-----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, VSW/HnWvQb2wp+TC9D6l84kqflJ/g9nwqAOM59HX4svfQ1Srz3jadnx6t5uT0Lgt s0lx2hz/qnqcyjLGFZo4lA== 0000912595-97-000011.txt : 19970401 0000912595-97-000011.hdr.sgml : 19970401 ACCESSION NUMBER: 0000912595-97-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NYSE 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12762 FILM NUMBER: 97569945 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-K 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, 1996 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 Class on Which Registered -------------------------------------- ----------------------- Common 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. [ X ] Yes [ ] 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 ($29.00 per share), as reported on the New York Stock Exchange, on March 21, 1997) was approximately $368,000,000 ( 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 21, 1997, was 13,304,398 shares, of which approximately 720,715 were held by affiliates. 1 MID-AMERICA APARTMENT COMMUNITIES, INC. TABLE OF CONTENTS Item Page PART I 1. Business 1 2. Properties 5 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 9 Stockholder Matters 6. Selected Financial Data 10 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 8. Financial Statements and Supplementary Data 17 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 17 PART III 10. Directors and Executive Officers of the Registrant 17 11. Executive Compensation 19 12. Security Ownership of Certain Beneficial Owners and 22 Management 13. Certain Relationships and Related Transactions 23 PART IV 14. Exhibits, Financial Statement Schedule and Reports on 24 Form 8-K 2 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 REIT ("UPREIT") which owns and operates 76 apartment communities containing 20,154 apartment units in 12 states (the "Communities"), and has definitive agreements to acquire two additional apartment communities containing 616 apartment units. As measured by the number of apartment units owned, the Company is the sixth largest apartment REIT in the United States. 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 54 apartment communities containing 14,574 apartment units, including 12 apartment communities containing 3,212 apartment units acquired in the Company's merger with America First REIT, Inc. ("AFR") in June 1995 (the "AFR Merger") for an aggregate value of approximately $111 million (as measured by Common Stock issued and AFR debt assumed). The Company's business is conducted principally through Mid-America Apartments, L.P., a Tennessee limited partnership (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership, holding, as of December 31, 1996, a 1% general partnership interest in the Operating Partnership. The Company is also a limited partner in the Operating Partnership and as of December 31, 1996 held 4,253,448 common units of partnership interests, ("Common Units"), or 38.45% of all outstanding Common Units. The Company's wholly-owned qualified REIT subsidiary, MAC of Delaware, Inc., a Delaware corporation, is a limited partner in the Operating Partnership and, as of December 31, 1996, held 4,253,448 Common Units, or 38.45% of all outstanding Common Units. In connection with the formation of the Operating Partnership and the Initial Offering, the Operating Partnership issued 2,460,413 Common Units to the former owners of Communities contributed to the Operating Partnership. The Common Units held by such former owners are redeemable by the holders, at their option, for shares of Common Stock on a one-for-one basis or, at the Company's option, for cash. The Company has filed a shelf registration statement relating to the offer and sale of the Common Units by the holders thereof. As of December 31, 1996, such former owners held 2,444,352 Common Units, or 22.1% of all outstanding Common Units. Certain Communities are owned by limited partnerships of which the Operating Partnership and the Company or a wholly owned qualified REIT subsidiary are the only partners. In addition, the Company, directly or through six wholly owned qualified REIT subsidiaries, owns 15 Communities. 1 3 OPERATING PHILOSOPHY MID-SIZE MARKET FOCUS. The Company focuses on owning, operating, and acquiring apartment communities in mid-size southeastern and Texas cities. The Company believes that these markets generally have been less susceptible to apartment overbuilding during past real estate investment cycles, and the Company believes that apartment communities in these markets offer attractive long-term investment returns. The Company seeks to acquire apartment communities in its existing markets and selected new markets where it believes there is less competition for acquisitions from other well-capitalized buyers. The Company believes it can acquire apartment units at a significant discount to estimated replacement cost in these markets. 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 being given the responsibility for monitoring market trends and the discretion to react to such trends. The Company has had demonstrable success in this regard as evidenced by: (i) monthly rental per apartment unit was $529 at December 31, 1996 versus $508 at December 31, 1995, which represented a 4.1% increase; (ii) average occupancy during 1996 was 95.4% versus 95.2% in 1995; and (iii) during 1996 the Company was able to decrease property operating expenses as a percentage of revenue principally through the installation of individual apartment unit water and utility meters. 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 implemented a practice of having highly trained property managers and service technicians on-site at each of the Communities. Management undertakes frequent resident surveys and focus groups, in order to measure customer satisfaction. DECENTRALIZED OPERATIONAL STRUCTURE. The Company's operational structure is organized on a geographic 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. 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. GROWTH STRATEGIES The Company seeks to increase earnings per share and operating cash flow to maximize shareholder value through a balanced strategy of internal and external growth. INTERNAL GROWTH STRATEGY. Management's goal is to maximize its return on investment in each Community by increasing rental rates and reducing operating expenses while maintaining high occupancy levels. The Company (i) seeks higher net rental revenues by enhancing and maintaining the competitiveness of the Communities and (ii) manages expenses through its system of detailed management reporting and accountability in order to achieve increases in operating cash flow. The steps taken to meet these objectives include: * empowering the Company's property managers to adjust rents in response to local market conditions and to concentrate resident turnover in peak rental demand months; * 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; * ensuring that, through monthly inspections of all Communities by senior management and prompt attention to maintenance and recurring capital needs, the Communities are properly maintained; * 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; * investing heavily in training programs for its property- level personnel; * compensating all employees through performance-based compensation programs and stock ownership programs; and * maintaining a hands-on management style and "flat" organizational structure that emphasizes senior management's continued close contact with the market and employees. 2 4 EXTERNAL GROWTH STRATEGY. The Company's external growth strategy is to acquire and selectively develop additional apartment units and, when apartment communities no longer meet the Company's long-term strategic objectives or investment return goals, to dispose of those Communities. Through the UPREIT structure, the Company has the ability to acquire apartment communities through the issuance of UPREIT Units in tax-deferred exchanges with owners of such properties. Since the Initial Offering, the Company has grown by 14,574 apartment units, an increase of approximately 261% over the number of apartment units immediately prior to the Initial Offering. Typical attributes of apartment communities which the Company seeks to acquire are: * well-constructed properties having attractive locations, potential for increases in rental rates and occupancy, potential for reductions in operating costs and acquisition prices below estimated replacement cost; * properties with opportunities for internal growth through (i) market repositioning by means of property upgrades which typically include landscaping, selective refurbishing and the addition of amenities and (ii) realizing economies of scale in management and purchasing; and * properties located in the Company's existing markets and mid-size southeastern and Texas metropolitan areas having favorable market characteristics. In addition, the Company develops new apartments when it believes it can achieve an attractive return on investment. Since the Initial Offering, the Company has completed the following development projects: * 122 apartment units constructed at the Woods of Post House in Jackson, Tennessee in close proximity to three other Communities; * 24 additional apartment units at the Reflection Pointe apartment community in Jackson, Mississippi; and * 32 additional apartment units at the Park Haywood apartment community in Greenville, South Carolina. In the Fall of 1996, the Company commenced construction of a 234- unit expansion of the 384-unit Lincoln on the Green apartment community at the Tournament Players' Club at Southwind in Memphis, Tennessee. Construction of that expansion is expected to be completed in the Fall of 1997. Several other expansion and new development opportunities are currently being explored. COMPLETED ACQUISITIONS. During 1996, the Company has acquired the following apartment communities (the "Completed Acquisitions") containing an aggregate of 1,760 apartment units (dollars in millions):
NUMBER OF ACQUISITION CONTRACT PROPERTY MARKET UNITS DATE PRICE (1) - -------------- ---------------- ----- ----------- ---------- Lakeside Jacksonville, FL 416 3/12/96 $ 14.1 Crosswinds Jackson, MS 360 7/25/96 15.3 Savannah Creek Memphis, TN 204 7/25/96 7.8 Sutton Place Memphis, TN 252 7/25/96 8.9 Napa Valley Little Rock, AR 240 10/17/96 9.5 Tiffany Oaks Orlando, FL 288 12/17/96 10.1 ----- -------- Total 1,760 $ 65.7 ===== ========
(1) Excluding additional customary closing costs, including expenses and commissions. 3 5 COMPETITION All of the Company's communities are located in developed 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 market provide housing alternatives to potential residents of apartment communities. RECENT DEVELOPMENTS RECENT ACQUISITIONS Since December 31, 1996, the Company has acquired the following apartment communities (the "Recent Acquisitions") containing an aggregate of 874 apartment units (dollars in millions):
NUMBER ACQUISITION CONTRACT PROPERTY MARKET OF UNITS DATE PRICE - ---------------- --------------- -------- ----------- -------- Howell Commons Greenville, SC 348 1/16/97 $ 13.0 Balcones Woods Austin, TX 384 3/18/97 15.8 Westside Creek I Little Rock, AR 142 3/28/97 6.1 --- ------ Total 874 $ 34.9 === ======
The Company funded the cash required to consummate the Recent Acquisitions with borrowings under the Company's unsecured bank line of credit (the "Credit Line"). PROPOSED ACQUISITIONS The Company has entered into definitive agreements to purchase Woodhollow apartments containing 450 apartment units and Westside Creek Phase II ("Westside II") containing 166 apartment units. The seller of Westside II has the option to delay the closing of the sale for up to six months, during which period the Company will manage the property for a management fee equal to 4.5% of gross revenue from the property. The Company plans to fund the cash required to consummate the Proposed Acquisitions with borrowings under the Credit Line. DISTRIBUTION INCREASE In January 1997, the Company raised its quarterly distribution to common shareholders from $.51 per share to $.535 per share, effective with its distribution paid on January 31, 1997. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN In January 1997, the Company adopted a Dividend Reinvestment and Stock Purchase Plan (the "DRSPP") pursuant to which the Company's shareholders will be permitted to acquire shares of Common Stock through the reinvestment of distributions on Common Stock and the Company's Series A Cumulative Preferred Stock ("Series A Preferred Stock") and through optional cash payments from shareholders. The Company has registered with the Securities and Exchange Commission the offer and sale of up to 750,000 shares of Common Stock pursuant to the DRSPP. It is expected that shareholders of the Company may begin participating in the DRSPP commencing with the Company's April 1997 distribution to holders of Common Stock. See "Part II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters". 4 6 COMMON STOCK OFFERING In March 1997, the Company offered and sold to the public 2,300,000 shares of common stock, (the "Offering"). The net proceeds to the Company from the Offering totaled approximately $62.4 million after payment of all underwriting discounts and expenses of the Offering. The Company contributed the net proceeds of the Offering to the Operating Partnership in exchange for additional Common Units in the Operating Partnership. The Operating Partnership will use substantially all of the net proceeds to repay outstanding borrowings under the Credit Line and any excess will be used for general corporate purposes, including acquisitions. Amounts repaid under the Credit Line may be re-borrowed (subject to the terms and limits of the Credit Line) to finance acquisitions of additional apartment communities and for other corporate purposes. ITEM 2. PROPERTIES The Company seeks to acquire apartment communities appealing to middle and upper income residents in mid-size cities in the southeastern United States and Texas. Approximately 64% of the Company's apartment units are located in Tennessee, Florida 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, 1996 was 12.8 years. The following table sets forth certain operating data regarding the Company for the periods indicated.
1996 1995 1994 ------ ------ ------ Apartment units at year end 19,280 18,219 14,333 Average monthly rental per apartment unit at year end $529 $508 $482 Average occupancy for the year 95.4% 95.2% 95.5%
The following table sets forth selected financial and operating information on an historical basis for the 73 Communities owned at December 31, 1996: 5 7 The following table presents information concerning the properties at December 31, 1996:
Approximate Average Year Rentable Unit Year Management Number Area Size Property Location Completed Commenced Of Units (Square Ft.) (Square Ft.) - ---------------- --------------- ---- --------- -------- ------------ ------------ Calais Forest Little Rock, AR 1987 1994 260 194,928 750 Napa Valley Little Rock, AR 1984 1996 240 183,120 763 Whispering Oaks Little Rock, AR 1978 1994 206 192,422 934 ---- --------- ----- 706 570,470 808 Tiffany Oaks Altamonte Springs, FL 1985 1996 288 234,144 813 Marsh Oaks Atlantic Beach, FL 1986 1995 120 93,240 777 Anatole Daytona Beach, FL 1986 1995 208 149,136 717 Cooper's Hawk Jacksonville, FL 1987 1995 208 218,400 1,050 Lakeside Jacksonville, FL 1985 1996 416 344,032 827 St. Augustine Jacksonville, FL 1987 1995 400 304,400 761 Woodbridge at the Lake Jacksonville, FL 1985 1994 188 166,000 883 Savannahs at James Landing Melbourne, FL 1990 1995 256 238,592 932 Belmere Tampa, FL 1984 1994 210 202,440 964 Sailwinds at Lake Magdalene Tampa, FL 1975 1994 798 667,084 836 ----- --------- ----- 3,092 2,617,468 847 Shenandoah Ridge Augusta, GA 1975/1982 1994 272 202,640 745 Hollybrook Dalton, GA 1972 1994 158 188,640 1,194 ---- --------- ----- 430 391,280 910 Lakepointe Lexington, KY 1986 1994 118 90,614 768 Mansion, The Lexington, KY 1987 1994 184 138,720 754 Village, The Lexington, KY 1989 1994 252 182,716 725 Stonemill Village Louisville, KY 1985 1994 384 324,008 844 ---- --------- ----- 938 736,058 785 Canyon Creek St. Louis, MO 1987 1994 320 312,592 977 Riverhills Grenada, MS 1972 1985 96 81,942 854 Advantages, The Jackson, MS 1984 1991 252 199,136 790 Crosswinds Jackson, MS 1988/1990 1996 360 443,160 1,231 Lakeshore Landing Jackson, MS 1974 1994 196 171,156 873 Pear Orchard Jackson, MS 1985 1994 389 338,430 870 Pine Trails Jackson, MS 1978 1988 120 98,560 821 Reflection Pointe Jackson, MS 1986 1988 296 254,856 861 Somerset Place Jackson, MS 1981 1995 144 128,848 881 Woodridge Jackson, MS 1987 1988 192 175,034 912 ----- --------- ----- 2,045 1,891,122 925 Woodstream Greensboro, NC 1983 1994 304 217,186 714 Corners, The Winston-Salem, NC 1982 1993 240 173,496 723 ----- --------- ----- 544 390,682 718 Fairways at Royal Oak Cincinnati, OH 1988 1994 214 214,477 1,002 Tanglewood Anderson, SC 1980 1994 168 146,600 873 The Fairways Columbia, SC 1992 1994 240 213,720 891 Highland Ridge Greenville, SC 1984 1995 168 144,000 857 Park Haywood Greenville, SC 1983 1993 208 152,256 732 Spring Creek Greenville, SC 1984 1995 208 182,000 875 Runaway Bay Mt. Pleasant, SC 1988 1995 208 177,840 855 ----- --------- ----- 1,200 1,016,416 847 Hamilton Pointe Chattanooga, TN 1989 1992 362 256,716 711 Hidden Creek Chattanooga, TN 1987 1988 300 259,152 864 Steeplechase Chattanooga, TN 1986 1991 108 97,016 898 Oaks, The Jackson, TN 1978 1993 100 87,512 875 Post House Jackson Jackson, TN 1987 1989 150 163,640 1,091 Post House North Jackson, TN 1987 1989 144 144,724 1,005 Williamsburg Village Jackson, TN 1987 1994 148 121,412 820 Woods at Post House Jackson, TN 1995 1995 122 118,922 975 Cedar Mill Memphis, TN 1973/1986 1982/1994 276 297,794 1,079 Clearbrook Village Memphis, TN 1974 1987 176 150,400 855 Crossings Memphis, TN 1974 1991 80 89,968 1,125 EastView Memphis, TN 1974 1984 432 356,480 825 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 371 310,742 838 Lincoln on the Green Memphis, TN 1988 1994 384 293,664 765 McKellar Woods Memphis, TN 1976 1988 624 589,776 945 Glen Eagles Memphis, TN 1975 1990 184 189,560 1,030 Park Estate Memphis, TN 1974 1977 81 95,751 1,182 Savannah Creek Memphis, TN (8) 1989 1996 204 237,252 1,163 Sutton Place Memphis, TN (8) 1991 1996 252 267,624 1,062 Winchester Square Memphis, TN 1973 1977 252 301,409 1,196 Brentwood Downs Nashville, TN 1986 1994 286 220,166 770 Park at Hermitage Nashville, TN 1987 1995 440 392,480 892 ----- --------- ----- 6,707 6,126,906 914 Stassney Woods Austin, TX 1985 1995 288 248,832 864 Travis Station Austin, TX 1987 1995 304 249,888 822 Redford Park Conroe, TX 1984 1994 212 153,744 725 Celery Stalk Dallas, TX 1978 1994 410 552,220 1,347 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 Lane at Towne Crossing Mesquite, TX 1983 1994 384 277,616 723 Cypresswood Court Spring, TX 1984 1994 208 160,672 772 Green Tree Place Woodlands, TX 1984 1994 200 152,168 761 ----- --------- ---- 2,788 2,428,921 871 Township Hampton, VA 1987 1995 296 248,048 838 ------ ---------- ---- Total 19,280 16,944,440 879 ====== ========== ==== 8 The following table presents information concerning the properties at December 31, 1996: Encumbrances at Average Average December 31, 1995 Rent Per Occupancy -------------------------- Unit at % at Mortgage December 31, December 31, Principal Interest Maturity Property Location 1996 1996 (000's) Rate Date - -------- -------- ------------ ----------- --------- -------- -------- Calais Forest Little Rock, AR $550 90.4% $5,610 8.915% 12/01/99 Napa Valley Little Rock, AR $542 82.9% -(2) -(2) -(2) Whispering Oaks Little Rock, AR $489 90.8% $3,000 8.915% 12/01/99 ---- ----- ------ $530 88.0% $8,610 Tiffany Oaks Altamonte Springs, FL $528 96.0% - - - Marsh Oaks Atlantic Beach, FL $501 99.2% -(2) -(2) -(2) Anatole Daytona Beach, FL $542 97.1% $7,000 5.370% 09/01/05 Cooper's Hawk Jacksonville, FL $644 95.2% -(7) -(7) -(7) Lakeside Jacksonville, FL $556 95.4% -(2) -(2) -(2) St. Augustine Jacksonville, FL $518 95.0% -(7) -(7) -(7) Woodbridge at the Lake Jacksonville, FL $581 96.3% $3,738 -(1) -(1) Savannahs at James Landing Melbourne, FL $554 96.1% -(7) -(7) -(7) Belmere Tampa, FL $592 97.1% -(2) -(2) -(2) Sailwinds at Lake Magdalene Tampa, FL $517 96.0% $15,950 8.915% 12/01/99 ---- ----- ------- $545 96.0% $26,688 Shenandoah Ridge Augusta, GA $434 92.3% -(2) -(2) -(2) Hollybrook Dalton, GA $554 94.9% $2,520 8.915% 12/01/99 ---- ----- ------- $478 93.3% $2,520 Lakepointe Lexington, KY $520 98.3% $2,562 8.750% 06/15/97 Mansion, The Lexington, KY $529 95.7% $4,140 8.915% 12/01/99 Village, The Lexington, KY $542 96.0% $5,256 8.750% 06/15/97 Stonemill Village Louisville, KY $545 91.1% -(6) -(6) -(6) ---- ----- ------ $538 94.2% $11,958 Canyon Creek St. Louis, MO $521 90.9% -(6) -(6) -(6) Riverhills Grenada, MS $397 97.9% $880 7.000% 05/01/13 Advantages, The Jackson, MS $462 91.3% -(6) -(6) -(6) Crosswinds Jackson, MS $588 96.7% -(2) -(2) -(2) Lakeshore Landing Jackson, MS $493 95.4% -(6) -(6) -(6) Pear Orchard Jackson, MS $556 97.9% $8,643 10.000% 11/01/97 Pine Trails Jackson, MS $459 99.2% $1,396 7.000% 04/01/15 Reflection Pointe Jackson, MS $536 95.6% $6,073 6.600% 09/01/10 Somerset Place Jackson, MS $492 98.6% -(2) -(2) -(2) Woodridge Jackson, MS $499 95.8% $4,840 6.500% 10/01/27 ---- ----- ------- $518 96.2% $21,832 Woodstream Greensboro, NC $525 92.4% $5,565 9.250% 12/01/98 Corners, The Winston-Salem, NC $519 95.4% $4,406 7.850% 06/15/03 ---- ----- ------ $522 93.7% $9,971 Fairways at Royal Oak Cincinnati, OH $570 98.1% -(2) -(2) -(2) Tanglewood Anderson, SC $518 92.9% $2,651 7.600% 11/15/02 The Fairways Columbia, SC $541 96.3% $7,674 8.500% 03/01/33 Highland Ridge Greenville, SC $476 91.7% -(3) -(3) -(3) Park Haywood Greenville, SC $479 93.8% -(2) -(2) -(2) Spring Creek Greenville, SC $504 97.6% -(3) -(3) -(3) Runaway Bay Mt. Pleasant, SC $632 93.8% -(3) -(3) -(3) ---- ----- ------- $527 94.5% $10,325 Hamilton Pointe Chattanooga, TN $443 91.7% -(6) -(6) -(6) Hidden Creek Chattanooga, TN $458 90.0% -(6) -(6) -(6) Steeplechase Chattanooga, TN $522 96.3% -(2) -(2) -(2) Oaks, The Jackson, TN $470 95.0% -(6) -(6) -(6) Post House Jackson Jackson, TN $548 93.3% $5,179 8.170% 10/01/27 Post House North Jackson, TN $554 95.1% $3,765 5.270% 09/01/25 Williamsburg Village Jackson, TN $507 97.3% -(2) -(2) -(2) Woods at Post House Jackson, TN $639 85.8% $5,339 7.250% 09/01/35 Cedar Mill Memphis, TN $555 95.7% $2,529 -(4) -(4) Clearbrook Village Memphis, TN $470 97.7% $1,226 9.000% 04/01/08 Crossings Memphis, TN $597 98.8% -(6) -(6) -(6) EastView Memphis, TN $483 96.1% $3,708 8.625% 12/01/99 Greenbrook Memphis, TN $481 96.6% $15,743 -(5) -(5) Hickory Farm Memphis, TN $500 98.5% -(6) -(6) -(6) Kirby Station Memphis, TN $531 97.0% - - - Lincoln on the Green Memphis, TN $568 98.7% -(2) -(2) -(2) McKellar Woods Memphis, TN $447 96.3% $8,501 -(5) -(5) Glen Eagles Memphis, TN $525 97.3% -(6) -(6) -(6) Park Estate Memphis, TN $654 98.8% $1,497 -(5) -(5) Savannah Creek Memphis, TN (8) $557 99.0% -(2) -(2) -(2) Sutton Place Memphis, TN (8) $536 98.8% -(2) -(2) -(2) Winchester Square Memphis, TN $541 96.4% -(6) -(6) -(6) Brentwood Downs Nashville, TN $612 96.2% $6,678 8.915% 12/01/99 Park at Hermitage Nashville, TN $568 98.0% $8,385 5.790% 02/01/19 ---- ----- ------- $516 96.2% $62,550 Stassney Woods Austin, TX $584 94.8% $4,925 6.600% 10/01/19 Travis Station Austin, TX $528 95.4% $4,355 6.600% 04/01/19 Redford Park Conroe, TX $474 94.8% $3,000 9.006% 12/01/04 Celery Stalk Dallas, TX $619 92.2% $8,460 9.006% 12/01/04 Lodge at Timberglen Dallas, TX $571 94.6% $4,740 9.006% 12/01/04 MacArthur Ridge Irving, TX $674 91.1% $7,648 7.400% 08/15/98 Westborough Katy, TX $479 92.3% $3,958 9.006% 12/01/04 Lane at Towne Crossing Mesquite, TX $503 93.5% $5,756 8.750% 01/01/98 Cypresswood Court Spring, TX $500 94.7% $3,330 9.006% 12/01/04 Green Tree Place Woodlands, TX $552 92.0% $3,180 9.006% 12/01/04 ---- ----- ------- $552 93.5% $49,352 Township Hampton, VA $552 93.9% $10,800 8.750% 11/01/09 ---- ----- -------- Total $529 95.2% $214,606 ==== ===== ========
(1) Encumbered by two mortgages with interest rates of 7.75% and maturities of September 7, 1999 and January 1, 2004. (2) Subject to a negative pledge pursuant to the agreement in respect of the Credit Line, with an outstanding balance of $30.4 million at December 31, 1996. The line had a variable interest rate at December 31, 1996 of 7.50%. (3) These three properties are encumbered by a $10.3 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 6.09%. (4) Cedar Mill is encumbered by two mortgages with interest rates of 7.8% and 8.35% with maturities of February 4, 2004 and July 1, 2001 and Mendenhall Townhomes with a 8.65% loan maturing July 1, 2001. (5) Encumbered by three mortgages with interest rates of 7.8%, 7.55% and 8.35% and maturities of February 4, 2004, July 1, 2001 and July 1, 2001, respectively. (6) These eleven properties are encumbered by a $43.4 million mortgage. (7) These three properties are encumbered by a $16.5 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 5.75%. (8) These properties are located in Desoto County, MS, a suburb of Memphis, TN. The Company considers the properties a part of the Memphis, TN market. 6 - 8 10 ITEM 3. LEGAL PROCEEDINGS Neither the Company nor the Communities is presently subject to any material litigation nor, to the Company's knowledge, is any material litigation threatened against the Company or the Communities properties, 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 There were no matters submitted to the Company's shareholders during the fourth quarter of 1996. 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 21, 1997, the reported last sale price of the Company's common stock on the NYSE was $29.00 per share and there were approximately 1,477 holders of record of the Common Stock. The Company estimates there are approximately 11,000 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 ------ ------ --------- 1995: First Quarter $ 26.00 $ 25.75 $ .50 Second Quarter 25.00 24.75 .50 Third Quarter 24.75 24.625 .50 Fourth Quarter 24.875 24.375 .51 1996: First Quarter 26.625 24.00 .51 Second Quarter 26.625 25.125 .51 Third Quarter 25.875 23.875 .51 Fourth Quarter 28.875 24.75 .535
The Company's current annual distribution rate with respect to the Common Stock is $2.14 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 Preferred Stock issued in October 1996 at an annual rate of $2.375 per share. No distribution may be made on the Common Stock unless all accrued distributions have been made with respect to the Series A 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 Preferred Stock. 9 11 In January 1997, the Company implemented the DRSPP under which holders of Common Stock (and Series A Preferred Stock) may 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 will be 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. 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. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data on an historical basis for the Company and its predecessor. 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. In the opinion of management, the data for the periods presented include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the information set forth therein. 10 12 Mid - America Apartment Communities, Inc. Selected Financial Data (Dollars in thousands except per share and property data)
Year Ended December 31, ------------------------------------------------------- Historical ------------------------------------------------------- (Predecessor) ------------------- 1996 1995 1994(1) 1993 1992 ---- ---- ------- ---- ---- Operating Data: - --------------- Total revenues $ 111,882 $ 94,963 $ 51,207 $ 26,295 $ 22,194 Expenses: Property expenses (2) 42,570 37,954 19,484 11,316 9,682 General and administrative 6,154 4,851 3,613 1,402 1,112 Interest 25,766 22,684 10,233 7,448 7,524 Depreciation and amortization 21,443 16,574 8,803 3,521 3,235 Amortization of deferred financing costs 661 593 296 199 109 Gain on disposition of properties 2,185 - - - - ---------- --------- -------- -------- -------- Income (loss) before minority interest in operating partnership income and extraordinary item 17,473 12,307 8,778 2,409 532 Net income 14,260 9,810 6,944 2,542 1,090 Preferred dividends 990 - - N/A N/A Net income available for common shares $ 13,270 $ 9,810 $ 6,944 N/A N/A Per Share Data: - --------------- Net income available for common shares $ 1.21 $ 1.00 $ 1.01 N/A N/A Dividends declared $ 2.065 $ 2.01 $ 1.71 N/A N/A Balance Sheet Data: - ------------------- Real estate owned, at cost $ 641,893 $ 578,788 $ 434,460 $ 125,269 $ 111,686 Real estate owned, net $ 592,335 $ 549,284 $ 421,074 $ 98,029 $ 87,969 Total assets $ 611,199 $ 565,267 $ 439,233 $ 104,439 $ 93,252 Total debt $ 315,239 $ 307,939 $ 232,766 $ 105,594 $ 95,036 Minority interest $ 39,238 $ 41,049 $ 43,709 N/A N/A Shareholders' equity (owners' deficit) $ 241,384 $ 202,278 $ 152,385 $ (4,684) $ (4,493) Weighted average common shares and unit 13,431 12,276 9,818 N/A N/A Other Data (at end of period): - ------------------------------ Market capitalization (shares and units) $ 436,739 $ 331,238 $ 295,300 N/A N/A Ratio of total debt to total capitalization (3) 41.9% 48.2% 44.1% N/A N/A Number of Properties 73 70 54 22 19 Number of apartment units 19,280 18,219 14,333 5,580 5,064
(1) Operating data for 1994 includes 34 days of predecessor financial information and per share data for 1994 is for the period February 4, 1994 through December 31, 1994. (2) See discussion of the change in accounting policy during 1996 in Note 1 to the Consolidated Financial Statements. (3) Total capitalization is total debt and market capitalization of preferred shares, common shares and partnership units. 11 13 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, 1996, 1995, and 1994. This discussion should be read in conjunction with all of the financial statements incorporated by reference into this Annual Report on Form 10-K. These financial statements include all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods presented, and all such adjustments are of a normal recurring nature. 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 items, primarily depreciation and amortization, less preferred stock dividends. 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 adopted this method of calculating FFO effective as of the NAREIT-suggested adoption date of January 1, 1996. 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 flows 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 cash flow from operating activities and 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. For the year ended December 31, 1996, FFO increased by approximately $6,809,000 or 23.7%, when compared to the year earlier (adjusted only for the new NAREIT definition of FFO). The increase was primarily attributable to an approximate $16,919,000 increase in revenues, which was partially offset by increases in expenses mainly associated with the increase in the number of apartment units owned by the Company. On a per share basis, FFO increased 8.6% from $2.44 per share (restated for the effect of adoption of the current NAREIT FFO definition and the change in accounting policy) for the year ended December 31, 1995 to $2.65 per share for the same period in 1996. CAPITAL EXPENDITURES Following a review of its capital expenditure and depreciation policy, effective January 1, 1996, the Company implemented a new policy of which the primary changes are as follows: (a) Increase minimum dollar amounts to capitalize from $500 to $1,000; (b) For stabilized Communities (generally, Communities owned and operated by the Company for at least one year), capitalize replacement purchases for major appliances and carpeting of an entire apartment unit which was previously expensed; and (c) Reduce depreciation life for certain assets from 20 years to 10 to 15 years. The Company believes that the newly adopted accounting policy is preferable because it is consistent with policies currently being used by the majority of the largest apartment REITs and provides a better matching of expenses with the estimated benefit period. The Company's 1995 and 1994 financial statements were not restated for the effect of the change in accounting policy. The policy has been implemented prospectively effective January 1, 1996. 12 14 The following table presents the impact on 1995 net income of the Company's new capitalization policy and adoption of NAREIT's current definition of FFO.
