APARTMENTS, L.P.
SCHEDULE 6.11(f) TO SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
LIST OF FLOURNOY PROPERTIES SUBJECT TO RESTRICTIONS ON SALE
All of the "Properties" described in that certain Agreement and Plan of
Reorganization, dated September 17, 1997, by and among the Partnership, the
General partner and Flournoy Development Company, a Georgia corporation, as
amended by that certain First Amendment to Agreement and Plan of Reorganization
of even date herewith (the "Reorganization Agreement"), excluding the "Sole
Properties" and "Surviving Cash-Out Properties" described in the Reorganization
Agreement.
Schedule 6.11(f) - 1
<Page>
MID-AMERICA APARTMENTS, L.P.
SCHEDULE 13.4(a) TO SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
CLASS A LIMITED PARTNERS WITH DEFICIT CAPITAL
ACCOUNT RESTORATION OBLIGATIONS AND MAXIMUM
AMOUNT OF OBLIGATION, IF ANY
<Table>
<Caption>
PARTNER LIMITATION
- ------- -----------
<S> <C>
Adams, Franklin $ 139,429
Bolton, John 70,102
Bowen, Armour 10,000
Bruce, Olivia 10,000
Burleigh, Marietta 25,000
Cates, George E. 418,899
Choukalas, Carol and Keith 46,371
Chumney, George 270,272
Daniels, Eddie J. 110,772
Eavenson, Patrick 269,788
John F. Flournoy 5,000,000
Friedman, Sidney S. 10,000
Grossman, Dr. Ronald 70,127
Halle, Henry 159,729
Harwood, James E. 118,827
Haynes, Robert 269,786
Inman, Frank Jr. 70,127
Johnston, James A. 70,127
W. Randall Jones 250,000
Kirschner, Loouis 47,625
Liddell, Frank B. 10,000
Mah, Francis 158,654
Markus, Dr. Frank W. 25,000
Maxwell, John B. 422,357
McCallen, James 621,666
McCallen, J. Tom 621,666
McDonnell, Michael 944,980
Metzger, Dr. William 125,468
Montedonico, J.V. 810,330
Morris, Jack 158,654
Daniel, O'Reilly 1,600,000
Park, Dudley 10,000
Porter, Jimmie A. 10,000
Reardon, Dr. James F. 10,000
Roane, Anne D. 10,000
Schafer, Dudley 325,938
Schaffer, Frederick C. 30,000
Simpson, David L. 10,000
Stroup, Lloyd 269,786
Threlkeld, Dr. William 50,000
Turner, Dr. James E. 47,626
Uiberall, Andrea 25,000
Willis, Donald 527,407
Willis, Richard A. 46,371
Willis, Robert A. 1,293,687
Willis, Robert A. Jr. 96,373
Wilson, G.B. 62,501
-----------
$15,760,443
</Table>
Schedule 13.4(a) - 1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>4
<FILENAME>a2074950zex-10_9.txt
<DESCRIPTION>EXHIBIT 10.9
<TEXT>
<Page>
EXHIBIT 10.9
EIGHTH AMENDMENT TO REVOLVING CREDIT AGREEMENT
This Eighth Amendment to Revolving Credit Agreement (the "Eighth
Amendment") is dated as of April 19, 2001, among MID-AMERICA APARTMENT
COMMUNITIES, INC. ("MAAC"), MID-AMERICA APARTMENTS, L.P. ("Mid-America"), the
financial institutions listed on SCHEDULE 1, as amended or supplemented from
time to time (the "Lenders"), AMSOUTH BANK, an Alabama banking corporation, as
Administrative Agent for the Lenders, its successors and assigns (in such
capacity, the "Administrative Agent"), and COMMERZBANK AG, NEW YORK AND GRAND
CAYMAN BRANCHES, as Co-Arranger and Syndication Agent.
RECITALS
A. MAAC, Mid-America, certain Lenders and the Administrative Agent
entered into that certain Revolving Credit Agreement dated as of March 16, 1998,
executed in amendment and restatement of that certain Revolving Credit Agreement
among MAAC, Mid-America, the Administrative Agent and certain lenders, dated
November 20, 1997, as amended by First Amendment thereto dated as of May 15,
1998, by Second Amendment thereto dated as of October 1, 1998, by Third
Amendment thereto dated as of November 12, 1998, by Fourth Amendment thereto
dated as of March 31, 1999, by Fifth Amendment thereto dated as of May 28, 1999,
by Sixth Amendment thereto dated as of November 12, 1999, and by Seventh
Amendment thereto dated as of July 21, 2000 (as it may be amended further from
time to time, the "Agreement"). Unless otherwise defined in this Eighth
Amendment, capitalized terms shall have the meaning assigned to them in the
Agreement.
B. The Borrowers have requested that the Agreement be amended to
modify certain provisions of the Agreement.
C. The parties to the Agreement desire to execute this Eighth
Amendment to evidence the extension of the Maturity Date and the other
modifications.
AGREEMENT
NOW, THEREFORE, in consideration of the above Recitals, the parties
hereby agree as follo