-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WVX41bhk99GsGeUvrpQgMn7B+uSESUyOHJWrXce6ND/LOonPCDccD1UAGNsas94u 1YSn8KZ1thlRQROT4MDPPA== 0000890566-00-000439.txt : 20000331 0000890566-00-000439.hdr.sgml : 20000331 ACCESSION NUMBER: 0000890566-00-000439 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 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: SEC FILE NUMBER: 001-12762 FILM NUMBER: 588881 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 10-K405 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER 1-12762 MID-AMERICA APARTMENT COMMUNITIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) TENNESSEE 62-1543819 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER) 6584 POPLAR AVENUE, SUITE 340 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: NAME OF EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ------------------------------------- ------------------------ 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 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 ($22.625 per share), as reported on the New York Stock Exchange, on March 1, 2000) was approximately $354,000,000 (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 17, 2000, was 17,635,277 shares, of which approximately 2,009,033 were held by affiliates. ================================================================================ MID-AMERICA APARTMENT COMMUNITIES, INC. TABLE OF CONTENTS ITEM PAGE - --------- ---- PART I 1. Business............................. 1 2. Properties........................... 4 3. Legal Proceedings.................... 9 4. Submission of Matters to Vote of Security Holders................... 9 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters.... 9 6. Selected Financial Data.............. 10 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 11 7A. Quantitative and Qualitative Disclosures About Market Risk...... 17 8. Financial Statements and Supplementary Data................. 18 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............... 18 PART III 10. Directors and Executive Officers of the Registrant..................... 19 11. Executive Compensation............... 19 12. Security Ownership of Certain Beneficial Owners and Management... 19 13. Certain Relationships and Related Transactions....................... 19 PART IV 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K... 19 i PART I ITEM 1. BUSINESS THE COMPANY Mid-America Apartment Communities, Inc. (the "Company") is a Memphis, Tennessee-based self-administered and self-managed umbrella partnership ("UPREIT") real estate investment trust, ("REIT") which, as of December 31, 1999, owns or has ownership interest in, including 10 properties owned by an unconsolidated joint venture, and operates 129 apartment communities containing 33,901 apartment units in 13 states, primarily in the southeastern United States and Texas (the "Communities"). The Company currently has 1,367 apartment units in various stages of construction, development and pre-development in 3 new communities and 1 addition to an existing community. Founded in 1977 by George E. Cates, the Company's Chairman of the Board of Directors and Chief Executive Officer, the Company's predecessor grew from an operator of a single 252-unit apartment community in Memphis, Tennessee into a fully-integrated owner and operator of 5,580 apartment units in 22 apartment communities in four southeastern states immediately prior to the Company's initial public offering in February 1994 (the "Initial Offering"). Since the Initial Offering, the Company's portfolio has increased by 98 apartment communities containing 25,528 apartment units. On June 30, 1999, the Company sold its development, construction and fee management businesses acquired in connection with the November 1997 merger with Flournoy Development Company ("Flournoy or FDC") back to the principals of 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 from 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. In March 1999 the Company entered into an agreement to form a joint venture (the "Joint Venture") with Blackstone Real Estate Acquisitions, LLC ("Blackstone"), and operate 10 apartment communities. On March 31, 1999 the Company sold 6 apartment communities, containing 1,660 apartment units, to the Joint Venture for approximately $64.6 million in cash. In August 1999, the Company sold four additional properties containing 1,133 apartment units to the Joint Venture, for approximately $33.3 million. The Company contributed additional capital and made a loan to the Joint Venture bringing the Company's total investment in the Joint Venture to approximately $8.1 million. The Company recognized a gain of approximately $9.0 million and deferred gains of approximately $4.8 million for the Company's retained interest. Proceeds from the transactions were used to pay down the Company's Credit Line, fund the development pipeline and to fund two cash escrow reserves related to the planned tax free exchange of a portion of the properties, which exchange was completed during the balance of 1999. The Company has retained a 33.3% 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 the Mid-America Apartments, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership, holding, as of December 31, 1999, 180,168 Common Units or a 1% general partnership interest in the Operating Partnership. 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, 1999, held 14,872,572 Common Units, or 83.55% of all outstanding Common Units. OPERATING PHILOSOPHY DIVERSIFIED MARKET FOCUS. The Company focuses on owning, operating, developing, constructing and acquiring apartment communities mainly throughout the southeast and Texas. 1 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. DEDICATION TO CUSTOMER SERVICE. Management's experience is that maintaining a consistently high level of customer satisfaction leads to greater demand for the Company's apartment units, higher occupancy and rental rates, and increased long-term profitability. 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 on-site at each of the Communities. Management believes that this commitment to training and excellence in associates ultimately translates to higher customer satisfaction. DECENTRALIZED OPERATIONAL STRUCTURE. The Company's operational structure is organized on a decentralized basis. The Company's property managers have overall operating responsibility for their specific Communities. Property managers report to area managers or regional managers who, in turn, are accountable to the Company's President and Chief Operating Officer. 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 process. PROACTIVE ASSET MANAGEMENT The Company reviews its existing assets routinely and sells those which no longer fit the Company's 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 Company shares. 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 its return on investment in each Community by increasing rental rates and ancillary revenues while tightly controlling operating expenses and maintaining high occupancy levels. The Company seeks higher net rental revenues by enhancing the competitiveness of the Communities, adding revenue-generating services, and managing 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: o 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; o offering new services to residents, including telephone, cable, and internet access on which it generates fee and commission income; o 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; o ensuring that, through monthly inspections of all Communities by senior management and prompt attention to maintenance and recurring capital needs as well as defined preventive maintenance programs conducted quarterly at each property, the Communities are properly maintained; o 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; o investing heavily in training programs for its property level personnel; o compensating employees through performance-based compensation and stock ownership programs; and 2 o maintaining a hands-on management style and "flat" organizational structure that emphasizes senior management's continued close contact with the market and employees; o when its cost of capital and asset values permit, selling assets and repurchasing common stock. DEVELOPMENT STRATEGY. During 1998, the Company's emphasis shifted from acquisitions to development because of the higher quality assets and higher long term investment returns generated by development. The Company expects to continue new development on a disciplined, selective basis. In 1999 the Company completed the following development projects consisting of a total 1,588 apartment units which are currently in various stages of lease-up: o 264 unit Paddock Club in Gainesville, Florida o 254 unit Paddock Club in Panama City, Florida o 132 unit Phase II expansion of the Paddock Club in Brandon, Florida o 238 unit Phase II expansion of the Terraces at Towne Lake in Cherokee County, Georgia o 252 unit Reserve at Dexter Lake in Memphis, Tennessee o 240 unit Paddock Club in Murfreesboro, Tennessee o 208 unit Paddock Club in Montgomery, Alabama The Company currently has a total of 1,367 apartment units in various stages of development, construction, and pre-development, of which 1,151 are scheduled to be completed in 2000 with the remainder in 2001. The Company anticipates a total capital investment in this development pipeline of approximately $43.2 million in 2000 and approximately $3 million in 2001. Also currently under consideration is a new addition to an existing community of 244 units with an estimated cost of $18 million, which is expected to begin in 2001 if development is approved. These projects are expected to be funded by the Company's outstanding lines of credit ("Credit Lines"), selective property dispositions and possible joint venture transactions. In June 1999 the Company concluded that development opportunities were becoming less financially attractive, reduced its development commitments to those already in process, and sold its development and construction businesses. ACQUISITION STRATEGY. An additional strategy of the Company is to acquire apartment communities that meet its investment criteria and long-term strategic objectives. Most apartment communities that the Company has identified as available for acquisition do not meet the Company's investment objectives, and the present status of capital markets have raised the threshold for yields. The Company did not acquire any apartment communities in 1999 and at the present time does not anticipate any significant investment in acquisition properties in 2000. JOINT VENTURE STRATEGY. An additional strategy of the Company is to sell apartment communities to a joint venture when a favorable return can be achieved. This allows the Company to obtain favorably-priced financing. The Company actively is seeking attractively priced investment opportunities which it and potential joint venture partners can invest in. At this time no negotiations are in process. 3 The following apartment communities containing an aggregate of 2,793 apartment units were sold during 1999 to the Joint Venture:
NUMBER GROSS PROPERTY LOCATION OF UNITS DATE PROCEEDS - ------------------------------------- ----------------------- --------- --------------- -------------- Colony at South Park................. Aiken, SC 184 March 31, 1999 $ 7,900,000 Walden Run........................... McDonough, GA 240 March 31, 1999 13,700,000 Woodstream........................... Greensboro, NC 304 March 31, 1999 13,200,000 Northwood............................ Arlington, TX 270 March 31, 1999 7,500,000 Lane at Towne Crossing............... Mesquite, TX 384 March 31, 1999 11,300,000 The Woods............................ Austin, TX 278 March 31, 1999 11,000,000 Cedar Mill........................... Memphis, TN 276 August 4, 1999 11,200,000 Hamilton Pointe...................... Chattanooga, TN 361 August 4, 1999 9,600,000 Hidden Creek......................... Chattanooga, TN 300 August 4, 1999 8,100,000 Lakeshore Landing.................... Jackson, MS 196 August 4, 1999 4,400,000 --------- -------------- Total........................... 2,793 $ 97,900,000 ========= ==============
DISPOSITION STRATEGY. The Company is committed to the selective disposition of non-strategic assets, those apartment communities that no longer meet its 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 1,138 apartment units were sold during 1999:
NUMBER GROSS PROPERTY LOCATION OF UNITS DATE PROCEEDS - ------------------------------------- ----------------------- --------- ------------------- -------------- Hidden Oaks.......................... Albany, Ga 240 April 12, 1999 $ 6,100,000 Sailwinds at Lake Magdalene.......... Tampa, FL 798 November 10, 1999 31,100,000 Regency Club......................... Albany, GA 100 December 6, 1999 800,000 --------- -------------- Total........................... 1,138 $ 38,000,000 ========= ==============
SHARE REPURCHASE PROGRAM In 1999, the Company's Board of Directors authorized the repurchase of up to 4 million common shares, of which the Company has repurchased approximately 1.5 million common shares (7% of the common shares and Common Units outstanding). From time to time the Company intends to sell assets based on its disposition strategy outlined herein and repurchase shares when it believes that shareholder value is enhanced. Factors affecting this determination include the relative valuation of its share price, assets sold, cost of debt 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. 4 RECENT DEVELOPMENTS PROPERTY DISPOSITIONS AND ACQUISITIONS Subsequent to December 31, 1999, the Company sold two apartment communities containing 368 apartment units for approximately $14,890,000 and has letters of intent to sell three additional communities, two of which will be as a tax free exchange for two identified acquisitions. DISTRIBUTION INCREASE In January 2000, the Company raised its quarterly distribution to common shareholders from $.575 per share to $.58 per share, effective with its distribution paid on January 31, 2000. ITEM 2. PROPERTIES The Company's apartment communities principally appeal to middle and upper income residents in mid-size cities in the southeastern United States and Texas. Approximately 72% 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 average age of the Communities at December 31, 1999 was 12.9 years. The following table sets forth certain operating data regarding the Company for the periods indicated where the Company owns or maintains an ownership interest, including the 10 properties containing 2,793 apartment units owned by the Joint Venture, at December 31, 1999. The table excludes development communities. 1999 1998 1997 --------- --------- --------- Apartment units at year end.......... 33,901 33,831 30,579 Average monthly rental per apartment.......................... $610 $597 $568 Average occupancy at year end........ 94.6% 94.1% 93.9% The following table sets forth certain historical information for the communities the Company owned or maintained an ownership interest, including the 10 properties containing 2,793 apartment units owned by the Joint Venture, at December 31, 1999: 5
APPROXIMATE YEAR RENTABLE YEAR MANAGEMENT NUMBER AREA PROPERTY LOCATION COMPLETED COMMENCED OF UNITS (SQUARE FT.) - ------------------------------------- --------------------- ---------- ----------- ---------- ------------- Eagle Ridge.......................... Birmingham, AL 1986 1998 200 181,400 Abbington Place...................... Huntsville, AL 1987 1998 152 162,792 Paddock Club - Huntsville............ Huntsville, AL 1989 1997 200 211,600 Paddock Club - Huntsville II......... Huntsville, AL 1998 1997 192 212,736 ---------- ------------- 744 768,528 ---------- ------------- Calais Forest........................ Little Rock, AR 1987 1994 260 194,928 Napa Valley.......................... Little Rock, AR 1984 1996 240 183,216 Westside Creek I & II................ Little Rock, AR 1984 1997 308 148,030 Whispering Oaks...................... Little Rock, AR 1978 1994 207 192,422 ---------- ------------- 1,015 718,596 ---------- ------------- Tiffany Oaks......................... Altamonte Springs, FL 1985 1996 288 234,224 Marsh Oaks........................... Atlantic Beach, FL 1986 1995 120 93,280 Paddock Club - Brandon............... Brandon, FL 1997 1997 308 358,600 Anatole.............................. Daytona Beach, FL 1986 1995 208 149,136 Cooper's Hawk........................ Jacksonville, FL 1987 1995 208 218,400 Hunter's Ridge at Deerwood........... Jacksonville, FL 1987 1997 336 294,888 Lakeside............................. Jacksonville, FL 1985 1996 416 344,192 Paddock Club - Jacksonville I , II & III................................. Jacksonville, FL 1989 1997 440 216,016 Paddock Club - Mandarin.............. Jacksonville, FL 1998 1998 288 330,336 St. Augustine........................ Jacksonville, FL 1987 1995 400 304,400 Woodbridge at the Lake............... Jacksonville, FL 1985 1994 188 166,000 Woodhollow........................... Jacksonville, FL 1986 1997 450 342,162 Paddock Club - Lakeland I & II....... Lakeland, FL 1988 1997 464 217,704 Savannahs at James Landing........... Melbourne, FL 1990 1995 256 238,592 Paddock Park - Ocala I & II.......... Ocala, FL 1986 1997 480 202,282 Paddock Club - Tallahassee I & II.... Tallahassee, FL 1990 1997 304 208,000 Belmere.............................. Tampa, FL 1984 1994 210 202,440 Links at Carrollwood................. Tampa, FL 1980 1998 204 190,536 ---------- ------------- 5,568 4,311,188 ---------- ------------- High Ridge........................... Athens, GA 1987 1997 160 186,608 Shenandoah Ridge..................... Augusta, GA 1975/1984 1994 272 222,800 Bradford Pointe...................... Augusta, GA 1986 1997 192 156,232 Westbury Creek....................... Augusta, GA 1984 1997 120 106,998 Fountain Lake........................ Brunswick, GA 1983 1997 110 118,046 Island Retreat....................... St. Simons Island, GA 1978 1998 112 129,584 Park Walk............................ College Park, GA 1985 1997 124 112,776 Enclave at Whisperwood............... Columbus, GA 1998 1998 154 189,728 2000 Wynnton......................... Columbus, GA 1983 1997 72 66,056 Riverwind............................ Columbus, GA 1983 1997 44 40,304 Whisperwood I & Spa I................ Columbus, GA 1980-86 1997 854 610,876 Willow Creek......................... Columbus, GA 1968-78 1997 285 246,668 Terraces at Fieldstone............... Conyers, GA 1998 1998 316 351,076 Hollybrook........................... Dalton, GA 1972 1994 158 188,640 Whispering Pines I & II.............. LaGrange, GA 1982 1997 216 123,904 Westbury Springs..................... Lilburn, GA 1983 1997 150 137,744 Austin Chase......................... Macon, GA 1996 1997 256 293,016 The Vistas........................... Macon, GA 1985 1997 144 153,792 Georgetown Grove..................... Savannah, GA 1997 1998 220 239,800 Wildwood I & II...................... Thomasville, GA 1980 1997 216 123,904 ENCUMBRANCES AT AVERAGE AVERAGE DECEMBER 31, 1999 AVERAGE RENT PER OCCUPANCY -------------------------- UNIT UNIT AT % AT MORTGAGE SIZE DECEMBER 31, DECEMBER 31, PRINCIPAL INTEREST PROPERTY (SQUARE FT.) 1999 1999 (000'S) RATE - ------------------------------------- ------------- ------------- ------------- --------- ------------- Eagle Ridge.......................... 907 $ 602 94.50% $ 6,349 8.250% Abbington Place...................... 1,071 $ 547 93.42% -- (2) -- (2) Paddock Club - Huntsville............ 1,058 $ 603 95.00% -- -- Paddock Club - Huntsville II......... 1,108 $ 676 95.83% -- -- --- ------------- ------------- --------- 1,033 $ 610 94.8% $ 6,349 --- ------------- ------------- --------- Calais Forest........................ 750 $ 555 91.54% -- -- Napa Valley.......................... 763 $ 548 92.92% -- (7) -- (7) Westside Creek I & II................ 1,042 $ 604 92.86% $ 4,875 8.760% & -- (7) Whispering Oaks...................... 934 $ 534 93.24% -- -- --- ------------- ------------- --------- 708 $ 564 92.6% $ 4,875 --- ------------- ------------- --------- Tiffany Oaks......................... 813 $ 607 97.57% -- (7) -- (7) Marsh Oaks........................... 777 $ 560 94.17% -- (7) -- (7) Paddock Club - Brandon............... 1,164 $ 790 90.26% -- (2) -- (2) Anatole.............................. 717 $ 588 96.63% $ 7,000 5.625% &(1) Cooper's Hawk........................ 1,050 $ 669 92.79% -- (5) -- (5) Hunter's Ridge at Deerwood........... 878 $ 612 97.32% -- (10) -- (10) Lakeside............................. 827 $ 605 91.35% -- (7) -- (7) Paddock Club - Jacksonville I , II & III................................. 1,080 $ 728 92.95% -- (8) -- (8) Paddock Club - Mandarin.............. 1,147 $ 764 94.10% -- (2) -- (2) St. Augustine........................ 761 $ 550 95.75% -- (5) -- (5) Woodbridge at the Lake............... 883 $ 617 96.81% -- (2) -- (2) Woodhollow........................... 760 $ 597 95.11% $ 9,784 7.500% Paddock Club - Lakeland I & II....... 1,089 $ 682 95.91% -- (8) -- (8) Savannahs at James Landing........... 932 $ 604 95.31% -- (5) -- (5) Paddock Park - Ocala I & II.......... 1,011 $ 649 94.38% $ 6,805 6.500% Paddock Club - Tallahassee I & II.... 1,083 $ 692 93.75% $ 4,691 8.500% Belmere.............................. 964 $ 649 92.86% -- (7) -- (7) Links at Carrollwood................. 934 $ 653 98.04% $ 5,704 8.750% --- ------------- ------------- --------- 774 $ 649 94.6% $33,984 --- ------------- ------------- --------- High Ridge........................... 1,166 $ 765 94.38% -- (7) -- (7) Shenandoah Ridge..................... 819 $ 477 97.06% -- (7) -- (7) Bradford Pointe...................... 814 $ 557 94.27% $ 4,760 5.10% Westbury Creek....................... 892 $ 566 95.83% $ 3,121 7.594% Fountain Lake........................ 1,180 $ 690 90.00% $ 2,929 7.750% Island Retreat....................... 1,157 $ 708 89.29% $ 3,388 7.215% Park Walk............................ 909 $ 642 95.97% $ 3,343 6.370% Enclave at Whisperwood............... 1,232 $ 760 92.86% -- (1) -- (1) 2000 Wynnton......................... 917 $ 468 97.22% -- -- Riverwind............................ 916 $ 477 93.18% -- -- Whisperwood I & Spa I................ 1,207 $ 631 95.67% -- (1) -- (1) Willow Creek......................... 866 $ 504 97.19% -- (7) -- (7) Terraces at Fieldstone............... 1,111 $ 813 96.20% -- (2) -- (2) Hollybrook........................... 1,194 $ 604 89.87% -- -- Whispering Pines I & II.............. 1,033 $ 577 90.28% $ 5,183 7.750% Westbury Springs..................... 918 $ 691 96.67% $ 4,186 7.500% Austin Chase......................... 1,144 $ 667 95.70% -- (10) -- (10) The Vistas........................... 1,068 $ 596 98.61% $ 4,015 6.230% Georgetown Grove..................... 1,090 $ 720 94.09% $10,460 7.750% Wildwood I & II...................... 1,033 $ 504 96.76% $ 4,019 7.500% MATURITY PROPERTY DATE - ------------------------------------- --------------- Eagle Ridge.......................... 07/01/28 Abbington Place...................... -- (2) Paddock Club - Huntsville............ -- Paddock Club - Huntsville II......... -- Calais Forest........................ -- Napa Valley.......................... -- (7) Westside Creek I & II................ 10/01/06 & -- (7) Whispering Oaks...................... -- Tiffany Oaks......................... -- (7) Marsh Oaks........................... -- (7) Paddock Club - Brandon............... -- (2) Anatole.............................. 12/01/27 & (1) Cooper's Hawk........................ -- (5) Hunter's Ridge at Deerwood........... -- (10) Lakeside............................. -- (7) Paddock Club - Jacksonville I , II & III................................. -- (8) Paddock Club - Mandarin.............. -- (2) St. Augustine........................ -- (5) Woodbridge at the Lake............... -- (2) Woodhollow........................... 09/01/02 Paddock Club - Lakeland I & II....... -- (8) Savannahs at James Landing........... -- (5) Paddock Park - Ocala I & II.......... 10/01/08 Paddock Club - Tallahassee I & II.... 04/01/36 Belmere.............................. -- (7) Links at Carrollwood................. 02/01/03 High Ridge........................... -- (7) Shenandoah Ridge..................... -- (7) Bradford Pointe...................... 06/01/28 Westbury Creek....................... 11/01/24 Fountain Lake........................ 04/01/24 Island Retreat....................... 03/01/03 Park Walk............................ 11/01/25 Enclave at Whisperwood............... -- (1) 2000 Wynnton......................... -- Riverwind............................ -- Whisperwood I & Spa I................ -- (1) Willow Creek......................... -- (7) Terraces at Fieldstone............... -- (2) Hollybrook........................... -- Whispering Pines I & II.............. 01/01/23 Westbury Springs..................... 07/01/23 Austin Chase......................... -- (10) The Vistas........................... 03/01/28 Georgetown Grove..................... 07/01/37 Wildwood I & II...................... 12/01/20
6
APPROXIMATE YEAR RENTABLE YEAR MANAGEMENT NUMBER AREA PROPERTY LOCATION COMPLETED COMMENCED OF UNITS (SQUARE FT.) - ------------------------------------- --------------------- ---------- ----------- ---------- ------------- Hidden Lake I & II................... Union City, GA 1985 1997 320 171,192 Three Oaks I & II.................... Valdosta, GA 1983 1997 240 123,904 Southland Station I & II............. Warner Robins, GA 1987 1997 304 186,704 Terraces at Towne Lake............... Woodstock, GA 1997 1997 264 286,968 --- ------------- 5,303 4,567,320 --- ------------- Fairways at Hartland................. Bowling Green, KY 1996 1997 240 251,180 Paddock Club Florence................ Florence, KY 1994 1997 200 207,036 Lakepointe........................... Lexington, KY 1986 1994 118 90,614 Mansion, The......................... Lexington, KY 1987 1994 184 138,720 Village, The......................... Lexington, KY 1989 1994 252 182,716 Stonemill Village.................... Louisville, KY 1985 1994 384 324,008 --- ------------- 1,378 1,194,274 --- ------------- Canyon Creek......................... St. Louis, MO 1987 1994 320 312,592 --- ------------- Riverhills........................... Grenada, MS 1972 1985 96 81,942 Advantages, The...................... Jackson, MS 1984 1991 252 199,136 Crosswinds........................... Jackson, MS 1988/1989 1996 360 443,200 Pear Orchard......................... Jackson, MS 1985 1994 389 338,400 Pine Trails.......................... Jackson, MS 1978 1988 120 98,560 Reflection Pointe.................... Jackson, MS 1986 1988 296 254,856 Somerset Place....................... Jackson, MS 1981 1995 144 126,848 Woodridge............................ Jackson, MS 1987 1988 192 175,034 --- ------------- 1,849 1,717,976 --- ------------- Hermitage at Beechtree............... Cary, NC 1988 1997 194 169,776 Corners, The......................... Winston-Salem, NC 1982 1993 240 173,496 --- ------------- 434 343,272 --- ------------- Fairways at Royal Oak................ Cincinnati, OH 1988 1994 214 214,477 --- ------------- Woodwinds............................ Aiken, SC 1988 1997 144 165,188 Tanglewood........................... Anderson, SC 1980 1994 168 146,600 The Fairways......................... Columbia, SC 1992 1994 240 213,720 Paddock Club - Columbia I & II....... Columbia, SC 1989 1997 336 218,872 Highland Ridge....................... Greenville, SC 1984 1995 168 144,000 Howell Commons....................... Greenville, SC 1986/88 1997 348 292,840 Paddock Club - Greenville............ Greenville, SC 1996 1997 208 212,104 Park Haywood......................... Greenville, SC 1983 1993 208 156,776 Spring Creek......................... Greenville, SC 1984 1995 208 182,000 Runaway Bay.......................... Mt. Pleasant, SC 1988 1995 208 177,840 Park Place........................... Spartanburg, SC 1987 1997 184 195,312 --- ------------- 2,420 2,105,252 --- ------------- Steeplechase......................... Chattanooga, TN 1986 1991 108 98,602 Windridge............................ Chattanooga, TN 1984 1997 174 238,704 Oaks, The............................ Jackson, TN 1978 1993 100 87,512 Post House Jackson................... Jackson, TN 1987 1989 150 163,640 Post House North..................... Jackson, TN 1987 1989 144 144,724 Williamsburg Village................. Jackson, TN 1987 1994 148 121,412 Woods at Post House.................. Jackson, TN 1995 1995 122 118,922 Clearbrook Village................... Memphis, TN 1974 1987 176 150,400 Crossings............................ Memphis, TN 1974 1991 80 89,968 ENCUMBRANCES AT AVERAGE AVERAGE DECEMBER 31, 1999 AVERAGE RENT PER OCCUPANCY --------------------------- UNIT UNIT AT % AT MORTGAGE SIZE DECEMBER 31, DECEMBER 31, PRINCIPAL INTEREST PROPERTY (SQUARE FT.) 1999 1999 (000'S) RATE - ------------------------------------- ------------- ------------- ------------- --------- ------------ Hidden Lake I & II................... 1,070 $ 670 95.63% $ 4,455 6.34% & --(7) Three Oaks I & II.................... 1,033 $ 539 92.92% $ 5,687 7.500% Southland Station I & II............. 1,167 $ 642 97.37% -- (7) -- (7) Terraces at Towne Lake............... 1,087 $ 814 90.91% $15,132 8.250% --- ------------- ------------- --------- 861 $ 636 94.9% $70,678 --- ------------- ------------- --------- Fairways at Hartland................. 1,047 $ 588 92.50% $ 4,552 8.875% Paddock Club Florence................ 1,035 $ 739 84.50% $ 9,620 7.250% Lakepointe........................... 768 $ 562 99.15% -- (7) -- (7) Mansion, The......................... 754 $ 576 98.91% -- -- Village, The......................... 725 $ 593 95.63% -- (7) -- (7) Stonemill Village.................... 844 $ 587 92.45% -- (4) -- (4) --- ------------- ------------- --------- 867 $ 607 93.3% $14,172 --- ------------- ------------- --------- Canyon Creek......................... 977 $ 559 95.94% -- (4) -- (4) --- ------------- ------------- --------- Riverhills........................... 854 $ 400 88.54% $ 785 7.000% Advantages, The...................... 790 $ 466 92.46% -- (4) -- (4) Crosswinds........................... 1,231 $ 606 96.11% -- (7) -- (7) Pear Orchard......................... 870 $ 577 94.09% -- (7) -- (7) Pine Trails.......................... 821 $ 536 96.67% $ 1,270 7.000% Reflection Pointe.................... 861 $ 590 96.28% $ 5,882 5.35% &(1) Somerset Place....................... 881 $ 519 94.44% -- (7) -- (7) Woodridge............................ 912 $ 530 97.92% $ 4,677 6.500% --- ------------- ------------- --------- 929 $ 548 94.9% $12,614 --- ------------- ------------- --------- Hermitage at Beechtree............... 875 $ 687 89.18% -- (7) -- (7) Corners, The......................... 723 $ 551 97.08% $ 4,081 7.850% --- ------------- ------------- --------- 791 $ 612 93.5% $ 4,081 --- ------------- ------------- --------- Fairways at Royal Oak................ 1,002 $ 627 92.52% -- (7) -- (7) --- ------------- ------------- --------- Woodwinds............................ 1,147 $ 614 91.67% $ 3,466 8.840% Tanglewood........................... 873 $ 532 93.45% $ 2,410 7.600% The Fairways......................... 891 $ 606 97.08% $ 7,566 8.500% Paddock Club - Columbia I & II....... 1,094 $ 708 87.50% -- (2) -- (2) Highland Ridge....................... 857 $ 515 89.88% -- (3) -- (3) Howell Commons....................... 841 $ 509 95.69% -- (7) -- (7) Paddock Club - Greenville............ 1,020 $ 698 89.90% -- (4) -- (4) Park Haywood......................... 754 $ 537 98.08% -- (7) -- (7) Spring Creek......................... 875 $ 526 93.27% -- (3) -- (3) Runaway Bay.......................... 855 $ 694 94.71% -- (3) -- (3) Park Place........................... 1,061 $ 604 91.85% -- (7) -- (7) --- ------------- ------------- --------- 870 $ 598 93.0% $13,442 --- ------------- ------------- --------- Steeplechase......................... 913 $ 566 92.59% -- (7) -- (7) Windridge............................ 1,372 $ 676 96.55% $ 5,391 6.314% Oaks, The............................ 875 $ 521 97.00% -- (4) -- (4) Post House Jackson................... 1,091 $ 596 89.33% $ 5,052 8.170% Post House North..................... 1,005 $ 609 93.06% $ 3,461 5.750% Williamsburg Village................. 820 $ 539 90.54% -- (7) -- (7) Woods at Post House.................. 975 $ 643 90.98% $ 5,255 7.250% Clearbrook Village................... 855 $ 530 96.59% $ 1,014 9.000% Crossings............................ 1,125 $ 679 93.75% -- (4) -- (4) MATURITY PROPERTY DATE - ------------------------------------- -------------- Hidden Lake I & II................... 12/1/26 & -- (7) Three Oaks I & II.................... 02/01/22 Southland Station I & II............. -- (7) Terraces at Towne Lake............... 01/01/37 Fairways at Hartland................. 05/01/00 Paddock Club Florence................ 02/01/36 Lakepointe........................... -- (7) Mansion, The......................... -- Village, The......................... -- (7) Stonemill Village.................... -- (4) Canyon Creek......................... -- (4) Riverhills........................... 05/01/13 Advantages, The...................... -- (4) Crosswinds........................... -- (7) Pear Orchard......................... -- (7) Pine Trails.......................... 04/01/15 Reflection Pointe.................... 12/01/27 & (1) Somerset Place....................... -- (7) Woodridge............................ 10/01/27 Hermitage at Beechtree............... -- (7) Corners, The......................... 06/15/03 Fairways at Royal Oak................ -- (7) Woodwinds............................ 06/01/05 Tanglewood........................... 11/15/02 The Fairways......................... 03/01/33 Paddock Club - Columbia I & II....... -- (2) Highland Ridge....................... -- (3) Howell Commons....................... -- (7) Paddock Club - Greenville............ -- (4) Park Haywood......................... -- (7) Spring Creek......................... -- (3) Runaway Bay.......................... -- (3) Park Place........................... -- (7) Steeplechase......................... -- (7) Windridge............................ 12/01/24 Oaks, The............................ -- (4) Post House Jackson................... 10/01/27 Post House North..................... 09/01/25 Williamsburg Village................. -- (7) Woods at Post House.................. 09/01/35 Clearbrook Village................... 05/01/08 Crossings............................ -- (4)
7
APPROXIMATE AVERAGE YEAR RENTABLE UNIT YEAR MANAGEMENT NUMBER AREA SIZE PROPERTY LOCATION COMPLETED COMMENCED OF UNITS (SQUARE FT.) (SQUARE FT.) - ------------------------------------- --------------- ---------- ----------- ---------- ------------- ------------- EastView............................. Memphis, TN 1974 1984 432 356,480 825 Glen Eagles.......................... Memphis, TN 1975 1990 184 189,560 1,030 Greenbrook........................... Memphis, TN 1986 1988 1,031 934,490 906 Hickory Farm......................... Memphis, TN 1985 1994 200 150,256 751 Kirby Station........................ Memphis, TN 1978 1994 371 310,173 836 Lincoln on the Green................. Memphis, TN 1988 1994 384 293,664 765 Lincoln on the Green II.............. Memphis, TN 1997 1997 234 241,280 1,031 McKellar Woods....................... Memphis, TN 1976 1988 624 589,776 945 Park Estate.......................... Memphis, TN 1974 1977 82 95,751 1,182 River Trace I & II................... Memphis, TN 1981 1977 440 205,780 843 Savannah Creek....................... Memphis, TN (6) 1989 1996 204 237,200 1,162 Sutton Place......................... Memphis, TN (6) 1991 1996 253 267,600 1,062 Winchester Square.................... Memphis, TN 1973 1977 253 301,409 1,196 Brentwood Downs...................... Nashville, TN 1986 1994 286 220,166 770 Park at Hermitage.................... Nashville, TN 1987 1995 440 392,480 892 ---------- ------------- --- 6,620 5,999,949 906 ---------- ------------- --- Balcones Woods....................... Austin, TX 1983 1997 384 313,756 817 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 410 552,220 1,347 Courtyards at Campbell............... Dallas, TX 1986 1998 231 167,475 725 Deer Run............................. Dallas, TX 1985 1998 304 206,720 680 Lodge at Timberglen.................. Dallas, TX 1984 1994 260 226,124 870 MacArthur Ridge...................... Irving, TX 1991 1994 248 210,393 848 Westborough.......................... Katy, TX 1984 1994 274 197,264 720 Highwood............................. Plano, TX 1983 1996 196 156,800 800 Cypresswood Court.................... Spring, TX 1984 1994 208 160,672 772 Green Tree Place..................... Woodlands, TX 1984 1994 200 152,168 761 ---------- ------------- --- 3,307 2,842,312 859 ---------- ------------- --- Township............................. Hampton, VA 1987 1995 296 248,048 838 ---------- ------------- --- TOTAL COMPLETED PROPERTIES........ 29,468 25,343,784 860 ---------- ------------- --- JOINT VENTURE PROPERTIES: - ------------------------------------- Cedar Mill........................... Memphis, TN 1973/1986 1982/1994 276 297,794 1,079 Hamilton Pointe...................... Chattanooga, TN 1989 1992 361 256,716 711 Hidden Creek......................... Chattanooga, TN 1987 1988 300 259,152 864 Lane at Towne Crossing............... Mesquite, TX 1983 1994 384 277,616 723 Lakeshore Landing.................... Jackson, MS 1974 1994 196 171,156 873 Woodstream........................... Greensboro, NC 1983 1994 304 217,186 714 Walden Run........................... McDonough, GA 1997 1998 240 271,200 1,130 Woods................................ Austin, TX 1977 1997 278 213,970 770 Colony at South Park................. Aiken, SC 1989/91 1997 184 174,800 950 Northwood............................ Arlington, TX 1980 1998 270 224,100 830 ---------- ------------- --- TOTAL JOINT VENTURE PROPERTIES.... 2,793 2,363,690 846 ---------- ------------- --- DEVELOPMENT PROPERTIES: - ------------------------------------- Paddock Club - Montgomery............ Montgomery, AL 1999 1999 208 230,880 1,110 Paddock Club - Brandon II (11)....... Brandon, FL 1999 1999 132 157,476 1,193 Paddock Club - Gainsville (11)....... Gainsville, FL 1999 1999 264 293,040 1,110 ---------- ------------- --- ENCUMBRANCES AT AVERAGE AVERAGE DECEMBER 31, 1999 RENT PER OCCUPANCY ------------------------------------------------- UNIT AT % AT MORTGAGE DECEMBER 31, DECEMBER 31, PRINCIPAL INTEREST MATURITY PROPERTY 1999 1999 (000'S) RATE DATE - ------------------------------------- ------------- ------------- --------- --------- -------------- EastView............................. $ 508 95.83% $ 11,696 8.630% 12/01/99 Glen Eagles.......................... $ 579 100.00% -- (4) -- (4) -- (4) Greenbrook........................... $ 542 93.70% -- (9) -- (9) -- (9) Hickory Farm......................... $ 536 97.50% -- (4) -- (4) -- (4) Kirby Station........................ $ 589 98.38% -- (7) -- (7) -- (7) Lincoln on the Green................. $ 598 96.09% -- (8) -- (8) -- (8) Lincoln on the Green II.............. $ 768 96.58% -- (8) -- (8) -- (8) McKellar Woods....................... $ 474 93.27% -- (9) -- (9) -- (9) Park Estate.......................... $ 733 91.46% -- (9) -- (9) -- (9) River Trace I & II................... $ 559 98.86% $ 11,231 8.000% 02/01/22 Savannah Creek....................... $ 624 96.08% -- (7) -- (7) -- (7) Sutton Place......................... $ 595 95.65% -- (7) -- (7) -- (7) Winchester Square.................... $ 589 96.05% -- (4) -- (4) -- (4) Brentwood Downs...................... $ 666 94.76% -- -- -- Park at Hermitage.................... $ 603 91.14% $ 7,770 5.790% 02/01/19 ------------- ------------- --------- $ 577 95.0% $ 50,870 ------------- ------------- --------- Balcones Woods....................... $ 702 97.14% $ 8,608 7.630% 11/01/03 Stassney Woods....................... $ 604 100.00% $ 4,595 6.600% 10/01/19 Travis Station....................... $ 570 97.37% $ 4,065 6.600% 04/01/19 Celery Stalk......................... $ 662 94.15% $ 8,460 9.006% 12/01/04 Courtyards at Campbell............... $ 669 96.98% -- (1) -- (1) -- (1) Deer Run............................. $ 607 95.07% -- (1) -- (1) -- (1) Lodge at Timberglen.................. $ 636 92.31% $ 4,740 9.006% 12/01/04 MacArthur Ridge...................... $ 719 93.15% -- (1) -- (1) -- (1) Westborough.......................... $ 538 98.18% $ 3,958 9.006% 12/01/04 Highwood............................. $ 675 90.31% -- (9) -- (9) -- (9) Cypresswood Court.................... $ 541 95.67% $ 3,330 9.006% 12/01/04 Green Tree Place..................... $ 613 94.50% $ 3,180 9.006% 12/01/04 ------------- ------------- --------- $ 631 95.6% $ 40,936 ------------- ------------- --------- Township............................. $ 584 93.92% $ 10,800 5.10% &(1) 02/01/28 &(1) ------------- ------------- --------- TOTAL COMPLETED PROPERTIES........ $ 610 94.6% $262,801 ------------- ------------- --------- JOINT VENTURE PROPERTIES: - ------------------------------------- Cedar Mill........................... $ 588 94.93% N/A Hamilton Pointe...................... $ 481 91.14% N/A Hidden Creek......................... $ 499 89.33% N/A Lane at Towne Crossing............... $ 554 90.10% N/A Lakeshore Landing.................... $ 531 90.82% N/A Woodstream........................... $ 560 98.36% N/A Walden Run........................... $ 736 95.00% N/A Woods................................ $ 726 99.28% N/A Colony at South Park................. $ 595 92.93% N/A Northwood............................ $ 547 93.70% N/A ------------- ------------- --------- TOTAL JOINT VENTURE PROPERTIES.... $ 576 93.4% N/A ------------- ------------- --------- DEVELOPMENT PROPERTIES: - ------------------------------------- Paddock Club - Montgomery............ $ 717 97.12% -- (2) -- (2) -- (2) Paddock Club - Brandon II (11)....... $ 878 91.67% -- (2) -- (2) -- (2) Paddock Club - Gainsville (11)....... $ 794 88.64% -- (1) -- (1) -- (1)
8
APPROXIMATE YEAR RENTABLE YEAR MANAGEMENT NUMBER AREA PROPERTY LOCATION COMPLETED COMMENCED OF UNITS (SQUARE FT.) - ------------------------------------- --------------------- ---------- ----------- ---------- ------------- Paddock Club - Panama City (11)...... Panama City, FL 1999 1999 254 283,972 Terraces at Towne Lake II............ Woodstock, GA 1999 1999 238 272,986 Grand Reserve Lexington (11)......... Lexington, KY 1999 1999 52 60,788 Reserve at Dexter Lake............... Memphis, TN 1999 1999 252 262,332 Paddock Club - Murfreesboro (11)..... Murfreesboro, TN 1999 1999 240 268,800 ---------- ------------- Total Development Properties...... 1,640 1,830,274 ---------- ------------- TOTAL PROPERTIES.................. 33,901 29,537,748 ========== ============= ENCUMBRANCES AT AVERAGE AVERAGE DECEMBER 31, 1999 AVERAGE RENT PER OCCUPANCY -------------------------- UNIT UNIT AT % AT MORTGAGE SIZE DECEMBER 31, DECEMBER 31, PRINCIPAL INTEREST PROPERTY (SQUARE FT.) 1999 1999 (000'S) RATE - ------------------------------------- ------------- ------------- ------------- --------- ------------- Paddock Club - Panama City (11)...... 1,118 $ 801 73.79% -- (1) -- (1) Terraces at Towne Lake II............ 1,147 $ 827 94.12% -- (2) -- (2) Grand Reserve Lexington (11)......... 1,169 $ 1,000 38.46% -- (1) -- (1) Reserve at Dexter Lake............... 1,041 $ 778 95.63% -- (1) -- (1) Paddock Club - Murfreesboro (11)..... 1,120 $ 784 78.75% -- (1) -- (1) --- ------------- ------------- --------- Total Development Properties...... 1,116 $ 800 86.5% $ -- --- ------------- ------------- --------- TOTAL PROPERTIES.................. 871 $ 610(11) 94.6%(11) $262,801 === ============= ============= ========= MATURITY PROPERTY DATE - ------------------------------------- --------------- Paddock Club - Panama City (11)...... -- (1) Terraces at Towne Lake II............ -- (2) Grand Reserve Lexington (11)......... -- (1) Reserve at Dexter Lake............... -- (1) Paddock Club - Murfreesboro (11)..... -- (1) Total Development Properties...... TOTAL PROPERTIES..................
- ------------ (1) Encumbered by the AmSouth Credit Line, with an outstanding balance of $60.2 million and a variable interest rate of 7.15% at December 31, 1999. (2) Encumbered by the FNMA Credit Line, with an outstanding balance of $113.2 million and a variable interest rate of 6.28% at December 31, 1999. (3) These three properties are encumbered by a $9.86 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 6.09%. (4) These eight properties are encumbered by a $43.4 million mortgage with an interest rate of 8.65%, maturing July 01, 2001. (5) These three properties are encumbered by a $16.1 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 5.75%. (6) These two properties are located in Desoto County, MS, a suburb of Memphis, TN. The Company considers the properties a part of the Memphis, TN market. (7) These 26 communities are encumbered by a $142 million loan with a maturity of March 3, 2003 and an average interest rate of 6.376%. (8) These five properties are encumbered by a $47.5 million mortgage with a maturity of December 15, 2004 and an interest rate of 7.04%. (9) These three properties, and one commercial building, are encumbered by a $35.3 million mortgage with a maturity of April 1, 2005. (10) These two properties are encumbered by a $14 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 5.281%. (11) Calculation excludes five of the development properties containing 942 units which are in lease-up at December 31, 1999. 9 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 Common Stock has been listed and traded on the NYSE under the symbol "MAA" since the Initial Offering in February 1994. On March 17, 2000, the reported last sale price of the Company's common stock on the NYSE was $22.625 per share and there were approximately 1,700 holders of record of the Common Stock. The Company estimates there are approximately 11,500 beneficial owners of the Common Stock. The following table sets forth the quarterly high and low sales prices of the Common Stock as reported on the NYSE and the distributions declared by the Company with respect to the periods indicated. SALES PRICES -------------------- DIVIDENDS HIGH LOW DECLARED --------- --------- ---------- 1998: First Quarter........................ $ 29.875 $ 27.500 .55 Second Quarter....................... 29.063 25.625 .55 Third Quarter........................ 28.000 22.938 .55 Fourth Quarter....................... 26.000 22.625 .575 1999: First Quarter........................ 24.125 20.875 .575 Second Quarter....................... 25.000 21.188 .575 Third Quarter........................ 23.125 21.000 .575 Fourth Quarter....................... 23.063 21.438 .58 The Company's current annual distribution rate with respect to the Common Stock is $2.32 per share. The actual distributions 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 monthly 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 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. The Company had a Dividend Reinvestment and Stock Purchase Plan (the "DRSPP") under which holders of Common Stock (and Series A, Series B, Series C and Series E Preferred Stock) could 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 were purchased at up to a 3% discount from their fair market value at the Company's discretion. To fulfill its obligations under the DRSPP, the Company may either issue additional shares of Common Stock or repurchase Common Stock in the open market. In 1999, the Company implemented the Direct Stock Purchase and Distribution Reinvestment Plan (the "DSPDRP") which has terms substantially similar to the above DRSPP, except for certain additional benefits offered relating to purchase of the Company's common shares. The plan replaced the DRSPP, and its participants were automatically enrolled in the new plan. 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 Code and such other factors as the Board of Directors deems relevant. 10 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. MID-AMERICA APARTMENT COMMUNITIES, INC. SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------ ------------ ------------ ---------- ---------- OPERATING DATA: Total revenues....................... $ 226,322 $ 215,543 $ 139,116 $ 111,882 $ 94,963 Expenses: Property expenses ................. 84,885 79,917 52,404 42,570 37,954 General and administrative......... 14,479 11,960 6,602 6,154 4,851 Interest........................... 48,302 45,704 28,943 25,766 22,684 Depreciation and amortization...... 49,903 46,021 27,737 21,443 16,574 Amortization of deferred financing costs........................... 2,854 2,348 888 661 593 Gain on dispositions................. 10,237 408 -- 2,185 -- ------------ ------------ ------------ ---------- ---------- Income before minority interest in operating partnership income and extraordinary item................. 36,136 30,001 22,542 17,473 12,307 Minority interest in operating partnership income................. 2,497 2,254 2,693 3,213 2,497 Extraordinary item................... (67) (990) (8,622) -- -- ------------ ------------ ------------ ---------- ---------- Net income........................... 33,572 26,757 11,227 14,260 9,810 Preferred dividends.................. 16,114 11,430 5,252 990 -- ------------ ------------ ------------ ---------- ---------- Net income available for common shareholders....................... $ 17,458 $ 15,327 $ 5,975 $ 13,270 $ 9,810 ============ ============ ============ ========== ========== PER SHARE DATA: Basic and diluted: Before extraordinary item.......... $ 0.93 $ 0.87 $ 1.05 $ 1.21 $ 1.00 Extraordinary item................. -- (0.05) (0.62) -- -- ------------ ------------ ------------ ---------- ---------- Net income available per common share........................... $ 0.93 $ 0.82 $ 0.43 $ 1.21 $ 1.00 ============ ============ ============ ========== ========== Dividends declared................... $ 2.305 $ 2.225 $ 2.155 $ 2.065 $ 2.01 BALANCE SHEET DATA: Real estate owned, at cost........... $ 1,396,743 $ 1,434,733 $ 1,211,693 $ 641,893 $ 578,788 Real estate owned, net............... $ 1,248,051 $ 1,315,368 $ 1,134,704 $ 592,335 $ 549,284 Total assets......................... $ 1,298,823 $ 1,366,427 $ 1,193,870 $ 611,199 $ 565,267 Total debt........................... $ 744,238 $ 753,427 $ 632,213 $ 315,239 $ 307,939 Minority interest.................... $ 56,060 $ 61,441 $ 62,865 $ 39,238 $ 41,049 Shareholders' equity................. $ 463,884 $ 517,299 $ 461,300 $ 241,384 $ 202,278 Weighted average common shares (000's): Basic.............................. 18,784 18,725 13,892 10,938 9,772 Diluted............................ 18,808 18,770 13,955 10,983 9,814 OTHER DATA (AT END OF PERIOD): Market capitalization (shares and units)............................. $ 639,095 $ 670,123 $ 710,175 $ 436,739 $ 331,238 Ratio of total debt to total capitalization(1).................. 53.8% 52.9% 47.1% 41.9% 48.2% Number of properties, including ownership interest................. 129 129 116 73 70 Number of apartment units, including ownership interest................. 33,901 33,831 30,579 19,280 18,219
- ------------ (1) Total capitalization is total debt and market capitalization of preferred shares, common shares and partnership units. 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following is a discussion of the consolidated financial condition and results of operations of the Company for the years ended December 31, 1999, 1998, and 1997. This discussion should be read in conjunction with all of the financial statements included in this Annual Report on Form 10-K. 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 its 33.3% unconsolidated Joint Venture, at December 31, 1999 was 33,901 in 129 communities, compared to the 33,831 units in 129 communities owned at December 31, 1998 and 30,579 in 116 communities owned at December 31, 1997. The average monthly rental per apartment unit increased to $610 at December 31, 1999 from $597 at December 31, 1998 and $568 at December 31, 1997. Overall occupancy at December 31, 1999, 1998 and 1997 was 94.6%, 94.1% and 93.9%, respectively. FUNDS FROM OPERATIONS Funds from operations ("FFO") represents net income (computed in accordance with GAAP) excluding extraordinary items, minority interest in Operating Partnership income, gain or loss on disposition of real estate assets, and certain non-cash and other items, primarily depreciation and amortization, less preferred stock dividends. Adjustments for the unconsolidated joint venture are made to include the Company's portion of FFO in the calculation. The Company computes FFO in accordance with NAREIT's current definition, which eliminates amortization of deferred financing costs and depreciation of non-real estate assets as items added back to net income when computing FFO. The Company'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 because they are necessary for the continued use of the property, and, thus, are not deducted in calculating FFO. At its October 27, 1999 meeting, NAREIT approved the recommendations of its Best Financial Practices Council with respect to clarifying the definition of FFO. The Council recommends that FFO should include all operating results, both recurring and non-recurring, except those results defined as "extraordinary" under GAAP. The Company plans to adopt this definition effective January 1, 2000, and will reflect this clarification for all periods presented in subsequent financial statements. 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. Depreciation expense includes $385,000, $245,000 and $195,000 at December 31, 1999, 1998 and 1997, respectively, which relates to computer software, office furniture and fixtures and other assets found in other industries and which is required to be recognized, for purposes of computing funds from operations. 12 Funds from operations ("FFO") decreased during 1999 by $3,947,000 to $60,046,000 versus $63,993,000 for 1998. FFO for 1997 was $44,896,000. FFO for the three years ending December 31, 1999, 1998 and 1997 is calculated as follows (dollars in thousands): YEAR ENDING DECEMBER 31, -------------------------------- 1999 1998 1997 ---------- --------- --------- Net income available for common shareholders....................... $ 17,458 $ 15,327 $ 5,975 Depreciation and amortization........ 49,188 45,776 27,542 Adjustment for joint venture depreciation....................... 741 -- -- Minority interest.................... 2,497 2,254 2,693 Gain on disposition of assets........ (10,237) (408) -- Extraordinary items.................. 67 990 8,622 Other non-recurring items............ 332 54 64 ---------- --------- --------- Funds from operations................ $ 60,046 $ 63,993 $ 44,896 ========== ========= ========= Weighted average shares and units: Basic........................... 21,794 21,717 16,419 Diluted......................... 21,817 21,764 16,482 RESULTS OF OPERATIONS COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO THE YEAR ENDED DECEMBER 31, 1998 During 1999 the Company sold 10 apartment communities containing 2,793 apartment units to the Joint Venture and retained a 33.33% ownership interest and continued to manage the units for a fee of 4% of revenue. The Company also completed development of 1,277 total apartment units in 7 new communities and 2 existing communities and sold three communities containing 1,138 units. Rental revenues for 1999 increased by $11,507,000 due primarily to increases of (i) $6,371,000 from the 8 communities acquired in 1998 and owned throughout 1999, (ii) $12,587,000 from the development communities completed during 1998 and 1999, and (iii) $4,281,000 from the communities owned throughout both periods. These increases were partially offset by decreases of (i) $9,691,000 due to the sale of 10 properties to the Joint Venture in 1999 and (ii) $2,041,000 from the sale of Redford Park Apartments in 1998 and the sale of Hidden Oaks Apartments, Sailwinds at Lake Magdalene Apartments and Regency Club Apartments in 1999. Property operating expenses include costs for property personnel, building repairs and maintenance, real estate taxes and insurance, utilities, landscaping and other property operating related costs. As a percentage of rental revenues, property operating expenses increased from 37.9% in 1998 to 38.2% in 1999. The majority of the increase is related to increased real estate taxes. Reappraisals in some of the Company's markets, coupled with changes in tax rates in Shelby County, Tennessee, and the annexation of three of the Company's properties in the City of Memphis were the principal causes of the increase. Certain other expenses contributed to the increase in operating expenses, including initial lease-up costs for the development properties, and expenses associated with certain fires and wind damage occurring during the year. Personnel costs remained flat as a percentage of rental revenues from 1998 to 1999. In 1999 repair and maintenance costs decreased to 4.6% of rental revenues as compared to 4.8% in 1998 primarily as a result of the Company's significant investment of capital for the last two years to reposition the 7,600 units acquired in the 1997 FDC Merger. Also in 1999, utilities costs decreased to 4.1% of rental revenue as compared to 4.5% for the same period in 1998 mainly due to continued savings from the Company's program to submeter units for water usage. Property operating expenses for 1999 increased by $4,968,000 due primarily to (i) $2,637,000 from the 8 communities acquired in 1998 and owned throughout 1999, (ii) $4,290,000 from the development communities completed during 1998 and 1999 and (iii) $2,530,000 from the communities owned throughout both periods. These increases were partially offset by decreases of (i) $3,609,000 due to the sale of 10 properties to the Joint Venture in 1999 and (ii) $880,000 from the sale of Redford Park Apartments in 1998 and the sale of 13 Hidden Oaks Apartments, Sailwinds at Lake Magdalene Apartments and Regency Club Apartments in 1999. Depreciation and amortization expense increased by $3,882,000 primarily due to (i) $1,448,000 from the 8 communities acquired in 1998 and owned throughout 1999, (ii) $2,232,000 from the development communities completed during 1998 and 1999, and (iii) $1,661,000 from the communities owned throughout both periods. These increases were offset by decreases of (i) $1,793,000 due to the sale of 10 properties to the Joint Venture in 1999 and (ii) $291,000 from the sale of Redford Park Apartments in 1998 and the sale of Hidden Oaks Apartments, Sailwinds at Lake Magdalene Apartments and Regency Club Apartments in 1999. Amortization of costs in excess of fair value of net assets acquired was $849,000 and $1,474,000, for 1999 and 1998, respectively, which is included in depreciation and amortization in the accompanying consolidated statement of operations. The decrease is due to the write off of goodwill in connection with the sale of FDC during 1999. Amortization of deferred financing costs was $2,854,000 and $2,348,000 for 1999 and 1998, respectively. The majority of the increase is due to additional financing costs related to the restructuring of the AmSouth Credit Line and the addition of the new FNMA Credit Line. General and administrative expense increased by $2,519,000 mainly due to (i) approximately $800,000 in additional property level and support management bonuses related primarily to improved property level performance at certain properties as compared to the prior year, (ii) approximately $700,000 in additional training costs related to the Company's recent investment in regional training centers, (iii) approximately $450,000 in additional administrative costs related to recent systems initiatives and staffing changes to support the Company's portfolio growth, (iv) approximately $250,000 from increased franchise and excise taxes related to recent legislative changes in the state of Tennessee, and (v) approximately $240,000 in increased employee insurance costs. Interest expense increased $2,598,000 due primarily increased debt related to the 10 property acquisitions in 1998 and additional credit line funding to complete the new development properties. The Company reduced its average borrowing cost to 7.06% at December 31, 1999 as compared to 7.11% on December 31, 1998. The average maturity on the Company's debt was 10.7 years and 10.9 years at December 31, 1999 and 1998, respectively. For the year ended December 31, 1999 the Company recorded a net gain on disposition of assets totaling $10,237,000 comprised of the following transactions: GAIN (LOSS) ----------- Gain on sale of ten communities sold to Joint Venture, net of deferred gain of $4,581,000................. $ 9,264,000 Gain on sale of three communities.... 5,004,000 Loss on sale of FDC.................. (4,031,000) ----------- $10,237,000 =========== The Company recorded an extraordinary loss of $67,000, net of minority interest, for 1999 related to the early extinguishment of the mortgage for Eastview Apartments. As a result of the foregoing, income before minority interest and extraordinary item for the year ended December 31, 1999 increased $6,135,000 over the same period a year earlier. COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED DECEMBER 31, 1997 During 1998 the Company acquired 10 apartment communities containing 2,129 apartment units and completed development of 1,335 total apartment units in 6 new communities and 4 existing communities. Also, the Company sold one community containing 212 units. Total revenues for 1998 increased by $76,427,000, due primarily to (i) $7,735,000 from the 10 communities acquired in 1998, (ii) $49,386,000 from the 30 completed communities acquired through the FDC Merger, (iii) $10,717,000 from a full years operation of the 12 communities acquired in 1997, (iv) $5,410,000 from new development communities completed in late 1997 and 1998, and (v) $3,116,000 14 from communities owned throughout both periods. The remaining net increase is mainly related to a full year of FSC management and development activities. Property operating expenses include costs for property personnel, building repairs and maintenance, real estate taxes and insurance, utilities, landscaping and other property related costs. Property operating expenses for 1998 increased by $27,513,000, due primarily to (i) $3,201,000 from the 10 Communities acquired in 1998, (ii) $17,480,000 from the 30 completed Communities acquired through the FDC Merger, (iii) $3,715,000 from a full years operation of the 12 Communities acquired in 1997, (iv) $2,013,000 from new development communities completed in 1997 and 1998, and (v) $1,348,000 from communities owned throughout both periods. As a percentage of rental revenues, property operating expenses decreased from 38.6% in 1997 to 37.9% in 1998. Personnel costs increased as a percentage of rental revenues from 10.8% in 1997 to 11.4% in 1998, due primarily to increased staffing to support the additional apartment units acquired in the FDC Merger and to produce a smooth lease-up of newly developed apartment units. As new development units are delivered, they require management, leasing, and maintenance staff to complete lease-up on schedule and to provide customer service. The ratio of personnel costs to revenues improves as a development community achieves stabilized occupancy. In 1998 repair and maintenance costs decreased to 4.8% of rental revenues as compared to 5.0% in 1997 primarily as a result of the Company's long standing commitment to spend adequate capital toward maintaining properties as well as the addition of the development units to the portfolio which require less repair and maintenance. Also in 1998, utilities costs decreased to 4.5% of rental revenue as compared to 4.7% for the same period in 1997 mainly due to continued savings from the Company's program to submeter units for water usage. General and administrative expense increased $5,358,000 for 1998 compared to 1997. This increase is mainly attributable to the increase in the number of employees due to the FDC Merger and the addition or expansion of certain functions to improve productivity and the quality of the Company's management. These additions are a one-time increase related to the acquisition and integration of FDC and preparation for continued future growth. Depreciation and amortization expense increased $18,284,000 from 1997 to 1998 due primarily to additional depreciation expense of (i) $1,549,000 from the 10 Communities acquired in 1998, (ii) $10,050,000 from the 30 completed Communities acquired through the FDC Merger, (iii) $2,583,000 from a full year operation of the 12 Communities acquired in 1997, (iv) $998,000 from development communities completed in 1997 and 1998, and (v) $2,055,000 from the communities owned throughout both periods. Also, amortization of deferred financing costs was $2,348,000 and $888,000 for 1998 and 1997, respectively. The majority of the increase is due to additional financing costs related to the restructuring of the Credit Line and the Bonds issued by the Company's special purpose subsidiary. Amortization of costs in excess of fair value of net assets acquired was $1,474,000 and $309,000, for 1998 and 1997, respectively, which are included in depreciation and amortization in the accompanying consolidated statement of operations. Interest expense increased $16,761,000 during 1998 due primarily to additional funding required for apartment acquisitions, development projects, and the FDC Merger. The Company reduced its average borrowing cost to 7.11% at December 31, 1998 as compared to 7.41% on December 31, 1997. The average maturity on the Company's debt was 10.9 years and 10.2 years at December 31, 1998 and 1997, respectively. For the year ended December 31, 1998 the Company recorded a gain on disposition of assets of $408,000 related to the sale of Redford Park Apartments, which also resulted in a loss on early extinguishment of the related debt. The Company recorded a total extraordinary loss of $990,000, net of minority interest, for 1998 related to the repayment of the mortgage for Redford Park Apartments and certain other debt. As a result of the foregoing, income before minority interest and extraordinary item for the year ended December 31, 1998 increased $7,459,000 over the same period a year earlier. 15 LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $74,978,000 in 1999 as compared to $80,405,000 in 1998. During 1999 the Company received total proceeds of $153,311,000 from the sale of 10 properties to the Joint Venture, the sale of 3 additional properties, and the sale of the development, construction and fee management businesses. The Company invested $71,563,000 in the development and construction of new properties or expansions of existing properties, $34,377,000 in total capital improvements to existing properties, and $8,085,000 in capital and advances to the Joint Venture. During 1998 the Company invested $63,732,000 in the purchase of additional properties, $107,963,000 in the development and construction of new properties, and $32,336,000 in total capital improvements to existing properties. Also during 1998 the Company received total proceeds of $5,424,000 from the disposition of properties. The following table summarizes the Company's communities in various stages of lease-up, construction, development, and pre-development as of December 31, 1999 (Dollars in 000's):
ANTICIPATED ANTICIPATED TOTAL BUDGETED COSTS TO FINISH INITIAL LOCATION UNITS COST DATE DATE OCCUPANCY --------------------- ------ --------- --------- ------------ ------------ COMPLETED COMMUNITIES IN LEASE-UP: Paddock Club Gainesville............. Gainesville, FL 264 $ 17,688 $ 17,678 1Q 1999 3Q 1998 Terraces at Towne Lake II............ Cherokee County, GA 238 13,421 13,313 1Q 1999 4Q 1998 Paddock Club Brandon II.............. Brandon, FL 132 8,063 8,018 1Q 1999 1Q 1999 Reserve at Dexter Lake............... Memphis, TN 252 17,398 17,394 2Q 1999 4Q 1998 Paddock Club Panama City............. Panama City, FL 254 15,536 15,138 2Q 1999 4Q 1998 Paddock Club Montgomery.............. Montgomery, AL 208 14,192 14,189 2Q 1999 1Q 1999 Paddock Club Murfreesboro............ Murfreesboro, TN 240 15,963 15,728 4Q 1999 2Q 1999 ------ --------- --------- 1,588 $102,261 $ 101,458 ====== ========= ========= DEVELOPMENT COMMUNITIES IN LEASE-UP: Grand Reserve Lexington.............. Lexington, KY 370 32,840 22,170 2Q 2000 4Q 1999 Kenwood Club......................... Katy, TX 320 18,807 13,696 2Q 2000 1Q 2000 ------ --------- --------- 690 51,647 35,866 ------ --------- --------- UNDER CONSTRUCTION Reserve at Dexter Lake II............ Memphis, TN 244 16,645 9,115 3Q 2000 1Q 2000 Grande View.......................... Nashville, TN 433 35,550 12,554 1Q 2001 2Q 2000 ------ --------- --------- 677 52,195 21,669 ------ --------- --------- ------ --------- --------- Total Development Communities........ 1,367 $103,842 $ 57,535 ====== ========= ========= ANTICIPATED STABILIZA- TION ------------ COMPLETED COMMUNITIES IN LEASE-UP: Paddock Club Gainesville............. 3Q 1999 Terraces at Towne Lake II............ 4Q 1999 Paddock Club Brandon II.............. 3Q 1999 Reserve at Dexter Lake............... 4Q 1999 Paddock Club Panama City............. 2Q 1999 Paddock Club Montgomery.............. 4Q 1999 Paddock Club Murfreesboro............ 2Q 2000 DEVELOPMENT COMMUNITIES IN LEASE-UP: Grand Reserve Lexington.............. 2Q 2001 Kenwood Club......................... 2Q 2001 UNDER CONSTRUCTION Reserve at Dexter Lake II............ 1Q 2001 Grande View.......................... 4Q 2001 Total Development Communities........