IMPACT OF CHANGE IN ACCOUNTING POLICY AND THE CURRENT NAREIT FFO DEFINITION (Dollars in thousands except per share data) Year Ended December 31, 1995 With Current With Current NAREIT NAREIT FFO Year Ended As FFO definition and December 31, 1996 Reported definition capital policy ----------------- -------- ------------ -------------- Net income before $ 17,473 $ 12,307 $ 12,307 $ 12,307 minority interest Change for capitalization policy as if in effect at January 1, 1995 N/A N/A N/A 1,243 Additional depreciation due to change in capitalization policy N/A N/A N/A (249) -------- -------- -------- --------- Adjusted net income before minority interest $ 17,473 $ 12,307 $ 12,307 $ 13,301 Preferred dividend distribution 990 - - - Gain on disposition of properties 2,185 - - - Depreciation and amortization of: Real estate assets 21,288 16,470 16,470 16,719 Non-real estate assets - 104 - - Deferred financing costs - 593 - - -------- -------- -------- -------- FFO $ 35,586 $ 29,474 $ 28,777 $ 30,020 ======== ======== ======== ======== FFO per share and common unit $ 2.65 $ 2.40 $ 2.34 $ 2.44
RESULTS OF OPERATIONS COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31, 1995 During the 1996 period, the Company acquired six apartment communities and sold three apartment communities. The total number of apartment units owned at December 31, 1996 was 19,280 in 73 apartment communities, compared to 18,219 in 70 communities at December 31, 1995. Average monthly rental per apartment unit increased to $529 at December 31, 1996 from $508 at December 30, 1995. Average occupancy for the years ended December 31, 1996 and 1995 was 95.4% and 95.2%, respectively. Total revenues for 1996 increased by approximately $16,919,000, due primarily to (i) approximately $4,833,000 from the six Communities acquired in 1996, (ii) approximately $7,156,000 from a full years operation of the 15 Communities acquired in 1995, including the Communities acquired in the AFR Merger, (iii) approximately $4,363,000 from the Communities owned throughout both periods, and (iv) approximately $567,000 from The Woods at Post House in Jackson, Tennessee which completed development in the Fall of 1995. Property operating expenses for 1996 increased by approximately $4,616,000, due primarily to (i) approximately $1,686,000 from the six Communities acquired in 1996, (ii) approximately $2,746,000 from a full years operations of the 15 Communities acquired in 1995, including the Communities acquired in the AFR Merger, and (iii) approximately $234,000 from The Woods at Post House in Jackson, Tennessee which completed development in the Fall of 1995. These increases were offset by a decrease of approximately $51,000 from the Communities owned throughout both periods. Repair and maintenance expense decreased primarily due to the change in the capitalization policy described above. Utility costs decreased from 6.1% of revenue to 5.5% of revenue for the year ended December 31, 1996 compared to the same period a year earlier, due primarily to the installation of 6,400 individual apartment unit water meters and the completion of the individual apartment unit electricity metering at Sailwinds at Lake Magdalene. 13 15 General and administrative expense increased in 1996 approximately $1,303,000 primarily due to the opening of the new training center and other expenses due to the continued growth of the company. Depreciation and amortization expense increased primarily due to (i) approximately $893,000 from the six apartment communities acquired in 1996, (ii) approximately $1,346,000 from the 15 apartment communities acquired in 1995, including the Communities acquired in the AFR Merger, (iii) approximately $2,187,000 from additional capital expenditures on Communities owned throughout both periods, and (iv) approximately $443,000 from The Woods at Post House in Jackson, Tennessee which completed development in the Fall of 1995. Amortization of deferred financing costs and unamortized costs in excess of fair value of net assets acquired for 1996 were approximately $661,000 and approximately $192,000, respectively. Interest expense increased approximately $3,082,000 during 1996 due primarily to apartment acquisitions. The Company reduced the average borrowing cost to 7.92% at December 31, 1996 as compared to 8.15% on December 31, 1995. The average maturity on the Company's debt was 9.9 years at both December 31, 1996 and 1995. In 1996, the Company recorded an approximate $2,185,000 gain for the disposition of three apartment communities. As a result of the foregoing, income before minority interest for the year ended December 31, 1996 increased approximately $5,166,000 over the same period a year earlier. COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31, 1994 (THE COMPANY AND ITS PREDECESSOR) The total number of apartment units owned at December 31, 1995 was 18,219 in 70 apartment communities, compared to 14,333 in 54 communities at December 31, 1994. Average monthly rental per apartment unit increased to $508 for 1995 from $482 for 1994. Average occupancy for 1995 and 1994 was 95.2% and 95.5%, respectively. For the 10,268 apartment units owned on December 31, 1995 and 1994, average occupancy increased to 95.4% as compared to 92.8%, respectively, and the average monthly rental per apartment unit increased for this same period 6.2% to $499 from $470. Total revenues for 1995 increased by approximately $43,756,000, due primarily to (i) approximately $13,966,000 from the 15 apartment communities acquired, including the Communities acquired in the AFR Merger, (ii) approximately $28,348,000 from a full year's operation of 32 Communities acquired in 1994, and (iii) approximately $1,442,000 from the Communities owned throughout both periods. In addition, the Company completed the development of The Woods at Post House in Jackson, Tennessee in the Fall of 1995. Property operating expenses increased by approximately $18,470,000 over 1994. The increase primarily resulted from (i) approximately $5,514,000 of operating expense from the 15 apartment communities acquired in 1995, including the Communities acquired in the AFR Merger, (ii) approximately $12,243,000 for full year's operation of the 32 Communities acquired in 1994, and (iii) approximately $713,000 from the apartment communities owned throughout both periods. As a percentage of revenue, property operating expenses increased to 40.0% from 38.1% for the year ended December 31, 1995 and 1994, respectively. The 5,176 apartment units owned in the states of Florida and Texas acquired during 1994 and 1995 account for a 2.5% increase in the expense ratio. As anticipated in the acquisition forecasts, these apartment units have been more expensive to operate than the balance of the Communities. During 1995, approximately $1,374,000 was expensed for replacement of appliances and carpets compared to approximately $888,000 for 1994. General and administrative expenses decreased to 5.1% of revenues for 1995 from 7.1% for 1994 as a result of increased efficiencies from the economies of scale. 14 16 Depreciation and amortization expense increased primarily due to (i) an increase of approximately $2,017,000 from the 15 apartment communities acquired during 1995 and (ii) an increase of approximately $5,390,000 for a full year's operation of 32 apartment communities acquired during 1994. Amortization of deferred financing costs and unamortized costs in excess of fair value of net assets acquired for 1995 were approximately $593,000 and approximately $186,000, respectively. Interest expense increased approximately $12,451,000 during 1995 due to apartment communities acquired during the year as well as a full year of operation for Communities acquired in 1994. The Company reduced the average borrowing cost to 8.15% at December 31, 1995 as compared to 8.45% on December 31, 1994. The average maturity on the Company's debt increased to 9.9 years from 8.7 years at December 31, 1995 and 1994, respectively. As a result of the foregoing, income before minority interest and extraordinary items in 1995 increased by approximately $3,529,000 over 1994. LIQUIDITY AND CAPITAL RESOURCES Net cash flow provided by operating activities increased from approximately $34,289,000 for the year ended December 31, 1995 to approximately $38,018,000 for the year ended December 31, 1996. The increase in net cash flow was primarily due to an increase in net income, depreciation and amortization, and accrued expenses and liabilities. This increase in net cash flow provided by operating activities was offset by an increase in restricted cash due to an increase in tax-exempt bond financing requiring additional cash reserves and increases in other mortgage escrows and replacement reserves and the gain recorded for the disposition of three apartment communities. Net cash flow used in investing activities increased from approximately $39,167,000 for the year ended December 31, 1995 to approximately $70,436,000 for the year ended December 31, 1996. The increase was primarily due to the acquisition of 1,760 apartment units in 1996 for approximately $66,258,000 as compared to the acquisition of 520 apartment units in 1995 for approximately $15,561,000. This increase in net cash flow used in investing activities was offset by the sale of three apartment communities in 1996 for approximately $17,096,000. Capital improvements to existing properties totaled approximately $18,437,000 for the year ended December 31, 1996, compared to approximately $19,233,000 for the same period in 1995. Of the $18,437,000 capital improvements approximately $6,979,000 was for recurring capital expenditures, including carpet and appliances, approximately $5,896,000 was for revenue enhancing projects, approximately $4,774,000 was for acquisition capital with the remaining balance for other miscellaneous spend, including corporate. For the stabilized apartment units, recurring capital expenditures averaged $413 per apartment unit. Construction in progress for new apartment units decreased from approximately $5,692,000 for the year ended December 31, 1995 to approximately $2,837,000 for the comparable period in 1996, due primarily to the completion of the 122-unit development in Jackson, Tennessee which began leasing during the third quarter of 1995. Net cash flow provided by financing activities increased from approximately $2,944,000 during the year ended December 31, 1995 to approximately $33,425,000 for the year ended December 31, 1996. During 1996, approximately $29,407,000 was provided by borrowings under the Credit Line and notes payable and approximately $47,768,000 was provided from the issuance of preferred shares. The principal uses of the cash included approximately $14,427,000 for the repayment of notes payable and approximately $28,302,000 for dividends and distributions. 15 17 At December 31, 1996, the Company had approximately $30,405,000 outstanding on the Credit Line. At December 31, 1996, the Company had approximately $47,243,000 (including the Credit Line) of floating rate debt at an average interest rate of 6.9%; all other debt was fixed rate term debt at an average interest rate of 8.1%. The weighted average interest rate and weighted average maturity at December 31, 1996 for the approximately $315,239,000 of notes payable were 7.9% and 9.9 years, respectively. The Company used the approximately $47,768,000 of net proceeds from the Preferred Stock Offering, which closed in October, for the acquisitions of Napa Valley Apartments and Tiffany Oaks Apartments and used the balance to reduce the amount outstanding on the Credit Line. In December 1996, the Company increased its credit limit under the Credit Line from $65,000,000 to $90,000,000 and expects to use the Credit Line for future acquisitions, development, and to provide letters of credit as credit enhancements for tax-exempt bonds. In addition, in March 1997 the Company issued 2,300,000 shares of Common Stock in an underwritten public offering. The net proceeds from such offering were approximately $62.4 million, all of which were contributed to the Operating Partnership and utilized to repay outstanding borrowings under the Credit Line. The Credit Line is unsecured and is subject to borrowing base calculations that effectively reduce the maximum amount that may be borrowed under the Credit Line to approximately $87,000,000 as of the date of this Annual Report on Form 10-K. 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. Capital expenditures on property improvements and expansion projects for 1996 totaled approximately $21,274,000 with capital expenditures of approximately $27,400,000 planned for 1997 for property improvement and expansion projects. The Company expects to meet its long term liquidity requirements, such as scheduled mortgage debt maturities, property 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 and the Credit Line. INSURANCE In the opinion of management, property and casualty insurance is in place which provides adequate coverage to provide financial protection against normal insurable risks such that it believes that any loss experienced would not have a significant impact on the Company's liquidity, financial position, or results of operations. INFLATION Substantially all of the resident leases at the Communities allow, at the time of renewal, for adjustments in the rent payable thereunder, and thus may enable the Company to seek rent increases. The substantial majority of these leases are for one year or less. The short-term nature of these leases generally serves to reduce the risk to the Company of the adverse effects of inflation. RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS The Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. These statements include the plans and objectives of management for future operations, including plans and objectives relating to capital expenditures and rehabilitation costs on the apartment communities. 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. 16 18 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-20 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 and auditors on any matter of accounting principles or practices or financial statement disclosure. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Company's Charter divides the Board of Directors into three classes as nearly equal in number as possible, with each class serving a term of three years. One class of Directors is elected by the shareholders of the Company at each annual meeting. The Board of Directors has set at seven the number of directors constituting the full Board of Directors. The current terms of two directors expire in this year, two expire in 1998 and three in 1999. The Company's directors and executive officers are as follows:
Name Position Class Term Expires - -------------------- ------------------------------- --------- ------------ George E. Cates Chief Executive Officer and Class III 1997 Chairman of the Board of Directors H. Eric Bolton, Jr. President, Chief Operating Class II 1999 Officer and Director Simon R.C. Wadsworth Executive Vice President, Chief Class III 1997 Financial Officer and Director John J. Byrne, III Independent Director Class I 1998 Robert F. Fogelman Independent Director Class I 1998 O. Mason Hawkins Independent Director Class II 1999 Michael B. Yanney Independent Director Class II 1999
The following is a biographical summary of the experience of the directors and executive officers of the Company: GEORGE E. CATES. Mr. Cates is the Chief Executive Officer and Chairman of the Board of Directors of the Company, positions he has held since the Company's inception. Mr. Cates founded The Cates Company in 1977 and served as its president and chief executive officer until its merger with the Company in February 1994. Mr. Cates received a B.S. in industrial engineering from Georgia Tech. From 1970 to 1977, Mr. Cates was a shareholder and general manager of Walk Jones and Francis Mah, Inc., architects and engineers. Prior to that, he served in a number of manufacturing, sales and marketing positions with the Buckeye Cellulose division of Procter & Gamble. Mr. Cates is past Chairman of the Board of Memphis Light, Gas and Water Division, past president of the Memphis Apartment Council, past Vice Chairman of the Memphis and Shelby County Airport Authority and is currently a trustee of Rhodes College. Mr. Cates is also a director of First Tennessee National Corporation. Mr. Cates is 59 years old. 17 19 H. ERIC BOLTON, JR. Mr. Bolton has been an employee of the Company since 1994. Mr. Bolton joined the Company as its Vice-President of Development and was named Chief Operating Officer in February 1996. In December 1996, Mr. Bolton was appointed to serve as President of the Company and was appointed as a member of the Board of Directors of the Company in February 1997. Mr. Bolton has over 10 years of real estate experience and prior to joining the Company was Executive Vice President and Chief Financial Officer of Trammell Crow Realty Advisors. He received a B.BA. in accounting from the University of Memphis and an M.B.A. in finance and real estate from the University of North Texas. Mr. Bolton is 40 years old. SIMON R. C. WADSWORTH. Mr. Wadsworth is Executive Vice President, Chief Financial Officer and a director of the Company. Mr. Wadsworth joined the Company in March 1994, but acted as a consultant to the Company from the time the Initial Offering was completed until being named to his current positions. Mr. Wadsworth is the President and 85% shareholder of TMF, Inc., an industrial equipment dealership which he acquired in 1981. Mr. Wadsworth spends less than two hours per week on TMF, Inc. business, which is managed by professional management. From 1976 to 1980, he was Director of Corporate Development for Holiday Inns, Inc., and from 1973 to 1976 was Budget Director for Royal Crown Companies. Mr. Wadsworth received a B.A. with honors from Cambridge University and an M.B.A. (concentrating in finance and accounting) from the Harvard Graduate School of Business. Mr. Wadsworth is 49 years old. JOHN J. BYRNE, III. Mr. Byrne has served as an independent director of the Company since May 1995. Mr. Byrne founded Cirque Property L.C., a real estate acquisitions and property management company headquartered in Salt Lake City, Utah in 1986, and since that time has served as its President and Managing Member. Mr. Byrne is 37 years old. ROBERT F. FOGELMAN. Mr. Fogelman has served as an independent director of the Company since July 1994 and has been President of Fogelman Investment Company, a privately-owned investment firm for more than five years. Mr. Fogelman received a B.S. degree in Economics from the Wharton School of Finance and Commerce at the University of Pennsylvania in 1958. Mr. Fogelman is 61 years old. O. MASON HAWKINS. Mr. Hawkins has served as an independent director of the Company since October 1993 and is Chairman and Chief Executive Officer of Southeastern Asset Management, Inc., a registered investment advisor co-founded by Mr. Hawkins in 1975 and presently having over $8 billion of assets under management. He is also a director of Longleaf Partners Funds, a registered investment company of which Southeastern Asset Management, Inc. serves as investment advisor. Mr. Hawkins received a B.S.B.A. degree from the University of Florida and a M.B.A. in Finance from the University of Georgia. He was a research analyst for Atlantic National Bank from 1972 to 1973, serving as Director of Research in 1973, and was a research analyst for First Tennessee Investment Management from 1974 to 1975, serving as Director of Research in 1975. He is a Chartered Financial Analyst. Mr. Hawkins is 49 years old. MICHAEL B. YANNEY. Mr. Yanney has served as an independent director of the Company since the consummation of the AFR Merger in June 1995. Mr. Yanney served as Chairman and Chief Executive Officer of America First Companies since 1984. From 1977 until 1984, Mr. Yanney was principally engaged in the ownership and management of commercial banks. He is also a director of Burlington Northern Inc., Forest Oil Corporation, MFS Communications Company, Inc. and Lozier Corporation. Mr. Yanney is 63 years old. 18 20 ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table. Annual Compensation Long Term Compensation ----------------------------------- ----------------------- Other Restricted Annual Stock Name and Position Year Salary($) Bonus($) Compensation($) Awards($) Options(#) - ----------------- ---- --------- -------- --------------- ---------- ---------- George E. Cates 1996 $255,137 $-- $-- $-- 25,000 Chairman, Chief 1995 257,500 67,500 -- -- -- Executive Officer 1994 225,000 -- -- -- 90,000 and Director H. Eric Bolton 1996 136,670 15,770 -- -- 15,000 President, Chief 1995 108,400 20,800 -- -- 12,500 Operating Officer 1994 56,042 -- -- -- 2,500 and Director Simon R. C. Wadsworth 1996 135,187 -- -- -- 10,000 Executive Vice 1995 131,400 36,000 -- -- 2,500 President, Chief 1994 120,000 -- -- -- 30,000 Financial Officer and Director
Option Grants during the year ending December 31, 1996. The following table provides information on option grants during the year ending December 31, 1996 to the executive officers listed in the table above.
Individual Grants ----------------- Potential Realization % of Total Value at Options Assumed Rates of Granted to Annual Stock Price Employees Exercise Appreciation for Options in Price Expiration Option Term Name Granted Fiscal Year ($/Share) Date 5% 10% - --------------------- ------- ----------- --------- ---- ---- ----- George E. Cates 25,000 27.0% $26.50 2/14/06 $416,643 $1,055,854 H. Eric Bolton 15,000 16.2% $26.50 2/14/06 $250,136 $633,513 Simon R. C. Wadsworth 10,000 10.8% $26.50 2/14/06 $166,657 $422,342
19 21 Aggregated Option Exercises through December 31, 1996. The following table provides information on options held by the executive officers listed above through December 31, 1996, and the value of each of their unexercised options at December 31, 1996. There were no stock options exercised in 1996.