16 Actual capital expenditures for property improvements during 1999 are summarized below (in 000's): Recurring capital at stabilized properties........................... $ 13,154 Revenue enhancing projects at stabilized properties................ 9,297 Capital improvements to pre-stabilized properties............ 10,324 Corporate overhead capital improvements......................... 1,602 --------- $ 34,377 ========= During 1999 the Company used $11,260,000 for net reductions in borrowings and to fund deferred financing costs. Also during 1999 the Company initiated its share repurchase program and acquired 1,473,600 shares for a total cost of $33,073,000, which represented approximately 7% of the total common shares and Common Units outstanding. Also during the year the Company paid a total of $66,425,000 in distributions to holders of preferred shares, common shares, and partnership units and received $3,549,000 from issuances of common shares and units. During 1998 net proceeds from borrowings were $86,920,000 and an additional $82,411,000 was received from issuances of common and preferred shares and Common Units, which was mainly used to fund the acquisition and development of properties mentioned above. During 1998 the Company also distributed $58,547,000 to holders of preferred shares, common shares, and Common Units. At December 31, 1999, the Company had $173.4 million outstanding on the Credit Lines. Of this $25 million is effectively fixed at 7.565% through an interest rate swap agreement which expires in 2003. The average interest rate at December 31, 1999 for the conventional variable rate debt, including the impact of the interest rate swap agreement, was 7.2%. At December 31, 1999, the Company had an additional $31.9 million tax-free variable rate debt outstanding, with an average rate of 5.1% at December 31, 1999. All other debt was fixed rate term debt at an average interest rate of 7.1%. In November 1999, the Company decreased its credit limit under the AmSouth Credit Line from $200 million to $150 million. Additionally in 1999, the Company borrowed $113.2 million from a new FNMA Credit Line which is part of a $195 million credit facility. The Company expects to use the credit lines for future acquisitions, development, and to provide letters of credit as credit enhancements for tax-exempt bonds. The Credit Lines are secured and are subject to borrowing base calculations that effectively reduce the maximum amount that may be borrowed under the credit lines to $235.7 million as of March 1, 2000. The weighted average interest rate and weighted average maturity at December 31, 1999 for the $744.2 million of notes payable were 7.06% and 10.7 years, respectively. 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 Code. The Company expects to meet its long term liquidity requirements, such as scheduled mortgage debt maturities, property developments and acquisitions, expansions and non-recurring capital expenditures, through long and medium-term collateralized and uncollateralized fixed rate borrowings, issuance of debt or additional equity securities in the Company, potential asset sales or joint venture transactions and the Credit Lines. 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 17 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. YEAR 2000 During 1999 the Company completed all phases of an action plan designed to minimize the impact of Year 2000 ("Y2K") issue. Currently the Company has experienced no internal or external business disruptions associated with the Y2K issue. There can be, however, no assurance that future unforeseen Y2K problems will not cause disruptions to our internal business systems, or those of our vendors. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activity," as amended by SFAS No. 137, effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The accounting statement is not expected to have a material impact on the Company's consolidated financial statements. The Company plans to adopt this accounting standard in 2001. RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS This annual report on Form 10-K, including documents incorporated herein by reference, contains 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 the plans and objectives of management for future operations, including plans and objectives relating to acquisition and development of apartment communities, future expenditures for development projects, capital expenditures, and rehabilitation costs on the apartment communities. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. In particular, among the factors that could cause actual results to differ materially are continued qualification as a real estate investment trust, general business and economic conditions, competition, interest rates, accessibility of debt and equity capital markets and other risks inherent in the real estate business including resident defaults, potential liability relating to environmental matters and illiquidity of real estate investments. 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 this Annual 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, 1999, 54% 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 speculative purposes. Approximately 76% of the Company's outstanding debt was subject to fixed interest rates with a weighted average rate of 7.2% at December 31, 1999. The Company regularly reviews interest rate exposure on its outstanding borrowings in an effort to minimize the risk of interest rate fluctuations. The Company does not have any other material market-sensitive financial instruments. 18 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).
TOTAL FAIR 2000 2001 2002 2003 2004 THEREAFTER VALUE --------- --------- --------- --------- --------- ---------- --------- LIABILITIES Long-term Debt Fixed Rate .......... $ 9,170 $ 48,219 $ 16,306 $ 166,563 $ 75,886 $ 222,788 $ 516,500 Average interest rate 7.93% 8.48% 7.36% 6.39% 7.23% 6.90% Variable Rate ....... -- $ 60,171 -- -- $ 113,232 $ 31,903 $ 205,306 Average interest rate --% 7.15% --% --% 6.28% 5.13%
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- 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. 19 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 On July 23, 1997, the Company acquired its corporate headquarters for $2,912,000. In connection with the acquisition, the Company formed a special committee of its external directors to negotiate the transaction on its behalf because certain executive officers of the Company were also partners in the partnership which owned the building. The consideration consisted of $862,000 cash, 22,246 UPREIT units valued at $634,000 ($28.50 per unit) and the assumption of an existing loan. Certain executive officers of the Company were partners in the partnership who owned the building and received 5,831 UPREIT units in connection with the exchange. All transactions involving related parties must be approved by a majority of the disinterested members of the Company's Board of Directors. The Company has, and expects to have, transactions in the ordinary course of its business with directors and officers of the Company and their affiliates, including members of their families or corporations, partnerships or other organizations in which such officers or directors have a controlling interest, on substantially the same terms (including price, or interest rates and collateral) as those prevailing at the time for comparable transactions with unrelated parties. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (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, 1999 and 1998......... F-2 Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997................ F-3 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997............................... F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997................ F-5 Notes to Consolidated Financial Statements for the years ended December 31, 1999, 1998 and 1997... F-6 2. Financial Statement Schedule required to be filed by item 8 and Paragraph (d) of this item 14: Schedule III -- Real Estate and Accumulated Depreciation as of December 31, 1999.................. F-22 20 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. EXHIBIT NUMBERS EXHIBIT DESCRIPTION - ------------------------------------------------------- 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+ -- Bylaws of Mid-America Apartment Communities, Inc. 3.8++ -- 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 , 1998 3.9++++ -- Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter dated December , 1998, as filed with the Tennessee Secretary of State on December , 1998 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++++ -- Shareholders' 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+ -- 1994 Restricted Stock and Stock Option Plan 10.3++++ -- Revolving Credit Agreement between the Registrant and AmSouth Bank of Alabama 10.4 -- Sixth amendment to the Revolving Credit Agreement between the Registrant and AmSouth Bank of Alabama 10.5+ -- Note Purchase Agreement of the Operating Partnership and the Registrant and Prudential Insurance Company of America 10.6+ -- Amendment 1 to Note Purchase Agreement of the Operating Partnership and the Registrant and Prudential Insurance Company of America 10.7 -- Employment Agreement between Registrant and George E. Cates 10.8 -- Employment Agreement between Registrant and H. Eric Bolton 10.9 -- Employment Agreement between Registrant and Simon R.C. Wadsworth 10.10 -- Master Credit Facility Agreement between Registrant and WMF Washington Mortgage Corp. dated November 10, 1999 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 27.1 -- Financial Data Schedule (FOOTNOTES ON FOLLOWING PAGE) 21 - ------------ * Filed as Exhibit 10.20 to the Registrant's Current Report on Form 8-K, filed with the Commission on September 19, 1997 (Commission File No. 1-12762) ** 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 3 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 as of March 31, 1997 ******* Filed as an exhibit to the Registration Statement on Form S-11 (SEC File No. 33-81970), as amended, of the Registrant and incorporated herein by reference. + 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 25, 1998 +++ Filed as Exhibit 4.2 to the Registrant's Registration Statement on Form 8-A filed with the Commission on June 25, 1998 ++++ Filed as an exhibit to the 1998 Annual Report of the Registrant on Form 10-K for the year ended December 31, 1998 (b) Reports on Form 8-K The following report was filed on Form 8-K by the registrant during the fourth quarter of 1999: DATE OF FORM EVENTS REPORTED REPORT - ------------------------------------------ -------- 8-K Announcement of an approval by the 11/22/99 Board of Directors to authorize the Company to repurchase common stock (c) Exhibits: See Item 14(a)(3) above. (d) Financial Statement Schedules: See Item 14(a)(2) above. 22 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. MID-AMERICA APARTMENT COMMUNITIES, INC. Date: March 17, 2000 /s/ GEORGE E. CATES GEORGE E. CATES CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER) 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. Date: March 17, 2000 /s/ GEORGE E. CATES GEORGE E. CATES CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER) Date: March 30, 2000 /s/ SIMON R.C. WADSWORTH SIMON R.C. WADSWORTH EXECUTIVE VICE PRESIDENT (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) Date: March 17, 2000 /s/ H. ERIC BOLTON H. ERIC BOLTON PRESIDENT AND CHIEF OPERATING OFFICER Date: March 20, 2000 /s/ JOHN F. FLOURNOY JOHN F. FLOURNOY DIRECTOR Date: March 20, 2000 /s/ ROBERT F. FOGELMAN ROBERT F. FOGELMAN DIRECTOR Date: March 21, 2000 /s/ JOHN S. GRINALDS JOHN S. GRINALDS DIRECTOR Date: March 20, 2000 /s/ O. MASON HAWKINS O. MASON HAWKINS DIRECTOR Date: March 30, 2000 /s/ RALPH HORN RALPH HORN DIRECTOR Date: March 19, 2000 /s/ MICHAEL S. STARNES MICHAEL S. STARNES DIRECTOR 23 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, 1999 and 1998 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, 1999. 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 generally accepted auditing standards. 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 and subsidiaries as of December 31, 1999 and 1998, and the results of the their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. 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 25, 2000 F-1 MID-AMERICA APARTMENT COMMUNITIES, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (DOLLARS IN THOUSANDS) 1999 1998 ------------ ------------ ASSETS: REAL ESTATE ASSETS: Land............................ $ 119,823 $ 124,912 Buildings and improvements...... 1,172,780 1,184,611 Furniture, fixtures and equipment...................... 28,238 26,779 Construction in progress........ 58,840 75,776 ------------ ------------ 1,379,681 1,412,078 Less accumulated depreciation... (146,611) (117,773) ------------ ------------ 1,233,070 1,294,305 Land held for future development.................... 1,710 11,781 Commercial properties, net...... 5,217 9,282 Investment in and advances to real estate joint venture............... 8,054 -- ------------ ------------ REAL ESTATE ASSETS, NET......... 1,248,051 1,315,368 Cash and cash equivalents............ 14,092 7,237 Restricted cash...................... 12,537 9,282 Deferred financing costs, net........ 10,272 10,359 Other assets......................... 13,871 24,181 ------------ ------------ TOTAL ASSETS............... $ 1,298,823 $ 1,366,427 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY: LIABILITIES: Notes payable................... $ 744,238 $ 753,427 Accounts payable................ 2,122 10,384 Accrued expenses and other liabilities.................... 23,199 18,959 Security deposits............... 4,739 4,917 Deferred gain on disposition of properties..................... 4,581 -- ------------ ------------ TOTAL LIABILITIES AND DEFERRED GAIN.......... 778,879 787,687 MINORITY INTEREST.................... 56,060 61,441 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 and outstanding 17,971,960 and 18,877,691 shares December 31, 1999 and 1998, respectively)....... 190 189 Additional paid-in capital........... 562,537 583,154 Other................................ (1,053) (2,237) Accumulated distributions in excess of net income...................... (89,869) (63,876) Treasury stock at cost, 355,900, shares in 1999..................... (7,990) -- ------------ ------------ TOTAL SHAREHOLDERS' EQUITY................. 463,884 517,299 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... $ 1,298,823 $ 1,366,427 ============ ============ See accompanying notes to consolidated financial statements. F-2 MID-AMERICA APARTMENT COMMUNITIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1999 1998 1997 ---------- ---------- ---------- Revenues: Rental.......................... $ 222,098 $ 210,591 $ 135,673 Other........................... 3,504 3,111 3,279 Management and development income, net................... 751 1,841 164 Equity in loss of real estate joint venture................. (31) -- -- ---------- ---------- ---------- Total revenues.................. 226,322 215,543 139,116 ---------- ---------- ---------- Expenses: Personnel....................... 25,239 24,053 14,623 Building repairs and maintenance................... 10,107 10,030 6,811 Real estate taxes and insurance..................... 24,561 22,459 14,465 Utilities....................... 9,119 9,376 6,341 Landscaping..................... 5,634 5,009 3,684 Other operating................. 10,225 8,990 6,480 Depreciation and amortization... 49,903 46,021 27,737 General and administrative...... 14,479 11,960 6,602 Interest........................ 48,302 45,704 28,943 Amortization of deferred financing costs............... 2,854 2,348 888 ---------- ---------- ---------- Total expenses.................. 200,423 185,950 116,574 ---------- ---------- ---------- Income before gain on disposition of properties, minority interest in operating partnership income and extraordinary item................. 25,899 29,593 22,542 ---------- ---------- ---------- Gain on dispositions................. 10,237 408 -- ---------- ---------- ---------- Income before minority interest in operating partnership income and extraordinary item................. 36,136 30,001 22,542 Minority interest in operating partnership income................. 2,497 2,254 2,693 ---------- ---------- ---------- Income before extraordinary item..... 33,639 27,747 19,849 Extraordinary item -- loss on debt extinguishment, net of minority interest........................... (67) (990) (8,622) ---------- ---------- ---------- Net income........................... 33,572 26,757 11,227 Dividends on preferred shares........ 16,114 11,430 5,252 ---------- ---------- ---------- Net income available for common shareholders....................... $ 17,458 $ 15,327 $ 5,975 ========== ========== ========== Net income available per common share: Basic (in thousands): Average common shares outstanding................... 18,784 18,725 13,892 ========== ========== ========== Basic earnings per share: Net income available per common share before extraordinary item.......................... $ 0.93 $ 0.87 $ 1.05 Extraordinary item.............. -- (0.05) (0.62) ---------- ---------- ---------- Net income available per common share......................... $ 0.93 $ 0.82 $ 0.43 ========== ========== ========== Diluted (in thousands): Average common shares outstanding..................... 18,784 18,725 13,892 Effect of dilutive stock options... 24 45 63 ---------- ---------- ---------- Average dilutive common shares outstanding..................... 18,808 18,770 13,955 ========== ========== ========== Diluted earnings per share: Net income available per common share before extraordinary item.......................... $ 0.93 $ 0.87 $ 1.05 Extraordinary item.............. -- (0.05) (0.62) ---------- ---------- ---------- Net income available per common share......................... $ 0.93 $ 0.82 $ 0.43 ========== ========== ========== See accompanying notes to consolidated financial statements. F-3 MID-AMERICA APARTMENT COMMUNITIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS AND SHARES IN THOUSANDS)
ACCUMULATED PREFERRED STOCK COMMON STOCK ADDITIONAL DISTRIBUTIONS ------------------- ------------------- PAID-IN IN EXCESS OF SHARES AMOUNT SHARES AMOUNT CAPITAL OTHER NET INCOME --------- ------- --------- ------- ----------- --------- ------------ BALANCE DECEMBER 31, 1996............ 2,000 $20 10,949 $ 109 $ 256,689 $ (260) $(15,174) Issuance of common shares............ -- -- 5,911 59 163,531 -- -- Issuance of Series B preferred shares............................. 1,939 19 -- -- 46,616 -- -- Exercise of stock options............ -- -- 9 -- (31) -- -- Notes receivable issued for shares and units (Note 8)................. -- -- -- -- -- (906) -- Shares issued in exchange for units.............................. -- -- 60 1 973 -- -- Shares issued in FDC Merger.......... -- -- 1,550 16 44,374 -- -- Adjustment for minority interest of Unitholders resulting from: Common Stock Offerings........... -- -- -- -- (10,008) -- -- FDC Merger....................... -- -- -- -- (834) -- -- Other............................ -- -- -- -- (818) -- -- Amortization of unearned compensation....................... -- -- -- -- -- 121 -- Dividends on common stock ($2.14 per share)............................. -- -- -- -- -- -- (29,172) Dividends on preferred stock......... -- -- -- -- -- -- (5,252) Net income........................... -- -- -- -- -- -- 11,227 --------- ------- --------- ------- ----------- --------- ------------ BALANCE DECEMBER 31, 1997............ 3,939 39 18,479 185 500,492 (1,045) (38,371) Issuance of common shares............ -- -- 308 4 7,953 -- -- Issuance of Series C preferred shares............................. 2,000 20 -- -- 48,060 -- -- Issuance of Series E preferred shares............................. 1,000 10 -- -- 24,735 -- -- Exercise of stock options............ -- -- 5 -- 129 -- -- Notes receivable issued for shares and units (Note 8)................. -- -- -- -- -- (1,458) -- Payments received on notes receivable (Note 8)........................... -- -- -- -- -- 145 -- Shares issued in exchange for units.............................. -- -- 86 -- 1,785 -- -- Amortization of unearned compensation....................... -- -- -- -- -- 121 -- Dividends on common stock ($2.225 per share)................. -- -- -- -- -- -- (40,832) Dividends on preferred stock......... -- -- -- -- -- -- (11,430) Net income........................... -- -- -- -- -- -- 26,757 --------- ------- --------- ------- ----------- --------- ------------ BALANCE DECEMBER 31, 1998............ 6,939 69 18,878 189 583,154 (2,237) (63,876) Repurchase of common shares (Note 9)................................. -- -- (1,118) (1) (25,082) -- -- Issuance of common shares............ -- -- 154 2 3,516 -- -- Exercise of stock options............ -- -- -- -- 27 -- -- Notes receivable issued for shares (Note 8)........................... -- -- 9 -- -- (100) -- Payments received on notes receivable (Note 8)........................... -- -- -- -- -- 343 -- Reductions to notes receivables (Note 8)................................. -- -- -- -- -- 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 $ 190 $ 562,537 $ (1,053) $(89,869) ========= ======= ========= ======= =========== ========= ============ TREASURY STOCK TOTAL -------- --------- BALANCE DECEMBER 31, 1996............ $ -- $ 241,384 Issuance of common shares............ -- 163,590 Issuance of Series B preferred shares............................. -- 46,635 Exercise of stock options............ -- (31) Notes receivable issued for shares and units (Note 8)................. -- (906) Shares issued in exchange for units.............................. -- 974 Shares issued in FDC Merger.......... -- 44,390 Adjustment for minority interest of Unitholders resulting from: Common Stock Offerings........... -- (10,008) FDC Merger....................... -- (834) Other............................ -- (818) Amortization of unearned compensation....................... -- 121 Dividends on common stock ($2.14 per share)............................. -- (29,172) Dividends on preferred stock......... -- (5,252) Net income........................... -- 11,227 -------- --------- BALANCE DECEMBER 31, 1997............ -- 461,300 Issuance of common shares............ -- 7,957 Issuance of Series C preferred shares............................. -- 48,080 Issuance of Series E preferred shares............................. -- 24,745 Exercise of stock options............ -- 129 Notes receivable issued for shares and units (Note 8)................. -- (1,458) Payments received on notes receivable (Note 8)........................... -- 145 Shares issued in exchange for units.............................. -- 1,785 Amortization of unearned compensation....................... -- 121 Dividends on common stock ($2.225 per share)................. -- (40,832) Dividends on preferred stock......... -- (11,430) Net income........................... -- 26,757 -------- --------- BALANCE DECEMBER 31, 1998............ -- 517,299 Repurchase of common shares (Note 9)................................. (7,990 ) (33,073) Issuance of common shares............ -- 3,518 Exercise of stock options............ -- 27 Notes receivable issued for shares (Note 8)........................... -- (100) Payments received on notes receivable (Note 8)........................... -- 343 Reductions to notes receivables (Note 8)................................. -- 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............ $(7,990 ) $ 463,884 ======== =========
See accompanying notes to consolidated financial statements. F-4 MID-AMERICA APARTMENT COMMUNITIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS) 1999 1998 1997 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income.......................... $ 33,572 $ 26,757 $ 11,227 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................. 52,757 48,369 28,746 Amortization of unearned stock compensation................. 494 121 121 Equity in loss of real estate joint venture................ 31 -- -- Minority interest in operating partnership income........... 2,497 2,254 2,693 Extraordinary item............. 67 990 8,622 Gain on dispositions........... (10,237) (408) -- Changes in assets and liabilities: Restricted cash............ (3,300) 4,115 (1,214) Other assets............... (4,591) 1,044 (1,341) Accounts payable........... (4,459) 786 140 Accrued expenses and other liabilities.............. 8,325 (4,031) (4,550) Security deposits.......... (178) 408 474 ---------- ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES................... 74,978 80,405 44,918 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of real estate assets....................... -- (63,732) (76,287) Improvements to properties..... (34,377) (32,336) (20,205) Construction of units in progress and future development.................. (71,563) (107,963) (16,093) Proceeds from disposition of real estate assets........... 134,977 5,424 -- Proceeds from sale of development and construction assets....................... 18,134 -- -- Investment in and advances to real estate joint venture.... (8,085) -- -- Net cash paid in business combination.................. -- -- (25,678) ---------- ---------- ---------- NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES......... 39,086 (198,607) (138,263) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in credit lines..... 56,389 71,789 14,820 Proceeds from notes payable.... 11,760 232,799 187,500 Principal payments on notes payable...................... (75,989) (210,571) (267,003) Payment of deferred financing costs........................ (3,420) (7,097) (3,813) Repurchase of common stock..... (33,073) -- -- Proceeds from issuances of common shares and units...... 3,549 9,586 165,737 Proceeds from issuance of preferred shares............. -- 72,825 46,635 Redemption of unitholder interests.................... -- (150) (8) Distributions to unitholders... (6,860) (6,285) (5,347) Dividends paid on common shares....................... (43,451) (40,832) (29,172) Dividends paid on preferred shares....................... (16,114) (11,430) (5,252) ---------- ---------- ---------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES......... (107,209) 110,634 104,097 ---------- ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... 6,855 (7,568) 10,752 ---------- ---------- ---------- Cash and cash equivalents, beginning of period................................ 7,237 14,805 4,053 ---------- ---------- ---------- Cash and cash equivalents, end of period................................ $ 14,092 $ 7,237 $ 14,805 ========== ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid....................... $ 49,375 $ 45,607 $ 27,468 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Increase in basis of properties acquired in connection with business combination.............. $ -- $ -- $ 58,359 Assumption of debt related to property acquisitions............. $ -- $ 26,231 $ 63,690 Conversion of units for common shares............................ $ 922 $ 1,785 $ 974 Issuance of units related to property acquisitions............. $ -- $ 1,911 $ 880 Issuance of advances in exchange for common shares and units........... $ 100 $ 1,458 $ 906 Interest capitalized................ $ 3,967 $ 4,265 $ 388 See accompanying notes to consolidated financial statements. F-5 MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 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 southeast and Texas. The company owns and operates 120 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. 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 these subsidiaries. The Company uses the equity method of accounting for its investments in 20 to 50 percent-owned entities. 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 of each Operating Partnership Unit that were equivalent to the economic rights in respect of 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 of the units as the per share distribution in respect of the common stock. Operating Partnership net income for 1999, 1998 and 1997 was allocated approximately 15.6%, 15.6% and 17.9%, respectively, to holders of Operating Partnership Units and 84.4%, 84.4% and 82.1%, 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 amounts of revenues and expenses to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. REVENUE RECOGNITION The Company leases multifamily residential apartments under operating leases with terms of one year or less. Rental and other revenues are recorded when earned. F-6 MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DEVELOPMENT, CONSTRUCTION AND FEE MANAGEMENT REVENUES The Company provided development, construction and property management services to third parties from November 1997 (the date of the FDC Merger -- note 2) until June 1999 (the date of disposing of those businesses -- note 3). The Company provided development services related to the development of third party properties. Development fee income was recognized as earned as the property was developed and certain operating and financing performance conditions were met. Construction contract revenues, which are presented net of construction contract costs in the accompanying statements of operations, were recognized using the percentage-of-completion method. Under this method, the percentage of contract revenue to be recognized currently was computed based upon that percentage of estimated total revenue that incurred costs to date bear to total estimated costs, after giving effect to the most recent estimates of costs to complete. Revisions in cost and revenue estimates were reflected in the period in which the facts, which require the revision, become known. When revised cost estimates indicate a loss on an individual contract, the total estimated loss was provided for currently in its entirety without regard to the percentage of completion. The Company provided property management services for Section 42 Housing Tax Credit multifamily properties and conventional properties. Property management revenue was recorded on the accrual method of accounting as earned. 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 estimated useful lives. All other costs relating to renting development projects are expenses 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 the lower of depreciated cost or estimated fair value, less cost to sell. 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. F-7 MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company records all gains and losses on real estate in accordance with SFAS No. 66. The total gain for the period ended December 31, 1999 and 1998 was approximately $10,237,000 and $408,000, respectively. The Company periodically evaluates its real estate asset investments to determine whether any impairment indicators are present by comparing current capitalized net operating income to the carrying value of the asset. If any investment asset is considered impaired, a loss is provided to reduce the carrying value of the property to its estimated fair value. No such losses have been required or provided in the accompanying financial statements. Development projects and the related carrying costs, including interest, property taxes, insurance and allocated development overhead during the construction period, are capitalized and reported on the accompanying balance sheet as "construction in progress" during the construction period. Upon 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 1999, 1998 and 1997 was $3,967,000, $4,265,000 and $388,000 respectively. LAND HELD FOR FUTURE DEVELOPMENT Real estate held for future development consists primarily of sites intended for future multifamily developments and is stated at the lower of cost or fair value less its cost to sell. 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 the 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. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activity," effective for years beginning after June 15, 1999. In June 1999, SFAS No. 137 was issued to defer the implementation of SFAS No. 133 to all fiscal years beginning June 15, 2000. The accounting statement is not expected to have a material impact on the Company's consolidated financial statements. The Company plans to adopt this accounting standard in 2001. RECLASSIFICATION Certain prior year amounts have been reclassified to conform with 1999 presentation. The reclassifications had no effect on net income available for common shareholders. F-8 MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. BUSINESS COMBINATIONS On November 25, 1997, the Company completed the merger with Flournoy Development Company and related entities ("FDC") (the "FDC Merger") accounted for using the purchase method of accounting. Total consideration consisted of $88,271,000, including 1,550,311 shares of common stock and 412,110 Class A common units of the Operating Partnership, valued at $56,213,000 ($28.6875 per share and unit), $29,608,000 cash and transaction costs of approximately $2,450,000. The operating results of FDC are included in the accompanying statement of operations commencing November 25, 1997. The assets acquired and liabilities assumed in connection with the merger were recorded at their respective fair values as follows: Fair value of assets acquired, primarily real estate assets......... $ 411,397,000 Liabilities assumed.................. 335,326,000 --------------- Net assets acquired............. $ 76,071,000 =============== 3. SALE OF DEVELOPMENT, CONSTRUCTION AND FEE MANAGEMENT BUSINESSES On June 30, 1999, the Company sold its development, construction and fee management businesses acquired in connection with the November 1997 FDC Merger 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 for approximately $4.0 million, relating mainly to the write-off of goodwill related to the original purchase transaction as described in Note 2. 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. 4. REAL ESTATE JOINT VENTURE In March 1999 the Company entered into an agreement to form a joint venture (the "Joint Venture") with Blackstone Real Estate Acquisitions, LLC ("Blackstone"), to own and operate 10 apartment communities to be completed in two transactions. The first transaction was completed on March 31, 1999 when the Company sold 6 apartment communities, containing 1,660 apartment units, to the Joint Venture for approximately $64.6 million in cash. In August 1999, the Company closed the second portion of the Joint Venture transaction with Blackstone. The Company sold four additional properties containing 1,134 apartment units to the Joint Venture, for proceeds of approximately $33.3 million. The Company contributed cash and made an additional loan to the Joint Venture related to this transaction bringing the total investment in the Joint Venture to approximately $4.6 million and the total loan to $3.4 million, $3 million at an interest rate of 10% and $.4 million at a rate of 7%, both for the life of the entity. The loan is unsecured and is presented in the accompanying consolidated balance sheets in the caption "Investments in and advances to real estate joint venture". Interest and management fees are recorded as earned and presented in the accompanying consolidated income statement as "Other revenue" and "Management and development income, net", respectively. F-9 MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company recognized a gain of approximately $9.0 million and deferred gains for the Company's retained interest of approximately $4.8 million. The Company retained a 33.33 percent ownership interest in the Joint Venture and manages the communities for a fee of 4% of revenues. The agreement provides that income and cash flows generated by the Joint Venture are to be allocated based on respective ownership percentages. Summary combined unaudited financial information for the Joint Venture for the year ended December 31, 1999 follows: 1999 ---------- Real estate assets, net.............. $ 98,323 Total assets......................... $ 103,011 Long-term debt....................... $ 86,150 Total liabilities.................... $ 89,313 Partners' capital.................... $ 13,698 Total revenues....................... $ 11,344 Depreciation expense................. $ 2,226 Net loss............................. $ 64 5. BORROWINGS At December 31, 1999 the Company has two lines of credit (the Credit Lines) with a total outstanding balance of $173.4 million. The Credit Lines are secured by certain of the properties and have restrictive financial covenants. The AmSouth Credit Line has a $150 million borrowing limit at December 31, 1999 and expires in November 2001. The AmSouth Credit Line has a tiered interest rate as determined by the Company's percentage of total liabilities to a valuation of the Company's investment in real estate assets ("AmSouth Ratio"), as defined by the loan agreement, which is reviewed quarterly for interest rate adjustments. The AmSouth Credit Line bears interest at LIBOR plus 1.45%, 1.65%, and 1.75% based on an AmSouth Ratio less than 55%, between 55% and 60%, and over 60%, respectively. The AmSouth Credit Line had an interest rate at December 31, 1999 of LIBOR plus 1.75% (7.75%). The FNMA Credit Line has a $195 million borrowing limit, bears interest at the 90-day FNMA mortgage backed security rate plus .67% (6.28% at December 31, 1999) and expires November 2004. At December 31, 1998 the Company had $117.0 million outstanding under the AmSouth Credit Line and $25.0 million outstanding under a short-term note payable. During 1999, the Company paid off approximately $73.2 million of various notes payable including $18.4 million relating to property dispositions and a $25.0 million short-term note payable established in 1998. The Company incurred costs of $67,000, net of minority interest, related to the early extinguishment of one mortgage which is included in "Extraordinary item -- loss on early extinguishment of debt" in the accompanying financial statements. The Company had approximately $570.8 million and $612.0 million at December 31, 1999 and 1998, respectively, outstanding under various mortgage notes and bonds payable secured by real estate assets. The Company has issued $142 million aggregate principal amount of 6.376% Bonds due 2003 (the "Bonds"). The Bonds are secured by a first priority deed of trust, security agreement and assignment of rents and leases in respect of 26 mortgaged properties, with a net book value of $207.2 million at December 31, 1999. In anticipation of the Bond issuance, the Company entered four separate forward interest rate lock agreements in 1997 with notional amounts aggregating $140 million, the effect of which was to lock the interest rate on $140 million of the Bonds at an average rate of 6.62%. In 1998 the Company realized a $1.4 million loss on the interest rate contracts. The realized loss resulting from the change in the F-10 MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) market value of these contracts is being amortized into interest expense over the life of the related debt issuance. During 1998, the Company refinanced approximately $29.1 million of various notes payable. The Company also refunded $4.8 million of bonds secured by its Sterling Ridge Apartments and refunded $14.0 million of bonds secured by its Hunters Ridge Apartments. The Company incurred costs of $449,000, net of minority interest, for these combined transactions which is included in "Extraordinary item -- loss on early extinguishment of debt" in the accompany financial statements along with $455,000 related to extinguishment of debt due to the sale of real estate and $86,000 related to refinancing of a bridge loan. During 1997, the Company extinguished a bond note, resulting in an extraordinary loss of $771,000. At consummation of the merger with FDC, the Company repaid certain debt primarily attributable to FDC, resulting in an extraordinary loss of $7,851,000, net of minority interest. As of December 31, 1999, the Company estimated that the weighted average interest rate on the Company's debt was 7.06% with an average maturity of 10.7 years. The following table summarizes the Company's indebtedness at December 31, 1999.
ACTUAL AVERAGE INTEREST RATES INTEREST RATE MATURITY 1999 1998 -------------- -------------- ---------- --------- --------- (DOLLARS IN MILLIONS) Fixed Rate: Taxable......................... 6.376-9.006% 7.371% 2000-2037 $ 442.6 $ 481.5 Tax-exempt...................... 5.281-7.594% 6.118% 2008-2028 96.3 97.9 --------- --------- $ 538.9 $ 579.4 Variable Rate: Taxable......................... 6.28-7.15% 7.127% 2000-2004 $ 173.4* $ 142.0 Tax-exempt...................... 5.0-5.4% 5.133% 2025-2028 31.9 32.0 --------- --------- $ 205.3 $ 174.0 --------- --------- $ 744.2 $ 753.4 ========= =========
- ------------ * Includes $25 million of variable rate effectively fixed through the interest rate swap. Scheduled principal repayments on the borrowings at December 31, 1999 are as follows (dollars in thousands):
YEAR AMORTIZATION BALLOON PAYMENTS TOTAL - ------------------------------------- ------------ ---------------- ---------- 2000................................. $ 4,618 $ 4,552 $ 9,170 2001................................. 4,819 103,571 108,390 2002................................. 4,916 11,390 16,306 2003................................. 4,742 161,821 166,563 2004................................. 4,719 184,399 189,118 Thereafter........................... 170,082 84,609 254,691 ------------ ---------------- ---------- $193,896 $550,342 $ 744,238 ============ ================ ==========
The Company's indebtedness includes various restrictive financial covenants. The Company believes that it was in compliance with these covenants as of December 31, 1999. F-11 MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. 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, 1999 and 1998 total $538.9 million and $579.4 million, respectively, and have an estimated fair value of $516.5 million and $582.4 million (excluding prepayment penalties) based upon interest rates available for the issuance of debt with similar terms and remaining maturities as of December 31, 1999 and 1998. These notes were subject to prepayment penalties in the event of repayment prior to maturity, which were not considered in determining their estimated fair value. The carrying value of variable rate notes payable at December 31, 1999 and 1998 total $205.3 million and $174.0 million, respectively, and reasonably approximates their fair value because the related variable interest rates reasonably approximate market rates. Included in these variable rate notes are certain Multifamily Housing Renewal bonds with rates which are less than the prime lending rates at December 31, 1999 and 1998. Approximately $32.0 million in 1999 and 1998 of these mortgages are non-taxable and have lower rates than would be expected for taxable notes with similar terms. The fair value estimates presented herein are based on information available to management as of December 31, 1999 and 1998. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and current estimates of fair value may differ significantly from the amounts presented herein. 7. COMMITMENTS AND CONTINGENCIES 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 consolidated financial statements of the Company. The Company leases an aircraft to facilitate transportation between its properties. In 1998, the Company entered a new five year aircraft lease which generally provides for the Company to pay maintenance, insurance, and certain other operating costs of the leased property. The agreement has been accounted for as an operating lease. The Company incurred lease expense relating to aircraft lease agreements for the years ended December 31, 1999, 1998, and 1997 of $256,000, $138,000, and $187,000, respectively. 8. 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% 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. F-12 MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 1998 and 1997 and the estimated taxability for 1999: 1999 1998 1997 ----- ----- ----- Per common share Ordinary income................. $1.40 $1.28 $1.16 Capital gains................... .18 -- -- Return of capital............... .72 .92 .98 ----- ----- ----- Total...................... $2.30 $2.20 $2.14 ===== ===== ===== 9. 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. On and after November 1, 2001, the Series A 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 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. In November 1997 the Company issued 1,938,830 Series B Preferred shares and 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. In June 1998 the Company issued 2,000,000 Series C Preferred shares and 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. F-13 MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. In December 1998 the Company issued 1,000,000 Series E Preferred shares in a direct placement with a private investor. The Company received net proceeds of $24.7 million. After five years, 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. COMMON STOCK OFFERINGS In March 1997 the Company issued 2,300,000 shares of common stock and received net proceeds of $62.5 million. In October 1997 the Company issued 3,499,000 shares of common stock and received net proceeds of $98.2 million. The Company contributed the net proceeds of the offerings to the Operating Partnership in exchange for additional Operating Partnership Units. DIRECT STOCK PURCHASE AND DISTRIBUTION REINVESTMENT PLAN In January 1999 the Company adopted the 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. This plan replaced the Company's previous Dividend Reinvestment and Stock Purchase Plan (the "DRSPP"). 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 and DRSPP. 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 111,637, 62,175 and 24,785 were acquired by shareholders during 1999, 1998 and 1997, respectively. 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. In 1999, the Company repurchased approximately 1.5 million shares of common stock, of which 1.1 million were retired, for a cost of approximately $33 million at an average price per common share of $22.40. 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. The Series E Preferred Shares, which are convertible five years from the date of issuance, are not included in the calculation because the assumed conversion would be anti-dilutive. A reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the years ended December 31, 1999, 1998 and 1997 is presented on the Consolidated Statement of Operations. F-14 MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. 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 $204,200, $318,200 and $154,300 in 1999, 1998 and 1997, 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 1999, 1998 and 1997 was $17,300, $19,100 and $18,600, 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 of common stock at a price equal to 85% of the market price of the common stock. During 1999, 1998 and 1997, the ESPP purchased 6,721, 5,242 and 2,758 shares, respectively. EMPLOYEE STOCK OWNERSHIP PLAN The Mid-America Apartment Communities, Inc. Employee Stock Ownership Plan (the "ESOP") which 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 IPO. During 1999, 1998 and 1997, the Company contributed $640,100, $448,300 and $344,000, respectively, to the ESOP which purchased an additional 28,233, 17,156 and 11,921 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 1,000,000 common shares or options to acquire shares. The Compensation Committee of the Board of Directors is responsible for granting Options and shares of Restricted Stock and for establishing the exercise price of Options and terms and conditions of Restricted Stock. In 1997 options to purchase 75,000 shares of common stock and 110,000 Operating Partnership Units were exercised pursuant to the LESOP Provision and the Company advanced a portion of the purchase price of these shares and units. The employee advances mature five years from date of issuance and accrue interest, payable in arrears, at a rate of 7.0% per annum and are presented as a reduction of F-15 MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) shareholders' equity in the accompanying consolidated balance sheets. The Company entered into supplemental bonus agreements with the employees which are intended to fund the payment of the advances over a five year period. Under the terms of the supplemental bonus agreements, the Company will pay cash bonuses to these employees equal to 20% of the original note balance on each anniversary date of the advances. The bonuses are limited to 15% of the aggregate purchase price of the common shares and units. During 1998, the Company issued 150,000 shares of common stock and 100,000 Operating Partnership Units to certain executive officers of the Company. The Company received approximately $5,899,250 cash and advanced the employees approximately $1,040,750 secured by the common stock and Operating Partnership Units of the Company. The advances bear interest at rates ranging from 5.59% to 5.68% per annum, and are presented as a reduction of shareholders' equity in the accompanying consolidated balance sheets. In addition, the Company has agreed to pay a bonus to the executive officers mentioned above for as long as they remain employed by the Company in an amount equal to the debt service on the advances from the Company. The advances will become due and payable and the bonus agreement will terminate if the employees voluntarily terminate their employment with the Company. Additionally throughout 1998, the Company issued 69,000 shares of common stock to certain other officers of the Company at the market price on the date of issuance. The Company received approximately $900,000 cash and advanced the employees approximately $900,000. The advances bear interest at 7.5% and 8.25% per annum, are secured by the common stock of the Company and are presented as a reduction of shareholders' equity in the accompanying consolidated balance sheets. During 1999, the Company issued 9,000 shares of common stock to certain other officers of the Company at the market price on the date of issuance. The Company received approximately $100,000 cash and advanced the employees approximately $100,000. The advances bear interest at 7.5% and 8.25% per annum, are secured by the common stock of the Company and are presented as a reduction of shareholders' equity in the accompanying consolidated balance sheets. The Company has agreed to pay an annual bonus for five years to these officers amounting to 3% of the original purchase price of the shares. The advances will become due and payable if the employees terminate their employment with the Company. In connection with the sale of the development, construction and fee management businesses (note 3) certain executive officers of the Company resigned. Amounts due from these officers which related to the issuances of shares, totaling approximately $447,000, were forgiven as a part of the sale. The effect of this debt forgiveness is included in the loss on disposition of those businesses in the accompanying financial statements. At December 31, 1999, 1998 and 1997, the total outstanding principal balance on the employee advances was approximately $1,296,000, $2,219,000 and $906,000 respectively, and is presented as a reduction in the Company's statements of shareholders' equity. F-16 MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of changes in Options to acquire shares of Common Stock and Operating Partnership Units, including grants and exercises pursuant to the LESOP provision, for the three years ended December 31, 1999 is as follows: WEIGHTED AVERAGE OPTIONS EXERCISE PRICE ---------- ---------------- Outstanding at December 31, 1996..... 338,650 $22.53 Granted......................... 416,500 29.46 Exercised....................... (218,625) 28.17 Forfeited....................... (13,025) 27.91 ---------- Outstanding at December 31, 1997..... 523,500 25.40 Granted......................... 663,250 28.78 Exercised....................... (338,581) 28.28 Forfeited....................... (52,850) 27.81 ---------- Outstanding at December 31, 1998..... 795,319 26.87 Granted......................... 371,750 22.25 Exercised....................... (1,300) 19.75 Forfeited....................... (219,550) 25.47 ---------- Outstanding at December 31, 1999..... 946,219 ========== Options exercisable: December 31, 1997............... 140,500 $21.71 December 31, 1998............... 208,769 23.19 December 31, 1999............... 285,694 23.34 Exercise prices for options outstanding as of December 31, 1999 ranged from $19.75 to $29.50. The weighted average remaining contractual life of those options is 7.3 years. On January 1, 1996, the Company 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 $17,254,000, $14,681,000, $5,452,000 for 1999, 1998 and 1997, respectively. The pro forma diluted net income available per common share would have been $0.92, $0.78 and $0.39 for 1999, 1998 and 1997, respectively. The calculation was prepared using the Black-Scholes option pricing model using the following factors: 1) risk free interest rate of 6.38%, 2) expected life of 7.3 years, 3) expected volatility of 19.14%, and 4) expected dividends of 10.16%. The weighted average fair value of all options granted during the year is $8,271,000 at a weighted average option price of $22.25 per share. 11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK 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 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. F-17 MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In 1998 the Company entered an Interest Rate Swap Agreement which expires on August 15, 2003 that effectively locks the interest rate the Company pays on a portion of its AmSouth Credit Line. As of December 31, 1999, $25 million notional amount was outstanding on this agreement with a fixed interest rate paid by the Company of 7.57%. The fair value of this agreement at December 31, 1999 was $894,000. 12. RELATED PARTY TRANSACTION During 1997 the Company acquired its corporate headquarters building for $2,912,000 from a partnership whose partners included certain executive officers of the Company. The consideration paid consisted of $862,000 cash, 22,246 Operating Partnership Units valued at $634,000 ($28.50 per unit) and the assumption of an existing loan. Prior to acquisition the Company leased the building from the partnership. 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. In 1999 the Company received approximately $453,000 as management fees from the Joint Venture. 13. SEGMENT INFORMATION At December 31, 1999, the Company owned or had an ownership interest in 130 multifamily apartment communities, including the 10 apartment communities owned by the Joint Venture, in 13 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. F-18 MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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, 1999, 1998 and 1997 (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. 1999 1998 1997 ----------- ----------- --------- Multifamily rental revenues.......... $ 233,442 $ 210,591 $ 135,673 Other multifamily revenues........... 2,116 2,248 1,426 ----------- ----------- --------- Segment revenues................. 235,558 212,839 137,099 Reconciling items to consolidated revenues: Joint Venture revenues........... (11,344) -- -- Management and development income, net.................... 751 1,841 164 Equity in loss of joint venture........................ (31) -- -- Interest income and other revenues....................... 1,388 863 1,853 ----------- ----------- --------- Total revenues................. $ 226,322 $ 215,543 $ 139,116 =========== =========== ========= Multifamily net operating income..... 145,874 132,922 84,695 Reconciling items to net income available for common shareholders: Joint Venture net operating income......................... (6,545) -- -- Management and development income, net.................... 751 1,841 164 Equity in loss of real estate joint venture.................. (31) -- -- Interest income and other revenues....................... 1,388 863 1,853 Interest expense................. (48,302) (45,704) (28,943) General and administrative expenses....................... (14,479) (11,960) (6,602) Depreciation and amortization.... (49,903) (46,021) (27,737) Amortization of deferred financing costs................ (2,854) (2,348) (888) Gain on dispositions............. 10,237 408 -- Extraordinary items, net......... (67) (990) (8,622) Minority interest................ (2,497) (2,254) (2,693) Dividends on preferred shares.... (16,114) (11,430) (5,252) ----------- ----------- --------- Net income available for common shareholders................ $ 17,458 $ 15,327 $ 5,975 =========== =========== ========= 1999 1998 ----------- ----------- ASSETS: Multifamily real estate assets....... $ 1,480,232 $ 1,412,078 Accumulated depreciation -- multifamily assets............................. (148,839) (117,773) ----------- ----------- 1,331,393 1,294,305 Reconciling items to total assets: Joint Venture multifamily real estate assets, net........................ (98,323) -- Land held for future development.................... 1,710 11,781 Commercial properties, net....... 5,217 9,282 Investment in and advances to real estate joint venture...... 8,054 -- Cash and Restricted Cash......... 26,629 16,519 Other assets..................... 24,143 34,540 ----------- ----------- Total assets................ $ 1,298,823 $ 1,366,427 =========== =========== 1999 1998 1997 ----------- ----------- --------- Multifamily expenditures for property improvements, acquisitions and construction....................... $ 107,508 $ 204,031 $ 112,585 Less reconciling items: Joint Venture property improvements................... (1,568) -- -- ----------- ----------- --------- Total expenditures for property improvements, acquisitions and construction.............. $ 105,940 $ 240,031 $ 112,585 =========== =========== ========= F-19 MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. SUBSEQUENT EVENTS (UNAUDITED) DECLARATION OF DIVIDEND The Company declared a 1999 fourth quarter common stock dividend of $0.58 per share to be paid January 31, 2000 to holders of record on January 24, 2000. PROPERTY DISPOSITIONS On February 11, 2000, the Company sold the 120-unit Pine Trails apartment community in Clinton, Mississippi for approximately $2,815,000 for cash. On February 25, 2000, the Company sold the 248-unit MacArthur Ridge apartment community for approximately $12,075,000 for cash. The proceeds from both dispositions were to be used to reduce debt, fund the development pipeline, and as a source of capital for future share repurchases. F-20 MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 15. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) MID-AMERICA APARTMENT COMMUNITIES, INC. QUARTERLY FINANCIAL DATA (UNAUDITED) (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1999 ------------------------------------------- FIRST SECOND THIRD FOURTH --------- ------- --------- ------- Total revenues ..................... $ 57,089 $ 56,362 $ 56,983 $ 55,888 Income before minority interest in operating partnership income and extraordinary item ............... $ 7,512 $ 2,275 $ 11,445 $ 14,904 Minority interest in operating partnership income (loss) ........ $ 1,196 $ (414) $ 917 $ 798 Extraordinary item, net of minority interest ......................... $ (67) -- -- -- Net income (loss) available for common shareholders .............. $ 6,920 $ (1,340) $ 6,500 $ 5,378 Per share: Basic and diluted per share: Net income available per common shares Before extraordinary item ..... $ 0.37 $ (0.07) $ 0.34 $ 0.29 Extraordinary item ............ -- -- -- -- -------- -------- -------- -------- Net income available per common share ....................... $ 0.37 $ (0.07) $ 0.34 $ 0.29 ======== ======== ======== ======== Dividend declared .................. $ 0.575 $ 0.575 $ 0.575 $ 0.58
YEAR ENDED DECEMBER 31, 1998 ------------------------------------------- FIRST SECOND THIRD FOURTH --------- ------- --------- ------- Total revenues....................... $ 50,982 $52,166 $ 56,086 $56,309 Income before minority interest in operating partnership income and extraordinary item................. $ 7,467 $ 7,459 $ 7,764 $ 7,311 Minority interest in operating partnership income................. $ 421 $ 746 $ 610 $ 477 Extraordinary item, net of minority interest........................... $ (371) $ (619) $ -- $ -- Net income (loss) available for common shareholder................. $ 4,412 $ 3,818 $ 3,719 $ 3,378 Per share: Basic and diluted per share: Net income available per common shares Before extraordinary item....... $ 0.26 $ 0.24 $ 0.20 $ 0.18 Extraordinary item.............. $ (0.02) $ (0.04) $ -- $ -- --------- ------- --------- ------- Net income available per common share......................... $ 0.24 $ 0.20 $ 0.20 $ 0.18 ========= ======= ========= ======= Dividend declared.................... $ 0.55 $ 0.55 $ 0.55 $ 0.575
F-21 MID-AMERICA APARTMENT COMMUNITIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999 (DOLLARS IN THOUSANDS)
GROSS AMOUNT CARRIED AT COST CAPITALIZED DECEMBER SUBSEQUENT TO 31, INITIAL COST ACQUISITION 1999(6) -------------------- ---------------- -------- BUILDING BUILDING AND AND PROPERTY NAME LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES LAND - ------------------------------------- ------------------------------- -------- --------- ----- -------- -------- The Advantages....................... Jackson, MS -- (1) $ 422 $ 3,727 $-- $ 949 $ 422 McKellar Woods....................... Memphis, TN -- (8) 737 13,200 -- 2,054 737 Pine Trails.......................... Clinton, MS $ 1,270 178 2,728 -- 775 178 Reflection Pointe.................... Jackson, MS $ 5,882 710 8,770 140 2,517 850 Riverhills........................... Grenada, MS $ 785 153 2,092 -- 385 153 Woodridge............................ Jackson, MS $ 4,677 471 5,522 -- 515 471 Greenbrook........................... Memphis, TN -- (8) 2,100 24,468 25 9,295 2,125 Steeplechase......................... Hixson, TN -- (9) 217 1,957 -- 1,305 217 Clearbrook Village................... Memphis, TN $ 1,014 260 3,658 -- 992 260 Crossings............................ Memphis, TN -- (1) 554 2,216 -- 627 554 Eastview............................. Memphis, TN $ 11,696 700 9,646 -- 1,633 700 Gleneagles........................... Memphis, TN -- (1) 443 3,983 -- 1,851 443 The Park Estate...................... Memphis, TN -- (8) 178 1,141 -- 920 178 Winchester Square.................... Memphis, TN -- (1) 350 7,279 -- 1,187 350 Post House North..................... Jackson, TN $ 3,461 381 4,299 -- 862 381 Post House Jackson................... Jackson, TN $ 5,052 443 5,078 -- 754 443 The Oaks............................. Jackson, TN -- (1) 177 1,594 -- 742 177 The Corners.......................... Winston-Salem, NC $ 4,081 685 6,165 -- 673 685 Park Haywood......................... Greenville, SC -- (9) 325 2,925 35 2,595 360 Hickory Farm......................... Memphis, TN -- (1) 580 5,220 -- 598 580 Stonemill Village.................... Louisville, KY -- (1) 1,169 10,518 -- 1,562 1,169 Canyon Creek......................... St. Louis, MO -- (1) 880 7,923 220 2,091 1,100 Whispering Oaks...................... Little Rock, AR -- 506 4,551 -- 1,644 506 Pear Orchard......................... Jackson, MS -- (9) 1,352 12,168 -- 1,444 1,352 Celery Stalk......................... Dallas, TX $ 8,460 1,463 13,165 -- 2,282 1,463 Hollybrook........................... Dalton, GA -- 405 3,646 -- 1,123 405 Green Tree Place..................... Woodlands, TX $ 3,180 539 4,850 -- 836 539 MacArthur Ridge...................... Irving, TX -- (2) 1,131 10,183 -- 763 1,131 Lincoln on the Green................. Memphis, TN -- (10) 1,498 13,484 -- 993 1,498 Brentwood Downs...................... Nashville, TN -- (3) 1,193 10,739 -- 778 1,193 Shenandoah Ridge..................... Augusta, GA -- (9) 650 5,850 -- 1,955 650 Westborough Crossing................. Katy, TX $ 3,958 677 6,091 -- 935 677 Woodbridge at the Lake............... Jacksonville, FL -- (3) 645 5,804 -- 1,025 645 Lakepointe........................... Lexington, KY -- (9) 411 3,699 -- 665 411 The Mansion.......................... Lexington, KY -- (3) 694 6,242 -- 999 694 The Village.......................... Lexington, KY -- (9) 900 8,097 -- 1,067 900 Cypresswood Court.................... Spring, TX $ 3,330 577 5,190 -- 926 577 The Lodge at Timberglen.............. Dallas, TX $ 4,740 825 7,422 -- 1,856 825 Calais Forest........................ Little Rock, AR $ -- 1,026 9,244 -- 1,378 1,026 The Fairways......................... Columbia, SC $ 7,566 910 8,207 -- 523 910 Kirby Station........................ Memphis, TN -- (9) 1,148 10,337 -- 2,317 1,148 Belmere.............................. Tampa, FL -- (9) 851 7,667 -- 1,730 851 Williamsburg Village................. Jackson, TN -- (9) 523 4,711 -- 543 523 Fairways @ Royal Oak................. Cincinnati, OH -- (9) 814 7,335 -- 964 814 Tanglewood........................... Anderson, SC $ 2,410 427 3,853 -- 829 427 Woods at Post House.................. Jackson, TN $ 5,255 240 6,839 -- 670 240 Somerset............................. Jackson, MS -- (9) 477 4,294 -- 694 477 Highland Ridge....................... Greenville, SC -- (4) 482 4,337 -- 473 482 Spring Creek......................... Greenville, SC -- (4) 597 5,374 -- 667 597 St. Augustine........................ Jacksonville, FL -- (5) 2,858 6,475 -- 2,026 2,858 Cooper's Hawk........................ Jacksonville, FL -- (5) 854 7,500 -- 879 854 Marsh Oaks........................... Atlantic Beach, FL -- (9) 244 2,829 -- 600 244 Park at Hermitage.................... Nashville, TN $ 7,770 1,524 14,800 -- 1,638 1,524 LIFE USED TO COMPUTE DEPRECIATION BUILDING IN LATEST AND ACCUMULATED DATE OF INCOME PROPERTY NAME FIXTURES TOTAL DEPRECIATION NET CONSTRUCTION STATEMENT(7) - ------------------------------------- --------- --------- ----------- --------- ------------ ------------ The Advantages....................... $ 4,676 $ 5,098 $ (1,443) $ 3,655 1984 5 - 40 McKellar Woods....................... 15,254 15,991 (3,483) 12,508 1976 5 - 40 Pine Trails.......................... 3,503 3,681 (1,348) 2,333 1978 5 - 40 Reflection Pointe.................... 11,287 12,137 (2,061) 10,076 1986 5 - 40 Riverhills........................... 2,477 2,630 (692) 1,938 1972 5 - 40 Woodridge............................ 6,037 6,508 (1,135) 5,373 1987 5 - 40 Greenbrook........................... 33,759 35,888 (6,565) 29,323 1986 5 - 40 Steeplechase......................... 3,262 3,479 (816) 2,663 1986 5 - 40 Clearbrook Village................... 4,650 4,910 (965) 3,945 1974 5 - 40 Crossings............................ 2,843 3,397 (864) 2,533 1974 5 - 40 Eastview............................. 11,279 11,979 (2,780) 9,199 1974 5 - 40 Gleneagles........................... 5,834 6,277 (2,075) 4,202 1975 5 - 40 The Park Estate...................... 2,061 2,239 (988) 1,251 1974 5 - 40 Winchester Square.................... 8,466 8,816 (1,873) 6,943 1973 5 - 40 Post House North..................... 5,161 5,542 (980) 4,562 1987 5 - 40 Post House Jackson................... 5,832 6,275 (1,102) 5,173 1987 5 - 40 The Oaks............................. 2,336 2,513 (526) 1,987 1978 5 - 40 The Corners.......................... 6,838 7,523 (1,433) 6,090 1982 5 - 40 Park Haywood......................... 5,520 5,880 (1,004) 4,876 1983 5 - 40 Hickory Farm......................... 5,818 6,398 (1,224) 5,174 1985 5 - 40 Stonemill Village.................... 12,080 13,249 (2,525) 10,724 1985 5 - 40 Canyon Creek......................... 10,014 11,114 (1,991) 9,123 1987 5 - 40 Whispering Oaks...................... 6,195 6,701 (1,369) 5,332 1978 5 - 40 Pear Orchard......................... 13,612 14,964 (2,792) 12,172 1985 5 - 40 Celery Stalk......................... 15,447 16,910 (3,044) 13,866 1978 5 - 40 Hollybrook........................... 4,769 5,174 (948) 4,226 1972 5 - 40 Green Tree Place..................... 5,686 6,225 (1,119) 5,106 1984 5 - 40 MacArthur Ridge...................... 10,946 12,077 (2,131) 9,946 1991 5 - 40 Lincoln on the Green................. 14,477 15,975 (2,782) 13,193 1988 5 - 40 Brentwood Downs...................... 11,517 12,710 (2,311) 10,399 1986 5 - 40 Shenandoah Ridge..................... 7,805 8,455 (1,628) 6,827 1982 5 - 40 Westborough Crossing................. 7,026 7,703 (1,370) 6,333 1984 5 - 40 Woodbridge at the Lake............... 6,829 7,474 (1,355) 6,119 1985 5 - 40 Lakepointe........................... 4,364 4,775 (879) 3,896 1986 5 - 40 The Mansion.......................... 7,241 7,935 (1,381) 6,554 1987 5 - 40 The Village.......................... 9,164 10,064 (1,825) 8,239 1989 5 - 40 Cypresswood Court.................... 6,116 6,693 (1,167) 5,526 1984 5 - 40 The Lodge at Timberglen.............. 9,278 10,103 (1,868) 8,235 1984 5 - 40 Calais Forest........................ 10,622 11,648 (2,058) 9,590 1987 5 - 40 The Fairways......................... 8,730 9,640 (1,629) 8,011 1992 5 - 40 Kirby Station........................ 12,654 13,802 (2,443) 11,359 1978 5 - 40 Belmere.............................. 9,397 10,248 (1,698) 8,550 1984 5 - 40 Williamsburg Village................. 5,254 5,777 (1,016) 4,761 1987 5 - 40 Fairways @ Royal Oak................. 8,299 9,113 (1,559) 7,554 1988 5 - 40 Tanglewood........................... 4,682 5,109 (860) 4,249 1980 5 - 40 Woods at Post House.................. 7,509 7,749 (1,817) 5,932 1995 5 - 40 Somerset............................. 4,988 5,465 (969) 4,496 1981 5 - 40 Highland Ridge....................... 4,810 5,292 (722) 4,570 1984 5 - 40 Spring Creek......................... 6,041 6,638 (910) 5,728 1984 5 - 40 St. Augustine........................ 8,501 11,359 (1,754) 9,605 1987 5 - 40 Cooper's Hawk........................ 8,379 9,233 (1,448) 7,785 1987 5 - 40 Marsh Oaks........................... 3,429 3,673 (630) 3,043 1986 5 - 40 Park at Hermitage.................... 16,438 17,962 (2,765) 15,197 1987 5 - 40
F-22 MID-AMERICA APARTMENT COMMUNITIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999 (DOLLARS IN THOUSANDS)