Number of Shares Exercised Options Underlying Value of Unexercised ----------------- Unexercised In-the-Money Shares Options Options (1) acquired Value Exercisable/ Exercisable/ Name on exercise Realized Unexercisable Unexercisable - --------------------- ----------- -------- ---------------- -------------------- George E. Cates -- -- 26,000 / 79,000 $237,250 / $552,125 H. Eric Bolton -- -- 3,500 / 26,500 $13,500 / $79,313 Simon R. C. Wadsworth -- -- 12,500 / 30,000 $67,875 / $130,250
__________ (1) Based upon the closing price of the Company's Common Stock on the NYSE on December 31, 1996 of $28.875 per share. Compensation of Directors Directors who are employees of the Company or one of its subsidiaries do not receive additional remuneration as directors. In 1994, the Company's three initial independent directors were each awarded 2,500 shares of Common Stock for their services as director. The directors' rights in the Common Stock vest at the rate of 500 shares per year beginning in 1994. Each director is entitled to receive the distributions paid on his shares of Common Stock prior to vesting. Directors who cease to be directors will forfeit any shares not previously vested prior to the termination of that person's service on the board of directors. Mr. Yanney currently receives $15,000 per year as compensation for his service on the board of directors. Any independent directors elected to the board in the future will be paid annual compensation of $15,000. In 1996, each independent director was awarded options to acquire 1,000 shares of stock and committee chairmen were awarded an additional 1,000 options. General The Compensation Committee of the Board of Directors is composed of independent Directors. In 1996, it was composed of John J. Byrne, III, Robert F. Fogelman, O. Mason Hawkins, and Michael B. Yanney. The Compensation Committee is responsible for developing and communicating recommendations to the Board of Directors with respect to the Company's executive compensation policies, and determines, pursuant to authority delegated by the Board of Directors, the compensation (including stock options) to be paid to the Chief Executive Officer and each of the other executive officers of the Company. The Company is at a relatively early stage of its development. Consequently, the Compensation Committee does not believe it appropriate to base its compensation decisions solely on traditional financial measures of performance, including return on equity. Instead, the Compensation Committee has evaluated performance based primarily on growth in funds from operations per share, which industry analysts consider to be the primary measure of performance for an equity REIT. The Company's executive officer compensation program is comprised of base salary, cash incentive bonus compensation, long-term incentive compensation in the form of stock options, and various benefits, including medical plans generally available to all employees of the Company. 20 22 Base Salary Base salary levels for the Company's executive officers together with option grants and benefits are intended to be competitively set relative to other REITs of comparable size and stage of development in the Company's geographic area. In determining base salaries the Compensation Committee also takes into account individual experience and performance as well as specific issues relating to the Company. Incentive Bonus Compensation The Compensation Committee may periodically award bonuses to executives in order to provide a direct financial incentive, in the form of a cash bonus, to executives to achieve individual and Company objectives. The amount of the bonus is determined based upon the Compensation Committee's evaluation of each executive's performance and in accordance with employment agreements with certain executives. Amended and Restated 1994 Restricted Stock and Stock Option Plan The 1994 Restricted Stock and Stock Option Plan (the "1994 Plan") is the Company's long-term incentive plan for executive officers and other selected employees. The objective of the program is to retain and motivate executives to improve long-term stock performance. The Compensation Committee has the authority, within limitations set forth in the 1994 Plan, (i) to establish rules and regulations concerning the 1994 Plan, (ii) to determine the persons to whom Options and Restricted Stock may be granted (iii) to fix the number of shares of Common Stock to be covered by each Option and (iv) to set the terms and provisions of each Option to be granted and the vesting schedule for Restricted Stock. Stock options are generally granted at the prevailing market value and will only have value if the Company's stock increases. Non-Qualified Executive Deferred Compensation Plan In August, 1995, the Compensation Committee 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, key employees may elect to defer a percentage of their compensation and the Company matches a portion of their salary deferral with similar provisions as apply for the Company's 401 (k) Savings Plan. 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. Compensation of Chief Executive Officer Mr. Cates' base salary was $255,000 for the year ended December 31, 1996. On February 4, 1994 the Company entered into a five-year employment agreement with Mr. Cates for an annual base compensation of $225,000, subject to any increases in base compensation approved by the Compensation Committee. The Compensation Committee considered the initial annual base salary of Mr. Cates to be competitive with comparable REITs in the Company's geographic area. The employment contract provides for certain severance payments in the event of death or disability or upon termination by the Company without cause or by the employee with cause. The agreement contains a non-competition provision which prohibits Mr. Cates, except as an officer or employee of the Company, from engaging directly or indirectly in the acquisition, development, operation, management, leasing or landscaping of any multifamily community. This prohibition extends to all multifamily communities wherever located, during the term of employment and to multifamily properties within 30 miles of any multifamily community owned by the Company after termination of such employment. 21 23 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OWNERSHIP OF THE COMPANY'S COMMON STOCK Security Ownership of Certain Beneficial Owners. The following table sets forth information as of March 21, 1997, regarding each person known to the Company to be the beneficial owner of more than five percent of its Common Stock:
Amount and Nature of Name and Address of Beneficial Owner Beneficial Ownership Percent of Class(1) - ------------------------------------ -------------------- ------------------- Snyder Capital Management, Inc. 1,100,400 (2) 8.2% 350 California Street, Suite 1460 San Francisco, CA 94104-1436
__________ (1) Based on 13,404,398 shares of Common Stock outstanding on March 21, 1997. (2) The information set forth is based on a Schedule 13G filed by Snyder Capital Management, Inc. on February 14, 1997 that indicates that beneficial ownership of 1,100,400 shares of Common Stock, of which it has sole and dispositive power over 70,500 shares, shared voting power over 934,800 shares and shared dispositive power over 1,029,900 shares. Security Ownership of Management The following table sets forth the beneficial ownership of the Company's Common Stock as of March 21, 1997 by (i) each director, (ii) each executive officer named in the Summary Compensation Table, and (iii) all directors and executive officers as a group:
Amount and Nature of Percent Beneficial of Name of Beneficial Owner Ownership Class(1) - ------------------------ ------------- -------- Robert F. Fogelman 653,000 (2) 4.5 % George E. Cates 588,122 (3) 4.1 O. Mason Hawkins 353,417 (4) 2.4 Michael B. Yanney 132,051 * John J. Byrne, III 34,500 * Simon R. C. Wadsworth 34,620 (5) * H. Eric Bolton 13,317 (6) * All Directors and Executive Officers as a Group (7 Persons) 1,809,027 12.5 %
__________ (1) Based on 13,404,398 shares of Common Stock outstanding on March 21, 1997, plus, with respect to each listed person (or all listed persons, as a group), the number of shares of Common Stock issuable by the Company to such person or group in exchange for Common Units in the Operating Partnership plus the number of shares of Common Stock issuable to such person (or group) in respect of currently exercisable options. The total number of shares used in calculating this percentage assumes that none of the Common Units or exercisable options held by other persons are redeemed for shares of Common Stock. (2) Includes 82,500 shares owned directly by Mr. Fogelman and 570,500 shares that Mr. Fogelman has the current right to acquire upon redemption of Common Units. 22 24 (3) Includes 258,928 shares owned directly by Mr. Cates, 235,794 shares that Mr. Cates has the current right to acquire upon redemption of Common Units, 49,000 shares that Mr. Cates has the current right to acquire upon the exercise of options that are currently exercisable and 44,400 shares owned by the Company's ESOP over which Mr. Cates shares voting power. Excludes 2,123 shares owned by Mr. Cates' wife, over which Mr. Cates exercises no voting or investment power and with respect to which Mr. Cates disclaims beneficial ownership. (4) Includes 194,799 shares owned directly by Mr. Hawkins and 158,618 shares that Mr. Hawkins has the current right to acquire upon redemption of Common Units. (5) Includes 21,000 shares that Mr. Wadsworth has the current right to acquire upon the exercise of options that are currently exercisable. (6) Includes 9,000 shares that Mr. Bolton has the current right to acquire upon the exercise of options that are currently exercisable. * Represents less than 1% of total. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company leases office space from a partnership which owns the building where the Company's principal office is located. Mr. Cates has a 6.9% and Mr. Wadsworth a 4.2% interest in such partnership. The Company paid approximately $107,400 in rent, or $14.20 per average square foot (including concessions), for such office space during 1996, and has lease obligations of $616,800 for the remaining lease term. The Company believes the rental rate is a competitive rate for buildings in the area of Memphis in which the Company's headquarters are located. 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. 23 25 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, F - 2 1996 and 1995 Consolidated Statements of Operations for the years ended F - 3 December 31, 1996, 1995 and 1994 Consolidated Statements of Shareholders' Equity for the years ended F - 4 December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the years ended F - 5 December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements for F - 6 the years ended December 31, 1996, 1995 and 1994 2. Financial Statement Schedule required to be filed by item 8 and Paragraph (d) of this item 14: Independent Auditors' Report F - 16 Schedule III - Real Estate Investments and Accumulated Depreciation as of F - 17 December 31, 1996 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 Number Exhibit - ------- -------------- 3.1* Amended and Restated Charter of Registrant 3.2 Articles of Amendment to the Charter of Registrant dated January 28, 1994 3.3 Articles of Merger of America First REIT Advisory Company with and into the Registrant 3.4** Articles of Amendment to the Amended and Restated Charter of Registrant Designating and Fixing the Rights and Preferences of A Series of Shares of Preferred Stock 3.5* Bylaws of the Registrant 4.1* Form of Common Share Certificate 4.2** Form of Series A Preferred Stock Certificate 4.3** Articles of Amendment to the Amended and Restated Charter of Registrant Designating and Fixing the Rights and Preferences of A Series of Shares of Preferred Stock 10.1* First Amended and Restated Agreement of Limited Partnership of the Operating Partnership 10.2 Amendment No. 1 to the First Amended and Restated Agreement of Limited Partnership of the Operating Partnership dated as of June 28, 1994 10.3 Amendment No. 2 to the First Amended and Restated Agreement of Limited Partnership of the Operating Partnership dated as of February 24, 1996 10.4 Amendment No. 3 to the First Amended and Restated Agreement of Limited Partnership of the Operating Partnership dated as of October 10, 1996 10.5 Amendment No. 4 to the First Amended and Restated Agreement of Limited Partnership of the Operating Partnership dated December 10, 1996, but effective as of February 24, 1996 10.6* Supplemental Agreement with Respect to Transfer of Property and Delivery of Guaranty 10.7* Employment Agreement (George E. Cates) 10.8* 1994 Restricted Stock and Stock Option Plan 24 26 10.9* Indemnity Agreement and Agreement to Make Capital Contribution 10.10* Supplemental Representations and Warranties Agreement 10.11*** Promissory Note of the Operating Partnership in favor of Leader Federal Bank for Savings (McKellar) 10.12*** Promissory Note of the Operating Partnership in favor of Leader Federal Bank for Savings (Park Estate) 10.13*** Promissory Note of the Operating Partnership in favor of Leader Federal Bank for Savings (Greenbrook) 10.14*** Promissory Note of the Operating Partnership in favor of Leader Federal Bank for Savings (Cedar Mill) 10.15*** Assignment of Rents and Leases by the Operating Partnership in favor of Leader Federal Bank for Savings (McKellar, Park Estate, Greenbrook, Cedar Mill) 10.16***** Agreement and Plan of Merger among the Registrant, AFRI Merger Sub, Inc., America First REIT Advisory Company and America First REIT, Inc. dated as of February 24, 1995 10.17****** Agreement and Plan of Merger between the Registrant, America First Companies, L.L.C. and America First REIT Advisory Company dated as of February 24, 1995 10.18 Revolving Credit Agreement between the Registrant and AmSouth Bank of Alabama 10.19 Amendment No. 1 to Revolving Credit Agreement between the Registrant and AmSouth Bank of Alabama 23.1 Consent of KPMG Peat Marwick LLP 23.2 Opinion of KPMG Peat Marwick LLP on Schedule III (included in F pages of this Form 10-K)
- ----------------------- * Previously filed as an exhibit to the Registration Statement on Form S-11 (SEC File No. 33-69434), as amended, of the Registrant and incorporated herein by reference. ** Previously filed as an exhibit to the Registration Statement on Form 8-A *** Previously 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. **** Previously filed as an exhibit to the Current Report of the Registrant on Form 8-K as of December 3, 1994 ***** Previously filed as an exhibit to the Current Report of the Registrant on Form 8-K as of March 3, 1995 ****** Previously filed as an exhibit to the 1994 Annual Report of the Registrant on Form 10-K as of March 30, 1995 (b) Reports on Form 8-K The following report was filed on Form 8-K by the registrant during the fourth quarter of 1996:
Date of Form Events Reported Report ---- ----------------------------------------- ----------- 8-K 98.1% occupancy achieved 10/15/96 8-K Announcement of Preferred Stock Offering with exhibit of Underwriting Agreement 10/15/96 8-K Announcement of declaration for third quarter common stock dividend. Announcement of plans to file a Dividend Reinvestment and Direct Stock Purchase Plan. 10/15/96 8-K Announcement of an apartment community disposition and acquisition. 12/18/96 8-K Announcement of apartment community acquisition. 12/26/96
(c) Exhibits: See Item 14(a)(3) above. (d) Financial Statement Schedules: See Item 14(a)(2) above. 25 27 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 25, 1997 /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 25, 1997 /s/ George E. Cates ------------------ ---------------------------- George E. Cates Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date: March 25, 1997 /s/ Simon R.C. Wadsworth ------------------ ---------------------------- Simon R.C. Wadsworth Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: March 26, 1997 /s/ H. Eric Bolton ----------------- ---------------------------- H. Eric Bolton President and Chief Operating Officer Date:_________________ ______________________________ John J. Bynre, III Director Date: March 26, 1997 /s/ Robert F. Fogelman ----------------- ------------------------------ Robert F. Fogelman Director Date: March 26, 1997 /s/ O. Mason Hawkins ----------------- ------------------------------ O. Mason Hawkins Director Date:_________________ ______________________________ Michael B. Yanney Director 26 28 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. (the "Company") as of December 31, 1996 and 1995 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, 1996. These financial statements are the responsibility of the management of the Company. Our responsibility is to express an opinion on these financial statements 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 financials statements referred to above present fairly, in all material respects the financial position of the Company at December 31, 1996 and 1995, and the results of the Company's operations and cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. As discussed in note 1 to the consolidated financial statements, the Company changed its accounting method to capitalize replacement purchases for major appliances and carpet in 1996. KPMG Peat Marwick LLP Memphis, Tennessee February 14, 1997 F - 1 29 Mid-America Apartment Communities, Inc. Consolidated Balance Sheets December 31, 1996 and 1995 (Dollars in thousands)
1996 1995 ------ ------ Assets: Real estate assets (note 3): Land $ 61,150 $ 57,456 Buildings and improvements 563,584 507,586 Furniture, fixtures and equipment 12,511 9,916 Construction in progress 4,648 3,830 --------- --------- 641,893 578,788 Less accumulated depreciation (49,558) (29,504) --------- --------- Real estate assets, net 592,335 549,284 Cash and cash equivalents 4,053 3,046 Restricted cash 5,538 4,118 Deferred financing costs, net 2,984 2,225 Other assets 6,289 6,594 --------- ---------- Total assets $ 611,199 $ 565,267 ========= ========== Notes payable (note 3) $ 315,239 $ 307,939 Accounts payable 744 1,403 Accrued expenses and other liabilities 12,182 10,146 Security deposits 2,412 2,452 --------- ---------- Total liabilities 330,577 321,940 Minority interest 39,238 41,049 Commitments and contingencies (note 6) - - Shareholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized, 2,000,000 shares at 9.5% Series A Cumulative Preferred Stock Liquidation Preference $25 per share, issued and outstanding 20 - Common stock, $.01 par value (authorized 20,000,000 shares; issued and outstanding 10,949,216 and 10,936,832 shares at December 31, 1996 and 1995, respectively 109 109 Additional paid-in capital 256,689 208,670 Unearned compensation (260) (381) Accumulated deficit (15,174) (6,120) --------- --------- Total shareholders' equity 241,384 202,278 --------- --------- Total liabilities and shareholders' equity $ 611,199 $ 565,267 ========= =========
See accompanying notes to consolidated financial statements. F - 2 30 Mid-America Apartment Communities, Inc. Consolidated Statements of Operations Years ended December 31, 1996, 1995 and 1994 (Dollars in thousands except per share data)
1996 1995 1994 ---- ---- ---- Revenues: Rental $ 110,090 $ 93,509 $ 50,181 Other 1,792 1,454 1,026 ---------- --------- --------- Total revenues 111,882 94,963 51,207 Expenses: Personnel 11,702 9,798 5,145 Building repairs and maintenance 5,305 5,791 3,048 Real estate taxes and insurance 11,642 10,198 5,322 Utilities 6,148 5,753 2,526 Landscaping 2,910 2,361 1,294 Other operating 4,863 4,053 2,149 Depreciation and amortization real estate assets 21,288 16,470 8,747 Depreciation and amortization non-real estate assets 155 104 56 General and administrative 6,154 4,851 3,613 Interest 25,766 22,684 10,233 Amortization of deferred financing costs 661 593 296 --------- --------- --------- Total expenses 96,594 82,656 42,429 Income before gain on disposition of properties, minority interest in operating partnership income and extraordinary item 15,288 12,307 8,778 Gain on disposition of properties 2,185 - - --------- --------- --------- Income before minority interest in operating partnership income and extraordinary item 17,473 12,307 8,778 Minority interest in operating partnership income 3,213 2,497 2,319 --------- --------- --------- Net income before extraordinary item 14,260 9,810 6,459 Gain on extinguishment of debt (note 3) - - 485 --------- --------- --------- Net income 14,260 9,810 6,944 Dividends on preferred shares 990 - - ---------- --------- --------- Net income available for common shareholders $ 13,270 $ 9,810 $ 6,944 ========== ========= ========= Net income available per common share (note 1): - ------------------------------------------------ Before extraordinary items $ 1.21 $ 1.00 $ 0.94 Extraordinary items - - 0.07 ---------- --------- --------- Net income available per common share $ 1.21 $ 1.00 $ 1.01 ========== ========= =========
See accompanying notes to consolidated financial statements. F - 3 31 Mid-America Apartment Communities, Inc. Consolidated Statements of Shareholders' Equity Years ended December 31, 1996, 1995 and 1994 (Dollars and shares in thousands)
Preferred Stock Common Stock ------------------- ------------------ Shares Amount Shares Amount PARTNERS' AND OWNERS' DEFICIT, DECEMBER 31, 1993 - $ - - $ - Capital contributions (prior to IPO) - - - - Capital distributions (prior to IPO) - - - - Net proceeds of IPO, private placement and shares issued in exchange for interests in entities included in the Predecessor - - 5,154 52 Shares issued to Employee Stock Option Plan at the IPO date - - 22 - Restricted shares issued to directors - - 10 - Acquisition of interests in non-controlled entities included in the Predecessor or where cash consideration was involved - - - - Adjustment for minority interest of unitholders in Operating Partnership at the IPO date - - - - Net proceeds of secondary offering - - 3,393 34 Adjustment for minority interest of unitholders in Operating Partnership at date of secondary offering - - - - Amortization of unearned compensation - - - - Dividends on common stock ($1.21 per share) - - - - Net income - - - - --------- -------- --------- ---------- SHAREHOLDERS' EQUITY DECEMBER 31, 1994 - $ - 8,579 $ 86 Issuance of common shares - - 5 - Exercise of stock options - - 10 - Shares issued in exchange for units - - 12 - Shares issued in AFR Merger - - 2,331 23 Amortization of unearned compensation - - - - Dividends on common stock ($2.00 per share) - - - - Net income - - - - ---------- --------- --------- ---------- SHAREHOLDERS' EQUITY DECEMBER 31, 1995 - $ - 10,937 $ 109 Issuance of common shares - - 11 - Issuance of preferred shares 2,000 20 - - Exercise of stock options - - - Shares issued in exchange for units - - 1 - Amortization of unearned compensation - - - - Dividends on common stock ($2.04 per share) - - - - Dividends on preferred stock ($0.495 per share) - - - - Net income - - - - ---------- ---------- --------- ---------- SHAREHOLDERS' EQUITY DECEMBER 31, 1996 2,000 $ 20 10,949 $ 109 ========== ========== ========= See accompanying notes to consolidated financial statements. Additional Accumulated Paid-In Unearned Earnings Capital Compensation (Deficit) Total ---------- ------------ ----------- ---------- PARTNERS' AND OWNERS' DEFICIT, DECEMBER 31, 1993 $ - $ - $ (4,684) $ (4,684) Capital contributions (prior to IPO) - - 73 73 Capital distributions (prior to IPO) - - (2,257) (2,257) Net proceeds of IPO, private placement and shares issued in exchange for interests in entities included in the Predecessor 88,433 - (3) 88,482 Shares issued to Employee Stock Option Plan at the IPO date 445 (445) - - Restricted shares issued to directors 211 (211) - - Acquisition of interests in non-controlled entities included in the Predecessor or where cash consideration was involved 24,737 - 12,100 36,837 Adjustment for minority interest of unitholders in Operating Partnership at the IPO date (36,463) - (1,797) (38,260) Net proceeds of secondary offering 78,958 - - 78,992 Adjustment for minority interest of unitholders in Operating Partnership at date of secondary offering (5,886) - - (5,886) Amortization of unearned compensation - 114 - 114 Dividends on common stock ($1.21 per share) - - (7,970) (7,970) Net income - - 6,944 6,944 ---------- --------- ----------- ------------ SHAREHOLDERS' EQUITY DECEMBER 31, 1994 $ 150,435 $ (542) $ 2,406 $ 152,385 Issuance of common shares 106 37 - 143 Exercise of stock options 203 - - 203 Shares issued in exchange for units 200 - - 200 Shares issued in AFR Merger 57,726 - - 57,749 Amortization of unearned compensation - 124 - 124 Dividends on common stock ($2.00 per share) - - (18,336) (18,336) Net income - - 9,810 9,810 ---------- --------- ----------- ------------ SHAREHOLDERS' EQUITY DECEMBER 31, 1995 $ 208,670 $ (381) $ (6,120) $ 202,278 Issuance of common shares 277 - - 277 Issuance of preferred shares 47,748 - - 47,768 Exercise of stock options (2) - - (2) Shares issued in exchange for units (4) - - (4) Amortization of unearned compensation - 121 - 121 Dividends on common stock ($2.04 per share) - - (22,324) (22,324) Dividends on preferred stock ($0.495 per share) - - (990) (990) Net income - - 14,260 14,260 ---------- --------- ----------- ------------ SHAREHOLDERS' EQUITY DECEMBER 31, 1996 $ 256,689 $ (260) $ (15,174) $ 241,384 ========== ========= =========== ============
See accompanying notes to consolidated financial statements. F - 4 32 Mid-America Apartment Communities, Inc. Consolidated Statements of Cash Flow Years ended December 31, 1996, 1995 and 1994 (Dollars in thousands)
1996 1995 1994 ---- ---- ---- Cash flows from operating activities: ------------------------------------ Net income $ 14,260 $ 9,810 $ 6,944 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 22,243 17,291 9,213 Minority interest in operating partnership income 3,213 2,497 2,319 Extraordinary item - - (485) Gain on disposition of properties (2,185) - - Changes in assets and liabilities, net of effect from business combination: Restricted cash (1,420) 6,333 (2,575) Other assets (95) (1,154) (670) Accounts payable 6 (77) 630 Accrued expenses and other liabilities 2,036 (358) 4,793 Security deposits (40) (53) 1,421 -------- -------- -------- Net cash provided by operating activities 38,018 34,289 21,590 Cash flows from investing activities: ------------------------------------ Purchases of real estate assets (66,258) (15,561) (217,310) Proceeds from dispositions of real estate assets 17,096 - - Improvements to properties (18,437) (19,233) (6,557) Construction of units in progress (2,837) (5,692) (3,879) Net cash acquired from business combination - 1,319 - -------- -------- -------- Net cash used in investing activities (70,436) (39,167) (227,746) Cash flows from financing activities: ------------------------------------ Proceeds from notes payable 17,049 19,256 129,034 Net increase in credit line 12,358 18,047 - Principal payments on notes payable (14,427) (10,928) (65,975) Deferred financing costs (1,256) (484) (2,459) Proceeds from issuances of preferred shares 47,768 - - Proceeds from issuances of common shares 271 346 167,474 Redemption of unitholder interests (36) (43) (6,844) Capital contributions (Predecessor) - - 73 Capital distributions (Predecessor) - - (2,257) Distributions to unitholders (4,988) (4,914) (2,977) Dividends paid on common shares (22,324) (18,336) (7,970) Dvidends paid on preferred shares (990) - - --------- -------- -------- Net cash provided by financing activities 33,425 2,944 208,099 --------- -------- -------- Net increase (decrease) in cash and cash equivalents 1,007 (1,934) 1,943 Cash and cash equivalents, beginning of period 3,046 4,980 3,037 --------- -------- -------- Cash and cash equivalents, end of period $ 4,053 $ 3,046 $ 4,980 ========= ======== ======== Supplemental disclosure of cash flow information: ------------------------------------------------ Interest paid $ 25,262 $ 22,362 $ 9,968 Supplemental disclosure of noncash investing activities: ------------------------------------------------------- Increase in basis of properties acquired in connection with the formation transaction - - $ 41,147 Assumption (transfer) of debt related to property acquisitions (dispositions) $ (7,680) - $ 62,886 Conversion of units for common shares - $ 200 -
See accompanying notes to consolidated financial statements. F - 5 33 Mid-America Apartment Communities, Inc. Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 1994 1. Organization and Summary of Significant Accounting Policies Organization and Formation of the Company Mid-America Apartment Communities, Inc. (the "Company") is a Memphis, Tennessee based self-administered and self-managed real estate investment trust which at December 31, 1996 owns and operates 73 apartments with 19,280 units in 12 states. The Company completed an initial public offering (the "IPO") and private placement of shares on February 4, 1994. Net proceeds were used to acquire a general partnership interest in Mid-America Apartments, L.P. ( the "Operating Partnership") which was formed to succeed substantially all of the interests in MAC Properties Group, (predecessor to the Company, "Predecessor"). The Company's business is conducted principally through the Operating Partnership. The Company completed a second public offering on August 26, 1994 and completed a merger with America First REIT, Inc. and America First REIT Advisory Company on June 30, 1995. Basis of Presentation The accompanying 1996 and 1995 financial statements include the accounts of the Company, the Operating Partnership, and other subsidiaries. The 1994 financial statements include the accounts of the Company and Operating Partnership from February 4, 1994 (the "IPO date") through December 31, 1994 and the accounts of the Predecessor for the period January 1, 1994 through the IPO date. All significant intercompany accounts and transactions have been eliminated in consolidation. As part of the formation transaction, purchase accounting was applied to the acquisition of all non-controlled interests and interests in which cash consideration was paid. This resulted in an increase of $41,147,000 in the historical cost basis of the related real estate assets. The acquisition of all other interests was accounted for as a reorganization of entities under common control and, accordingly, was reflected at historical cost in a manner similar to that used in pooling of interests accounting. Minority Interest Minority interest in the accompanying consolidated financial statements relates to the unitholders' ownership interest in the Operating Partnership. The Company is the sole general partner of the Operating Partnership. The consolidated financial statements of the Company for the periods ending after the IPO have been adjusted for the minority interest in the Operating Partnership based on the weighted average shares of the Company plus partnership units outstanding during the period. At the IPO date, the Company's Board established economic rights in respect of each unit of limited partnership interest in the Operating Partnership that were equivalent to the economic rights in respect of each share of common stock. Each unit is redeemable at the option of the holder thereof in exchange for one share of common stock. 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. The Operating Partnership agreement has been amended to allocate additional net income to the holders of units that would otherwise be the net income of the Company or another entity. Net income before minority interest of the Company for 1996 was allocated approximately 18% to holders of units and 82% to the Company. Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Revenue Recognition F - 6 34 The Company leases residential apartments under operating leases with terms of one year or less. Rental and other revenues are recorded when earned. 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 net realizable value. Interest, property taxes, and other development costs incurred during construction is capitalized until completion. 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. Following a review of its capital expenditure and depreciation policy, effective January 1, 1996, the Company implemented a new policy of which the primary changes are as follows: (a) Increase minimum dollar amounts to capitalize from $500 to $1,000; (b) For stabilized properties (generally, properties owned and operated by the Company for at least one year), capitalize replacement purchases for major appliances and carpeting of an entire apartment unit which was previously expensed; and (c) Reduce depreciation life for certain assets from 20 years to 10 to 15 years. The Company believes that the newly adopted accounting policy is preferable because it is consistent with policies currently being used by the majority of the largest apartment REITs and provides a better matching of expenses with the estimated benefit period. The Company's 1995 and 1994 financial statements were not restated for the effect of the change in accounting policy. The policy has been implemented prospectively effective January 1, 1996. 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. The Company periodically evaluates its real estate assets for impairment based upon undiscounted cash flows and measures impairment based on fair value. This determination is dependent primarily on the Company's estimates on occupancy, rent and expense increases, which involves numerous assumptions and judgments as to future events over a period of many years. At December 31, 1996 the Company does not hold any assets which meet the impairment criteria. F - 7 35 Deferred Costs and Intangibles Organization costs are amortized using the straight line method over 60 months. Deferred financing costs are amortized over the terms of the related debt using a method which approximates the interest method. Unamortized cost in excess of fair value of net assets acquired is amortized using the straight line method over 30 years. Partners' capital contributions, distributions and profit and loss with respect to entities included in the Predecessor Prior to the IPO, partners' capital contributions, distributions and profit and loss were allocated in accordance with the terms of individual partnership agreements, which generally prescribed allocation in proportion to respective ownership interests. Certain agreements also provided for a preference return to limited partners. Per Share Data Primary earnings per share is computed based upon 10,986,316 and 9,818,804 weighted average shares outstanding for the years ending December 31, 1996 and 1995, respectively. For the period February 4, 1994 through December 31, 1994, primary earnings per share is computed based upon net income for that period and 6,534,327 weighted average shares outstanding. At December 31, 1996 10,949,216 common shares and 2,444,352 units were outstanding, a total of 13,393,568. Additionally, the Company has outstanding options for 338,650 shares of common stock which increased weighted average shares outstanding during the years ended December 31, 1996 and 1995 by 43,792 and 40,987 shares, respectively and the period February 4, 1994 through December 31, 1994 by 42,956 shares. Reclassification Certain prior year amounts have been reclassified to conform with 1996 presentation. The reclasses had no effect on shareholders' equity or net income. 2. Business Combination On June 29, 1995, the Company completed the acquisition of America First REIT, Inc. and America First REIT Advisory Company ("AFR") accounted for using the purchase method of accounting. The Company exchanged 2,331,000 shares of its common stock, valued at $57,749,000, for all of the capital stock of AFR. The operating results of AFR are included in the accompanying statement of operations commencing July 1, 1995. The fair value of assets acquired and liabilities assumed were as follows:
Fair value of assets acquired, primarily real estate asset $ 109,999,000 Liabilities assumed 52,250,000 ------------- Net assets acquired $ 57,749,000 =============
3. Notes Payable and Credit Line The Company has an unsecured bank line of credit (the "Credit Line") which may be drawn to $90 million depending upon the borrowing base made available by the Company. As of December 31, 1996, $30,405,000 was outstanding under this line. This two year line of credit expires in October 1998. Including the Credit Line, the Company has approximately $315.2 million and $307.9 million outstanding at December 31, 1996 and 1995 under notes payable. These notes (excluding the Credit Line) are secured by real estate assets and certain restricted cash accounts. As of December 31, 1996, the Company estimated that the weighted average interest rate on balances then outstanding was 7.9%, with an average maturity of 10 years. At December 31, 1996, 85% of outstanding debt was at a fixed interest rate, and 15% was at variable rates. F - 8 36 A portion of the proceeds of the IPO was used to repay certain debt attributable to the Predecessor, resulting in an extraordinary gain of $485,000, net of minority interest. The notes payable and Credit Line at December 31, 1996 and 1995 are summarized as follows (dollars in millions):
At December 31, 1996 ------------------------------------------ Actual Average Interest Rates Interest Rate Maturity 1996 1995 ---------------- ------------- ----------- ------- ------- Fixed Rate: Taxable 6.50 - 10.00% 8.51% 1997 - 2035 $ 212.7 $ 225.9 Tax-exempt 5.75 - 8.75% 6.55% 2009 - 2021 55.3 46.9 ------- ------- $ 268.0 $ 272.8 Variable Rate: Taxable Credit Line LIBOR + 1.75% 7.50% 1998 $ 30.4 $ 18.0 Tax-exempt 5.27 - 6.60% 5.79% 2005 - 2025 16.8 17.1 ------- ------- $ 47.2 $ 35.1 ------- ------- $ 315.2 $ 307.9 ======= =======
Scheduled principal repayments on the notes payable and Credit Line at December 31, 1996 are as follows (dollars in thousands):
Year Amortization Balloon Payments Total ---- ------------ ---------------- --------- 1997 $ 2,498 $ 16,314 $ 18,812 1998 2,727 48,966 51,693 1999 2,913 40,545 43,458 2000 2,799 - 2,799 2001 2,839 54,269 57,108 Thereafter 73,082 68,287 141,369 -------- --------- --------- $ 86,858 $ 228,381 $ 315,239 ======== ========= =========
The Company's notes payable include various restrictive financial covenants. The Company was in compliance with these covenants as of December 31, 1996. F - 9 4. Preferred Stock Offering In October 1996, the Company offered and sold to the public 2,000,000 shares of Series A Preferred Stock at a price of $25.00 per share (the "Preferred Stock Offering"). The net proceeds of the Preferred Stock Offering totaled approximately $47.9 million. Preferential dividends are payable on the Series A Preferred Stock in the fixed annual amount of $2.375 per share, payable monthly. 5. Fair Value Disclosure of Financial Instruments Cash and cash equivalents, rental receivable, accounts payable and accrued expenses and other liabilities and security deposits are carried at amounts which reasonably approximate their fair value. Fixed rate notes payable at December 31, 1996 and 1995 total $268.0 million and $272.8 million, respectively, and have an estimated fair value of $273.6 million and $281.6 million (excluding prepayment penalties) based upon interest rates available for the issuance of debt with similar terms and remaining maturities as of December 31, 1996 and 1995. These notes were subject to prepayment penalties which would be required to retire these notes prior to maturity. The carrying value of variable rate notes payable at December 31, 1996 and 1995 total $47.2 million and $35.1, respectively, and reasonably approximates their fair value. 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, 1996 and 1995. Approximately $16.8 million in 1996 and $17.1 in 1995 of these mortgages are non-taxable and have lower rates than would be expected for taxable notes with similar terms. 37 The fair value estimates presented herein are based on information available to management as of December 31, 1996 and 1995. 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. 6. Commitments and Contingencies Neither the Company nor the Predecessor is presently subject to any material litigation nor, to the Company's knowledge, is any material litigation threatened against the Company or the Predecessor, 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 incurred lease expense relating to a five year aircraft lease agreement for the years ended December 31, 1996, 1995, and 1994 of $185,400, $185,400, and $61,800, respectively. During the first quarter of 1997, the Company began a new five year lease agreement whose scheduled annual lease payments are $194,400. 7. Income Taxes No provision for federal income taxes has been made in the accompanying consolidated financial statements. The Company has made an election to be taxed as a Real Estate Investment Trust ("REIT") under Sections 856 through 860 of the Code. As a REIT, the Company generally is not subject to Federal income tax to the extent it distributes 95% 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 - 10 8. Employee Benefit Plans 401 (k) Savings Plan The Company has adopted the Mid-America Apartment Communities, Inc. 401 (k) Savings Plan, 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 $118,700 and $81,600 in 1996 and 1995, respectively, with no contribution in 1994. 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 1996 and 1995 was $23,600 and $8,600, respectively, with no employer match in 1994. 38 Employee Stock Purchase Plan The Company has adopted the Mid-America Apartment Communities, Inc. Employee Stock Purchase Plan (the "ESPP") which 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 1996 and 1995, the ESPP purchased 3,176 and 2,710 shares, respectively, with no purchases made in 1994. Employee Stock Ownership Plan The Company has adopted 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 1996 and 1995, the Company contributed $276,000 and $186,000, respectively, to the ESOP which purchased an additional 8,208 and 5,148 shares, respectively, with no contributions made in 1994. 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 authorizes Options to buy a total of 500,000 shares of common stock. 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. During the first quarter of 1997, the Company amended the Plan to increase the shares authorized an increase from 500,000 to 1,000,000. F - 11 A summary of changes in Options for the three years ended December 31, 1996 follows:
Weighted Average Options Exercise Price ------- ---------------- Granted 259,000 $ 20.34 Forfeited (24,000) 19.75 ------- Outstanding at December 31, 1994 235,000 20.40 Granted 33,000 25.07 Exercised (12,150) 19.75 Forfeited (8,300) 19.75 ------- Outstanding at December 31, 1995 247,550 21.00 Granted 99,000 26.50 Exercised (1,900) 19.75 Forfeited (6,000) 19.75 ------- Outstanding at December 31, 1996 338,650 22.53 ======= Options exercisable: December 31, 1994 - $ - December 31, 1995 34,850 20.63 December 31, 1996 84,050 20.82
39 Exercise prices for options outstanding as of December 31, 1996 ranged from $19.75 to $26.50. The weighted average remaining contractual life of those options is 7.8 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. The pro forma effect in 1996 to net income per common share was not considered material. F - 12 9. Subsequent Events (Unaudited) Declaration of Dividend The Company declared a fourth quarter common stock dividend of $.535 per share to be paid January 31, 1997 to holders of record on January 24, 1997. Completed Acquisitions Since December 31, 1996, the Company has acquired the following apartment communities (the "Completed Acquisitions") containing an aggregate of 874 apartment units (dollars in millions):
NUMBER ACQUISITION CONTRACT PROPERTY MARKET OF UNITS DATE PRICE - ---------------- --------------- -------- ----------- -------- Howell Commons Greenville, SC 348 1/16/97 $ 13.0 Balcones Woods Austin, TX 384 3/18/97 15.8 Westside Creek I Little Rock, AR 142 3/28/97 6.1 --- ------ Total 874 $ 34.9 === ======
The financial statements of the completed acquisitions are not included in the audited consolidated financial statements included herein. Dividend Reinvestment and Stock Purchase Plan In January 1997, the Company adopted a Dividend Reinvestment and Stock Purchase Plan (the "DRSPP") pursuant to which the Company's shareholders will be permitted to acquire shares of Common Stock through the reinvestment of distributions on Common Stock and Series A Preferred Stock and through optional cash payments. The Company has 750,000 shares of Common Stock available to the DRSPP. It is expected that shareholders of the Company may begin participating in the DRSPP commencing with the Company's July 1997 dividends. Common Stock Offering (the "Offering") In March 1997, the Company issued 2,300,000 of common stock. The net cash proceeds to the Company were approximately $62.4 million after payment of all underwriting discounts and expenses of the offering. The Company contributed the net proceeds of the offering to the Operating Partnership in exchange for additional interests in the Operating Partnership. The Operating Partnership will use substantially all of the net proceeds to repay outstanding borrowings under the Credit Line and any excess will be used for general corporate purposes, including acquisitions. Amounts repaid under the Credit Line may be re-borrowed (subject to the terms and limits of the Credit Line) to finance acquisitions of additional apartment communities and for other corporate purposes. F - 13 40 10. Pro forma Condensed Combined Statements of Operations (Unaudited) This unaudited Pro Forma Condensed Combined Statements of Operations are presented as if the following transactions had been consummated on January 1, 1996 and 1995 (i) acquisition of 15 apartment communities in 1995, including the 12 acquired thtough the merger with AFR, (ii) acquisition of six apartment communities in 1996, (iii) dispositions of three apartment communities in 1996, (iv) acquisitions of three apartment communities in 1997, (v) definitive agreements for two 1997 acquisitions, (vi) the October issuance of the Series A Preferred Stock, and (vii) the March 1997 issuance of 2,300,000 shares of Common Stock. The unaudited Pro Forma Condensed Combined Statements of Operations for the years ending December 31, 1996 and 1995 have been prepared as if the Company had qualified as a REIT, distributed all of its taxable income and, therefore, incurred no federal income tax expense during the years ended December 31, 1996 and 1995. In the opinion of the Company's management, all adjustments necessary to reflect the effects of these transaction have been made. This unaudited Pro Forma Condensed Combined Statements of Operations is presented for comparative purposes only and is not necessarily indicative of what the actual result of operations of the Company would have been for the periods presented had the transactions described above been consummated on January 1, 1996 and 1995, nor does it purport to represent the results for future periods. This unaudited Pro Forma Condensed Combined Statements of Operations should be read in conjunction with, and is qualified in its entirety by, the respective historical consolidated financial statements and notes thereto of the Company and of AFR. F - 14 41 Mid - America Apartment Communities, Inc. Pro Forma Condensed Combined Statements of Operations for the years ended December 31, 1996 and 1995 (In thousands except per share data) (Unaudited)
1996 1995 ---------------------- ---------------------- Historical Pro Forma Historical Pro Forma ---------- --------- ---------- --------- Revenues: Rental $ 110,090 $ 123,516 $ 93,509 $ 119,394 Interest and other 1,792 2,176 1,454 2,175 --------- --------- -------- --------- Total revenues 111,882 125,692 94,963 121,569 Expenses: Personnel 11,702 12,946 9,798 12,341 Building repairs/maintenance, utilities, landscaping, and other operating 19,226 21,232 17,958 22,496 Real estate taxes and insurance 11,642 13,082 10,198 13,053 Depreciation and amortization - real estate assets 21,288 23,820 16,470 21,814 Depreciation and amortization - non-real estate assets 155 177 104 132 General and administrative 6,154 6,568 4,851 5,785 Interest 25,766 24,535 22,684 24,302 Amortization of deferred financing costs 661 679 593 596 ------- ------- ------- ------- Total expenses 96,594 103,039 82,656 100,519 ------- ------- ------- ------- Income before gain on dispositions of properties 15,288 22,653 12,307 21,050 Gain on disposition of properties 2,185 - - - ------ ------ ------ ------- Income before minority interest in operating partnership income 17,473 22,653 12,307 21,050 Minority interest in operating partnership income 3,213 3,532 2,497 3,282 ------ ------ ------ ------ Net income 14,260 19,121 9,810 17,768 Dividends on preferred shares 990 4,750 - 4,750 ------ ------ ------ ------ Net income available for common shareholders $ 13,270 $ 14,371 $ 9,810 $ 13,018 ======== ======== ======= ======== Net income available per common shareholders - $ 1.08 - $ 0.98
F - 15 42 11. 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, 1996 ------------------------------------------ First Second Third Fourth -------- -------- -------- -------- Total revenues $ 27,151 $ 27,361 $ 28,362 $ 29,008 Income before minority interest in operating partnership income and extraordinary item $ 3,638 $ 5,595 $ 3,492 $ 4,748 Minority interest in operating partnership income $ 670 $ 1,027 $ 644 $ 872 Net income available for common shares $ 2,968 $ 4,568 $ 2,848 $ 2,886 Per share: Funds from operations * $ 0.65 $ 0.66 $ 0.66 $ 0.69 Net income available for common shares $ 0.27 $ 0.41 $ 0.26 $ 0.26 Dividend declared $ 0.51 $ 0.51 $ 0.51 $ 0.535 Year Ended December 31, 1995 ------------------------------------------ First Second Third Fourth -------- -------- -------- -------- Total revenues $ 20,316 $ 21,155 $ 26,483 $ 27,009 Income before minority interest in operating partnership income and extraordinary item $ 2,323 $ 2,849 $ 3,338 $ 3,797 Minority interest in operating partnership income $ 525 $ 650 $ 616 $ 706 Net income available for common shares $ 1,798 $ 2,199 $ 2,722 $ 3,091 Per share: Funds from operations * $ 0.53 $ 0.57 $ 0.59 $ 0.64 Net income available for common shares $ 0.21 $ 0.25 $ 0.25 $ 0.28 Dividend declared $ 0.50 $ 0.50 $ 0.50 $ 0.51
* See the definition of Funds from operations in "Management's Discussion and Analysis of Financial Condition and Results of Operations". 1995 funds from operations restated to reflect 1996 NAREIT definition. F - 16 43 Independent Auditors' Report The Board of Directors and Shareholders Mid-America Apartment Communities, Inc.: Under date of February 14, 1997, we reported on the consolidated balance sheets of Mid-America Apartment Communities, Inc. (the Company) as of December 31, 1996 and 1995 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, 1996 as contained in the annual report to shareholders. Our report refers to the Company's change in its accounting method to capitalize replacement purchases for major appliances and carpet in 1996. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audit. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents, fairly in all material respects, the information set forth therein. KPMG Peat Marwick LLP Memphis, Tennessee February 14, 1997 F - 17 44 Mid-America Apartment Communities, Inc. Schedule III Real Estate and Accumulated Depreciation at December 31, 1996 (Dollars in thousands)
Initial Cost ------------------ Building and Property Name Location Encumbrances Land fixtures - ------------- ------------- ------------ ------ -------- The Advantages Jackson, MS - (1) $ 422 $3,727 McKellar Woods Memphis, TN 8,501 737 13,200 Pine Trails Clinton, MS 1,396 178 2,728 Reflection Pointe Jackson, MS 6,073 710 8,770 Riverhills Grenada, MS 880 153 2,092 Woodridge Jackson, MS 4,840 471 5,522 Greenbrook Memphis, TN 15,743 2,100 24,468 Hamilton Pointe Chattanooga, TN - (1) 686 6,281 Hidden Creek Chattanooga, TN - (1) 895 8,098 Steeplechase Hixson, TN -(2) 217 1,957 Cedar Mill (7) Memphis, TN 2,529 475 6,546 Clearbrook Village Memphis, TN 1,226 260 3,658 Crossings Memphis, TN - (1) 554 2,216 Eastview Memphis, TN 3,708 700 9,646 Gleneagles Memphis, TN - (1) 443 3,983 The Park Estate Memphis, TN 1,497 178 1,141 Winchester Square Memphis, TN - (1) 350 7,279 Post House North Jackson, TN 3,765 381 4,299 Post House Jackson Jackson, TN 5,179 443 5,078 The Oaks Jackson, TN - (1) 177 1,594 The Corners Winston-Salem, NC 4,406 685 6,165 Park Haywood Greenville, SC -(2) 325 2,925 Hickory Farm Memphis, TN - (1) 580 5,220 Lakeshore Landing Jackson, MS - (1) 480 4,320 Woodstream Greensboro, NC 5,565 953 8,599 Stonemill Village Louisville, KY - (1) 1,169 10,518 Canyon Creek St. Louis, MO - (1) 880 7,923 Whispering Oaks Little Rock, AR 3,000 506 4,551 Pear Orchard Jackson, MS 8,643 1,352 12,168 Celery Stalk Dallas, TX 8,460 1,463 13,165 Lane at Towne Crossing Mesquite, TX 5,756 1,038 9,338 Hollybrook Dalton, GA 2,520 405 3,646 Green Tree Place Woodlands, TX 3,180 539 4,850 Redford Park Conroe, TX 3,000 509 4,580 MacArthur Ridge Irving, TX 7,648 1,131 10,183 Lincoln on the Green Memphis, TN -(2) 1,498 13,484 Brentwood Downs Nashville, TN 6,678 1,193 10,739 Shenandoah Ridge Augusta, GA -(2) 650 5,850 Westborough Crossing Katy, TX 3,958 677 6,091 Sailwinds at Lake Magdalene Tampa, FL 15,950 2,212 19,909 Woodbridge at the Lake Jacksonville, FL 3,738 645 5,804 Lakepointe Lexington, KY 2,562 411 3,699 The Mansion Lexington, KY 4,140 694 6,242 The Village Lexington, KY 5,256 900 8,097 Cypresswood Court Spring, TX 3,330 577 5,190 The Lodge at Timberglen Dallas, TX 4,740 825 7,422 Calais Forest Little Rock, AR 5,610 1,026 9,244 The Fairways Columbia, SC 7,674 910 8,207 Kirby Station Memphis, TN - 1,148 10,337 Belmere Tampa, FL -(2) 851 7,667 Williamsburg Village Jackson, TN -(2) 523 4,711 Fairways @ Royal Oak Cincinnati, OH -(2) 814 7,335 Tanglewood Anderson, SC 2,651 427 3,853 Woods at Post House Jackson, TN 5,339 240 6,839 Mid-America Apartment Communities, Inc. Memphis, TN - - 133 Somerset Jackson, MS -(2) 477 4,294 Highland Ridge Greenville, SC -(3) 482 4,337 Spring Creek Greenville, SC -(3) 597 5,374 St. Augustine Jacksonville, FL -(4) 2,858 6,475 Cooper's Hawk Jacksonville, FL -(4) 854 7,500 Marsh Oaks Atlantic Beach, FL -(2) 244 2,829 Park at Hermitage Nashville, TN 8,385 1,524 14,800 Anatole Daytona Beach, FL 7,000 1,227 5,879 The Savannahs Melbourne, FL -(4) 582 7,868 Stassney Woods Austin, TX 4,925 1,621 7,501 Travis Station Austin, TX 4,355 2,282 6,169 Runaway Bay Mt. Pleasant, SC -(3) 1,085 7,269 The Township Hampton, VA 10,800 1,509 8,189 Lakeside Jacksonville, FL -(2) 1,431 12,883 Crosswinds Jackson, MS -(2) 1,535 13,826 Sutton Place HornLake, MS -(2) 894 8,053 Savannah Creek Southaven, MS -(2) 778 7,013 Napa Valley Little Rock, AR - 960 8,642 Tiffany Oaks Altamonte Springs, FL - 1,024 9,219 Lincoln on the Green - Memphis, TN Phase II - - - -------- ------- -------- Total $214,606 $60,730 $529,407 ======== ======= ======== Mid-America Apartment Communities, Inc. Schedule III Real Estate and Accumulated Depreciation at December 31, 1996 (Dollars in thousands) Cost capitalized Gross amount subsequent to carried at acquisition December 31, 1996 (5) ---------------- ---------------------------- Building Building and and Property Name Location Land fixtures Land fixtures Total - -------------------- --------------- ---- -------- ---- -------- ------- The Advantages Jackson, MS - $581 $422 $4,308 $4,730 McKellar Woods Memphis, TN - 582 737 13,782 14,519 Pine Trails Clinton, MS - 310 178 3,038 3,216 Reflection Pointe Jackson, MS $140 1,771 850 10,541 11,391 Riverhills Grenada, MS - 107 153 2,199 2,352 Woodridge Jackson, MS - 162 471 5,684 6,155 Greenbrook Memphis, TN 25 1,905 2,125 26,373 28,498 Hamilton Pointe Chattanooga, TN - 574 686 6,855 7,541 Hidden Creek Chattanooga, TN - 843 895 8,941 9,836 Steeplechase Hixson, TN - 1,024 217 2,981 3,198 Cedar Mill (7) Memphis, TN - 895 475 7,441 7,916 Clearbrook Village Memphis, TN - 191 260 3,849 4,109 Crossings Memphis, TN - 350 554 2,566 3,120 Eastview Memphis, TN - 652 700 10,298 10,998 Gleneagles Memphis, TN - 1,079 443 5,062 5,505 The Park Estate Memphis, TN - 613 178 1,754 1,932 Winchester Square Memphis, TN - 408 350 7,687 8,037 Post House North Jackson, TN - 446 381 4,745 5,126 Post House Jackson Jackson, TN - 292 443 5,370 5,813 The Oaks Jackson, TN - 441 177 2,035 2,212 The Corners Winston-Salem,NC - 254 685 6,419 7,104 Park Haywood Greenville, SC 35 2,088 360 5,013 5,373 Hickory Farm Memphis, TN - 257 580 5,477 6,057 Lakeshore Landing Jackson, MS - 285 480 4,605 5,085 Woodstream Greensboro, NC - 393 953 8,992 9,945 Stonemill Village Louisville, KY - 756 1,169 11,274 12,443 Canyon Creek St. Louis, MO 220 1,086 1,100 9,009 10,109 Whispering Oaks Little Rock, AR - 1,232 506 5,783 6,289 Pear Orchard Jackson, MS - 599 1,352 12,767 14,119 Celery Stalk Dallas, TX - 911 1,463 14,076 15,539 Lane at Towne Crossing Mesquite, TX - 725 1,038 10,063 11,101 Hollybrook Dalton, GA - 533 405 4,179 4,584 Green Tree Place Woodlands, TX - 392 539 5,242 5,781 Redford Park Conroe, TX - 519 509 5,099 5,608 MacArthur Ridge Irving, TX - 244 1,131 10,427 11,558 Lincoln on the Green Memphis, TN - 353 1,498 13,837 15,335 Brentwood Downs Nashville, TN - 362 1,193 11,101 12,294 Shenandoah Ridge Augusta, GA - 1,469 650 7,319 7,969 Westborough Crossing Katy, TX - 393 677 6,484 7,161 Sailwinds at Lake Magdalene Tampa, FL - 5,867 2,212 25,776 27,988 Woodbridge at the Lake Jacksonville, FL - 522 645 6,326 6,971 Lakepointe Lexington, KY - 371 411 4,070 4,481 The Mansion Lexington, KY - 391 694 6,633 7,327 The Village Lexington, KY - 560 900 8,657 9,557 Cypresswood Court Spring, TX - 452 577 5,642 6,219 The Lodge at Timberglen Dallas, TX - 1,160 825 8,582 9,407 Calais Forest Little Rock, AR - 810 1,026 10,054 11,080 The Fairways Columbia, SC - 263 910 8,470 9,380 Kirby Station Memphis, TN - 1,499 1,148 11,836 12,984 Belmere Tampa, FL - 706 851 8,373 9,224 Williamsburg Village Jackson, TN - 316 523 5,027 5,550 Fairways @ Royal Oak Cincinnati, OH - 517 814 7,852 8,666 Tanglewood Anderson, SC - 393 427 4,246 4,673 Woods at Post House Jackson, TN - 473 240 7,312 7,552 Mid-America Apartment Communities, Inc. Memphis, TN - 1,286 - 1,419 1,419 Somerset Jackson, MS - 459 477 4,753 5,230 Highland Ridge Greenville, SC - 93 482 4,430 4,912 Spring Creek Greenville, SC - 177 597 5,551 6,148 St. Augustine Jacksonville, FL - 1,373 2,858 7,848 10,706 Cooper's Hawk Jacksonville, FL - 348 854 7,848 8,702 Marsh Oaks Atlantic Beach, FL - 328 244 3,157 3,401 Park at Hermitage Nashville, TN - 637 1,524 15,437 16,961 Anatole Daytona Beach, FL - 322 1,227 6,201 7,428 The Savannahs Melbourne, FL - 539 582 8,407 8,989 Stassney Woods Austin, TX - 695 1,621 8,196 9,817 Travis Station Austin, TX - 501 2,282 6,670 8,952 Runaway Bay Mt. Pleasant, SC - 338 1,085 7,607 8,692 The Township Hampton, VA - 66 1,509 8,255 9,764 Lakeside Jacksonville, FL - 1,232 1,431 14,115 15,546 Crosswinds Jackson, MS - 423 1,535 14,249 15,784 Sutton Place HornLake, MS - 259 894 8,312 9,206 Savannah Creek Southaven, MS - 163 778 7,176 7,954 Napa Valley Little Rock, AR - 198 960 8,840 9,800 Tiffany Oaks Altamonte Springs, FL - - 1,024 9,219 10,243 Lincoln on the Green - Memphis, TN Phase II - 1,522 - 1,522 1,522 ---- ------- ------- -------- -------- Total $420 $51,336 $61,150 $580,743 $641,893 Mid-America Apartment Communities, Inc. Schedule III Real Estate and Accumulated Depreciation at December 31, 1996 (Dollars in thousands) Life used to compute depreciation in latest Accumulated Date of income Property Name Location Depreciation Net Construction statement (6) - ----------------- ---------------- ------------ ------- ------------ ------------- The Advantages Jackson, MS ($970) $ 3,760 1984 5 - 40 McKellar Woods Memphis, TN (1,527) 12,992 1976 5 - 40 Pine Trails Clinton, MS (958) 2,258 1978 5 - 40 Reflection Pointe Jackson, MS (898) 10,493 1986 5 - 40 Riverhills Grenada, MS (323) 2,029 1972 5 - 40 Woodridge Jackson, MS (537) 5,618 1987 5 - 40 Greenbrook Memphis, TN (2,792) 25,706 1986 5 - 40 Hamilton Pointe Chattanooga, TN (825) 6,716 1989 5 - 40 Hidden Creek Chattanooga, TN (2,170) 7,666 1987 5 - 40 Steeplechase Hixson, TN (467) 2,731 1986 5 - 40 Cedar Mill (7) Memphis, TN (898) 7,018 1973/1986 5 - 40 Clearbrook Village Memphis, TN (411) 3,698 1974 5 - 40 Crossings Memphis, TN (547) 2,573 1974 5 - 40 Eastview Memphis, TN (1,234) 9,764 1974 5 - 40 Gleneagles Memphis, TN (1,343) 4,162 1975 5 - 40 The Park Estate Memphis, TN (746) 1,186 1974 5 - 40 Winchester Square Memphis, TN (832) 7,205 1973 5 - 40 Post House North Jackson, TN (409) 4,717 1987 5 - 40 Post House Jackson Jackson, TN (490) 5,323 1987 5 - 40 The Oaks Jackson, TN (236) 1,976 1978 5 - 40 The Corners Winston-Salem, NC (658) 6,446 1982 5 - 40 Park Haywood Greenville, SC (406) 4,967 1983 5 - 40 Hickory Farm Memphis, TN (570) 5,487 1985 5 - 40 Lakeshore Landing Jackson, MS (471) 4,614 1974 5 - 40 Woodstream Greensboro, NC (870) 9,075 1983 5 - 40 Stonemill Village Louisville, KY (1,110) 11,333 1985 5 - 40 Canyon Creek St. Louis, MO (849) 9,260 1987 5 - 40 Whispering Oaks Little Rock, AR (548) 5,741 1978 5 - 40 Pear Orchard Jackson, MS (1,226) 12,893 1985 5 - 40 Celery Stalk Dallas, TX (1,303) 14,236 1978 5 - 40 Lane at Towne Crossing Mesquite, TX (928) 10,173 1983 5 - 40 Hollybrook Dalton, GA (309) 4,275 1972 5 - 40 Green Tree Place Woodlands, TX (463) 5,318 1984 5 - 40 Redford Park Conroe, TX (455) 5,153 1984 5 - 40 MacArthur Ridge Irving, TX (899) 10,659 1991 5 - 40 Lincoln on the Green Memphis, TN (1,180) 14,155 1988 5 - 40 Brentwood Downs Nashville, TN (964) 11,330 1986 5 - 40 Shenandoah Ridge Augusta, GA (607) 7,362 1982 5 - 40 Westborough Crossing Katy, TX (551) 6,610 1984 5 - 40 Sailwinds at Lake Magdalene Tampa, FL (2,138) 25,850 1975 5 - 40 Woodbridge at the Lake Jacksonville, FL (526) 6,445 1985 5 - 40 Lakepointe Lexington, KY (331) 4,150 1986 5 - 40 The Mansion Lexington, KY (532) 6,795 1987 5 - 40 The Village Lexington, KY (713) 8,844 1989 5 - 40 Cypresswood Court Spring, TX (458) 5,761 1984 5 - 40 The Lodge at Timberglen Dallas, TX (700) 8,707 1984 5 - 40 Calais Forest Little Rock, AR (773) 10,307 1987 5 - 40 The Fairways Columbia, SC (641) 8,739 1992 5 - 40 Kirby Station Memphis, TN (875) 12,109 1978 5 - 40 Belmere Tampa, FL (619) 8,605 1984 5 - 40 Williamsburg Village Jackson, TN (374) 5,176 1987 5 - 40 Fairways @ Royal Oak Cincinnati, OH (560) 8,106 1988 5 - 40 Tanglewood Anderson, SC (300) 4,373 1980 5 - 40 Woods at Post House Jackson, TN (510) 7,042 1995 5 - 40 Mid-America Apartment Communities, Inc. Memphis, TN (520) 899 N/A 5 Somerset Jackson, MS (340) 4,890 1981 5 - 40 Highland Ridge Greenville, SC (176) 4,736 1984 5 - 40 Spring Creek Greenville, SC (217) 5,931 1984 5 - 40 St. Augustine Jacksonville, FL (459) 10,247 1987 5 - 40 Cooper's Hawk Jacksonville, FL (436) 8,266 1987 5 - 40 Marsh Oaks Atlantic Beach, FL (176) 3,225 1986 5 - 40 Park at Hermitage Nashville, TN (842) 16,119 1987 5 - 40 Anatole Daytona Beach, FL (346) 7,082 1986 5 - 40 The Savannahs Melbourne, FL (465) 8,524 1990 5 - 40 Stassney Woods Austin, TX (453) 9,364 1985 5 - 40 Travis Station Austin, TX (357) 8,595 1987 5 - 40 Runaway Bay Mt. Pleasant, SC (412) 8,280 1988 5 - 40 The Township Hampton, VA (435) 9,329 1987 5 - 40 Lakeside Jacksonville, FL (409) 15,137 1985 5 - 40 Crosswinds Jackson, MS (207) 15,577 1988/1990 5 - 40 Sutton Place HornLake, MS (122) 9,084 1991 5 - 40 Savannah Creek Southaven, MS (105) 7,849 1989 5 - 40 Napa Valley Little Rock, AR (51) 9,749 1984 5 - 40 Tiffany Oaks Altamonte Springs, FL - 10,243 1985 5 - 40 Lincoln on the Green - Memphis, TN Phase II - 1,522 (8) 5 - 40 --------- -------- Total ($49,558) $592,335 ========= ========
Note: This schedule excludes the 1996 dispositions of Summit Ridge, Laguna Point and Park @ 58. (1) These 11 Properties are encumbered by a $43.4 million note payable. (2) Subject to a negative pledge pursuant to the agreement in respect of the Credit Line, with an outstanding balance of $30,403 at December 31, 1996. The line had a variable interest rate at December 31, 1996 of 7.5%. (3) These three properties are encumbered by a $10.3 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 6.09%. (4) These three properties are encumbered by a $16.5 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 5.75%. (5) The aggregate cost for Federal income tax purposes was approximately $639 million at December 31, 1996. 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. (6) 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. (7) Includes adjacent 68-unit Mendenhall Townhomes. (8) Lincoln Phase II is under construction - leasing to begin Second quarter 1997. F - 18 through 20 45 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:
Years Ended December 31, ---------------------------- 1996 1995 1994 ---- ---- ---- (Dollars in thousands) Real estate investments: Balance at beginning of year $ 578,788 $ 434,460 $ 125,269 Acquisitions 66,258 15,561 280,196 Improvements 20,634 25,590 10,436 Assets acquired from business combination - 103,177 - Increase in basis as a result of applying purchase method accounting - - 41,147 Disposition of real estate assets (23,787) - - Write-off of fully depreciated assets - - (22,588) --------- --------- --------- Balance at end of year $ 641,893 $ 578,788 $ 434,460 ========= ========= ========= Accumulated depreciation: Balance at beginning of year $ 29,504 $ 13,386 $ 27,240 Depreciation 21,249 16,118 8,734 Write-off of fully depreciated assets - - (22,588) Disposition of real estate assets (1,195) - - -------- -------- -------- Balance at end of year $ 49,558 $ 29,504 $ 13,386 ======== ======== ========
F - 21 46 EX-3.2 2 ARTICLES OF AMENDMENT TO THE CHARTER OF MID-AMERICA APARTMENT COMMUNITIES, INC. Pursuant tot he provisions of Section 48-20-106 of the Tennessee Business Corporation Act, the undersigned corporation adopts the following Articles of Amendment to its Charter: 1. The name of the corporation is Mid-America Apartment Communities, Inc. 2. The text of each amendment adopted is: (a) Section 14(c) is hereby amended by the deletion of the first sentence thereof and the replacement of that sentence with the following: Notwithstanding any other provision hereof to the contrary, except Sections 14(e) and 14(k), any acquisition of shares of capital stock that (i) causes any person's ownership to exceed the Limit (as defined in Section 14(d) or (ii) would result in the disqualification of the Corporation as a REIT under the Code shall be void ab initio to the fullest extent permitted under applicable law and the intended transferee of those shares shall be deemed never to have had an interest therein. (b) Section 14(g) is hereby amended by the addition of the following clause to the beginning of the first sentence thereof: Subject to the provisions of Section 14(k) hereof, 3. The corporation is a for-profit corporation. 4. The amendment was duly adopted by unanimous consent on January 27, 1994 by the sole shareholder of the Corporation. 5. This amendment shall be effective when these Articles are filed with the Secretary of State of Tennessee. Dated: January 28, 1994 Mid-America Apartment Communities, Inc. Vice President By:/s/ Lynn A. Johnson - -------------------- -------------------------- Signer's Capacity Lynn A. Johnson EX-3.3 3 ARTICLES OF MERGER OF AMERICA FIRST REIT ADVISORY COMPANY, A NEBRASKA CORPORATION, WITH AND INTO MID-AMERICA APARTMENT COMMUNITIES, INC., A TENNESSEE CORPORATION Pursuant to the provisions of Sections 48-21-107 and 48-21-109 of the Tennessee Business Corporation Act (the "Act"), the undersigned corporation adopts the following Articles of Merger for the purpose of effecting the merger (the "Merger") of America First REIT Advisory Company, a Nebraska corporation ("Advisory") into Mid-America Apartment Communities, Inc., a Tennessee corporation ("MAAC"), with MAAC being the surviving corporation in the Merger: 1. The Plan of Merger is attached hereto as Appendix "A" and incorporated herein by reference. 2. As to MAAC, a Tennessee corporation, and the surviving corporation in the merger, shareholder approval of the Merger is not required pursuant to 48-21-104(h)(2) of the Act. The Plan of Merger was duly adopted by the Board of Directors of MAAC, by unanimous written consent without a meeting on February 23, 1995. The Plan of Merger was duly adopted by the Board of Directors of Advisory by unanimous written consent on February 24, 1995 and was approved by the sole shareholder of Advisory on February 24, 1995 pursuant to applicable provisions of the Nebraska Business Corporation Act. 3. In accordance with Section 48-21-109 of the Tennessee Code Annotated, this merger is permitted under the laws of the State of Nebraska and Advisory has complied with that law in effecting this merger. 4. In accordance with Section 21-2076 of the Nebraska Business Corporation Act, this merger is permitted under the laws of the State of Tennessee and MAAC has complied with that law in effecting this merger. 5. The merger shall be effective on June 30, 1995 at 10:00 a.m., local time. IN WITNESS WHEREOF, the undersigned has caused this document to be executed as of the 29th day of June, 1995. MID-AMERICA APARTMENT COMMUNITIES, INC. By: /s/ Simon R. C. Wadsworth --------------------------- Simon R. C. Wadsworth, Executive Vice President and Chief Financial Officer APPENDIX "A" PLAN OF MERGER ARTICLE I CHARTER AND BYLAWS OF THE SURVIVING CORPORATION I.1 Charter. The Charter of MAAC in effect immediately prior to June 30, 1995 (the "Effective Time") shall be the Charter of the Surviving Corporation, until duly amended in accordance with applicable law. I.2 Bylaws. The Bylaws of MAAC in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation, until duly amended in accordance with applicable law. ARTICLE II DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION II.1 Directors. The directors of MAAC immediately prior to the Effective Time, namely George E. Cates, Simon R. C. Wadsworth, John J. Byrne, III, Robert F. Fogelman and O. Mason Hawkins, shall be the directors of the Surviving Corporation as of the Effective Time. In addition, as of the Effective Time, Michael B. Yanney shall become, and thereafter be, a Class II director of the Surviving Corporation. II.2 Officers. The officers of MAAC immediately prior to the Effective Time shall be the officers of the Surviving Corporation as of the Effective Time. ARTICLE III ADVISORY STOCK III.1 Conversion of the Advisory Stock. (a) At the Effective Time, each share of the Common Stock, $.01 par value per share, of MAAC outstanding immediately prior to the Effective Time (the "MAAC Common Stock") shall remain outstanding and shall represent one share of Common Stock, $.01 par value per share, of the Surviving Corporation. (b) At the Effective Time, the shares of the Class A Voting Common Stock, $1.00 par value per share (the "Advisory Common Stock"), of Advisory issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive, in the aggregate, 153,110 shares of MAAC Common Stock (the "Merger Consideration"). (c) As a result of the Merger and without any action on the part of the America First Companies L.L.C. (the "Advisory Shareholder"), all shares of Advisory Common Stock shall cease to be outstanding and shall be cancelled and retired and shall cease to exist. Upon delivery by Advisory Shareholder of the certificates representing all of the outstanding Advisory Common Stock, MAAC shall deliver to Advisory Shareholder a single certificate representing 153,110 fully paid and nonassessable shares of MAAC Common Stock, which certificate shall bear a legend noting the restrictions on transfer set forth in Section 7.7 of that certain Agreement and Plan of Merger between MAAC, the Advisory Shareholder and Advisory dated as of February 24, 1995. (d) Each share of Advisory Common Stock issued and held in Advisory's treasury at the Effective Time, if any, shall, by virtue of the Merger, cease to be outstanding and shall be cancelled and retired and shall cease to exist without payment of any consideration therefor. (e) Subject to the effect of applicable laws, following surrender of the certificates representing all shares of outstanding Advisory Common Stock immediately prior to the Effective Time, there shall be paid to Advisory Shareholder, without interest, (i) at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore payable with respect to 153,110 shares of MAAC Common Stock (as if the same had been issued at the Effective Time), and not paid, less the amount of any withholding taxes which may be required thereon and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such shares of MAAC Common Stock, less the amount of any withholding taxes which may be required hereon. EX-10.2 4 AMENDMENT NO. 1 TO THE FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF MID-AMERICA APARTMENTS, L.P. Pursuant to Article XI of the First Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement") of Mid-America Apartments, L.P. (the "Partnership"), the undersigned, being the sole general partner of the Partnership, hereby amends the Partnership Agreement as follows: Article VI, Section 6.01 of the Partnership Agreement is hereby amended by adding subparagraph (xix) as follows: (xix) to execute and deliver or assume any note and mortgage securing any loan insured by the Federal Home Administration (the "FHA"), the U.S. Department of Housing and Urban Development ("HUD") or any other public body (individually, an "Agency" and, collectively, "Agencies") over which the Secretary of Housing and Urban Development (the "Secretary") has oversight responsibility, and to execute any Regulatory Agreement and other documents required by the Secretary or any Agency in connection with any such loan. Any successor or substitute general partner or person duly admitted as an additional general partner of the Partnership shall, as a condition precedent to receiving an interest as a general partner in the Partnership, agree to be bound by the terms and conditions of any note, mortgage and/or Regulatory Agreement and other documents and instruments required in connection with any FHA, HUD or other Agency insured loan to the same extent and on the same terms and conditions as all other general partners. Upon any dissolution of the Partnership, no title or right to possession and control of any property subject to any FHA, HUD or Agency insured loan, and no right to collect the rents therefrom, shall pass to any person who is not bound by any Regulatory Agreement affecting such property in a manner satisfactory to the Secretary or the appropriate Agency. IN WITNESS WHEREOF, the foregoing Amendment No. 1 to the First Amended and Restated Agreement of Limited Partnership of Mid-America Apartments, L.P. has been signed and delivered as of this 28th day of June, 1994 by the undersigned as general partner of the Partnership. MID-AMERICA APARTMENT COMMUNITIES, INC. as General Partner By: /s/ Lynn A. Johnson ----------------------- Title: Vice President EX-10.3 5 AMENDMENT NO. 2 TO THE FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF MID-AMERICA APARTMENTS, L.P. Pursuant to Article XI of the First Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement") of Mid-America Apartments, L.P. (the "Partnership"), the undersigned, being the sole general partner of the Partnership, hereby amends the Partnership Agreement as follows: Article II of the Partnership Agreement is hereby amended by adding the following sentences to Section 2.03(a): The interest of the General Partner in the Partnership will consist of a one percent (1%) general partnership interest and the balance of its interest will be a Limited Partnership Interest. In that regard, the General Partner is hereby admitted as an Additional Limited Partner pursuant to Section 4.02(a) of the Partnership Agreement. The General Partner has determined that the General Partner has paid fair value for said Limited Partnership Interest. Article V of the Partnership Agreement is hereby amended by adding Section 5.01A as follows: 5.01A Special Allocation with respect to Affiliated Properties. In the event that the General Partner shall own real property or other investment assets other than through the Partnership or shall own stock in any qualified REIT subsidiary (as defined in the Code) or other entity (other than another partnership of which the Partnership owns at least 90% of the interests) that owns real property or other investment assets (an "Affiliated Entity"), and the General Partner or such Affiliated Entity shall receive income from such real property or investment assets, then there shall be a special allocation of Profit and Loss of the Partnership to the Limited Partners based on the following formula: Allocation = [(U/(S+U))xCNI] - [(U/(S+U))xPNI] In the foregoing formula: (i) U equals the aggregate number of Partnership Units owned by Limited Partners from time to time; (ii) S equals the aggregate number of REIT Shares issued and outstanding from time to time; (iii) CNI equals the aggregate aggregate net income (or loss) for financial accounting purposes of the Partnership, the General Partner and all Affiliated Entities which the General Partner is required to consolidate in its Statement of Operations; and (iv) PNI equals the aggregate net income (or loss) for financial accounting purposes of the Partnership. The foregoing allocation shall be prior to any other allocation of Profit or Loss, with any remaining Profit or Loss being allocated among the Partners pursuant to Section 5.01(a) above. The special allocations shall be allocated among the Limited Partners in proportion to their Percentage Interests in the Partnership. For income tax purposes, the General Partner is authorized to use any reasonable and lawful method to effect the foregoing allocations for tax accounting and capital account accounting purposes to properly reflect the economic effect of the foregoing special allocation. Article VII, Section 7.01(b) of the Partnership Agreement is hereby amended by deleting the reference to 20% in the first line thereof and inserting "1%" in lieu thereof. IN WITNESS WHEREOF, the foregoing Amendment No. 2 to the First Amended and Restated Agreement of Limited Partnership of Mid-America Apartments, L.P. has been signed and delivered as of this 24th day of February, 1996 by the undersigned as general partner of the Partnership. MID-AMERICA APARTMENT COMMUNITIES, INC. as General Partner By: /s/ George E. Cates ------------------- Title: President EX-10.4 6 AMENDMENT NO. 3 TO THE FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF MID-AMERICA APARTMENTS, L.P. Pursuant to Article XI of the First Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement") of Mid-America Apartments, L.P. (the "Partnership"), the undersigned, being the sole general partner of the Partnership, hereby further amends the Partnership Agreement as follows: Article I of the Partnership Agreement is hereby amended by inserting in the logical alphabetical locations on pages 3, 6 and 7, respectively, the following definitions of Common Units, Preferred Units and Series A Preferred Units, as follows: "Common Units" means all Partnership Interests that are not specifically designated as Preferred Units pursuant to Section 4.02(c). "Preferred Units" means all Partnership Interests designated and issued by the General Partner from time to time in accordance with the provisions of Section 4.02(c). "Series A Preferred Units" means the Partnership Interests of the General Partner acquired with the net proceeds of the issuance by the General Partner of its 9.5% Series A Cumulative Preferred Stock, which Partnership Interests shall have the designations, preferences, privileges, limitations and relative rights set forth in Section 4.02(c)(i) hereof. In addition, Article I of the Partnership Agreement is amended by deleting in its entirety the second sentence in the definition of "Partnership Unit" on page 6 of the Partnership Agreement. Article IV of the Partnership Agreement is hereby amended by adding Section 4.02(c)(i) as follows: (i) 9.5% Series A Cumulative Preferred Units. 1. Designation and Number. A series of Preferred Units, designated the "9.5% Series A Cumulative Preferred Units" (the "Series A Preferred Units"), is hereby established. The number of Series A Preferred Units shall be 2,000,000. 2. Maturity. The Series A Preferred Units have no stated maturity and will not be subject to any sinking fund or mandatory redemption. 3. Rank. The Series A Preferred Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Partnership, rank (i) senior to all classes or series of Common Units of the Partnership, and to all Partnership Interests ranking junior to the Series A Preferred Units with respect to distribution rights or rights upon liquidation, dissolution or winding up of the Partnership; (ii) on a parity with all Partnership Interests issued by the Partnership the terms of which specifically provide that such Partnership Interests rank on a parity with the Series A Preferred Units with respect to distribution rights or rights upon liquidation, dissolution or winding up of the Partnership; and (iii) junior to all existing and future indebtedness of the Partnership. The term "Partnership Interests" does not include convertible debt securities, which will rank senior to the Series A Preferred Units prior to conversion. 4. Distributions (a) Holders of the Series A Preferred Units are entitled to receive, when and as declared by the General Partner out of funds legally available for the payment of distributions, preferential cumulative cash distributions at the rate of 9.5% per annum of the Liquidation Preference (as defined below) per Series A Preferred Unit (equivalent to a fixed annual amount of $2.375 per Series A Preferred Unit). Distributions on the Series A Preferred Units shall be cumulative from the date of original issue and shall be payable monthly in arrears on or before the 15th day of each month, or, if not a business day, the next succeeding business day (each, a "Distribution Payment Date"). The first distribution, which will be paid on November 15, 1996, will be for less than a full month. Such distribution and any distribution payable on the Series A Preferred Units for any partial distribution period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Distributions will be payable to holders of record as they appear in the ownership records of the Partnership at the close of business on the applicable record date, which shall be the first day of the calendar month in which the applicable Distribution Payment Date falls or on such other date designated by the General Partner of the Partnership for the payment of distributions that is not more than 30 nor less than 10 days prior to such Distribution Payment Date (each, a "Distribution Record Date"). (b) No distributions on Series A Preferred Units shall be declared by the General Partner or paid or set apart for payment by the Partnership at such time as the terms and provisions of any agreement of the Partnership, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (c) Notwithstanding the foregoing, distributions on the Series A Preferred Units will accrue whether or not the Partnership has earnings, whether or not there are funds legally available for the payment of such distributions and whether or not such distributions are declared. Accrued but unpaid distributions on the Series A Preferred Units will not bear interest and holders of the Series A Preferred Units will not be entitled to any distributions in excess of full cumulative distributions described above. Except as set forth in the next sentence, no distributions will be declared or paid or set apart for payment on any Partnership Interests or any other series of Preferred Units ranking, as to distributions, on a parity with or junior to the Series A Preferred Units (other than a distribution of the Partnership's Common Units or any other class of Partnership Interests ranking junior to the Series A Preferred Units as to distributions and upon liquidation) for any period unless full cumulative distributions have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Series A Preferred Units for all past distribution periods and the then current distribution period. When distributions are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series A Preferred Units and any other series of Preferred Units ranking on a parity as to distributions with the Series A Preferred Units, all distributions declared upon the Series A Preferred Units and any other series of Preferred Units ranking on a parity as to distributions with the Series A Preferred Units shall be declared pro rata so that the amount of distributions declared per Series A Preferred Unit and such other series of Preferred Units shall in all cases bear to each other the same ratio that accrued distributions per Series A Preferred Unit and such other series of Preferred Units (which shall not include any accrual in respect of unpaid distributions for prior distribution periods if such Preferred Units does not have a cumulative distribution) bear to each other. (d) Except as provided in the immediately preceding paragraph, unless full cumulative distributions on the Series A Preferred Units have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past distribution periods and the then current distribution period, no distributions (other than in Common Units or other Partnership Interests ranking junior to the Series A Preferred Units as to distributions and upon liquidation) shall be declared or paid or set aside for payment nor shall any other distribution be declared or made upon the Common Units, or any other Partnership Interests in the Partnership ranking junior to or on a parity with the Series A Preferred Units as to distributions or upon liquidation, nor shall any Common Units, or any other Partnership Interests in the Partnership ranking junior to or on a parity with the Series A Preferred Units as to distributions or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Partnership. Holders of Series A Preferred Units shall not be entitled to any distribution, whether payable in cash, property or securities, in excess of full cumulative distributions on the Series A Preferred Units as provided above. Any distribution payment made on Series A Preferred Units shall first be credited against the earliest accrued but unpaid distribution due with respect to such Series A Preferred Units which remains payable. 5. Liquidation Preference. Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Partnership, the holders of Series A Preferred Units are entitled to be paid out of the assets of the Partnership legally available for distribution to its partners a liquidation preference of $25 per Series A Preferred Unit (the "Liquidation Preference"), plus an amount equal to any accrued and unpaid distributions to the date of payment, but without interest, before any distribution of assets is made to holders of Common Units or any other class or series of Partnership Interests in the Partnership that ranks junior to the Series A Preferred Units as to liquidation rights. The Partnership will promptly provide to the holders of Series A Preferred Units written notice of any event triggering the right to receive such Liquidation Preference. After payment of the full amount of the Liquidation Preference, plus any accrued and unpaid distributions to which they are entitled, the holders of Series A Preferred Units will have no right or claim to any of the remaining assets of the Partnership. The consolidation or merger of the Partnership with or into any other partnership, corporation, trust or entity or of any other partnership or corporation with or into the Partnership, or the sale, lease or conveyance of all or substantially all of the property or business of the Partnership, shall not be deemed to constitute a liquidation, dissolution or winding up of the Partnership. 6. Redemption. (a) The Series A Preferred Units are not redeemable prior to November 1, 2001. On and after November 1, 2001, the Partnership, at its option upon not less than 30 nor more than 60 days' written notice, may redeem the Series A Preferred Units, in whole or in part, at any time or from time to time, for cash at a redemption price of $25 per Series A Preferred Unit, plus all accrued and unpaid distributions thereon to the date fixed for redemption, without interest. Holders of Series A Preferred Units to be redeemed shall surrender such Series A Preferred Units at the place designated in such notice and shall be entitled to the redemption price and any accrued and unpaid distributions payable upon such redemption following such surrender. If notice of redemption of any Series A Preferred Units has been given and if the funds necessary for such redemption have been set aside by the Partnership in trust for the benefit of the holders of any Series A Preferred Units so called for redemption, then from and after the redemption date distributions will cease to accrue on such Series A Preferred Units, such Series A Preferred Units shall no longer be deemed outstanding and all rights of the holders of such series A Preferred Units will terminate, except the right to receive the redemption price. If less than all of the outstanding Series A Preferred Units are to be redeemed, the Series A Preferred Units to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional Series A Preferred Units) or by any other equitable method determined by the General Partner. (b) Unless full cumulative distributions on all Series A Preferred Units shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no Series A Preferred Units shall be redeemed unless all outstanding Series A Preferred Units are simultaneously redeemed and the Partnership shall not purchase or otherwise acquire directly or indirectly any Series A Preferred Units (except by exchange for Partnership Interests of the Partnership ranking junior to the Series A Preferred Units as to distributions and upon liquidation); provided, however, that the foregoing shall not prevent the purchase or acquisition of Series A Preferred Units pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series A Preferred Units. (c) Notice of redemption will be given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the redemption date. A similar notice will be mailed by the Partnership, postage prepaid, not less than 30 nor more than 60 days prior to the redemption date, addressed to the respective holders of record of the Series A Preferred Units to be redeemed at their respective addresses as they appear on the stock transfer records of the Partnership. No failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series A Preferred Units except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the redemption date; (ii) the redemption price; (iii) the number of Series A Preferred Units to be redeemed; (iv) the place or places where the Series A Preferred Units are to be surrendered for payment of the redemption price; and (v) that distributions on the shares to be redeemed will cease to accrue on such redemption date. If less than all of the Series A Preferred Units held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series A Preferred Units held by such holder to be redeemed. (d) Immediately prior to any redemption of Series A Preferred Units, the Partnership shall pay, in cash, any accumulated and unpaid distributions through the redemption date, unless a redemption date falls after a Distribution Record Date and prior to the corresponding Distribution Payment Date, in which case each holder of Series A Preferred Units at the close of business on such Distribution Record Date shall be entitled to the distribution payable on such shares on the corresponding Distribution Payment Date notwithstanding the redemption of such shares before such Distribution Payment Date. 7. Voting Rights. Holders of the Series A Preferred Units will not have any voting rights. 8. Conversion. The Series A Preferred Units are not redeemable for, convertible into or exchangeable for any other property or securities of the Partnership. Article V, Section 5.01 is hereby amended by adding the following sentences as the last two sentences of subsection (a) thereof: "Notwithstanding the foregoing, gross income of the Partnership for each fiscal year of the Partnership shall first be allocated to the holders of any series of the Partnership's Preferred Units in an amount equal to the distributions in respect of such Preferred Units required by the terms of such Preferred Units as set forth above, and no Profit in excess of that amount shall be allocated to such holders. In no event shall Loss be allocated to holders of any series of the Partnership's Preferred Units" Article V, Section 5.02 is hereby amended by adding subsection (b) as follows: (b) Notwithstanding the discretion given to the General Partner in subsection (a) above, the General Partner shall cause the Partnership to distribute to the holders of any series of the Partnership's Preferred Units, prior to any distributions to the holders of Common Units, such amounts at such times as shall be required by the appropriate designating amendment to the Partnership Agreement adopted pursuant to Section 4.02 hereof. IN WITNESS WHEREOF, the foregoing Amendment No. 3 to the First Amended and Restated Agreement of Limited Partnership of Mid-America Apartments, L.P. has been signed and delivered as of this 10th day of October, 1996 by the undersigned as general partner of the Partnership. MID-AMERICA APARTMENT COMMUNITIES, INC. as General Partner By: /s/ George E. Cates -------------------- Title: President EX-10.5 7 AMENDMENT NO. 4 TO THE FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF MID-AMERICA APARTMENTS, L.P. Pursuant to Article XI of the First Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement") of Mid-America Apartments, L.P. (the "Partnership"), the undersigned, being the sole general partner of the Partnership, hereby amends the Partnership Agreement as follows: WHEREAS, the Partnership Agreement was amended by written Amendment No. 2 effective February 24, 1996 in order to express the intention of the Partners to provide the Limited Partners (excluding the General Partner and Affiliated Entities) with the economic benefit (and to burden Limited Partners with the economic detriment) of real estate investments of the General Partner and Affiliated Entities made outside of the Partnership and Subsidiary Partnerships. Article I of the Partnership Agreement is hereby amended by inserting in the logical alphabetical locations on pages 2, 3 and 7 the following definitions: "Affiliated Entity" means each Qualified REIT Subsidiary (as defined in Code Section 856(i)(2)) of the General Partner which owns real estate directly and each other entity (except Subsidiary Partnerships) which owns real estate and in which the General Partner owns an interest, including, without limitation, joint ventures, general partnerships, limited liability companies and other entities, but specifically excluding the Partnership and all Subsidiary Partnerships. "Class A Common Units" means all Common Units issued to Limited Partners other than the General Partner and Affiliated Entities. "Class A Limited Partners" means all Limited Partners who hold Class A Common Units. "Class A Ownership Percentage" means for any relevant period the percentage derived by applying the formula "U/(S+U)" wherein U equals the average aggregate number of Class A Common Units issued and outstanding and S equals the average aggregate number of REIT Shares issued and outstanding. "Class B Common Units" means all Common Units issued to the General Partner and all Affiliated Entities. "Class B Limited Partners" means the General Partner and each Affiliated Entity that has been admitted as a Limited Partner of the Partnership. "Class B Ownership Percentage" means 100% minus the Class A Ownership Percentage. "Separate Real Estate Assets" means all interests in real estate assets (as defined in Code Section 856(c)(6)(B)) owned by the General Partner either directly or indirectly through Affiliated Entities. "Separate Real Estate Economics" means, (i) for all tax purposes, all items of income, gain, and/or loss and (ii) for all financial accounting purposes, net income (loss) under GAAP, respectively, as derived by the General Partner and Affiliated Entities from Separate Real Estate Assets. "Subsidiary Partnership" means any general partnership, limited partnership, joint venture or limited liability company ninety percent (90%) of the equity interests of which are owned by the Partnership. "Target Class A Allocation" means the product of (A) the Class A Ownership Percentage, times (B) the sum of Separate Real Estate Economics plus or minus (i) for all tax purposes, Partnership Profit or Loss, and (ii) for financial reporting purposes, net income (loss) of the Partnership under GAAP. Article II, Section 2.03 is amended by deleting subparagraphs (a) and (c) in their entirety and inserting in lieu thereof the following: (a) The General Partner of the Partnership is Mid-America Apartment Communities, Inc. Its principal place of business shall be the same as that of the Partnership. The Partnership Interest of the General Partner consists of a one percent (1%) general partnership interest represented by Class B Common Units and the balance of which consists of a limited partnership interest represented also by Class B Common Units. (c) The Limited Partners shall consist of Class A Limited Partners and Class B Limited Partners. The Class A Limited Partners shall be those Persons who shall have signed and delivered a Transaction Consent and Signature Page or shall otherwise have been admitted as Class A Limited Partners pursuant hereto. Those persons who shall have executed and delivered a Transaction Consent and Signature Page are hereby admitted as Class A Limited Partners. The Class B Limited Partners shall be the General Partner and each Affiliated Entity that shall have been duly admitted as a Limited Partner. Article V, Section 5.01A of the Partnership Agreement is hereby amended by deleting Section 5.01A in its entirety and inserting in lieu thereof the following: 5.01A Special Allocation with respect to Separate Real Estate Economics. There shall be specially allocated to the Class A Limited Partners at the appropriate times as determined by the General Partner, in its sole discretion, which allocations shall be taken solely from allocations otherwise allocable to the Class B Limited Partners pursuant to this Partnership Agreement, an amount equal to the difference between the Target Class A Allocation and (i) for all tax purposes, the Partnership Profit or Loss, and (ii) for financial reporting purposes, net income (loss) under GAAP, in each case as allocated to the Class A Limited Partners pursuant to Section 5.01(a). To the extent possible, for all tax purposes such special allocations shall affect the same elements of income, gain, loss and cash flow of the Partnership as would have been affected had the Separate Real Estate Economics been realized within the Partnership as if the Separate Real Estate Assets had been owned by the Partnership. The special allocation shall be allocated among the Class A Limited Partners in proportion to the average number of Class A Units held by each Class A Limited Partner during a period divided by the average aggregate number of Class A Units outstanding during such period, and shall be allocated away from the Class B Limited Partners in proportion to the average number of Class B Units held by each Class B Limited Partner during a period divided by the average aggregate number of Class B Units outstanding during such period. Article V of the Partnership Agreement is further amended by adding the following Section 5.08: 5.08 Savings Provisions. (a) The tax allocation provisions of this Agreement are intended to produce final Capital Account balances that are at levels ("Target Final Balances") which permit liquidating distributions that are made in accordance with such final Capital Account balances to be made equally on a "per Common Unit" basis to the holders of Class A Common Units and Class B Common Units pursuant to Section 5.06 above. To the extent that the tax allocation provisions of this Agreement would not produce the Target Final Balances, the Partners agree to take such actions as are necessary to amend such provisions to produce such Target Final Balances. Notwithstanding the other provisions of this Agreement, allocations of Partnership gross income and deductions shall be made prospectively as necessary to produce such Target Final Balances (and, to the extent such prospective allocations would not reach such result, the prior tax returns of the Partnership shall be amended to reallocate Partnership gross income and deductions to produce such Target Final Balances). (b) For financial reporting purposes, the General Partner is authorized to use any method which is reasonable and in conformity with generally accepted accounting principles ("GAAP") to effect the foregoing allocations for GAAP accounting purposes to properly reflect the economic effect of the allocation and distribution provisions contained herein. IN WITNESS WHEREOF, the foregoing Amendment No. 4 to the First Amended and Restated Agreement of Limited Partnership of Mid-America Apartments, L.P. has been signed and delivered as of this 10th day of December, 1996 by the undersigned as general partner of the Partnership, but for all purposes shall be effective as of the 24th day of February, 1996, this Amendment No. 4 being curative in nature and intended to clarify the provisions of Amendment No. 2 executed, delivered and effective as of February 24, 1996. MID-AMERICA APARTMENT COMMUNITIES, INC. as General Partner By: /s/ Simon R.C. Wadsworth ------------------------- Title: Executive Vice President EX-10.18 8 Mid-America Apartment Communities, Inc. Mid-America Apartments, L.P. Revolving Credit Agreement AmSouth Bank of Alabama Administrative Agent December __, 1996 Contents 1 Loan terms 1 1.1 The Loans 1 1.2 Borrowings 2 1.3 Commitments 2 1.4 Notes 2 1.5 Maximum amounts of Loans and Borrowings 2 1.6 Minimum Borrowing size 2 1.7 Swing Line Facility 3 1.8 Letters of Credit 5 1.9 Drafts under the Letter of Credit 6 1.10 Maturity of Loans 7 1.11 Unused Fee 7 1.12 Letter of Credit Fees 7 1.13 Commitment Fee 8 1.14 Interest Periods 8 1.15 Interest 8 1.16 Maximum Eurodollar Borrowings 9 1.17 Borrowers' termination of Borrowing Rights 9 1.18 Prepayments 9 1.19 Payments generally 10 1.20 Funding losses 11 1.21 Pro-rata treatment 11 1.22 Whole dollars 12 2 Eurodollar Borrowing and Conversion procedures 12 2.1 Borrowing Notices 12 2.2 Funding of Loans 12 2.3 Lender's failure to fund 13 2.4 Conversions 14 2.5 Defective notices 15 3 Conditions 15 3.1 Conditions to effectiveness 15 3.2 Conditions to Borrowings 16 3.3 Conditions to Maintaining Loan 19 3.4 Conditions to Release of Property 20 3.5 Conditions to Addition of Property 21 4 Representations and warranties 21 4.1 Corporate existence and power 21 4.2 Corporate, Partnership and governmental authorization; non- contravention 22 4.3 Binding effect 22 4.4 Financial information 22 4.5 No material adverse change 22 4.6 Litigation 23 4.7 Taxes 23 4.8 Compliance with ERISA 23 4.9 Not an investment company or public utility holding company 23 4.10 Margin regulations 24 4.11 Title to assets 24 4.12 Contracts or restrictions affecting Borrowers 24 4.13 No default 24 4.14 Patents and Trademarks 24 4.15 Hazardous Substances 25 4.16 Real Estate Investment Trust 25 5 Affirmative Covenants 25 5.1 Financial information 25 5.2 Maintenance of property; insurance 27 5.3 Compliance with laws 29 5.4 Books and records; payment of Taxes 29 5.5 Notice of Defaults 29 5.6 ERISA events 29 5.7 Use of proceeds 30 5.8 Maintenance of existence; merger; sale of assets 30 5.9 Right of inspection 30 5.10 Environmental laws 30 5.11 Notice of adverse change in assets 31 5.12 Indemnification 31 5.13 Debt service coverage ratio 31 5.14 Adjusted NOI ratio 31 5.15 Payrate 31 5.16 Net worth 31 5.17 Qualification as a Real Estate Investment Trust 31 6 Negative Covenants of Borrowers 32 6.1 Indebtedness 32 6.2 Guaranties 33 6.3 Sale of Assets 33 6.4 Accounts Receivable From Related Persons 34 6.5 Loans to Officers and Employees 34 6.6 Line of Credit Financing 34 6.7 Trademarks and Trade Names 34 6.8 Net Operating Loss 34 6.9 Dividend Payout 34 6.10 Other Financial Ratios 35 6.11 Control 35 6.12 Arizona 35 7 Default 35 7.1 Events of Default 35 7.2 Action on Default 41 7.3 Notice of Default 42 8 The Administrative Agent 42 8.1 Appointment and authorization 42 8.2 Other conduct 42 8.3 Scope of obligations 42 8.4 Consultation with experts 43 8.5 Liability of Administrative Agent 43 8.6 Indemnification 43 8.7 Successor Administrative Agent 44 8.8 Fees 44 9 Change in circumstances 45 9.1 Eurocurrency Reserve Requirements 45 9.2 Increased cost or reduced return 45 9.3 LIBOR unavailable or inadequate 47 9.4 Illegal Loans 48 9.5 Termination of suspension 48 9.6 Taxes on payments 48 9.7 Change of Office 50 9.8 Replacement of Lender 51 10 Miscellaneous 51 10.1 Notices 52 10.2 No waivers; remedies cumulative; integration; survival 52 10.3 Expenses; documentary Taxes 53 10.4 Indemnification 53 10.5 Sharing of set-offs 55 10.6 Amendments and waivers 55 10.7 Successors and assigns 56 10.8 Borrowers' liability 58 10.9 No reliance on Margin Stock collateral 59 10.10 Credit decision 59 10.11 Alabama law 59 10.12 Waiver of jury trial 59 10.13 Venue of Actions 60 10.14 Execution 60 10.15 Survival 60 11 Definitions and usages 60 11.1 Definitions 60 11.2 Accounting terms and determinations 76 11.3 Miscellaneous usages 77 List of Schedules 77 List of Exhibits 78 Revolving Credit Agreement This Revolving Credit Agreement is dated as of December __, 1996 (this "Agreement") 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 of Alabama, an Alabama banking corporation, as Administrative Agent for the Lenders, its successors and assigns (in such capacity, the "Administrative Agent"). The parties, intending to be legally bound, severally agree as follows: 1Loan terms 1.1 The Loans Each "Lender shall make loans ("Loans") to MAAC and Mid-America, jointly and severally (each a "Borrower" and together the "Borrowers"). The agreements of the Lenders to make Loans, are several and not joint. All Loans shall be made on the terms, and subject to the conditions, of this Agreement. The Borrowers may borrow, repay, prepay and reborrow under this Agreement from the Effective Date until the Termination Date of the Loan, in an aggregate principal amount not to exceed, at any one time outstanding, the lesser of: * the sum of Ninety Million Dollars ($90,000,000.00), or * the Borrowing Base reduced by (a) the amount of all outstanding Letters of Credit, (b) the amount of outstanding Advances, and (c) the FTB Letter of Credit, to the extent of $2,615,903. If the Borrowers should desire to obtain funds to pay construction costs incurred with respect to a Development Project, the Borrower shall submit to the Administrative Agent (i) detailed plans and specifications for the Development Project, and (ii) paid invoices, duly certified to be true and correct by MAAC, the architect performing inspections during the construction of the Development Project and the general contractor, if any, constructing the Development Project. Such costs and expenses must be verified and approved by the Administrative Agent's own construction consultant, at the expense of the Borrowers. 