GROSS AMOUNT CARRIED AT COST CAPITALIZED DECEMBER SUBSEQUENT TO 31, INITIAL COST ACQUISITION 1999(6) -------------------- ---------------- -------- BUILDING BUILDING AND AND PROPERTY NAME LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES LAND - ------------------------------------- ------------------------------- -------- --------- ----- -------- -------- Anatole.............................. Daytona Beach, FL $ 7,000 1,227 5,879 -- 676 1,227 The Savannahs........................ Melbourne, FL -- (5) 582 7,868 -- 1,551 582 Stassney Woods....................... Austin, TX $ 4,595 1,621 7,501 -- 1,537 1,621 Travis Station....................... Austin, TX $ 4,065 2,282 6,169 -- 1,058 2,282 Runaway Bay.......................... Mt. Pleasant, SC -- (4) 1,085 7,269 -- 849 1,085 The Township......................... Hampton, VA $ 10,800 1,509 8,189 -- 709 1,509 Lakeside............................. Jacksonville, FL -- (9) 1,431 12,883 288 2,456 1,719 Crosswinds........................... Jackson, MS -- (9) 1,535 13,826 -- 1,145 1,535 Sutton Place......................... Horn Lake, MS -- (9) 894 8,053 -- 977 894 Savannah Creek....................... Southaven, MS -- (9) 778 7,013 -- 609 778 Napa Valley.......................... Little Rock, AR -- (9) 960 8,642 -- 700 960 Altamonte Springs, Tiffany Oaks......................... FL -- (9) 1,024 9,219 -- 1,199 1,024 Lincoln on the Green II.............. Memphis, TN -- 0 6,999 -- 6,987 0 Howell Commons....................... Greenville, SC -- (9) 1,304 11,740 -- 672 1,304 Balcones Woods....................... Austin, TX $ 8,608 1,598 14,398 -- 1,635 1,598 Westside Creek I..................... Little Rock, AR -- (9) 616 5,559 -- 495 616 Fairways at Hartland................. Bowling Green, KY $ 4,552 1,038 9,342 -- 766 1,038 Woodhollow........................... Jacksonville, FL $ 9,784 1,686 15,179 -- 1,732 1,686 Hunters Ridge at Deerwood............ Jacksonville, FL -- (11) 1,533 13,835 -- 494 1,533 Austin Chase......................... Macon, GA -- (11) 1,409 12,687 -- (433) 1,409 Westside Creek II.................... Little Rock, AR $ 4,875 654 5,904 -- 237 654 Woodwinds............................ Aiken, SC $ 3,466 503 4,540 -- 389 503 Hermitage at Beechtree............... Cary, NC -- (9) 900 8,099 -- 851 900 Bradford Pointe (Sterling Ridge)..... Augusta, GA $ 4,760 772 6,949 -- 420 772 Fountain Lake........................ Brunswick, GA $ 2,929 502 4,551 -- 782 502 Hidden Lake I........................ Union City, GA $ 4,455 675 6,128 -- 348 675 Hidden Lake II....................... Union City, GA -- (9) 621 5,587 -- 224 621 High Ridge........................... Athens, GA -- (9) 884 7,958 -- 289 884 Paddock Club Columbia................ Columbia, SC -- (3) 1,840 16,560 -- 469 1,840 Paddock Club Huntsville.............. Huntsville, AL -- 830 7,470 -- 403 830 Paddock Club Jacksonville I.......... Jacksonville, FL -- (10) 963 8,739 -- 273 963 Paddock Club Lakeland................ Lakeland, FL -- (10) 2,254 20,452 -- 974 2,254 Paddock Club Tallahassee I........... Tallahassee, FL -- (3) 950 8,550 -- 270 950 Paddock Park I....................... Ocala, FL $ 6,805 901 8,177 -- 544 901 Paddock Park II...................... Ocala, FL -- (3) 1,383 12,547 -- 509 1,383 Park Place........................... Spartanburg, SC -- (9) 723 6,504 -- 812 723 Park Walk............................ College Park, GA $ 3,343 536 4,859 -- 281 536 River Trace I........................ Memphis, TN $ 5,648 881 7,996 -- 703 881 River Trace II....................... Memphis, TN $ 5,583 741 6,727 -- 303 741 Riverwind............................ Columbus, GA -- 108 979 -- 223 108 Southland Station I.................. Warner Robins, GA -- (9) 777 6,992 -- 571 777 Southland Station II................. Warner Robins, GA -- 693 6,292 -- 229 693 Three Oaks I......................... Valdosta, GA $ 2,801 462 4,188 -- 494 462 Three Oaks II........................ Valdosta, GA $ 2,885 460 4,170 -- 227 460 The Vistas........................... Macon, GA $ 4,015 595 5,403 -- 399 595 Westbury Creek....................... Augusta, GA $ 3,121 400 3,626 -- 373 400 Westbury Springs..................... Lilburn, GA $ 4,186 665 6,038 -- 441 665 Whispering Pines I................... LaGrange, GA $ 2,701 454 4,116 -- 343 454 Whispering Pines II.................. LaGrange, GA $ 2,482 370 3,354 -- 248 370 Whisperwood.......................... Columbus, GA -- (2) 2,330 20,970 -- 1,686 2,330 Whisperwood Spa I.................... Columbus, GA -- (2) 1,510 13,590 -- 474 1,510 Wildwood I........................... Thomasville, GA $ 2,034 438 3,971 -- 240 438 Wildwood II.......................... Thomasville, GA $ 1,985 372 3,372 -- 155 372 Willow Creek......................... Columbus, GA -- (9) 614 5,523 -- 678 614 LIFE USED TO COMPUTE DEPRECIATION BUILDING IN LATEST AND ACCUMULATED DATE OF INCOME PROPERTY NAME FIXTURES TOTAL DEPRECIATION NET CONSTRUCTION STATEMENT(7) - ------------------------------------- --------- --------- ----------- --------- ------------ ------------ Anatole.............................. 6,555 7,782 (1,145) 6,637 1986 5 - 40 The Savannahs........................ 9,419 10,001 (1,549) 8,452 1990 5 - 40 Stassney Woods....................... 9,038 10,659 (1,514) 9,145 1985 5 - 40 Travis Station....................... 7,227 9,509 (1,226) 8,283 1987 5 - 40 Runaway Bay.......................... 8,118 9,203 (1,345) 7,858 1988 5 - 40 The Township......................... 8,898 10,407 (1,366) 9,041 1987 5 - 40 Lakeside............................. 15,339 17,058 (2,418) 14,640 1985 5 - 40 Crosswinds........................... 14,971 16,506 (1,917) 14,589 1988/1990 5 - 40 Sutton Place......................... 9,030 9,924 (1,152) 8,772 1991 5 - 40 Savannah Creek....................... 7,622 8,400 (973) 7,427 1989 5 - 40 Napa Valley.......................... 9,342 10,302 (1,083) 9,219 1984 5 - 40 Tiffany Oaks......................... 10,418 11,442 (1,140) 10,302 1985 5 - 40 Lincoln on the Green II.............. 13,986 13,986 (1,269) 12,717 1997 5 - 40 Howell Commons....................... 12,412 13,716 (1,302) 12,414 1986/1988 5 - 40 Balcones Woods....................... 16,033 17,631 (1,653) 15,978 1983 5 - 40 Westside Creek I..................... 6,054 6,670 (612) 6,058 1984 5 - 40 Fairways at Hartland................. 10,108 11,146 (1,024) 10,122 1996 5 - 40 Woodhollow........................... 16,911 18,597 (1,752) 16,845 1986 5 - 40 Hunters Ridge at Deerwood............ 14,329 15,862 (636) 15,226 1987 5 - 40 Austin Chase......................... 12,254 13,663 (501) 13,162 1996 5 - 40 Westside Creek II.................... 6,141 6,795 (502) 6,293 1986 5 - 40 Woodwinds............................ 4,929 5,432 (398) 5,034 1988 5 - 40 Hermitage at Beechtree............... 8,950 9,850 (675) 9,175 1988 5 - 40 Bradford Pointe (Sterling Ridge)..... 7,369 8,141 (557) 7,584 1986 5 - 40 Fountain Lake........................ 5,333 5,835 (426) 5,409 1983 5 - 40 Hidden Lake I........................ 6,476 7,151 (486) 6,665 1985 5 - 40 Hidden Lake II....................... 5,811 6,432 (432) 6,000 1987 5 - 40 High Ridge........................... 8,247 9,131 (611) 8,520 1987 5 - 40 Paddock Club Columbia................ 17,029 18,869 (1,241) 17,628 1989/1995 5 - 40 Paddock Club Huntsville.............. 7,873 8,703 (577) 8,126 1989 5 - 40 Paddock Club Jacksonville I.......... 9,012 9,975 (672) 9,303 1989 5 - 40 Paddock Club Lakeland................ 21,426 23,680 (1,606) 22,074 1988/1990 5 - 40 Paddock Club Tallahassee I........... 8,820 9,770 (659) 9,111 1990 5 - 40 Paddock Park I....................... 8,721 9,622 (674) 8,948 1986 5 - 40 Paddock Park II...................... 13,056 14,439 (991) 13,448 1988 5 - 40 Park Place........................... 7,316 8,039 (550) 7,489 1987 5 - 40 Park Walk............................ 5,140 5,676 (386) 5,290 1985 5 - 40 River Trace I........................ 8,699 9,580 (654) 8,926 1981 5 - 40 River Trace II....................... 7,030 7,771 (536) 7,235 1985 5 - 40 Riverwind............................ 1,202 1,310 (89) 1,221 1983 5 - 40 Southland Station I.................. 7,563 8,340 (565) 7,775 1987 5 - 40 Southland Station II................. 6,521 7,214 (481) 6,733 1990 5 - 40 Three Oaks I......................... 4,682 5,144 (354) 4,790 1983 5 - 40 Three Oaks II........................ 4,397 4,857 (334) 4,523 1984 5 - 40 The Vistas........................... 5,802 6,397 (427) 5,970 1985 5 - 40 Westbury Creek....................... 3,999 4,399 (310) 4,089 1984 5 - 40 Westbury Springs..................... 6,479 7,144 (474) 6,670 1983 5 - 40 Whispering Pines I................... 4,459 4,913 (342) 4,571 1982 5 - 40 Whispering Pines II.................. 3,602 3,972 (268) 3,704 1984 5 - 40 Whisperwood.......................... 22,656 24,986 (1,645) 23,341 1981/1986 5 - 40 Whisperwood Spa I.................... 14,064 15,574 (1,054) 14,520 1988 5 - 40 Wildwood I........................... 4,211 4,649 (311) 4,338 1980 5 - 40 Wildwood II.......................... 3,527 3,899 (266) 3,633 1984 5 - 40 Willow Creek......................... 6,201 6,815 (473) 6,342 1971/1977 5 - 40
F-23 MID-AMERICA APARTMENT COMMUNITIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999 (DOLLARS IN THOUSANDS)
GROSS AMOUNT CARRIED AT DECEMBER COST CAPITALIZED 31, SUBSEQUENT TO INITIAL COST ACQUISITION 1999(6) -------------------- ---------------- -------- BUILDING BUILDING AND AND PROPERTY NAME LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES LAND - ------------------------------------- ------------------------------- -------- --------- ----- -------- -------- Windridge............................ Chattanooga, TN $ 5,391 817 7,416 -- 344 817 2000 Wynnton......................... Columbus, GA -- 192 1,741 -- 197 192 Paddock Club Tallahassee II.......... Tallahassee, FL $ 4,691 530 4,805 -- 128 530 Paddock Club Jacksonville II......... Jacksonville, FL -- (10) 689 6,255 -- 56 689 Paddock Club Florence................ Florence, KY $ 9,620 1,209 10,969 -- 362 1,209 Paddock Club Greenville.............. Greenville, SC -- 1,200 10,800 -- 315 1,200 Paddock Club Brandon I............... Brandon, FL -- (3) 2,100 18,900 -- 134 2,100 Terraces at Towne Lake I............. Woodstock, GA $ 15,132 1,689 15,321 -- 51 1,689 Paddock Club Jacksonville III........ Jacksonville, FL -- (10) 642 5,756 -- 122 642 Paddock Club Huntsville II........... Huntsville, AL -- 909 10,152 -- 56 909 Paddock Club Mandarin................ Jacksonville, FL -- (3) 1,410 14,967 -- 147 1,410 Enclave at Whisperwood............... Columbus, GA -- (2) 450 8,162 -- 53 450 Terraces at Fieldstone............... Conyers, GA -- (3) 1,284 15,819 -- -- 1,284 Abbington Place at SouthPoint........ Huntsville, AL -- (3) 524 4,724 -- 741 524 Eagle Ridge.......................... Birmingham, AL $ 6,349 851 7,667 -- 636 851 Georgetown Grove..................... Savannah, GA $ 10,460 1,288 11,579 -- 210 1,288 Courtyards at Campbell............... Dallas, TX -- (2) 988 8,893 -- 680 988 Deer Run............................. Dallas, TX -- (2) 1,252 11,271 -- 1,163 1,252 Highwood............................. Plano, TX -- 864 7,783 -- 755 864 Links at Carrollwood................. Tampa, FL $ 5,704 817 7,355 -- 1,093 817 St. Simons Island, Island Retreat....................... GA $ 3,388 510 4,594 -- 435 510 ------------ -------- --------- ----- -------- -------- Total Completed Communities.......... $262,801 $110,642 $ 997,152 $ 708 $119,454 $111,350 ------------ -------- --------- ----- -------- -------- Construction of units in lease-up: - ------------------------------------- Reserve at Dexter Lake............... Memphis, TN -- (2) 1,260 16,043 -- 1,260 Paddock Club Gainesville............. Gainesville, FL -- (2) 1,800 15,879 -- 1,800 Terraces at Towne Lake II............ Woodstock, GA -- (3) 1,331 11,918 -- 1,331 Paddock Club Panama City............. Panama City, FL -- (2) 898 14,276 -- 898 Paddock Club Murfreesboro............ Murfreesboro, TN -- (2) 915 14,774 -- 915 Paddock Club Brandon II.............. Brandon, FL -- (3) 796 7,211 -- 796 Paddock Club Montgomery.............. Montgomery, AL -- (3) 965 13,190 -- 965 Grand Reserve Lexington.............. Lexington, KY -- (2) 392 18,849 -- 392 Kenwood Park......................... Katy, TX -- 109 12,275 -- 109 ------------ -------- --------- ----- -------- -------- Total Construction of units in lease-up........................... $ -- $ 8,466 $ 124,415 $-- $ -- $ 8,466 Construction of units in process: - ------------------------------------- Reserve at Dexter Lake II............ Memphis, TN -- -- -- 7,583 -- Grand View Nashville................. Nashville, TN -- (2) -- -- 11,257 -- ------------ -------- --------- ----- -------- -------- Total Construction of Units in process............................ $ -- $ -- $ -- $-- $ 18,840 $ -- ------------ -------- --------- ----- -------- -------- Total Apartments..................... $262,801 $119,108 $1,121,567 $ 708 $138,294 $119,816 ------------ -------- --------- ----- -------- -------- Land held for future developments.... Various -- 1,710 -- -- -- 1,710 Commercial properties................ Various -- 300 2,769 -- 4,229 300 ------------ -------- --------- ----- -------- -------- Total other.......................... $ -- $ 2,010 $ 2,769 $-- $ 4,229 $ 2,010 ------------ -------- --------- ----- -------- -------- Total Real Estate Assets............. $262,801 $121,118 $1,124,336 $ 708 $142,523 $121,826 ============ ======== ========= ===== ======== ======== LIFE USED TO COMPUTE DEPRECIATION BUILDING IN LATEST AND ACCUMULATED DATE OF INCOME PROPERTY NAME FIXTURES TOTAL DEPRECIATION NET CONSTRUCTION STATEMENT(7) - ------------------------------------- --------- --------- ----------- --------- ------------ ------------ Windridge............................ 7,760 8,577 (574) 8,003 1984 5 - 40 2000 Wynnton......................... 1,938 2,130 (148) 1,982 1983 5 - 40 Paddock Club Tallahassee II.......... 4,933 5,463 (366) 5,097 1995 5 - 40 Paddock Club Jacksonville II......... 6,311 7,000 (465) 6,535 1996 5 - 40 Paddock Club Florence................ 11,331 12,540 (839) 11,701 1994 5 - 40 Paddock Club Greenville.............. 11,115 12,315 (806) 11,509 1996 5 - 40 Paddock Club Brandon I............... 19,034 21,134 (1,392) 19,742 1997 5 - 40 Terraces at Towne Lake I............. 15,372 17,061 (1,127) 15,934 1997 5 - 40 Paddock Club Jacksonville III........ 5,878 6,520 (312) 6,208 1997 5 - 40 Paddock Club Huntsville II........... 10,208 11,117 (411) 10,706 1998 5 - 40 Paddock Club Mandarin................ 15,114 16,524 (612) 15,912 1998 5 - 40 Enclave at Whisperwood............... 8,215 8,665 (329) 8,336 1998 5 - 40 Terraces at Fieldstone............... 15,819 17,103 (501) 16,602 1998 5 - 40 Abbington Place at SouthPoint........ 5,465 5,989 (354) 5,635 1987 5 - 40 Eagle Ridge.......................... 8,303 9,154 (468) 8,686 1986 5 - 40 Georgetown Grove..................... 11,789 13,077 (650) 12,427 1997 5 - 40 Courtyards at Campbell............... 9,573 10,561 (458) 10,103 1986 5 - 40 Deer Run............................. 12,434 13,686 (582) 13,104 1985 5 - 40 Highwood............................. 8,538 9,402 (407) 8,995 1983 5 - 40 Links at Carrollwood................. 8,448 9,265 (459) 8,806 1980 5 - 40 Island Retreat....................... 5,029 5,539 (177) 5,362 1978 5 - 40 --------- --------- ----------- --------- Total Completed Communities.......... $1,116,606 $1,227,960 $(145,160) $1,082,800 --------- --------- ----------- --------- Construction of units in lease-up: - ------------------------------------- Reserve at Dexter Lake............... 16,043 17,303 (240) 17,063 1999 5 - 40 Paddock Club Gainesville............. 15,879 17,679 (420) 17,259 1999 5 - 40 Terraces at Towne Lake II............ 11,918 13,249 (289) 12,960 1999 5 - 40 Paddock Club Panama City............. 14,276 15,174 (364) 14,810 1999 5 - 40 Paddock Club Murfreesboro............ 14,774 15,689 (138) 15,551 1999 5 - 40 Paddock Club Brandon II.............. 7,211 8,007 -- 8,007 1999 5 - 40 Paddock Club Montgomery.............. 13,190 14,155 -- 14,155 1999 5 - 40 Grand Reserve Lexington.............. 18,849 19,241 -- 19,241 -- N/A Kenwood Park......................... 12,275 12,384 -- 12,384 -- N/A --------- --------- ----------- --------- Total Construction of units in lease-up........................... $ 124,415 $ 132,881 $ (1,451) $ 131,430 Construction of units in process: - ------------------------------------- Reserve at Dexter Lake II............ 7,583 7,583 -- 7,583 -- N/A Grand View Nashville................. 11,257 11,257 -- 11,257 -- N/A --------- --------- ----------- --------- Total Construction of Units in process............................ $ 18,840 $ 18,840 $ -- $ 18,840 --------- --------- ----------- --------- Total Apartments..................... $1,259,861 $1,379,681 $(146,611) $1,233,070 --------- --------- ----------- --------- Land held for future developments.... -- 1,710 -- 1,710 N/A N/A Commercial properties................ 6,998 7,298 (2,081) 5,217 Various 5 - 40 --------- --------- ----------- --------- Total other.......................... $ 6,998 $ 9,008 $ (2,081) $ 6,927 --------- --------- ----------- --------- Total Real Estate Assets............. $1,266,859 $1,388,689 $(148,692) $1,239,997 ========= ========= =========== =========
F-24 MID-AMERICA APARTMENT COMMUNITIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999 (DOLLARS IN THOUSANDS)
GROSS AMOUNT CARRIED AT COST CAPITALIZED DECEMBER SUBSEQUENT TO 31, INITIAL COST ACQUISITION 1999(6) -------------------- ---------------- -------- BUILDING BUILDING AND AND PROPERTY NAME LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES LAND - ------------------------------------- ------------------------------- -------- --------- ----- -------- -------- LIFE USED TO COMPUTE DEPRECIATION BUILDING IN LATEST AND ACCUMULATED DATE OF INCOME PROPERTY NAME FIXTURES TOTAL DEPRECIATION NET CONSTRUCTION STATEMENT(7) - ------------------------------------- --------- --------- ----------- --------- ------------ ------------
Note: This schedule excludes the dispositions. (1) These ten properties are encumbered by a $43.4 million note payable with an interest rate of 8.65% at December 31, 1999, maturing July 1, 2001. (2) Encumbered by the AmSouth Credit Line, with an outstanding balance of $60.2 million at December 31, 1999 and a variable interest rate of 7.15%. (3) Encumbered by the FNMA Credit Line, with an outstanding balance of $113.2 million at December 31, 1999 and a variable interest rate of 6.28%. (4) These three properties are encumbered by a $9.86 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 6.09%. (5) These three properties are encumbered by a $16.1 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 5.75%. (6) The aggregate cost for Federal income tax purposes was approximately $1,015 million at December 31, 1999. The total gross amount of real estate assets for GAAP purposes exceeds the aggregate cost for Federal income tax purposes, principally due to purchase accounting adjustments recorded under generally accepted accounting principles. (7) 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. (8) These 3 properties, and one commercial building, are encumbered by a $35.3 million mortgage with a maturity of April 1, 2005. (9) These 26 communities are encumbered by a $142 million loan with a maturity of March 3, 2003 and an average interest rate of 6.376%. (10) These five communities are encumbered by a $47.5 million note payable with a maturity of December 15, 2004 and an interest rate of 7.04%. (11) These two properties are encumbered by a $14 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 5.281%. F-25 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: YEAR ENDED DECEMBER 31, ---------------------------------------- 1999 1998 1997 ------------ ------------ ------------ (DOLLARS IN THOUSANDS) Real estate investments: Balance at beginning of year.... $ 1,434,733 $ 1,211,693 $ 641,893 Acquisitions.................... -- 91,895 140,858 Improvements and development.... 105,940 136,933 36,298 Assets acquired from business combination................... -- -- 392,644 Disposition of real estate assets........................ (152,015) (5,788) -- Investment in and advances to real estate joint venture....................... 8,085 -- -- ------------ ------------ ------------ Balance at end of year..... $ 1,396,743 $ 1,434,733 $ 1,211,693 ============ ============ ============ Accumulated depreciation: Balance at beginning of year.... $ 117,773 $ 76,989 $ 49,558 Depreciation.................... 48,687 41,556 27,431 Disposition of real estate assets........................ (19,849) (772) -- ------------ ------------ ------------ Balance at end of year..... $ 146,611 $ 117,773 $ 76,989 ============ ============ ============ The Company's consolidated balance sheet at December 31, 1999 includes accumulated depreciation of $2,081 in the caption "Commercial properties, net". See accompanying independent auditors' report. F-26 EX-10.4 2 EXHIBIT 10.4 SIXTH AMENDMENT TO REVOLVING CREDIT AGREEMENT This Sixth Amendment to Revolving Credit Agreement (the "Sixth Amendment") is dated as of November 12, 1999, 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"), and AMSOUTH BANK, an Alabama banking corporation, as Administrative Agent for the Lenders, its successors and assigns (in such capacity, the "Administrative 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 to Revolving Credit Agreement dated as of May 15, 1998, by Second Amendment to Revolving Credit Agreement dated as of October 1, 1998, by Third Amendment to Revolving Credit Agreement dated as of November 12, 1998, by Fourth Amendment to Revolving Credit Agreement dated as of March 31, 1999, and by Fifth Amendment to Revolving Credit Agreement dated as of May 28, 1999 (as it may be amended further from time to time, the "Agreement"). Unless otherwise defined in this Sixth Amendment, capitalized terms shall the meaning assigned to them in the Agreement. B. The Borrowers have requested that the Agreement be amended to extend the Maturity Date and to modify certain other provisions of the Agreement. C. The parties to the Agreement desire to execute this Sixth 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 follows: 1. SECTION 1.1, The Loans, is hereby amended by deleting the amount of "$200,000,000" and replacing it with the amount of "$150,000,000". 2. SECTION 1.3, Commitments, is hereby amended by deleting the amount of "$200,000,000.00" and replacing it with the amount of "$150,000,000.00". 3. SECTION 1.11(A), Letter of Credit Fees, is hereby amended by replacing the percentage of (a) one and fifteen hundredths of one percent (1.15%) with one and fifty hundredths of one percent (1.50%), and (b) one fortieth of one percent (.025%) with 1 five hundredths of one percent (.05%), to be effective for any Letters of Credit issued or renewed after the date of this Sixth Amendment. 4. SECTION 1.11(C), Facility Fee, is hereby deleted in its entirety and replaced with the following: (c) Facility Fee The Borrowers shall pay to Lenders in accordance with their respective Proportionate Share an annual fee quarterly in arrears beginning December 31, 1999 (the "Facility Fee"). Said Facility Fee shall be determined based upon the then current ratio of Total Liabilities to Total Market Value of Assets, as follows: TOTAL LIABILITIES/TOTAL MARKET VALUE OF ASSETS FACILITY FEE < 55% 20 basis points > 55% but <60% 20 basis points - > 60% 25 basis points - 5. SECTION 1.11, Fees, is further amended by adding the following subclauses: (i) In consideration of this Sixth Amendment, the Borrowers shall pay to the Lenders on the date hereof an extension fee equal to 22.5 basis points of the Commitments ($337,500.00). An additional extension fee shall be payable by the Borrowers to the Administrative Agent on the date hereof pursuant to a separate letter agreement between the Administrative Agent and the Borrowers. (j) The Borrowers shall pay the Administrative Agent such other fees as required by the Administrative Agent in a separate letter agreement between the Administrative Agent and the Borrowers. 6. SECTION 1.13, Interest, is hereby amended by deleting therefrom subclause (e)(1). 7. SECTION 6.8, Other Financial Covenants, is hereby amended as follows: (a) Subsection (a) is hereby amended by replacing "sixty percent (60%)" with "sixty-two percent (62%)". (b) Subsection (b) is hereby amended by replacing "ten percent (10%)" with "seven and one-half of one percent (7.5%)". (c) Subsection (c) is hereby amended by replacing "1.75" with "1.70". 2 (d) Subsection (e) is hereby deleted in its entirety and replaced with the following: (e) Fail to maintain at all times a consolidated Tangible Net Worth which is not less than Five Hundred Fifty Million Dollars ($550,000,000) plus seventy percent (70%) of net proceeds of new equity offerings, which calculation shall include accumulated depreciation. (e) Subsection (f) is hereby deleted in its entirety and replaced with the following: (f) Through the quarter ended June 30, 2000, permit the ratio of Adjusted NOI for all Mortgaged Properties (based on the prior three (3) months, annualized) to Assumed Debt Service to be less than 1.25 to 1.0. For the quarter ended September 30, 2000, permit such ratio to be less than 1.35 to 1.0. Thereafter, permit such ratio to be less than 1.50 to 1.0. (f) Subsection (g) is hereby amended by replacing "22.5%" with "10%". (g) A new subsection (h) is hereby added as follows: (h) Fail to maintain as of the end of each fiscal quarter a ratio of Adjusted NOI from Stabilized Properties only (based on the prior three (3) months, annualized) to Assumed Debt Service for the same period (utilizing a 30-year assumed amortization period instead of a 25-year period) of at least 1.25 to 1.0, commencing with the quarter ended March 31, 2000. 8. SECTION 7.1, Events of Default, is hereby amended by deleting subsection (k) thereof in its entirety and replacing it with the following: (k) if MAAC shall cease to be the sole general partner of Mid-America; or if any single Person or related group of Persons shall control more than twenty percent (20%), in the aggregate, of MAAC's voting shares and Mid- America's partnership interests. Exchanges by existing limited partners of Mid-America of their respective limited partnership interests for capital stock of MAAC, not exceeding, in the aggregate, as to all such exchanges, transfers of not more than thirty-five percent (35%) of the partnership interests of Mid- America, shall not constitute an Event of Default; or 9. SECTION 10.6, Amendments and Waivers, is hereby amended by adding a new subsection (h) as follows: (h) permits a change in control. For purposes of this subsection (h), a "change in control" shall have occurred if MAAC shall cease to be the sole general 3 partner of Mid-America or if any single Person or related group of Persons shall control more than twenty percent (20%), in the aggregate, of MAAC's voting shares and Mid-America's partnership interests. Exchanges by existing limited partners of Mid-America of their respective limited partnership interests for capital stock of MAAC, not exceeding, in the aggregate, as to all such exchanges, transfers of not more than thirty-five percent (35%) of the partnership interests of Mid-America, shall not constitute a change in control hereunder. 10. SECTION 11.1, Definitions, is hereby amended as follows: (a) The definition of "Borrowing Base" is hereby amended by (i) deleting the last sentence thereof (added pursuant to the Fourth Amendment) and (ii) replacing "$50,000,000" with "$41,250,000". Commencing January 1, 2001, said $41,250,000 limitation shall have a sublimit of $15,000,000 for Development Projects for which all appropriate Certificates of Occupancy have not yet been issued. (b) The definition of "Fees" is hereby amended by replacing "(E)" with "(J)". (c) The definition of "Margin" is hereby deleted in its entirety and replaced with the following: MARGIN shall be determined based upon the then applicable ratio of Total Liabilities to Total Market Value of Assets, as follows: TOTAL LIABILITIES/TOTAL MARKET VALUE OF ASSETS LIBOR MARGIN < 55% 145 basis points > 55% but <60% 165 basis points - > 60% 175 basis points - (d) The definition of "Maturity Date" is hereby amended by replacing "November 24, 2000" with "November 24, 2001". 11. The parties hereto acknowledge and agree that EBITDA shall include Borrowers' pro rata share of NOI directly resulting from any joint venture arrangement with any Person. 12. SCHEDULE 1 is hereby deleted in its entirety and replaced with SCHEDULE 1 attached hereto and made a part hereof. 13. SCHEDULE 2 is hereby deleted in its entirety and replaced with SCHEDULE 2 attached hereto and made a part hereof. 4 14. SCHEDULE 3 is hereby deleted in its entirety and replaced with SCHEDULE 3 attached hereto and made a part hereof. 15. SCHEDULE 4 is hereby deleted in its entirety and replaced with SCHEDULE 4 attached hereto and made a part hereof. 16. EXHIBIT J is hereby amended by replacing the Debt Covenant Worksheet for Compliance Certificate with the Worksheet attached hereto and made a part hereof. 17. This Sixth Amendment shall not be effective until the following conditions have been fulfilled: a. The Administrative Agent has received a fully executed original of this Sixth Amendment; b. The Administrative Agent has received an original Note executed to the order of each Lender, in the principal amount of such Lender's commitment and evidencing such Lender's Loans; c. The fees required herein have been received by the Administrative Agent; d. The Administrative Agent has received appropriate resolutions of the Borrowers and the Subsidiaries authorizing the transactions contemplated herein; e. The Administrative Agent has received an opinion of counsel to each of the Borrowers, which opinion shall be satisfactory to the Administrative Agent in all respects; and f. The Administrative Agent has received a confirmation from each Subsidiary that is a Mortgagor that its Subsidiary Guaranty is in full force and effect. Except as expressly amended hereby, the Agreement shall remain in full force and effect in accordance with its terms. Each Borrower represents and warrants that no Event of Default has occurred and is continuing under the Agreement, nor does any event that upon notice or lapse of time or both would constitute such an Event of Default exist. IN WITNESS WHEREOF, the parties have executed this Sixth Amendment as of the date first set forth above. 5 Signature page to Sixth Amendment to Revolving Credit Agreement MID-AMERICA APARTMENT COMMUNITIES, INC. By __________________________________ Name________________________________ Title_________________________________ Signature page to Sixth Amendment to Revolving Credit Agreement MID-AMERICA APARTMENTS, L.P. By Mid-America Apartment Communities, Inc. Its Sole General Partner By _________________________________ Name_______________________________ Title________________________________ Signature page to Sixth Amendment to Revolving Credit Agreement AMSOUTH BANK, in its individual capacity as Lender and as Administrative Agent By __________________________________ Name________________________________ Title_________________________________ Signature page to Sixth Amendment to Revolving Credit Agreement HIBERNIA NATIONAL BANK By ________________________________ Name______________________________ Title_______________________________ Signature page to Sixth Amendment to Revolving Credit Agreement COMMERZBANK AG NEW YORK AND GRAND CAYMAN BRANCHES By _______________________________ Name_____________________________ Title______________________________ By _______________________________ Name_____________________________ Title______________________________ Signature page to Sixth Amendment to Revolving Credit Agreement PNC BANK, NATIONAL ASSOCIATION By _______________________________ Name_____________________________ Title______________________________ Signature page to Sixth Amendment to Revolving Credit Agreement FIRST TENNESSEE BANK, N.A. By _______________________________ Name_____________________________ Title______________________________ Signature page to Sixth Amendment to Revolving Credit Agreement NATIONAL BANK OF COMMERCE By _______________________________ Name_____________________________ Title______________________________ Signature page to Sixth Amendment to Revolving Credit Agreement MELLON BANK, N.A. By _______________________________ Name_____________________________ Title______________________________ Signature page to Sixth Amendment to Revolving Credit Agreement NATIONAL BANK OF COMMERCE OF BIRMINGHAM By _______________________________ Name_____________________________ Title______________________________ SCHEDULE 1 LIST OF LENDERS PERCENTAGE - --------------- ---------- AmSouth Bank 19.1667% Hibernia National Bank 10.0% National Bank of Commerce 7.5% of Birmingham First Tennessee Bank, N.A. 13.3333% Commerzbank AG, New York 12.0% and Grand Cayman Branches PNC Bank, National Association 14.0% National Bank of Commerce 10.0% Mellon Bank, N.A. 14.0% --------- TOTAL 100.0% SCHEDULE 2 [CURRENT LIST OF PROPERTIES] AVAILABILITY PROPERTY ADVANCE RATE AS OF [9/30/99] -------- ------------ --------------- I. STABILIZED PROPERTIES: 1. Reflection Point (MS) 60% $ 7,441,787 2. Anatole (FL) 60% 5,505,411 3. Whisperwood (GA) 60% 14,529,411 4. Whisperwood Spa I (GA) 60% 9,381,347 5. Township (VA) 60% 6,473,053 6. Sterling Ridge (GA) 60% 4,685,646 7. Courtyards at Campbell (TX) 60% 5,764,345 8. Deer Run (TX) 60% 7,566,720 9. MacArthur Ridge (TX) 60% 5,277,537 10. Whisperwood Spa II (GA) 60% 5,092,099 II. DEVELOPMENT PROJECTS: 1. Paddock Club Gainesville (FL) 50% of cost $ 8,332,491 2. Paddock Club Panama City (FL) 50% of cost 6,505,188 3. Grande View Nashville (TN) 50% of cost 4,272,800 4. Paddock Club Murfreesboro (TN) 50% of cost 7,401,442 5. Grand Reserve Lexington (KY) 50% of cost 7,465,847 6. Reserve at Dexter (TN) 50% of cost 6,921,261 SCHEDULE 3 [NOTICE ADDRESSES] AmSouth Bank Real Estate Department 9th Floor AmSouth/Sonat Building 1900 5th Avenue North Birmingham, Alabama 35203 Attention: Mr. Lawrence B. Clark Hibernia National Bank 313 Carondolet Street Suite 1400 New Orleans, Louisiana 70130 Attn: Ms. Yancey Jones First Tennessee Bank, N.A. 1st Floor-Real Estate 165 Madison Avenue Memphis, Tennessee 38103 Attn: Ms. Jennifer Andrews Commerzbank AG, New York and Grand Cayman Branches Two World Financial Center 225 Liberty Street, 34th Floor New York, New York 10281 Attn: Mr. Doug Traynor PNC Bank, N.A. 249 5th Avenue Mail Stop #P1-POOP-19-2 Pittsburg, Pennsylvania 15222 Attn: Mr. Wayne Robertson National Bank of Commerce 7770 Poplar Avenue, Suite 105 Germantown, Tennessee 38138 Attn: Mr. Billy Frank Mellon Bank, N.A. One Mellon Bank Center, Suite 5325 Pittsburgh, PA 15258-0001 Attn: Mr. John G. Kozeka, CPM National Bank of Commerce of Birmingham 1927 1st Avenue North Birmingham, AL 35203 Attn: Mr. J. Cotten Volman Mid-America Apartment Communities, Inc. 6584 Poplar Suite 340 Memphis, Tennessee 38138 Attention: Mr. Simon R.C. Wadsworth Mid-America Apartments, L.P. 6584 Poplar Suite 340 Memphis, Tennessee 38138 Attention: Mr. Simon R.C. Wadsworth SCHEDULE 4 [SUBSIDIARIES & OWNERSHIP] Whisperwood Associates, A Limited Partnership, a Georgia limited partnership Whisperwood Spa & Club, A Limited Partnership, a Georgia limited partnership Mid-America Apartments of Texas, L.P., a Texas limited partnership MID-AMERICA APARTMENT COMMUNITIES REVOLVING CREDIT AGREEMENT DEBT COVENANT WORKSHEET FOR COMPLIANCE CERTIFICATE Quarter Quarter Ending Ending Annualized --------- --------- ---------- Total Liabilities ________________________________________________________________________________ EBITDA-MAA ________________________________________________________________________________ EBITDA-FDC ________________________________________________________________________________ EBITDA-Combined ________________________________________________________________________________ Total Market Value ________________________________________________________________________________ Total Liabilities/Total Market Value ________________________________________________________________________________ ________________________________________________________________________________ TOTAL DEVELOPMENT AND JV INVESTMENT As % of Total Market Value ________________________________________________________________________________ ________________________________________________________________________________ Total Annualized Fixed Charges ________________________________________________________________________________ Preferred Dividend ________________________________________________________________________________ Principal (from below) ________________________________________________________________________________ Interest Total Annualized Fixed Charges ________________________________________________________________________________ EBITDA/ANNUALIZED FIXED CHARGES: ________________________________________________________________________________ Principal ________________________________________________________________________________ From Mac Schedule ________________________________________________________________________________ Westside Creek II ________________________________________________________________________________ FDC ________________________________________________________________________________ Total Principal ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ TOTAL ANNUALIZED DEBT SERVICE: ________________________________________________________________________________ Principal ________________________________________________________________________________ Interest ________________________________________________________________________________ Total Debt Service ________________________________________________________________________________ EBITDA/DEBT SERVICE ________________________________________________________________________________ ________________________________________________________________________________ TANGIBLE NET WORTH ________________________________________________________________________________ Equity ________________________________________________________________________________ Less Intangibles ________________________________________________________________________________ Tangible Net Worth ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ AmSouth Properties only ________________________________________________________________________________ ADJUSTED NOI OF MORTGAGED PROPERTIES ________________________________________________________________________________ Assumed Debt Service ________________________________________________________________________________ Adjusted NOI/Assumed Debt Service ________________________________________________________________________________ ________________________________________________________________________________ Dividend Payments ________________________________________________________________________________ Common Dividend Payment ________________________________________________________________________________ Preferred Dividend Payment ________________________________________________________________________________ Total Dividend Payment ________________________________________________________________________________ FFO ________________________________________________________________________________ FFO + Preferred Dividend ________________________________________________________________________________ TOTAL DIVIDENDS/FFO+PREFERRED ================================================================================ ================================================================================ [QUARTER] ________________________________________________________________________________ >2.00:1.0 Debt Service Ratio ________________________________________________________________________________ >1.70:1.0 Fixed Charge Ratio ________________________________________________________________________________ >1.25:1.0 (through 6/30/00) Adjusted NOI Ratio ________________________________________________________________________________ >1.35:1.0 (quarter ended Adjusted NOI Ratio 9/30/00) ________________________________________________________________________________ >1.50:1.0 thereafter Adjusted NOI Ratio ________________________________________________________________________________ >$550MM with accumulated Net Worth depreciation added back ________________________________________________________________________________ <7.5% MVA Development & Construction Debt ________________________________________________________________________________ <90% FFO Dividend payout ________________________________________________________________________________ <62% Debt/Total Market Value of Assets ________________________________________________________________________________ <10% Development Project Costs/ Total Market Value of Assets ________________________________________________________________________________ >1.25:1.0 Adjusted NOI Ratio (Stabilized Properties) ================================================================================ EX-10.7 3 EXHIBIT 10.7 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") effective as of December __, 1999, by and between Mid-America Apartment Communities, Inc., a Tennessee corporation (the "Company"), and George E. Cates (the "Executive"). WITNESSETH: WHEREAS, the Company desires to employ the Executive to serve as the Chief Executive Officer of the Company; and WHEREAS, the Company and the Executive each deem it necessary and desirable to execute a written document setting forth the terms and conditions of said relationship. NOW, THEREFORE, in consideration of the premises and mutual obligations hereinafter set forth the parties agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following definitions: "1994 PLAN" means the Company's Amended and Restated 1994 Restricted Stock and Stock Option Plan. "1999 PLAN" means the Company's 1999 Equity Compensation Plan. "ADDITIONAL AMOUNT" means the amount the Company shall pay to the Executive in order to indemnify the Executive against all claims, losses, damages, penalties, expenses, interest, and Excise Taxes (including additional taxes on such Additional Amount) incurred by Executive as a result of Executive receiving Change of Control Benefits as further described in SECTION 9(E) of this Agreement. "ARBITRATORS" means the arbitrators selected to conduct any arbitration proceeding in connection with any disputes arising out of or relating to this Agreement. "AWARD PLANS" has the meaning set forth in SECTION 4(B)of this Agreement. "BASE SALARY" means the annual salary to be paid to Executive as set forth in SECTION 4(A) of this Agreement. "BENEFIT PLANS" has the meaning set forth in SECTION 4(C) of this Agreement. "BOARD" means the Board of Directors of the Company. "CHANGE OF CONTROL" means any of the following events which occur during the Term of this Agreement: (i) any "person", as that term is used in Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), becomes, is discovered to be, or files a report on Schedule 13D or 14D-1 (or any successor schedule, form or report) disclosing that such person is, a beneficial owner (as defined in Rule 13d-3 under the Exchange Act or any successor rule or regulation), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities entitled to vote generally in the election of directors, regardless of whether or not the Board shall have approved the acquisition of such securities by the acquiring person; (ii) individuals who, as of the effective date of this Agreement, constitute the Board of Directors of the Company cease for any reason to constitute at least a majority of the Board of Directors of the Company, unless any such change is approved by the vote of at least 80% of the members of the Board of Directors of the Company in office immediately prior to such cessation; (iii) the Company is merged, consolidated or reorganized into or with another corporation or other legal person, or securities of the Company are exchanged for securities of another corporation or other legal person, and immediately after such merger, consolidation, reorganization or exchange less than 80% of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held, directly or indirectly, in the aggregate by the holders of securities entitled to vote generally in the election of directors of the Company immediately prior to such transaction; (iv) the Company in any transaction or series of related transactions, sells all or substantially all of its assets to any other corporation or other legal person and less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale or sales are held, directly or indirectly, in the aggregate by the holders of securities entitled to vote generally in the election of directors of the Company immediately prior to such sale; (v) the Company and its affiliates shall sell or transfer (in a single transaction or series of related transactions) to a non-affiliate business operations or assets that generated at least two-thirds of the consolidated revenues (determined on the basis of the Company's four most recently completed fiscal quarters for which reports have been filed under the Exchange Act) of the Company and its subsidiaries immediately prior thereto; 2 (vi) the Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K (or any successor, form or report or item therein) that a change in control of the Company has occurred; (vii) the shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; or (viii) any other transaction or series of related transactions occur that have substantially the effect of the transactions specified in any of the preceding clauses in this sentence. "CHANGE OF CONTROL BENEFITS" means the Executive's receipt of the Termination Payment or any other payment, benefit or compensation (except for the Additional Amount) which the Executive receives or has the right to receive from the Company or any of its affiliates as a result of Executive's termination. "CHANGE OF CONTROL TERMINATION" means (i) a Termination Without Cause of the Executive's employment by the Company, in anticipation of, on, or within three (3) years after a Change of Control, (ii) the Executive's resignation for Good Reason on or within three (3) years after a Change of Control, or (iii) Executive's giving of a Termination Notice of Voluntary Termination during the thirty days immediately following the Change of Control or during the thirty days immediately following the one year anniversary of the Change of Control. "CODE" means the Internal Revenue Code of 1986, as amended. "COMPANY" means Mid-America Apartment Communities, Inc., a Tennessee corporation, and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise. "COMPANY SHARES" means the shares of common stock of the Company or any securities of a successor company which shall have replaced such common stock. "COMPENSATION COMMITTEE" means the compensation committee of the Board. "EXCESS PARACHUTE PAYMENTS" has the meaning set forth in section 280G of the Code. "EXCISE TAX" means a tax on Excess Parachute Payments imposed pursuant to Code section 4999. "EXECUTIVE" means the person identified in the preamble paragraph of this Agreement. "FAIR MARKET VALUE" means, on any give date, the closing sale price of the common stock of the Company on the New York Stock Exchange on such date, or, if the New York Stock 3 Exchange shall be closed on such date, the next preceding date on which the New York Stock Exchange shall have been open. "GOOD REASON" means any of the following: (i) a change in the Executive's status, position or responsibilities (including reporting responsibilities) which, in the Executive's reasonable judgment and without Executive's consent, represents a reduction in or demotion of the Executive's status, position or responsibilities as in effect immediately prior to a Change of Control; the assignment to the Executive of any duties or responsibilities which, in the Executive's reasonable judgment, are inconsistent with such status, position or responsibilities; or any removal of the Executive from or failure to reappoint or reelect the Executive to any of such positions, except in connection with a Termination with Cause, as a result of the Executive's death or Permanent Disability or by Voluntary Termination; (ii) a reduction in the Executive's Base Salary as in effect on the date hereof or as the same may be increased from time to time or modifying, suspending, discontinuing, or terminating any Award Plan or Benefit Plan in a manner which treats Executive differently than other similarly situated employees or singles out or discriminates against Executive; (iii) the relocation of the Company's principal executive offices to a location outside a thirty-mile radius of Memphis, Tennessee or the Company's requiring the Executive to be based at any place other than a location within a thirty-mile radius of Memphis, Tennessee, except for reasonably required travel on the Company's business; (iv) the failure by the Company to continue to provide the Executive with compensation and benefits provided for under this Agreement or benefits substantially similar to those provided to the Executive under any of the employee benefit plans in which the Executive is or becomes a participant, or the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change of Control; (v) any material breach by the Company of any provision of this Agreement; (vi) any purported termination of Executive's employment by the Company which is not effected pursuant to the procedures set forth in SECTION 3; or (vii) the failure of the Company to obtain an agreement reasonably satisfactory to Executive from any successor or assign of the Company to assume and agree to perform this Agreement. "MULTI-FAMILY RESIDENTIAL BUSINESS" means the business of acquiring, developing, constructing, owning or operating multi-family residential apartment communities. 4 "MULTI-FAMILY RESIDENTIAL PROPERTY" means any real estate upon which the Multi-Family Residential Business is being conducted. "OPTION(S)" means any options issued pursuant to the 1994 Plan, 1999 Plan or any other stock option plan adopted by the Company, any option granted with respect to Partnership Units, or any option granted under the plan of any successor company that replaces or assumes the Company's or the Partnership's options. "PARTNERSHIP" means Mid-America Apartments, L.P., a Tennessee limited partnership. "PARTNERSHIP UNIT(S)" means limited partnership interests of the Partnership. The holder has the option of requiring the Company to redeem such interests. The Company may elect to effectuate such redemption by either paying cash or exchanging Company Shares for such interests. "PERMANENT DISABILITY" means a complete physical or mental inability, confirmed by a licensed physician, to perform the services described in SECTION 2 of the Agreement that continues for a period of six (6) consecutive months. "TERM" has the meaning assigned to it in SECTION 3 of this Agreement. "TERMINATION DATE" means the date employment of Executive is terminated, which date shall be (i) in the case of Executive's Permanent Disability, 30 days after a Termination Notice is given and Executive does not return to the full-time performance of his duties within such 30 day period or (ii) in all other instances, the date specified as the Termination Date in the Termination Notice, which date shall not be less than thirty nor more than sixty days from the date the Termination Notice is given. "TERMINATION NOTICE" means a written notice of termination of employment by Executive or the Company. "TERMINATION PAYMENT" has the meaning set forth in SECTION 9(B)(I) of this Agreement. "TERMINATION WITH CAUSE" means the termination of the Executive's employment by act of the Board for any of the following reasons: (i) the Executive's conviction for a felony; (ii) the Executive's theft, embezzlement, misappropriation of or intentional infliction of material damage to the Company's property or business opportunity; (iii) the Executive's intentional breach of the noncompetition provisions contained in SECTION 10 of this Agreement; or 5 (iv) the Executive's ongoing willful neglect of or failure to perform his duties hereunder or his ongoing willful failure or refusal to follow any reasonable, unambiguous duly adopted written direction of the Board or any duly constituted committee thereof that is not inconsistent with the description of the Executive's duties set forth in SECTION 2, if such willful neglect or failure is materially damaging or materially detrimental to the business and operations of the Company; provided that Executive shall have received written notice of such failure and shall have continued to engage in such failure after 30 days following receipt of such notice from the Board, which notice specifically identifies the manner in which the Board believes that Executive has engaged in such failure. For purposes of this subsection, no act, or failure to act, shall be deemed "willful" unless done, or omitted to be done, by Executive not in good faith, and without reasonable belief that such action or omission was in the best interest of the Company. Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to Executive and an opportunity for Executive, together with his counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, Executive was guilty of misconduct as set forth above, and of continuing such misconduct after notice from the Board. "TERMINATION WITHOUT CAUSE" means the termination of the Executive's employment by the Company for any reason other than Termination With Cause, or termination by the Company due to Executive's death or Permanent Disability. "UNIFORM ARBITRATION ACT" means the Uniform Arbitration Act, Tennessee Code Annotated ss. 29-5-391 ET SEQ., as amended. "VOLUNTARY TERMINATION" means the Executive's voluntary termination of his employment hereunder for any reason other than Good Reason. If the Executive gives a Termination Notice of Voluntary Termination and, prior to the Termination Date, the Executive voluntarily refuses or fails to provide substantially all the services described in SECTION 2 hereof for a period greater than two consecutive weeks, the Voluntary Termination shall be deemed to be effective as of the date on which the Executive so ceases to carry out his duties. Voluntary refusal to perform services shall not include taking vacation otherwise permitted in accordance with SECTION 4 hereof, the Executive's failure to perform services on account of his illness or the illness of a member of his immediate family, provided such illness is adequately substantiated at the reasonable request of the Company, or any other absence from service with the written consent of the Board. 2. EMPLOYMENT; SERVICES. The Company shall employ the Executive, and the Executive agrees to be so employed, in the capacity of Chief Executive Officer of the Company to serve for the Term hereof, subject to earlier termination as hereinafter provided. The Executive shall devote such amount of his time and attention to the Company's affairs as are necessary to perform his duties to the Company in his capacity as Chief Executive Officer. The Executive shall have authority and 6 responsibility with respect to the day-to-day management of the Company, consistent with direction from the Company's Board. 3. TERM; TERMINATION. (a) The term of the Executive's employment hereunder shall be one year and shall commence on the date hereof and shall be extended automatically, for so long as the Executive remains employed by the Company hereunder, the first day of each month beginning January 1, 2000 for an additional one-month period (such period, as it may be extended from time to time, being herein referred to as the "Term"), unless terminated earlier in accordance with the terms of this Agreement, to the effect that on the first day of each month, the remaining term of this Agreement and the Executive's employment hereunder shall be one year. (b) Any purported termination of employment by Executive or the Company shall be communicated by a Termination Notice. The Termination Notice shall indicate the specific termination provision in this Agreement relied upon and set forth the facts and circumstances claimed to provide a basis for termination. If the party receiving the Termination Notice notifies the other party prior to the Termination Date that a dispute exists concerning the termination, the Termination Date shall be extended until the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction. The Termination Date shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay Executive his full compensation in effect when the notice giving rise to the dispute was given and Executive shall continue as a participant in all Award Plans and Benefit Plans in which Executive participated when the Termination Notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this subsection. Amounts paid under this subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. COMPENSATION. (a) BASE SALARY. During the Term, the Company shall pay the Executive for his services a Base Salary of $276,750.00, to be paid in accordance with customary Company policies, such Base Salary being subject to any increases approved by the Compensation Committee or the Board, as the case may be. (b) AWARD PLANS. During the Term, the Executive shall also be eligible for additional compensation in the form of a cash bonus, shares of stock in the Company, Partnership Units, or Options, and shall be eligible to participate the 1994 Plan, 1999 Plan, and any other stock option, incentive compensation, profit participation, bonus or extra compensation plan that is adopted by the Company and in which the Company's executive officers generally participate (collectively, "AWARD PLANS"). 7 (c) BENEFIT PLANS. During the Term, Executive shall be entitled to participate in, and to all rights and benefits provided by, each and every health, life, medical, dental, disability, insurance and welfare plan maintained by the Company including, without limitation, the benefits contemplated by SECTION 5 of this Agreement, that are maintained from time to time by the Company for the benefit of Executive, the executives of the Company generally or for the Company's employees generally, provided that Executive is eligible to participate in such plan under the eligibility provisions thereof that are generally applicable to the participants thereof (collectively, "BENEFIT PLANS"). (d) VACATION. The Executive shall be entitled each calendar year to vacation time, during which time his compensation shall be paid in full. The time allotted for such vacation shall be three (3) weeks. (e) CONTINUATION OF WELFARE BENEFITS. If Executive's employment is terminated due to Executive's Permanent Disability, Termination Without Cause, or termination for Good Reason, and if Executive is no longer eligible to participate in one or more of the Benefit Plans because of such termination, Executive shall be entitled to, and the Company shall provide to Executive at the Company's sole expense, benefits substantially equivalent to those Benefit Plans to which Executive was entitled immediately prior to such termination for one (1) year after the Termination Date. If Executive's employment is terminated due to a Change of Control Termination, and if Executive is no longer eligible to participate in one or more of the Benefit Plans because of such termination, Executive shall be entitled to, and the Company shall provide to Executive at the Company's sole expense, benefits substantially equivalent to those Benefit Plans to which Executive was entitled immediately prior to such termination for two (2) years after the Termination Date. (f) OVERALL QUALIFICATION. Nothing in this Agreement shall be construed as preventing the Company from modifying, suspending, discontinuing or terminating any of the Company Benefit Plans or Award Plans without notice or liability to Executive so long as (i) the modification, suspension, discontinuation or termination of any such plan is authorized by and performed in accordance with the specific provisions of such plan and (ii) such modification, suspension, discontinuation or termination is taken generally with respect to all similarly situated employees of the Company and does not single out or discriminate against Executive. 5. EXPENSES. The Company recognizes that the Executive will have to incur certain out-of-pocket expenses, including but not limited to travel expenses, related to his services and the Company's business and the Company agrees to reimburse the Executive for all reasonable expenses necessarily incurred by him in the performance of his duties upon presentation of a voucher or documentation indicating the amount and business purposes of any such expenses, including, but not limited to, expenses incurred in connection with the operation of Executive's aircraft in the course of conducting the Company's business; provided that Executive complies with the Company's policies and procedures regarding business expenses. 8 6. VOLUNTARY TERMINATION; TERMINATION WITH CAUSE. Except as otherwise provided in SECTION 9 of this Agreement, if (i) the Executive shall cease being an employee of the Company on account of a Voluntary Termination or (ii) there shall be a Termination With Cause, the Executive shall not be entitled to any compensation after the Termination Date of such Voluntary Termination or Termination With Cause (except Base Salary and vacation accrued but unpaid on the Termination Date of such event). In the event of a Voluntary Termination or Termination With Cause, the Executive shall continue to be subject to the noncompetition covenant contained in SECTION 10 hereof for the remainder of the Term. 7. DEATH OR DISABILITY. In the event of the Executive's death or Permanent Disability, the Company may elect to terminate Executive's employment with the Company. Upon termination of Executive by the Company due to Executive's death or Permanent Disability, the Company shall continue to pay the Executive or his heirs, devisees, executors, legatees or personal representatives, as appropriate, the semi-monthly payments of the Base Salary then in effect for one year from the Termination Date. The Company shall also pay any amounts due pursuant to the terms of any Benefit Plans and Award Plans in which Executive was a participant, including, without limitation, the pro rata amount of any bonus to be paid to Executive for the fiscal year in which Executive was terminated. In addition, Executive shall be permitted to participate in, and have all rights and benefits provided by, all Benefit Plans which Executive was eligible to participate in immediately prior to the Termination Date (to the extent such participation is possible under the laws then pertaining to such Benefit Plans), for a minimum of one (1) year following the Termination Date. 8. TERMINATION WITHOUT CAUSE. RESIGNATION FOR GOOD REASON. The Company may terminate Executive for any reason, or no reason at all, at any time and Executive may terminate this Agreement at any time for Good Reason, provided that, upon termination of this Agreement by the Executive for Good Reason or in the event of a Termination Without Cause, except as otherwise provided in SECTION 9 of this Agreement, the Company shall provide the compensation and benefits set forth in this SECTION 8. Executive may terminate this Agreement for Good Reason notwithstanding any incapacity due to physical or mental illness. Executive's continued employment shall not constitute consent to, or a waiver of, rights with respect to any circumstances constituting Good Reason hereunder. (a) BASE SALARY, BENEFIT AND AWARD PLANS. The Company shall continue to pay the Executive the semi-monthly payments of the Base Salary then in effect for one year after the Termination Date. The Company shall also pay on the Termination Date any amounts due pursuant to the terms of any Benefit Plans and Award Plans in which Executive was a participant, including, without limitation, the pro rata amount of any bonus to be paid to Executive for the fiscal year in which Executive was terminated. In addition, Executive shall be permitted to participate in, and have all rights and benefits provided by, all Benefit Plans which Executive was eligible to participate in immediately prior to the Termination Date (to the extent such participation is possible under the laws then pertaining to such Benefit Plans), for a minimum of one year following the Termination Date. 9 (b) STOCK OPTIONS. All Options granted to Executive shall become fully vested at the Termination Date. In lieu of Company Shares issuable upon exercise of any outstanding and unexercised Options granted to Executive, Executive may, at Executive's option, receive an amount in cash equal to the product of (i) the Fair Market Value of Company Shares on the Termination Date over the per share exercise price of each Option held by Executive, times (ii) the number of Company Shares covered by each such Option. In the event Executive does not elect to receive a cash payment for any outstanding and unexercised Options granted to Executive, Executive shall have the right to exercise such Options in accordance with the terms and conditions provided in the applicable stock option plans as if Executive had continued his employment with the Company, notwithstanding Executive's termination. (c) LEGAL FEES. The Company shall also pay to Executive all legal fees and expenses incurred by Executive as a result of a Termination Without Cause or Executive's resignation for Good Reason (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement). 9. CHANGE OF CONTROL. (a) TERMINATION IN CONNECTION WITH A CHANGE OF CONTROL. Notwithstanding any other provision in this Agreement, in the event of a Change of Control Termination, the Company shall, on the Termination Date, pay the Executive, in addition to any Base Salary earned but not paid through the Termination Date and any amounts due pursuant to Award Plans and Benefit Plans including, without limitation, the pro rata amount of Executive's anticipated bonus for the fiscal year in which Executive is terminated, the compensation and benefits set forth in SECTION 9(B). (b) COMPENSATION AND BENEFITS. (i) A Termination Payment shall be paid which is equal to the sum of two and 99/100 (2.99) times the Executive's annual base salary in effect on the Termination Date plus two and 99/100 (2.99) times the average annual cash bonus paid to the Executive for the two immediately preceding fiscal years, under this Agreement or otherwise (but not including compensation under the Company's Shareholder Value Plan) ("Termination Payment"). Notwithstanding SECTION 9(A), the Termination Payment shall be calculated and paid immediately prior to the closing of the transactions constituting a Change of Control if the Executive receives notice prior to the Change of Control that his employment will be terminated on or after the Change of Control. (ii) Executive shall be permitted to participate in, and have all rights and benefits provided by, all Benefit Plans which Executive was eligible to participate in immediately prior to the Termination Date (to the extent such participation is possible under the laws then pertaining to such Benefit Plans), for a minimum of two years following the Termination Date. 10 (iii) In lieu of Company Shares issuable upon exercise of any outstanding and unexercised Options granted to Executive, Executive may, at Executive's option, receive an amount in cash equal to the product of (i) the excess of the higher of the Fair Market Value of Company Shares on the Termination Date, or the highest per share price for Company Shares actually paid in connection with any Change of Control of the Company, over the per share exercise price of each Option held by Executive, times (ii) the number of Company Shares covered by each such Option. In the event Executive does not elect to receive a cash payment for any outstanding and unexercised Options granted to Executive, Executive shall have the right to exercise such Options in accordance with the terms and conditions provided in the applicable stock option plans. (iv) The Company shall also pay to Executive all legal fees and expenses incurred by Executive as a result of a termination described in SECTION 9(A) of this Agreement (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (c) CERTAIN TRANSACTIONS. Notwithstanding the provisions of subparagraphs (i) or (vi) in the definition of change of control, unless otherwise determined in a specific case by majority vote of the Board, a Change of Control shall not be deemed to have occurred for purposes of this Agreement solely because (i) an entity in which the Company directly or indirectly beneficially owns 50% or more of the voting securities or (ii) any Company-sponsored employee stock ownership plan, or any other employee benefit plan of the Company, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-l, Form 8-K or Schedule 14A (or any successor schedule, form or report or item thereon) under the Exchange Act, disclosing beneficial ownership by it of shares of stock of the Company, or because the Company reports that a Change of Control of the Company has or may have occurred or will or may occur in the future by reason of such beneficial ownership. (d) ESCROW ARRANGEMENT. If within thirty (30) days after the effective date of a Change of Control Executive's employment has not been terminated, the Company shall deposit with an escrow agent, pursuant to an escrow agreement between the Company and such escrow agent, a sum of money, or other property permitted by such escrow agreement, which is substantially sufficient in the opinion of the Company's management to fund the amounts due to Executive set forth in SECTION 9(B) of this Agreement. The escrow agreement shall provide that such agreement may not be terminated until the earlier of (i) Executive's employment has terminated and all amounts due to Executive as set forth in this Agreement have been paid to Executive or (ii) three (3) years after the effective date of the Change of Control. (e) TAX MATTERS. If the Excise Tax on Excess Parachute Payments will be imposed on the Executive under Code section 4999 as a result of the Executive's receipt of the Change of Control Benefits, the Company shall indemnify the Executive and hold him harmless against all claims, losses, damages, penalties, expenses, interest, and Excise Taxes. To effect this 11 indemnification, the Company shall pay to the Executive the Additional Amount which is sufficient to indemnify and hold the Executive harmless from the application of Code sections 280G and 4999, including the amount of (i) the Excise Tax that will be imposed on the Executive under section 4999 of the Code with respect to the Change of Control Benefits; (ii) the additional (A) Excise Tax under section 4999 of the Code, (B) hospital insurance tax under section 3111(b) of the Code and (C) federal, state and local income taxes for which the Executive is or will be liable on account of the payment of the amount described in subitem (i); and (iii) the further excise, hospital insurance and income taxes for which the Executive is or will be liable on account of the payment of the amount described in subitem (ii) and this subitem (iii) and any other indemnification payment under this SECTION 9(E). The Additional Amount shall be calculated and paid to the Executive at the time that the Termination Payment is paid to the Executive. In calculating the Additional Amount, the highest marginal rates of federal and applicable state and local income taxes applicable to individuals and in effect for the year in which the Change of Control occurs shall be used. Nothing in this paragraph shall give the Executive the right to receive indemnification from the Company for federal, state or local income taxes or hospital insurance taxes payable solely as a result of the Executive's receipt of (a) the Change in Control Benefits, or (b) any additional payment, benefit or compensation other than the Additional Amount. As specified in items (ii) and (iii), above, all income, hospital insurance and additional Excise Taxes resulting from additional compensation in the form of the Excise Tax payment specified in item (i), above, shall be paid to the Executive. The provisions of this SECTION 9(E) are illustrated by the following example: Assume that the Termination Payment and all other Change of Control Benefits result in a total federal, state and local income tax and hospital insurance tax liability of $180,000; and an Excise Tax liability under Code section 4999 of $70,000. Under such circumstances, the Executive is solely responsible for the $180,000 income and hospital insurance tax liability; and the Company must pay to the Executive $70,000, plus an amount necessary to indemnify the Executive for all federal, state and local income taxes, hospital insurance taxes, and Excise Taxes that will result from the $70,000 payment to the Executive and from all further indemnification to the Executive of taxes attributable to the initial $70,000 payment. 10. NONCOMPETITION. During the Term, the Executive shall not, other than through the Company or affiliates of the Company, own any interest in any Multi-Family Residential Property (other than Multi-Family Residential Property in which the Company or the Partnership has an ownership interest), as partner, shareholder or otherwise, or engage in the Multi-Family Residential Business, directly or indirectly, for his own account or for the account of others, either as an officer, director, shareholder, owner, partner, promoter, employee, consultant, advisor, agent, manager, or in any other capacity. For a period of two (2) years after a Change of Control Termination, Executive shall not own any interest in any Multi-Family Residential Property as partner, shareholder or otherwise, or directly or indirectly, for his own account or for the account of others, either as an officer, director, promoter, employee, consultant, advisor, agent, manager, or in any other capacity, engage in the Multi-Family Residential Business within 5 miles of any Multi-Family Residential Property owned by the Company or the Partnership at the time of termination of employment. 12 The Executive agrees that damages at law for violation of the restrictive covenant contained herein would not be an adequate or proper remedy to the Company, and that should the Executive violate or threaten to violate any of the provisions of such covenant, the Company, its successors or assigns, shall be entitled to obtain a temporary or permanent injunction, as appropriate, against the Executive in any court having jurisdiction over the person and the subject matter, prohibiting any further violation of any such covenants. The injunctive relief provided herein shall be in addition to any award of damages, compensatory, exemplary or otherwise, payable by reason of such violation. Furthermore, the Executive acknowledges that this Agreement has been negotiated at arms' length by the parties, neither being under any compulsion to enter into this Agreement, and that the foregoing restrictive covenant does not in any respect inhibit his ability to earn a livelihood in his chosen profession without violating the restrictive covenant contained herein. The Company by these presents has attempted to limit the Executive's right to compete only to the extent necessary to protect the Company from unfair competition. The Company recognizes, however, that reasonable people may differ in making such a determination. Consequently, the Company agrees that if the scope or enforceability of the restricted covenant contained herein is in any way disputed at any time, a court or other trier of fact may modify and enforce the covenant to the extent that it believes to be reasonable under the circumstances existing at the time. 11. EMPLOYMENT STATUS. The parties acknowledge and agree that Executive is an employee of the Company, not an independent contractor. Any payments made to Executive by the Company pursuant to this Agreement shall be treated for federal and state payroll tax purposes as payments made to a Company employee, irrespective whether such payments are made subsequent to the Termination Date. 12. NOTICES. All notices or deliveries authorized or required pursuant to this Agreement shall be deemed to have been given when in writing and personally delivered or when deposited in the U.S. mail, certified, return receipt requested, postage prepaid, addressed to the parties at the following addresses or to such other addresses as either may designate in writing to the other party: To the Company: 6584 Poplar Avenue Suite 340 Memphis, TN 38128 Attn: Chief Financial Officer To the Executive: George E. Cates 211 E. Galloway Memphis, Tennessee 38111 13. ENTIRE AGREEMENT. This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and shall not be modified in any manner except by instrument in writing signed, by or on behalf of, the parties hereto; provided, however, that any amendment or termination of the covenant of noncompetition in SECTION 10 must be approved 13 by a majority of the Directors of the Company other than the Executive, if the Executive is then a director of the Company. This Agreement shall be binding upon and inure to the benefit of the heirs, successors and assigns of the parties hereto. 14. ARBITRATION. Any controversy concerning or claim arising out of or relating to this Agreement shall be settled by final and binding arbitration in Memphis, Shelby County, Tennessee at a location specified by the party seeking such arbitration. (a) THE ARBITRATORS. Any arbitration proceeding shall be conducted by three (3) Arbitrators and the decision of the Arbitrators shall be binding on all parties. Each Arbitrator shall have substantial experience and expert competence in the matters being arbitrated. The party desiring to submit any matter relating to this Agreement to arbitration shall do so by written notice to the other party, which notice shall set forth the items to be arbitrated, such party's choice of Arbitrator, and such party's substantive position in the arbitration. The party receiving such notice shall, within fifteen (15) days after receipt of such notice, appoint an Arbitrator and notify the other party of its appointment and of its substantive position. The Arbitrators appointed by the parties to the Arbitration shall select an additional Arbitrator meeting the aforedescribed criteria. The Arbitrators shall be required to render a decision in accordance with the procedures set forth in Subparagraph (b) below within thirty (30) days after being notified of their selection. The fees of the Arbitrators shall be equally divided amongst the parties to the arbitration. (b) ARBITRATION PROCEDURES. Arbitration shall be conducted in accordance with the Uniform Arbitration Act, except to the extent the provisions of such Act are modified by this Agreement or the subsequent mutual agreement of the parties. Judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof. Any party hereto may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim to which this provision applies in any court having jurisdiction over such action in Shelby County, Tennessee, and the parties agree that jurisdiction and venue in Shelby County, Tennessee are appropriate and approved by such parties. 