1.2 Borrowings All Loans to the Borrowers that have Interest Periods that begin on the same day and end on the same day shall constitute a single borrowing ("Borrowing"). 1.3 Commitments A Lender's Commitment as of the date of this Agreement is the amount shown opposite its name on Schedule 1; a Lender's Commitment may be subsequently reduced pursuant to this Agreement or increased pursuant to a permitted assignment. As of the date of this Agreement, the Aggregate Commitment is $90,000,000. 1.4 Notes The Loans shall be evidenced by promissory notes of the Borrowers, payable to the order of each Lender, in the principal amount of their respective Proportionate Share of the Aggregate Commitment, and in the form substantially the same as the copy of the Note attached hereto as Exhibit A (the "Notes"). 1.5 Maximum amounts of LoansNo Lender shall make Loans in an and Borrowings aggregate unpaid principal amount that exceeds the Lender's Commitment. Each Borrowing shall consist of Loans made by the Lenders in proportion to their respective Commitments. No Loan shall be made to the Borrowers if, immediately following the making of the Loan, the aggregate unpaid principal amount of all Loans to the Borrowers would exceed the lesser of the Aggregate Commitment or the Borrowing Base. 1.6 Minimum Borrowing sizeEach Borrowing shall be in the principal amount of $2,000,000 or a larger integral multiple of $500,000. 1.7 Swing Line FacilityThe "Swing Line Facility" is being extended under, and as a component of, the Aggregate Commitment, and shall be advanced and readvanced by the Administrative Agent to the Borrowers in accordance with the provisions of this Agreement hereinafter set forth, and shall be evidenced by, and payable, together with interest thereon, in accordance with the provisions of, the Swing Line Facility Note. The Borrowers expressly acknowledge and agree that * the Administrative Agent directly assumes the obligation to fund, and shall have the sole obligation to fund, 100% of each Advance of the Swing Line Facility which is made, or required to be made, in accordance with the provisions of this Agreement, and * the Borrowers shall not have the right under any fact or circumstance to look to any other party, including, without limitation, any other Lender, for the funding of all or any portion of the Swing Line Facility which is required to be made in accordance with the provisions of this Agreement if the Administrative Agent shall default in doing so, all risk of such default being assumed in all respects by the Borrowers. Subject to satisfaction of the applicable general terms and conditions set forth in this Agreement, Advances under the Swing Line Facility will be available on any day the Administrative Agent is open for business and on the same day notice is given by the Borrowers to the Administrative Agent, provided that any such request by the Borrowers for an Advance under the Swing Line Facility is received by the Administrative Agent prior to 1:00 P.M., Birmingham time, on the date such Advance is requested. The outstanding principal balance under the Swing Line Facility may be prepaid, in whole or in part and at any time, without prior notice to the Administrative Agent and without payment of penalty or premium. Notice of prepayments under the Swing Line Facility must be received by the Administrative Agent prior to 1:00 P.M., Birmingham time, and payment received by the close of business on the day of notice for the Borrowers to receive credit for such prepayment that day. With respect to an Advance under the Swing Line Facility in excess of $750,000, the Borrowers shall submit to the Administrative Agent a detailed request for the Advance in the form attached hereto as Exhibit B. For an Advance of $750,000 or less under the Swing Line Facility, the Borrowers shall submit to the Administrative Agent a written memo requesting such Advance. Notwithstanding anything to the contrary contained herein, all controlled advances and payments automatically generated by the Administrative Agent's cash management system shall not require any of the above notices from the Borrowers. The Borrowers shall notify the Administrative Agent in writing of the responsible officer, who shall be either the chief financial officer, the chief executive officer, the chief operating officer, or the treasurer (the "Responsible Officer") authorized to request Advances under the Swing Line Facility on behalf of the Borrowers. 1.8 Letters of Credit The Letter of Credit Facility is being extended under, and as a component of, the Aggregate Commitment. The Borrowers shall have the right, from time to time, to request the Administrative Agent to issue one or more unconditional and irrevocable letters of credit for its account (each a "Letter of Credit"), subject to the terms and conditions of this paragraph hereinafter set forth: * Each request for the issuance of a Letter of Credit shall be in writing, shall state the requested date of issuance of the Letter(s) of Credit (which shall be at least five (5) Business Days after the request is received by the Administrative Agent), shall state the requested amount of the Letter(s) of Credit and the purposes for which the Letter(s) of Credit are requested, shall indicate the beneficiary of the Letter(s) of Credit, and shall specify the terms of the Letter(s) of Credit (which terms shall be reasonably satisfactory to the Administrative Agent). * The aggregate amount of Letters of Credit outstanding at any one time shall not exceed $20,000,000. * At no time during the term of the Loans shall there be more than twenty (20) Letters of Credit in the aggregate outstanding, unless otherwise agreed to by Administrative Agent in its sole discretion. * No Letter of Credit shall have an expiration date beyond the Maturity Date. * The Administrative Agent shall have the sole obligation to issue Letter(s) of Credit under this Agreement, and Borrower shall not have the right under any fact or circumstance to look to any other party, including, without limitation, any other Lender, for the issuance of the Letter(s) of Credit if the Administrative Agent defaults in doing so, all such risk of default being assumed by the Borrowers. The Borrowers acknowledge that First Tennessee has issued a letter of credit in the face amount of $7,230,903.00 (the "FTB Letter of Credit") for and in behalf of America First. Notwithstanding any provision in this Agreement to the contrary, so long as the FTB Letter of Credit is outstanding, the maximum principal amount that the Lenders are obligated to advance to the Borrowers with respect to the Loans shall be reduced by the amount the Lenders will be required to pay to First Tennessee in the event that America First does not make immediate reimbursement to First Tennessee of any draft drawn under the FTB Letter of Credit pursuant to the provisions hereof. If at any time during the term of this Agreement, a draft is drawn under the FTB Letter of Credit, and First Tennessee does not receive immediate reimbursement for the amount of such draft in accordance with the terms and provisions of the reimbursement agreement between it and America First, then and in such event, upon demand of First Tennessee, the Administrative Agent will pay to First Tennessee an amount equal to the lesser of (a) the amount of such draft or (b) the sum of $2,615,903.00. Any such payment by the Administrative Agent to First Tennessee shall constitute an Advance to the Borrowers, subject to all of the terms and conditions of this Agreement applicable to Advances. If the FTB Letter of Credit expires or otherwise terminates prior to the Termination Date (other than by reason of a default by America First of its reimbursement obligations to First Tennessee), then, subject to all of the terms and conditions set forth herein and in all other Loan Documents, the Aggregate Commitment shall no longer be reduced as provided in this Section 1.8. 1.9 Drafts under the Any draw honored by the Administrative Letter of Credit Agent under a Letter of Credit shall constitute an automatic Advance and shall be evidenced by and payable, together with interest thereon, in accordance with the provisions of the Notes. Upon request of the Administrative Agent, each of the other Lenders shall immediately fund their respective Proportionate Share in each such Advance which is made as a result of a draw under a Letter of Credit. 1.10 Maturity of Loans Subject to Section 7.2, (Action on Event of Default), and Section 1.17 (Borrowers' Termination of Borrowing Rights), the unpaid principal amount of each Loan shall be due and payable on the Maturity Date. The Borrowing Rights of the Borrowers and the obligation of the Lenders to extend Loans shall permanently terminate on the Termination Date. 1.11Unused Fee The Borrowers shall pay a fee (an "Unused Fee") on the average daily unused portion of the Aggregate Commitment at the rate of 0.25% per annum. Unused Fees shall accrue from the date of this Agreement until the Maturity Date. The Borrowers shall jointly and severally pay accrued Unused Fees to the Administrative Agent for the account of each Lender quarterly in arrears on each January 1, April 1, July 1 and October 1 and on the Maturity Date, commencing December __, 1996. The Borrowers agree that such Unused Fee is fair and reasonable, considering the condition of the money market, the creditworthiness of the Borrowers and the interest rate to be paid. For the purposes of this calculation, any issued and outstanding Letters of Credit shall be deemed to constitute a portion of the Loan which is outstanding, and, therefore, not subject to payment of a Unused Fee. 1.12 Letter of Credit The annual fee for the issuance of a Fees Letter of Credit shall be equal to the greater of (i) Two Hundred Fifty Dollars ($250.00) or (ii) one and one-quarter percent (1 1/4%) per annum multiplied by the face amount of such Letter of Credit; and any such fee shall be paid annually in advance for the entire period of time that such Letter of Credit is outstanding. 1.13 Commitment Fee The Borrowers have agreed to pay to the Lenders a commitment fee in the aggregate amount set forth on Schedule 1.13. Such payment is being made in consideration of the agreement of the Lenders to make funds available to the Borrowers under the terms and provisions hereof from the Effective Date until the Termination Date. The Borrowers agree that this commitment fee is fair and reasonable, considering the condition of the money market, the creditworthiness of the Borrowers and the interest rate to be paid for the Loan. A portion of that amount, as set forth on Schedule 1.13, will be retained by the Administrative Agent as administrative or servicing fee; and the balance will be shared by the Administrative Agent with the Lenders on a pro rata basis in accordance with their respective Proportionate Share, as set forth on Schedule 1.13. 1.14 Interest Periods Each Eurodollar Loan shall have an Interest Period of thirty (30), sixty (60) or ninety (90) days (the "Interest Period") as the Borrowers specify in the applicable Borrowing or Conversion Notice, except that: * an Interest Period that would otherwise end on a day that is not a Business Day shall end on the following Business Day unless the following Business Day falls in another calendar month, in which case the Interest Period shall end on the preceding Business Day, and * an Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of the Interest Period) shall end on the last Business Day of a calendar month. 1.15 Interest Each Eurodollar Loan shall bear interest at the Eurodollar Rate on its unpaid principal amount from the first to the last day in its applicable Interest Period. Each Loan evidenced by the Swing Line Facility Note shall bear interest at the Prime Rate minus .75% on its unpaid principal amount from the date such Loan is made until repaid. The Borrowers shall pay on the Conversion Date accrued interest on any Loan converted prior to the last day of its Interest Period. Overdue principal of or interest on a Loan shall bear interest, payable on demand, from the first day the principal or interest is overdue until paid (after as well as before judgment) at a rate per annum equal to the sum of 2% plus the applicable interest rate on the particular Loan for each day. The Administrative Agent shall determine the interest rates for all Loans and shall promptly notify the Borrowers and the Lenders of such interest rates. Such determinations shall be conclusive in the absence of manifest error. 1.16 Maximum Eurodollar Notwithstanding anything to the contrary Borrowings contained herein, there shall not be more than seven (7) Eurodollar Borrowings outstanding at any given time. 1.17 Borrowers' The Borrowers may, upon at least three Termination of Business Days' notice to the Borrowing Rights Administrative Agent, permanently terminate their Borrowing Rights. If the Borrowers so terminate their Borrowing Rights, the unpaid principal amount of all Loans to the Borrowers with all accrued interest, and all fees, including Unused Fees and funding losses, and other amounts owing by the Borrowers under this Agreement, shall be payable on the effective date of the termination. The Administrative Agent shall promptly notify the Lenders of such termination of the Borrowers' Borrowing Rights. 1.18 Prepayments The Borrowers may prepay on any Business Day the unpaid principal amount of the Loans in a Borrowing in whole or in a part that is $2,000,000 or a larger integral multiple of $500,000. In the event the aggregate outstanding balance of the Loans shall at any time exceed the Borrowing Base, the Borrowers shall immediately make a principal payment which will reduce the outstanding aggregate principal balance of the Loans to an amount not exceeding the Borrowing Base. If a Development Project for which Advances have been made in accordance with the Borrowing Base has not become a Negatively Pledged Property or a Mortgaged Property within one (1) year from the date a certificate of occupancy (or other comparable governmental approval if a certificate of occupancy is not utilized by the appropriate governmental authority) has been issued, or if no certificate of occupancy (or comparable approval) has been issued within 24 months from the first Advance for such Development Project, the amount of such Advance shall be immediately due. A prepayment of principal must be accompanied by payment of accrued interest on the principal amount prepaid. Prepayments of Loans accruing interest at the Eurodollar Rate shall be subject to Section 1.20 (Funding losses). Prepayment Notices The Borrowers shall notify the Administrative Agent of a prepayment, specifying the date of the prepayment and the amount of the Borrowings to be prepaid, at least two (2) Business Days before the date of prepayment. Upon receipt of a notice of prepayment, the Administrative Agent shall promptly notify each Lender of its contents and of the Lender's ratable share of the prepayment. 1.19 Payments generally The Borrowers shall make each payment of principal of and interest on its Borrowings and of fees hereunder by 11:00 a.m. on the date due, in immediately available funds in Birmingham, Alabama, to the Administrative Agent at its Notice Address. The Administrative Agent shall promptly distribute to each Lender its Proportionate Share of each such payment. If a payment of principal, interest or fees is due on a day that is not a Business Day, the date for the payment shall be extended to the following Business Day, except that if the following Business Day falls in another calendar month, the date for the payment of a Loan shall be the preceding Business Day. If the date for a payment of principal is so extended, or is extended by operation of law or otherwise, interest on the payment shall be payable for the extended time. All interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed. Entries in records maintained by a Lender in accordance with its usual practice evidencing the Borrowers' indebtedness to the Lender under this Agreement and under the Notes, including the amounts of Loans, applicable Interest Periods and payments of principal and interest, shall be prima facie evidence of the existence and amounts of the obligations of the Borrowers to which the entries relate. A Lender's failure to maintain such records, or any error therein, shall not affect the Borrowers' obligations to repay the Loans in accordance with this Agreement. 1.20 Funding losses If * the Borrowers make a payment of principal of a Loan before the last day of the Interest Period for such Loan (including prepayment of Loans pursuant to Section 9.4 (Illegal Loans), or * the Borrowers fail to borrow or prepay or to convert a Loan after the Administrative Agent has notified any other Lender of the Borrowing, prepayment or Conversion, then the Borrowers shall reimburse each Lender on demand for any resulting loss or expense incurred by it, including any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after such payment or Conversion or failure to borrow, prepay or convert, provided that the Lender has delivered to the Borrowers a certificate reasonably detailing the amount of the loss or expense, which certificate shall be conclusive in the absence of manifest error. 1.21 Pro-rata treatment Except as otherwise expressly provided in this Agreement, or to the extent otherwise reasonably required due to a Lender's failure to fund, * each payment of a Unused Fee shall be allocated among the Lenders in their Proportionate Share for the relevant period, * each payment of principal of a Borrowing shall be allocated among the Lenders in their respective Proportionate Share of the unpaid principal amounts of their Loans included in the Borrowing, and * each payment of interest on a Borrowing shall be allocated among the Lenders in their respective Proportionate Share of the amounts of accrued and unpaid interest on their Loans included in the Borrowing. 1.22 Whole dollars In computing the amounts of the Lenders' Loans to be included in a Borrowing, the Administrative Agent may round each Lender's Loan to the next higher or lower whole dollar amount. 2 Eurodollar Borrowing and Conversion procedures 2.1 Borrowing Notices The Borrowers shall notify the Administrative Agent (a "Borrowing Notice") by 1:00 p.m. on the third Business Day immediately preceding a Eurodollar Borrowing. A Borrowing Notice shall be in substantially the form of Exhibit C and shall specify: * the aggregate principal amount of the Eurodollar Borrowing, * the Interest Period (which shall not extend beyond the Maturity Date), and * the Borrowers' account at the Administrative Agent to which the proceeds of the Eurodollar Borrowing are to be deposited. 2.2 Funding of Loans The Administrative Agent shall promptly notify each Lender of the contents of each Borrowing Notice and of the principal amount of the Lender's Loan to be included in the Eurodollar Borrowing. Not later than 12 p.m. on the day of a Eurodollar Borrowing, each Lender shall make available the full amount of its Loan to be included in the Eurodollar Borrowing, in immediately available funds in Birmingham, to the Administrative Agent at its Notice Address. Unless the Administrative Agent determines that an applicable condition specified in Section 3 has not been satisfied, the Administrative Agent shall make the funds received from the Lenders pursuant to this Section 2.2 available to the Borrowers at the Administrative Agent's Notice Address by 2 p.m. on such day for a Eurodollar Borrowing. 2.3 Lender's failure Unless a Lender notifies the to fund Administrative Agent before the date of a Borrowing (whether for a Eurodollar Borrowing, a draw under a Letter of Credit or any other Borrowing available hereunder) that the Lender will not make available to the Administrative Agent the full amount of its Loan to be included in the Borrowing, the Administrative Agent may assume that the Lender's Loan will be made available to the Administrative Agent on the day of the Borrowing and may, in reliance on that assumption, make the full amount of the Loan available to the Borrowers. If the Administrative Agent makes the full amount of a Lender's Loan available to the Borrowers, and the Lender does not make available to the Administrative Agent some or all of the Loan (the "Unfunded Amount") by the date of the Borrowing, then the Lender shall pay the Administrative Agent on demand interest at the Federal Funds Rate on the Unfunded Amount from the date of the Borrowing until the Lender makes the Unfunded Amount available to the Administrative Agent or the Borrowers repay the Loan. If a Lender does not make the full amount of its Loan included in a Borrowing available to the Administrative Agent by the third Business Day after the date of the Borrowing, the Borrowers shall, promptly on the Administrative Agent's demand, repay the full amount of such Loan to the Administrative Agent, together with accrued interest at the interest rate for the Loans comprising the Borrowing. Nothing in this Section 2.3 shall relieve a Lender of the obligation to make the full amount of its Loans available to the Administrative Agent. 2.4 Conversions The Borrowers may at any time, if they are not in Default, convert the Loans bearing interest at the Eurodollar Rate into new Loans for an additional Interest Period (a "Conversion"). A Conversion shall convert each Loan in a Borrowing in the same proportion. Since each Loan in a Borrowing shall be converted in the same proportions, Conversion shall refer equally to Conversion of Loans and Conversion of Borrowings. A Borrower may initiate a Conversion by notifying the Administrative Agent (a "Conversion Notice") not later than 1:00 p.m. on the third Business Day before the Conversion date. The Administrative Agent shall promptly notify each Lender of the contents of each Conversion Notice and of the Lender's Loans that will result from the Conversion. A Conversion Notice shall be in substantially the form of Exhibit D and shall: * state the Conversion date, * identify each then outstanding Borrowing that is to be converted, * state the aggregate unpaid principal amount of the Loans in such outstanding Borrowings, and * state the principal amount and Interest Period (which shall not extend beyond the Maturity Date) of each Borrowing into which such outstanding Borrowings are to be converted. Each Borrowing resulting from a Conversion must, as to amount and Interest Period, conform to the requirements for a Borrowing comprised of Loans made on such date (as if the Loans to be converted had been prepaid, and the new Loans made, on the Conversion date), and a Conversion Notice shall be effective solely as to the resulting Borrowings that do so conform. If a Conversion Notice purports to or is effective to convert only part of the Borrowings specified in the Conversion Notice, the remaining parts of such Borrowings shall on the Conversion date automatically be converted into a single Base Rate Borrowing. The Borrowers shall be liable to the Lenders for any funding losses in accordance with Section 1.20 on any portion of a Borrowing not converted. A Conversion of a Loan must satisfy the conditions in Section 3.2 for the making of a Loan. If part or all of a Loan is not otherwise converted by the last day of its Interest Period, it shall automatically be converted on the last day of its Interest Period into a Base Rate Loan. 2.5 Defective notices The Administrative Agent shall promptly notify a Lender or the Borrowers if the Administrative Agent believes that a notice or other document given to the Administrative Agent by a party under Section 1 or this Section 2 fails to conform to the requirements of such Section. 3 Conditions 3.1 Conditions to This Agreement shall become effective effectiveness when the Administrative Agent has received the following documents, each dated the date of this Agreement: * for each party to the Agreement, an original or telecopied counterpart of this Agreement signed by all parties; * 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; * the Negative Pledges and Mortgages upon those Properties identified in Schedule 2; * Title Documents consisting of current and complete title searches or reports (with legible copies of all instruments of record) for each and all of the Properties; * opinions of counsel satisfactory to the Administrative Agent to each of the Borrowers, substantially in the form of Exhibit E; * a certificate of a senior officer of each Borrower that (i) no Default has occurred and is continuing and (ii) the representations and warranties of the Borrowers contained in this Agreement are true on the date of this Agreement; and * such other documents as the Administrative Agent reasonably requests and deems satisfactory relating to each Borrower's existence, the corporate authority for and validity of this Agreement and any other relevant matter. The Administrative Agent shall promptly notify the Borrowers and the Lenders when this Agreement becomes effective, and such notice shall be conclusive and binding on all parties. 3.2 Conditions to BorrowingsThe obligation of a Lender to make a Loan to the Borrowers as part of a Borrowing is subject to the satisfaction of the following conditions: * this Agreement is effective; * the Administrative Agent receives a Borrowing Notice conforming to the requirements of this Agreement; * immediately after the Borrowing, the aggregate unpaid principal amount of the Borrowers' Loans will not exceed the lesser of the Aggregate Commitment or the Borrowing Base; * each Borrower represents that no material adverse change in its financial condition or results of operations has occurred; * immediately before and after the Borrowing, no Default by the Borrowers will have occurred and be continuing; * the representations and warranties of the Borrowers contained in this Agreement are true on and as of the date of the Borrowing with the same effect as if made on and as of such date (except to the extent such representations and warranties expressly relate to an earlier date); * if a new Eligible Property is offered as a Property, the Borrowers shall have satisfied all of the same conditions specified herein with respect to the initial Properties, including, without limitation, the furnishing of adequate financial information to determine the value of such Property in accordance with the provisions hereof, a current survey, a current Level I Environmental Survey and such other information as shall be indicated by such Survey (including, if so indicated, an asbestos survey), and current Title Documents, all of which must be satisfactory to the Administrative Agent and its counsel; * no mechanic's lien claim shall have been filed or asserted against any Property, which has not been "bonded off" such Property in accordance with applicable law; * all licenses, permits and approvals of governmental authorities required for the operation of the respective Properties shall have been obtained and are in full force and effect; * there shall have occurred no material violation of any applicable laws, ordinances, rules or regulations; it being understood that a single violation shall be deemed material if it involves by way of fees, fines, costs, expenses, curative work or other potential loss or expense to the Borrowers exceeding the sum of One Hundred Thousand Dollars ($100,000.00) or $500,000 in the aggregate for multiple violations; * there shall be no action, suits or proceedings pending, or to the Borrowers' knowledge, threatened against or affecting either Borrower or any Property, at law or in equity, or before any governmental agencies, which, if adversely determined, would substantially impair the ability of the Borrowers to pay their obligations as set forth herein; and * there shall have occurred no material adverse change in the financial condition of either Borrower. Each Borrowing shall constitute a representation and warranty by the Borrowers that, on the date of the Borrowing, the conditions set forth in this Section 3.2, as they apply to the Borrowers, are satisfied. 3.3 Conditions to * The Administrative Agent shall have Maintaining Loan the right, at any time and from time to time, to require the Borrowers to furnish to the Administrative Agent current financial information, updated appraisals and/or environmental studies of any one or more of the Properties if, in the unrestricted discretion of the Administrative Agent, such Properties shall have declined in value in any material amount or may be in violation of any applicable Environmental Laws. Any such appraisals and environmental studies must be in form, content and conclusion satisfactory to the Administrative Agent, subject to the Administrative Agent's approval in all respects, and must be made by a qualified, licensed professional selected by the Administrative Agent. If any such current financial information, updated appraisal or environmental study should reflect a decline in value, the Borrowing Base shall be reduced accordingly; and, if the then outstanding Loans should exceed the reduced Borrowing Base, the Borrowers shall be obligated immediately to reduce the Loans to an amount not exceeding the applicable reduced Borrowing Base. If any such appraisal or current financial information should reflect an increase in value, the applicable Borrowing Base shall be increased accordingly to the extent appropriate. * If any environmental study should reflect the necessity or desirability for action to be taken to prevent or cure the violation or prospective violation of applicable Environmental Laws, the Borrowers shall, at their sole cost and expense, immediately undertake such action and diligently prosecute same to conclusion. * Although the Administrative shall have the right to require as many appraisals and environmental surveys as it shall elect with respect to each Property, the Borrowers shall be obligated to pay for only one (1) appraisal and one (1) environmental survey, with respect to each Property during any one (1) consecutive twelve (12) month period. Any initial appraisals and environmental studies furnished to the Administrative Agent in connection with each Property shall be excluded from consideration in determining whether Borrowers are obligated to pay the cost of additional appraisals or environmental studies for any such Property. 3.4 Conditions to Release * The privilege is given and reserved so of Property that the Borrowers or Arizona may obtain the release of a Property from any Negative Pledge or from the lien of a Mortgage upon payment to the Administrative Agent, for application upon the Loan, a principal amount equal to the amount of the applicable Borrowing Base for such Negatively Pledged Property, or Mortgaged Property, as the case may be, together with all interest accrued upon such amount, and all out-of-pocket expenses and advances then due and owing to the Administrative Agent in connection with the Loans. * The release privilege herein granted is conditioned upon (1) there being no Default existing (a) at the time any such release is requested, or (b) on the date the release is to be delivered, or (2) the release not causing a Default. * Any such requested release shall be made at the sole cost and expense of the Borrowers. 3.5 Conditions to Subject to the satisfaction of the same Addition of conditions and requirements set forth Property herein with respect to the initial Properties, the Borrowers shall be entitled to offer Apartment Communities which, if approved by the Administrative Agent as Eligible Properties, shall (upon satisfaction of the same conditions imposed for the initial Properties) then be deemed to constitute Properties and available for use in determining the Borrowing Base. 4 Representations and warranties Each Borrower represents and warrants that: 4.1 Corporate Mid-America is a limited partnership duly existence and organized, validly existing and in good power standing under the laws of the State of Tennessee; it has the power and authority to own its properties and assets and is in good standing and duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary, including, without limitation, the States of Tennessee, Mississippi, Arkansas, Ohio, South Carolina, Florida and Georgia, and will be so qualified in every other jurisdiction in which an Eligible Property is offered to the Lenders as a Property. MAAC is a corporation duly organized, validly existing, and in good standing under the laws of the State of Tennessee; it has the power and authority to own its properties and assets and is in good standing and duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary, including, without limitation, the States of Tennessee, Mississippi, Arkansas, Ohio, Texas and Georgia, and will be so qualified in every other jurisdiction in which an Eligible Property is offered to the Lenders as a Property. Arizona is a corporation duly organized, validly existing, and in good standing under the laws of the State of Arizona; it has the power and authority to own its properties and assets and is in good standing and duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary, including, without limitation, the State of Mississippi. 4.2 Corporate, The execution, delivery and performance Partnership and by the Borrower of this Agreement are governmental within the Borrower's corporate or authorization partnership, as the case may be, powers, non-contravention have been duly authorized by all necessary corporate or partnership, as the case may be, action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the articles of incorporation or by-laws or partnership agreement of the Borrower or of any material agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or result in the creation or imposition of any Lien on any asset of the Borrower. 4.3 Binding effect This Agreement is a valid and binding agreement of the Borrower, enforceable in accordance with its terms, except as enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity. 4.4 Financial The consolidated balance sheet of MAAC information prepared as of the 30th day of June, 1996, together with any explanatory notes therein referred to and attached thereto, is correct and complete and fairly presents the financial condition of the Borrowers as of the date of said balance sheet. A copy of such balance sheet has been delivered to each Lender. 4.5 No material Since June 30, 1996, there has been no adverse change material adverse change in the financial position or results of operations of the Borrowers, considered as a whole. 4.6 Litigation There is no action, suit or proceeding pending against, or, to the knowledge of the Borrower, threatened against or affecting, the Borrower before any court or arbitrator or any governmental body, agency or official in which there is a reasonable probability of an adverse decision that would materially adversely affect the business, financial position or results of operations of the Borrower or that in any manner draws into question the validity or enforceability of this Agreement. 4.7 Taxes United States federal income tax returns of the Borrower have been examined or the applicable statute of limitations has run through the period ended * if the Borrower is MAAC, December 31, 199_, and * if the Borrower is Mid-America, December 31, 199_. The Borrower has filed all United States federal income tax returns and all other material tax returns that are required to be filed by it and has paid all Taxes then due pursuant to such returns or pursuant to any assessment received by the Borrower, except for Taxes contested in good faith by appropriate proceedings and as to which appropriate reserves in accordance with generally accepted accounting principles have been established. The charges, accruals and reserves on the books of the Borrower for Taxes are, in the Borrower's opinion, adequate. 4.8 Compliance with Each member of the Controlled Group has ERISA fulfilled its obligations under the minimum funding standards of ERISA and the Code for each Pension Plan and is in compliance in all material respects with ERISA and the Code, and has not incurred any liability to the PBGC or a Pension Plan under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. 4.9 Not an investment The Borrower is not an 'investment company or public company' within the meaning of the utility holding Investment Company Act of 1940 or a company 'holding company' within the meaning of the Public Utility Holding Company Act of 1935. 4.10 Margin regulations At no time will Margin Stock comprise more than 5% of the value of the assets of a Borrower. 4.11 Title to assets Each Borrower has good and marketable title to all its properties and assets reflected on the consolidated balance sheet referred to herein, except for (a) such assets shown on said balance sheet that have been disposed of since said date as no longer used or useful in the conduct of business, (b) inventory sold in the ordinary course of business and thereafter accounted for as accounts receivable or cash, (c) accounts receivable collected and property accounted for, and (d) items which have been amortized in accordance with GAAP applied on a consistent basis; and all such properties and assets are free and clear of Liens except as otherwise expressly permitted by the provisions hereof. 4.12 Contracts or Neither Borrower nor Arizona is a party restrictions to, nor subject to, any agreement or affecting instrument, including, without Borrowers limitation, any partnership agreement, partnership restrictions, voting trust or shareholders' agreement, materially and adversely affecting its business, Apartment Communities, or other assets, operations or condition (financial or otherwise). 4.13 No default Neither Borrower nor Arizona is in default in the performance, observance or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument to which it is a party, which default (if not cured) would materially and adversely and substantially affect the financial condition, property or operations of such Borrower or Arizona. 4.14 Patents and TrademarksEach Borrower possesses all necessary patents, service marks, trademarks, trade names, copyrights, and licenses necessary to the conduct of its business. 4.15 Hazardous SubstancesTo the best of the Borrower's knowledge, (a) except strictly in accordance with all applicable Environmental Laws, no Hazardous Substances are located upon or have been stored, processed or disposed of on or released or discharged (including ground water contamination) from any Apartment Community owned or leased by either Borrower or Arizona, and (b) no aboveground or underground storage tanks exist on any of the Apartment Communities of Borrowers or Arizona. No private or governmental lien or judicial or administrative notice or action related to Hazardous Substances or other environmental matters has been filed against any Apartment Community owned or leased by either Borrower or Arizona or otherwise issued to or received by either Borrower or Arizona. 4.16 Real Estate MAAC is qualified under the Code as a Investment Trust real estate investment trust. 5 Affirmative Covenants Each Borrower agrees that: 5.1 Financial informationThe Borrower shall deliver to the Administrative Agent for distribution to each Lender: * As soon as available, and in any event within ninety-five (95) days after the end of each fiscal year of MAAC, a consolidated unqualified audit as of the close of such fiscal year of MAAC, together with a consolidated unqualified audit report and opinion of an independent certified public accountant acceptable to the Administrative Agent, prepared in accordance with GAAP, showing the financial condition of MAAC as of the close of such year, which audit shall include, inter alia, consolidated financial results of both Borrowers and all Subsidiaries of each of them; and the results of operations during such year; and within thirty (30) days after the end of each calendar quarter, consolidated financial statements similar to those mentioned above, not audited but certified by the Certifying Officer, such balance sheets to be as of the end of such calendar month, and such statements of income and surplus to be for the period from the beginning of the fiscal year to the end of such month, in each case subject only to audit and year-end adjustment. The certificate of the Certifying Officer shall state that: a)the attached financial statement, together with any explanatory notes referred to and attached thereto, is correct and complete and fairly resents the financial condition of MAAC as of the date of the financial statement, and the results of its operations for the period ending on the date reflected in said financial statement, b)that such financial statement has been prepared in accordance with GAAP applied on a consistent basis maintained throughout the period involved, and c)to the best of such Certifying Officer's knowledge, the Borrowers are not in Default under any of the terms and provisions of this Agreement, or, if the Borrowers are in Default, identifying with particularity each such Default; * within 15 days of mailing or filing, copies of all annual reports to its stockholders and all reports that the Borrower files with the Securities and Exchange Commission; * upon request of the Administrative Agent, but in any event no later than the 22nd day of each calendar quarter, but as of the last day of the immediately preceding calendar quarter, a Borrowing Base Certificate in the form attached hereto as Exhibit F; and * promptly, such other financial information as may be reasonably requested by the Administrative Agent or a Lender. 5.2 Maintenance of property;a) The Borrower shall keep all property insurance useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. b) The Borrower at all times shall maintain (or cause to be maintained) with respect to each Property in some company or companies (having a Best's rating of A:VIII or better, except for liability insurance maintained with respect to Properties located in Texas, which shall be maintained with a company or companies having a Best's rating of at least A-:VII) approved by the Administrative Agent: * Comprehensive public liability insurance covering claims for bodily injury, death, and property damage, with minimum limits satisfactory to the Administrative Agent, but in any event not less than those amounts customarily maintained by companies in the same or substantially similar business; * Business interruption insurance and/or loss of rents insurance in a minimum amount specified by the Administrative Agent, and in any such event covering loss of rents for a minimum period of one (1) year; * Hazard insurance insuring the Apartment Communities and other assets against loss by fire (with extended coverage) and against such other hazards and perils (including but not limited to loss by windstorm, hail, explosion, riot, aircraft, smoke, vandalism, malicious mischief and vehicle damage) as the Administrative Agent, in its sole discretion, shall from time to time require, all such insurance to be issued in such form, with such deductible provision, and for such amount as shall be satisfactory to the Administrative Agent; and * Such other insurance as the Administrative Agent may, from time to time, reasonably require by notice in writing to the Borrowers. c) The Borrower shall not, nor permit the any other Person to, cancel, terminate, or materially amend any of the insurance policies required by this Section 5 without giving at least thirty (30) days' prior written notice to the Administrative Agent. The Borrower will deliver (or cause to be delivered) to the Administrative Agent original or certified copies of the insurance policies, or satisfactory certificates of insurance, and, as often as the Administrative Agent may reasonably request, a report of a reputable insurance broker with respect to such insurance. At the option of the Borrower, the Borrower may maintain the insurance coverages required by this Section 5, pursuant to so-called "blanket insurance policies", in which event the Borrower shall, from time to time, upon the Administrative Agent's request, furnish to the Administrative Agent certificates from the respective insurance companies (or their authorized agents) setting forth the types and amounts of insurance being maintained, any applicable deductible provisions, and such other information as the Administrative Agent may require (including, without limitation, the effective dates of any such insurance), together with copies of all such blanket insurance policies. 5.3 Compliance with lawsThe Borrower shall comply in all material respects with all applicable laws, ordinances, rules, regulations and requirements of governmental authorities, except where the necessity of compliance is contested in good faith by appropriate proceedings. 5.4 Books and records; The Borrower shall keep proper books and payment of Taxes records in which full and correct entries are made of all dealings and transactions in relation to its business and activities. While a Default is continuing, representatives of any Lender may inspect the Borrower's relevant books and records at any reasonable time. The Borrower shall pay and discharge, at or before maturity, all their respective material Tax liabilities, except for liabilities contested in good faith by appropriate proceedings and as to which appropriate reserves in accordance with generally accepted accounting principles have been established. 5.5 Notice of Defaults The Borrower shall, within five Business Days of a senior officer of the Borrower obtaining knowledge of a continuing Default, deliver to the Administrative Agent a certificate of the Certifying Officer setting forth the details of the Default and the action the Borrower is taking or proposes to take with respect to the Default. 5.6 ERISA events If a member of the Controlled Group * gives or is required to give notice to the PBGC of a 'reportable event' or knows that the plan administrator of a Pension Plan has given or is required to give notice of such reportable event, * receives notice of complete or partial Withdrawal Liability under Title IV of ERISA, * receives notice from the PBGC under Title IV of ERISA of an intent to terminate or appoint a trustee to administer a Pension Plan, or * knows that a Pension Plan is terminated or in reorganization, then the Borrower shall within five Business Days deliver a copy of the notice to the Administrative Agent. 5.7 Use of proceeds The Borrower shall use Loan proceeds only for its general corporate purposes. The Borrower shall not use any Loan proceeds for any purpose that violates Regulations G, T, U or X of the Federal Reserve Board. 5.8 Maintenance of The Borrower shall keep in full force and existence; merger; saleeffect its corporate or partnership of assets existence, as the case may be, and its rights, privileges and franchises necessary or desirable in the normal conduct of business, provided that a Subsidiary of a Borrower may merge or consolidate with or into the Borrower (but only if the Borrower is the surviving entity) or a wholly-owned consolidated Subsidiary of the Borrower. A Borrower shall not (i) consolidate or merge with or into another Person unless the Borrower is the surviving entity and no Default by the Borrower exists immediately thereafter, or (ii) sell, lease or otherwise transfer all or substantially all of its assets to any other Person, except for the distribution of ordinary dividends to shareholders and distributions to partners. As used herein "substantially all" shall mean more than thirty percent (30%) of the total assets. 5.9 Right of inspectionThe Borrower shall permit any Person designated by the Administrative Agent to visit and inspect any of the properties, corporate books and financial reports of each Borrower and Arizona and to discuss its affairs, finances and accounts with its principal officers, at all such reasonable times during normal business hours and as often as the Administrative Agent may reasonably request. 5.10 Environmental laws The Borrower shall maintain at all times all of each Borrower's and Arizona's Apartment Communities in compliance with all Environmental Laws, and immediately notify the Administrative Agent of any notice, action, lien or similar action alleging either the location of any Hazardous Substances or the violation of any Environmental Laws with respect to any of such Borrower's Apartment Communities or operations. 5.11 Notice of adverse At the time of either Borrower's first change in assets knowledge or notice, such Borrower shall immediately notify the Administrative Agent of any information that may adversely affect in any material manner the assets of either Borrower, including, but not limited to, the value or marketability of any Properties. 5.12 Indemnification The Borrower shall defend, indemnify and hold the Administrative Agent harmless from and against any and all loss, costs, damage or expense, of every kind and nature, including, without limitation, reasonable attorneys' fees and costs, which the Administrative Agent could or might incur by reason of any violation of any Environmental Laws by either Borrower or by any predecessors or successors to title to any Property of such Borrower. 5.13 Debt service The Borrower shall maintain as of the end coverage ratio of each fiscal quarter a ratio of Annualized EBITDA for trailing six (6) months to Total Annualized Debt Service on Indebtedness for the same period of at least 2.0 to 1.0. 5.14 Adjusted NOI ratio The Borrower shall maintain at all times as of the end of each fiscal quarter using a trailing six (6) months a ratio of Adjusted NOI from Unsecured Properties to Interest on Unsecured Debt of at least 2.25 to 1.00. 5.15 Payrate The Borrower shall maintain a Payrate of not less than fifteen percent (15%) during the period ending on the 1st day of July, 1997, and of not less than sixteen percent (16%) at all times thereafter. 5.16 Net worth The Borrower shall maintain at all times beginning on the Effective Date a consolidated Tangible Net Worth which is not less than Two Hundred Million Dollars ($200,000,000.00) plus seventy-five percent (75%) of net proceeds of new equity offerings. 5.17 Qualification as a MAAC shall at all times remain (a) Real Estate qualified under the Code as a real estate Investment Trust investment trust and (b) the general partner of Mid-America. 6 Negative Covenants of Borrowers Each Borrower covenants and agrees that, at all times from and after the Effective Date, unless Two-thirds of Lenders shall otherwise consent in writing, it will not, either directly or indirectly: 6.1 Indebtedness Incur, create, assume or permit to exist any indebtedness to any Person other than the Lenders, except as follows and subject to full compliance with the terms of this Agreement: * Obligations in place as of the Effective Date; * Purchase money debt of the Borrowers and their Affiliates and debt assumed in the acquisition of an Apartment Community or a business entity; * Intra-company debt of either Borrower or any Affiliate to a Borrower or an Affiliate; * Other property-specific, long-term (five (5) years or more) secured debt, including, without limitation, letters of credit issued in support of property-specific financing, which financing has or originally had a maturity of not less than five (5) years, in all instances with a loan to value ratio of not greater than seventy percent (70%), based on an appraisal approved by the Administrative Agent; * Construction debt for present or future payments of amounts not to exceed Thirty Million Dollars ($30,000,000.00) in the aggregate, and the applicable Development Project has been negatively pledged or mortgaged to secure such construction debt, subject to the Administrative Agent's refusal, at its option, to fund construction using terms and conditions the same or as similar to those approved by the Administrative Agent for the Apartment Community in Memphis, Tennessee known as "Lincoln on The Green"; * Unsecured debt in addition to the Loans only when MAAC achieves an investment grade rating of at least BBB- from S&P or Baa-3 from Moody's; * Trade payables in the ordinary course of business; * Obligations under leases of personal property; or * Contractual obligations incurred in the ordinary course of the apartment leasing business. 6.2 Guaranties Guarantee or otherwise in any way become or be responsible for the indebtedness or obligations of any other Person, by any means whatsoever, whether by agreement to purchase the indebtedness of any other Person or agreement for the furnishing of funds to any other Person through the purchase of goods, supplies or services (or by way of stock purchase, capital contribution, advance or loan) for the purpose of paying or discharging the indebtedness of any other Person, or otherwise, except for (a) the endorsement of negotiable instruments by either Borrower in the ordinary course of business for collection; (b) guaranties of renewals, replacements or extensions of indebtednesses, liabilities and obligations outstanding as of the date hereof, which are presently guaranteed by either of the Borrowers; provided, however, that the maximum amount of each such guaranty shall not exceed the lesser of (i) the amount guaranteed as of the date hereof, or (ii) the amount outstanding as of the date of such new guaranty; (c) guaranties of the Debt of Affiliates or Subsidiaries to the extent such Debt would be of a type permitted in Section 6.1 and provided that such Debt being guaranteed is considered Debt of the Borrowers for purposes of the financial covenants in Articles 5 and 6 of this Agreement, and (d) other guaranties which do not exceed, in the aggregate, at any one time outstanding, the principal sum of Two Million Dollars ($2,000,000.00). 6.3 Sale of Assets Sell, lease, transfer or dispose (other than in the normal course of business) of all or a substantial part of its assets. 6.4 Accounts Receivable FromPermit or allow the aggregate of accounts Related Persons receivable and other loans and indebtedness owed by Related Persons to the Borrowers to exceed the sum of Five Hundred Thousand Dollars ($500,000.00) in the aggregate as to both Borrowers. 6.5 Loans to Officers andPermit or allow loans to directors, Employees officers, partners, shareholders and employees of both Borrowers to exceed, in the aggregate, the sum of Five Hundred Thousand Dollars ($500,000.00). 6.6 Line of Credit FinancingIncur (a) additional debt which constitutes "line of credit" financing as contemplated by this Agreement, or (b) other interim financing for project acquisition or construction (excluding seller financing), except as permitted under Section 6.1. 6.7 Trademarks and TradeSell, transfer, convey, grant any Names security interest in, or otherwise encumber any existing or hereafter acquired trademarks, service marks or trade names owned by the Borrower. 6.8 Net Operating Loss Permit or allow a Net Operating Loss of more than One Million Dollars ($1,000,000.00) in any quarterly period or in any amount for any two (2) consecutive quarterly periods in any one (1) fiscal year. 6.9 Dividend Payout 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 MAAC (computed in accordance with GAAP), excluding gains (or losses) from debt restructuring or sales of property, plus depreciation of real property. Upon written pre-approval of the Administrative Agent, exceptions may be made where the Board of Directors of MAAC determines, in good faith, that a special dividend must be paid to avoid taxes due to excess gains from the sale of Property. 6.10 Other Financial Ratiosa) Permit Total Liabilities to exceed sixty-three percent (63%) of the Total Market Value of Assets during the period ending on the 1st day of July, 1997, or to exceed sixty percent (60%) thereof at any time thereafter, or to permit the aggregate amount of Secured Debt to exceed fifty percent (50%) of the Total Market Value of Assets. b) Permit Unsecured Debt to exceed sixty- five percent (65%) of the Total Market Value of Unencumbered Assets during the period ending on the 1st day of July, 1997, or to exceed sixty-two and one-half percent (62 1/2%) of the Total Market Value of Unencumbered Assets at any time thereafter. c) Permit Total Development and Joint Venture Investment to exceed ten percent (10%) of the Total Market Value of Assets. d) Fail to maintain as of the end of each fiscal quarter a ratio of Annualized EBITDA for trailing six (6) months to Total Annualized Fixed Charges for the same period of at least 1.7 to 1.0. 6.11 Control Permit any Person, or group of Persons, acting in concert for the purpose of influencing the affairs of MAAC to control more than twenty percent (20%) of the outstanding voting shares of MAAC. 6.12 Arizona (As to MAAC only) Sell, transfer or otherwise dispose of any shares of stock in Arizona, or permit any such shares of stock to be disposed of, sold, or otherwise transferred. 7 Default 7.1 Events of Default Each of the following events shall be a Default by the Borrowers: a) the Borrowers fail to pay * any principal of a Loan when due, * any interest on a Loan within five Business Days after the due date (except interest due and payable on the Termination Date which must be paid on the Termination Date), or * a fee or other amount payable under this Agreement within 10 Business Days after its due date; or b) a representation, warranty, certification or statement made by either Borrower in this Agreement or in a certificate, financial statement or other document delivered pursuant to this Agreement is materially incorrect when made (or deemed made); or c) either Borrower fails to observe or perform * a covenant applicable to it regarding use of Loan proceeds, notice of Defaults or maintenance of existence, merger, or sales of assets; or * a financial covenant applicable to it contained in Section 5 or Section 6; or d) either Borrower fails to observe or perform a covenant or agreement made by it in this Agreement (other than those referred to in Section 7.1(a) or 7.1(c) above) for 30 days after the Administrative Agent notifies the Borrower of such failure; or e) either Borrower defaults with respect to any other agreement to which either Borrower is a party or with respect to any other indebtedness when due or the performance of any other obligation incurred in connection with any indebtedness for borrowed money, if the Borrower's obligations or exposure exceeds $100,000, and if the effect of such default is to accelerate the maturity of such indebtedness, or if the effect of such default is to permit the holder thereof to cause such indebtedness to become due prior to its stated maturity; provided, however, if the amount in default is less than $750,000 and no other default exists under any other agreement described in this subparagraph, and the Borrower is diligently and in good faith contesting any default under this paragraph to the reasonable satisfaction of the Administrative Agent, it shall not be a Default hereunder; or f) either Borrower or Arizona * commences a voluntary case or other proceeding seeking liquidation, reorganization or other relief for itself or its debts under a bankruptcy, insolvency, receivership or similar law or seeking the appointment of a trustee, receiver, liquidator, custodian or similar official of it or a substantial part of its property, * consents to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, * makes a general assignment for the benefit of creditors, * fails generally to pay its debts as they become due, or * takes the appropriate action to authorize any of the foregoing; or g) an involuntary case or other proceeding is commenced against either Borrower or Arizona seeking liquidation, reorganization or other relief with respect to it or its debts under a bankruptcy, insolvency, receivership or other similar law or seeking the appointment of a trustee, receiver, liquidator, custodian or similar official of the Borrower or Arizona or a substantial part of its property, and such case or proceeding (i) results in an order for relief or such adjudication or appointment, or (ii) remains undismissed and unstayed for 60 days; or h) * a member of the Controlled Group fails to pay when due an aggregate amount in excess of $5,000,000 that it is liable to pay to the PBGC or to a Pension Plan under Title IV of ERISA, * a member of the Controlled Group and/or a plan administrator files a notice of intent under Title IV of ERISA to terminate a Pension Plan or Pension Plans having aggregate Unfunded Vested Liabilities in excess of $35,000,000 (collectively, a Material Pension Plan), * the PBGC institutes proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer a Material Pension Plan, * a fiduciary of a Material Pension Plan institutes a proceeding against a member of the Controlled Group to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding is not dismissed within 60 days thereafter, * a condition exists that entitles the PBGC to obtain a decree adjudicating that a Material Pension Plan must be terminated, or * either Borrower is notified by the plan administrator of a Pension Plan that the Pension Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, and solely as a result of such reorganization or termination the aggregate annual contributions of the Borrower to all Pension Plans that are then in reorganization or have been or are being terminated is increased over the amounts required to be contributed to such Pensions Plans for their most recently completed plan years by an amount exceeding $15,000,000; or i) a judgment or order against either Borrower or Arizona for the payment of more than $1,000,000 continues unsatisfied and unstayed for 60 days or a judgment creditor takes legal action to levy on such judgment; or j) either Borrower or Arizona shall have concealed, removed, or permitted to be concealed or removed, any part of its property, with intent to hinder, delay or defraud its creditors or any of them, or made or suffered a transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or shall have made any transfer of its property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid; or shall have suffered or permitted, while insolvent, any creditor to obtain a lien upon any of its property through legal proceedings or distraint which is not vacated within thirty (30) days from the date thereof; or k) except for a transfer from MAAC to MAAC of Delaware, Inc., a Delaware corporation which is a wholly-owned Subsidiary of MAAC, there shall occur, whether in a single transaction or successive transactions, a change or changes in the ownership of more than five percent (5%) of the partnership interests of Mid-America, or Mid- America shall grant or convey or permit to be granted or conveyed, voluntarily or involuntarily, directly or indirectly, any security interest in, pledge of or other lien or encumbrance upon any owner's partnership interests in Mid-America; or MAAC shall cease to be the sole general partner of Mid-America; or any single Person or related group of Persons shall control more than twenty percent (20%) of MAAC's voting shares. 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 l) any officer of MAAC who, in the reasonable judgment of the Administrative Agent, occupies a position of substantial and material management, responsibility ("Material Officer"), shall, by reason of death, permanent disability, or departure from the employ of MAAC, cease to be active in the management of MAAC, and MAAC does not, within a period of five (5) Business Days from such permanent disability, death or departure, deliver written notice of such event to the Administrative Agent and, within a period of thirty (30) days from such permanent disability, death or departure, secure a replacement for such officer, such replacement to be, by reason of his or her experience and credentials, reasonably satisfactory to and approved by the Administrative Agent. For the purposes of this Section (l), permanent disability means any disability that prevents such Material Officer from rendering, in any one calendar year, full-time services for a period of thirty (30) consecutive days, or in the aggregate, for forty-five (45) days, and (ii) at the present time, the Persons whom the Administrative Agent deems to be Material Officers are George E. Cates, Simon R.C. Wadsworth, and H. Eric Bolton, Jr. Further, the Administrative Agent shall have the right to review and approve the credentials of any individual proposed for the office of President or Executive Vice President of MAAC; or m) Except as expressly permitted in Section 3.4, or except with the consent of the Administrative Agent, which consent shall not be unreasonably withheld, Mid-America, Arizona or any other Person granting to the Administrative Agent a Negative Pledge or Mortgage shall sell, assign, transfer, convey, lease with an option to purchase, enter into a contract of sale, grant an option to purchase, or encumber all or any part of its interest in any Property or any portion thereof, or permit the same to be sold, assigned, transferred, conveyed, contracted for or encumbered; provided, further, however, that the encumbrance of any Property by any mechanic's lien claim shall not be deemed to constitute an Event of Default so long as a Borrower shall promptly notify the Administrative Agent of such mechanic's lien claim, and shall diligently and in good faith contest (or cause to be contested) the same by appropriate proceedings and shall establish such reserves with respect thereto as the Administrative Agent shall specify. n) MAAC fails to maintain its qualification as a real estate investment trust under the Code. 7.2 Action on Default During the continuance of a Default, the Administrative Agent shall, if requested by Two-thirds of the Lenders, notify the Borrowers that * the Borrowers' Rights are terminated, whereupon such Borrowing Rights shall terminate, or * all the Borrowers' Loans, with accrued interest, and all other amounts payable by the Borrowers under this Agreement, are immediately due and payable, whereupon all such Loans, accrued interest and other amounts payable under this Agreement shall be immediately due and payable by the Borrowers without presentment, demand, protest or other notice of any kind, all of which the Borrowers waive, provided that if the Default is one described in Section 7.1(f) or 7.1(g), then without notice to the Borrowers or other act by the Administrative Agent or Two-thirds of the Lenders, the Borrowers' Borrowing Rights shall immediately terminate, and the Loans, with accrued interest, and other amounts payable under this Agreement, shall become immediately due and payable by the Borrowers without presentment, demand, protest or other notice of any kind, all of which the Borrowers waive, and the Administrative Agent may exercise all rights and remedies available to it hereunder and under applicable law or in equity. 