15. APPLICABLE LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Tennessee. 16. ASSIGNMENT. The Executive acknowledges that his services are unique and personal. Accordingly, the Executive may not assign his rights or delegate his duties or obligations under this Agreement, except with respect to certain rights to receive payments as described in SECTION 7. 17. HEADINGS. Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions. 18. SUCCESSORS; BINDING AGREEMENT. The Company will require any successor to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be 14 required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a beach of this Agreement and shall entitle Executive to compensation from the Company in the same amount and on the same terms as Executive would be entitled to hereunder if Executive terminates his employment for Good Reason. The Company's rights and obligations under this Agreement shall inure to the benefit of and shall be binding upon the Company's successors and assigns. [The remainder of this page is intentionally left blank.] 15 IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first above written. MID-AMERICA APARTMENT COMMUNITIES, INC. By: ____________________________ Name: __________________________ Title: _________________________ EXECUTIVE: ________________________________ George E. Cates 16 EX-10.8 4 EXHIBIT 10.8 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") effective as of December ___, 1999, by and between Mid-America Apartment Communities, Inc., a Tennessee corporation (the "Company"), and H. Eric Bolton (the "Executive"). WITNESSETH: WHEREAS, the Company desires to employ the Executive to serve as the President and Chief Operating Officer of the Company; and WHEREAS, the Company and the Executive each deem it necessary and desirable to execute a written document setting forth the terms and conditions of said relationship. NOW, THEREFORE, in consideration of the premises and mutual obligations hereinafter set forth the parties agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following definitions: "1994 PLAN" means the Company's Amended and Restated 1994 Restricted Stock and Stock Option Plan. "1999 PLAN" means the Company's 1999 Equity Compensation Plan. "ADDITIONAL AMOUNT" means the amount the Company shall pay to the Executive in order to indemnify the Executive against all claims, losses, damages, penalties, expenses, interest, and Excise Taxes (including additional taxes on such Additional Amount) incurred by Executive as a result of Executive receiving Change of Control Benefits as further described in SECTION 9(E) of this Agreement. "ARBITRATORS" means the arbitrators selected to conduct any arbitration proceeding in connection with any disputes arising out of or relating to this Agreement. "AWARD PLANS" has the meaning set forth in SECTION 4(B)of this Agreement. "BASE SALARY" means the annual salary to be paid to Executive as set forth in SECTION 4(A) of this Agreement. "BENEFIT PLANS" has the meaning set forth in SECTION 4(C) of this Agreement. "BOARD" means the Board of Directors of the Company. "CHANGE OF CONTROL" means any of the following events which occur during the Term of this Agreement: (i) any "person", as that term is used in Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), becomes, is discovered to be, or files a report on Schedule 13D or 14D-1 (or any successor schedule, form or report) disclosing that such person is, a beneficial owner (as defined in Rule 13d-3 under the Exchange Act or any successor rule or regulation), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities entitled to vote generally in the election of directors, regardless of whether or not the Board shall have approved the acquisition of such securities by the acquiring person; (ii) individuals who, as of the effective date of this Agreement, constitute the Board of Directors of the Company cease for any reason to constitute at least a majority of the Board of Directors of the Company, unless any such change is approved by the vote of at least 80% of the members of the Board of Directors of the Company in office immediately prior to such cessation; (iii) the Company is merged, consolidated or reorganized into or with another corporation or other legal person, or securities of the Company are exchanged for securities of another corporation or other legal person, and immediately after such merger, consolidation, reorganization or exchange less than 80% of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held, directly or indirectly, in the aggregate by the holders of securities entitled to vote generally in the election of directors of the Company immediately prior to such transaction; (iv) the Company in any transaction or series of related transactions, sells all or substantially all of its assets to any other corporation or other legal person and less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale or sales are held, directly or indirectly, in the aggregate by the holders of securities entitled to vote generally in the election of directors of the Company immediately prior to such sale; (v) the Company and its affiliates shall sell or transfer (in a single transaction or series of related transactions) to a non-affiliate business operations or assets that generated at least two-thirds of the consolidated revenues (determined on the basis of the Company's four most recently completed fiscal quarters for which reports have been filed under the Exchange Act) of the Company and its subsidiaries immediately prior thereto; 2 (vi) the Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K (or any successor, form or report or item therein) that a change in control of the Company has occurred; (vii) the shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; or (viii) any other transaction or series of related transactions occur that have substantially the effect of the transactions specified in any of the preceding clauses in this sentence. "CHANGE OF CONTROL BENEFITS" means the Executive's receipt of the Termination Payment or any other payment, benefit or compensation (except for the Additional Amount) which the Executive receives or has the right to receive from the Company or any of its affiliates as a result of Executive's termination. "CHANGE OF CONTROL TERMINATION" means (i) a Termination Without Cause of the Executive's employment by the Company, in anticipation of, on, or within three (3) years after a Change of Control, (ii) the Executive's resignation for Good Reason on or within three (3) years after a Change of Control, or (iii) Executive's giving of a Termination Notice of Voluntary Termination during the thirty days immediately following the Change of Control or during the thirty days immediately following the one year anniversary of the Change of Control. "CODE" means the Internal Revenue Code of 1986, as amended. "COMPANY" means Mid-America Apartment Communities, Inc., a Tennessee corporation, and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise. "COMPANY SHARES" means the shares of common stock of the Company or any securities of a successor company which shall have replaced such common stock. "COMPENSATION COMMITTEE" means the compensation committee of the Board. "EXCESS PARACHUTE PAYMENTS" has the meaning set forth in section 280G of the Code. "EXCISE TAX" means a tax on Excess Parachute Payments imposed pursuant to Code section 4999. "EXECUTIVE" means the person identified in the preamble paragraph of this Agreement. "FAIR MARKET VALUE" means, on any give date, the closing sale price of the common stock of the Company on the New York Stock Exchange on such date, or, if the New York Stock 3 Exchange shall be closed on such date, the next preceding date on which the New York Stock Exchange shall have been open. "GOOD REASON" means any of the following: (i) a change in the Executive's status, position or responsibilities (including reporting responsibilities) which, in the Executive's reasonable judgment and without Executive's consent, represents a reduction in or demotion of the Executive's status, position or responsibilities as in effect immediately prior to a Change of Control; the assignment to the Executive of any duties or responsibilities which, in the Executive's reasonable judgment, are inconsistent with such status, position or responsibilities; or any removal of the Executive from or failure to reappoint or reelect the Executive to any of such positions, except in connection with a Termination with Cause, as a result of the Executive's death or Permanent Disability or by Voluntary Termination; (ii) a reduction in the Executive's Base Salary as in effect on the date hereof or as the same may be increased from time to time or modifying, suspending, discontinuing, or terminating any Award Plan or Benefit Plan in a manner which treats Executive differently than other similarly situated employees or singles out or discriminates against Executive; (iii) the relocation of the Company's principal executive offices to a location outside a thirty-mile radius of Memphis, Tennessee or the Company's requiring the Executive to be based at any place other than a location within a thirty-mile radius of Memphis, Tennessee, except for reasonably required travel on the Company's business; (iv) the failure by the Company to continue to provide the Executive with compensation and benefits provided for under this Agreement or benefits substantially similar to those provided to the Executive under any of the employee benefit plans in which the Executive is or becomes a participant, or the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change of Control; (v) any material breach by the Company of any provision of this Agreement; (vi) any purported termination of Executive's employment by the Company which is not effected pursuant to the procedures set forth in SECTION 3; or (vii) the failure of the Company to obtain an agreement reasonably satisfactory to Executive from any successor or assign of the Company to assume and agree to perform this Agreement. "MULTI-FAMILY RESIDENTIAL BUSINESS" means the business of acquiring, developing, constructing, owning or operating multi-family residential apartment communities. 4 "MULTI-FAMILY RESIDENTIAL PROPERTY" means any real estate upon which the Multi-Family Residential Business is being conducted. "OPTION(S)" means any options issued pursuant to the 1994 Plan, 1999 Plan or any other stock option plan adopted by the Company, any option granted with respect to Partnership Units, or any option granted under the plan of any successor company that replaces or assumes the Company's or the Partnership's options. "PARTNERSHIP" means Mid-America Apartments, L.P., a Tennessee limited partnership. "PARTNERSHIP UNIT(S)" means limited partnership interests of the Partnership. The holder has the option of requiring the Company to redeem such interests. The Company may elect to effectuate such redemption by either paying cash or exchanging Company Shares for such interests. "PERMANENT DISABILITY" means a complete physical or mental inability, confirmed by a licensed physician, to perform the services described in SECTION 2 of the Agreement that continues for a period of six (6) consecutive months. "TERM" has the meaning assigned to it in SECTION 3 of this Agreement. "TERMINATION DATE" means the date employment of Executive is terminated, which date shall be (i) in the case of Executive's Permanent Disability, 30 days after a Termination Notice is given and Executive does not return to the full-time performance of his duties within such 30 day period or (ii) in all other instances, the date specified as the Termination Date in the Termination Notice, which date shall not be less than thirty nor more than sixty days from the date the Termination Notice is given. "TERMINATION NOTICE" means a written notice of termination of employment by Executive or the Company. "TERMINATION PAYMENT" has the meaning set forth in SECTION 9(B)(I) of this Agreement. "TERMINATION WITH CAUSE" means the termination of the Executive's employment by act of the Board for any of the following reasons: (i) the Executive's conviction for a felony; (ii) the Executive's theft, embezzlement, misappropriation of or intentional infliction of material damage to the Company's property or business opportunity; (iii) the Executive's intentional breach of the noncompetition provisions contained in SECTION 10 of this Agreement; or 5 (iv) the Executive's ongoing willful neglect of or failure to perform his duties hereunder or his ongoing willful failure or refusal to follow any reasonable, unambiguous duly adopted written direction of the Board or any duly constituted committee thereof that is not inconsistent with the description of the Executive's duties set forth in SECTION 2, if such willful neglect or failure is materially damaging or materially detrimental to the business and operations of the Company; provided that Executive shall have received written notice of such failure and shall have continued to engage in such failure after 30 days following receipt of such notice from the Board, which notice specifically identifies the manner in which the Board believes that Executive has engaged in such failure. For purposes of this subsection, no act, or failure to act, shall be deemed "willful" unless done, or omitted to be done, by Executive not in good faith, and without reasonable belief that such action or omission was in the best interest of the Company. Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to Executive and an opportunity for Executive, together with his counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, Executive was guilty of misconduct as set forth above, and of continuing such misconduct after notice from the Board. "TERMINATION WITHOUT CAUSE" means the termination of the Executive's employment by the Company for any reason other than Termination With Cause, or termination by the Company due to Executive's death or Permanent Disability. "UNIFORM ARBITRATION ACT" means the Uniform Arbitration Act, Tennessee Code Annotated ss. 29-5-391 ET SEQ., as amended. "VOLUNTARY TERMINATION" means the Executive's voluntary termination of his employment hereunder for any reason other than Good Reason. If the Executive gives a Termination Notice of Voluntary Termination and, prior to the Termination Date, the Executive voluntarily refuses or fails to provide substantially all the services described in SECTION 2 hereof for a period greater than two consecutive weeks, the Voluntary Termination shall be deemed to be effective as of the date on which the Executive so ceases to carry out his duties. Voluntary refusal to perform services shall not include taking vacation otherwise permitted in accordance with SECTION 4 hereof, the Executive's failure to perform services on account of his illness or the illness of a member of his immediate family, provided such illness is adequately substantiated at the reasonable request of the Company, or any other absence from service with the written consent of the Board. 2. EMPLOYMENT; SERVICES. The Company shall employ the Executive, and the Executive agrees to be so employed, in the capacity of President and Chief Operating Officer of the Company to serve for the Term hereof, subject to earlier termination as hereinafter provided. The Executive shall devote such amount of his time and attention to the Company's affairs as are necessary to perform his duties to the Company in his capacity as President and Chief Operating Officer. The 6 Executive shall have authority and responsibility with respect to the day-to-day management of the Company, consistent with direction from the Company's Board. 3. TERM; TERMINATION. (a) The term of the Executive's employment hereunder shall be one year and shall commence on the date hereof and shall be extended automatically, for so long as the Executive remains employed by the Company hereunder, the first day of each month beginning January 1, 2000 for an additional one-month period (such period, as it may be extended from time to time, being herein referred to as the "Term"), unless terminated earlier in accordance with the terms of this Agreement, to the effect that on the first day of each month, the remaining term of this Agreement and the Executive's employment hereunder shall be one year. (b) Any purported termination of employment by Executive or the Company shall be communicated by a Termination Notice. The Termination Notice shall indicate the specific termination provision in this Agreement relied upon and set forth the facts and circumstances claimed to provide a basis for termination. If the party receiving the Termination Notice notifies the other party prior to the Termination Date that a dispute exists concerning the termination, the Termination Date shall be extended until the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction. The Termination Date shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay Executive his full compensation in effect when the notice giving rise to the dispute was given and Executive shall continue as a participant in all Award Plans and Benefit Plans in which Executive participated when the Termination Notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this subsection. Amounts paid under this subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. COMPENSATION. (a) BASE SALARY. During the Term, the Company shall pay the Executive for his services a Base Salary of $225,500.00, to be paid in accordance with customary Company policies, such Base Salary being subject to any increases approved by the Compensation Committee or the Board, as the case may be. (b) AWARD PLANS. During the Term, the Executive shall also be eligible for additional compensation in the form of a cash bonus, shares of stock in the Company, Partnership Units, or Options, and shall be eligible to participate the 1994 Plan, 1999 Plan, and any other stock option, incentive compensation, profit participation, bonus or extra compensation plan that is adopted by the Company and in which the Company's executive officers generally participate (collectively, "AWARD PLANS"). 7 (c) BENEFIT PLANS. During the Term, Executive shall be entitled to participate in, and to all rights and benefits provided by, each and every health, life, medical, dental, disability, insurance and welfare plan maintained by the Company including, without limitation, the benefits contemplated by SECTION 5 of this Agreement, that are maintained from time to time by the Company for the benefit of Executive, the executives of the Company generally or for the Company's employees generally, provided that Executive is eligible to participate in such plan under the eligibility provisions thereof that are generally applicable to the participants thereof (collectively, "BENEFIT PLANS"). (d) VACATION. The Executive shall be entitled each calendar year to vacation time, during which time his compensation shall be paid in full. The time allotted for such vacation shall be three (3) weeks. (e) CONTINUATION OF WELFARE BENEFITS. If Executive's employment is terminated due to Executive's Permanent Disability, Termination Without Cause, or termination for Good Reason, and if Executive is no longer eligible to participate in one or more of the Benefit Plans because of such termination, Executive shall be entitled to, and the Company shall provide to Executive at the Company's sole expense, benefits substantially equivalent to those Benefit Plans to which Executive was entitled immediately prior to such termination for one (1) year after the Termination Date. If Executive's employment is terminated due to a Change of Control Termination, and if Executive is no longer eligible to participate in one or more of the Benefit Plans because of such termination, Executive shall be entitled to, and the Company shall provide to Executive at the Company's sole expense, benefits substantially equivalent to those Benefit Plans to which Executive was entitled immediately prior to such termination for two (2) years after the Termination Date. (f) OVERALL QUALIFICATION. Nothing in this Agreement shall be construed as preventing the Company from modifying, suspending, discontinuing or terminating any of the Company Benefit Plans or Award Plans without notice or liability to Executive so long as (i) the modification, suspension, discontinuation or termination of any such plan is authorized by and performed in accordance with the specific provisions of such plan and (ii) such modification, suspension, discontinuation or termination is taken generally with respect to all similarly situated employees of the Company and does not single out or discriminate against Executive. 5. EXPENSES. The Company recognizes that the Executive will have to incur certain out-of-pocket expenses, including but not limited to travel expenses, related to his services and the Company's business and the Company agrees to reimburse the Executive for all reasonable expenses necessarily incurred by him in the performance of his duties upon presentation of a voucher or documentation indicating the amount and business purposes of any such expenses, including, but not limited to, expenses incurred in connection with the operation of Executive's aircraft in the course of conducting the Company's business; provided that Executive complies with the Company's policies and procedures regarding business expenses. 8 6. VOLUNTARY TERMINATION; TERMINATION WITH CAUSE. Except as otherwise provided in SECTION 9 of this Agreement, if (i) the Executive shall cease being an employee of the Company on account of a Voluntary Termination or (ii) there shall be a Termination With Cause, the Executive shall not be entitled to any compensation after the Termination Date of such Voluntary Termination or Termination With Cause (except Base Salary and vacation accrued but unpaid on the Termination Date of such event). In the event of a Voluntary Termination or Termination With Cause, the Executive shall continue to be subject to the noncompetition covenant contained in SECTION 10 hereof for the remainder of the Term. 7. DEATH OR DISABILITY. In the event of the Executive's death or Permanent Disability, the Company may elect to terminate Executive's employment with the Company. Upon termination of Executive by the Company due to Executive's death or Permanent Disability, the Company shall continue to pay the Executive or his heirs, devisees, executors, legatees or personal representatives, as appropriate, the semi-monthly payments of the Base Salary then in effect for one year from the Termination Date. The Company shall also pay any amounts due pursuant to the terms of any Benefit Plans and Award Plans in which Executive was a participant, including, without limitation, the pro rata amount of any bonus to be paid to Executive for the fiscal year in which Executive was terminated. In addition, Executive shall be permitted to participate in, and have all rights and benefits provided by, all Benefit Plans which Executive was eligible to participate in immediately prior to the Termination Date (to the extent such participation is possible under the laws then pertaining to such Benefit Plans), for a minimum of one (1) year following the Termination Date. 8. TERMINATION WITHOUT CAUSE. RESIGNATION FOR GOOD REASON. The Company may terminate Executive for any reason, or no reason at all, at any time and Executive may terminate this Agreement at any time for Good Reason, provided that, upon termination of this Agreement by the Executive for Good Reason or in the event of a Termination Without Cause, except as otherwise provided in SECTION 9 of this Agreement, the Company shall provide the compensation and benefits set forth in this SECTION 8. Executive may terminate this Agreement for Good Reason notwithstanding any incapacity due to physical or mental illness. Executive's continued employment shall not constitute consent to, or a waiver of, rights with respect to any circumstances constituting Good Reason hereunder. (a) BASE SALARY, BENEFIT AND AWARD PLANS. The Company shall continue to pay the Executive the semi-monthly payments of the Base Salary then in effect for one year after the Termination Date. The Company shall also pay on the Termination Date any amounts due pursuant to the terms of any Benefit Plans and Award Plans in which Executive was a participant, including, without limitation, the pro rata amount of any bonus to be paid to Executive for the fiscal year in which Executive was terminated. In addition, Executive shall be permitted to participate in, and have all rights and benefits provided by, all Benefit Plans which Executive was eligible to participate in immediately prior to the Termination Date (to the extent such participation is possible under the laws then pertaining to such Benefit Plans), for a minimum of one year following the Termination Date. 9 (b) STOCK OPTIONS. All Options granted to Executive shall become fully vested at the Termination Date. In lieu of Company Shares issuable upon exercise of any outstanding and unexercised Options granted to Executive, Executive may, at Executive's option, receive an amount in cash equal to the product of (i) the Fair Market Value of Company Shares on the Termination Date over the per share exercise price of each Option held by Executive, times (ii) the number of Company Shares covered by each such Option. In the event Executive does not elect to receive a cash payment for any outstanding and unexercised Options granted to Executive, Executive shall have the right to exercise such Options in accordance with the terms and conditions provided in the applicable stock option plans as if Executive had continued his employment with the Company, notwithstanding Executive's termination. (c) LEGAL FEES. The Company shall also pay to Executive all legal fees and expenses incurred by Executive as a result of a Termination Without Cause or Executive's resignation for Good Reason (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement). 9. CHANGE OF CONTROL. (a) TERMINATION IN CONNECTION WITH A CHANGE OF CONTROL. Notwithstanding any other provision in this Agreement, in the event of a Change of Control Termination, the Company shall, on the Termination Date, pay the Executive, in addition to any Base Salary earned but not paid through the Termination Date and any amounts due pursuant to Award Plans and Benefit Plans including, without limitation, the pro rata amount of Executive's anticipated bonus for the fiscal year in which Executive is terminated, the compensation and benefits set forth in SECTION 9(B). (b) COMPENSATION AND BENEFITS. (i) A Termination Payment shall be paid which is equal to the sum of two and 99/100 (2.99) times the Executive's annual base salary in effect on the Termination Date plus two and 99/100 (2.99) times the average annual cash bonus paid to the Executive for the two immediately preceding fiscal years, under this Agreement or otherwise (but not including compensation under the Company's Shareholder Value Plan) ("Termination Payment"). Notwithstanding SECTION 9(A), the Termination Payment shall be calculated and paid immediately prior to the closing of the transactions constituting a Change of Control if the Executive receives notice prior to the Change of Control that his employment will be terminated on or after the Change of Control. (ii) Executive shall be permitted to participate in, and have all rights and benefits provided by, all Benefit Plans which Executive was eligible to participate in immediately prior to the Termination Date (to the extent such participation is possible under the laws then pertaining to such Benefit Plans), for a minimum of two years following the Termination Date. 10 (iii) In lieu of Company Shares issuable upon exercise of any outstanding and unexercised Options granted to Executive, Executive may, at Executive's option, receive an amount in cash equal to the product of (i) the excess of the higher of the Fair Market Value of Company Shares on the Termination Date, or the highest per share price for Company Shares actually paid in connection with any Change of Control of the Company, over the per share exercise price of each Option held by Executive, times (ii) the number of Company Shares covered by each such Option. In the event Executive does not elect to receive a cash payment for any outstanding and unexercised Options granted to Executive, Executive shall have the right to exercise such Options in accordance with the terms and conditions provided in the applicable stock option plans. (iv) The Company shall also pay to Executive all legal fees and expenses incurred by Executive as a result of a termination described in SECTION 9(A) of this Agreement (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (c) CERTAIN TRANSACTIONS. Notwithstanding the provisions of subparagraphs (i) or (vi) in the definition of change of control, unless otherwise determined in a specific case by majority vote of the Board, a Change of Control shall not be deemed to have occurred for purposes of this Agreement solely because (i) an entity in which the Company directly or indirectly beneficially owns 50% or more of the voting securities or (ii) any Company-sponsored employee stock ownership plan, or any other employee benefit plan of the Company, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-l, Form 8-K or Schedule 14A (or any successor schedule, form or report or item thereon) under the Exchange Act, disclosing beneficial ownership by it of shares of stock of the Company, or because the Company reports that a Change of Control of the Company has or may have occurred or will or may occur in the future by reason of such beneficial ownership. (d) ESCROW ARRANGEMENT. If within thirty (30) days after the effective date of a Change of Control Executive's employment has not been terminated, the Company shall deposit with an escrow agent, pursuant to an escrow agreement between the Company and such escrow agent, a sum of money, or other property permitted by such escrow agreement, which is substantially sufficient in the opinion of the Company's management to fund the amounts due to Executive set forth in SECTION 9(B) of this Agreement. The escrow agreement shall provide that such agreement may not be terminated until the earlier of (i) Executive's employment has terminated and all amounts due to Executive as set forth in this Agreement have been paid to Executive or (ii) three (3) years after the effective date of the Change of Control. (e) TAX MATTERS. If the Excise Tax on Excess Parachute Payments will be imposed on the Executive under Code section 4999 as a result of the Executive's receipt of the Change of Control Benefits, the Company shall indemnify the Executive and hold him harmless against all claims, losses, damages, penalties, expenses, interest, and Excise Taxes. To effect this 11 indemnification, the Company shall pay to the Executive the Additional Amount which is sufficient to indemnify and hold the Executive harmless from the application of Code sections 280G and 4999, including the amount of (i) the Excise Tax that will be imposed on the Executive under section 4999 of the Code with respect to the Change of Control Benefits; (ii) the additional (A) Excise Tax under section 4999 of the Code, (B) hospital insurance tax under section 3111(b) of the Code and (C) federal, state and local income taxes for which the Executive is or will be liable on account of the payment of the amount described in subitem (i); and (iii) the further excise, hospital insurance and income taxes for which the Executive is or will be liable on account of the payment of the amount described in subitem (ii) and this subitem (iii) and any other indemnification payment under this SECTION 9(E). The Additional Amount shall be calculated and paid to the Executive at the time that the Termination Payment is paid to the Executive. In calculating the Additional Amount, the highest marginal rates of federal and applicable state and local income taxes applicable to individuals and in effect for the year in which the Change of Control occurs shall be used. Nothing in this paragraph shall give the Executive the right to receive indemnification from the Company for federal, state or local income taxes or hospital insurance taxes payable solely as a result of the Executive's receipt of (a) the Change in Control Benefits, or (b) any additional payment, benefit or compensation other than the Additional Amount. As specified in items (ii) and (iii), above, all income, hospital insurance and additional Excise Taxes resulting from additional compensation in the form of the Excise Tax payment specified in item (i), above, shall be paid to the Executive. The provisions of this SECTION 9(E) are illustrated by the following example: Assume that the Termination Payment and all other Change of Control Benefits result in a total federal, state and local income tax and hospital insurance tax liability of $180,000; and an Excise Tax liability under Code section 4999 of $70,000. Under such circumstances, the Executive is solely responsible for the $180,000 income and hospital insurance tax liability; and the Company must pay to the Executive $70,000, plus an amount necessary to indemnify the Executive for all federal, state and local income taxes, hospital insurance taxes, and Excise Taxes that will result from the $70,000 payment to the Executive and from all further indemnification to the Executive of taxes attributable to the initial $70,000 payment. 10. NONCOMPETITION. During the Term, the Executive shall not, other than through the Company or affiliates of the Company, own any interest in any Multi-Family Residential Property (other than Multi-Family Residential Property in which the Company or the Partnership has an ownership interest), as partner, shareholder or otherwise, or engage in the Multi-Family Residential Business, directly or indirectly, for his own account or for the account of others, either as an officer, director, shareholder, owner, partner, promoter, employee, consultant, advisor, agent, manager, or in any other capacity. For a period of two (2) years after a Change of Control Termination, Executive shall not own any interest in any Multi-Family Residential Property as partner, shareholder or otherwise, or directly or indirectly, for his own account or for the account of others, either as an officer, director, promoter, employee, consultant, advisor, agent, manager, or in any other capacity, engage in the Multi-Family Residential Business within 5 miles of any Multi-Family Residential Property owned by the Company or the Partnership at the time of termination of employment. 12 The Executive agrees that damages at law for violation of the restrictive covenant contained herein would not be an adequate or proper remedy to the Company, and that should the Executive violate or threaten to violate any of the provisions of such covenant, the Company, its successors or assigns, shall be entitled to obtain a temporary or permanent injunction, as appropriate, against the Executive in any court having jurisdiction over the person and the subject matter, prohibiting any further violation of any such covenants. The injunctive relief provided herein shall be in addition to any award of damages, compensatory, exemplary or otherwise, payable by reason of such violation. Furthermore, the Executive acknowledges that this Agreement has been negotiated at arms' length by the parties, neither being under any compulsion to enter into this Agreement, and that the foregoing restrictive covenant does not in any respect inhibit his ability to earn a livelihood in his chosen profession without violating the restrictive covenant contained herein. The Company by these presents has attempted to limit the Executive's right to compete only to the extent necessary to protect the Company from unfair competition. The Company recognizes, however, that reasonable people may differ in making such a determination. Consequently, the Company agrees that if the scope or enforceability of the restricted covenant contained herein is in any way disputed at any time, a court or other trier of fact may modify and enforce the covenant to the extent that it believes to be reasonable under the circumstances existing at the time. 11. EMPLOYMENT STATUS. The parties acknowledge and agree that Executive is an employee of the Company, not an independent contractor. Any payments made to Executive by the Company pursuant to this Agreement shall be treated for federal and state payroll tax purposes as payments made to a Company employee, irrespective whether such payments are made subsequent to the Termination Date. 12. NOTICES. All notices or deliveries authorized or required pursuant to this Agreement shall be deemed to have been given when in writing and personally delivered or when deposited in the U.S. mail, certified, return receipt requested, postage prepaid, addressed to the parties at the following addresses or to such other addresses as either may designate in writing to the other party: To the Company: 6584 Poplar Avenue Suite 340 Memphis, Tennessee 38128 Attn: Chief Financial Officer To the Executive: H. Eric Bolton 3290 Kenny Drive Germantown, Tennessee 38139 13. ENTIRE AGREEMENT. This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and shall not be modified in any manner except by instrument in writing signed, by or on behalf of, the parties hereto; provided, however, that any amendment or termination of the covenant of noncompetition in SECTION 10 must be approved 13 by a majority of the Directors of the Company other than the Executive, if the Executive is then a director of the Company. This Agreement shall be binding upon and inure to the benefit of the heirs, successors and assigns of the parties hereto. 14. ARBITRATION. Any controversy concerning or claim arising out of or relating to this Agreement shall be settled by final and binding arbitration in Memphis, Shelby County, Tennessee at a location specified by the party seeking such arbitration. (a) THE ARBITRATORS. Any arbitration proceeding shall be conducted by three (3) Arbitrators and the decision of the Arbitrators shall be binding on all parties. Each Arbitrator shall have substantial experience and expert competence in the matters being arbitrated. The party desiring to submit any matter relating to this Agreement to arbitration shall do so by written notice to the other party, which notice shall set forth the items to be arbitrated, such party's choice of Arbitrator, and such party's substantive position in the arbitration. The party receiving such notice shall, within fifteen (15) days after receipt of such notice, appoint an Arbitrator and notify the other party of its appointment and of its substantive position. The Arbitrators appointed by the parties to the Arbitration shall select an additional Arbitrator meeting the aforedescribed criteria. The Arbitrators shall be required to render a decision in accordance with the procedures set forth in Subparagraph (b) below within thirty (30) days after being notified of their selection. The fees of the Arbitrators shall be equally divided amongst the parties to the arbitration. (b) ARBITRATION PROCEDURES. Arbitration shall be conducted in accordance with the Uniform Arbitration Act, except to the extent the provisions of such Act are modified by this Agreement or the subsequent mutual agreement of the parties. Judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof. Any party hereto may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim to which this provision applies in any court having jurisdiction over such action in Shelby County, Tennessee, and the parties agree that jurisdiction and venue in Shelby County, Tennessee are appropriate and approved by such parties. 15. APPLICABLE LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Tennessee. 16. ASSIGNMENT. The Executive acknowledges that his services are unique and personal. Accordingly, the Executive may not assign his rights or delegate his duties or obligations under this Agreement, except with respect to certain rights to receive payments as described in SECTION 7. 17. HEADINGS. Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions. 18. SUCCESSORS; BINDING AGREEMENT. The Company will require any successor to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be 14 required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a beach of this Agreement and shall entitle Executive to compensation from the Company in the same amount and on the same terms as Executive would be entitled to hereunder if Executive terminates his employment for Good Reason. The Company's rights and obligations under this Agreement shall inure to the benefit of and shall be binding upon the Company's successors and assigns. [The remainder of this page is intentionally left blank.] 15 IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first above written. MID-AMERICA APARTMENT COMMUNITIES, INC. By: __________________________________ Name: ________________________________ Title: _______________________________ EXECUTIVE: ______________________________________ H. Eric Bolton 16 EX-10.9 5 EXHIBIT 10.9 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") effective as of December ___, 1999, by and between Mid-America Apartment Communities, Inc., a Tennessee corporation (the "Company"), and Simon R. Wadsworth (the "Executive"). WITNESSETH: WHEREAS, the Company desires to employ the Executive to serve as the Executive Vice President and Chief Financial Officer of the Company; and WHEREAS, the Company and the Executive each deem it necessary and desirable to execute a written document setting forth the terms and conditions of said relationship. NOW, THEREFORE, in consideration of the premises and mutual obligations hereinafter set forth the parties agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following definitions: "1994 PLAN" means the Company's Amended and Restated 1994 Restricted Stock and Stock Option Plan. "1999 PLAN" means the Company's 1999 Equity Compensation Plan. "ADDITIONAL AMOUNT" means the amount the Company shall pay to the Executive in order to indemnify the Executive against all claims, losses, damages, penalties, expenses, interest, and Excise Taxes (including additional taxes on such Additional Amount) incurred by Executive as a result of Executive receiving Change of Control Benefits as further described in SECTION 9(E) of this Agreement. "ARBITRATORS" means the arbitrators selected to conduct any arbitration proceeding in connection with any disputes arising out of or relating to this Agreement. "AWARD PLANS" has the meaning set forth in SECTION 4(B)of this Agreement. "BASE SALARY" means the annual salary to be paid to Executive as set forth in SECTION 4(A) of this Agreement. "BENEFIT PLANS" has the meaning set forth in SECTION 4(C) of this Agreement. "BOARD" means the Board of Directors of the Company. "CHANGE OF CONTROL" means any of the following events which occur during the Term of this Agreement: (i) any "person", as that term is used in Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), becomes, is discovered to be, or files a report on Schedule 13D or 14D-1 (or any successor schedule, form or report) disclosing that such person is, a beneficial owner (as defined in Rule 13d-3 under the Exchange Act or any successor rule or regulation), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities entitled to vote generally in the election of directors, regardless of whether or not the Board shall have approved the acquisition of such securities by the acquiring person; (ii) individuals who, as of the effective date of this Agreement, constitute the Board of Directors of the Company cease for any reason to constitute at least a majority of the Board of Directors of the Company, unless any such change is approved by the vote of at least 80% of the members of the Board of Directors of the Company in office immediately prior to such cessation; (iii) the Company is merged, consolidated or reorganized into or with another corporation or other legal person, or securities of the Company are exchanged for securities of another corporation or other legal person, and immediately after such merger, consolidation, reorganization or exchange less than 80% of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held, directly or indirectly, in the aggregate by the holders of securities entitled to vote generally in the election of directors of the Company immediately prior to such transaction; (iv) the Company in any transaction or series of related transactions, sells all or substantially all of its assets to any other corporation or other legal person and less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale or sales are held, directly or indirectly, in the aggregate by the holders of securities entitled to vote generally in the election of directors of the Company immediately prior to such sale; (v) the Company and its affiliates shall sell or transfer (in a single transaction or series of related transactions) to a non-affiliate business operations or assets that generated at least two-thirds of the consolidated revenues (determined on the basis of the Company's four most recently completed fiscal quarters for which reports have been filed under the Exchange Act) of the Company and its subsidiaries immediately prior thereto; 2 (vi) the Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K (or any successor, form or report or item therein) that a change in control of the Company has occurred; (vii) the shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; or (viii) any other transaction or series of related transactions occur that have substantially the effect of the transactions specified in any of the preceding clauses in this sentence. "CHANGE OF CONTROL BENEFITS" means the Executive's receipt of the Termination Payment or any other payment, benefit or compensation (except for the Additional Amount) which the Executive receives or has the right to receive from the Company or any of its affiliates as a result of Executive's termination. "CHANGE OF CONTROL TERMINATION" means (i) a Termination Without Cause of the Executive's employment by the Company, in anticipation of, on, or within three (3) years after a Change of Control, (ii) the Executive's resignation for Good Reason on or within three (3) years after a Change of Control, or (iii) Executive's giving of a Termination Notice of Voluntary Termination during the thirty days immediately following the Change of Control or during the thirty days immediately following the one year anniversary of the Change of Control. "CODE" means the Internal Revenue Code of 1986, as amended. "COMPANY" means Mid-America Apartment Communities, Inc., a Tennessee corporation, and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise. "COMPANY SHARES" means the shares of common stock of the Company or any securities of a successor company which shall have replaced such common stock. "COMPENSATION COMMITTEE" means the compensation committee of the Board. "EXCESS PARACHUTE PAYMENTS" has the meaning set forth in section 280G of the Code. "EXCISE TAX" means a tax on Excess Parachute Payments imposed pursuant to Code section 4999. "EXECUTIVE" means the person identified in the preamble paragraph of this Agreement. "FAIR MARKET VALUE" means, on any give date, the closing sale price of the common stock of the Company on the New York Stock Exchange on such date, or, if the New York Stock 3 Exchange shall be closed on such date, the next preceding date on which the New York Stock Exchange shall have been open. "GOOD REASON" means any of the following: (i) a change in the Executive's status, position or responsibilities (including reporting responsibilities) which, in the Executive's reasonable judgment and without Executive's consent, represents a reduction in or demotion of the Executive's status, position or responsibilities as in effect immediately prior to a Change of Control; the assignment to the Executive of any duties or responsibilities which, in the Executive's reasonable judgment, are inconsistent with such status, position or responsibilities; or any removal of the Executive from or failure to reappoint or reelect the Executive to any of such positions, except in connection with a Termination with Cause, as a result of the Executive's death or Permanent Disability or by Voluntary Termination; (ii) a reduction in the Executive's Base Salary as in effect on the date hereof or as the same may be increased from time to time or modifying, suspending, discontinuing, or terminating any Award Plan or Benefit Plan in a manner which treats Executive differently than other similarly situated employees or singles out or discriminates against Executive; (iii) the relocation of the Company's principal executive offices to a location outside a thirty-mile radius of Memphis, Tennessee or the Company's requiring the Executive to be based at any place other than a location within a thirty-mile radius of Memphis, Tennessee, except for reasonably required travel on the Company's business; (iv) the failure by the Company to continue to provide the Executive with compensation and benefits provided for under this Agreement or benefits substantially similar to those provided to the Executive under any of the employee benefit plans in which the Executive is or becomes a participant, or the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change of Control; (v) any material breach by the Company of any provision of this Agreement; (vi) any purported termination of Executive's employment by the Company which is not effected pursuant to the procedures set forth in SECTION 3; or (vii) the failure of the Company to obtain an agreement reasonably satisfactory to Executive from any successor or assign of the Company to assume and agree to perform this Agreement. "MULTI-FAMILY RESIDENTIAL BUSINESS" means the business of acquiring, developing, constructing, owning or operating multi-family residential apartment communities. 4 "MULTI-FAMILY RESIDENTIAL PROPERTY" means any real estate upon which the Multi-Family Residential Business is being conducted. "OPTION(S)" means any options issued pursuant to the 1994 Plan, 1999 Plan or any other stock option plan adopted by the Company, any option granted with respect to Partnership Units, or any option granted under the plan of any successor company that replaces or assumes the Company's or the Partnership's options. "PARTNERSHIP" means Mid-America Apartments, L.P., a Tennessee limited partnership. "PARTNERSHIP UNIT(S)" means limited partnership interests of the Partnership. The holder has the option of requiring the Company to redeem such interests. The Company may elect to effectuate such redemption by either paying cash or exchanging Company Shares for such interests. "PERMANENT DISABILITY" means a complete physical or mental inability, confirmed by a licensed physician, to perform the services described in SECTION 2 of the Agreement that continues for a period of six (6) consecutive months. "TERM" has the meaning assigned to it in SECTION 3 of this Agreement. "TERMINATION DATE" means the date employment of Executive is terminated, which date shall be (i) in the case of Executive's Permanent Disability, 30 days after a Termination Notice is given and Executive does not return to the full-time performance of his duties within such 30 day period or (ii) in all other instances, the date specified as the Termination Date in the Termination Notice, which date shall not be less than thirty nor more than sixty days from the date the Termination Notice is given. "TERMINATION NOTICE" means a written notice of termination of employment by Executive or the Company. "TERMINATION PAYMENT" has the meaning set forth in SECTION 9(B)(I) of this Agreement. "TERMINATION WITH CAUSE" means the termination of the Executive's employment by act of the Board for any of the following reasons: (i) the Executive's conviction for a felony; (ii) the Executive's theft, embezzlement, misappropriation of or intentional infliction of material damage to the Company's property or business opportunity; (iii) the Executive's intentional breach of the noncompetition provisions contained in SECTION 10 of this Agreement; or 5 (iv) the Executive's ongoing willful neglect of or failure to perform his duties hereunder or his ongoing willful failure or refusal to follow any reasonable, unambiguous duly adopted written direction of the Board or any duly constituted committee thereof that is not inconsistent with the description of the Executive's duties set forth in SECTION 2, if such willful neglect or failure is materially damaging or materially detrimental to the business and operations of the Company; provided that Executive shall have received written notice of such failure and shall have continued to engage in such failure after 30 days following receipt of such notice from the Board, which notice specifically identifies the manner in which the Board believes that Executive has engaged in such failure. For purposes of this subsection, no act, or failure to act, shall be deemed "willful" unless done, or omitted to be done, by Executive not in good faith, and without reasonable belief that such action or omission was in the best interest of the Company. Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to Executive and an opportunity for Executive, together with his counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, Executive was guilty of misconduct as set forth above, and of continuing such misconduct after notice from the Board. "TERMINATION WITHOUT CAUSE" means the termination of the Executive's employment by the Company for any reason other than Termination With Cause, or termination by the Company due to Executive's death or Permanent Disability. "UNIFORM ARBITRATION ACT" means the Uniform Arbitration Act, Tennessee Code Annotated ss. 29-5-391 ET SEQ., as amended. "VOLUNTARY TERMINATION" means the Executive's voluntary termination of his employment hereunder for any reason other than Good Reason. If the Executive gives a Termination Notice of Voluntary Termination and, prior to the Termination Date, the Executive voluntarily refuses or fails to provide substantially all the services described in SECTION 2 hereof for a period greater than two consecutive weeks, the Voluntary Termination shall be deemed to be effective as of the date on which the Executive so ceases to carry out his duties. Voluntary refusal to perform services shall not include taking vacation otherwise permitted in accordance with SECTION 4 hereof, the Executive's failure to perform services on account of his illness or the illness of a member of his immediate family, provided such illness is adequately substantiated at the reasonable request of the Company, or any other absence from service with the written consent of the Board. 2. EMPLOYMENT; SERVICES. The Company shall employ the Executive, and the Executive agrees to be so employed, in the capacity of Executive Vice President and Chief Financial Officer of the Company to serve for the Term hereof, subject to earlier termination as hereinafter provided. The Executive shall devote such amount of his time and attention to the Company's affairs as are necessary to perform his duties to the Company in his capacity as Executive Vice President and 6 Chief Financial Officer. The Executive shall have authority and responsibility with respect to the day-to-day management of the Company and the financial status of the Company, consistent with direction from the Company's Board. 3. TERM; TERMINATION. (a) The term of the Executive's employment hereunder shall be one year and shall commence on the date hereof and shall be extended automatically, for so long as the Executive remains employed by the Company hereunder, the first day of each month beginning January 1, 2000 for an additional one-month period (such period, as it may be extended from time to time, being herein referred to as the "Term"), unless terminated earlier in accordance with the terms of this Agreement, to the effect that on the first day of each month, the remaining term of this Agreement and the Executive's employment hereunder shall be one year. (b) Any purported termination of employment by Executive or the Company shall be communicated by a Termination Notice. The Termination Notice shall indicate the specific termination provision in this Agreement relied upon and set forth the facts and circumstances claimed to provide a basis for termination. If the party receiving the Termination Notice notifies the other party prior to the Termination Date that a dispute exists concerning the termination, the Termination Date shall be extended until the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction. The Termination Date shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay Executive his full compensation in effect when the notice giving rise to the dispute was given and Executive shall continue as a participant in all Award Plans and Benefit Plans in which Executive participated when the Termination Notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this subsection. Amounts paid under this subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. COMPENSATION. (a) BASE SALARY. During the Term, the Company shall pay the Executive for his services a Base Salary of $184,500.00, to be paid in accordance with customary Company policies, such Base Salary being subject to any increases approved by the Compensation Committee or the Board, as the case may be. (b) AWARD PLANS. During the Term, the Executive shall also be eligible for additional compensation in the form of a cash bonus, shares of stock in the Company, Partnership Units, or Options, and shall be eligible to participate the 1994 Plan, 1999 Plan, and any other stock option, incentive compensation, profit participation, bonus or extra compensation plan that is 7 adopted by the Company and in which the Company's executive officers generally participate (collectively, "AWARD PLANS"). (c) BENEFIT PLANS. During the Term, Executive shall be entitled to participate in, and to all rights and benefits provided by, each and every health, life, medical, dental, disability, insurance and welfare plan maintained by the Company including, without limitation, the benefits contemplated by SECTION 5 of this Agreement, that are maintained from time to time by the Company for the benefit of Executive, the executives of the Company generally or for the Company's employees generally, provided that Executive is eligible to participate in such plan under the eligibility provisions thereof that are generally applicable to the participants thereof (collectively, "BENEFIT PLANS"). (d) VACATION. The Executive shall be entitled each calendar year to vacation time, during which time his compensation shall be paid in full. The time allotted for such vacation shall be three (3) weeks. (e) CONTINUATION OF WELFARE BENEFITS. If Executive's employment is terminated due to Executive's Permanent Disability, Termination Without Cause, or termination for Good Reason, and if Executive is no longer eligible to participate in one or more of the Benefit Plans because of such termination, Executive shall be entitled to, and the Company shall provide to Executive at the Company's sole expense, benefits substantially equivalent to those Benefit Plans to which Executive was entitled immediately prior to such termination for one (1) year after the Termination Date. If Executive's employment is terminated due to a Change of Control Termination, and if Executive is no longer eligible to participate in one or more of the Benefit Plans because of such termination, Executive shall be entitled to, and the Company shall provide to Executive at the Company's sole expense, benefits substantially equivalent to those Benefit Plans to which Executive was entitled immediately prior to such termination for two (2) years after the Termination Date. (f) OVERALL QUALIFICATION. Nothing in this Agreement shall be construed as preventing the Company from modifying, suspending, discontinuing or terminating any of the Company Benefit Plans or Award Plans without notice or liability to Executive so long as (i) the modification, suspension, discontinuation or termination of any such plan is authorized by and performed in accordance with the specific provisions of such plan and (ii) such modification, suspension, discontinuation or termination is taken generally with respect to all similarly situated employees of the Company and does not single out or discriminate against Executive. 5. EXPENSES. The Company recognizes that the Executive will have to incur certain out-of-pocket expenses, including but not limited to travel expenses, related to his services and the Company's business and the Company agrees to reimburse the Executive for all reasonable expenses necessarily incurred by him in the performance of his duties upon presentation of a voucher or documentation indicating the amount and business purposes of any such expenses, including, but not limited to, expenses incurred in connection with the operation of Executive's aircraft in the 8 course of conducting the Company's business; provided that Executive complies with the Company's policies and procedures regarding business expenses. 6. VOLUNTARY TERMINATION; TERMINATION WITH CAUSE. Except as otherwise provided in SECTION 9 of this Agreement, if (i) the Executive shall cease being an employee of the Company on account of a Voluntary Termination or (ii) there shall be a Termination With Cause, the Executive shall not be entitled to any compensation after the Termination Date of such Voluntary Termination or Termination With Cause (except Base Salary and vacation accrued but unpaid on the Termination Date of such event). In the event of a Voluntary Termination or Termination With Cause, the Executive shall continue to be subject to the noncompetition covenant contained in SECTION 10 hereof for the remainder of the Term. 7. DEATH OR DISABILITY. In the event of the Executive's death or Permanent Disability, the Company may elect to terminate Executive's employment with the Company. Upon termination of Executive by the Company due to Executive's death or Permanent Disability, the Company shall continue to pay the Executive or his heirs, devisees, executors, legatees or personal representatives, as appropriate, the semi-monthly payments of the Base Salary then in effect for one year from the Termination Date. The Company shall also pay any amounts due pursuant to the terms of any Benefit Plans and Award Plans in which Executive was a participant, including, without limitation, the pro rata amount of any bonus to be paid to Executive for the fiscal year in which Executive was terminated. In addition, Executive shall be permitted to participate in, and have all rights and benefits provided by, all Benefit Plans which Executive was eligible to participate in immediately prior to the Termination Date (to the extent such participation is possible under the laws then pertaining to such Benefit Plans), for a minimum of one (1) year following the Termination Date. 8. TERMINATION WITHOUT CAUSE. RESIGNATION FOR GOOD REASON. The Company may terminate Executive for any reason, or no reason at all, at any time and Executive may terminate this Agreement at any time for Good Reason, provided that, upon termination of this Agreement by the Executive for Good Reason or in the event of a Termination Without Cause, except as otherwise provided in SECTION 9 of this Agreement, the Company shall provide the compensation and benefits set forth in this SECTION 8. Executive may terminate this Agreement for Good Reason notwithstanding any incapacity due to physical or mental illness. Executive's continued employment shall not constitute consent to, or a waiver of, rights with respect to any circumstances constituting Good Reason hereunder. (a) BASE SALARY, BENEFIT AND AWARD PLANS. The Company shall continue to pay the Executive the semi-monthly payments of the Base Salary then in effect for one year after the Termination Date. The Company shall also pay on the Termination Date any amounts due pursuant to the terms of any Benefit Plans and Award Plans in which Executive was a participant, including, without limitation, the pro rata amount of any bonus to be paid to Executive for the fiscal year in which Executive was terminated. In addition, Executive shall be permitted to participate in, and have all rights and benefits provided by, all Benefit Plans which Executive was eligible to participate in immediately prior to the Termination Date (to the extent such participation is possible under the 9 laws then pertaining to such Benefit Plans), for a minimum of one year following the Termination Date. (b) STOCK OPTIONS. All Options granted to Executive shall become fully vested at the Termination Date. In lieu of Company Shares issuable upon exercise of any outstanding and unexercised Options granted to Executive, Executive may, at Executive's option, receive an amount in cash equal to the product of (i) the Fair Market Value of Company Shares on the Termination Date over the per share exercise price of each Option held by Executive, times (ii) the number of Company Shares covered by each such Option. In the event Executive does not elect to receive a cash payment for any outstanding and unexercised Options granted to Executive, Executive shall have the right to exercise such Options in accordance with the terms and conditions provided in the applicable stock option plans as if Executive had continued his employment with the Company, notwithstanding Executive's termination. (c) LEGAL FEES. The Company shall also pay to Executive all legal fees and expenses incurred by Executive as a result of a Termination Without Cause or Executive's resignation for Good Reason (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement). 9. CHANGE OF CONTROL. (a) TERMINATION IN CONNECTION WITH A CHANGE OF CONTROL. Notwithstanding any other provision in this Agreement, in the event of a Change of Control Termination, the Company shall, on the Termination Date, pay the Executive, in addition to any Base Salary earned but not paid through the Termination Date and any amounts due pursuant to Award Plans and Benefit Plans including, without limitation, the pro rata amount of Executive's anticipated bonus for the fiscal year in which Executive is terminated, the compensation and benefits set forth in SECTION 9(B). (b) COMPENSATION AND BENEFITS. (i) A Termination Payment shall be paid which is equal to the sum of two and 99/100 (2.99) times the Executive's annual base salary in effect on the Termination Date plus two and 99/100 (2.99) times the average annual cash bonus paid to the Executive for the two (2) immediately preceding fiscal years, under this Agreement or otherwise (but not including compensation under the Company's Shareholder Value Plan) ("Termination Payment"). Notwithstanding SECTION 9(A), the Termination Payment shall be calculated and paid immediately prior to the closing of the transactions constituting a Change of Control if the Executive receives notice prior to the Change of Control that his employment will be terminated on or after the Change of Control. (ii) Executive shall be permitted to participate in, and have all rights and benefits provided by, all Benefit Plans which Executive was eligible to participate in immediately prior to 10 the Termination Date (to the extent such participation is possible under the laws then pertaining to such Benefit Plans), for a minimum of two years following the Termination Date. (iii) In lieu of Company Shares issuable upon exercise of any outstanding and unexercised Options granted to Executive, Executive may, at Executive's option, receive an amount in cash equal to the product of (i) the excess of the higher of the Fair Market Value of Company Shares on the Termination Date, or the highest per share price for Company Shares actually paid in connection with any Change of Control of the Company, over the per share exercise price of each Option held by Executive, times (ii) the number of Company Shares covered by each such Option. In the event Executive does not elect to receive a cash payment for any outstanding and unexercised Options granted to Executive, Executive shall have the right to exercise such Options in accordance with the terms and conditions provided in the applicable stock option plans. (iv) The Company shall also pay to Executive all legal fees and expenses incurred by Executive as a result of a termination described in SECTION 9(A) of this Agreement (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (c) CERTAIN TRANSACTIONS. Notwithstanding the provisions of subparagraphs (i) or (vi) in the definition of change of control, unless otherwise determined in a specific case by majority vote of the Board, a Change of Control shall not be deemed to have occurred for purposes of this Agreement solely because (i) an entity in which the Company directly or indirectly beneficially owns 50% or more of the voting securities or (ii) any Company-sponsored employee stock ownership plan, or any other employee benefit plan of the Company, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-l, Form 8-K or Schedule 14A (or any successor schedule, form or report or item thereon) under the Exchange Act, disclosing beneficial ownership by it of shares of stock of the Company, or because the Company reports that a Change of Control of the Company has or may have occurred or will or may occur in the future by reason of such beneficial ownership. (d) ESCROW ARRANGEMENT. If within thirty (30) days after the effective date of a Change of Control Executive's employment has not been terminated, the Company shall deposit with an escrow agent, pursuant to an escrow agreement between the Company and such escrow agent, a sum of money, or other property permitted by such escrow agreement, which is substantially sufficient in the opinion of the Company's management to fund the amounts due to Executive set forth in SECTION 9(B) of this Agreement. The escrow agreement shall provide that such agreement may not be terminated until the earlier of (i) Executive's employment has terminated and all amounts due to Executive as set forth in this Agreement have been paid to Executive or (ii) three (3) years after the effective date of the Change of Control. 11 (e) TAX MATTERS. If the Excise Tax on Excess Parachute Payments will be imposed on the Executive under Code section 4999 as a result of the Executive's receipt of the Change of Control Benefits, the Company shall indemnify the Executive and hold him harmless against all claims, losses, damages, penalties, expenses, interest, and Excise Taxes. To effect this indemnification, the Company shall pay to the Executive the Additional Amount which is sufficient to indemnify and hold the Executive harmless from the application of Code sections 280G and 4999, including the amount of (i) the Excise Tax that will be imposed on the Executive under section 4999 of the Code with respect to the Change of Control Benefits; (ii) the additional (A) Excise Tax under section 4999 of the Code, (B) hospital insurance tax under section 3111(b) of the Code and (C) federal, state and local income taxes for which the Executive is or will be liable on account of the payment of the amount described in subitem (i); and (iii) the further excise, hospital insurance and income taxes for which the Executive is or will be liable on account of the payment of the amount described in subitem (ii) and this subitem (iii) and any other indemnification payment under this SECTION 9(E). The Additional Amount shall be calculated and paid to the Executive at the time that the Termination Payment is paid to the Executive. In calculating the Additional Amount, the highest marginal rates of federal and applicable state and local income taxes applicable to individuals and in effect for the year in which the Change of Control occurs shall be used. Nothing in this paragraph shall give the Executive the right to receive indemnification from the Company for federal, state or local income taxes or hospital insurance taxes payable solely as a result of the Executive's receipt of (a) the Change in Control Benefits, or (b) any additional payment, benefit or compensation other than the Additional Amount. As specified in items (ii) and (iii), above, all income, hospital insurance and additional Excise Taxes resulting from additional compensation in the form of the Excise Tax payment specified in item (i), above, shall be paid to the Executive. The provisions of this SECTION 9(E) are illustrated by the following example: Assume that the Termination Payment and all other Change of Control Benefits result in a total federal, state and local income tax and hospital insurance tax liability of $180,000; and an Excise Tax liability under Code section 4999 of $70,000. Under such circumstances, the Executive is solely responsible for the $180,000 income and hospital insurance tax liability; and the Company must pay to the Executive $70,000, plus an amount necessary to indemnify the Executive for all federal, state and local income taxes, hospital insurance taxes, and Excise Taxes that will result from the $70,000 payment to the Executive and from all further indemnification to the Executive of taxes attributable to the initial $70,000 payment. 10. NONCOMPETITION. During the Term, the Executive shall not, other than through the Company or affiliates of the Company, own any interest in any Multi-Family Residential Property (other than Multi-Family Residential Property in which the Company or the Partnership has an ownership interest), as partner, shareholder or otherwise, or engage in the Multi-Family Residential Business, directly or indirectly, for his own account or for the account of others, either as an officer, director, shareholder, owner, partner, promoter, employee, consultant, advisor, agent, manager, or in any other capacity. For a period of two (2) years after a Change of Control Termination, Executive shall not own any interest in any Multi-Family Residential Property as partner, shareholder 12 or otherwise, or directly or indirectly, for his own account or for the account of others, either as an officer, director, promoter, employee, consultant, advisor, agent, manager, or in any other capacity, engage in the Multi-Family Residential Business within 5 miles of any Multi-Family Residential Property owned by the Company or the Partnership at the time of termination of employment. The Executive agrees that damages at law for violation of the restrictive covenant contained herein would not be an adequate or proper remedy to the Company, and that should the Executive violate or threaten to violate any of the provisions of such covenant, the Company, its successors or assigns, shall be entitled to obtain a temporary or permanent injunction, as appropriate, against the Executive in any court having jurisdiction over the person and the subject matter, prohibiting any further violation of any such covenants. The injunctive relief provided herein shall be in addition to any award of damages, compensatory, exemplary or otherwise, payable by reason of such violation. Furthermore, the Executive acknowledges that this Agreement has been negotiated at arms' length by the parties, neither being under any compulsion to enter into this Agreement, and that the foregoing restrictive covenant does not in any respect inhibit his ability to earn a livelihood in his chosen profession without violating the restrictive covenant contained herein. The Company by these presents has attempted to limit the Executive's right to compete only to the extent necessary to protect the Company from unfair competition. The Company recognizes, however, that reasonable people may differ in making such a determination. Consequently, the Company agrees that if the scope or enforceability of the restricted covenant contained herein is in any way disputed at any time, a court or other trier of fact may modify and enforce the covenant to the extent that it believes to be reasonable under the circumstances existing at the time. 11. EMPLOYMENT STATUS. The parties acknowledge and agree that Executive is an employee of the Company, not an independent contractor. Any payments made to Executive by the Company pursuant to this Agreement shall be treated for federal and state payroll tax purposes as payments made to a Company employee, irrespective whether such payments are made subsequent to the Termination Date. 12. NOTICES. All notices or deliveries authorized or required pursuant to this Agreement shall be deemed to have been given when in writing and personally delivered or when deposited in the U.S. mail, certified, return receipt requested, postage prepaid, addressed to the parties at the following addresses or to such other addresses as either may designate in writing to the other party: To the Company: 6584 Poplar Avenue, Suite 340 Memphis, Tennessee 38128 Attn: Chief Executive Officer To the Executive: Simon R.C. Wadsworth 274 Grove Park Road Memphis, Tennessee 38117 13 13. ENTIRE AGREEMENT. This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and shall not be modified in any manner except by instrument in writing signed, by or on behalf of, the parties hereto; provided, however, that any amendment or termination of the covenant of noncompetition in SECTION 10 must be approved by a majority of the Directors of the Company other than the Executive, if the Executive is then a director of the Company. This Agreement shall be binding upon and inure to the benefit of the heirs, successors and assigns of the parties hereto. 14. ARBITRATION. Any controversy concerning or claim arising out of or relating to this Agreement shall be settled by final and binding arbitration in Memphis, Shelby County, Tennessee at a location specified by the party seeking such arbitration. (a) THE ARBITRATORS. Any arbitration proceeding shall be conducted by three (3) Arbitrators and the decision of the Arbitrators shall be binding on all parties. Each Arbitrator shall have substantial experience and expert competence in the matters being arbitrated. The party desiring to submit any matter relating to this Agreement to arbitration shall do so by written notice to the other party, which notice shall set forth the items to be arbitrated, such party's choice of Arbitrator, and such party's substantive position in the arbitration. The party receiving such notice shall, within fifteen (15) days after receipt of such notice, appoint an Arbitrator and notify the other party of its appointment and of its substantive position. The Arbitrators appointed by the parties to the Arbitration shall select an additional Arbitrator meeting the aforedescribed criteria. The Arbitrators shall be required to render a decision in accordance with the procedures set forth in Subparagraph (b) below within thirty (30) days after being notified of their selection. The fees of the Arbitrators shall be equally divided amongst the parties to the arbitration. (b) ARBITRATION PROCEDURES. Arbitration shall be conducted in accordance with the Uniform Arbitration Act, except to the extent the provisions of such Act are modified by this Agreement or the subsequent mutual agreement of the parties. Judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof. Any party hereto may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim to which this provision applies in any court having jurisdiction over such action in Shelby County, Tennessee, and the parties agree that jurisdiction and venue in Shelby County, Tennessee are appropriate and approved by such parties. 15. APPLICABLE LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Tennessee. 16. ASSIGNMENT. The Executive acknowledges that his services are unique and personal. Accordingly, the Executive may not assign his rights or delegate his duties or obligations under this Agreement, except with respect to certain rights to receive payments as described in SECTION 7. 17. HEADINGS. Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions. 14 18. SUCCESSORS; BINDING AGREEMENT. The Company will require any successor to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a beach of this Agreement and shall entitle Executive to compensation from the Company in the same amount and on the same terms as Executive would be entitled to hereunder if Executive terminates his employment for Good Reason. The Company's rights and obligations under this Agreement shall inure to the benefit of and shall be binding upon the Company's successors and assigns. [The remainder of this page is intentionally left blank.] 15 IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first above written. MID-AMERICA APARTMENT COMMUNITIES, INC. By: ___________________________________ Name: _________________________________ Title: ________________________________ EXECUTIVE: _______________________________________ Simon R. Wadsworth 16 EX-10.10 6 EXHIBIT 10.10 MASTER CREDIT FACILITY AGREEMENT THIS MASTER CREDIT FACILITY AGREEMENT is made as of the 10th day of November, 1999 by and among (i) (a) MID-AMERICA APARTMENT COMMUNITIES, INC., a Tennessee corporation (the "REIT), (b) MID-AMERICA APARTMENTS, L.P., a Tennessee limited partnership ("OP"); the REIT and OP being collectively referred to as the "BORROWER"), (c) PADDOCK CLUB BRANDON, A LIMITED PARTNERSHIP, a Georgia limited partnership ("BRANDON"), (d) PADDOCK CLUB COLUMBIA, A LIMITED PARTNERSHIP, a Georgia limited partnership ("COLUMBIA"), (e) PADDOCK PARK OCALA II, A LIMITED PARTNERSHIP, a Georgia limited partnership ("OCALA"), and (f) PADDOCK CLUB TALLAHASSEE, A LIMITED PARTNERSHIP, a Georgia limited partnership ("TALLAHASSEE"; BRANDON, COLUMBIA, OCALA AND TALLAHASSEE being collectively referred to as the "GUARANTORS"; Borrower and the Guarantors being collectively referred to as the "BORROWER PARTIES") and (ii) WMF WASHINGTON MORTGAGE CORP., a Delaware corporation formerly known as Washington Mortgage Financial Group, Ltd. ("LENDER"). RECITALS A. The REIT owns directly and indirectly 86% of the voting interests in OP. The REIT owns, directly or indirectly, 100% of the ownership interest in each of the Guarantors. B. The Borrower Parties own one or more Multifamily Residential Properties (capitalized terms used but not defined shall have the meanings ascribed to such terms in Article I of this Agreement) as more particularly described in EXHIBIT A to this Agreement. C. The Borrower has requested that the Lender establish a $113,231,000 Credit Facility in favor of the Borrower, comprised initially of a $113,231,000 Variable Facility, all or part of which can be converted to a Fixed Facility in accordance with, and subject to, the terms and conditions of this Agreement, and a minimum of 25% (but in no event less than $28,307,750) of such Variable Facility must be converted to a Fixed Facility not later than the date 18 months after the Initial Closing Date. D. The Guarantors have agreed to guaranty all of the obligations of the Borrower under this Agreement and the other Loan Documents. E. To secure the obligations of the Borrower Parties under this Agreement and the other Loan Documents issued in connection with the Credit Facility, the Borrower Parties shall create a Collateral Pool in favor of the Lender. The Collateral Pool shall be comprised of (i) Security Instruments on certain Multifamily Residential Properties owned by the Borrower Parties and (ii) any other Security Documents executed by any Borrower Party pursuant to this Agreement or any other Loan Documents. F. Each of the Security Documents shall be cross-defaulted (i.e., a default under any Security Document, or under this Agreement, shall constitute a default under each Security Document, and this Agreement) and cross-collateralized (i.e., each Security Instrument shall secure all of the Borrower Parties' obligations under this Agreement and the other Loan Documents issued in connection with the Credit Facility) and it is the intent of the parties to this Agreement that the Lender may accelerate any Note without the necessity to accelerate any other Note and that in the exercise of its rights and remedies under the Loan Documents, Lender may, except as provided in this Agreement, exercise and perfect any and all of its rights in and under the Loan Documents with regard to any Mortgaged Property without the necessity to exercise and perfect its rights and remedies with respect to any other Mortgaged Property and that any such exercise shall be without regard to the Allocable Facility Amount assigned to such Mortgaged Property and that Lender may recover an amount equal to the full amount outstanding in respect of any of the Notes in connection with such exercise and any such amount shall be applied as determined by Lender in its sole and absolute discretion. G. Subject to the terms, conditions and limitations of this Agreement, the Lender has agreed to establish the Credit Facility. NOW, THEREFORE, the Borrower Parties and the Lender, in consideration of the mutual promises and agreements contained in this Agreement, hereby agree as follows: ARTICLE I DEFINITIONS For all purposes of this Agreement, the following terms shall have the respective meanings set forth below: "ACQUIRING PERSON" means a "person" or "group of persons" within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended. "ADDITIONAL MORTGAGED PROPERTY" means each Multifamily Residential Property owned by any Borrower Party (either in fee simple or as tenant under a ground lease meeting all of the requirements of the DUS Guide) and added to the Collateral Pool after the Initial Closing Date pursuant to Article VI. "ADVANCE" means a Variable Advance or a Fixed Facility Advance. "ADVANCE CONFIRMATION INSTRUMENT" shall have the meaning set forth in Section 4.02. "AFFILIATE" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management (other than property management) and policies of that Person, whether through the ownership of voting securities, partnership interests or by contract or otherwise. -2- "AGGREGATE DEBT SERVICE COVERAGE RATIO FOR THE TRAILING 12 MONTH PERIOD" means, for any specified date, the ratio (expressed as a percentage) of-- (a) the aggregate of the Net Operating Income for the Trailing 12 Month Period for the Mortgaged Properties TO (b) the Facility Debt Service on the specified date. "AGGREGATE LOAN TO VALUE RATIO" means, for any specified date, the ratio (expressed as a percentage) of-- (a) the Advances Outstanding on the specified date, TO (b) the aggregate of the Valuations most recently obtained prior to the specified date for all of the Mortgaged Properties. "AGREEMENT" means this Master Credit Facility Agreement, as it may be amended, supplemented or otherwise modified from time to time, including all Recitals and Exhibits to this Agreement, each of which is hereby incorporated into this Agreement by this reference. "ALLOCABLE FACILITY AMOUNT" means the portion of the Credit Facility allocated to a particular Mortgaged Property by Lender in accordance with this Agreement. "AMORTIZATION PERIOD" means, with respect to each Fixed Facility Advance, the period of not less than 25 years and not more than 30 years. "APPLICABLE LAW" means (a) all applicable provisions of all constitutions, statutes, rules, regulations and orders of all governmental bodies, all Governmental Approvals and all orders, judgments and decrees of all courts and arbitrators, (b) all zoning, building, environmental and other laws, ordinances, rules, regulations and restrictions of any Governmental Authority affecting the ownership, management, use, operation, maintenance or repair of any Mortgaged Property, including the Americans with Disabilities Act (if applicable), the Fair Housing Amendment Act of 1988 and Hazardous Materials Laws, (c) any building permits or any conditions, easements, rights-of-way, covenants, restrictions of record or any recorded or unrecorded agreement affecting or concerning any Mortgaged Property including planned development permits, condominium declarations, and reciprocal easement and regulatory agreements with any Governmental Authority, (d) all laws, ordinances, rules and regulations, whether in the form of rent control, rent stabilization or otherwise, that limit or impose conditions on the amount of rent that may be collected from the units of any Mortgaged Property, and (e) requirements of insurance companies or similar organizations, affecting the operation or use of any Mortgaged Property or the consummation of the transactions to be effected by this Agreement or any of the other Loan Documents. -3- "APPRAISAL" means an appraisal of a Multifamily Residential Property or Multifamily Residential Properties conforming to the requirements of Chapter 5 of Part III of the DUS Guide, and accepted by the Lender. "APPRAISED VALUE" means the value set forth in an Appraisal. "BORROWER" means, individually and collectively, the REIT and OP. "BORROWER PARTIES" means, individually and collectively, the Borrower and the Guarantors. "BUSINESS DAY" means a day on which Fannie Mae is open for business. "CALENDAR QUARTER" means, with respect to any year, any of the following three month periods: (a) January-February-March; (b) April-May-June; (c) July-August-September; and (d) October-November-December. "CAP RATE" means, for each Mortgaged Property, a capitalization rate reasonably selected by the Lender for use in determining the Valuations, as disclosed to the Borrower Parties from time to time. "CASH MANAGEMENT AGREEMENT" means that certain Cash Management Security, Pledge and Assignment Agreement between the Borrower Parties and the Lender in the form attached as EXHIBIT C to this Agreement. "CHANGE OF CONTROL" means the earliest to occur of: (a) the date on which the REIT ceases for any reason whatsoever to be the sole general partner or managing member of any other Borrower Party, or (b) the date on which the REIT or OP shall cease for any reason to be the holder of at least 75% of the voting interest of the other Borrower Parties or to own at least 40% of the equity, profits or other limited partnership interests in, or Voting Equity Capital (or any other Securities or ownership interests) of the other Borrower Parties, or (c) the date on which an Acquiring Person becomes (by acquisition, consolidation, merger or otherwise), directly or indirectly, the beneficial owner of more than 25% of the total Voting Equity Capital (or of any other Securities or ownership interest) of any Borrower Party then outstanding, or (d) the replacement (other than solely by reason of retirement at age sixty-five or older, death or disability) of more than 50% (or such lesser percentage as is required for decision-making by the board of directors or an equivalent governing body) of the members of the board of directors or an equivalent governing body) of the REIT or OP over a one-year period from the directors who constituted such board of directors at the beginning of such period and such replacement shall not have been approved by a vote of at least a majority of the board of directors of the REIT or OP then still in office who either were members of such board of directors at the beginning of such one-year period or whose election as members of the board of directors was previously so approved (it being understood and agreed that in the case of any entity governed by a trustee, board of managers, or other similar governing body, the foregoing clause (d) shall apply thereto by substituting such governing body and the members thereof for the board of directors and members thereof, respectively). -4- "CLOSING DATE" means the Initial Closing Date and each date after the Initial Closing Date on which the funding or other transaction requested in a Request is required to take place. "COLLATERAL" means, the Mortgaged Properties and other collateral from time to time or at any time encumbered by the Security Instruments, or any other property securing any of the Borrower Parties' obligations under the Loan Documents. "COLLATERAL ADDITION FEE" means, with respect to a Multifamily Residential Property added to the Collateral Pool in accordance with Article VI-- (i) 65 basis points, multiplied by (ii) Allocable Facility Amount of the Multifamily Residential Property, as determined by the Lender. "COLLATERAL ADDITION LOAN DOCUMENTS" means the Security Instrument covering an Additional Mortgaged Property and any other documents, instruments or certificates required by the Lender in connection with the addition of the Additional Mortgaged Property to the Collateral Pool pursuant to Article VI. "COLLATERAL ADDITION REQUEST" shall have the meaning set forth in Section 6.02(a). "COLLATERAL POOL" means the aggregate total of the Collateral. "COLLATERAL RELEASE PROPERTY" shall have the meaning set forth in Section 7.02(a). "COLLATERAL RELEASE REQUEST" shall have the meaning set forth in Section 7.02(a). "COLLATERAL SUBSTITUTION FEE" means, with respect to any substitution effected in accordance with Section 7.04, a fee equal to 65 basis points multiplied by the Allocable Facility Amount of the Substituted Mortgage Property added to the Collateral Pool. "COMMITMENT" means, at any time, the sum of the Fixed Facility Commitment and the Variable Facility Commitment. "COMPLETE FIXED FACILITY TERMINATION" shall have the meaning set forth in Section 9.02(a). "COMPLETE VARIABLE FACILITY TERMINATION" shall have the meaning set forth in Section 9.02(a). "COMPLIANCE CERTIFICATE" means a certificate of the Borrower Parties in the form attached as EXHIBIT D to this Agreement. "CONVERSION DOCUMENTS" has the meaning specified in Section 3.07(b). "CONVERSION REQUEST" has the meaning specified in Section 3.07(a). -5- "COUPON RATE" means, with respect to a Variable Advance, the imputed interest rate determined by the Lender pursuant to Section 2.05 for the Variable Advance and, with respect to a Fixed Facility Advance, the interest rate determined by the Lender pursuant to Section 3.05 for the Fixed Facility Advance. "COVERAGE AND LTV TESTS" mean, for any specified date, each of the following financial tests: (a) The Aggregate Debt Service Coverage Ratio for the Trailing 12 Month Period is not less than 140%. (b) The Aggregate Loan to Value Ratio does not exceed 65%. "CREDIT FACILITY" means the Fixed Facility and the Variable Facility. "CREDIT FACILITY EXPANSION" means an increase in the Commitment made in accordance with Article VIII. "CREDIT FACILITY EXPANSION LOAN DOCUMENTS" means amendments to the Variable Facility Note or the Fixed Facility Note, as the case may be, increasing the amount of such Note to the amount of the Commitment, as expanded in accordance with Article VIII and amendments to the Security Instruments, increasing the amount secured by such Security Instruments to the amount of the Commitment. "CREDIT FACILITY EXPANSION REQUEST" shall have the meaning set forth in Section 8.02(a). "CREDIT FACILITY TERMINATION REQUEST" shall have the meaning set forth in Section 10.02(a). "DEBT SERVICE COVERAGE RATIO" means, for any Mortgaged Property, for any specified date, the ratio (expressed as a percentage) of -- (a) the aggregate of the Net Operating Income for the preceding 12 month period for the subject Mortgaged Property TO (b) the Facility Debt Service on the specified date, assuming, for the purpose of calculating the Facility Debt Service for this definition, that Advances Outstanding shall be the Allocable Facility Amount for the subject Mortgaged Property. "DISCOUNT" means, with respect to any Variable Advance, an amount equal to the excess of -- (i) the face amount of the MBS backed by the Variable Advance, over -6- (ii) the Price of the MBS backed by the Variable Advance. "DUS GUIDE" means the Fannie Mae Multifamily Delegated Underwriting and Servicing (DUS) Guide, as such Guide may be amended from time to time, including exhibits to the DUS Guide and amendments in the form of Lender Memos, Guide Updates and Guide Announcements (and, if such Guide is no longer used by Fannie Mae, the term "DUS Guide" as used in this Agreement means the Fannie Mae Multifamily Negotiated Transactions Guide, as such Guide may be amended from time to time, including amendments in the form of Lender Memos, Guide Updates and Guide Announcements). All references to specific articles and sections of, and exhibits to, the DUS Guide shall be deemed references to such articles, sections and exhibits as they may be amended, modified, updated, superseded, supplemented or replaced from time to time. "DUS UNDERWRITING REQUIREMENTS" means the overall underwriting requirements for Multifamily Residential Properties as set forth in the DUS Guide. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "EVENT OF DEFAULT" means any event defined to be an "Event of Default" under Article XVII. "FACILITY DEBT SERVICE" means, as of any specified date, the sum of: (a) the amount of interest and principal amortization, during the 12 month period immediately succeeding the specified date, with respect to the Advances Outstanding on the specified date, except that, for these purposes: (i) each Variable Advance shall be deemed to require level monthly payments of principal and interest (at the Coupon Rate for the Variable Advance) in an amount necessary to fully amortize the original principal amount of the Variable Advance over a 30-year period, with such amortization deemed to commence on the first day of the 12 month period; and (ii) each Fixed Facility Advance shall require level monthly payments of principal and interest (at the Coupon Rate for the Fixed Facility Advance) in an amount necessary to fully amortize the original principal amount of the Fixed Facility Advance over a 30-year period, with such amortization to commence on the first day of the 12 month period; and (b) the amount of the Standby Fees payable to the Lender pursuant to Section 16.01 during such 12 month period (assuming, for these purposes, that the Advances Outstanding throughout the 12 month period are always equal to the amount of Advances Outstanding on the specified date). -7- EXHIBIT E to this Agreement contains an example of the determination of the Facility Debt Service. "FACILITY TERMINATION FEE" means, with respect to a reduction in either the Variable Facility Commitment or the Fixed Facility Commitment pursuant to Articles IX or X, an amount equal to the product obtained by multiplying-- (1) the reduction in the Variable Facility Commitment and any undrawn portion of the Fixed Facility Commitment, by (2) 24 basis points, by (3) the present value factor calculated using the following formula: 1 - (1 + R)-n ----------- r [r = Yield Rate n = the number of years (counting any partial year as a full year) remaining between the Closing Date for the reduction in the Commitment and the Variable Facility Termination Date or the Fixed Facility Termination Date, as the case may be. The "Yield Rate" means the rate, determined as of the Initial Closing Date, on the U.S. Treasury security having a maturity closest to the Variable Facility Termination Date or the Fixed Facility Termination Date, as the case may be]. "FANNIE MAE" means the federally-chartered and stockholder-owned corporation organized and existing under the Federal National Mortgage Association Charter Act, 12 U.S.C. ss. 1716 ET SEQ. "FINANCIAL COVENANTS" means the covenants set forth in Article XV. "FIXED FACILITY" means the agreement of the Lender to make Fixed Facility Advances to the Borrower pursuant to Section 3.01. "FIXED FACILITY ADVANCE" means a loan made by the Lender to the Borrower under the Fixed Facility Commitment. "FIXED FACILITY AVAILABILITY PERIOD" means the period beginning on the Initial Closing Date and ending on the date five years after the Initial Closing Date. "FIXED FACILITY COMMITMENT" means $0, plus such amount as the Borrower may elect to add to the Fixed Facility Commitment in accordance with Articles III or VIII. "FIXED FACILITY FEE" means (i)(a) if at the time of the first Fixed Facility Advance, the Borrower elects that payments in respect of the Fixed Facility Advance shall not include payments of principal as provided in the Fixed Facility Note, 57 basis -8- points for a Fixed Facility Advance drawn from the Fixed Facility Commitment converted from the Variable Commitment during the period ending on the date 12 months after the Initial Closing Date, or (b) if at the time of the first Fixed Facility Advance, the Borrower elects that payments in respect of the Fixed Facility Advance shall include payments of principal as provided in the Fixed Facility Note, 52 basis points for a Fixed Facility Advance drawn from the Fixed Facility Commitment converted from the Variable Commitment during the period ending on the date 12 months after the Initial Closing Date, and (ii) for any Fixed Facility Advance drawn from any portion of the Fixed Facility Commitment, increased under Article VIII or converted from any portion of the Variable Commitment after the period ending on the date 12 months after the Initial Closing Date, the number of basis points determined at the time of such increase by the Lender as the Fixed Facility Fee for such Fixed Facility Advances, provided that in no event shall the Fixed Facility Fee for Fixed Facility Advances converted from the Variable Commitment (expressed as a number of basis points) exceed the Variable Facility Fee. "FIXED FACILITY NOTE" means a promissory note, in the form attached as EXHIBIT B to this Agreement, which will be issued by the Borrower to the Lender, concurrently with the funding of each Fixed Facility Advance, to evidence the Borrower's obligation to repay the Fixed Facility Advance. "FUTURE ADVANCE" means an Advance made after the Initial Closing Date. "FUTURE ADVANCE REQUEST" shall have the meaning set forth in Section 5.02. "GAAP" means generally accepted accounting principles in the United States in effect from time to time, consistently applied. "GENERAL CONDITIONS" shall have the meaning set forth in Article XI. "GEOGRAPHICAL DIVERSIFICATION REQUIREMENTS" means, prior to the occurrence of an increase in the Commitment pursuant to Article VIII, a requirement that the Collateral Pool consist of at least seven (7) Mortgaged Properties located in at least five (5) states and, upon the occurrence of any increase in the Commitment pursuant to Article VIII, such requirements as to the geographical diversity of the Collateral Pool as the Lender may determine and notify the Borrower of at the time of the increase. "GOVERNMENTAL APPROVAL" means an authorization, permit, consent, approval, license, registration or exemption from registration or filing with, or report to, any Governmental Authority. "GOVERNMENTAL AUTHORITY" means any court, board, agency, commission, office or authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence. "GROSS REVENUES" means, for any specified period, with respect to any Multifamily Residential Property, all income in respect of such Multifamily Residential Property as reflected on the certified operating statement for such specified period as -9- adjusted to exclude unusual income (e.g. temporary or nonrecurring income), income not allowed under DUS guidelines as shown in Section 403.02 of Part III of the DUS Guide (e.g. interest income, furniture income, etc.), and the value of any unreflected concessions. "GUARANTORS" means, individually and collectively, BRANDON, COLUMBIA, OCALA and TALLAHASSEE. "GUARANTY" means that certain Guaranty executed by the Guarantors in the form attached as EXHIBIT FF to this Agreement. "HAZARDOUS MATERIALS", with respect to any Mortgaged Property, shall have the meaning given that term in the Security Instrument encumbering the Mortgaged Property. "HAZARDOUS MATERIALS LAW", with respect to any Mortgaged Property, shall have the meaning given that term in the Security Instrument encumbering the Mortgaged Property. "HAZARDOUS SUBSTANCE ACTIVITY" means any storage, holding, existence, release, spill, leaking, pumping, pouring, injection, escaping, deposit, disposal, dispersal, leaching, migration, use, treatment, emission, discharge, generation, processing, abatement, removal, disposition, handling or transportation of any Hazardous Materials from, under, into or on any Mortgaged Property in violation of Hazardous Materials Laws, including the discharge of any Hazardous Materials emanating from any Mortgaged Property in violation of Hazardous Materials Laws through the air, soil, surface water, groundwater or property and also including the abandonment or disposal of any barrels, containers and other receptacles containing any Hazardous Materials from or on any Mortgaged Property in violation of Hazardous Materials Laws, in each case whether sudden or nonsudden, accidental or nonaccidental. "IMPOSITIONS" means, with respect to any Mortgaged Property, all (1) water and sewer charges which, if not paid, may result in a lien on all or any part of the Mortgaged Property, (2) premiums for fire and other hazard insurance, rent loss insurance and such other insurance as Lender may require under any Security Instrument, (3) Taxes, and (4) amounts for other charges and expenses which Lender at any time reasonably deems necessary to protect the Mortgaged Property, to prevent the imposition of liens on the Mortgaged Property, or otherwise to protect Lender's interests. "INDEBTEDNESS" means, with respect to any Person, as of any specified date, without duplication, all: (a) indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than (i) current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices, and (ii) for construction of improvements to property, if such person has a non-contingent contract to purchase such property); -10- (b) other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument; (c) obligations of such Person under any lease of property, real or personal, the obligations of the lessee in respect of which are required by GAAP to be capitalized on a balance sheet of the lessee or to be otherwise disclosed as such in a note to such balance sheet; (d) obligations of such Person in respect of acceptances (as defined in Article 3 of the Uniform Commercial Code of the District of Columbia) issued or created for the account of such Person; (e) liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment of such liabilities; and (f) as to any Person ("GUARANTEEING PERSON"), any obligation of (a) the guaranteeing person or (b) another Person (including any bank under any letter of credit) to induce the creation of a primary obligation (as defined below) with respect to which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing, or in effect guaranteeing, any indebtedness, lease, dividend or other obligation ("PRIMARY OBLIGATIONS") of any third person ("PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including any obligation of the guaranteeing person, whether or not contingent, to (1) purchase any such primary obligation or any property constituting direct or indirect security therefor, (2) advance or supply funds for the purchase or payment of any such primary obligation or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (3) purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (4) otherwise assure or hold harmless the owner of any such primary obligation against loss in respect of the primary obligation, provided, however, that the term "Contingent Obligation" shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation of any guaranteeing person shall be deemed to be the lesser of (i) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made and (ii) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Contingent Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Contingent Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by Owner in good faith. "INITIAL ADVANCE" means the Variable Advance made on the Initial Closing Date in the amount of $113,231,000. "INITIAL ADVANCE REQUEST" shall have the meaning set forth in Section 5.01. -11- "INITIAL CLOSING DATE" means the date of this Agreement. "INITIAL MORTGAGED PROPERTIES" means the Multifamily Residential Properties described on Exhibit A to this Agreement and which represent the Multifamily Residential Properties which are made part of the Collateral Pool on the Initial Closing Date. "INITIAL SECURITY INSTRUMENTS" means the Security Instruments covering the Initial Mortgaged Properties. "INITIAL VALUATION" means, when used with reference to specified Collateral, the Valuation initially performed for the Collateral as of the date on which the Collateral was added to the Collateral Pool. The Initial Valuation for each of the Initial Mortgaged Properties is as set forth in Exhibit A to this Agreement. "INSURANCE POLICY" means, with respect to a Mortgaged Property, the insurance coverage and insurance certificates evidencing such insurance required to be maintained pursuant to the Security Instrument encumbering the Mortgaged Property. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended. Each reference to the Internal Revenue Code shall be deemed to include (a) any successor internal revenue law and (b) the applicable regulations whether final, temporary or proposed. "LEASE" means any lease, any sublease or subsublease, license, concession or other agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any Person is granted a possessory interest in, or right to use or occupy all or any portion of any space in any Mortgaged Property, and every modification, amendment or other agreement relating to such lease, sublease, subsublease or other agreement entered into in connection with such lease, sublease, subsublease or other agreement, and every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto. "LENDER" shall have the meaning set forth in the first paragraph of this Agreement, but shall refer to any replacement Lender if the initial Lender is replaced pursuant to the terms of Section 19.04. "LIEN" means any mortgage, deed of trust, deed to secure debt, security interest or other lien or encumbrance (including both consensual and non-consensual liens and encumbrances). "LOAN DOCUMENTS" means this Agreement, the Notes, the Advance Confirmation Instruments for the Variable Advances, the Guaranty, the Security Documents, all documents executed by the Borrower Parties pursuant to the General Conditions set forth in Article XI of this Agreement and any other documents executed by a Borrower Party from time to time in connection with this Agreement or the transactions contemplated by this Agreement. -12- "LOAN TO VALUE RATIO " means, for a Mortgaged Property, for any specified date, the ratio (expressed as a percentage) of -- (a) the Allocable Facility Amount of the subject Mortgaged Property on the specified date, TO (b) the Valuation most recently obtained prior to the specified date for the subject Mortgaged Property. "LOAN YEAR" means the 12-month period from the first day of the first calendar month after the Initial Closing Date to and including the last day before the first anniversary of the Initial Closing Date, and each 12-month period thereafter. "MATERIAL ADVERSE EFFECT" means, with respect to any circumstance, act, condition or event of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, or circumstance or circumstances, whether or not related, a material adverse change in or a materially adverse effect upon any of (a) the business, operations, property or condition (financial or otherwise) of any Borrower Party, (b) the present or future ability of any Borrower Party to perform the Obligations for which it is liable, (c) the validity, priority, perfection or enforceability of this Agreement or any other Loan Document or the rights or remedies of the Lender under any Loan Document, or (d) the value of, or the Lender's ability to have recourse against, any Mortgaged Property. "MBS" means a mortgage-backed security which is "backed" by an interest in the Notes and the Collateral Pool securing the Notes, which interest permits the holder of the MBS to participate in the Notes and the Collateral Pool to the extent of such Advance. "MBS IMPUTED INTEREST RATE" shall have the meaning set forth in Section 2.05(a). "MBS ISSUE DATE" means the date on which a Fannie Mae MBS is issued by Fannie Mae. "MBS DELIVERY DATE" means the date on which a Fannie Mae MBS is delivered by Fannie Mae. "MBS PASS-THROUGH RATE" for a Fixed Facility Advance means the interest rate as determined by the Lender (rounded to three places) payable in respect of the Fannie Mae MBS issued pursuant to the MBS Commitment backed by the Fixed Facility Advance as determined in accordance with Section 4.01. "MORTGAGED PROPERTIES" means, collectively, the Additional Mortgaged Properties, the Substituted Mortgaged Properties and the Initial Mortgaged Properties, -13- but excluding each Collateral Release Property from and after the date of the release of the Collateral Release Property from the Collateral Pool. "MULTIFAMILY RESIDENTIAL PROPERTY" means a residential property, located in the United States, containing five or more dwelling units in which not more than twenty percent (20%) of the net rentable area is or will be rented to non-residential tenants, and conforming to the requirements of Chapter 2 of Part III of the DUS Guide (Property Requirements). "NET OPERATING INCOME" means, for any specified period, with respect to any Multifamily Residential Property, the aggregate net income during such period equal to Gross Revenues during such period less the aggregate Operating Expenses during such period. If a Mortgaged Property is not owned by a Borrower Party or an Affiliate of a Borrower Party for the entire specified period, the Net Operating Income for the Mortgaged Property for the time within the specified period during which the Mortgaged Property was owned by a Borrower Party or an Affiliate of a Borrower Party shall be the Mortgaged Property's pro forma net operating income determined by the Lender in accordance with the underwriting procedures set forth in Chapter 4 of Part III of the DUS Guide (Determination of Loan Amount). "NOTE" means any Fixed Facility Note or the Variable Facility Note. "OBLIGATIONS" means the aggregate of the obligations of each of the Borrower Parties under this Agreement and the other Loan Documents. "OPERATING EXPENSES" means, for any period, with respect to any Multifamily Residential Property, all expenses in respect of the Multifamily Residential Property, as determined by the Lender based on the certified operating statement for such specified period as adjusted to provide for the following: (i) all appropriate types of expenses, including a management fee and deposits to the Replacement Reserves (whether funded or not), are included in the total operating expense figure; (ii) upward adjustments to individual line item expenses to reflect market norms or actual costs and correct any unusually low expense items, which could not be replicated by a different owner or manager (e.g., a market rate management fee will be included regardless of whether or not a management fee is charged, market rate payroll will be included regardless of whether shared payroll provides for economies, etc.); and (iii) downward adjustments to individual line item expenses to reflect unique or aberrant costs (e.g., non-recurring capital costs, non-operating borrower expenses, etc.). "ORGANIZATIONAL CERTIFICATE" means a certificate of the Borrower Parties in the form attached as EXHIBIT F to this Agreement. "ORGANIZATIONAL DOCUMENTS" means all certificates, instruments and other documents pursuant to which an organization is organized or operates, including but not limited to, (i) with respect to a corporation, its articles of incorporation and bylaws, (ii) with respect to a limited partnership, its limited partnership certificate and partnership agreement, (iii) with respect to a general partnership or joint venture, its partnership or -14- joint venture agreement and (iv) with respect to a limited liability company, its articles of organization and operating agreement. "OUTSTANDING" means, when used in connection with promissory notes, other debt instruments or Advances, for a specified date, promissory notes or other debt instruments which have been issued, or Advances which have been made, but have not been repaid in full as of the specified date. "OWNERSHIP INTERESTS" means, with respect to any entity, any ownership interests in the entity and any economic rights (such as a right to distributions, net cash flow or net income) to which the owner of such ownership interests is entitled. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PERMITS" means all permits, or similar licenses or approvals issued and/or required by an applicable Governmental Authority or any Applicable Law in connection with the ownership, use, occupancy, leasing, management, operation, repair, maintenance or rehabilitation of any Mortgaged Property or any Borrower Party's business. "PERMITTED LIENS" means, with respect to a Mortgaged Property, (i) the exceptions to title to the Mortgaged Property set forth in the Title Insurance Policy for the Mortgaged Property which are approved by the Lender, (ii) the Security Instrument encumbering the Mortgaged Property, and (iii) any other Liens approved by the Lender. "PERSON" means an individual, an estate, a trust, a corporation, a partnership, a limited liability company or any other organization or entity (whether governmental or private). "POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice or the passage of time, or both, would constitute an Event of Default. "PRICE" means, with respect to an Advance, the proceeds of the sale of the MBS backed by the Advance. "PROPERTY" means any estate or interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible. "RATE CONFIRMATION FORM" shall have the meaning set forth in Section 4.01(c). "RATE SETTING DATE" shall have the meaning set forth in Section 4.01(b). "RATE SETTING FORM" shall have the meaning set forth in Section 4.01(b). "REIT" means Mid-America Apartment Communities, Inc., a Tennessee corporation. -15- "RELEASE FEE" means, with respect to each Mortgaged Property released from the Collateral Pool pursuant to Article VII, a fee equal to $15,000. "RELEASE PRICE" shall have the meaning set forth in Section 7.02(c). "RENT ROLL" means, with respect to any Multifamily Residential Property, a rent roll prepared and certified by the owner of the Multifamily Residential Property, on Fannie Mae Form 4243, as set forth in Exhibit III-3 of the DUS Guide, or on another form approved by the Lender and containing substantially the same information as Form 4243 requires. "REPLACEMENT RESERVE AGREEMENT" means a Replacement Reserve and Security Agreement, reasonably required by the Lender, and completed in accordance with the requirements of the DUS Guide. "REQUEST" means a Collateral Addition Request, a Collateral Substitution Request, a Collateral Release Request, a Conversion Request, a Credit Facility Expansion Request, a Credit Facility Termination Request, a Future Advance Request, an Initial Advance Request or a Variable Facility Termination Request. "REVOLVING CREDIT ENDORSEMENT" means an endorsement to a Title Insurance Policy which contains substantially the same coverages, and is subject to substantially the same or fewer exceptions (or such other exceptions as the Lender may approve), as the form attached as EXHIBIT H to this Agreement. "SECURITY" means a "security" as set forth in Section 2(1) of the Securities Act of 1933, as amended. "SECURITY DOCUMENTS" means the Security Instruments, the Cash Management Agreement, the Replacement Reserve Agreements and any other documents executed by a Borrower Party from time to time to secure any of the Borrower Parties' obligations under the Loan Documents. "SECURITY INSTRUMENT" means, for each Mortgaged Property, a separate Multifamily Mortgage, Deed of Trust or Deed to Secure Debt, Assignment of Leases and Rents and Security Agreement given by a Borrower Party to or for the benefit of the Lender to secure the obligations of the Borrower Parties under the Loan Documents. With respect to each Mortgaged Property owned by a Borrower Party, the Security Instrument shall be substantially in the form published by Fannie Mae for use in the state in which the Mortgaged Property is located. The amount secured by the Security Instrument shall be equal to the Commitment in effect from time to time. "SENIOR MANAGEMENT" means (i) the Chief Executive Officer, Chairman of the Board, President, Chief Financial Officer and Chief Operating Officer of the REIT or OP and (ii) any other individuals with responsibility for any of the functions typically performed in a corporation by the officers described in clause (i). -16- "SINGLE-PURPOSE" means, with respect to a Person which is any form of partnership or corporation or limited liability company, that such Person at all times since its formation: (i) has been a duly formed and existing partnership, corporation or limited liability company, as the case may be; (ii) has been duly qualified in each jurisdiction in which such qualification was at such time necessary for the conduct of its business; (iii) has complied with the provisions of its organizational documents and the laws of its jurisdiction of formation in all respects; (iv) has observed all customary formalities regarding its partnership or corporate existence, as the case may be; (v) has accurately maintained its financial statements, accounting records and other partnership or corporate documents separate from those of any other Person; (vi) has not commingled its assets or funds with those of any other Person; (vii) has accurately maintained its own bank accounts and books and accounts separate from those of any other Person; (viii) has paid its own liabilities from its own separate assets; (ix) has identified itself in all dealings with creditors (other than trade creditors in the ordinary course of business and creditors for the construction of improvements to property on which such Person has a non-contingent contract to purchase such property) under its own name and as a separate and distinct entity; (x) has not identified itself as being a division or a part of any other Person; (xi) has not identified any other Person as being a division or a part of such Person; (xii) has been adequately capitalized in light of its contemplated business operations; (xiii) has not assumed, guaranteed or become obligated for the liabilities of any other Person (except in connection with the Credit Facility or the endorsement of negotiable instruments in the ordinary course of business) or held out its credit as being available to satisfy the obligations of any other Person; (xiv) has not acquired obligations or securities of any other Person; -17- (xv) in relation to a Borrower Party, except for loans made in the ordinary course of business to Affiliates, has not made loans or advances to any other Person; (xvi) has not entered into and was not a party to any transaction with any Affiliate of such Person, except in the ordinary course of business and on terms which are no less favorable to such Person than would be obtained in a comparable arm's-length transaction with an unrelated third party; (xvii) has conducted its own business in its own name; (xviii) has paid the salaries of its own employees, if any, and maintained a sufficient number of employees in light of its contemplated business operations; (xix) has allocated fairly and reasonably any overhead for shared office space; (xx) has not pledged its assets for the benefit of any other entity or made any loans or advances to any person or entity; (xxi) has not engaged in a non-exempt prohibited transaction described in Section 406 of ERISA or Section 4975 of the Internal Revenue Code; (xxii) has not acquired obligations or securities of its partners or Affiliates; and (xxiii) has corrected any known misunderstanding regarding its separate identity. "SMSA" means a "standard metropolitan statistical area," as defined from time to time by the United States Office of Management and Budget. "STANDBY FEE" means, for any month, an amount equal to the product obtained by multiplying: (i) 1/12, by (ii) 24 basis points, by (iii) the Unused Capacity for such month. "SUBSIDIARY" means, when used with reference to a specified Person, (i) any Person that, directly or indirectly, through one or more intermediaries, is controlled by the specified Person, (ii) any Person of which the specified Person is, directly or indirectly, the owner of more than 50% of any voting class of Ownership Interests or (iii) any Person (A) which is a partnership and (B) of which the specified Person is a general partner and owns more than 50% of the partnership interests. "SUBSTITUTED MORTGAGED PROPERTY" means each Multifamily Residential Property owned by any Borrower Party (either in fee simple or as tenant under a ground lease meeting all of the requirements of the DUS Guide) and added to the Collateral Pool after the Initial Closing Date in connection with substitution of Collateral as permitted by Section 7.04 of this Agreement. -18- "SURVEYS" means the as-built surveys of the Mortgaged Properties prepared in accordance with the requirements of Section 113 of the DUS Guide, or otherwise approved by the Lender. "TAXES" means all taxes, assessments, vault rentals and other charges, if any, general, special or otherwise, including all assessments for schools, public betterments and general or local improvements, which are levied, assessed or imposed by any public authority or quasi-public authority, and which, if not paid, will become a lien, on the Mortgaged Properties. "TERM OF THIS AGREEMENT" shall be determined as provided in Section 23.10 to this Agreement. "TERMINATION DATE" means, at any time during which Fixed Facility Advances are Outstanding, the latest maturity date for any Fixed Facility Advance Outstanding, and, at any time during which Fixed Facility Advances are not Outstanding, the Variable Facility Termination Date. "TIE-IN ENDORSEMENT" means an endorsement to a Title Insurance Policy which contains substantially the same coverages, and is subject to substantially the same or fewer exceptions (or such other exceptions as the Lender may approve), as the form attached as EXHIBIT J to this Agreement. "TITLE COMPANY" means Fidelity National Title Insurance Company of New York. "TITLE INSURANCE POLICIES" means the mortgagee's policies of title insurance issued by the Title Company from time to time relating to each of the Security Instruments, conforming to the requirements of Section 111 of the DUS Guide, together with such endorsements, coinsurance, reinsurance and direct access agreements with respect to such policies as the Lender may, from time to time, consider necessary or appropriate, whether or not required by the DUS Guide, including Revolving Credit Endorsements, if available, and Tie-In Endorsements, if available, and with a limit of liability under the policy (subject to the limitations contained in Sections 6(a)(i) and 6(a)(iii) of the Stipulations and Conditions of the policy) equal to the Commitment. "TRAILING 12 MONTH PERIOD" means, for any specified date, the 12 month period ending with the last day of the most recent Calendar Quarter for which financial statements have been delivered by the Borrower Party to the Lender pursuant to Sections 13.04(c) and (d). "TRANSFER" means (i) a sale, assignment, lease, pledge, transfer or other disposition (whether voluntary or by operation of law) of, or the granting or creating of a lien, encumbrance or security interest in, any estate, rights, title or interest in a Mortgaged Property, or any portion thereof, or (ii) a sale, assignment, pledge, transfer or other disposition of any interest in a Borrower Party other than to another Borrower Party, or (iii) the issuance or other creation of new ownership interests in a Borrower Party other than (a) sales of the stock of the REIT on the New York Stock Exchange or -19- (b) private placements of ownership interests in a Borrower Party that do not result in a Change of Control or any other partnership, corporation, real estate investment trust or other entity that has a direct or indirect ownership interest in a Borrower Party, or (iv) a merger or consolidation of a Borrower Party into another entity or of another entity into a Borrower Party other than into another Borrower Party, or (v) the reconstitution of a Borrower Party from one type of entity to another type of entity, or (vi) the amendment, modification or any other change in the governing instrument or instruments of such Person which has the effect of changing the relative powers, rights, privileges, voting rights or economic interests of the ownership interests in such Person. "Transfer" does not include (i) a conveyance of the Mortgaged Property at a judicial or non-judicial foreclosure sale under any Security Instrument or (ii) the Mortgaged Property becoming part of a bankruptcy estate by operation of law under the United States Bankruptcy Code. "UNUSED CAPACITY" means, for any month, the sum of the daily average during such month of the undrawn amount of the Variable Facility Commitment available under Article II of this Agreement for the making of Variable Advances, without regard to any unclosed Requests or to the fact that a Request must satisfy conditions precedent. "VALUATION" means, for any specified date, with respect to a Multifamily Residential Property, (a) if an Appraisal of the Multifamily Residential Property was more recently obtained than a Cap Rate for the Multifamily Residential Property, the Appraised Value of such Multifamily Residential Property, or (b) if a Cap Rate for the Multifamily Residential Property was more recently obtained than an Appraisal of the Multifamily Residential Property, the value derived by dividing-- (i) the Net Operating Income of such Multifamily Residential Property for the Trailing 12 Month Period, by (ii) the most recent Cap Rate determined by the Lender. Notwithstanding the foregoing, any Valuation for a Multifamily Residential Property calculated for a date occurring before the first anniversary of the date on which the Multifamily Residential Property becomes a part of the Collateral Pool shall equal the Appraised Value of such Multifamily Residential Property, unless the Lender determines that changed market or property conditions warrant that the value be determined as set forth in the preceding sentence. "VARIABLE ADVANCE" means a loan made by the Lender to the Borrower Parties under the Variable Facility Commitment. "VARIABLE FACILITY" means the agreement of the Lender to make Advances to the Borrower Parties pursuant to Section 2.01. "VARIABLE FACILITY AVAILABILITY PERIOD" means the period beginning on the Initial Closing Date and ending on the 90th day before the Variable Facility Termination Date. -20- "VARIABLE FACILITY COMMITMENT" means an aggregate amount of $113,231,000, which shall be evidenced by the Variable Facility Note in the form attached hereto as EXHIBIT I, plus such amount as the Borrower may elect to add to the Variable Facility Commitment in accordance with Article VIII, and less such amount as the Borrower may elect to convert from the Variable Facility Commitment to the Fixed Facility Commitment in accordance with Article III and less such amount by which the Borrower may elect to reduce the Variable Facility Commitment in accordance with Article IX. "VARIABLE FACILITY FEE" means (i) 67 basis points per annum (0.67%) for a Variable Advance drawn from the Variable Commitment initially available under this Agreement, (ii) if the Variable Facility Termination Date is extended pursuant to Section 2.07, for any Variable Advance drawn from any portion of the Variable Commitment after the original Variable Facility Availability Period, the number of basis points per annum determined by the Lender as the Variable Facility Fee for such period, which fee shall be set by Lender not less than 30 days prior to the commencement of such period, and (iii) for any Variable Advance drawn from any portion of the Variable Commitment increased under Article VIII, the number of basis points per annum determined at the time of such increase by the Lender as the Variable Facility Fee for such Variable Advances. "VARIABLE FACILITY NOTE" means, the promissory note, in the form attached as EXHIBIT I to this Agreement, which has been issued by the Borrower Parties to the Lender to evidence the Borrower Parties' obligation to repay Variable Advances. "VARIABLE FACILITY TERMINATION DATE" means the date five years after the Initial Closing Date unless extended pursuant to Section 2.07. "VOTING EQUITY CAPITAL" means Securities or partnership interests of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the board of directors (or Persons performing similar functions). ARTICLE II THE VARIABLE FACILITY COMMITMENT SECTION 2.01 VARIABLE FACILITY COMMITMENT. Subject to the terms, conditions and limitations of this Agreement, the Lender agrees to make Variable Advances to the Borrower Parties from time to time during the applicable Variable Facility Availability Period. The aggregate unpaid principal balance of the Variable Advances Outstanding at any time shall not exceed the Variable Facility Commitment. Subject to the terms, conditions and limitations of this Agreement, the Borrower may re-borrow any amounts under the Variable Facility which it has previously borrowed and repaid under the Variable Facility. SECTION 2.02 REQUESTS FOR VARIABLE ADVANCES. The Borrower shall request a Variable Advance by giving the Lender an Initial Advance Request in accordance with Section 5.01 or a Future Advance Request in accordance with Section 5.02, as applicable. -21- SECTION 2.03 MATURITY DATE OF VARIABLE ADVANCES. Regardless of the date on which a Variable Advance is made, the maturity date of each Variable Advance shall be a date selected by the Borrower in its Request for the Variable Advance, which date shall be the last day of a calendar month occurring: (a) no earlier than the date which completes three full months after the Closing Date for the Variable Advance; and (b) no later than the date which completes nine full months after the Closing Date for the Variable Advance. For these purposes, a year shall be deemed to consist of 12 30-day months. For example, the date which completes three full months after September 15 shall be December 15; and the date which completes three full months after November 30 shall be February 28. SECTION 2.04 INTEREST ON VARIABLE FACILITY ADVANCES. (a) DISCOUNT. Each Variable Advance shall be a discount loan. The original stated principal amount of a Variable Advance shall be the sum of the Price of the Variable Advance and the Discount of the Variable Advance. The Price and Discount of each Variable Advance shall be determined in accordance with the procedures set out in Section 4.01. The proceeds of the Variable Advance made available by the Lender to the Borrower will equal the Price of the Variable Advance. The Borrower shall pay to the Lender, in advance of the Lender making a Variable Advance requested by the Borrower, the entire Discount for the Variable Advance. (b) PARTIAL MONTH INTEREST. Notwithstanding anything to the contrary in this Section, if a Variable Advance is not made on the first day of a calendar month, and the MBS Issue Date for the MBS backed by the Variable Advance is the first day of the month following the month in which the Variable Advance is made, the Borrower shall pay interest on the original stated principal amount of the Variable Advance for the partial month period commencing on the Closing Date for the Variable Advance and ending on the last day of the calendar month in which the Closing Date occurs, at a rate per annum equal to the greater of (i) the Coupon Rate for the Variable Advance as determined in accordance with Section 2.05(b) and (ii) a rate determined by the Lender, based on the Lender's cost of funds and approved in advance, in writing, by the Borrower, pursuant to the procedures mutually agreed upon by the Borrower and the Lender. (c) VARIABLE FACILITY FEE. In addition to paying the Discount and the partial month interest, if any, the Borrower shall pay monthly installments of the Variable Facility Fee to the Lender on account of each Variable Advance over the whole number of calendar months the MBS backed by the Variable Advance is to run from the MBS Issue Date to the maturity date of the MBS. The Variable Facility Fee shall be payable in advance, in accordance with the terms of the Variable Facility Note. The first installment shall be payable on or prior to the Closing Date for the Variable Advance and shall apply to the first full calendar month of -22- the MBS backed by the Variable Advance. Subsequent installments shall be payable on the first day of each calendar month, commencing on the first day of the second full calendar month of such MBS, until the maturity of such MBS. Each installment of the Variable Facility Fee shall be in an amount equal to the product of multiplying (i) the Variable Facility Fee, by (ii) the amount of the Variable Advance, by (iii) 1/12. SECTION 2.05 COUPON RATES FOR VARIABLE ADVANCES. The Coupon Rate for a Variable Advance shall be a rate, per annum, as follows: (a) The Coupon Rate for a Variable Advance shall equal the sum of (i) an interest rate as determined by the Lender pursuant to Section 4.01 of this Agreement (rounded to three places) payable for the Fannie Mae MBS pursuant to the MBS Commitment backed by the Variable Advance ("MBS Imputed Interest Rate") and (ii) the Variable Facility Fee. (b) Notwithstanding anything to the contrary in this Section, if a Variable Advance is not made on the first day of a calendar month, and the MBS Issue Date for the MBS backed by the Variable Advance is the first day of the month following the month in which the Variable Advance is made, the Coupon Rate for such Variable Advance for such period shall be the greater of (i) the rate for the Variable Advance determined in accordance with subsection (a) of this Section and (ii) a rate determined by the Lender, based on the Lender's cost of funds, and approved in advance, in writing, by the Borrower, pursuant to procedures mutually agreed upon by the Borrower and the Lender. SECTION 2.06 VARIABLE FACILITY NOTE. The obligation of the Borrower to repay the Variable Advances will be evidenced by the Variable Facility Note. The Variable Facility Note shall be payable to the order of the Lender and shall be made in the amount of the Variable Facility Commitment. SECTION 2.07 EXTENSION OF VARIABLE FACILITY TERMINATION DATE. The Borrower shall have the right to extend the Variable Facility Termination Date for one (1) five (5) year period upon satisfaction of each of the following conditions: (a) The Borrower provides written notice to the Lender not less than thirty (30) nor more than ninety (90) days prior to the then effective Variable Facility Termination Date requesting that the Variable Facility Termination Date be extended. (b) No Event of Default or Potential Event of Default exists on either the date the notice required by paragraph (a) of this Section is given or on the then effective Variable Facility Termination Date. (c) All of the representations and warranties of the Borrower Parties set forth in Article XII of this Agreement and the Other Loan Documents are true and correct in all material respects on the date the notice required by paragraph (a) of this Section is given and on the then effective Variable Facility Termination Date. (d) The Borrower Parties are in compliance with all of the covenants set forth in Article XIII, Article XIV and Article XV on the date the notice required by paragraph (a) of this Section is given and on the then effective Variable Facility Termination Date. -23- Upon receipt of the notice required in paragraph (a) of this Section and upon compliance with the other conditions set forth above, the Variable Facility Termination Date shall be extended for five (5) years on the terms and conditions set forth in this Agreement and the Other Loan Documents, provided that the maturity and pricing applicable to the Variable Facility during the period after the then effective Variable Facility Termination Date shall be acceptable to Lender in its discretion. ARTICLE III THE FIXED FACILITY COMMITMENT SECTION 3.01 FIXED FACILITY COMMITMENT. Subject to the terms, conditions and limitations set forth in this Article, the Lender agrees to make Fixed Facility Advances to the Borrower from time to time during the Fixed Facility Availability Period. The Borrower shall make Requests (and to the extent such Requests are approved, borrow), for Fixed Facility Advances in an aggregate amount of not less than $28,307,750 and having a minimum maturity of 5 years from the date of such Advance not later than the date eighteen (18) months after the Initial Closing Date. The aggregate original principal of the Fixed Facility Advances shall not exceed the Fixed Facility Commitment. The borrowing of a Fixed Facility Advance shall permanently reduce the Fixed Facility Commitment by the original principal amount of the Fixed Facility Advance. At all times after the date 18 months after the Initial Closing Date, the Fixed Facility Commitment shall be at least 25% of the aggregate of the Fixed Facility Commitment and the Variable Facility Commitment, but in no event less than $28,307,750. The Borrower may not re-borrow any part of the Fixed Facility Advance which it has previously borrowed and repaid. SECTION 3.02 REQUESTS FOR FIXED FACILITY ADVANCES. The Borrower shall request a Fixed Facility Advance by giving the Lender an Initial Advance Request in accordance with Section 5.01 or a Future Advance Request in accordance with Section 5.02, as applicable. SECTION 3.03 MATURITY DATE OF FIXED FACILITY ADVANCES; AMORTIZATION PERIOD. The maturity date of each Fixed Facility Advance shall be the maturity date selected by the Borrower, provided that such Maturity Date shall not be earlier than the date five (5) years after the date of such Advance and shall not be later than the 10th anniversary of the Initial Closing Date. The principal of each Fixed Facility Advance shall, at the election of the Borrower, which election shall be made at the time of the first Conversion Request or Credit Facility Expansion Request relating to a Fixed Facility Commitment (which election shall apply to all Fixed Facility Advances) be amortized on a 30-year schedule during the Amortization Period or shall require payments of interest only. SECTION 3.04 INTEREST ON FIXED FACILITY ADVANCES. (a) ADVANCES. Each Fixed Facility Advance shall bear interest at a rate, per annum, equal to the sum of (i) the MBS Pass-Through Rate determined for such Fixed Facility Advance and (ii) the Fixed Facility Fee. -24- (b) PARTIAL MONTH INTEREST. Notwithstanding anything to the contrary in this Section, if a Fixed Facility Advance is not made on the first day of a calendar month, and the MBS Issue Date for the MBS backed by the Fixed Facility Advance is the first day of the month following the month in which the Fixed Facility Advance is made, the Borrower shall pay interest on the original stated principal amount of the Fixed Facility Advance for the partial month period commencing on the Closing Date for the Fixed Facility Advance and ending on the last day of the calendar month in which the Closing Date occurs at a rate, per annum, equal to the greater of (i) the interest rate for the Fixed Facility Advance described in the first sentence of this Section and (ii) a rate determined by the Lender, based on the Lender's cost of funds, and approved in advance, in writing, by the Borrower, pursuant to procedures mutually agreed upon by the Borrower and the Lender. SECTION 3.05 COUPON RATES FOR FIXED FACILITY ADVANCES. The Coupon Rate for a Fixed Facility Advance shall be the rate of interest applicable to such Fixed Facility Advance pursuant to Section 3.04. SECTION 3.06 FIXED FACILITY NOTE. The obligation of the Borrower to repay a Fixed Facility Advance will be evidenced by a Fixed Facility Note. The Fixed Facility Notes shall be payable to the order of the Lender and shall be made in the original principal amount of each Fixed Facility Advance. SECTION 3.07 CONVERSION OF COMMITMENT FROM VARIABLE FACILITY COMMITMENT TO FIXED FACILITY COMMITMENT. The Borrower shall have the right, from time to time during the Fixed Facility Availability Period, to convert all or a portion of a Variable Facility Commitment to the Fixed Facility Commitment, in which event the Variable Facility Commitment shall be reduced by, and the Fixed Facility Commitment shall be increased by, the amount of the conversion. (a) REQUEST. In order to convert all or a portion of the Variable Facility Commitment to the Fixed Facility Commitment, the Borrower shall deliver a written request for a conversion ("CONVERSION REQUEST") to the Lender, in the form attached as EXHIBIT K to this Agreement. Each Conversion Request shall be accompanied by a designation of the amount of the conversion and a designation of any Variable Advances Outstanding which will be prepaid on or before the Closing Date for the conversion as required by Section 3.08(c). (b) CLOSING. If none of the limitations contained in Section 3.08 is violated, and all conditions contained in Section 3.09 are satisfied, the Lender shall permit the requested conversion, at a closing to be held at offices designated by the Lender on a Closing Date selected by the Lender, and occurring within 30 Business Days after the Lender's receipt of the Conversion Request (or on such other date to which the Borrower and the Lender may agree), by executing and delivering, all at the sole cost and expense of the Borrower, an amendment to this Agreement, in the form attached as EXHIBIT L to this Agreement, together with an amendment to each Security Document and other applicable Loan Documents, in form and substance satisfactory to the Lender, reflecting the change in the Fixed Facility Commitment and the Variable Facility Commitment. The documents and instruments referred to in the preceding sentence are referred to in this Article as the "CONVERSION DOCUMENTS." -25- SECTION 3.08 LIMITATIONS ON RIGHT TO CONVERT. The right of the Borrower to convert all or a portion of the Variable Facility Commitment to the Fixed Facility Commitment is subject to the following limitations: (a) CLOSING DATE. The Closing Date shall occur during the Fixed Facility Availability Period. (b) MINIMUM REQUEST. Each Request for a conversion shall be in the minimum amount of $10,000,000. (c) OBLIGATION TO PREPAY VARIABLE ADVANCES. If, after the conversion, the aggregate unpaid principal balance of all Variable Advances Outstanding will exceed the Variable Facility Commitment, the Borrower shall be obligated to prepay, as a condition precedent to the conversion, an amount of Variable Advances Outstanding which is at least equal to the amount of the excess. SECTION 3.09 CONDITIONS PRECEDENT TO CONVERSION. The conversion of all or a portion of the Variable Facility Commitment to the Fixed Facility Commitment is subject to the satisfaction of the following conditions precedent on or before the Closing Date: (a) After giving effect to the requested conversion, the Coverage and LTV Tests will be satisfied; (b) Prepayment by the Borrower in full of any Variable Advances Outstanding which the Borrower has designated for payment, together with any associated prepayment premiums and other amounts due with respect to the prepayment of such Variable Advances; (c) The receipt by the Lender of an endorsement to each Title Insurance Policy, amending the effective date of the Title Insurance Policy to the Closing Date and showing no additional exceptions to coverage other than the exceptions shown on the Initial Closing Date and other exceptions approved by the Lender; (d) Receipt by the Lender of one or more counterparts of each Conversion Document, dated as of the Closing Date, signed by each of the parties (other than the Lender) who is a party to such Conversion Document; and (e) The satisfaction of all applicable General Conditions set forth in Article XI. SECTION 3.10 DEFEASANCE. At such time as the Borrower elects to convert all or a portion of the Variable Facility Commitment to a Fixed Facility Commitment pursuant to Section 3.07 of this Agreement, or elects that any expansion of the Commitment shall be a Fixed Facility Commitment, the Borrower shall select defeasance or yield maintenance with respect to prepayments of Fixed Facility Advances on the Conversion Request or Credit Facility Expansion Request for the first Fixed Facility Commitment. If defeasance is selected, this Section 3.10 shall apply. The election of the Borrower as to defeasance or yield maintenance in the first Conversion Request or Credit Facility Expansion Request relating to a Fixed Facility -26- Commitment shall apply to all Fixed Facility Advances during the term of this Agreement. Fixed Facility Advances are not prepayable at any time, provided that, notwithstanding the foregoing, the Borrower may prepay any Fixed Facility Advance during the last ninety (90) days of the term of such Fixed Facility Advance and provided that Fixed Facility Advances may be defeased pursuant to the terms and conditions of this Section. (a) CONDITIONS. Subject to Section 3.10(d), the Borrower shall have the right to obtain the release of Mortgaged Properties from the lien of the related Security Instruments (and all collateral derived from such Mortgage Properties, including assignment of leases, fixture filings and other documents and instruments evidencing a lien or security interest in the Borrower Parties' assets [except the Substitute Collateral] shall be released) upon the satisfaction of all of the following conditions: (1) DEFEASANCE NOTICE. The Borrower shall give Lender a notice (the "DEFEASANCE NOTICE"), in the manner specified in Section 3.10(g)(4), on a form provided by Lender, specifying a Business Day (the "DEFEASANCE CLOSING DATE") which the Borrower desires to consummate the Defeasance. The Defeasance Closing Date specified by the Borrower may not be more than 45 calendar days, nor less than 30 calendar days, after the date on which the Defeasance Notice is received by Lender. The Borrower shall also specify in the Defeasance Notice the name, address and telephone number of the Borrower for notices pursuant to Section 3.10(g)(4). The form Defeasance Notice provided by Lender specifies: (i) which Mortgaged Properties the Borrower proposes to be released, provided that any Mortgaged Property securing only Fixed Facility Advances must be among the Mortgaged Properties proposed to be released; (ii) the name, address and telephone number of Lender for notices pursuant to Section 3.10(g)(4); (iii) the account(s) to which payments to Lender are to be made; (iv) whether a Fannie Mae Investment Security will be offered for use as the Substitute Collateral and, if not, that U.S. Treasury Securities will be the Substitute Collateral; (v) whether the Successor Borrower will be designated by Lender or the Borrower; and (vi) if a Fannie Mae Investment Security is offered for use as the Substitute Collateral, the Defeasance Notice shall also include the amount of the Defeasance Commitment Fee. Any applicable Defeasance Commitment fee must be paid by the Borrower and received by Lender no later than the date and time when Lender receives the Defeasance Notice from the Borrower. (2) CONFIRMATION. After Lender has confirmed that the Defeasance is then permitted as provided in Section 3.10(d), and has confirmed that the terms of the Defeasance Notice are reasonably acceptable to Lender, Lender shall, with reasonable promptness, notify the Borrower of such confirmation by signing the Defeasance Notice, attaching the Annual Yields for the Mortgage Payments beginning on the first day of the second calendar month after the Defeasance Closing Date and ending on the Stated Maturity Date (if a Fannie Mae Investment Security is offered as Substitute Collateral) and transmitting the signed Defeasance Notice to the Borrower pursuant to Section 3.10(g)(4). If, -27- after Lender has notified the Borrower of its confirmation in accordance with the foregoing, Lender does not receive the Defeasance Commitment Fee within five (5) Business Days after the Defeasance Notice Effective Date, then the Borrower's right to obtain Defeasance pursuant to that Defeasance Notice shall terminate. (3) SUBSTITUTE COLLATERAL. On or before the Defeasance Closing Date, the Borrower shall deliver to Lender a pledge and security agreement, in form and substance satisfactory to Lender in its sole discretion (the "PLEDGE AGREEMENT"), creating a first priority perfected security interest in favor of Lender in substitute collateral constituting an Investment Security (the "SUBSTITUTE COLLATERAL"). The Pledge Agreement shall provide the Borrower's authorization and direction that all interest on, principal of and other amounts payable with respect to the Substitute Collateral shall be paid directly to Lender to be applied to Mortgage Payments due under the Fixed Facility Note subject to Defeasance. If the Substitute Collateral is issued in a certificated form and the Borrower has possession of the certificate, the certificate shall be endorsed (either on the certificate or on a separate writing attached thereto) by the Borrower as directed by Lender and delivered to Lender. If the Substitute Collateral is issued in an uncertificated form, or in a certificated form but the Borrower does not have possession of the certificate, the Borrower shall execute and deliver to Lender all documents and instruments required by Lender to create in Lender's favor a first priority perfected security interest in such Substitute Collateral, including a securities account control agreement or any other instrument or document required to perfect a security interest in each Substitute Collateral. (4) CLOSING DOCUMENTS. The Borrower shall deliver to Lender on or before the Defeasance Closing Date the documents described in Section 3.10(b). (5) AMOUNTS PAYABLE BY THE BORROWER. On or before the Defeasance Closing Date, the Borrower shall pay to Lender an amount equal to the sum of: (A) the Next Scheduled P&I Payment; (B) all other sums then due and payable under the Fixed Facility Note subject to Defeasance, the Security Instruments related to the Mortgaged Properties to be released; and (C) all reasonable costs and expenses incurred by Lender or Servicer in connection with the Defeasance, including the fees and disbursements of Lender's or Servicer's legal counsel. (6) DEFEASANCE DEPOSIT. If a Fannie Mae Investment Security will be the Substitute Collateral, then, on or before 3:00 p.m., Washington, D.C. time, on -28- the Defeasance Closing Date, the Borrower shall pay the Defeasance Deposit (reduced by the Defeasance Commitment Fee) to Lender to be used by Lender to purchase the Fannie Mae Investment Security as the Borrower's agent. (7) COVENANTS, REPRESENTATIONS AND WARRANTIES. On the Defeasance Closing Date, all of the covenants of the Borrower Parties set forth in Articles XIII, XIV and XV of this Agreement and all of the representations and warranties of the Borrower Parties set forth in Article XII of this Agreement are true and correct in all material respects. (8) GEOGRAPHICAL DIVERSIFICATION. If, as a result of the Defeasance, Lender determines that the geographical diversification of the Collateral Pool is compromised (whether or not the Geographical Diversification Requirement is met), Lender may require that the Borrower add or substitute Multifamily Residential Properties to the Collateral Pool in a number and having a valuation required to restore the Geographical Diversification of the Collateral Pool to a level at least as diverse as before the Defeasance. (b) CLOSING DOCUMENTS. The documents required to be delivered to Lender on or before the Defeasance Closing Date pursuant to Section 3.10(a)(4) are: (1) an opinion of counsel for the Borrower, in form and substance satisfactory to Lender, to the effect that Lender has a valid and perfected lien and security interest of first priority in the Substitute Collateral and the principal and interest payable thereunder; (2) an opinion of counsel for the Borrower, in form and substance satisfactory to Lender, that the Defeasance, including both Borrowers granting to Lender of a lien and security interest in the Substitute Collateral and the assignment and assumption by Successor Borrower, and each of them, when considered in combination and separately, are not subject to avoidance under any applicable federal or state laws, including Sections 547 and 548 of the U.S. Bankruptcy Code; (3) if a Fannie Mae Investment Security is not used as Substitute Collateral, and unless waived by Lender, a certificate in form and substance satisfactory to Lender, issued by an independent certified public accountant, or financial institution, approved by Lender, to the effect that the Substitute Collateral will generate the Scheduled Defeasance Payments; (4) unless waived by Lender, an opinion of counsel for the Borrower in form and substance satisfactory to Lender, that the Defeasance will not result in a "sale or exchange" of any Fixed Facility Note within the meaning of Section 1001(c) of the Internal Revenue Code and the temporary and final regulations promulgated thereunder; (5) such other opinions, certificates, documents or instruments as Lender may reasonably request; and -29- (6) three counterparts of the executed Assignment and Assumption Agreement described in Section 3.10(e). (c) RELEASE. Upon the Borrower's compliance with the requirements of Sections 3.10(a)(1) through (6), the Mortgaged Properties shall be released from the lien of the Security Instruments (and all collateral derived from such Mortgaged Properties, including assignments of leases, fixture filings and other documents and instruments evidencing a lien or security interest in the Borrower Parties' assets [except the Substitute Collateral] shall be released). Lender shall, with reasonable promptness, execute and deliver to the Borrower, at the Borrower's cost and expense, any additional documents reasonably requested by the Borrower Parties in order to evidence or confirm the release of Lender's liens and security interests described in the immediately preceding sentence. (d) DEFEASANCE NOT ALLOWED. The Borrower shall not have the right to obtain Defeasance at any of the following times: (1) before the third anniversary of the date of the relevant Fixed Facility Note; (2) after the expiration of the Defeasance Period; or (3) after Lender has accelerated the maturity of the unpaid principal balance of, accrued interest on, and other amounts payable under, any Note pursuant to Paragraph 6 of such Note. (e) ASSIGNMENT AND ASSUMPTION. Upon the Borrower's compliance with the requirements of Section 3.10(a), the Borrower shall assign all its obligations and rights under the relevant Fixed Facility Note, together with the Substitute Collateral, to a successor entity (the "SUCCESSOR BORROWER") designated by Lender or, if not so designated by Lender, designated by the Borrower and acceptable to Lender in its sole discretion. The Borrower Parties and Successor Borrower shall execute and deliver to Lender an assignment and assumption agreement on a form provided by Lender (the "ASSIGNMENT AND ASSUMPTION AGREEMENT"). The Assignment and Assumption Agreement shall provide for (i) the transfer and assignment by the Borrower to Successor Borrower of the Substitute Collateral, subject to the lien and security interest in favor of Lender, (ii) the assumption by Successor Borrower of all liabilities and obligations of the Borrower under the relevant Fixed Facility Note, and (iii) the release by Lender of the Borrower Parties from all liabilities and obligations under the relevant Fixed Facility Note and all Obligations related thereto. Lender shall, at the Borrower's request and expense, execute and deliver releases, reconveyances and security interest terminations with respect to the released Mortgage Properties and all other collateral held by Lender (except the Defeasance Deposit). The Assignment and Assumption Agreement shall be executed by Lender with a counterpart to be returned by Lender to the Borrower and Successor Borrower thereafter; provided, however, in all events that it shall not be a condition of Defeasance that the Assignment and Assumption Agreement be executed by Lender, or any Successor Borrower that is designated by Lender. -30- (f) Agent. If the Defeasance Notice provides that Lender will make available a Fannie Mae Investment Security for purchase by the Borrower for use as the Substitute Collateral, the Borrower hereby authorizes Lender to use, and appoints Lender as its agent and attorney-in-fact for the purpose of using, the Defeasance Deposit (including any portion thereof that constitutes the Defeasance Commitment Fee) to purchase a Fannie Mae Investment Security. (g) ADMINISTRATIVE PROVISIONS. (1) FANNIE MAE SECURITY LIQUIDATED DAMAGES. If the Borrower timely pays the Defeasance Commitment Fee, and Lender and the Borrower timely transmits a signed facsimile copy of the Defeasance Notice pursuant to Section 3.10(a)(2), but the Borrower fails to perform its other obligations under Sections 3.10(a) and Section 3.10(e), Lender shall have the right to retain the Defeasance Commitment Fee as liquidated damages for the Borrower's default, as Lender's sole and exclusive remedy, and, except as provided in Section 3.10(g)(2), the Borrower shall be released from all further obligations under this Section 3.10. The Borrower acknowledges that, from and after the date on which Lender has executed the Defeasance Notice under Section 3.10(a)(2) and the Borrower has delivered the Defeasance Commitment Fee, Lender will incur financing costs in arranging and preparing for the purchase of the Substitute Collateral and in arranging and preparing for the release of the Mortgaged Properties from the lien of the Security Instruments in reliance on the executed Defeasance Notice. The Borrower agrees that the Defeasance Commitment Fee represents a fair and reasonable estimate, taking into account all circumstances existing on the date of this Agreement, of the damages Lender will incur by reason of the Borrower's default. (2) THIRD PARTY COSTS. In the event that the Defeasance is not consummated on the Defeasance Closing Date for any reason, the Borrower agrees to reimburse Lender and Servicer for all reasonable third party costs and expenses (other than financing costs covered by Section 4.0l(g)(1) above), including attorneys' fees and expenses, incurred by Lender in reliance on the executed Defeasance Notice, within 10 Business Days after the Borrower receives a written demand for payment, accompanied by a statement, in reasonable detail, of Lender's and Servicer's third party costs and expenses. (3) PAYMENTS. All payments required to be made by the Borrower to Lender or Servicer pursuant to this Section 3.10 shall be made by wire transfer of immediately available finds to the account(s) designated by Lender or Servicer, as the case may be, in the Defeasance Notice. (4) NOTICE. The Defeasance Notice delivered pursuant to this Section 4.0l(g)(4) shall be in writing and shall be sent by telecopier or facsimile machine which automatically generates a transmission report that states the date and time of the transmission, the length of the document transmitted and the telephone number of the recipient's telecopier or facsimile machine (or shall be sent by any -31- distribution media, whether currently existing or hereafter developed, including electronic mail and internet distribution, as approved by Lender). Any notice so sent addressed to the parties at their respective addresses designated in the Defeasance Notice pursuant to Section 3.10(a), shall be deemed to have been received on the date and time indicated on the transmission report of recipient. To be effective, the Borrower must send the Defeasance Notice (as described above) so that Lender receives the Defeasance Notice no earlier than 11:00 a.m. and no later than 3:00 p.m. Washington, D.C. time on a Business Day. (h) DEFINITIONS. For purposes of this Section 3.10, the following terms shall have the following meanings: (1) The term "ANNUAL YIELD" means the yield for the theoretical zero coupon U.S. Treasury Security as calculated from the current "on-the-run" U.S. Treasury yield curve with a term to maturity that most closely matches the Applicable Defeasance Term for the Mortgage Payment, as published by Fannie Mae on MORNET(R) (or in an alternative electronic format) at 2:00 p.m. Washington, D.C. time on the Business Day that Lender receives the Defeasance Notice in accordance with Section 3.10(g)(4). If the publication of yields on MORNET(R) is unavailable, Lender shall determine yields from another source reasonably determined by Lender. (2) The term "APPLICABLE DEFEASANCE TERM" means, in the case of each Mortgage Payment, the number of calendar months, based on a year containing 12 calendar months with 30 days each, in the period beginning on the first day of the first calendar month after the Defeasance Closing Date to the date on which such Mortgage Payment is due and payable. (3) The term "DEFEASANCE" means the transaction in which all (but not less than all) of the Mortgaged Properties are released from the lien of the Security Instruments and Lender receives, as substitute collateral, a valid and perfected lien and security interest of first priority in the Substitute Collateral and the principal and interest payable thereunder. (4) The term "DEFEASANCE COMMITMENT FEE" means the amount specified in the Defeasance Notice as the Borrower's good faith deposit to ensure performance of its obligations under this Section, which shall equal two percent (2%) of the aggregate unpaid principal balance of the Fixed Facility Note subject to Defeasance as of the Defeasance Notice Effective Date, if the Successor Borrower is designated by the Borrower under Section 3.10(e), or one percent (1%) of the aggregate unpaid principal balance of the Fixed Facility Note subject to Defeasance as of the Defeasance Notice Effective Date if the Successor Borrower is designated by Lender under Section 3.10(e). No Defeasance Commitment Fee will be applicable if U.S. Treasury Securities are specified in the Defeasance Notice as the applicable Investment Security. -32- (5) The term "Defeasance Deposit" means an amount equal to the sum of the present value of each Mortgage Payment that becomes due and payable during the period beginning on the first day of the second calendar month after the Defeasance Closing Date and ending on the Stated Maturity Date, where the present value of each Mortgage Payment is determined using the following formula: the amount of the Mortgage payment ---------------------------------- (1 + (the Annual Yield/12))n For this purpose, the last Mortgage Payment due and payable on the Stated Maturity Date shall include the amounts that would constitute the unpaid principal balance of the Fixed Facility Note subject to Defeasance on the Stated Maturity Date if all prior Mortgage Payments were paid on their due dates and "n" shall equal the Applicable Defeasance Term. (6) The term "DEFEASANCE PERIOD" means the period beginning on the earliest permitted date determined under Section 3.10(d)(l) and ending on the 90th day before the Stated Maturity Date. (7) The term "DEFEASANCE NOTICE EFFECTIVE DATE" means the date on which Lender provides confirmation of the Defeasance Notice pursuant to Section 3.10(a)(2). (8) The term "FANNIE MAE INVESTMENT SECURITY" means any bond, debenture, note, participation certificate or other similar obligation issued by Fannie Mae in connection with the Defeasance which provides for Scheduled Defeasance Payments beginning in the second calendar month after the Defeasance Closing Date. (9) The term "INVESTMENT SECURITY" means: (A) If offered by Lender pursuant to the Defeasance Notice, a Fannie Mae Investment Security purchased in the manner described in Sections 3.10(a)(6) and 3.10(f), and (B) If no Fannie Mae Investment Security is offered by Lender pursuant to the Defeasance Notice, U.S. Treasury Securities. (10) The term "MORTGAGE PAYMENT" means the amount of each regularly scheduled monthly payment of principal and interest due and payable under the Fixed Facility Note subject to Defeasance during the period beginning on the first day of the second calendar month after the Defeasance Closing Date and ending on the Stated Maturity Date, and the amount that would constitute the aggregate unpaid principal balance of the Fixed Facility Note subject to Defeasance on the Stated Maturity Date if all prior Mortgage Payments were paid on their due dates. -33- (11) The term "NEXT SCHEDULED P&I PAYMENT" means an amount equal to the monthly installment of principal and interest due under the Fixed Facility Note subject to Defeasance on the first day of the first calendar month after the Defeasance Closing Date. (12) The term "SCHEDULED DEFEASANCE PAYMENTS" means payments prior and as close as possible to (but in no event later than) the successive scheduled dates on which Mortgage Payments are required to be paid under the Fixed Facility Note subject to Defeasance and in amounts equal to or greater than the scheduled Mortgage Payments due and payable on such dates under the Fixed Facility Note subject to Defeasance. (13) The term "STATED MATURITY DATE" means the Maturity Date specified in the Fixed Facility Note subject to Defeasance determined without regard to Lender's exercise of any right of acceleration of the Fixed Facility Note subject to Defeasance. (14) The term "U.S. TREASURY SECURITIES" means direct, non-callable and non-redeemable obligations of the United States of America which provided for Scheduled Defeasance Payments beginning in the second calendar month after the Defeasance Closing Date. ARTICLE IV RATE SETTING FOR THE ADVANCES SECTION 4.01 RATE SETTING FOR AN ADVANCE. Rates for an Advance shall be set in accordance with the following procedures: (a) PRELIMINARY, NONBINDING QUOTE. At the Borrower's request the Lender shall quote to the Borrower an estimate of the MBS Pass-Through Rate (for a proposed Fixed Facility Advance) or MBS Imputed Interest Rate (for a proposed Variable Advance) for a Fannie Mae MBS backed by a proposed Advance. The Lender's quote shall be based on (i) a solicitation of bids from institutional investors selected by the Lender and (ii) the proposed terms and amount of the Advance selected by the Borrower. The quote shall not be binding upon the Lender. (b) RATE SETTING. If the Borrower satisfies all of the conditions to the Lender's obligation to make the Advance in accordance with Article V, then the Borrower may propose a MBS Pass-Through Rate (for a Fixed Facility Advance) or MBS Imputed Interest Rate (for a Variable Advance) by submitting to the Lender by facsimile transmission a completed and executed document, in the form attached as EXHIBIT M to this Agreement ("RATE SETTING FORM"), before 1:00 p.m. Washington, D.C. time on any Business Day ("RATE SETTING DATE"). The Rate Setting Form contains various factual certifications required by the Lender and specifies: -34- (i) for a Variable Advance, the amount, term, MBS Issue Date, Variable Facility Fee, the proposed maximum Coupon Rate ("MAXIMUM ANNUAL COUPON RATE") and Closing Date for the Advance; and (ii) for a Fixed Facility Advance, the amount, term, MBS Issue Date, Fixed Facility Fee, Maximum Annual Coupon Rate, Price (which will be in a range between 99-1/2 and 100-1/2), Yield Maintenance Period, Amortization Period, if applicable, interest only and Closing Date for the Advance. (c) RATE CONFIRMATION. Within one Business Day after receipt of the completed and executed Rate Setting Form, the Lender shall solicit bids from institutional investors selected by the Lender based on the information in the Rate Setting Form and, provided the actual Coupon Rate (if the low bid were accepted) would be at or below the Maximum Annual Coupon Rate, shall obtain a commitment ("MBS COMMITMENT") for the purchase of a Fannie Mae MBS having the bid terms described in the related Rate Setting Form, and shall immediately deliver to the Borrower by facsimile transmission a completed document, in the form attached as EXHIBIT N to this Agreement ("RATE CONFIRMATION FORM"). The Rate Confirmation Form will confirm: (i) for a Variable Advance, the amount, term, MBS Issue Date, MBS Delivery Date, MBS Imputed Interest Rate, Variable Facility Fee, Coupon Rate, Discount, Price, and Closing Date for the Advance; and (ii) for a Fixed Facility Advance, the amount, term, MBS Issue Date, MBS Delivery Date, MBS Pass-Through Rate, Fixed Facility Fee, Coupon Rate, Price, Yield Maintenance Period, Specified U.S. Treasury Security, Amortization Period and Closing Date for the Advance. SECTION 4.02 ADVANCE CONFIRMATION INSTRUMENT FOR VARIABLE ADVANCES. On or before the Closing Date for a Variable Advance, the Borrower Parties execute and deliver to the Lender an instrument ("ADVANCE CONFIRMATION INSTRUMENT"), in the form attached as EXHIBIT O to this Agreement, confirming the amount, term, MBS Issue Date, MBS Delivery Date, MBS Imputed Interest Rate, Variable Facility Fee, Coupon Rate, Discount, Price and Closing Date for the Advance, and the Borrower's obligation to repay the Advance in accordance with the terms of the Notes and this Agreement. Upon the funding of the Variable Advance, the Lender shall note the date of funding in the appropriate space at the foot of the Advance Confirmation Instrument and deliver a copy of the completed Advance Confirmation Instrument to the Borrower. The Lender's failure to do so shall not invalidate the Advance Confirmation Instrument or otherwise affect in any way any obligation of the Borrower to repay Variable Advances in accordance with the Advance Confirmation Instrument, the Variable Facility Note or the other Loan Documents, but is merely meant to facilitate evidencing the date of funding and to confirm that the Advance Confirmation Instrument is not effective until the date of funding. SECTION 4.03 BREAKAGE AND OTHER COSTS. In the event that the Lender obtains an MBS Commitment and the Lender fails to fulfill the MBS Commitment because the Advance is not made (for a reason other than the default of the Lender to make the Advance), the Borrower shall pay all reasonable out-of-pocket costs payable to the potential investor and other -35- reasonable costs, fees and damages incurred by the Lender in connection with its failure to fulfill the MBS Commitment. The Lender reserves the right to require that the Borrower post a deposit at the time the MBS Commitment is obtained. The deposit referred to in the preceding sentence shall be refundable to the Borrower upon the delivery of the related MBS. ARTICLE V MAKING THE ADVANCES SECTION 5.01 INITIAL ADVANCE. The Borrower may make a request ("INITIAL ADVANCE REQUEST") for the Lender to make the Initial Advance. If all conditions contained in this Section are satisfied on or before the Closing Date for the Initial Advance, the Lender shall make the Initial Advance on the Initial Closing Date or on another date selected by the Borrower and approved by the Lender. The obligation of the Lender to make the Initial Advance is subject to the following conditions precedent: (a) Receipt by the Lender of the Initial Advance Request; (b) Receipt by the Lender of one or more counterparts of the Cash Management Agreement, dated as of the Initial Closing Date; (c) The delivery to the Title Company, for filing and/or recording in all applicable jurisdictions, of all applicable Loan Documents required by the Lender, including duly executed and delivered original copies of the Variable Facility Note, a Fixed Facility Note, the Guaranty, the Initial Security Instruments covering the Initial Mortgaged Properties and UCC-1 Financing Statements covering the portion of the Collateral comprised of personal property, and other appropriate instruments, in form and substance satisfactory to the Lender and in form proper for recordation, as may be necessary in the opinion of the Lender to perfect the Liens created by the applicable Security Instruments and any other Loan Documents creating a Lien in favor of the Lender, and the payment of all taxes, fees and other charges payable in connection with such execution, delivery, recording and filing; (d) If the Advance is a Variable Advance, the receipt by the Lender of the first installment of Variable Facility Fee for the Variable Advance and the entire Discount for the Variable Advance payable by the Borrower pursuant to Section 2.04; (e) The receipt by the Lender of the Initial Origination Fee pursuant to Section 16.02(a), the Initial Due Diligence Fee pursuant to Section 16.03(a), all legal fees and expenses payable pursuant to Section 16.04(a) and all legal fees and expenses payable in connection with the Initial Advance pursuant to Section 16.04(b); and (f) The satisfaction of all applicable General Conditions set forth in Article XI. SECTION 5.02 FUTURE ADVANCES. In order to obtain a Future Advance, the Borrower may from time to time deliver a written request for a Future Advance ("FUTURE ADVANCE REQUEST") to the Lender, in the form attached as EXHIBIT P to this Agreement. Each Future Advance Request -36- shall be accompanied by (a) a designation of the amount of the Future Advance requested, and (b) a designation of the maturity date of the Advance. Each Future Advance Request shall be in the minimum amount of $3,000,000. If all conditions contained in Section 5.03 are satisfied, the Lender shall make the requested Future Advance, at a closing to be held at offices designated by the Lender on a Closing Date selected by the Lender, and occurring on a date selected by the Borrower, which date shall be not more than three (3) Business Days, after the Borrower's receipt of the Rate Confirmation Form (or on such other date to which the Borrower and the Lender may agree). The Lender reserves the right to require that the Borrower post a deposit at the time the MBS Commitment is obtained as an additional condition to the Lender's obligation to make the Future Advance. The deposit referred to in the preceding sentence shall be refundable to the Borrower upon the delivery of the related MBS. SECTION 5.03 CONDITIONS PRECEDENT TO FUTURE ADVANCES. The obligation of the Lender to make a requested Future Advance is subject to the following conditions precedent: (a) The receipt by the Lender of a Future Advance Request; (b) The Lender has delivered the Rate Setting Form for the Future Advance to the Borrower; (c) After giving effect to the requested Future Advance, the Coverage and LTV Tests will be satisfied; (d) If the Advance is a Fixed Facility Advance, delivery of a Fixed Facility Note, duly executed by the Borrower, in the amount of the Advance, reflecting all of the terms of the Fixed Facility Advance; (e) If the Advance is a Variable Advance, delivery of the Advance Confirmation Instrument, duly executed by the Borrower; (f) For any Title Insurance Policy not containing a Revolving Credit Endorsement, the receipt by the Lender of an endorsement to the Title Insurance Policy, amending the effective date of the Title Insurance Policy to the Closing Date and showing no additional exceptions to coverage other than the exceptions shown on the Initial Closing Date and other exceptions approved by the Lender; (g) If the Advance is a Variable Advance, the receipt by the Lender of the first installment of Variable Facility Fee for the Variable Advance and the entire Discount for the Variable Advance payable by the Borrower pursuant to Section 2.04; (h) The receipt by the Lender of all legal fees and expenses payable by the Borrower in connection with the Future Advance pursuant to Section 16.04(b); and (i) The satisfaction of all applicable General Conditions set forth in Article XI. SECTION 5.04 DETERMINATION OF ALLOCABLE FACILITY AMOUNT AND VALUATIONS. The Lender shall determine the Allocable Facility Amount and Valuation for each Mortgaged Property on the -37- Initial Closing Date. Once each Calendar Quarter, within 20 Business Days after the Borrower has delivered to the Lender the reports required in Section 13.04, the Lender shall determine the Aggregate Debt Service Coverage Ratio for the Trailing 12 Month period and the Aggregate Loan to Value Ratio. If the Lender reasonably decides that changed market or property conditions warrant, the Lender may (i) request an Appraisal of the relevant Mortgaged Properties and/or (ii) determine new Allocable Facility Amounts and Valuations at any other times. The Lender shall also redetermine Allocable Facility Amounts as necessary to take account of any addition, release or substitution of Collateral or other event which invalidates the outstanding determinations. The Lender shall determine Cap Rates when determining Valuations on the basis of its internal survey and analysis of cap rates for comparable sales in the vicinity of the Mortgaged Property, with such adjustments as the Lender deems appropriate and shall not be obligated to use any information provided by the Borrower. The Lender shall promptly disclose its determinations to the Borrower. Until redetermined, the Allocable Facility Amounts and Valuations determined by the Lender shall remain in effect. In performing a Valuation of a Multifamily Residential Property to be added to the Collateral Pool, the Lender shall be entitled to obtain an Appraisal. The Lender shall also have the right to obtain an Appraisal in connection with the redetermination of a Valuation of a Mortgaged Property, but only if the Lender is unable to determine a Cap Rate for such Mortgaged Property and then only if the Lender has not obtained an Appraisal for such Mortgaged Property within the prior year. ARTICLE VI ADDITIONS OF COLLATERAL SECTION 6.01 RIGHT TO ADD COLLATERAL. Subject to the terms and conditions of this Article, the Borrower Parties shall have the right, from time to time during the Term of this Agreement, to add Multifamily Residential Properties to the Collateral Pool in accordance with the provisions of this Article. SECTION 6.02 PROCEDURE FOR ADDING COLLATERAL. The procedure for adding Collateral set forth in this Section 6.02 shall apply to all additions of Collateral in connection with this Agreement, including but not limited to additions of Collateral in connection with substitutions of Collateral and expansion of the Credit Facility. (a) REQUEST. The Borrower Parties may, not more than four (4) times per Calendar Year, deliver a written request ("COLLATERAL ADDITION REQUEST") to the Lender, in the form attached as EXHIBIT Q to this Agreement, to add one or more Multifamily Residential Properties to the Collateral Pool. Each Collateral Addition Request shall be accompanied by the following: (i) The information relating to the proposed Additional Mortgaged Property required by the form attached as EXHIBIT R to this Agreement ("COLLATERAL ADDITION DESCRIPTION PACKAGE"), as amended from time to time to include information required under the DUS Guide; and (ii) The payment of all Additional Collateral Due Diligence Fees pursuant to Section 16.03(b). -38- (b) ADDITIONAL INFORMATION. The Borrower Parties shall promptly deliver to the Lender any additional information concerning the proposed Additional Mortgaged Property that the Lender may from time to time reasonably request. (c) UNDERWRITING. The Lender shall evaluate the proposed Additional Mortgaged Property, and shall make underwriting determinations as to the Aggregate Debt Service Coverage Ratios for the Trailing 12 Month Period and the Aggregate Loan to Value Ratio applicable to the Collateral Pool, on the basis of the lesser of (i) if purchased by the relevant Borrower Party within 12 months of the related Collateral Addition Request, the acquisition price of the proposed Additional Mortgaged Property or (ii) a Valuation made with respect to the proposed Additional Mortgaged Property, and otherwise in accordance with Fannie Mae's DUS Underwriting Requirements. Within 30 days after receipt of (i) the Collateral Addition Request for the Additional Mortgaged Property and (ii) all reports, certificates and documents set forth on EXHIBIT S to this Agreement, including a zoning analysis undertaken in accordance with Section 206 of the DUS Guide, the Lender shall notify the Borrower Parties whether or not it shall consent to the addition of the proposed Additional Mortgaged Property to the Collateral Pool and, if it shall so consent, shall set forth the Aggregate Debt Service Coverage Ratios for the Trailing 12 Month Period and the Aggregate Loan to Value Ratio which it estimates shall result from the addition of the proposed Additional Mortgaged Property to the Collateral Pool. If the Lender declines to consent to the addition of the proposed Additional Mortgaged Property to the Collateral Pool, the Lender shall include, in its notice, a brief statement of the reasons for doing so. Within five Business Days after receipt of the Lender's notice that it shall consent to the addition of the proposed Additional Mortgaged Property to the Collateral Pool, the Borrower Parties shall notify the Lender whether or not it elects to cause the proposed Additional Mortgaged Property to be added to the Collateral Pool. If the Borrower Parties fail to respond within the period of five Business Days, it shall be conclusively deemed to have elected not to cause the proposed Additional Mortgaged Property to be added to the Collateral Pool. (d) CLOSING. If, pursuant to subsection (c), the Lender consents to the addition of the proposed Additional Mortgaged Property to the Collateral Pool, the Borrower Parties timely elect to cause the proposed Additional Mortgaged Property to be added to the Collateral Pool and all conditions contained in Section 6.03 are satisfied, the Lender shall permit the proposed Additional Mortgaged Property to be added to the Collateral Pool, at a closing to be held at offices designated by the Lender on a Closing Date selected by the Lender, and occurring within 30 Business Days after the Lender's receipt of the Borrower Parties' election (or on such other date to which the Borrower Parties and the Lender may agree). SECTION 6.03 CONDITIONS PRECEDENT TO ADDITION OF AN ADDITIONAL MORTGAGED PROPERTY TO THE COLLATERAL POOL. The addition of an Additional Mortgaged Property to the Collateral Pool on the Closing Date applicable to the Additional Mortgaged Property is subject to the satisfaction of the following conditions precedent: (a) The proposed Additional Mortgaged Property has a Debt Service Coverage Ratio for the Trailing 12 Month Period of not less than 140% and a Loan to Value Ratio of not more than 65% and immediately after giving effect to the requested addition, the Coverage and LTV Tests will be satisfied, and in the case of any substitution effected pursuant -39- to Section 7.04 of this Agreement, the Coverage and LTV Tests are not adversely affected after giving effect to the proposed substitution; (b) The receipt by the Lender of the Collateral Addition Fee and all legal fees and expenses payable by the Borrower Parties in connection with the Collateral Addition pursuant to Section 16.04(b); (c) The delivery to the Title Company, with fully executed instructions directing the Title Company to file and/or record in all applicable jurisdictions, all applicable Collateral Addition Loan Documents required by the Lender, including duly executed and delivered original copies of any Security Instruments and UCC-1 Financing Statements covering the portion of the Additional Mortgaged Property comprised of personal property, and other appropriate documents, in form and substance satisfactory to the Lender and in form proper for recordation, as may be necessary in the opinion of the Lender to perfect the Lien created by the applicable additional Security Instrument, and any other Collateral Addition Loan Document creating a Lien in favor of the Lender, and the payment of all taxes, fees and other charges payable in connection with such execution, delivery, recording and filing; (d) If required by the Lender, amendments to the Notes and the Security Instruments, reflecting the addition of the Additional Mortgaged Property to the Collateral Pool and, as to any Security Instrument so amended, the receipt by the Lender of an endorsement to the Title Insurance Policy insuring the Security Instrument, amending the effective date of the Title Insurance Policy to the Closing Date and showing no additional exceptions to coverage other than the exceptions shown on the Initial Closing Date and other exceptions approved by the Lender; (e) If the Title Insurance Policy for the Additional Mortgaged Property contains a Tie-In Endorsement, an endorsement to each other Title Insurance Policy containing a Tie-In Endorsement, adding a reference to the Additional Mortgaged Property; and (f) The satisfaction of all applicable General Conditions set forth in Article XI. ARTICLE VII RELEASES OF COLLATERAL SECTION 7.01 RIGHT TO OBTAIN RELEASES OF COLLATERAL. Subject to the terms and conditions of this Article, the Borrower shall have the right to obtain a release of Collateral from the Collateral Pool in accordance with the provisions of this Article. SECTION 7.02 PROCEDURE FOR OBTAINING RELEASES OF COLLATERAL. (a) REQUEST. In order to obtain a release of Collateral from the Collateral Pool, the Borrower may, not more than once each calendar month, deliver a written request for the release of Collateral from the Collateral Pool ("COLLATERAL RELEASE REQUEST") to the Lender, in the form attached as EXHIBIT T to this Agreement. The Collateral Release Request shall not result in a termination of all or any part of the Credit Facility. The Borrower may only terminate all or any part of the Credit Facility by delivering a Variable Facility Termination -40- Request or Credit Facility Termination Request pursuant to Articles IX or X. The Collateral Release Request shall be accompanied by (and shall not be effective unless it is accompanied by) the name, address and location of the Mortgaged Property to be released from the Collateral Pool ("COLLATERAL RELEASE PROPERTY"). (b) CLOSING. If all conditions contained in Section 7.03 are satisfied, the Lender shall cause the Collateral Release Property to be released from the Collateral Pool, at a closing to be held at offices designated by the Lender on a Closing Date selected by the Lender, and occurring within 30 days after the Lender's receipt of the Collateral Release Request (or on such other date to which the Borrower and the Lender may agree, by executing and delivering, and causing all applicable parties to execute and deliver, all at the sole cost and expense of the Borrower, instruments, in the form customarily used by the Lender for releases in the jurisdiction governing the perfection of the security interest being released, releasing the applicable Security Instrument as a Lien on the Collateral Release Property, and UCC-3 Termination Statements terminating the UCC-1 Financing Statements perfecting a Lien on the portion of the Collateral Release Property comprised of personal property and such other documents and instruments as the Borrower may reasonably request evidencing the release of the applicable Collateral from any lien securing the Obligations (including a termination of any restriction on the use of any accounts relating to the Collateral Release Property) and the release and return to the Borrower of any and all escrowed amounts relating thereto. The instruments referred to in the preceding sentence are referred to in this Article as the "COLLATERAL RELEASE DOCUMENTS." The Borrower shall prepare the Collateral Release Documents and submit them to Lender for its review. (c) RELEASE PRICE. The "RELEASE PRICE" for each Mortgaged Property means (1) during the period Section 22.01(a) of this Agreement is in effect the greater of (i) the Allocable Facility Amount for the Mortgaged Property to be released and (ii) the amount, if any, of Advances Outstanding which are required to be repaid by the Borrower to the Lender in connection with the proposed release of the Mortgaged Property from the Collateral Pool, so that, immediately after the release, the Coverage and LTV Tests will be satisfied and neither the Aggregate Debt Service Coverage Ratios for the Trailing 12 Month Period will be reduced nor the Aggregate Loan to Value Ratio for the Trailing 12 Month Period will be increased as a result of such release and (2) at all times after Section 22.01(a) of this Agreement is no longer in effect the greater of (i) 125% of the Allocable Facility Amount for the Mortgaged Property to be released and (ii) the amount, if any, of Advances Outstanding which are required to be repaid by the Borrower to the Lender in connection with the proposed release of the Mortgaged Property from the Collateral Pool, so that, immediately after the release, the Coverage and LTV Tests will be satisfied and neither the Aggregate Debt Service Coverage Ratios for the Trailing 12 Month Period will be reduced nor the Aggregate Loan to Value Ratio for the Trailing 12 Month Period will be increased as a result of such release. In addition to the Release Price, the Borrower shall pay to the Lender all associated prepayment premiums and other amounts due under the Notes and any Advance Confirmation Instruments evidencing the Advances being repaid. (d) APPLICATION OF RELEASE PRICE. The Release Price shall be applied against the Variable Advances Outstanding until there are no further Variable Advances Outstanding, and thereafter shall be held by the Lender (or its appointed collateral agent) as substituted -41- Collateral ("SUBSTITUTED CASH COLLATERAL"), in accordance with a security agreement and other documents in form and substance acceptable to the Lender (or, at the Borrower's option, may be applied against the prepayment of Fixed Facility Advances, so long as the prepayment is permitted under the Fixed Facility Note for the Fixed Facility Advance). Any portion of the Release Price held as Substituted Cash Collateral may be released if, immediately after giving effect to the release, each of the conditions set forth in Section 7.03(a) below shall have been satisfied. If, on the date on which the Borrower pays the Release Price, Variable Advances are Outstanding but are not then due and payable, the Lender shall hold the payments as additional Collateral for the Credit Facility, until the next date on which Variable Advances are due and payable, at which time the Lender shall apply the amounts held by it to the amounts of the Variable Advances due and payable. SECTION 7.03 CONDITIONS PRECEDENT TO RELEASE OF COLLATERAL RELEASE PROPERTY FROM THE COLLATERAL. The obligation of the Lender to release a Collateral Release Property from the Collateral Pool by executing and delivering the Collateral Release Documents on the Closing Date, are subject to the satisfaction of the following conditions precedent on or before the Closing Date: (a) Immediately after giving effect to the requested release the Coverage and LTV Tests will be satisfied, and in the case of any substitution effected pursuant to Section 7.04 of this Agreement, the Coverage and LTV Tests are not adversely affected after giving effect to the proposed substitution; (b) Receipt by the Lender of the Release Price; (c) Receipt by the Lender of the Release Fee for the Collateral Release Property and all legal fees and expenses payable by the Borrower in connection with the release pursuant to Section 16.04(b); (d) Receipt by the Lender on the Closing Date of one or more counterparts of each Collateral Release Document, dated as of the Closing Date, signed by each of the parties (other than the Lender) who is a party to such Collateral Release Document; (e) If required by the Lender, amendments to the Notes and the Security Instruments, reflecting the release of the Collateral Release Property from the Collateral Pool and, as to any Security Instrument so amended, the receipt by the Lender of an endorsement to the Title Insurance Policy insuring the Security Instrument, amending the effective date of the Title Insurance Policy to the Closing Date and showing no additional exceptions to coverage other than the exceptions shown on the Initial Closing Date and other exceptions approved by the Lender; (f) If the Lender determines the Collateral Release Property to be one phase of a project, and one or more other phases of the project are Mortgaged Properties which will remain in the Collateral Pool ("REMAINING MORTGAGED PROPERTIES"), the Lender must determine that the Remaining Mortgaged Properties can be operated separately from the Collateral Release Property and any other phases of the project which are not Mortgaged Properties. In making this determination, the Lender shall evaluate whether the Remaining Mortgaged Properties -42- comply with the terms of Sections 203 and 208 of the DUS Guide, which, as of the date of this Agreement, require, among other things, that a phase which constitutes collateral for a loan made in accordance with the terms of the DUS Guide (i) have adequate ingress and egress to existing public roadways, either by location of the phase on a dedicated, all-weather road or by access to such a road by means of a satisfactory easement, (ii) have access which is sufficiently attractive and direct from major thoroughfares to be conducive to continued good marketing, (iii) have a location which is not (A) inferior to other phases, (B) such that inadequate maintenance of other phases would have a significant negative impact on the phase, and (C) such that the phase is visible only after passing through the other phases of the project and (iv) comply with such other issues as are dictated by prudent practice; (g) Receipt by the Lender of endorsements to the Tie-In Endorsements of the Title Insurance Policies, if deemed necessary by the Lender, to reflect the release; (h) Receipt by the Lender on the Closing Date of a writing, dated as of the Closing Date, signed by the Borrower Parties, in the form attached as EXHIBIT U to this Agreement, pursuant to which the Borrower Parties confirm that their obligations under the Loan Documents are not adversely affected by the release of the Collateral Release Property from the Collateral; (i) The remaining Mortgaged Properties in the Collateral Pool shall satisfy the then-existing Geographical Diversification Requirements; and (j) The satisfaction of all applicable General Conditions set forth in Article XI. SECTION 7.04 SUBSTITUTIONS. (a) RIGHT TO SUBSTITUTE COLLATERAL. Subject to the terms, conditions and limitations of this Section 7.04 and Articles VI and VII, the Borrower Parties shall have the right, from time to time during the Term of this Agreement, to add one or more Multifamily Residential Properties to the Collateral Pool in substitution of one or more Mortgaged Properties then in the Collateral Pool in accordance with the provisions of this Section 7.04 ("Substituted Mortgaged Property"). (b) PROCEDURE FOR SUBSTITUTING COLLATERAL. (i) REQUEST. The Borrower Parties may deliver a written request ("COLLATERAL SUBSTITUTION REQUEST") to the Lender, in the form attached as EXHIBIT Z to this Agreement, to add one or more Multifamily Residential Properties to the Collateral Pool in substitution of one or more Mortgaged Properties then in the Collateral Pool. Each Collateral Substitution Request shall be accompanied by the following: (x) The information relating to the proposed Substituted Mortgaged Property required by the form attached as EXHIBIT DD to this Agreement ("COLLATERAL SUBSTITUTION DESCRIPTION PACKAGE"), as amended from time to time to include information required under the DUS guide; and -43- (y) A statement whether the addition of the proposed Substituted Mortgaged Property will occur simultaneously with the release of the proposed Collateral Release Property and, if not, the Borrower Parties shall specify the proposed date on which the proposed Substituted Mortgaged Property will be added to the Collateral Pool which, in no event, shall be a date which is more than 90 days after the proposed date of the release of the proposed Collateral Release Property. (ii) ADDITIONAL INFORMATION. The Borrower Parties shall promptly deliver to the Lender any additional information concerning the proposed Substituted Mortgaged Property and the proposed Collateral Release Property that the Lender may from time to time reasonably request. (iii) UNDERWRITING. The Lender shall evaluate the proposed Substituted Mortgaged Property, and shall make underwriting determinations as to (a) the Aggregate Debt Service Coverage Ratios and the Aggregate Loan to Value Ratio immediately prior to and immediately after giving effect to the proposed substitution, and (b) the Valuation and the Net Operating Income for the Trailing 12 Month Period for both the proposed Substituted Mortgaged Property and the proposed Collateral Release Property. Notwithstanding anything to the contrary contained herein, for purposes of making such underwriting determines with respect to the proposed Substituted Mortgaged Property, such determinations shall be made on the basis of a Valuation made with respect to the proposed Substituted Mortgaged Property, and otherwise in accordance with Fannie Mae's DUS Underwriting Requirements. Within 30 days after receipt of (a) the Collateral Substitution Request for the proposed Substituted Mortgaged Property and the proposed Collateral Release Property and (b) all reports, certificates and documents set forth on EXHIBIT EE to this Agreement, including a zoning analysis undertaken in accordance with Section 206 of the DUS Guide, the Lender shall notify the Borrower Parties whether or not the proposed Substituted Mortgaged Property meets the Coverage and LTV Tests and DUS Underwriting Requirements required by this Section 7.04(b)(iii), and therefore whether or not it shall consent to the addition of the proposed Substituted Mortgaged Property to the Collateral Pool in substitution of the proposed Collateral Release Property and, if it shall so consent, shall set forth the Aggregate Debt Service Coverage Ratios and the Aggregate Loan to Value Ratio which it estimates shall result from the substitution of the proposed Substituted Mortgaged Property into the Collateral Pool in replacement of the proposed Collateral Release Property. If the proposed Substituted Mortgaged Property does not meet the Coverage and LTV Tests and DUS Underwriting Requirements required by this Section 7.04(b)(iii), and therefore the Lender does not consent to the substitution of the proposed Additional Mortgaged Property into the Collateral Pool in replacement of the proposed Collateral Release Property, the Lender shall include, in its notice, a brief statement of the reasons for doing so. Within five Business Days after receipt of the Lender's notice that it shall consent to the substitution of the proposed Additional Mortgaged Property into the Collateral Pool in replacement of the proposed Collateral Release Property, the Borrower Parties shall notify the Lender whether or not they elect to cause such substitution to occur. If the Borrower Parties fail to respond within the period of five Business Days, they shall be conclusively deemed to have elected not to cause the proposed substitution to occur. -44- (iv) CLOSING. If, pursuant to this Section 7.04, the Lender consents to the substitution of the proposed Additional Mortgaged Property into the Collateral Pool in replacement of the proposed Collateral Release Property, the Borrower Parties timely elect to cause such substitution to occur and all conditions contained in Section 7.04(c) are satisfied, the Lender shall permit the proposed Additional Mortgaged Property to be substituted into the Collateral Pool in replacement of the proposed Collateral Release Property, at a closing to be held at offices designated by the Lender on a Closing Date selected by the Lender, and occurring -- (x) if the substitution of the proposed Substituted Collateral Property is to occur simultaneously with the release of the proposed Collateral Released Property, within 30 days after the Lender's receipt of the Borrower Parties' election (or on such other date to which the Borrower Parties and the Lender may agree); or (y) if the substitution of the proposed Substituted Collateral Property is to occur subsequent to the release of the Collateral Release Property, within 90 days after the release of the Collateral Release Property in accordance with Section 7.02(c). If, in the case of clause (y), the addition of the proposed Substituted Collateral Property to the Collateral Pool does not occur within 90 days or such longer period as approved by Lender, in its sole discretion, after the release of the Collateral Release Property in accordance with such clause (y), then the Borrower Parties shall have waived their right to substitute such Collateral Release Property with the proposed Substituted Mortgaged Property, the Release Price shall be determined pursuant to Section 7.02(c) and the Borrower Parties shall comply with the requirement set forth in Section 7.03. Such Release Price, or the applicable portion thereof, shall be credited under this Agreement and/or be immediately due and payable by the Borrower Parties to the Lender to reduce the Advances Outstanding as required by, and in the manner set forth in, Section 7.02(d). (c) CONDITIONS PRECEDENT TO SUBSTITUTION OF A SUBSTITUTED MORTGAGED PROPERTY INTO THE COLLATERAL POOL. The substitution of a Substituted Mortgaged Property into the Collateral Pool in replacement of a Collateral Release Property on the Closing Date is subject to the satisfaction of the following conditions precedent: (i) The proposed Substituted Mortgaged Property has a Debt Service Coverage Ratio for the Trailing 12 Month Period of not less than 140% and a Loan to Value Ratio of not more than 65% and immediately after giving effect to the requested addition, the Coverage and LTV Tests will be satisfied; (ii) The Lender shall have made the determination, as a part of the underwriting evaluations made in accordance with Section 7.04(b)(iii), that (a) the Aggregate Debt Service Coverage Ratio immediately after giving effect to the proposed substitution will be equal to or higher than the Aggregate Debt Service Coverage Ratio immediately prior to the proposed substitution, and (ii) the Aggregate Loan to Value Ratio immediately after giving effect to the proposed substitution will be equal to or less -45- than the Aggregate Loan to Ratio immediately prior to giving effect to the proposed substitution; (iii) With respect to the release of the proposed Collateral Release Property, the Borrower Parties shall have complied with Section 7.03 (other than clause (b) with respect to the requirement pertaining to Release Price); (iv) The receipt by the Lender of the Collateral Substitution Fee and all legal fees and expenses payable by the Borrower Parties in connection with the substitution pursuant to Section 16.04(b). (v) The delivery to the Title Company, with fully executed instructions directing the Title Company to file and/or record in all applicable jurisdictions, all applicable Collateral Substitution Loan Documents required by Lender, including duly executed and delivered original copies of any Security Instruments and UCC-1 Financing Statements covering the portion of the Substituted Mortgaged Property comprised of personal property, and other appropriate documents, in form and substance satisfactory to the Lender and in form proper for recordation, as may be necessary in the opinion of the Lender to perfect the Lien created by the applicable additional Security Instrument, and any other Collateral Substitution Loan Document creating a Lien in favor of the Lender, and the payment of all taxes, fees and other charges payable in connection with such execution, delivery, recording and filing; (vi) If required by the Lender, amendments to the Notes and the Security Instruments, reflecting the addition of the Substituted Mortgaged Property to the Collateral Pool and, as to any Security Instrument so amended, the receipt by the Lender of an endorsement to the Title Insurance Policy insuring the Security Instrument, amending the effective date of the Title Insurance Policy to the Closing Date and showing no additional exceptions to coverage other than Permitted Liens; (vii) If the Title Insurance Policy for the Substituted Mortgaged Property contains a Tie-In Endorsement, and endorsement to each other Title Insurance Policy containing a Tie-In Endorsement, adding a reference to the Substituted Mortgaged Property; (viii) The delivery to the Lender of additional collateral or the repayment of Advances Outstanding to the extent required pursuant to Section 7.04(d); and (ix) The satisfaction of all General Conditions set forth in Article XI. (d) RESTRICTION ON BORROWINGS. In the case that the substitution of the proposed Substituted Mortgaged Property is not to occur simultaneously with the release of the proposed Collateral Release Property, from and after the release of the proposed Collateral Release Property until the addition of the proposed Substituted Mortgaged Property into the Collateral Pool in accordance with this Section 7.04, the Borrower shall not be permitted to have the aggregate unpaid principal balance of Loans Outstanding to be in excess of an amount equal to the then-existing Commitment minus the Allocable Credit Facility Amount attributable to the Collateral Release Property that was released, unless the Borrower shall have delivered to the -46- Lender additional collateral reasonably acceptable to the Lender in an amount at least equal to such Allocable Credit Facility Amount. In the event that the aggregate unpaid principal balance of Advances Outstanding exceeds such amount (and additional collateral in an amount at least equal to the applicable Allocable Credit Facility Amount has not been delivered by the Borrower to the Lender), as a condition precedent to the substitution of a Substituted Mortgaged Property into the Collateral Pool, the Borrower shall pay such excess. Notwithstanding the foregoing, in no event shall the value of the additional collateral exceed 15% of the principal balance of the Loans Outstanding. Any payment received by the Lender under this Section 7.04(d) shall be applied against Loans Outstanding in the manner prescribed for Release Prices pursuant to Section 7.02. The additional collateral shall be released to the Borrower upon the addition of the applicable Substituted Mortgaged Property to the Collateral Pool in accordance with this Section 7.05. ARTICLE VIII EXPANSION OF CREDIT FACILITY SECTION 8.01 RIGHT TO INCREASE COMMITMENT. Subject to the terms, conditions and limitations of this Article, the Borrower shall have the right, at any time or from time to time during the Fixed Facility Availability Period, to increase the Fixed Facility Commitment, the Variable Facility Commitment, or both. Either Commitment may be increased by the addition of Collateral to the Collateral Pool and/or increases in the value of the Mortgaged Properties. No increase in the Commitments shall be made in respect of Valuations of the Mortgaged Properties in excess of the Initial Valuations of any Mortgaged Property until such time as each of the Multifamily Residential Properties listed on EXHIBIT CC to this Agreement has achieved 85% occupancy as determined by Lender. Notwithstanding the preceding sentence, the Commitments may be increased in respect of an increased Valuation of the Mortgaged Property known as Montgomery when such Mortgaged Property has achieved at least 90% occupancy for not less than ninety (90) consecutive days. Nothing in this paragraph shall limit the Borrower's right to increase the Commitments as a result of additions of Mortgaged Properties to the Collateral Pool. The Borrower's right to increase the Commitment is subject to the following limitations: (a) MAXIMUM AMOUNT OF INCREASE IN COMMITMENT. The maximum amount by which the Commitment may be increased is $81,769,000. (b) MINIMUM REQUEST. Each Request for an increase in the Commitment shall be in the minimum amount of $10,000,000. (c) TERMS AND CONDITIONS. The terms and conditions of this Agreement shall apply to any increase in the Commitment closed not later than the date 12 months after the Initial Closing Date. The terms and conditions (including pricing) applicable to any increase in the Commitment after the date 12 months after the Initial Closing Date shall be acceptable to Lender in its discretion. SECTION 8.02 PROCEDURE FOR OBTAINING INCREASES IN COMMITMENT. -47- (a) REQUEST. In order to obtain an increase in the Commitment, the Borrower shall deliver a written request for an increase (a "CREDIT FACILITY EXPANSION REQUEST") to the Lender, in the form attached as EXHIBIT V to this Agreement. Each Credit Facility Expansion Request shall be accompanied by the following: (i) A designation of the amount of the proposed increase; (ii) A designation of the increase in the Fixed Facility Credit Commitment and the Variable Facility Credit Commitment; (iii) If any Multifamily Residential Properties are proposed to be added to the Collateral Pool, a list of such Multifamily Residential Properties and evidence of compliance with the requirements of Article VI in connection with such addition. (iv) A request that the Lender inform the Borrower of any change in the Geographical Diversification Requirements; and (v) A request that the Lender inform the Borrower of the Fixed Facility Fee and the Variable Facility Fee to apply to Advances drawn from such increase in the Commitment. (b) CLOSING. If all conditions contained in Section 8.03 are satisfied, the Lender shall permit the requested increase in the Commitment, at a closing to be held at offices designated by the Lender on a Closing Date selected by the Lender, and occurring within fifteen (15) Business Days after the Lender's receipt of the Credit Facility Expansion Request (or on such other date to which the Borrower and the Lender may agree). SECTION 8.03 CONDITIONS PRECEDENT TO INCREASE IN COMMITMENT. The right of the Borrower to increase the Commitment is subject to the satisfaction of the following conditions precedent on or before the Closing Date: (a) After giving effect to the requested increase the Coverage and LTV Tests will be satisfied; (b) Payment by the Borrower of the Expansion Origination Fee in accordance with Section 16.02(b) and all legal fees and expenses payable by the Borrower in connection with the expansion of the Commitment pursuant to Section 16.04(b); (c) The receipt by the Lender of an endorsement to each Title Insurance Policy, amending the effective date of the Title Insurance Policy to the Closing Date, increasing the limits of liability to the Commitment, as increased under this Article, showing no additional exceptions to coverage other than the exceptions shown on the Initial Closing Date (or, if applicable, the last Closing Date with respect to which the Title Insurance Policy was endorsed) and other exceptions approved by the Lender, together with any reinsurance agreements required by the Lender; -48- (d) The receipt by the Lender of fully executed original copies of all Credit Facility Expansion Loan Documents, each of which shall be in full force and effect, and in form and substance satisfactory to the Lender in all respects; (e) if determined necessary by the Lender, the Borrower's agreement to such geographical diversification requirements as the Lender may determine; and (f) The satisfaction of all applicable General Conditions set forth in Article XI. ARTICLE IX PARTIAL TERMINATION OF FACILITIES SECTION 9.01 RIGHT TO COMPLETE OR PARTIAL TERMINATION OF FACILITIES. Subject to the terms and conditions of this Article, the Borrower shall have the right to permanently reduce the Variable Facility Commitment and the Fixed Facility Commitment in accordance with the provisions of this Article. SECTION 9.02 PROCEDURE FOR COMPLETE OR PARTIAL TERMINATION OF FACILITIES. (a) REQUEST. In order to permanently reduce the Variable Facility Commitment or the Fixed Facility Commitment, the Borrower may deliver a written request for the reduction ("FACILITY TERMINATION REQUEST") to the Lender, in the form attached as EXHIBIT W to this Agreement. A permanent reduction of the Variable Facility Commitment to $0 shall be referred to as a "COMPLETE VARIABLE FACILITY TERMINATION." A permanent reduction of the Fixed Facility Commitment to $0 shall be referred to as a "COMPLETE FIXED FACILITY TERMINATION." The Facility Termination Request shall be accompanied by the following: (i) A designation of the proposed amount of the reduction in the Variable Facility Commitment or Fixed Facility Commitment, as the case may be; and (ii) Unless there is a Complete Variable Facility Termination, or a Complete Fixed Facility Termination, a designation by the Borrower of any Variable Advances which will be prepaid or Fixed Advances which will be prepaid or defeased, as the case may be. Any release of Collateral, whether or not made in connection with a Facility Termination Request, must comply with all conditions to a release which are set forth in Article VII. (b) CLOSING. If all conditions contained in Section 9.03 are satisfied, the Lender shall permit the Variable Facility Commitment or Fixed Facility Commitment as the case may be, to be reduced to the amount designated by the Borrower, at a closing to be held at offices designated by the Lender on a Closing Date selected by the Lender, within fifteen (15) Business Days after the Lender's receipt of the Facility Termination Request (or on such other date to which the Borrower and the Lender may agree), by executing and delivering a counterpart of an amendment to this Agreement, in the form attached as EXHIBIT X to this Agreement, evidencing the reduction in the Facility Commitment. The document referred to in the preceding sentence is referred to in this Article as the "FACILITY TERMINATION DOCUMENT." -49- SECTION 9.03 CONDITIONS PRECEDENT TO COMPLETE OR PARTIAL TERMINATION OF FACILITIES. The right of the Borrower to reduce the Facility Commitment and the obligation of the Lender to execute the Facility Termination Document, are subject to the satisfaction of the following conditions precedent on or before the Closing Date: (a) Payment by the Borrower in full of all of the Variable Advances Outstanding and Fixed Facility Advances Outstanding, as the case may be, required to be paid in order that the aggregate unpaid principal balance of all Variable Advances Outstanding and Fixed Facility Advances Outstanding, as the case may be, is not greater than the Variable Facility Commitment and Fixed Facility Commitment, as the case may be, including any associated prepayment premiums or other amounts due under the Notes (but if the Borrower is not required to prepay all of the Variable Advances or Fixed Facility Advances Outstanding, as the case may be, the Borrower shall have the right to select which of the Variable Advances or Fixed Facility Advances, as the case may be, shall be repaid); (b) Payment by the Borrower of the Facility Termination Fee; (c) Receipt by the Lender on the Closing Date of one or more counterparts of the Facility Termination Document, dated as of the Closing Date, signed by each of the parties (other than the Lender) who is a party to such Facility Termination Document; and (d) The satisfaction of all applicable General Conditions set forth in Article XI. ARTICLE X TERMINATION OF CREDIT FACILITY SECTION 10.01 RIGHT TO TERMINATE CREDIT FACILITY. Subject to the terms and conditions of this Article, the Borrower shall have the right to terminate this Agreement and the Credit Facility and receive a release of all of the Collateral from the Collateral Pool in accordance with the provisions of this Article. SECTION 10.02 PROCEDURE FOR TERMINATING CREDIT FACILITY. (a) REQUEST. In order to terminate this Agreement and the Credit Facility, the Borrower shall deliver a written request for the termination ("CREDIT FACILITY TERMINATION REQUEST") to the Lender, in the form attached as EXHIBIT Y to this Agreement. (b) CLOSING. If all conditions contained in Section 10.03 are satisfied, this Agreement shall terminate, and the Lender shall cause all of the Collateral to be released from the Collateral Pool, at a closing to be held at offices designated by the Lender on a Closing Date selected by the Lender, within 30 Business Days after the Lender's receipt of the Credit Facility Termination Request (or on such other date to which the Borrower and the Lender may agree), by executing and delivering, and causing all applicable parties to execute and deliver, all at the sole cost and expense of the Borrower, (i) instruments, in the form customarily used by the Lender for releases in the jurisdictions in which the Mortgaged Properties are located, releasing all of the Security Instruments as a Lien on the Mortgaged Properties, (ii) UCC-3 Termination Statements terminating all of the UCC-1 Financing Statements perfecting a Lien on the personal -50- property located on the Mortgaged Properties, in form customarily used in the jurisdiction governing the perfection of the security interest being released, (iii) such other documents and instruments as the Borrower may reasonably request evidencing the release of the Collateral from any lien securing the Obligations (including a termination of any restriction on the use of any accounts relating to the Collateral) and the release and return to the Borrower of any and all escrowed amounts relating thereto, (iv) instruments releasing the Borrower Parties from their obligations under this Agreement and any and all other Loan Documents, and (v) the Notes, each marked paid and canceled. The instruments referred to in the preceding sentence are referred to in this Article as the "FACILITY TERMINATION DOCUMENTS." SECTION 10.03 CONDITIONS PRECEDENT TO TERMINATION OF CREDIT FACILITY. The right of the Borrower to terminate this Agreement and the Credit Facility and to receive a release of all of the Collateral from the Collateral Pool and the Lender's obligation to execute and deliver the Facility Termination Documents on the Closing Date are subject to the following conditions precedent: (a) Payment by the Borrower in full of all of the Notes Outstanding on the Closing Date, including any associated prepayment premiums or other amounts due under the Notes and all other amounts owing by the Borrower to the Lender under this Agreement; (b) Defeasance by the Borrower, in accordance with the provisions of Section 3.10 of this Agreement, with respect to all Fixed Facility Notes Outstanding on the Closing Date; (c) Payment of the Facility Termination Fee; and (d) The satisfaction of all applicable General Conditions set forth in Article XI. ARTICLE XI GENERAL CONDITIONS PRECEDENT TO ALL REQUESTS The obligation of the Lender to close the transaction requested in a Request shall be subject to the following conditions precedent ("GENERAL CONDITIONS") in addition to any other conditions precedent set forth in this Agreement: SECTION 11.01 CONDITIONS APPLICABLE TO ALL REQUESTS. Each of the following conditions precedent shall apply to all Requests: (a) PAYMENT OF EXPENSES. The payment by the Borrower of the Lender's reasonable fees and expenses payable in accordance with this Agreement. (b) NO MATERIAL ADVERSE CHANGE. Except in connection with a Credit Facility Termination Request, there has been no material adverse change in the financial condition, business or prospects of the Borrower Parties or in the physical condition, operating performance or value of any of the Mortgaged Properties since the Initial Closing Date (or, with respect to the conditions precedent to the Initial Advance, from the condition, business or -51- prospects reflected in the financial statements, reports and other information obtained by the Lender during its review of the Borrower Parties and the Initial Mortgaged Properties). (c) NO DEFAULT. Except in connection with a Credit Facility Termination Request, there shall exist no Event of Default or Potential Event of Default on the Closing Date for the Request and, after giving effect to the transaction requested in the Request, no Event of Default or Potential Event of Default shall have occurred. (d) NO INSOLVENCY. Except in connection with a Credit Facility Termination Request, receipt by the Lender on the Closing Date for the Request of evidence satisfactory to the Lender that no Borrower Party is insolvent (within the meaning of any applicable federal or state laws relating to bankruptcy or fraudulent transfers) or will be rendered insolvent by the transactions contemplated by the Loan Documents, including the making of a Future Advance, or, after giving effect to such transactions, will be left with an unreasonably small capital with which to engage in its business or undertakings, or will have intended to incur, or believe that it has incurred, debts beyond its ability to pay such debts as they mature or will have intended to hinder, delay or defraud any existing or future creditor. (e) NO UNTRUE STATEMENTS. The Loan Documents shall not contain any untrue or misleading statement of a material fact and shall not fail to state a material fact necessary in order to make the information contained therein not misleading. (f) REPRESENTATIONS AND WARRANTIES. Except in connection with a Credit Facility Termination Request, all representations and warranties made by any Borrower Party in the Loan Documents shall be true and correct in all material respects on the Closing Date for the Request with the same force and effect as if such representations and warranties had been made on and as of the Closing Date for the Request. (g) NO CONDEMNATION OR CASUALTY. Except in connection with a Credit Facility Termination Request, there shall not be pending or threatened any condemnation or other taking, whether direct or indirect, against any Mortgaged Property and there shall not have occurred any casualty to any improvements located on any Mortgaged Property, which casualty would have a material adverse effect on the continued operations of such Mortgaged Property. (h) DELIVERY OF CLOSING DOCUMENTS. The receipt by the Lender of the following, each dated as of the Closing Date for the Request, in form and substance satisfactory to the Lender in all respects: (i) A Compliance Certificate; (ii) An Organizational Certificate; and (iii) Such other documents, instruments, approvals (and, if requested by the Lender, certified duplicates of executed copies thereof) and opinions as the Lender may reasonably request. (i) COVENANTS. Except in connection with a Credit Facility Termination Request, the Borrower Parties are in full compliance with each of the covenants set forth in -52 Articles XIII, XIV and XV of this Agreement, without giving effect to any notice and cure rights of the Borrower Parties. SECTION 11.02 DELIVERY OF CLOSING DOCUMENTS RELATING TO INITIAL ADVANCE REQUEST, COLLATERAL ADDITION REQUEST, CREDIT FACILITY EXPANSION REQUEST OR FUTURE ADVANCE REQUEST. With respect to the closing of the Initial Advance Request, a Collateral Addition Request, or a Credit Facility Expansion Request, it shall be a condition precedent that the Lender receives each of the following, each dated as of the Closing Date for the Request, in form and substance satisfactory to the Lender in all respects: (a) LOAN DOCUMENTS. Fully executed original copies of each Loan Document required to be executed in connection with the Request, duly executed and delivered by the parties thereto (other than the Lender), each of which shall be in full force and effect. (b) OPINION. Favorable opinions of counsel to the Borrower Parties, as to the due organization and qualification of the Borrower Parties, the due authorization, execution, delivery and enforceability of each Loan Document executed in connection with the Request and such other matters as the Lender may reasonably require. SECTION 11.03 DELIVERY OF PROPERTY-RELATED DOCUMENTS. With respect to each of the Mortgaged Properties to be made part of the Collateral Pool on the Closing Date for the Initial Advance Request or a Collateral Addition Request, it shall be a condition precedent that the Lender receive each of the following, each dated as of the Closing Date for the Initial Advance Request or Collateral Addition Request, as the case may be, in form and substance satisfactory to the Lender in all respects: (a) A favorable opinion of local counsel to the Borrower Parties or the Lender as to the enforceability of the Security Instrument, and any other Loan Documents, executed in connection with the Request. (b) A commitment for the Title Insurance Policy applicable to the Mortgaged Property and a pro forma Title Insurance Policy based on the Commitment. (c) The Insurance Policy (or a certified copy of the Insurance Policy) applicable to the Mortgaged Property. (d) The Survey applicable to the Mortgaged Property. (e) Evidence satisfactory to the Lender of compliance of the Mortgaged Property with property laws as required by Sections 205 and 206 of Part III of the DUS Guide. (f) An Appraisal of the Mortgaged Property. (g) A Replacement Reserve Agreement, providing for the establishment of a replacement reserve account, to be pledged to the Lender, in which the owner shall (unless waived by the Lender) periodically deposit amounts for replacements for improvements at the Mortgaged Property and as additional security for the Borrower Parties' obligations under the Loan Documents. -53- (h) A Completion/Repair and Security Agreement, together with required escrows, on the standard form required by the DUS Guide. (i) An Assignment of Management Agreement, on the standard form required by the DUS Guide. (j) An Assignment of Leases and Rents, if the Lender determines one to be necessary or desirable, provided that the provisions of any such assignment shall be substantively identical to those in the Security Instrument covering the Collateral, with such modifications as may be necessitated by applicable state or local law. (k) With respect to a Collateral Addition Request, an amendment to the Cash Management Agreement executed by the Borrower Parties on the Initial Closing Date, adding the Borrower Parties as a party and adding a Property Account for the Mortgaged Property. ARTICLE XII REPRESENTATIONS AND WARRANTIES SECTION 12.01 REPRESENTATIONS AND WARRANTIES OF THE BORROWER PARTIES. Each Borrower Party hereby represents and warrants to the Lender, with respect to itself, as follows: (a) DUE ORGANIZATION; QUALIFICATION. (1) The REIT is qualified to transact business and is in good standing in the State of Tennessee. The Borrower Parties are qualified to transact business and is in good standing in the State in which they are organized and in each other jurisdiction in which such qualification and/or standing is necessary to the conduct of its business and where the failure to be so qualified would adversely affect the validity of, the enforceability of, or the ability of the Borrower Parties to perform the Obligations under this Agreement and the other Loan Documents. The Borrower Parties are qualified to transact business and are in good standing in each State in which they own a Mortgaged Property. (2) The Borrower Parties' principal place of business, principal office and office where they keep their books and records as to the Collateral is located at the address set out in Section 23.08. (b) POWER AND AUTHORITY. The Borrower Parties have the requisite power and authority (i) to own their properties and to carry on their business as now conducted and as contemplated to be conducted in connection with the performance of the Obligations hereunder and under the other Loan Documents and (ii) to execute and deliver this Agreement and the other Loan Documents and to carry out the transactions contemplated by this Agreement and the other Loan Documents. (c) DUE AUTHORIZATION. The execution, delivery and performance of this Agreement and the other Loan Documents have been duly authorized by all necessary action and proceedings by or on behalf of the Borrower Parties, and no further approvals or filings of any kind, including any approval of or filing with any Governmental Authority, are required by -54- or on behalf of the Borrower Parties as a condition to the valid execution, delivery and performance by the Borrower Parties of this Agreement or any of the other Loan Documents. (d) VALID AND BINDING OBLIGATIONS. This Agreement and the other Loan Documents have been duly authorized, executed and delivered by the Borrower Party and constitute the legal, valid and binding obligations of the Borrower Party, enforceable against the Borrower Party in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the enforcement of creditors' rights generally or by equitable principles or by the exercise of discretion by any court. (e) NON-CONTRAVENTION; NO LIENS. Neither the execution and delivery of this Agreement and the other Loan Documents, nor the fulfillment of or compliance with the terms and conditions of this Agreement and the other Loan Documents nor the performance of the Obligations: (1) does or will conflict with or result in any breach or violation of any Applicable Law enacted or issued by any Governmental Authority or other agency having jurisdiction over the Borrower Party, any of the Mortgaged Properties or any other portion of the Collateral or other assets of the Borrower Party, or any judgment or order applicable to the Borrower Party or to which the Borrower Party, any of the Mortgaged Properties or other assets of the Borrower Party are subject; (2) does or will conflict with or result in any material breach or violation of, or constitute a default under, any of the terms, conditions or provisions of the Borrower Party's Organizational Documents, any indenture, existing agreement or other instrument to which the Borrower Party is a party or to which the Borrower Party, any of the Mortgaged Properties or any other portion of the Collateral or other assets of the Borrower Party are subject; (3) does or will result in or require the creation of any Lien on all or any portion of the Collateral or any of the Mortgaged Properties, except for the Permitted Liens; or (4) does or will require the consent or approval of any creditor of the Borrower Party, any Governmental Authority or any other Person except such consents or approvals which have already been obtained. (f) PENDING LITIGATION OR OTHER PROCEEDINGS. There is no pending or, to the best knowledge of the Borrower Party, threatened action, suit, proceeding or investigation, at law or in equity, before any court, board, body or official of any Governmental Authority or arbitrator against or affecting any Mortgaged Property or any other portion of the Collateral or other assets of the Borrower Party, which, if decided adversely to the Borrower Party, would have, or may reasonably be expected to have, a Material Adverse Effect. The Borrower Party is not in default with respect to any order of any Governmental Authority. (g) SOLVENCY. The Borrower Party is not insolvent and will not be rendered insolvent by the transactions contemplated by this Agreement or the other Loan Documents and -55- after giving effect to such transactions, the Borrower Party will not be left with an unreasonably small amount of capital with which to engage in its business or undertakings, nor will the Borrower Party have incurred, have intended to incur, or believe that it has incurred, debts beyond its ability to pay such debts as they mature. The Borrower Party did not receive less than a reasonably equivalent value in exchange for incurrence of the Obligations. There (i) is no contemplated, pending or, to the best of the Borrower Party's knowledge, threatened bankruptcy, reorganization, receivership, insolvency or like proceeding, whether voluntary or involuntary, affecting the Borrower Party or any of the Mortgaged Properties and (ii) has been no assertion or exercise of jurisdiction over the Borrower Party or any of the Mortgaged Properties by any court empowered to exercise bankruptcy powers. (h) NO CONTRACTUAL DEFAULTS. There are no defaults by the Borrower Party or, to the knowledge of the Borrower Party, by any other Person under any contract to which the Borrower Party is a party relating to any Mortgaged Property, including any management, rental, service, supply, security, maintenance or similar contract, other than defaults which do not permit the non-defaulting party to terminate the contract and which do not have, and are not reasonably be expected to have, a Material Adverse Effect. Neither the Borrower Party nor, to the knowledge of the Borrower Party, any other Person, has received notice or has any knowledge of any existing circumstances in respect of which it could receive any notice of default or breach in respect of any contracts affecting or concerning any Mortgaged Property. (i) COMPLIANCE WITH THE LOAN DOCUMENTS. The Borrower Party is in compliance with all provisions of the Loan Documents to which it is a party or by which it is bound. The representations and warranties made by the Borrower Party in the Loan Documents are true, complete and correct as of the Closing Date and do not contain any untrue statement of material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. (j) ERISA. The Borrower Party is in compliance in all material respects with all applicable provisions of ERISA and has not incurred any liability to the PBGC on a Plan under Title IV of ERISA. None of the assets of the Borrower Party constitute plan assets (within the meaning of Department of Labor Regulation ss. 2510.3-101) of any employee benefit plan subject to Title I of ERISA. (k) FINANCIAL INFORMATION. The financial projections relating to the Borrower Party and delivered to the Lender on or prior to the date hereof, if any, were prepared on the basis of assumptions believed by the Borrower Party, in good faith at the time of preparation, to be reasonable and the Borrower Party is not aware of any fact or information that would lead it to believe that such assumptions are incorrect or misleading in any material respect; provided, however, that no representation or warranty is made that any result set forth in such financial projections shall be achieved. The financial statements of the Borrower Party which have been furnished to the Lender are complete and accurate in all material respects and present fairly the financial condition of the Borrower Party, as of its date in accordance with GAAP, applied on a consistent basis, and since the date of the most recent of such financial statements no event has occurred which would have, or may reasonably be expected to have a Material Adverse Effect, and there has not been any material transaction entered into by the Borrower Party other than -56- transactions in the ordinary course of business. The Borrower Party has no material contingent obligations which are not otherwise disclosed in its most recent financial statements. (l) ACCURACY OF INFORMATION. No information, statement or report furnished in writing to the Lender by the Borrower Party in connection with this Agreement or any other Loan Document or in connection with the consummation of the transactions contemplated hereby and thereby contains any material misstatement of fact or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading; and the representations and warranties of the Borrower Party and the statements, information and descriptions contained in the Borrower Party's closing certificates, as of the Closing Date, are true, correct and complete in all material respects, do not contain any untrue statement or misleading statement of a material fact, and do not omit to state a material fact required to be stated therein or necessary to make the certifications, representations, warranties, statements, information and descriptions contained therein, in light of the circumstances under which they were made, not misleading; and the estimates and the assumptions contained herein and in any certificate of the Borrower Party delivered as of the Closing Date are reasonable and based on the best information available to the Borrower Party. (m) NO CONFLICTS OF INTEREST. To the best knowledge of the Borrower Party, no member, officer, agent or employee of the Lender has been or is in any manner interested, directly or indirectly, in that Person's own name, or in the name of any other Person, in the Loan Documents, the Borrower Party or any Mortgaged Property, in any contract for property or materials to be furnished or used in connection with such Mortgaged Property or in any aspect of the transactions contemplated by the Loan Documents. (n) GOVERNMENTAL APPROVALS. No Governmental Approval not already obtained or made is required for the execution and delivery of this Agreement or any other Loan Document or the performance of the terms and provisions hereof or thereof by the Borrower Party. (o) GOVERNMENTAL ORDERS. The Borrower Party is not presently under any cease or desist order or other orders of a similar nature, temporary or permanent, of any Governmental Authority which would have the effect of preventing or hindering performance of its duties hereunder, nor are there any proceedings presently in progress or to its knowledge contemplated which would, if successful, lead to the issuance of any such order. (p) NO RELIANCE. The Borrower Party acknowledges, represents and warrants that it understands the nature and structure of the transactions contemplated by this Agreement and the other Loan Documents, that it is familiar with the provisions of all of the documents and instruments relating to such transactions; that it understands the risks inherent in such transactions, including the risk of loss of all or any of the Mortgaged Properties; and that it has not relied on the Lender or Fannie Mae for any guidance or expertise in analyzing the financial or other consequences of the transactions contemplated by this Agreement or any other Loan Document or otherwise relied on the Lender or Fannie Mae in any manner in connection with interpreting, entering into or otherwise in connection with this Agreement, any other Loan Document or any of the matters contemplated hereby or thereby. -57- (q) COMPLIANCE WITH APPLICABLE LAW. The Borrower Party is in compliance with Applicable Law, including all Governmental Approvals, if any, except for such items of noncompliance that, singly or in the aggregate, have not had and are not reasonably expected to cause, a Material Adverse Effect. (r) CONTRACTS WITH AFFILIATES. Except as otherwise approved in writing by the Lender, the Borrower Party has not entered into and is not a party to any contract, lease or other agreement with any Affiliate of the Borrower Party for the provision of any service, materials or supplies to any Mortgaged Property (including any contract, lease or agreement for the provision of property management services, cable television services or equipment, gas, electric or other utilities, security services or equipment, laundry services or equipment or telephone services or equipment). The Lender hereby approves the property management agreements set forth on EXHIBIT AA to this Agreement. (s) LINES OF BUSINESS. The Borrower Party is not engaged in any businesses other than the acquisition, ownership, development, construction, leasing, financing or management of Multifamily Residential Properties, and the conduct of these businesses does not violate the Organizational Documents pursuant to which it is formed. (t) STATUS AS A REAL ESTATE INVESTMENT TRUST. The REIT is qualified, and is taxed as, a real estate investment trust under Subchapter M of the Internal Revenue Code, and is not engaged in any activities which would jeopardize such qualification and tax treatment. (u) YEAR 2000 COMPLIANCE. The Borrower Party has conducted a comprehensive review and assessment of its computer systems and applications and made inquiry of the Borrower Party's key suppliers and vendors with respect to the so-called "year 2000 problem" (the risk that computer applications may not be able to properly perform date-sensitive functions after December 31, 1999) and, based on that review and inquiry, the Borrower Party does not believe that the "year 2000 problem" will result in a material adverse change in the ability of the Borrower Party and its Subsidiaries to manage and operate their properties and pay and perform their obligations hereunder. SECTION 12.02 REPRESENTATIONS AND WARRANTIES OF THE BORROWER PARTIES. The Borrower Parties hereby represent and warrant to the Lender as follows with respect to each of the Mortgaged Properties: (a) TITLE. The relevant Borrower Party has good, valid, marketable and indefeasible title to each Mortgaged Property (either in fee simple or as tenant under a ground lease meeting all of the requirements of the DUS Guide), free and clear of all Liens whatsoever except the Permitted Liens. Each Security Instrument, if and when properly recorded in the appropriate records, together with any Uniform Commercial Code financing statements required to be filed in connection therewith, will create a valid, perfected first lien on the Mortgaged Property intended to be encumbered thereby (including the Leases related to such Mortgaged Property and the rents and all rights to collect rents under such Leases), subject only to Permitted Liens. Except for any Permitted Liens, there are no Liens or claims for work, labor or materials affecting any Mortgaged Property which are or may be prior to, subordinate to, or of -58- equal priority with, the Liens created by the Loan Documents. The Permitted Liens do not have, and may not reasonably be expected to have, a Material Adverse Effect. (b) IMPOSITIONS. The Borrower Parties have filed all property and similar tax returns required to have been filed by it with respect to each Mortgaged Property and has paid and discharged, or caused to be paid and discharged, all installments for the payment of all Taxes due to date, and all other material Impositions imposed against, affecting or relating to each Mortgaged Property other than those which have not become due, together with any fine, penalty, interest or cost for nonpayment pursuant to such returns or pursuant to any assessment received by it, provided, however, that if the Borrower Parties contest in good faith and by appropriate proceeding the validity or applicability of any Imposition, provides to the Lender security in such amount and in such form as the Lender may reasonably require, then compliance with the Imposition in question shall be suspended during the pendency of such contest. The Borrower Parties have no knowledge of any new proposed Tax, levy or other governmental or private assessment or charge in respect of any Mortgaged Property which has not been disclosed in writing to the Lender. (c) ZONING. Each Mortgaged Property complies in all material respects with all Applicable Laws affecting such Mortgaged Property. Without limiting the foregoing, all material Permits, including certificates of occupancy, to the extent issued by the relevant jurisdiction, have been issued and are in full force and effect. Neither the Borrower Parties nor, to the knowledge of the Borrower Parties, any former owner of any Mortgaged Property, has received any written notification or threat of any actions or proceedings regarding the noncompliance or nonconformity of any Mortgaged Property with any Applicable Laws or Permits, nor are the Borrower Parties otherwise aware of any such pending actions or proceedings. (d) LEASES. The Borrower Parties have delivered to the Lender a true and correct copy of their form apartment lease for each Mortgaged Property (and, with respect to leases executed prior to the date on which the Borrower Parties first owned the Mortgaged Property, the form apartment lease used for such leases), and each Lease with respect to such Mortgaged Property is in the form thereof, with no material modifications thereto, except as previously disclosed in writing to the Lender. Except as set forth in a Rent Roll, no Lease for any unit in any Mortgaged Property (i) is for a term in excess of one year, including any renewal or extension period unless such renewal or extension period is subject to termination by the Borrower Parties upon not more than 30 days' written notice, (ii) provides for prepayment of more than one month's rent, or (iii) was entered into in other than the ordinary course of business. (e) RENT ROLL. The Borrower Parties have executed and delivered to the Lender a Rent Roll for each Mortgaged Property, each dated as of and delivered within 30 days prior to the Closing Date. Each Rent Roll sets forth each and every unit subject to a Lease which is in full force and effect as of the date of such Rent Roll. The information set forth on each Rent Roll is true, correct and complete in all material respects as of its date and there has occurred no material adverse change in the information shown on any Rent Roll from the date of each such Rent Roll to the Closing Date. Except as disclosed in the Rent Roll with respect to -59- each Mortgaged Property or otherwise previously disclosed in writing to the Lender, no Lease is in effect as of the date of the Rent Roll with respect to such Mortgaged Property. (f) STATUS OF LANDLORD UNDER LEASES. Except for any assignment of leases and rents which is a Permitted Lien or which is to be released in connection with the consummation of the transactions contemplated by this Agreement, the relevant Borrower Party is the owners and holders of the landlord's interest under each of the Leases of units in each Mortgaged Property and there are no prior outstanding assignments of any such Lease, or any portion of the rents, additional rents, charges, issues or profits due and payable or to become due and payable thereunder. (g) ENFORCEABILITY OF LEASES. Each Lease constitutes the legal, valid and binding obligation of the Borrower Parties and, to the knowledge of the Borrower Parties, of each of the other parties thereto, enforceable in accordance with its terms, subject only to bankruptcy, insolvency, reorganization or other similar laws relating to creditors' rights generally, and equitable principles, and except as disclosed in writing to the Lender, no notice of any default by the Borrower Parties which remains uncured has been sent by any tenant under any such Lease, other than defaults which do not have, and are not reasonably expected to have, a Material Adverse Effect on the Mortgaged Property subject to the Lease. (h) NO LEASE OPTIONS. All premises demised to tenants under Leases are occupied by such tenants as tenants only. No Lease contains any option or right to purchase, right of first refusal or any other similar provisions. No option or right to purchase, right of first refusal, purchase contract or similar right exists with respect to any Mortgaged Property. (i) INSURANCE. The Borrower Parties have delivered to the Lender true and correct certified copies of all Insurance Policies currently in effect as of the date of this Agreement with respect to the Mortgaged Property which it owns. Each such Insurance Policy complies in all material respects with the requirements set forth in the Loan Documents. (j) TAX PARCELS. Each Mortgaged Property is on one or more separate tax parcels, and each such parcel (or parcels) is (or are) separate and apart from any other property. (k) ENCROACHMENTS. Except as disclosed on the Survey with respect to each Mortgaged Property, none of the improvements located on any Mortgaged Property encroaches upon the property of any other Person or upon any easement encumbering the Mortgaged Property, nor lies outside of the boundaries and building restriction lines of such Mortgaged Property and no improvement located on property adjoining such Mortgaged Property lies within the boundaries of or in any way encroaches upon such Mortgaged Property. (l) INDEPENDENT UNIT. Except for Permitted Liens and as disclosed on EXHIBIT BB to this Agreement, or as disclosed in a Title Insurance Policy or Survey for the Mortgaged Property, each Mortgaged Property is an independent unit which does not rely on any drainage, sewer, access, parking, structural or other facilities located on any Property not included either in such Mortgaged Property or on public or utility easements for the (i) fulfillment of any zoning, building code or other requirement of any Governmental Authority that has jurisdiction over such Mortgaged Property, (ii) structural support, or (iii) the fulfillment -60- of the requirements of any Lease or other agreement affecting such Mortgaged Property. The relevant Borrower Party, directly or indirectly, has the right to use all amenities, easements, public or private utilities, parking, access routes or other items necessary or currently used for the operation of each Mortgaged Property. All public utilities are installed and operating at each Mortgaged Property and all billed installation and connection charges have been paid in full. Each Mortgaged Property is either (x) contiguous to or (y) benefits from an irrevocable unsubordinated easement permitting access from such Mortgaged Property to a physically open, dedicated public street, and has all necessary permits for ingress and egress and is adequately serviced by public water, sewer systems and utilities. No building or other improvement not located on a Mortgaged Property relies on any part of the Mortgaged Property to fulfill any zoning requirements, building code or other requirement of any Governmental Authority that has jurisdiction over the Mortgaged Property, for structural support or to furnish to such building or improvement any essential building systems or utilities. (m) CONDITION OF THE MORTGAGED PROPERTIES. Except as disclosed in any third party report delivered to the Lender prior to the date on which a Borrower Party's Mortgaged Property is added to the Collateral Pool, or otherwise disclosed in writing by the relevant Borrower Party to the Lender prior to such date, each Mortgaged Property is in good condition, order and repair, there exist no structural or other material defects in such Mortgaged Property (whether patent or, to the best knowledge of the relevant Borrower Party, latent or otherwise) and the relevant Borrower Party has not received notice from any insurance company or bonding company of any defects or inadequacies in such Mortgaged Property, or any part of it, which would adversely affect the insurability of such Mortgaged Property or cause the imposition of extraordinary premiums or charges for insurance or of any termination or threatened termination of any policy of insurance or bond. No claims have been made against any contractor, architect or other party with respect to the condition of any Mortgaged Property or the existence of any structural or other material defect therein. No Mortgaged Property has been materially damaged by casualty which has not been fully repaired or for which insurance proceeds have not been received or are not expected to be received except as previously disclosed in writing to the Lender. There are no proceedings pending for partial or total condemnation of any Mortgaged Property except as disclosed in writing to the Lender. SECTION 12.03 REPRESENTATIONS AND WARRANTIES OF THE LENDER. The Lender hereby represents and warrants to the Borrower Parties as follows: (a) DUE ORGANIZATION. The Lender is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) POWER AND AUTHORITY. The Lender has the requisite power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement. (c) DUE AUTHORIZATION. The execution and delivery by the Lender of this Agreement, and the consummation by it of the transactions contemplated thereby, and the performance by it of its obligations thereunder, have been duly and validly authorized by all necessary action and proceedings by it or on its behalf. ARTICLE XIII -61- AFFIRMATIVE COVENANTS OF THE BORROWER PARTIES Each Borrower Party, with respect to itself, agrees and covenants with the Lender that, at all times during the Term of this Agreement: SECTION 13.01 COMPLIANCE WITH AGREEMENTS. The Borrower Party shall comply with all the terms and conditions of each Loan Document to which it is a party or by which it is bound; provided, however, that the Borrower Party's failure to comply with such terms and conditions shall not be an Event of Default until the expiration of the applicable notice and cure periods, if any, specified in the applicable Loan Document. SECTION 13.02 MAINTENANCE OF EXISTENCE. The Borrower Party shall maintain its existence and continue to be a limited partnership or corporation, as the case may be, organized under the laws of the state of its organization. The Borrower Party shall continue to be duly qualified to do business in each jurisdiction in which such qualification is necessary to the conduct of its business and where the failure to be so qualified would adversely affect the validity of, the enforceability of, or the ability to perform, its obligations under this Agreement or any other Loan Document. SECTION 13.03 MAINTENANCE OF REIT STATUS. During the Term of this Agreement, the REIT shall qualify, and be taxed as, a real estate investment trust under Subchapter M of the Internal Revenue Code, and will not be engaged in any activities which would jeopardize such qualification and tax treatment. SECTION 13.04 FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION. The Borrower Party shall keep and maintain at all times complete and accurate books of accounts and records in sufficient detail to correctly reflect (x) all of the Borrower Party's financial transactions and assets and (y) the results of the operation of each Mortgaged Property and copies of all written contracts, Leases and other instruments which affect each Mortgaged Property (including all bills, invoices and contracts for electrical service, gas service, water and sewer service, waste management service, telephone service and management services). In addition, the Borrower Parties shall furnish, or cause to be furnished, to the Lender: (a) ANNUAL FINANCIAL STATEMENTS. As soon as available, and in any event within 90 days after the close of its fiscal year during the Term of this Agreement, the audited balance sheet of the REIT and its Subsidiaries as of the end of such fiscal year, the audited statement of income, equity and retained earnings of the REIT and its Subsidiaries for such fiscal year and the audited statement of cash flows of the REIT and its Subsidiaries for such fiscal year, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior fiscal year, prepared in accordance with GAAP, consistently applied, and accompanied by a certificate of the REIT's independent certified public accountants to the effect that such financial statements have been prepared in accordance with GAAP, consistently applied, and that such financial statements fairly present the results of its operations and financial condition for the periods and dates indicated, with such certification to be free of exceptions and qualifications as to the scope of the audit or as to the going concern nature of the business. -62- (b) QUARTERLY FINANCIAL STATEMENTS. As soon as available, and in any event within 45 days after each of the first three fiscal quarters of each fiscal year during the Term of this Agreement, the unaudited balance sheet of the REIT and its Subsidiaries as of the end of such fiscal quarter, the unaudited statement of income and retained earnings of the REIT and its Subsidiaries and the unaudited statement of cash flows of the REIT and its Subsidiaries for the portion of the fiscal year ended with the last day of such quarter, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the previous fiscal year, accompanied by a certificate of the Chief Financial Officer of the REIT to the effect that such financial statements have been prepared in accordance with GAAP, consistently applied, and that such financial statements fairly present the results of its operations and financial condition for the periods and dates indicated subject to year end adjustments in accordance with GAAP. (c) QUARTERLY PROPERTY STATEMENTS. As soon as available, and in any event within 45 days after each Calendar Quarter, a statement of income and expenses of each Mortgaged Property accompanied by a certificate of the Chief Financial Officer of the REIT to the effect that each such statement of income and expenses fairly, accurately and completely presents the operations of each such Mortgaged Property for the period indicated. (d) ANNUAL PROPERTY STATEMENTS. On an annual basis within forty-five (45) days of the end of its fiscal year, an annual statement of income and expenses of each Mortgaged Property accompanied by a certificate of the Chief Financial Officer of the REIT to the effect that each such statement of income and expenses fairly, accurately and completely presents the operations of each such Mortgaged Property for the period indicated. (e) UPDATED RENT ROLLS. Upon the Lender's request (but not more frequently than quarterly), a current Rent Roll for each Mortgaged Property, showing the name of each tenant, and for each tenant, the space occupied, the lease expiration date, the rent payable, the rent paid and any other information requested by the Lender and accompanied by a certificate of the Chief Financial Officer of the REIT to the effect that each such Rent Roll fairly, accurately and completely presents the information required therein. (f) SECURITY DEPOSIT INFORMATION. Upon the Lender's request, an accounting of all security deposits held in connection with any Lease of any part of any Mortgaged Property, including the name and identification number of the accounts in which such security deposits are held, the name and address of the financial institutions in which such security deposits are held and the name and telephone number of the person to contact at such financial institution, along with any authority or release necessary for the Lender to access information regarding such accounts. (g) SECURITY LAW REPORTING INFORMATION. So long as the REIT is a reporting company under the Securities and Exchange Act of 1934, promptly upon becoming available, (a) copies of all financial statements, reports and proxy statements sent or made available generally by any Borrower Party, or any of its Affiliates, to their respective security holders, (b) all regular and periodic reports and all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or a similar form) and prospectuses, if any, filed by any Borrower Party, or any of its Affiliates, with the Securities and Exchange Commission or other Governmental Authorities, and (c) all statements made available generally by any Borrower Party, or any of their Affiliates, to the public concerning material developments in the business of the REIT or other party. -63- (h) ACCOUNTANTS' REPORTS. Promptly upon receipt thereof, copies of any reports or management letters submitted to the Borrower Party by its independent certified public accountants in connection with the examination of its financial statements made by such accountants (except for reports otherwise provided pursuant to subsection (a) above); provided, however, that the Borrower Party shall only be required to deliver such reports and management letters to the extent that they relate to any Borrower Party or any Mortgaged Property. (i) ANNUAL BUDGETS. Promptly, and in any event within 60 days after the start of its fiscal year, an annual budget for each Mortgaged Property for such fiscal year, setting forth an estimate of all of the costs and expenses, including capital expenses, of maintaining and operating each Mortgaged Property. (j) REIT PLANS AND PROJECTIONS. If prepared by the REIT, within 90 days after the beginning of each fiscal year, copies of (1) the REIT's business plan for the current and the succeeding two fiscal years, (2) the REIT's annual budget (including capital expenditure budgets) and projections for each Mortgaged Property; and (3) the REIT's financial projections for the current and the succeeding two fiscal years, as prepared by the REIT's Chief Financial Officer and in a format and with such detail as the Lender may require. (k) STRATEGIC PLAN. Within 90 days after the end of each fiscal year of the REIT, the REIT shall deliver to the Lender a written narrative discussing the REIT's publicly disclosed short and long range plans, including its plans for operations, mergers, acquisitions and management, and accompanied by supporting financial projections and schedules, certified by a member of Senior Management as true, correct and complete ("STRATEGIC PLAN") If the REIT's or any other Borrower Party's Strategic Plan materially changes, then such person shall deliver to the Lender the Strategic Plan as so changed. (l) ANNUAL RENTAL AND SALES COMPARABLE ANALYSIS. Within 30 days after the Lender's request, a rental and sales comparable analysis of the local real estate market in which each Mortgaged Property is located, in a form approved by the Lender. (m) FEDERAL TAX RETURNS. Upon request of Lender, the Federal Tax Returns of the REIT. (n) OTHER REPORTS. Promptly upon receipt thereof, all schedules, financial statements or other similar reports delivered by the Borrower Party pursuant to the Loan Documents or requested by the Lender with respect to the Borrower Party's business affairs or condition (financial or otherwise) or any of the Mortgaged Properties. (o) CERTIFICATION. All certifications required to be delivered pursuant to this Section 13.04 shall run directly to and be for the benefit of Lender and Fannie Mae. SECTION 13.05 CERTIFICATE OF COMPLIANCE. The Borrower Party shall deliver to the Lender concurrently with the delivery of the financial statements and/or reports required to be delivered -64- pursuant to Section 13.04 (a) and (b) above a certificate signed by the Chief Financial Officer of the REIT stating that, to the best knowledge of such individual following reasonable inquiry, (i) setting forth in reasonable detail the calculations required to establish whether each Borrower Party was in compliance with the requirements of Sections 15.02 through 15.08 on the date of such financial statements, and (ii) stating that, to the best knowledge of such individual following reasonable inquiry, no Event of Default or Potential Event of Default has occurred, or if an Event of Default or Potential Event of Default has occurred, specifying the nature thereof in reasonable detail and the action which the relevant Borrower Party is taking or proposes to take with respect thereto. Any certificate required by this Section 13.05 shall run directly to and be for the benefit of Lender and Fannie Mae. SECTION 13.06 MAINTAIN LICENSES. The Borrower Party shall procure and maintain in full force and effect all licenses, Permits, charters and registrations which are material to the conduct of its business and shall abide by and satisfy all terms and conditions of all such licenses, Permits, charters and registrations. SECTION 13.07 ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND ACCOUNTANTS. To the extent permitted by law and in addition to the applicable requirements of the Security Instruments, the Borrower Party shall permit the Lender: (a) to inspect, make copies and abstracts of, and have reviewed or audited, such of the Borrower Party's books and records as may relate to the Obligations or any Mortgaged Property; (b) to discuss the Borrower Party's affairs, finances and accounts with any of the Borrower Party's officers, partners and employees; (c) to discuss the Mortgage Properties' conditions, operations or maintenance with the managers of such Mortgaged Properties and the officers and employees of the Borrower Party; (d) to discuss the Borrower Party's affairs, finances and accounts with its independent public accountants; and (e) to receive any other information that the Lender deems reasonably necessary or relevant in connection with any Advance, any Loan Document or the Obligations. Notwithstanding the foregoing, prior to an Event of Default or Potential Event of Default and in the absence of an emergency, all inspections shall be conducted at reasonable times during normal business hours upon reasonable notice to the Borrower Parties. SECTION 13.08 INFORM THE LENDER OF MATERIAL EVENTS. The Borrower Party shall promptly inform the Lender in writing of any of the following (and shall deliver to the Lender copies of any related written communications, complaints, orders, judgments and other documents relating to the following) of which the Borrower Party has actual knowledge: (a) DEFAULTS. The occurrence of any Event of Default or any Potential Event of Default under this Agreement or any other Loan Document; -65- (b) REGULATORY PROCEEDINGS. The commencement of any rulemaking or disciplinary proceeding or the promulgation of any proposed or final rule which would have, or may reasonably be expected to have, a Material Adverse Effect; (c) LEGAL PROCEEDINGS. The commencement or threat of, or amendment to, any proceedings by or against the Borrower Party in any Federal, state or local court or before any Governmental Authority, or before any arbitrator, which, if adversely determined, would have, or at the time of determination may reasonably be expected to have, a Material Adverse Effect; (d) BANKRUPTCY PROCEEDINGS. The commencement of any proceedings by or against the Borrower Party under any applicable bankruptcy, reorganization, liquidation, insolvency or other similar law now or hereafter in effect or of any proceeding in which a receiver, liquidator, trustee or other similar official is sought to be appointed for it; (e) REGULATORY SUPERVISION OR PENALTY. The receipt of notice from any Governmental Authority having jurisdiction over the Borrower Party that (A) the Borrower Party is being placed under regulatory supervision, (B) any license, Permit, charter, membership or registration material to the conduct of the Borrower Party's business or the Mortgaged Properties is to be suspended or revoked or (C) the Borrower Party is to cease and desist any practice, procedure or policy employed by the Borrower Party, as the case may be, in the conduct of its business, and such cessation would have, or may reasonably be expected to have, a Material Adverse Effect; (f) ENVIRONMENTAL CLAIM. The receipt from any Governmental Authority or other Person of any notice of violation, claim, demand, abatement, order or other order or direction (conditional or otherwise) for any damage, including personal injury (including sickness, disease or death), tangible or intangible property damage, contribution, indemnity, indirect or consequential damages, damage to the environment, pollution, contamination or other adverse effects on the environment, removal, cleanup or remedial action or for fines, penalties or restrictions, resulting from or based upon (a) the existence or occurrence, or the alleged existence or occurrence, of a Hazardous Substance Activity or (b) the violation, or alleged violation, of any Hazardous Materials Laws in connection with any Mortgaged Property or any of the other assets of a Borrower Party; (g) MATERIAL ADVERSE EFFECTS. The occurrence of any act, omission, change or event which has a Material Adverse Effect, subsequent to the date of the most recent audited financial statements of the Borrower Parties delivered to the Lender pursuant to Section 13.04; (h) ACCOUNTING CHANGES. Any material change in any Borrower Party's accounting policies or financial reporting practices; (i) LEGAL AND REGULATORY STATUS. The occurrence of any act, omission, change or event, including any Governmental Approval, the result of which is to change or alter in any way the legal or regulatory status of any Borrower Party; and (j) DEFAULT ON INDEBTEDNESS. The occurrence of any event that results in or could result in (i) any imminent default, default or waiver of default in respect of any -66- Indebtedness having an unpaid principal balance of $1,000,000 or more, (ii) the failure of any Borrower Party to pay when due or within any applicable grace period any Indebtedness of any Borrower Party, or (iii) any Indebtedness of any Borrower Party becoming due and payable before its normal maturity by reason of a default or event of default, however described, or any other event of default shall occur and continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness. SECTION 13.09 INTENTIONALLY OMITTED. SECTION 13.10 INSPECTION. The Borrower Party shall permit any Person designated by the Lender: (i) to make entries upon and inspections of the Mortgaged Properties; and (ii) to otherwise verify, examine and inspect the amount, quantity, quality, value and/or condition of, or any other matter relating to, any Mortgaged Property; PROVIDED, HOWEVER, that prior to an Event of Default or Potential Event of Default and in the absence of an emergency, all such entries, examinations and inspections shall be conducted at reasonable times during normal business hours upon reasonable notice to the Borrower Party. SECTION 13.11 COMPLIANCE WITH APPLICABLE LAWS. The Borrower Party shall comply in all material respects with all Applicable Laws now or hereafter affecting any Mortgaged Property or any part of any Mortgaged Property or requiring any alterations, repairs or improvements to any Mortgaged Property. The Borrower Party shall procure and continuously maintain in full force and effect, and shall abide by and satisfy all material terms and conditions of all Permits. SECTION 13.12 WARRANTY OF TITLE. The relevant Borrower Party shall warrant and defend (a) the title to each Mortgaged Property and every part of each Mortgaged Property, subject only to Permitted Liens, and (b) the validity and priority of the lien of the applicable Loan Documents, subject only to Permitted Liens, in each case against the claims of all Persons whatsoever. The Borrower Parties shall reimburse the Lender for any losses, costs, damages or expenses (including reasonable attorneys' fees and court costs) incurred by the Lender if an interest in any Mortgaged Property, other than with respect to a Permitted Lien, is claimed by others. SECTION 13.13 DEFENSE OF ACTIONS. The Borrower Party shall appear in and defend any action or proceeding purporting to affect the security for this Agreement or the rights or power of the Lender hereunder, and shall pay all costs and expenses, including the cost of evidence of title and reasonable attorneys' fees, in any such action or proceeding in which the Lender may appear. If the Borrower Party fails to perform any of the covenants or agreements contained in this Agreement, or if any action or proceeding is commenced that is not diligently defended by the Borrower Party which affects in any material respect the Lender's interest in any Mortgaged Property or any part thereof, including eminent domain, code enforcement or proceedings of any nature whatsoever under any Applicable Law, whether now existing or hereafter enacted or amended, then the Lender may, but without obligation to do so and without notice to or demand upon the Borrower Party and without releasing the Borrower Party from any Obligation, make such appearances, disburse such sums and take such action as the Lender deems necessary or appropriate to protect the Lender's interest, including disbursement of attorney's fees, entry upon such Mortgaged Property to make repairs or take other action to protect the security of said Mortgaged Property, and payment, purchase, contest or compromise of any encumbrance, charge or lien which in the judgment of the Lender appears to be prior or superior to the Loan -67- Documents. In the event (i) that any Security Instrument is foreclosed in whole or in part or that any Loan Document is put into the hands of an attorney for collection, suit, action or foreclosure, or (ii) of the foreclosure of any mortgage, deed to secure debt, deed of trust or other security instrument prior to or subsequent to any Security Instrument or any Loan Document in which proceeding the Lender is made a party or (iii) of the bankruptcy of the Borrower Party or an assignment by the Borrower Party for the benefit of their respective creditors, the Borrower Party shall be chargeable with and agrees to pay all reasonable costs of collection and defense, including actual attorneys' fees in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein, which shall be due and payable together with all required service or use taxes. SECTION 13.14 ALTERATIONS TO THE MORTGAGED PROPERTIES. Except as otherwise provided in the Loan Documents, the Borrower Party shall have the right to undertake any alteration, improvement, demolition, removal or construction (collectively, "ALTERATIONS") to the Mortgaged Property which it owns without the prior consent of the Lender; PROVIDED, HOWEVER, that in any case, no such Alteration shall be made to any Mortgaged Property without the prior written consent of the Lender if (i) such Alteration could reasonably be expected to adversely affect the value of such Mortgaged Property or its operation as a multifamily housing facility in substantially the same manner in which it is being operated on the date such property became Collateral, (ii) the construction of such Alteration could reasonably be expected to result in interference to the occupancy of tenants of such Mortgaged Property such that tenants in occupancy with respect to five percent (5%) or more of the Leases would be permitted to terminate their Leases or to abate the payment of all or any portion of their rent, or (iii) such Alteration will be completed in more than 12 months from the date of commencement or in the last year of the Term of this Agreement. Notwithstanding the foregoing, the Borrower Party must obtain the Lender's prior written consent to construct Alterations with respect to the Mortgaged Property costing in excess of, with respect to any Mortgaged Property, the number of units in such Mortgaged Property multiplied by $2,000, but in any event, costs in excess of $350,000 and the Borrower Party must give prior written notice to the Lender of its intent to construct Alterations with respect to such Mortgaged Property costing in excess of $150,000; provided, however, that the preceding requirements shall not be applicable to Alterations made, conducted or undertaken by the Borrower Party as part of the Borrower Party's routine maintenance and repair of the Mortgaged Properties as required by the Loan Documents. SECTION 13.15 ERISA. The Borrower Party shall at all times remain in compliance in all material respects with all applicable provisions of ERISA and similar requirements of the PBGC. SECTION 13.16 LOAN DOCUMENT TAXES. If any tax, assessment or Imposition (other than a franchise tax or excise tax imposed on or measured by, the net income or capital (including branch profits tax) of the Lender (or any transferee or assignee thereof, including a participation holder)) ("LOAN DOCUMENT TAXES") is levied, assessed or charged by the United States, or any State in the United States, or any political subdivision or taxing authority thereof or therein upon any of the Loan Documents or the obligations secured thereby, the interest of the Lender in the Mortgaged Properties, or the Lender by reason of or as holder of the Loan Documents, the Borrower Party shall pay all such Loan Document Taxes to, for, or on account of the Lender (or provide funds to the Lender for such payment, as the case may be) as they become due and -68- payable and shall promptly furnish proof of such payment to the Lender, as applicable. In the event of passage of any law or regulation permitting, authorizing or requiring such Loan Document Taxes to be levied, assessed or charged, which law or regulation in the opinion of counsel to the Lender may prohibit the Borrower Party from paying the Loan Document Taxes to or for the Lender, the Borrower Party shall enter into such further instruments as may be permitted by law to obligate the Borrower Party to pay such Loan Document Taxes. SECTION 13.17 FURTHER ASSURANCES. The Borrower Party, at the request of the Lender, shall execute and deliver and, if necessary, file or record such statements, documents, agreements, UCC financing and continuation statements and such other instruments and take such further action as the Lender from time to time may request as reasonably necessary, desirable or proper to carry out more effectively the purposes of this Agreement or any of the other Loan Documents or to subject the Collateral to the lien and security interests of the Loan Documents or to evidence, perfect or otherwise implement, to assure the lien and security interests intended by the terms of the Loan Documents or in order to exercise or enforce its rights under the Loan Documents. SECTION 13.18 MONITORING COMPLIANCE. Upon the request of the Lender, from time to time, the Borrower Party shall promptly provide to the Lender such documents, certificates and other information as may reasonably be deemed necessary to enable the Lender to perform its functions under the Servicing Agreement. SECTION 13.19 LEASES. Each unit in each Mortgaged Property will be leased pursuant to the form lease delivered to, and acceptable to, the Lender, with no material modifications to such approved form lease, except as disclosed in writing to the Lender. SECTION 13.20 INTENTIONALLY OMITTED. SECTION 13.21 TRANSFER OF OWNERSHIP INTERESTS OF THE BORROWER PARTIES. (a) PROHIBITION ON TRANSFERS. Subject to paragraph (b) of this Section 13.21, the Borrower Parties shall not cause or permit a Transfer or a Change of Control. (b) PERMITTED TRANSFERS. Notwithstanding the provisions (a) of this Section 13.21, the following Transfers by the Borrower Parties are permitted without the consent of the Lender: (i) A Transfer that occurs by inheritance, devise, or bequest or by operation of law upon the death of a natural person who is an owner of a Mortgaged Property or the owner of a direct or indirect ownership interest in the Borrower Parties. (ii) The grant of a leasehold interest in individual dwelling units or commercial spaces in accordance with the Security Instrument. (iii) A sale or other disposition of obsolete or worn out personal property which is contemporaneously replaced by comparable personal property of equal or greater value which is free and clear of liens, encumbrances and security interests other than those created by the Loan Documents. -69- (iv) The creation of a mechanic's or materialmen's lien or judgment lien against a Mortgaged Property which is released of record or otherwise remedied to Lender's satisfaction within 30 days of the date of creation. (v) The grant of an easement, if prior to the granting of the easement the Borrower Parties cause to be submitted to Lender all information required by Lender to evaluate the easement, and if Lender consents to such easement based upon Lender's determination that the easement will not materially affect the operation of the Mortgaged Property or Lender's interest in the Mortgaged Property and Borrower Parties pay to Lender, on demand, all reasonable costs and expenses incurred by Lender in connection with reviewing Borrower Parties' request. Lender shall not unreasonably withhold its consent to or withhold its agreement to subordinate the lien of a Security Instrument to (A) the grant of a utility easement serving a Mortgaged Property to a publicly operated utility, or (B) the grant of an easement related to expansion or widening of roadways, provided that any such easement is in form and substance reasonably acceptable to Lender and does not materially and adversely affect the access, use or marketability of a Mortgaged Property. (vi) The Transfer of shares of common stock, limited partnership interests or other beneficial or ownership interest or other forms of securities in the REIT or the OP, and the issuance of all varieties of convertible debt, equity and other similar securities of the REIT or the OP, and the subsequent Transfer of such securities; provided, however, that no Change in Control occurs as a result of such Transfer, either upon such Transfer or upon the subsequent conversion to equity or such convertible debt or other securities. (vii) The Transfer of limited partnership interests by the limited partners of Borrower Parties, including, without limitation, the conversion or exchange of limited partnership interests in Borrower Parties to shares of common stock or other beneficial or ownership interests or other forms of securities in the REIT; provided, however, that no Change in Control occurs as the result of such Transfer. (viii) The issuance by Borrower Parties of additional limited partnership units or convertible debt, equity and other similar securities, and the subsequent Transfer of such units or other securities; provided, however, that no Change in Control occurs as the result of such Transfer, either upon such Transfer or upon the subsequent conversion to equity of such convertible debt or other securities. (ix) A merger with or acquisition of another entity by Borrower Parties, provided that (A) Borrower Parties are the surviving entity after such merger or acquisition, (B) no Change in Control occurs, and (C) such merger or acquisition does not result in an Event of Default, as such terms are defined in this Agreement. (x) A Transfer in connection with any substitution or release pursuant to the terms and conditions of Article VII of this Agreement. -70- (c) CONSENT TO PROHIBITED TRANSFERS. Lender may, in its sole and absolute discretion, consent to a Transfer that would otherwise violate this Section 13.21 if, prior to the Transfer, Borrower Parties have satisfied each of the following requirements: (i) the submission to Lender of all information required by Lender to make the determination required by this Section 13.21(c); (ii) the absence of any Event of Default; (iii) the transferee meets all of the eligibility, credit, management and other standards (including any standards with respect to previous relationships between Lender and the transferee and the organization of the transferee) customarily applied by Lender at the time of the proposed Transfer to the approval of Borrower Parties in connection with the origination or purchase of similar mortgages, deeds of trust or deeds to secure debt on multifamily properties; (iv) in the case of a Transfer of direct or indirect ownership interests in Borrower Parties, if transferor or any other person has obligations under any Loan Documents, the execution by the transferee of one or more individuals or entities acceptable to Lender of an assumption agreement that is acceptable to Lender and that, among other things, requires the transferee to perform all obligations of transferor or such person set forth in such Loan Document, and may require that the transferee comply with any provisions of this Instrument or any other Loan Document which previously may have been waived by Lender; (v) Lender's receipt of all of the following: (A) a transfer fee equal to 1 percent of the Commitment immediately prior to the transfer. (B) In addition, Borrower Parties shall be required to reimburse Lender for all of Lender's reasonable out-of-pocket costs (including reasonable attorneys' fees) incurred in reviewing the Transfer request. SECTION 13.22 CHANGE IN SENIOR MANAGEMENT. (a) The Borrower Parties shall give the Lender notice of any change in the identity of Senior Management. (b) Within 30 Business Days after receipt of the Borrower Parties' notice, the Lender shall have the right to terminate this Agreement and the Credit Facility by giving a notice of such termination to the Borrower Parties. In such event, this Agreement and the Credit Facility shall terminate with the same effect as if the Lender had approved a Credit Facility Termination Request (including the Borrower Parties' obligation, pursuant to Section 10.03(a), to pay in full all of the Notes Outstanding on the Closing Date, including any other charges under the Notes), except that, for these purposes, the Closing Date shall be the 180th day after the date on which the Borrower Parties first receive the Lender's termination notice. -71- (c) If the Lender exercises its termination right pursuant to subsection (b), the Borrower Parties shall have a period of 120 days, commencing with the date on which the Borrower Parties receives the Lender's termination notice, to request that the Lender rescind its termination notice. The Borrower Parties may include in their request any undertakings which they are willing to make in order to obtain such a rescission. The Lender shall give the Borrower Parties notice of its acceptance or rejection of the Borrower Parties' request within 30 Business Days after the Borrower Parties make the request. If the Lender accepts the request, the Lender shall give the Borrower Parties a notice that the termination notice shall be deemed rescinded and of no further force or effect, and this Agreement and the Credit Facility shall continue in accordance with, and subject to the terms, conditions and limitations contained in, this Agreement. SECTION 13.23 DATE-DOWN ENDORSEMENTS. At any time and from time to time, a Lender may obtain an endorsement to each Title Insurance Policy containing a Revolving Credit Endorsement, amending the effective date of the Title Insurance Policy to the date of the title search performed in connection with the endorsement. The Borrower Parties shall pay for the cost and expenses incurred by the Lender to the Title Company in obtaining such endorsement, provided that, for each Title Insurance Policy, it shall not be liable to pay for more than one such endorsement in any consecutive 12 month period. SECTION 13.24 GEOGRAPHICAL DIVERSIFICATION. The Borrower shall maintain Mortgaged Properties in the Collateral Pool so that the Collateral Pool consists of at least seven (7) Mortgaged Properties located in at least five (5) states, and provided, however, that, upon the occurrence of any increase in the Commitment pursuant to Article VIII, the Borrower shall at all times thereafter cause the Collateral Pool to satisfy such other Geographical Diversification Requirements as the Lender may determine and notify Borrower of at the time of the increase. SECTION 13.25 OWNERSHIP OF MORTGAGED PROPERTIES. A Borrower Party shall be the sole owner of each of the Mortgaged Properties free and clear of any Liens other than Permitted Liens. ARTICLE XIV NEGATIVE COVENANTS OF THE BORROWER PARTIES Each Borrower Party, with respect to itself, agrees and covenants with the Lender that, at all times during the Term of this Agreement: SECTION 14.01 OTHER ACTIVITIES. No Borrower Party shall: (a) engage in any business or activity other than in connection with (i) the Ownership, development, construction, management and operation of Multifamily Residential Properties or other types of real property in which it has expertise and (ii) activities related to the activities permitted in (i) above; (b) amend its Organizational Documents in any material respect without the prior written consent of the Lender; (c) dissolve or liquidate in whole or in part; -72- (d) except as otherwise provided in this Agreement, without the prior written consent of Lender, merge or consolidate with any Person; or (e) use, or permit to be used, any Mortgaged Property for any uses or purposes other than as a Multifamily Residential Property. SECTION 14.02 VALUE OF SECURITY. The Borrower Party shall not take any action which could reasonably be expected to have any Material Adverse Effect. SECTION 14.03 ZONING. The Borrower Party shall not initiate or consent to any zoning reclassification of any Mortgaged Property or seek any variance under any zoning ordinance or use or permit the use of any Mortgaged Property in any manner that could result in the use becoming a nonconforming use under any zoning ordinance or any other applicable land use law, rule or regulation. SECTION 14.04 LIENS. The Borrower Party shall not create, incur, assume or suffer to exist any Lien on any Mortgaged Property or any part of any Mortgaged Property, except the Permitted Liens. SECTION 14.05 SALE. Except in connection with a release of Collateral in accordance with Article VII, the Borrower Party shall not Transfer any Mortgaged Property or any part of any Mortgaged Property without the prior written consent of the Lender (which consent may be granted or withheld in the Lender's discretion), or any interest in any Mortgaged Property, other than to enter into Leases for units in a Mortgaged Property to any tenant in the ordinary course of business. For so long as the Mortgaged Property commonly known as Paddock Park Ocala II and located in Ocala, Florida is part of the Collateral Pool, the Borrower Party shall not sell or otherwise transfer any Ownership Interest in the entity owing all or any part of the property commonly known as Paddock Park Ocala I and located in Ocala, Florida (except for any Transfer permitted under this Agreement) and any uncured default on any indebtedness secured by such Multifamily Residential Property shall be a default under this Agreement. For so long as the Mortgaged Property commonly known as Paddock Club Tallahassee I and located in Tallahassee, Florida, is part of the Collateral Pool, the Borrower Party shall not sell or otherwise transfer any Ownership Interest in the entity owing all or any part of the property commonly known as Paddock Club Tallahassee II and located in Tallahassee, Florida (except for any Transfer permitted under this Agreement) and any uncured default on any indebtedness secured by such Multifamily Residential Property shall be a default under this Agreement. SECTION 14.06 INDEBTEDNESS. The Borrower Party shall not incur or be obligated at any time with respect to any Indebtedness (other than Advances) in connection with any of the Mortgaged Properties. SECTION 14.07 PRINCIPAL PLACE OF BUSINESS. The Borrower Party shall not change its principal place of business or the location of its books and records, each as set forth in Section 12.01(a), without first giving 30 days' prior written notice to the Lender. SECTION 14.08 FREQUENCY OF REQUESTS. The Borrower shall have the right, subject to the terms, conditions and limitations of this Agreement, to make a Future Advance Request for a Variable Facility Advance on any day until the expiration of the Variable Facility Availability -73- Period and to make a Future Advance Request for a Fixed Facility Advance on any day until the expiration of the Fixed Facility Availability Period. SECTION 14.09 CHANGE IN PROPERTY MANAGEMENT. The Borrower Parties shall not change the management agent for any Mortgaged Property except to a management agent which the Lender determines is qualified in accordance with the criteria set forth in Section 701 of the DUS Guide. SECTION 14.10 CONDOMINIUMS. The Borrower Parties shall not submit any Mortgaged Property to a condominium regime during the Term of this Agreement. SECTION 14.11 RESTRICTIONS ON PARTNERSHIP DISTRIBUTIONS. The Borrower Party shall not make any distributions of any nature or kind whatsoever to the owners of its Ownership Interests as such if, at the time of such distribution, a Potential Event of Default or an Event of Default has occurred and remains uncured. SECTION 14.12 LINES OF BUSINESS. The Borrower Party shall not be substantially involved in any businesses other than the acquisition, ownership, development, construction, leasing, financing or management, directly or through Affiliates, of Multifamily Residential Properties, and the conduct of these businesses shall not violate the Organizational Documents pursuant to which it is formed. SECTION 14.13 LIMITATION ON UNIMPROVED REAL PROPERTY AND NEW CONSTRUCTION. The Borrower Party shall not permit: (a) the value of its real property which is not improved (except real property on which phases of a Mortgaged Property are contemplated to be constructed) by one or more buildings leased, or held out for lease, to third parties ("Unimproved Real Property") to exceed 10% of the value of all of its "Real Estate Assets" (as that term is defined in Section 856(c)(6)(B) of the Internal Revenue Code and the regulations thereunder); and (b) the sum of (i) the value of its Unimproved Real Property and (ii) the value of its Real Estate Assets which are under construction or subject to substantial rehabilitation to exceed 20% of the value of all of its Real Estate Assets. All of the foregoing values shall be reasonably determined by the Lender. SECTION 14.14 DIVIDEND PAYOUT. The Borrower Party shall not make a dividend payment (including both common stock dividends and preferred stock dividends) which is greater than ninety percent (90%) of Funds from Operations or that would otherwise violate the United States federal tax laws governing the qualifications of real estate investment trusts. As used herein, "Funds from Operations" shall mean consolidated net income of the REIT (computed in accordance with GAAP), excluding gains (or losses) from debt restructuring or sales of property, plus depreciation and goodwill amortization, before extraordinary or unusual items, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect Funds from Operations on the same basis. Upon written pre-approval of the Lender, exceptions may be made where the Board of Directors of the REIT determines, in good faith, that a special -74- dividend must be paid to avoid taxes due to excess gains from the sale of Multifamily Residential Properties. ARTICLE XV FINANCIAL COVENANTS OF THE BORROWER PARTIES Each Borrower Party agrees and covenants with the Lender that, at all times during the Term of this Agreement: SECTION 15.01 FINANCIAL DEFINITIONS. For all purposes of this Agreement, the following terms shall have the respective meanings set forth below: "CONSOLIDATED EBITDA" means, for any period, and without double counting any item, the EBITDA for the Borrower Parties and their respective Subsidiaries for such period on a consolidated basis. "CONSOLIDATED EBITDA TO FIXED CHARGES RATIO" means, for any period of determination, the ratio (expressed as a percentage) of-- (a) the excess of-- (i) the Consolidated EBITDA for the period, less (ii) the Imputed Capital Expenditures for the period; TO (b) the Consolidated Fixed Charges for the period. "CONSOLIDATED EBITDA TO INTEREST RATIO" means, for any period of determination, the ratio (expressed as a percentage) of-- (a) the excess of-- (i) the Consolidated EBITDA for the period, less (ii) the Imputed Capital Expenditures for the period; TO (b) the Consolidated Interest Expense for the period. "CONSOLIDATED FIXED CHARGES" means, for any period of determination, the sum of-- (a) the Consolidated Interest Expense for the period; (b) the Consolidated Scheduled Amortization for the period; and (c) Preferred Distributions for the period. -75- "CONSOLIDATED INTEREST EXPENSE" means, for any period of determination, and without double counting any item, the sum of the Interest Expense for the Borrower Parties and their respective Subsidiaries for such period on a consolidated basis. "CONSOLIDATED SCHEDULED AMORTIZATION" means, for any period of determination, and without double counting any item, the sum of the Scheduled Amortization (but excluding balloon payments) for the Borrower Parties and their respective Subsidiaries for such period on a consolidated basis. "CONSOLIDATED TOTAL ASSETS" means, for any Person, all assets of such Person and its Subsidiaries determined on a consolidated basis in accordance with GAAP; provided that all assets composed of real property shall be valued on an undepreciated cost basis and the portion of any joint venture assets owned by such Person shall be included in Consolidated Total Assets. The assets of a Person and its Subsidiaries shall be adjusted to reflect such Person's allocable share of such assets, for the relevant period or as of the date of determination, taking into account (a) the relative proportion of each such item derived from assets directly owned by such Person and from assets owned by its Subsidiaries, and (b) such Person's respective ownership interest in its Subsidiaries. "CONSOLIDATED TOTAL INDEBTEDNESS" means, as of any date, and without double counting any item, the Total Indebtedness for each Borrower Party and their respective Subsidiaries as of such date (including the Total Indebtedness of the Borrower Parties as of such date and the portion of any indebtedness of any joint venture in which any Borrower Party or any Subsidiary thereof is a venturer attributable to such Borrower Party or its Subsidiary). "EBITDA" means, for any period, the sum determined in accordance with GAAP, of the following, for any Person on a consolidated basis-- (a) the net income (or net loss) of such Person during such Period, but excluding gains and losses on the sale of fixed assets; (b) all amounts treated as expenses for depreciation, Interest Expense and the amortization of intangibles of any kind to the extent included in the determination of such net income (or loss); and (c) all accrued taxes on or measured by income to the extent included in the determination of such net income (or loss); PROVIDED, HOWEVER, that net income (or loss) shall be computed for these purposes without giving effect to extraordinary losses or extraordinary gains. "IMPUTED CAPITAL EXPENDITURES" means, for any four (4) consecutive quarters, an amount equal to the average number of apartment units owned by the Borrower Parties or their Subsidiaries during such period multiplied by Three Hundred Dollars ($300.00) per apartment unit, and for any period of less than four (4) consecutive quarters, an appropriate proration of such figure. "INTEREST EXPENSE" means, for any period, the sum of-- -76- (a) gross interest expense for the period (including all commissions, discounts, fees and other charges in connection with standby letters of credit and similar instruments) for the Borrower Parties and their respective Subsidiaries; and (b) the portion of the up-front costs and expenses for Rate Contracts entered into by the Borrower Parties and their respective Subsidiaries (to the extent not included in gross interest expense) fairly allocated to such Rate Contracts as expenses for such period, as determined in accordance with GAAP; (c) provided, that, all interest expense accrued by the Borrower Parties and their respective Subsidiaries during such period, even if not payable on or before the Credit Facility Termination Date, shall be included within "Interest Expense." Notwithstanding the foregoing, interest accrued under any Intra-Company Debt shall not be included within "Interest Expense" for any purposes hereof. "INTRA-COMPANY DEBT" means Indebtedness (whether book-entry or evidenced by a term, demand or other note or other instrument) owed by the Borrower Parties or any of their respective Subsidiaries to any Subsidiary, and incurred or assumed for the purpose of capitalizing a Subsidiary of the Borrower Parties. "MANAGEMENT ENTITY" means the REIT. "NET WORTH" means, as of any specified date, for any Person, the excess of the Person's assets over the Person's liabilities, determined in accordance with GAAP, on a consolidated basis, provided that all real property shall be valued on an undepreciated basis. "PLEDGED CASH" shall mean the amount held on deposit in the Pledgee Account. "PREFERRED DISTRIBUTIONS" means, for any period, the amount of any and all distributions due and payable to the holders of any form of preferred stock (whether perpetual, convertible or otherwise) or other ownership or beneficial interest in the REIT or any of its Subsidiaries that entitles the holders thereof to preferential payment or distribution priority with respect to dividends, assets or other payments over the holders of any other stock or other ownership or beneficial interest in such Person. "RATE CONTRACTS" means interest rate and currency swap agreements, cap, floor and collar agreements, interest rate insurance, currency spot and forward contracts and other agreements or arrangements designed to provide protection against fluctuations in interest or currency exchange rates. "RESTRICTED CASH" means the sum of Pledged Cash plus any cash pledged by the Borrower Parties or any of their Subsidiaries to other lenders, as indicated in the line item for "restricted cash" in the Borrower Parties' balance sheet from time to time. "SCHEDULED AMORTIZATION" means, with respect to any Person, the sum, as of any date of determination, of the current portion (i.e., such portion as is scheduled to be paid by the obligor thereof within 12 months from the date of determination) of all regularly scheduled -77- amortization payments due on such Person's long-term fully amortizing mortgage Indebtedness (exclusive of balloon payments). "STOCK" means all shares, options, warrants, interests, participations or other equivalents (regardless of how designated) of or in a corporation or equivalent entity, whether voting or nonvoting, including common stock, preferred stock, perpetual preferred stock or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities and Exchange Act of 1934, and regulations promulgated thereunder). "TOTAL INDEBTEDNESS" means, as of any date of determination, and in respect of any Person, all outstanding Indebtedness, and shall include, without limitation: (i) such Person's share of the Indebtedness of any partnership or joint venture in which such Person directly or indirectly holds any interest; and (ii) any recourse or contingent obligations, directly or indirectly, of such Person with respect to any Indebtedness of such partnership or joint venture in excess of its proportionate share. Notwithstanding the foregoing, (x) Intra-Company Debt, and (y) accounts payable to trade creditors for goods and services and current operating liabilities (not the result of the borrowing of money) incurred in the ordinary course of business in accordance with customary terms and paid within the specified time, shall be excluded from the calculation of "Total Indebtedness" but shall not otherwise be excluded as Indebtedness for any other purpose hereof. "UNCONSOLIDATED PARTNERSHIP" means any partnership or joint venture (a) in which any Borrower Party or any Subsidiary of any Borrower Party holds an interest which is not consolidated in the financial statements of the REIT or (b) which is not a Subsidiary. "WHOLLY-OWNED SUBSIDIARY" means a Subsidiary of the Borrower Parties one hundred percent (100%) of the Stock or other equity or other beneficial interests (in the case of Persons other than corporations) is owned directly or indirectly by the Borrower Parties; provided, however, that where such term is qualified with respect to a specific Person (e.g., "Wholly-Owned Subsidiary of the REIT") such terms means a Subsidiary one hundred percent (100%) of the Stock or other equity or other beneficial interests (in the case of Persons other than corporations) is owned directly or indirectly by the specified Person. SECTION 15.02 COMPLIANCE WITH DEBT SERVICE COVERAGE RATIOS. The Borrower Parties shall at all times maintain the Aggregate Debt Service Coverage Ratio for the Trailing 12 Month Period so that it is not less than 1.40:1.0. SECTION 15.03 COMPLIANCE WITH LOAN TO VALUE RATIOS. The Borrower Parties shall at all times maintain the Aggregate Loan to Value Ratio so that it is not greater than 65%. SECTION 15.04 COMPLIANCE WITH CONCENTRATION TEST. (a) The Borrower Parties shall at all times maintain the Collateral so that the aggregate Valuations of any group of Mortgaged Properties located within a one mile radius shall not exceed 25% of the aggregate Valuations of all Mortgaged Properties. -78- (b) The Borrower Parties shall at all times maintain the Collateral so that the Valuation of any one Mortgaged Property shall not exceed 20% of the aggregate Valuations of all Mortgaged Properties. SECTION 15.05 COMPLIANCE WITH REIT'S NET WORTH TEST. The REIT shall at all times maintain its Net Worth so that it is not less than $550,000,000. SECTION 15.06 COMPLIANCE WITH REIT'S TOTAL INDEBTEDNESS TO CONSOLIDATED TOTAL ASSETS RATIO. The REIT shall not permit the ratio of Consolidated Total Indebtedness to Consolidated Total Assets to exceed 60% at any time. SECTION 15.07 COMPLIANCE WITH REIT'S CONSOLIDATED EBITDA TO INTEREST RATIO. The REIT shall not permit the Consolidated EBITDA to Interest Ratio computed for any fiscal quarter to be less than 200% for any period of four consecutive fiscal quarters (treated as a single accounting period). SECTION 15.08 COMPLIANCE WITH REIT'S CONSOLIDATED EBITDA TO FIXED CHARGE RATIO. The REIT shall not permit the Consolidated EBITDA to Fixed Charges Ratio computed for any fiscal quarter or year to be less than 150% for any period of four consecutive fiscal quarters (treated as a single accounting period). ARTICLE XVI FEES SECTION 16.01 STANDBY FEE. The Borrower shall pay the Standby Fee to the Lender for the period from the date of this Agreement to the end of the Term of this Agreement. The Standby Fee shall be payable monthly, in arrears, on the first Business Day following the end of the month, except that the Standby Fee for the last month during the Term of this Agreement shall be paid on the last day of the Term of this Agreement. SECTION 16.02 ORIGINATION FEES. (a) INITIAL ORIGINATION FEE. The Borrower shall pay to the Lender an origination fee ("INITIAL ORIGINATION FEE") equal to $736,001.50 (which is equal to the product obtained by multiplying (i) the Commitment as of the date of this Agreement ($113,231,000), by (ii) .65%). The Borrower shall pay the Initial Origination Fee on the date of this Agreement. (b) EXPANSION ORIGINATION FEE. Upon the closing of a Credit Facility Expansion Request under Article VIII, the Borrower shall pay to the Lender an origination fee ("EXPANSION ORIGINATION FEE") equal to the product obtained by multiplying (i) the increase in the Commitment made on the Closing Date for the Credit Facility Expansion Request, by (ii) .65%. The Borrower shall pay the Expansion Origination Fee on or before the Closing Date for the Credit Facility Expansion Request. SECTION 16.03 DUE DILIGENCE FEES. -79- (a) INITIAL DUE DILIGENCE FEES. The Borrower shall pay to the Lender due diligence fees ("INITIAL DUE DILIGENCE FEES") with respect to the Initial Mortgaged Properties in an amount not to exceed the product obtained by multiplying: (A) $16,000, by (B) the number of Initial Mortgaged Properties; The Borrower has previously paid to the Lender a portion of the Initial Due Diligence Fees and shall pay the remainder of the Initial Due Diligence Fees to the Lender on the Initial Closing Date. Any portion of the Initial Due Diligence Fee paid to Lender not actually used by Lender to cover reasonable due diligence expenses shall be promptly refunded to the Borrower. (b) ADDITIONAL DUE DILIGENCE FEES FOR ADDITIONAL COLLATERAL. The Borrower shall pay to the Lender additional reasonable due diligence fees (the "ADDITIONAL COLLATERAL DUE DILIGENCE FEES") with respect to each Additional Mortgaged Property in an amount not to exceed the sum of $16,000. The Borrower shall pay Additional Collateral Due Diligence Fees for the Additional Mortgaged Property to the Lender on the date on which it submits the Collateral Addition Request for the addition of the Additional Mortgaged Property to the Collateral Pool. SECTION 16.04 LEGAL FEES AND EXPENSES. (a) INITIAL LEGAL FEES. The Borrower shall pay, or reimburse the Lender for, all out-of-pocket legal fees and expenses incurred by the Lender and by Fannie Mae in connection with the preparation, review and negotiation of this Agreement and any other Loan Documents executed on the date of this Agreement. Lender's legal fees shall not exceed $8,000 per Multifamily Residential Property comprising the Initial Collateral Pool. On the date of this Agreement, the Borrower shall pay all such legal fees and expenses not previously paid or for which funds have not been previously provided. (b) FEES AND EXPENSES ASSOCIATED WITH REQUESTS. The Borrower shall pay, or reimburse the Lender for, all reasonable costs and expenses incurred by the Lender, including the out-of-pocket legal fees and expenses incurred by the Lender in connection with the preparation, review and negotiation of all documents, instruments and certificates to be executed and delivered in connection with each Request, the performance by the Lender of any of its obligations with respect to the Request, the satisfaction of all conditions precedent to the Borrower's rights or the Lender's obligations with respect to the Request, and all transactions related to any of the foregoing, including the cost of title insurance premiums and applicable recordation and transfer taxes and charges and all other reasonable costs and expenses in connection with a Request. The obligations of the Borrower under this subsection shall be absolute and unconditional, regardless of whether the transaction requested in the Request actually occurs. The Borrower shall pay such costs and expenses to the Lender on the Closing Date for the Request, or, as the case may be, after demand by the Lender when the Lender determines that such Request will not close. SECTION 16.05 MBS-RELATED COSTS. The Borrower shall pay to the Lender, within 30 days after demand, all reasonable fees and expenses incurred by the Lender or Fannie Mae in -80- connection with the issuance of any MBS backed by an Advance, including the fees charged by Depository Trust Company and State Street Bank or any successor fiscal agent or custodian. SECTION 16.06 FAILURE TO CLOSE ANY REQUEST. If the Borrower makes a Request and fails to close on the Request for any reason other than the default by the Lender, then the Borrower shall pay to the Lender and Fannie Mae all damages incurred by the Lender and Fannie Mae in connection with the failure to close. SECTION 16.07 OTHER FEES. The Borrower shall pay the following additional fees and payments, if and when required pursuant to the terms of this Agreement: (a) The Collateral Addition Fee, pursuant to Section 6.03(b), in connection with the addition of an Additional Mortgaged Property to the Collateral Pool pursuant to Article VI; (b) The Release Price, pursuant to Section 7.02(c), in connection with the release of a Mortgaged Property from the Collateral Pool pursuant to Article VII; (c) The Release Fee, pursuant to Section 7.03(c), in connection with the release of a Mortgaged Property from the Collateral Pool pursuant to Article VII; (d) The Variable Facility Termination Fee, pursuant to Section 9.03(b) in connection with a complete or partial termination of the Variable Facility pursuant to Article IX; and (e) The Variable Facility Termination Fee, pursuant to Section 10.03(b), in connection with the termination of the Credit Facility pursuant to Article X. ARTICLE XVII EVENTS OF DEFAULT SECTION 17.01 EVENTS OF DEFAULT. Each of the following events shall constitute an "Event of Default" under this Agreement, whatever the reason for such event and whether it shall be voluntary or involuntary, or within or without the control of a Borrower Party, or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule or regulation of any Governmental Authority: (a) the occurrence of a default under any Loan Document beyond the cure period, if any, set forth therein; or (b) the failure by the Borrower Parties to pay when due any amount payable by the Borrower Parties under any Note, any Mortgage, this Agreement or any other Loan Document, including any fees, costs or expenses; or (c) the failure by any Borrower Party to perform or observe any covenant set forth in Sections 13.01 through 13.25 or Sections 14.01 through 14.14, provided that such period shall be extended for up to 30 additional days if the Borrower Party, in the discretion of -81- the Lender, is diligently pursuing a cure of such default within 30 days after receipt of notice from the Lender; or (d) any warranty, representation or other written statement made by or on behalf of a Borrower Party contained in this Agreement, any other Loan Document or in any instrument furnished in compliance with or in reference to any of the foregoing, is false or misleading in any material respect on any date when made or deemed made; or (e) any other Indebtedness in an aggregate amount of $1,000,000 of any Borrower Party or assumed by any Borrower Party (i) is not paid when due nor within any applicable grace period in any agreement or instrument relating to such Indebtedness or (ii) becomes due and payable before its normal maturity by reason of a default or event of default, however described, or any other event of default shall occur and continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or (f) (i) A Borrower Party shall (A) commence a voluntary case under the Federal bankruptcy laws (as now or hereafter in effect), (B) file a petition seeking to take advantage of any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, debt adjustment, winding up or composition or adjustment of debts, (C) consent to or fail to contest in a timely and appropriate manner any petition filed against it in an involuntary case under such bankruptcy laws or other laws, (D) apply for or consent to, or fail to contest in a timely and appropriate manner, the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of a substantial part of its property, domestic or foreign, (E) admit in writing its inability to pay, or generally not be paying, its debts as they become due, (F) make a general assignment for the benefit of creditors, (G) assert that any Borrower Party has no liability or obligations under this Agreement or any other Loan Document to which it is a party; or (H) take any action for the purpose of effecting any of the foregoing; or (ii) a case or other proceeding shall be commenced against a Borrower Party in any court of competent jurisdiction seeking (A) relief under the Federal bankruptcy laws (as now or hereafter in effect) or under any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding upon or composition or adjustment of debts, or (B) the appointment of a trustee, receiver, custodian, liquidator or the like of the Borrower Party, or of all or a substantial part of the property, domestic or foreign, of the Borrower Party and any such case or proceeding shall continue undismissed or unstayed for a period of 60 consecutive calendar days, or any order granting the relief requested in any such case or proceeding against the Borrower Party (including an order for relief under such Federal bankruptcy laws) shall be entered; or (g) if any provision of this Agreement or any other Loan Document or the lien and security interest purported to be created hereunder or under any Loan Document shall at any time for any reason cease to be valid and binding in accordance with its terms on any Borrower Party, or shall be declared to be null and void, or the validity or enforceability hereof or thereof or the validity or priority of the lien and security interest created hereunder or under any other Loan Document shall be contested by any Borrower Party seeking to establish the invalidity or unenforceability hereof or thereof, or any Borrower Party shall deny that it has any further liability or obligation hereunder or thereunder; or (h) (i) the execution by the Borrower Parties of a chattel mortgage or other security agreement on any materials, fixtures or articles used in the construction or operation of the improvements located on any Mortgaged Property or on articles of personal property located therein, or (ii) if any such materials, fixtures or articles are purchased pursuant to any conditional sales contract or other security agreement or otherwise so that the Ownership thereof will not vest unconditionally in the Borrower Parties free from encumbrances, or (iii) if the Borrower Parties do not furnish to the Lender upon request the contracts, bills of sale, statements, receipted vouchers and agreements, or any of them, under which the Borrower Parties claim title to such materials, fixtures, or articles; or -82- (i) the failure by any Borrower Party to comply with any requirement of any Governmental Authority within 30 days after written notice of such requirement shall have been given to the Borrower Party by such Governmental Authority; provided that, if action is commenced and diligently pursued by the Borrower Party within such 30 days, then the Borrower Party shall have an additional 30 days to comply with such requirement; or (j) a dissolution or liquidation for any reason (whether voluntary or involuntary) of any Borrower Party; or (k) any judgment against any Borrower Party, any attachment or other levy against any portion of any Borrower Party's assets with respect to a claim or claims in an amount in excess of $500,000 in the aggregate remains unpaid, unstayed on appeal undischarged, unbonded, not fully insured or undismissed for a period of 60 days; or (l) the failure by the Borrower Parties to cause the Gross Revenues with respect to any Mortgaged Property to be deposited into the applicable Pledgee Account in accordance with the requirements of the Cash Management Agreement; or (m) the failure of the Borrower Parties to perform or observe any of the Financial Covenants, which failure shall continue for a period of 30 days after the date on which the Borrower Party receives a notice from the Lender specifying the failure; or (n) the failure of the Borrower Parties to comply with the requirement to convert a portion of the Variable Commitment to a Fixed Facility Commitment and to borrow Fixed Facility Advances as required by Section 3.01; or (o) the failure by any Borrower Party to perform or observe any term, covenant, condition or agreement hereunder, other than as set forth in subsections (a) through (m) above, or in any other Loan Document, within 30 days after receipt of notice from the Lender identifying such failure. ARTICLE XVIII REMEDIES SECTION 18.01 REMEDIES; WAIVERS. Upon the occurrence of an Event of Default, the Lender may do any one or more of the following (without presentment, protest or notice of protest, all of which are expressly waived by the Borrower Parties): -83- (a) by written notice to the Borrower Parties, to be effective upon dispatch, terminate the Commitment and declare the principal of, and interest on, the Advances and all other sums owing by the Borrower Parties to the Lender under any of the Loan Documents forthwith due and payable, whereupon the Commitment will terminate and the principal of, and interest on, the Advances and all other sums owing by the Borrower Parties to the Lender under any of the Loan Documents will become forthwith due and payable. (b) The Lender shall have the right to pursue any other remedies available to it under any of the Loan Documents. (c) The Lender shall have the right to pursue all remedies available to it at law or in equity, including obtaining specific performance and injunctive relief. SECTION 18.02 WAIVERS; RESCISSION OF DECLARATION. The Lender shall have the right, to be exercised in its complete discretion, to waive any breach hereunder (including the occurrence of an Event of Default), by a writing setting forth the terms, conditions, and extent of such waiver signed by the Lender and delivered to the Borrower Parties. Unless such writing expressly provides to the contrary, any waiver so granted shall extend only to the specific event or occurrence which gave rise to the waiver and not to any other similar event or occurrence which occurs subsequent to the date of such waiver. SECTION 18.03 THE LENDER'S RIGHT TO PROTECT COLLATERAL AND PERFORM COVENANTS AND OTHER OBLIGATIONS. If any Borrower Party fails to perform the covenants and agreements contained in this Agreement or any of the other Loan Documents, then the Lender at the Lender's option may make such appearances, disburse such sums and take such action as the Lender deems necessary, in its sole discretion, to protect the Lender's interest, including (i) disbursement of reasonable attorneys' fees, (ii) entry upon the Mortgaged Property to make repairs and Replacements, (iii) procurement of satisfactory insurance as provided in paragraph 5 of the Security Instrument encumbering the Mortgaged Property, and (iv) if the Security Instrument is on a leasehold, exercise of any option to renew or extend the ground lease on behalf of the Borrower Parties and the curing of any default of the Borrower Parties in the terms and conditions of the ground lease. Any amounts disbursed by the Lender pursuant to this Section, with interest thereon, shall become additional indebtedness of the Borrower Parties secured by the Loan Documents. Unless the Borrower and the Lender agree to other terms of payment, such amounts shall be immediately due and payable and shall bear interest from the date of disbursement at the weighted average, as determined by Lender, of the interest rates in effect from time to time for each Advance unless collection from the Borrower of interest at such rate would be contrary to applicable law, in which event such amounts shall bear interest at the highest rate which may be collected from the Borrower under applicable law. Nothing contained in this Section shall require the Lender to incur any expense or take any action hereunder. SECTION 18.04 NO REMEDY EXCLUSIVE. Unless otherwise expressly provided, no remedy herein conferred upon or reserved is intended to be exclusive of any other available remedy, but each remedy shall be cumulative and shall be in addition to other remedies given under the Loan Documents or existing at law or in equity. -84- SECTION 18.05 NO WAIVER. No delay or omission to exercise any right or power accruing under any Loan Document upon the happening of any Event of Default or Potential Event of Default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. SECTION 18.06 NO NOTICE. In order to entitle the Lender to exercise any remedy reserved to the Lender in this Article, it shall not be necessary to give any notice, other than such notice as may be required under the applicable provisions of this Agreement or any of the other Loan Documents. SECTION 18.07 APPLICATION OF PAYMENTS. Except as otherwise expressly provided in the Loan Documents, and unless applicable law provides otherwise, (i) all payments received by the Lender from any of the Borrower Parties under the Loan Documents shall be applied by the Lender against any amounts then due and payable under the Loan Documents by any of the Borrower Parties, in any order of priority that the Lender may determine and (ii) the Borrower Parties shall have no right to determine the order of priority or the allocation of any payment it makes to the Lender. ARTICLE XIX RIGHTS OF FANNIE MAE SECTION 19.01 SPECIAL POOL PURCHASE CONTRACT. The Borrower Parties acknowledge that Fannie Mae is entering into an agreement with the Lender ("SPECIAL POOL PURCHASE CONTRACT"), pursuant to which, INTER alia, (i) the Lender shall agree to assign all of its rights under this Agreement to Fannie Mae, (ii) Fannie Mae shall accept the assignment of the rights, (iii) subject to the terms, limitations and conditions set forth in the Special Pool Purchase Contract, Fannie Mae shall agree to purchase a 100% participation interest in each Advance issued under this Agreement by issuing to the Lender a Fannie Mae MBS, in the amount and for a term equal to the Advance purchased and backed by an interest in the Fixed Facility Note or the Variable Facility Note, as the case may be, and the Collateral Pool securing the Notes, (iv) the Lender shall agree to assign to Fannie Mae all of the Lender's interest in the Notes and Collateral Pool securing the Notes, and (v) the Lender shall agree to service the loans evidenced by the Notes. SECTION 19.02 ASSIGNMENT OF RIGHTS. The Borrower Parties acknowledge and consent to the assignment to Fannie Mae of all of the rights of the Lender under this Agreement and all other Loan Documents, including the right and power to make all decisions on the part of the Lender to be made under this Agreement and the other Loan Documents, but Fannie Mae, by virtue of this assignment, shall not be obligated to perform the obligations of the Lender under this Agreement or the other Loan Documents. SECTION 19.03 RELEASE OF COLLATERAL. The Borrower Parties hereby acknowledge that, after the assignment of Loan Documents contemplated in Section 19.02, the Lender shall not have the right or power to effect a release of any Collateral pursuant to Articles VII or X. The Borrower Parties acknowledge that the Security Instruments provide for the release of the Collateral under Articles VII and X. Accordingly, the Borrower Parties shall not look to the Lender for performance of any obligations set forth in Articles VII and X, but shall look solely to the party -85- secured by the Collateral to be released for such performance. The Lender represents and warrants to the Borrower Parties that the party secured by the Collateral shall be subject to the release provisions contained in Articles VII and X by virtue of the release provisions in each Security Instrument. SECTION 19.04 REPLACEMENT OF LENDER. At the request of Fannie Mae, the Borrower Parties and the Lender shall agree to the assumption by another lender designated by Fannie Mae (which lender shall meet Fannie Mae's then current standards for lenders for credit facilities of the type and size of the credit facility evidenced by this Agreement), of all of the obligations of the Lender under this Agreement and the other Loan Documents, and/or any related servicing obligations, and, at Fannie Mae's option, the concurrent release of the Lender from its obligations under this Agreement and the other Loan Documents, and/or any related servicing obligations, and shall execute all releases, modifications and other documents which Fannie Mae determines are necessary or desirable to effect such assumption. SECTION 19.05 FANNIE MAE AND LENDER FEES AND EXPENSES. The Borrower Parties agree that any provision providing for the payment of fees, costs or expenses incurred or charged by the Lender pursuant to this Agreement shall be deemed to provide for the Borrower's payment of all reasonable fees, costs and expenses incurred or charged by the Lender or Fannie Mae in connection with the matter for which fees, costs or expenses are payable. SECTION 19.06 THIRD-PARTY BENEFICIARY. The Borrower Parties hereby acknowledge and agree that Fannie Mae is a third party beneficiary of all of the representations, warranties and covenants made by any Borrower Parties to, and all rights under this Agreement conferred upon, the Lender, and, by virtue of its status as third-party beneficiary and/or assignee of the Lender's rights under this Agreement, Fannie Mae shall have the right to enforce all of the provisions of this Agreement against the Borrower Parties. ARTICLE XX INSURANCE, REAL ESTATE TAXES AND REPLACEMENT RESERVES SECTION 20.01 INSURANCE AND REAL ESTATE TAXES. The Borrower Parties shall (unless waived by Lender) establish funds for taxes, insurance premiums and certain other charges for each Mortgaged Property in accordance with Section 7(a) of the Security Instrument for each Mortgaged Property. SECTION 20.02 REPLACEMENT RESERVES. The Borrower Parties shall execute a Replacement Reserve Agreement for the Mortgaged Property which they own and shall (unless waived by the Lender) make all deposits for replacement reserves in accordance with the terms of the Replacement Reserve Agreement. ARTICLE XXI INTENTIONALLY OMITTED ARTICLE XXII LIMITS ON PERSONAL LIABILITY -86- SECTION 22.01 PERSONAL LIABILITY TO THE BORROWER PARTIES. (a) FULL RECOURSE. Except as provided in Section 22.01(b), the Borrower Parties are and shall remain jointly and severally personally liable to the Lender for the payment and performance of all Obligations throughout the term of this Agreement. (b) TERMINATION OF PERSONAL LIABILITY. The provisions of Section 22.01(a) shall be null and void upon the written notice of Borrower to Lender of its election to render such provisions null and void if (i) the Aggregate Loan to Value Ratio is 60% or less, (ii) the Aggregate Debt Service Ratio for the Trailing 12 Month Period is 145% or more, (iii) there has been a complete termination of the Variable Facility, and (iv) the Mortgaged Properties are owned in fee simple by a Borrower Party that is a Single Purpose Entity. Upon the termination of the effectiveness of Section 22.01(a) the following additional provisions of this agreement shall be null and void and no longer applicable: (1) The second, third and fourth sentences of Section 8.01; and (2) Sections 15.02 and 15.03 to the extent that a Default would result from the failure of the Borrower to be in compliance with such Sections; (c) Exceptions to Limits on Personal Liability. Upon termination of personal liability of the Borrower Parties pursuant to paragraph (b) of this Section 22.01, the Borrower Parties shall remain personally liable to the Lender on a joint and several basis for the repayment of a portion of the Advances and other amounts due under the Loan Documents equal to any loss or damage suffered by the Lender as a result of (1) failure of the Borrower Parties to pay to the Lender upon demand after an Event of Default all Rents to which the Lender is entitled under Section 3(a) of the Security Instrument encumbering the Mortgaged Property and the amount of all security deposits collected by the Borrower Parties from tenants then in residence; (2) failure of the Borrower Parties to apply all insurance proceeds and condemnation proceeds as required by the Security Instrument encumbering the Mortgaged Property; (3) failure of the Borrower Parties to comply with Section 13.04 relating to the delivery of books and records, statements, schedules and reports; (4) fraud or written material misrepresentation by any Borrower Party or any officer, director, partner, member or employee of any Borrower Party in connection with the application for or creation of the Obligations or any request for any action or consent by the Lender; (5) failure to apply Rents, first, to the payment of reasonable operating expenses and then to amounts ("Debt Service Amounts") payable under the Loan Documents (except that the Borrower Party will not be personally liable (i) to the extent that the Borrower Party lacks the legal right to direct the disbursement of such sums because of a bankruptcy, receivership or similar judicial proceeding, or (ii) with respect to Rents of a Mortgaged Property that are distributed in any Calendar Quarter if the Borrower Party has paid all operating expenses and Debt Service Amounts for that Calendar Quarter); (6) the Borrower Parties' failure to deposit all Gross Revenues into a Property Account (as defined in the Cash Management Agreement) in accordance with the Cash Management Agreement; or (7) failure of the Borrower to pay any and all documentary stamp taxes, intangible taxes and other taxes, impositions, fees and charges due on or with respect to the Note, the Indebtedness, this Instrument and/or any of the other Loan Documents. -87- (d) FULL RECOURSE AFTER TERMINATION OF PERSONAL LIABILITY. Upon termination of personal liability of the Borrower Parties pursuant to paragraph (b) of this Section 22.01, the Borrower Parties shall become personally liable to the Lender for the payment and performance of all Obligations upon the occurrence of any of the following Events of Default: (1) the Borrower Parties' acquisition of any property or operation of any business not permitted by Section 33 of the Security Instrument; or (2) a Transfer that is an Event of Default under Section 21 of the Security Instrument. (e) PERMITTED TRANSFER NOT RELEASE. No Transfer by the REIT of its Ownership Interests in the Borrower Parties shall release the Borrower Parties from liability under this Article, this Agreement or any other Loan Document, unless the Lender shall have approved the Transfer and shall have expressly released the Borrower Parties in connection with the Transfer. (f) MISCELLANEOUS. To the extent that a Borrower Party has personal liability under this Section, the Lender may exercise its rights against the Borrower Party personally without regard to whether the Lender has exercised any rights against the Mortgaged Property or any other security, or pursued any rights against any guarantor, or pursued any other rights available to the Lender under the Loan Documents or applicable law. For purposes of this Article, the term "Mortgaged Property" shall not include any funds that (1) have been applied by any Borrower Party as required or permitted by the Loan Documents prior to the occurrence of an Event of Default, or (2) are owned by a Borrower Party and which the Borrower Party was unable to apply as required or permitted by the Loan Documents because of a bankruptcy, receivership, or similar judicial proceeding. ARTICLE XXIII MISCELLANEOUS PROVISIONS SECTION 23.01 COUNTERPARTS. To facilitate execution, this Agreement may be executed in any number of counterparts. It shall not be necessary that the signatures of, or on behalf of, each party, or that the signatures of all persons required to bind any party, appear on each counterpart, but it shall be sufficient that the signature of, or on behalf of, each party, appear on one or more counterparts. All counterparts shall collectively constitute a single agreement. It shall not be necessary in making proof of this Agreement to produce or account for more than the number of counterparts containing the respective signatures of, or on behalf of, all of the parties hereto. SECTION 23.02 AMENDMENTS, CHANGES AND MODIFICATIONS. This Agreement may be amended, changed, modified, altered or terminated only by written instrument or written instruments signed by all of the parties hereto. SECTION 23.03 PAYMENT OF COSTS, FEES AND EXPENSES. The Borrower shall pay, on demand, all reasonable fees, costs, charges or expenses (including the fees and expenses of attorneys, accountants and other experts) incurred by the Lender in connection with: (a) Any amendment, consent or waiver to this Agreement or any of the Loan Documents (whether or not any such amendments, consents or waivers are entered into). -88- (b) Defending or participating in any litigation arising from actions by third parties and brought against or involving the Lender with respect to (i) any Mortgaged Property, (ii) any event, act, condition or circumstance in connection with any Mortgaged Property or (iii) the relationship between the Lender and the Borrower Parties or the REIT in connection with this Agreement or any of the transactions contemplated by this Agreement. (c) The administration or enforcement of, or preservation of rights or remedies under, this Agreement or any other Loan Documents or in connection with the foreclosure upon, sale of or other disposition of any Collateral granted pursuant to the Loan Documents. (d) The REIT's Registration Statement, or similar disclosure documents, including fees payable to any rating agencies, including the reasonable fees and expenses of the Lender's attorneys and accountants. The Borrower shall also pay, on demand, any transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution, delivery, filing, recordation, performance or enforcement of any of the Loan Documents or the Advances. However, the Borrower will not be obligated to pay any franchise, excise, estate, inheritance, income, excess profits or similar tax on the Lender. Any attorneys' fees and expenses payable by the Borrower pursuant to this Section shall be recoverable separately from and in addition to any other amount included in such judgment, and such obligation is intended to be severable from the other provisions of this Agreement and to survive and not be merged into any such judgment. Any amounts payable by the Borrower pursuant to this Section, with interest thereon if not paid when due, shall become additional indebtedness of the Borrower secured by the Loan Documents. Such amounts shall bear interest from the date such amounts are due until paid in full at the weighted average, as determined by Lender, of the interest rates in effect from time to time for each Advance unless collection from the Borrower of interest at such rate would be contrary to applicable law, in which event such amounts shall bear interest at the highest rate which may be collected from the Borrower under applicable law. The provisions of this Section are cumulative with, and do not exclude the application and benefit to the Lender of, any provision of any other Loan Document relating to any of the matters covered by this Section. SECTION 23.04 PAYMENT PROCEDURE. All payments to be made to the Lender pursuant to this Agreement or any of the Loan Documents shall be made in lawful currency of the United States of America and in immediately available funds by wire transfer to an account designated by the Lender before 1:00 p.m. (Washington, D.C. time) on the date when due. SECTION 23.05 PAYMENTS ON BUSINESS DAYS. In any case in which the date of payment to the Lender or the expiration of any time period hereunder occurs on a day which is not a Business Day, then such payment or expiration of such time period need not occur on such date but may be made on the next succeeding Business Day with the same force and effect as if made on the day of maturity or expiration of such period, except that interest shall continue to accrue for the period after such date to the next Business Day. SECTION 23.06 CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. NOTWITHSTANDING ANYTHING IN THE NOTES, THE SECURITY DOCUMENTS OR -89- ANY OF THE OTHER LOAN DOCUMENTS TO THE CONTRARY, EACH OF THE TERMS AND PROVISIONS, AND RIGHTS AND OBLIGATIONS OF EACH BORROWER PARTY UNDER THE NOTES, AND EACH BORROWER PARTY UNDER THE OTHER LOAN DOCUMENTS, SHALL BE GOVERNED BY, INTERPRETED, CONSTRUED AND ENFORCED PURSUANT TO AND IN ACCORDANCE WITH THE LAWS OF THE DISTRICT OF COLUMBIA (EXCLUDING THE LAW APPLICABLE TO CONFLICTS OR CHOICE OF LAW) EXCEPT TO THE EXTENT OF PROCEDURAL AND SUBSTANTIVE MATTERS RELATING ONLY TO (1) THE CREATION, PERFECTION AND FORECLOSURE OF LIENS AND SECURITY INTERESTS, AND ENFORCEMENT OF THE RIGHTS AND REMEDIES, AGAINST THE MORTGAGED PROPERTIES, WHICH MATTERS SHALL BE GOVERNED BY THE LAWS OF THE JURISDICTION IN WHICH THE MORTGAGED PROPERTY IS LOCATED, (2) THE PERFECTION, THE EFFECT OF PERFECTION AND NON-PERFECTION AND FORECLOSURE OF SECURITY INTERESTS ON PERSONAL PROPERTY (OTHER THAN DEPOSIT ACCOUNTS), WHICH MATTERS SHALL BE GOVERNED BY THE LAWS OF THE JURISDICTION DETERMINED BY THE CHOICE OF LAW PROVISIONS OF THE DISTRICT OF COLUMBIA UNIFORM COMMERCIAL CODE AND (3) THE PERFECTION, THE EFFECT OF PERFECTION AND NON-PERFECTION AND FORECLOSURE OF DEPOSIT ACCOUNTS, WHICH MATTERS SHALL BE GOVERNED BY THE LAWS OF THE JURISDICTION IN WHICH THE DEPOSIT ACCOUNT IS LOCATED. THE BORROWER PARTIES AGREE THAT ANY CONTROVERSY ARISING UNDER OR IN RELATION TO THE NOTES, THE SECURITY DOCUMENTS OR ANY OTHER LOAN DOCUMENT SHALL BE, EXCEPT AS OTHERWISE PROVIDED HEREIN, LITIGATED IN DISTRICT OF COLUMBIA. THE LOCAL AND FEDERAL COURTS AND AUTHORITIES WITH JURISDICTION IN DISTRICT OF COLUMBIA SHALL, EXCEPT AS OTHERWISE PROVIDED HEREIN, HAVE JURISDICTION OVER ALL CONTROVERSIES WHICH MAY ARISE UNDER OR IN RELATION TO THE LOAN DOCUMENTS, INCLUDING THOSE CONTROVERSIES RELATING TO THE EXECUTION, JURISDICTION, BREACH, ENFORCEMENT OR COMPLIANCE WITH THE NOTES, THE SECURITY DOCUMENTS OR ANY OTHER ISSUE ARISING UNDER, RELATING TO, OR IN CONNECTION WITH ANY OF THE LOAN DOCUMENTS. EACH BORROWER PARTY IRREVOCABLY CONSENTS TO SERVICE, JURISDICTION, AND VENUE OF SUCH COURTS FOR ANY LITIGATION ARISING FROM THE NOTES, THE SECURITY DOCUMENTS OR ANY OF THE OTHER LOAN DOCUMENTS, AND WAIVES ANY OTHER VENUE TO WHICH IT MIGHT BE ENTITLED BY VIRTUE OF DOMICILE, HABITUAL RESIDENCE OR OTHERWISE. NOTHING CONTAINED HEREIN, HOWEVER, SHALL PREVENT THE LENDER FROM BRINGING ANY SUIT, ACTION OR PROCEEDING OR EXERCISING ANY RIGHTS AGAINST THE BORROWER PARTIES, AND AGAINST THE COLLATERAL IN ANY OTHER JURISDICTION. INITIATING SUCH SUIT, ACTION OR PROCEEDING OR TAKING SUCH ACTION IN ANY OTHER JURISDICTION SHALL IN NO EVENT CONSTITUTE A WAIVER OF THE AGREEMENT CONTAINED HEREIN THAT THE LAWS OF DISTRICT OF COLUMBIA SHALL GOVERN THE RIGHTS AND OBLIGATIONS OF THE BORROWER PARTIES AND THE LENDER AS PROVIDED HEREIN OR THE SUBMISSION HEREIN BY THE BORROWER PARTIES TO PERSONAL JURISDICTION WITHIN DISTRICT OF COLUMBIA EACH BORROWER PARTY (I) COVENANTS AND AGREES NOT TO -90- ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING UNDER ANY OF THE LOAN DOCUMENTS TRIABLE BY A JURY AND (II) WAIVES ANY RIGHT TO TRIAL BY JURY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST. THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE. FURTHER, EACH BORROWER PARTY HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING, BUT NOT LIMITED TO, LENDER'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO EACH BORROWER PARTY THAT LENDER WILL NOT SEEK TO ENFORCE THE PROVISIONS OF THIS SECTION. THE FOREGOING PROVISIONS WERE KNOWINGLY, WILLINGLY AND VOLUNTARILY AGREED TO BY THE BORROWER PARTIES UPON CONSULTATION WITH INDEPENDENT LEGAL COUNSEL SELECTED BY THE BORROWER PARTIES' FREE WILL. SECTION 23.07 SEVERABILITY. In the event any provision of this Agreement or in any other Loan Document shall be held invalid, illegal or unenforceable in any jurisdiction, such provision will be severable from the remainder hereof as to such jurisdiction and the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired in any jurisdiction. SECTION 23.08 NOTICES. (a) MANNER OF GIVING NOTICE. Each notice, direction, certificate or other communication hereunder (in this Section referred to collectively as "notices" and singly as a "notice") which any party is required or permitted to give to the other party pursuant to this Agreement shall be in writing and shall be deemed to have been duly and sufficiently given if: (1) personally delivered with proof of delivery thereof (any notice so delivered shall be deemed to have been received at the time so delivered); (2) sent by Federal Express (or other similar overnight courier) designating morning delivery (any notice so delivered shall be deemed to have been received on the Business Day it is delivered by the courier); (3) sent by telecopier or facsimile machine which automatically generates a transmission report that states the date and time of the transmission, the length of the document transmitted, and the telephone number of the recipient's telecopier or facsimile machine (to be confirmed with a copy thereof sent in accordance with paragraphs (1) or (2) above within two Business Days) (any notice so delivered shall be deemed to have been received (i) on the date of transmission, if so transmitted before 5:00 p.m. (local time of the recipient) on a Business Day, or (ii) on the next Business Day, if so transmitted on or after 5:00 p.m. (local time of the recipient) on a Business Day or if transmitted on a day other than a Business Day); addressed to the parties as follows: As to any Borrower Party: -91- c/o Mid-America Apartment Communities, Inc. 6584 Polar Avenue Suite 340 Memphis, Tennessee 38138 Attention: Simon R.C. Wadsworth Chief Financial Officer Telecopy No.: (901) 682-6667 with a copy to: Apperson, Crump & Maxwell, PLL 1755 Kirby Parkway Suite 100 Memphis, Tennessee 38120 Attention: Philip G. Kaminsky, Esq. Telecopy No.: (902) 757-1296 As to the Lender: WMF Washington Mortgage Corp. 1593 Spring Hill Road Vienna, Virginia 22182 Attention: Ms. Leslie Dixon-Cook Telecopy No.: (703) 610-1422 with a copy to: Morgan, Lewis & Bockius LLP 1800 M Street, N.W. Washington, D.C. 20036 Attention: Gary S. Smuckler, Esq. Telecopy No.: (202) 467-7176 As to Fannie Mae: Fannie Mae 3939 Wisconsin Avenue, N.W. Washington, D.C. 20016-2899 Attention: Vice President for Multifamily Asset Management Telecopy No.: (202) 752-5016 with a copy to: Arter & Hadden LLP 1801 K Street, N.W. Suite 400K Washington, D.C. 200006 -92- Attention: Lawrence H. Gesner, Esq. Telecopy No.: (202) 857-0172 (b) CHANGE OF NOTICE ADDRESS. Any party may, by notice given pursuant to this Section, change the person or persons and/or address or addresses, or designate an additional person or persons or an additional address or addresses, for its notices, but notice of a change of address shall only be effective upon receipt. Each party agrees that it shall not refuse or reject delivery of any notice given hereunder, that it shall acknowledge, in writing, receipt of the same upon request by the other party and that any notice rejected or refused by it shall be deemed for all purposes of this Agreement to have been received by the rejecting party on the date so refused or rejected, as conclusively established by the records of the U.S. Postal Service, the courier service or facsimile. SECTION 23.09 FURTHER ASSURANCES AND CORRECTIVE INSTRUMENTS. (a) FURTHER ASSURANCES. To the extent permitted by law, the parties hereto agree that they shall, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as the Lender or the Borrower Parties may request and as may be required in the opinion of the Lender or its counsel to effectuate the intention of or facilitate the performance of this Agreement or any Loan Document. (b) FURTHER DOCUMENTATION. Without limiting the generality of subsection (a), in the event any further documentation or information is required by the Lender to correct patent mistakes in the Loan Documents, materials relating to the Title Insurance Policies or the funding of the Advances, the Borrower Parties shall provide, or cause to be provided to the Lender, at their cost and expense, such documentation or information. The Borrower Parties shall execute and deliver to the Lender such documentation, including any amendments, corrections, deletions or additions to the Notes, the Security Instruments or the other Loan Documents as is reasonably required by the Lender. (c) COMPLIANCE WITH INVESTOR REQUIREMENTS. Without limiting the generality of subsection (a), the Borrower Parties shall do anything necessary to comply with the reasonable requirements of the Lender in order to enable the Lender to sell the MBS backed by an Advance. SECTION 23.10 TERM OF THIS AGREEMENT. This Agreement shall continue in effect until the Credit Facility Termination Date. SECTION 23.11 ASSIGNMENTS; THIRD-PARTY RIGHTS. No Borrower Party shall assign this Agreement, or delegate any of its obligations hereunder, without the prior written consent of the Lender. The Lender may assign its rights and obligations under this Agreement separately or together, without the Borrower Parties' consent, only to Fannie Mae, but may not delegate its obligations under this Agreement unless required to do so pursuant to Section 19.04. SECTION 23.12 HEADINGS. Article and Section headings used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. -93- SECTION 23.13 GENERAL INTERPRETIVE PRINCIPLES. For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, (i) the terms defined in Article I, Section 15.01, Section 16.01 and elsewhere in this Agreement have the meanings assigned to them in this Agreement and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other genders; (ii) accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; (iii) references herein to "Articles," "Sections," "subsections," "paragraphs" and other subdivisions without reference to a document are to designated Articles, Sections, subsections, paragraphs and other subdivisions of this Agreement; (iv) a reference to a subsection without further reference to a Section is a reference to such subsection as contained in the same Section in which the reference appears, and this rule shall also apply to paragraphs and other subdivisions; (v) a reference to an Exhibit or a Schedule without a further reference to the document to which the Exhibit or Schedule is attached is a reference to an Exhibit or Schedule to this Agreement; (vi) the words "herein," "hereof," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular provision; and (vii) the word "including" means "including, but not limited to." SECTION 23.14 INTERPRETATION. The parties hereto acknowledge that each party and their respective counsel have participated in the drafting and revision of this Agreement and the Loan Documents. Accordingly, the parties agree that any rule of construction which disfavors the drafting party shall not apply in the interpretation of this Agreement and the Loan Documents or any amendment or supplement or exhibit hereto or thereto. SECTION 23.15 STANDARDS FOR DECISIONS, ETC. Unless otherwise provided herein, if the Lender's approval is required for any matter hereunder, such approval may be granted or withheld in the Lender's sole and absolute discretion. Unless otherwise provided herein, if the Lender's designation, determination, selection, estimate, action or decision is required, permitted or contemplated hereunder, such designation, determination, selection, estimate, action or decision shall be made in the Lender's sole and absolute discretion. SECTION 23.16 DECISIONS IN WRITING. Any approval, designation, determination, selection, action or decision of the Lender or the Borrower Parties must be in writing to be effective. SECTION 23.17 JOINT AND SEVERAL LIABILITY. Each Borrower Party shall be jointly and severally liable for the payment and performance of each obligation of any Borrower Party arising under any of the Loan Documents. [THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK] -94- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. BORROWER PARTIES MID-AMERICA APARTMENT COMMUNITIES, INC., a Tennessee corporation By: __________________________________ Simon R.C. Wadsworth Executive Vice President MID-AMERICA APARTMENTS, L.P., a Tennessee limited partnership By: Mid-America Apartment Communities, Inc., a Tennessee corporation, its general partner By: _____________________________ Simon R.C. Wadsworth Executive Vice President PADDOCK CLUB BRANDON, A LIMITED PARTNERSHIP, a Georgia limited partnership By: Mid-America Apartment Communities, Inc., a Tennessee corporation, its general partner By: _____________________________ Simon R.C. Wadsworth Executive Vice President -95- PADDOCK CLUB COLUMBIA, A LIMITED PARTNERSHIP, a Georgia limited partnership By: Mid-America Apartment Communities, Inc., a Tennessee corporation, its general partner By: ______________________________ Simon R.C. Wadsworth Executive Vice President PADDOCK PARK OCALA II, A LIMITED PARTNERSHIP, a Georgia limited partnership By: Mid-America Apartment Communities, Inc., a Tennessee corporation, its general partner By: ______________________________ Simon R.C. Wadsworth Executive Vice President PADDOCK CLUB TALLAHASSEE, A LIMITED PARTNERSHIP, a Georgia limited partnership By: Mid-America Apartment Communities, Inc., a Tennessee corporation, its general partner By: ______________________________ Simon R.C. Wadsworth Executive Vice President -96- LENDER WMF WASHINGTON MORTGAGE CORP., a Delaware corporation, formerly known as Washington Mortgage Financial Group, Ltd. By: ___________________________________________ Name: _________________________________________ Title: ________________________________________ -97- MASTER CREDIT FACILITY AGREEMENT among (i) MID-AMERICA APARTMENT COMMUNITIES, INC., a Tennessee corporation, (ii) MID- AMERICA APARTMENTS, LP, a Tennessee limited partnership, (iii) PADDOCK CLUB BRANDON, A LIMITED PARTNERSHIP, a Georgia limited partnership, (iv) PADDOCK CLUB COLUMBIA, A LIMITED PARTNERSHIP, a Georgia limited partnership, (v) PADDOCK PARK OCALA II, A LIMITED PARTNERSHIP, a Georgia limited partnership, and (vi) PADDOCK CLUB TALLAHASSEE, A LIMITED PARTNERSHIP, a Georgia limited partnership, and WMF WASHINGTON MORTGAGE CORP., a Delaware corporation, formerly known as Washington Mortgage Financial Group, Ltd. dated as of November 10, 1999 TABLE OF CONTENTS PAGE ---- RECITALS ................................................................... 1 ARTICLE I .................................................................. 2 ARTICLE II ................................................................. 21 SECTION 2.01 VARIABLE FACILITY COMMITMENT .............................. 21 SECTION 2.02 REQUESTS FOR VARIABLE ADVANCES ............................ 21 SECTION 2.03 MATURITY DATE OF VARIABLE ADVANCES ........................ 22 SECTION 2.04 INTEREST ON VARIABLE FACILITY ADVANCES .................... 22 SECTION 2.05 COUPON RATES FOR VARIABLE ADVANCES ........................ 23 SECTION 2.06 VARIABLE FACILITY NOTE .................................... 23 SECTION 2.07 EXTENSION OF VARIABLE FACILITY TERMINATION DATE ........... 23 ARTICLE III ................................................................ 24 SECTION 3.01 FIXED FACILITY COMMITMENT ................................. 24 SECTION 3.02 REQUESTS FOR FIXED FACILITY ADVANCES ...................... 24 SECTION 3.03 MATURITY DATE OF FIXED FACILITY ADVANCES; AMORTIZATION PERIOD ....................................... 24 SECTION 3.04 INTEREST ON FIXED FACILITY ADVANCES ....................... 25 SECTION 3.05 COUPON RATES FOR FIXED FACILITY ADVANCES .................. 25 SECTION 3.06 FIXED FACILITY NOTE ....................................... 25 SECTION 3.07 CONVERSION OF COMMITMENT FROM VARIABLE FACILITY COMMITMENT TO FIXED FACILITY COMMITMENT ................... 25 SECTION 3.08 LIMITATIONS ON RIGHT TO CONVERT ........................... 26 SECTION 3.09 CONDITIONS PRECEDENT TO CONVERSION ........................ 26 SECTION 3.10 DEFEASANCE ................................................ 27 ARTICLE IV ................................................................. 34 SECTION 4.01 RATE SETTING FOR AN ADVANCE ............................... 34 SECTION 4.02 ADVANCE CONFIRMATION INSTRUMENT FOR VARIABLE ADVANCES ..... 35 SECTION 4.03 BREAKAGE AND OTHER COSTS .................................. 36 ARTICLE V .................................................................. 36 SECTION 5.01 INITIAL ADVANCE ........................................... 36 SECTION 5.02 FUTURE ADVANCES ........................................... 37 SECTION 5.03 CONDITIONS PRECEDENT TO FUTURE ADVANCES ................... 37 SECTION 5.04 DETERMINATION OF ALLOCABLE FACILITY AMOUNT AND VALUATIONS . 38 ARTICLE VI ................................................................. 38 SECTION 6.01 RIGHT TO ADD COLLATERAL ................................... 38 SECTION 6.02 PROCEDURE FOR ADDING COLLATERAL ........................... 38 SECTION 6.03 CONDITIONS PRECEDENT TO ADDITION OF AN ADDITIONAL MORTGAGED PROPERTY TO THE COLLATERAL POOL ................. 40 ARTICLE VII ................................................................ 41 SECTION 7.01 RIGHT TO OBTAIN RELEASES OF COLLATERAL .................... 41 SECTION 7.02 PROCEDURE FOR OBTAINING RELEASES OF COLLATERAL ............ 41 SECTION 7.03 CONDITIONS PRECEDENT TO RELEASE OF COLLATERAL RELEASE PROPERTY FROM THE COLLATERAL .............................. 42 SECTION 7.04 SUBSTITUTIONS ............................................. 43 ARTICLE VIII ............................................................... 47 SECTION 8.01 RIGHT TO INCREASE COMMITMENT .............................. 47 i SECTION 8.02 PROCEDURE FOR OBTAINING INCREASES IN COMMITMENT ........... 48 SECTION 8.03 CONDITIONS PRECEDENT TO INCREASE IN COMMITMENT ............ 49 ARTICLE IX ................................................................. 49 SECTION 9.01 RIGHT TO COMPLETE OR PARTIAL TERMINATION OF FACILITIES .... 49 SECTION 9.02 PROCEDURE FOR COMPLETE OR PARTIAL TERMINATION OF FACILITIES ................................................ 49 SECTION 9.03 CONDITIONS PRECEDENT TO COMPLETE OR PARTIAL TERMINATION OF FACILITIES ............................................. 50 ARTICLE X .................................................................. 51 SECTION 10.01 RIGHT TO TERMINATE CREDIT FACILITY ....................... 51 SECTION 10.02 PROCEDURE FOR TERMINATING CREDIT FACILITY ................ 51 SECTION 10.03 CONDITIONS PRECEDENT TO TERMINATION OF CREDIT FACILITY ... 51 ARTICLE XI ................................................................. 52 SECTION 11.01 CONDITIONS APPLICABLE TO ALL REQUESTS .................... 52 SECTION 11.02 DELIVERY OF CLOSING DOCUMENTS RELATING TO INITIAL ADVANCE REQUEST, COLLATERAL ADDITION REQUEST, CREDIT FACILITY EXPANSION REQUEST OR FUTURE ADVANCE REQUEST .............. 53 SECTION 11.03 DELIVERY OF PROPERTY-RELATED DOCUMENTS ................... 54 ARTICLE XII ................................................................ 55 SECTION 12.01 REPRESENTATIONS AND WARRANTIES OF THE BORROWER PARTIES ... 55 SECTION 12.02 REPRESENTATIONS AND WARRANTIES OF THE BORROWER PARTIES ... 59 SECTION 12.03 REPRESENTATIONS AND WARRANTIES OF THE LENDER ............. 62 ARTICLE XIII ............................................................... 62 SECTION 13.01 COMPLIANCE WITH AGREEMENTS ............................... 62 SECTION 13.02 MAINTENANCE OF EXISTENCE ................................. 62 SECTION 13.03 MAINTENANCE OF REIT STATUS ............................... 63 SECTION 13.04 FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION .............................................. 63 SECTION 13.05 CERTIFICATE OF COMPLIANCE ................................ 65 SECTION 13.06 MAINTAIN LICENSES ........................................ 66 SECTION 13.07 ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND ACCOUNTANTS .............................................. 66 SECTION 13.08 INFORM THE LENDER OF MATERIAL EVENTS ..................... 66 SECTION 13.09 INTENTIONALLY OMITTED .................................... 68 SECTION 13.10 INSPECTION ............................................... 68 SECTION 13.11 COMPLIANCE WITH APPLICABLE LAWS .......................... 68 SECTION 13.12 WARRANTY OF TITLE ........................................ 68 SECTION 13.13 DEFENSE OF ACTIONS ....................................... 68 SECTION 13.14 ALTERATIONS TO THE MORTGAGED PROPERTIES .................. 69 SECTION 13.15 ERISA .................................................... 69 SECTION 13.16 LOAN DOCUMENT TAXES ...................................... 69 SECTION 13.17 FURTHER ASSURANCES ....................................... 70 SECTION 13.18 MONITORING COMPLIANCE .................................... 70 SECTION 13.19 LEASES ................................................... 70 SECTION 13.20 INTENTIONALLY OMITTED .................................... 70 SECTION 13.21 TRANSFER OF OWNERSHIP INTERESTS OF THE BORROWER PARTIES ... 70 SECTION 13.22 CHANGE IN SENIOR MANAGEMENT .............................. 72 SECTION 13.23 DATE-DOWN ENDORSEMENTS ................................... 73 SECTION 13.24 GEOGRAPHICAL DIVERSIFICATION ............................. 73 SECTION 13.25 OWNERSHIP OF MORTGAGED PROPERTIES ........................ 73 ARTICLE XIV ................................................................ 73 SECTION 14.01 OTHER ACTIVITIES ......................................... 73 SECTION 14.02 VALUE OF SECURITY ........................................ 74 ii SECTION 14.03 ZONING ................................................... 74 SECTION 14.04 LIENS .................................................... 74 SECTION 14.05 SALE ..................................................... 74 SECTION 14.06 INDEBTEDNESS .............................................. 74 SECTION 14.07 PRINCIPAL PLACE OF BUSINESS .............................. 75 SECTION 14.08 FREQUENCY OF REQUESTS .................................... 75 SECTION 14.09 CHANGE IN PROPERTY MANAGEMENT ............................ 75 SECTION 14.10 CONDOMINIUMS ............................................. 75 SECTION 14.11 RESTRICTIONS ON PARTNERSHIP DISTRIBUTIONS ................ 75 SECTION 14.12 LINES OF BUSINESS ........................................ 75 SECTION 14.13 LIMITATION ON UNIMPROVED REAL PROPERTY AND NEW CONSTRUCTION ............................................. 75 SECTION 14.14 DIVIDEND PAYOUT .......................................... 76 ARTICLE XV ................................................................. 76 SECTION 15.01 FINANCIAL DEFINITIONS .................................... 76 SECTION 15.02 COMPLIANCE WITH DEBT SERVICE COVERAGE RATIOS ............. 80 SECTION 15.03 COMPLIANCE WITH LOAN TO VALUE RATIOS ..................... 80 SECTION 15.04 COMPLIANCE WITH CONCENTRATION TEST ....................... 80 SECTION 15.05 COMPLIANCE WITH REIT'S NET WORTH TEST .................... 80 SECTION 15.06 COMPLIANCE WITH REIT'S TOTAL INDEBTEDNESS TO CONSOLIDATED TOTAL ASSETS RATIO .......................... 80 SECTION 15.07 COMPLIANCE WITH REIT'S CONSOLIDATED EBITDA TO INTEREST RATIO ........................................... 80 SECTION 15.08 COMPLIANCE WITH REIT'S CONSOLIDATED EBITDA TO FIXED CHARGE RATIO ............................................. 80 ARTICLE XVI ................................................................ 80 SECTION 16.01 STANDBY FEE .............................................. 80 SECTION 16.02 ORIGINATION FEES ......................................... 81 SECTION 16.03 DUE DILIGENCE FEES ....................................... 81 SECTION 16.04 LEGAL FEES AND EXPENSES .................................. 81 SECTION 16.05 MBS-RELATED COSTS ........................................ 82 SECTION 16.06 FAILURE TO CLOSE ANY REQUEST ............................. 82 SECTION 16.07 OTHER FEES ............................................... 82 ARTICLE XVII ............................................................... 83 SECTION 17.01 EVENTS OF DEFAULT ........................................ 83 ARTICLE XVIII .............................................................. 85 SECTION 18.01 REMEDIES; WAIVERS ........................................ 85 SECTION 18.02 WAIVERS; RESCISSION OF DECLARATION ....................... 85 SECTION 18.03 THE LENDER'S RIGHT TO PROTECT COLLATERAL AND PERFORM COVENANTS AND OTHER OBLIGATIONS .......................... 86 SECTION 18.04 NO REMEDY EXCLUSIVE ...................................... 86 SECTION 18.05 NO WAIVER ................................................ 86 SECTION 18.06 NO NOTICE ................................................ 86 SECTION 18.07 APPLICATION OF PAYMENTS .................................. 86 ARTICLE XIX ................................................................ 87 SECTION 19.01 SPECIAL POOL PURCHASE CONTRACT ........................... 87 SECTION 19.02 ASSIGNMENT OF RIGHTS ..................................... 87 SECTION 19.03 RELEASE OF COLLATERAL .................................... 87 SECTION 19.04 REPLACEMENT OF LENDER .................................... 87 SECTION 19.05 FANNIE MAE AND LENDER FEES AND EXPENSES .................. 88 SECTION 19.06 THIRD-PARTY BENEFICIARY .................................. 88 iii ARTICLE XX ................................................................. 88 SECTION 20.01 INSURANCE AND REAL ESTATE TAXES .......................... 88 SECTION 20.02 REPLACEMENT RESERVES ..................................... 88 ARTICLE XXI ................................................................ 88 ARTICLE XXII ............................................................... 88 SECTION 22.01 PERSONAL LIABILITY TO THE BORROWER PARTIES ............... 88 ARTICLE XXIII .............................................................. 90 SECTION 23.01 COUNTERPARTS ............................................. 90 SECTION 23.02 AMENDMENTS, CHANGES AND MODIFICATIONS .................... 90 SECTION 23.03 PAYMENT OF COSTS, FEES AND EXPENSES ...................... 90 SECTION 23.04 PAYMENT PROCEDURE ........................................ 91 SECTION 23.05 PAYMENTS ON BUSINESS DAYS ................................ 91 SECTION 23.06 CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL ............................................ 91 SECTION 23.07 SEVERABILITY ............................................. 93 SECTION 23.08 NOTICES .................................................. 93 SECTION 23.09 FURTHER ASSURANCES AND CORRECTIVE INSTRUMENTS ............ 95 SECTION 23.10 TERM OF THIS AGREEMENT ................................... 95 SECTION 23.11 ASSIGNMENTS; THIRD-PARTY RIGHTS .......................... 95 SECTION 23.12 HEADINGS ................................................. 95 SECTION 23.13 GENERAL INTERPRETIVE PRINCIPLES .......................... 95 SECTION 23.14 INTERPRETATION ........................................... 96 SECTION 23.15 STANDARDS FOR DECISIONS, ETC ............................. 96 SECTION 23.16 DECISIONS IN WRITING ..................................... 96 SECTION 23.17 JOINT AND SEVERAL LIABILITY .............................. 96 iv EXHIBIT A - Schedule of Initial Mortgaged Properties and Initial Valuations EXHIBIT B - Fixed Facility Note EXHIBIT C - Cash Management Security, Pledge and Assignment Agreement EXHIBIT D - Compliance Certificate EXHIBIT E - Sample Facility Debt Service EXHIBIT F - Organizational Certificate EXHIBIT G - Intentionally Omitted EXHIBIT H - Revolving Credit Endorsement EXHIBIT I - Variable Facility Note EXHIBIT J - Tie-In Endorsement EXHIBIT K - Conversion Request EXHIBIT L - Conversion Amendment EXHIBIT M - Rate Setting Form EXHIBIT N - Rate Confirmation Form EXHIBIT O - Advance Confirmation Instrument EXHIBIT P - Future Advance Request EXHIBIT Q - Collateral Addition Request EXHIBIT R - Collateral Addition Description Package EXHIBIT S - Collateral Addition Supporting Documents EXHIBIT T - Collateral Release Request EXHIBIT U - Confirmation of Obligations EXHIBIT V - Credit Facility Expansion Request EXHIBIT W - Variable Facility Termination Request EXHIBIT X - Variable Facility Termination Document EXHIBIT Y - Credit Facility Termination Request EXHIBIT Z - Collateral Substitution Request EXHIBIT AA - Schedule of Approved Property Management Agreements EXHIBIT BB - Independent Unit Encumbrances EXHIBIT CC - List of Properties Requiring 85% Occupancy EXHIBIT DD - Collateral Substitution Description Package EXHIBIT EE - Collateral Substitution Supporting Documents EXHIBIT FF - Guaranty v EX-21.1 7 EXHIBIT 21 LISTING OF SUBSIDIARIES OF MID-AMERICA APARTMENT COMMUNITIES, INC. MAC II of Delaware, Inc MAC of Delaware, Inc America First Austin Reit, Inc America First Florida Reit Inc America First Sourth Carolina Reit inc America First Tennessee Reit Inc America First Texas Reit Inc MAC of Austin Inc MAACP, Inc. Mid-America Holdings LLC Mid-America Apartments, LP Mid-America Capital Partners, L.P. Mid-America Apartments of Texas LP Mid-America Apartments of Duval LP Mid-America Apartments of Austin LP Mid-America Apartments Stassney Woods LP Mid-America Apartments Runaway Bay LP Mid-America Apartments Travis Station LP MAAC,Tanglewood LP Fairways-Columbia LP Pine Trails Joint Venture LP Woodridge Joint Venture LP River Hills Partnership Madison LP LP Jackson LP The Woods Post House LP Hidden Lake Ltd. Paddock Park Apartments Ltd. Park Walk Apartments Ltd. River Trace Apartments Ltd. River Trace Apartments Phase II Ltd. The Vistas Ltd. Westbury Springs Ltd. Fountain Lakes Apartments Ltd. Paddock Club Brandon, A Limited Partnership Paddock Club Columbia, A Limited Partnership Paddock Club Florence, A Limited Partnership Paddock Club Greenville, A Limited Partnership Paddock Club Huntsville, A Limited Partnership Paddock Club Jacksonville, A Limited Partnership Paddock Club Jacksonville, Phase II, A Limited Partnership Paddock Club Lakeland, A Limited Partnership Paddock Club Tallahassee, A Limited Partnership Paddock Club Tallahassee Phase II, A Limited Partnership Paddock Park Ocala II, A Limited Partnership Southland Station Phase II, A Limited Partnership Three Oaks Ltd. Three Oaks Apartments Phase II Ltd. Towne Lake Hills Apartments, A Limited Partnership Westbury Creek Ltd. Whispering Pines Ltd. Whispering Pines Phase II, Ltd. Whisperwood Associates, A Limited Partnership Whisperwood Spa and Club, A Limited Partnership Wildwood Apartments Ltd Wildwood Apartments Phase II Ltd. Windridge Apartments Ltd. Mid-America Apartments of Birmingham, LP Mid-America Apartments of Savannah, LP Mid-America Apartments of Little Rock, LP Mid-America Apartments of St. Simons, LP Mid-America Mortgage Trust 1998-1 Mid-America Finance, Inc. MAACOD, Inc. MAAC of Duval, LP EX-23.1 8 EXHIBIT 23.1 INDEPENDENT ACCOUNTANTS' CONSENT The Board of Directors and Shareholders Mid-America Apartment Communities, Inc. We consent to incorporation by reference in the registration statement (No. 33-941416) on Form S-8 and the registration statements (Nos. 333-71315, 333-60285 and 333-570309) on Form S-3 of Mid-America Apartments Communities, Inc. of our report dated February 25, 2000, relating to the consolidated balance sheets of Mid-America Apartment Communities, Inc. as of December 31, 1999 and 1998, 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, 1999, and the related schedule, which report appears in the December 31, 1999 Annual Report on Form 10-K of Mid-America Apartment Communities, Inc. KPMG LLP Memphis, Tennessee March 27, 2000 EX-27.1 9
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1999 AND THE CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1999 DEC-31-1999 26,629 0 0 0 0 0 1,394,662 (146,611) 1,298,823 0 744,238 0 69 190 463,625 1,298,823 222,098 226,322 84,885 84,885 67,236 0 48,302 33,639 0 33,639 0 (67) 0 33,572 0.93 0.93
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