7.3 Notice of Default On the request of a Lender, the Administrative Agent shall promptly give the notice referred to in Section 7.1(d) and shall promptly notify all the Lenders that such notice has been given. 8 The Administrative Agent 8.1 Appointment and Each Lender irrevocably authorizes the authorization Administrative Agent to take such action as agent on the Lender's behalf and to exercise such powers as are given to the Administrative Agent under this Agreement, together with all powers reasonably incidental thereto. 8.2 Other conduct The Administrative Agent and its Affiliates * shall have the same rights and powers under this Agreement as any other Lender and may exercise or refrain from exercising such rights and powers as though it were not the Administrative Agent and * may accept deposits from, lend money to and generally engage in any kind of business with the Borrowers or their Affiliates as if it were not the Administrative Agent. 8.3 Scope of obligationsThe obligations of the Administrative Agent under this Agreement are only those expressly set forth herein. Without limiting the generality of the foregoing, the Administrative Agent shall not be required to take any action with respect to a Default except as expressly provided in Section 7. 8.4 Consultation with The Administrative Agent may consult with experts legal counsel, independent public accountants and other experts selected by the Administrative Agent and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. 8.5 Liability of Neither the Administrative Agent nor any Administrative Agentof its directors, officers, agents, or employees shall be * liable for any action it takes or does not take in connection with this Agreement (i) with the consent or at the request of Two-Thirds of the Lenders, unless the consent or request of all of the Lenders is expressly required by this Agreement, or (ii) in the absence of its own gross negligence or willful misconduct, or * responsible for or have a duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or a Borrowing, (ii) a Borrower's performance or observance of any covenant or agreement, (iii) the satisfaction of any condition in Section 3 (except for the receipt of items required to be delivered to the Administrative Agent), or (iv) the validity, effectiveness or genuineness of this Agreement or any other instrument or writing furnished in connection herewith. The Administrative Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement or other writing (which may be a bank wire, telex, telecopy or similar writing) it believes is genuine or signed by the proper parties. 8.6 Indemnification Each Lender shall, ratably in accordance with its Commitment, indemnify the Administrative Agent (to the extent not reimbursed by the Borrowers) against any cost, expense, claim, demand, action, loss or liability (except such as result from the Administrative Agent's gross negligence or willful misconduct) that the Administrative Agent may suffer or incur in connection with this Agreement or any action the Administrative Agent takes or omits hereunder. 8.7 Successor AdministrativeThe Administrative Agent may resign by Agent giving notice thereof to the Lenders and the Borrowers. So long as no Default exists, the Administrative Agent may be removed upon the request of the Borrowers. Upon such resignation or removal, the Borrowers may appoint a successor Administrative Agent with the consent of Two-Thirds of the Lenders. If the Borrowers are in Default, Two-Thirds of the Lenders may appoint a successor Administrative Agent. If the Administrative Agent resigns or is removed and no successor Administrative Agent is so appointed and accepts such appointment within 30 days after the resigning Administrative Agent's notice of resignation or its removal, then the resigning or removed Administrative Agent may, on behalf of the Lenders, shall appoint a successor Administrative Agent that is a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $100,000,000. Upon a successor Administrative Agent's written acceptance of its appointment as Administrative Agent, the successor Administrative Agent shall succeed to and become vested with all the rights and duties of the resigning or removed Administrative Agent, and the resigning or removed Administrative Agent shall be discharged from its duties and obligations as Administrative Agent. After the Administrative Agent's resignation or removal, the provisions of this Section 8 shall continue to inure to its benefit as to any action it took or omitted to take while it was Administrative Agent. 8.8 Fees The Borrowers shall pay the Administrative Agent for its account such fees for its services under this Agreement as the Borrowers and the Administrative Agent may agree. 9 Change in circumstances 9.1 Eurocurrency ReserveIf a Lender notifies the Administrative Requirements Agent and the Borrowers that the Lender is or will be generally subject to Eurocurrency Reserve Requirements as a result of which the Lender will incur additional costs on its Loans, then the Lender shall, to the extent such costs are actually incurred, for each day from the later of the date of such notice and the date on which the Lender becomes subject to the Eurocurrency Reserve Requirements, be entitled to additional interest on each Loan made by the Lender at a rate per annum (rounded upward to the nearest .01%) equal to the remainder obtained by subtracting (i) LIBOR for the Eurodollar Loan from (ii) the rate obtained by dividing such LIBOR by the excess of 100% over the Eurocurrency Reserve Requirements. Such additional interest shall be payable in arrears to the Administrative Agent, for the account of the Lender, on each date interest is payable on the Loan. A Lender that gives a notice under this Section 9.1 shall promptly withdraw such notice by notifying the Administrative Agent and the Borrowers if Eurocurrency Reserve Requirements cease to apply to it or the circumstances giving rise to such notice otherwise cease to exist. 9.2 Increased cost or If any Regulatory Action (other than the reduced return imposition of Eurocurrency Reserve Requirement) taken after the date hereof * imposes, modifies or deems applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of or credit extended by a Lender or its Office, * imposes on a Lender or its Office or the London interbank market any other condition affecting the Lender's Eurodollar Loans, or * imposes, modifies or deems applicable any standards of capital adequacy, and such Regulatory Action will, in the Lender's judgment, * increase the cost to the Lender or Office of making or maintaining any Eurodollar Loan, * reduce the amount receivable by the Lender or Office under this Agreement with respect to any such Eurodollar Loan, or * reduce the rate of return on the Lender's capital as a consequence of its obligations under this Agreement (taking into consideration the Lender's policies on capital adequacy) by an amount the Lender deems material, then the Lender shall promptly notify the Borrowers and the Administrative Agent thereof, enclosing (i) a certificate of an officer of the Lender describing the Regulatory Action leading to the increased costs or reduction with, if possible, a copy of the relevant law, regulation, interpretation or guideline and (ii) the Lender's calculation setting forth in reasonable detail the dollar amount of the increased costs or reduction. determination of In calculating any amount payable under amount this Section 9.2, a Lender may use reasonable averaging and attribution methods. A Lender's determination of the amount shall be conclusive in the absence of manifest error. payment of Subject to the following sentence, the compensation Borrowers shall pay a Lender within 30 days after receipt of a notice from the Lender under this Section 9.2 such amounts as will compensate the Lender for the increased costs or reduction. The Borrowers will not, however, be required to pay the Lender any amount set forth in the notice that relates to any period prior to the 30th day before the date the Lender gives the notice. Each Lender agrees that it shall notify the Borrowers immediately upon becoming aware of such increased costs. Base Rate election by If a Lender demands compensation under Borrower this Section 9.2 with respect to a Eurodollar Loan, then the Borrowers may, on at least five Business Days' prior notice to the Lender and the Administrative Agent, elect that, until the Lender or the Administrative Agent notifies the Borrowers that the circumstances giving rise to the demand for compensation no longer apply, all Loans to the Borrowers that would otherwise be made by the Lender as Eurodollar Loans, shall be made instead as Loans at the Base Rate (on which interest and principal shall be payable contemporaneously with the related Loans of the other Lenders). 9.3 LIBOR unavailable or If on or before the second Business Day inadequate before an Interest Period for a Borrowing * dollar deposits in the applicable amounts are not being offered to the Administrative Agent in the relevant market for the Interest Period, or suspension of * Two-Thirds of the Lenders advise the obligation to make Loans Administrative Agent that the LIBOR will not adequately and fairly reflect the cost to such Lenders of funding their Loans for the Interest Period, then the Administrative Agent shall promptly notify the Borrowers and the Lenders thereof, whereupon the obligations of the Lenders to make, or permit Conversion of Loans into, Eurodollar Loans shall be suspended, and any subsequent request by the Borrowers for a Eurodollar Loan or for Conversion into a Eurodollar Loan shall be deemed to be a request for, or for Conversion into, a Loan bearing interest at the Base Rate. suspension after If the Lenders' obligations to make Loans Borrowing Notice given is suspended pursuant to this Section 9.3 after the Borrowers give the Borrowing Notice for the Borrowing that includes such Loans, then unless the Borrowers notify the Administrative Agent at least one Business Day before the date of such Borrowing that the Borrowers elect not to borrow on such date, the Borrowing shall instead accrue interest at the Base Rate. 9.4 Illegal Loans If, after the date of this Agreement, any Regulatory Action makes it unlawful or impossible for a Lender or its Office to make, maintain or fund its Eurodollar Loans, and the Lender so notifies the Administrative Agent, then the Administrative Agent shall promptly notify the other Lenders and the Borrowers, whereupon the obligation of the Lender to make or permit Conversions into Eurodollar Loans shall be suspended. prepayment of illegal If a Lender determines that it may not Loans lawfully continue to maintain an outstanding Eurodollar Loan to the Borrowers to the end of the Eurodollar Loan's applicable Interest Period and so specifies in the notice it gives pursuant to this Section 9.4, the Administrative Agent shall so notify the Borrowers, and the Borrowers shall immediately prepay in full the unpaid principal amount of the Eurodollar Loan with accrued interest. As each such Loan is prepaid, the Lender shall make a Loan bearing interest at the Base Rate to the Borrower in an equal principal amount with interest and principal payable contemporaneously with the related Loans of the other Lenders. new Loans made as Base If the obligation of a Lender to make Rate Loans Eurodollar Loans is suspended pursuant to this Section 9.4, then until the Lender or the Administrative Agent notifies the Borrowers that the circumstances giving rise to the suspension no longer apply, all Loans that would otherwise be made by the Lender as Eurodollar Loans shall be made instead as Loans accruing interest at the Base Rate (on which interest and principal shall be payable contemporaneously with the related Loans of the other Lenders). 9.5 Termination of When the circumstances giving rise to a suspension suspension of the obligation to make Eurodollar Loans under Section 9.3 or Section 9.4 no longer exist, the Administrative Agent shall so notify the Borrowers and the Lenders, whereupon the suspension shall terminate. 9.6 Taxes on payments Each Lender shall deliver to each of the Borrowers and to the Administrative Agent delivery of Tax Forms * no more than 30 days after the date it becomes a Lender, either a statement that it is incorporated in the United States of America or, if it is not so incorporated, two duly completed copies of, as applicable, a United States Internal Revenue Service Form 1001 or Form 4224 (including a Form W- 9 or equivalent) promulgated under the Internal Revenue Code (each, as applicable to any Person and together with any successor form, a "Tax Form") indicating that the Lender is entitled to receive payments under this Agreement without deduction or withholding of United States federal income Taxes as permitted by the Internal Revenue Code, * such extensions or renewals of the Tax Form as applicable because of expiration of the Tax Form or as the Borrowers reasonably request (but only to the extent the Lender determines that it may properly effect such extensions or renewals under applicable Tax treaties, laws, regulations and directives), and * if a Loan is transferred to an Affiliate of the Lender, a new Tax Form for the Affiliate. The Borrowers and the Administrative Agent may each rely on a Tax Form in its possession until the earlier of the expiration date of the Tax Form or receipt of any revised or successor form pursuant to this Section 9.6. withholding Taxes If a Tax imposed by the United States of America, or any political subdivision or taxing authority thereof, subjects a Lender or its Office to any deduction or withholding on a payment (including fees) on its Loans to the Borrowers, the Lender shall promptly notify the Borrowers of the Tax, enclosing a copy of the relevant statute, regulation or interpretation requiring the deduction or withholding and setting forth in reasonable detail the Lender's calculation of the dollar amount of the Tax. Within 30 days after it receives the notice (or a longer period that complies with the law relating to the Tax without subjecting the Lender to additional payments with respect to the Tax), the Borrowers shall, as requested by the Lender in the notice, * increase the amount of the payment so that the Lender will receive a net amount (after deduction of the Tax) equal to the amount due hereunder, * pay the Tax to the appropriate taxing authority for the Lender's account, and * as promptly as possible, send the Lender evidence showing payment of the Tax, together with any additional documentary evidence the Lender reasonably requests. The Borrowers shall indemnify a Lender for any incremental Taxes, interest or penalties that may become payable as a result of the Borrowers' failure to comply with this Section 9.6. failure to furnish Tax not withstanding anything to the contrary Forms in this Section 9.6, the Borrowers shall not be required to make any payment to a Lender or taxing authority under this Section 9.6 as a result of any deduction or withholding or incremental Tax, interest or penalty * that is caused by the Lender's failure or inability to furnish the Borrowers with a Tax Form, or an extension or renewal thereof, pursuant to this Section 9.6 unless such failure or inability is the result of a change in an applicable law, regulation or Tax treaty or in the interpretation thereof by a regulatory authority that becomes effective after the date of this Agreement, or * for any period for which the Lender or its applicable Office has furnished a Tax Form to the Borrowers that incorrectly indicates that the Lender or its applicable Office is not subject to such deduction or withholding. 9.7 Change of Office A Lender shall designate a different Office for its Loans if such designation will avoid the need for giving a notice pursuant to Section 9.4 with respect to suspension of Loans, or reduce the amount of compensation under Section 9.2 (Increased cost or reduced return), or Section 9.6, (Taxes on payments), and will not, in the Lender's judgment, be disadvantageous to the Lender. 9.8 Replacement of Lender If * the obligation of a Lender to make Eurodollar Loans is suspended under Section 9.4 (Illegal Loans), * a Lender demands compensation or payment under Section 9.2 (Increased cost or reduced return), or Section 9.6 (Taxes on payments), or * a Lender's senior unsecured debt is rated lower than BBB- by S&P, then the Borrowers may, on five Business Days' notice to the Administrative Agent and the Lender, select a replacement bank or banks (which may be one or more of the other Lenders) to purchase the Lender's Loans and assume its Commitment. The purchase price for the Lender's Loans shall be the sum of the unpaid principal amount of the Loans, with accrued interest, the Lender's share of accrued Unused Fees and other amounts due to the Lender under this Agreement (including any amounts due under Section 1.20 (Funding losses) for each Loan so purchased on a date other than the last day of the Interest Period for the Loan). Upon the execution and delivery of an assignment and assumption agreement substantially in the form of Exhibit G by such Lender and each replacement bank (and, if the replacement bank is not a Lender, with the subscribed consent of the Borrowers and the Administrative Agent), each such replacement bank shall be deemed to be, a 'Lender' for all purposes of this Agreement, and the Administrative Agent shall notify the other Lenders accordingly. 10 Miscellaneous 10.1 Notices Except as otherwise stated, all notices, requests, consents and other communications to any party to this Agreement shall be in writing. For purposes of this Section 10.1 (writing) shall include writings in any form that provides the recipient, using the systems routinely used by the recipient for communication, with a permanent record and a human-readable text. All notices to a party shall be given at the addresses, telecopy number or other electronic addresses or by other methods set forth on Schedule 3 or at such other addresses, numbers or by such other reasonable methods as such party may specify for the purpose by notice to the Administrative Agent and the Borrowers (each a "Notice Address"). Each notice, request, consent or other communication given under this Agreement shall be effective when received at the number or address or by the method specified pursuant to this Section 10.1. Any requirement in this Agreement that a notice or other communication be 'prompt' or be given 'promptly' shall mean that such notice or other communication shall promptly be transmitted by telephone (if oral notice is permitted), bank wire, telex, telecopy, computer link or other means that normally provides nearly instantaneous transmission. 10.2 No waivers; remedies No failure or delay by the Administrative cumulative; integration; Agent or a Lender in exercising a right, survival power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in this Agreement shall be cumulative and not exclusive of other rights or remedies provided by law. This Agreement constitutes the entire agreement and understanding among the parties and supersedes all prior agreements and understandings, oral or written, relating to its subject matter. All covenants, agreements, representations and warranties of the Borrowers in this Agreement or in certificates or other documents delivered pursuant to this Agreement shall be considered to have been relied on by the Lenders and shall survive the making of any Loans, regardless of any investigation made by or on behalf of the Lenders, and shall continue in full force and effect as long as any obligation of the Borrowers under this Agreement is unpaid or the Borrowers' Borrowing Rights have not terminated. 10.3 Expenses; documentary The Borrowers shall pay, and shall be Taxes jointly and severally liable for, the reasonable Expenses of the Administrative Agent in connection with (i) its drafting and negotiation of this Agreement, any waiver or consent hereunder or any amendment hereof (all of which documents shall be prepared by counsel for the Administrative Agent) and (ii) the effectiveness of this Agreement under Section 3.1. If a Default by the Borrowers occurs, the Borrowers shall pay the reasonable Expenses incurred by the Administrative Agent in connection with such Default. In addition, if there is a Default by the Borrowers, the Borrowers shall pay the reasonable Expenses incurred by any Lender, including collection and other enforcement proceedings, resulting therefrom. The Borrowers shall, jointly and severally, indemnify the Administrative Agent and the Lenders against all transfer, documentary or similar Taxes payable by reason of the execution and delivery of this Agreement. 10.4 Indemnification Each Borrower shall indemnify the Administrative Agent and each Lender and shall hold the Administrative Agent and each Lender jointly and severally harmless from and against any and all liabilities, damages, costs and Expenses of any kind in connection with an actual or threatened investigative, administrative or judicial proceeding (whether or not the Administrative Agent or Lender is a party thereto) (collectively, "Claims") incurred by the Administrative Agent or Lender to the extent arising out of * a Borrower's breach of, or any Default under, this Agreement, * any claim by a Person not a party to this Agreement that either Borrower's, the Administrative Agent's or a Lender's conduct in connection with this Agreement is unlawful by a court of competent jurisdiction or has or will violate such Person's legal rights, but only to the extent that the Lender's or Administrative Agent's conduct is deemed unlawful or violative due to some action or inaction of the Borrowers or either of them, * an actual or proposed use of Loan proceeds by the Borrowers, or * an action initiated by either or both Borrowers against the Administrative Agent or a Lender relating to this Agreement, unless a court of competent jurisdiction enters a final non- appealable order in such action in favor of the Borrowers. Notwithstanding anything to the contrary in this Section 10.4, neither the Administrative Agent nor a Lender shall be indemnified for any Claim to the extent such Claim * is caused by the Administrative Agent's or Lender's gross negligence or willful misconduct, as determined in a final non-appealable order by a court of competent jurisdiction, or * results from a Lender's claims against other Lenders not attributable to a Borrower's actions and for which the Borrowers otherwise have no liability. 10.5 Sharing of set-offs If a Lender exercises a right of set-off or counterclaim or otherwise receives payment of a portion of the aggregate amount of principal and interest due on its Loans to the Borrowers, and such payment is greater than the proportion received by any other Lender of the aggregate amount of principal and interest due on such other Lender's Loans to the Borrowers, the Lender receiving the proportionately greater payment shall purchase participations in the Loans made to the Borrowers by the other Lenders, and other adjustments shall be made as required so that all payments of principal and interest on the Loans to the Borrowers shall be shared by the Lenders pro-rata, provided that this Section 10.5 shall not impair a Lender's right to exercise, to the extent permitted by applicable law, a right of set-off or counterclaim and to apply the amount subject to such exercise to the payment of indebtedness of the Borrowers other than indebtedness on Loans. A Participant in a Loan, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set- off or counterclaim and other rights with respect to its participation as fully as if the Participant were a direct creditor of the Borrowers in the amount of such participation. 10.6 Amendments and An amendment to or waiver of a provision waivers of this Agreement must be in writing and signed by the Borrowers and Two-Thirds of the Lenders (and, if the rights or duties of the Administrative Agent are affected thereby, by the Administrative Agent), provided that each affected Lender must sign an amendment or waiver that (a) increases or decreases the Commitment of such Lender or subjects such Lender to additional obligations, except as contemplated in Section 9.8 (Replacement of Lender), (b) reduces the principal of or rate of interest on any Loan or any fees hereunder, (c) postpones the Maturity Date or other date fixed for payment of principal or interest on a Loan or of any fees hereunder or for the termination of the Borrowers' Borrowing Rights, (d) changes the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans, or the Borrowing Base, or the number of Lenders required for the Lenders to take any action under this Agreement, (e) amends Section 1.21 (Pro-rata treatment), or (f) amends this Section 10.6. 10.7 Successors and assignsThe provisions of this Agreement shall be binding upon and inure to the benefit of the parties and their respective (a) generally successors and assigns, except that neither Borrower may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement. (b) participations A Lender may grant a bank or other institution (a "Participant") a participating interest in its Commitment or some or all of its Loans. If a Lender grants a participating interest to a Participant, the Lender shall remain responsible for the performance of its obligations under this Agreement, and the Borrowers and the Administrative Agent shall continue to deal solely with the Lender in connection with this Agreement, regardless of whether the Lender has notified the Borrowers and the Administrative Agent of the grant. An agreement granting such a participating interest shall provide that the Lender shall retain the sole right and responsibility to enforce the obligations of the Borrowers under this Agreement, including the right to approve any amendment, modification or waiver of any provision of this Agreement. Subject to Section 10.7(e) (funding losses and changed circumstances), a Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Section 9 (Change in circumstances), with respect to its participating interest. An assignment or other transfer that is not permitted by Section 10.7(c) (assignments), or 10.7(d) (assignment to Federal Reserve Bank), shall be given effect only to the extent that it is a participating interest granted in accordance with this Section 10.7(b). (c) assignments A Lender may assign to one or more banks or other institutions (each an "Assignee") all or a proportionate part of its rights and obligations under this Agreement, and each Assignee shall assume such rights and obligations, pursuant to an assignment and assumption agreement in substantially the form of Exhibit G. The assignment and assumption agreement shall be signed by the Assignee and the transferor Lender, with (and subject to) the subscribed acknowledgment and consent of the Administrative Agent and the subscribed consent, which shall not be unreasonably withheld, of the Borrowers, provided that such consents shall not be required if the Assignee is a Lender or a Federal Reserve Bank. Upon the later of (i) the effective date stated in the assignment and assumption agreement (which shall not be earlier than the fifth Business Day after execution of such agreement) or (ii) payment by the Assignee to the transferor Lender of the purchase price agreed between them, and payment by the transferor Lender or the Assignee to the Administrative Agent of a registration and processing fee of $2,500, * the Assignee shall be a Lender party to this Agreement and shall have all the rights and obligations of a Lender with the Commitment set forth in the assignment and assumption agreement, * the transferor Lender shall be released from its obligations under this Agreement to a corresponding extent so long as the Assignee at the time of transfer has a net worth at least equal to the net worth of the transferor Lender, and * no further consent or action by any party shall be required. (d)assignment to A Lender may assign all or a Federal Reserve Bank proportionate part of its rights under this Agreement to a Federal Reserve Bank, and the Borrowers, if requested by the Lender, shall issue a promissory note to be pledged to the Federal Reserve Bank evidencing the Borrowers' obligations on the Lender's Loans to the Borrowers. Such assignment shall not release the transferor Lender from its obligations under this Agreement. (e) funding losses No Assignee, Participant or other and changed transferee of any Lender's rights may circumstances receive any greater payment under Section 1.20 (Funding losses), and Section 9.2 (Increased cost and reduced return), than the transferor Lender would have received with respect to the rights transferred, unless such transfer was made with the Borrowers' prior consent. (f) registration of The Administrative Agent shall maintain assignments at one of its offices in Birmingham, Alabama, a copy of each assignment and assumption agreement delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender (the "Register"). The entries in the Register shall be conclusive in the absence of manifest error, and the Borrowers, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender for all purposes of this Agreement. The Register shall be available for inspection by the Borrowers or Lender at any reasonable time upon reasonable notice. If an Assignee is not already a Lender, it shall deliver to the Administrative Agent a completed administrative questionnaire in the form required by the Administrative Agent. Upon its receipt of (i) an assignment and assumption agreement executed by an assigning Lender and an Assignee (and, if required, by the Borrowers), (ii) the completed administrative questionnaire (unless the Assignee is already a Lender) and (iii) the registration and processing fee referred to in Section 10.7(c), the Administrative Agent shall record the information contained in the assignment and assumption agreement in the Register and give prompt notice thereof to the Lenders. 10.8 Borrowers' liability The parties acknowledge that the rights and obligations (including the representations, warranties, agreements, breaches, liabilities, indemnities and Defaults) of the Borrowers under this Agreement are joint and several and that the liability of the Borrowers is joint and several. 10.9 No reliance on MarginEach Lender represents to the Stock collateral Administrative Agent and the other Lenders that it is not relying upon any Margin Stock as collateral in the extension or maintenance of the credit provided for in this Agreement. 10.10 Credit decision Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it deems appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. 10.11 Alabama law This Agreement shall be governed by and construed in accordance with the laws of the State of Alabama. 10.12 Waiver of jury trialThe Borrowers, the Lenders and the Administrative Agent hereby irrevocably and unconditionally waive trial by jury in any legal action or proceeding relating to this Agreement and for any counterclaim therein. 10.13 Venue of ActionsAs an integral part of the consideration for making of the Loans, it is expressly understood and agreed that no suit or action shall be commenced by either Borrower, or by any successor, personal representative or assignee thereof, with respect to the Loans contemplated hereby, or with respect to this Agreement or any other document or instrument which now or hereafter evidences or secures all or any part of the Loans, other than in a state court of competent jurisdiction in and for the County of the State in which the principal place of business of the Administrative Agent is situated, or in the United States District Court for the District in which the principal place of business of the Administrative Agent is situated, and not elsewhere. Nothing in this paragraph contained shall prohibit the Administrative Agent from instituting suit in any court of competent jurisdiction for the enforcement of its rights hereunder or in any other document or instrument which evidences or secures the loan indebtedness. 10.14 Execution This Agreement may be executed in counterparts. Delivery of an executed counterpart signature page to this Agreement, including delivery by telecopier, shall be effective as delivery of a manually executed counterpart of this Agreement. 10.15 Survival Section 9 (Change in circumstances), Section 10.3 (Expenses), and Section 10.4 (Indemnification) shall survive termination of this Agreement or the Borrowers' Borrowing Rights. 11 Definitions and usages 11.1 Definitions In this Agreement, the following terms shall have the following meanings: Account Balance Agreements shall mean, collectively, the documents between the Borrowers and the Administrative Agent that govern certain cash management services to be made available by the Administrative Agent to the Borrowers, including making Advances under the Loans to cover overdrafts in the Designated Account, and using any excess funds on deposit in the Designated Account to make payments on the outstanding Advances under the Loans, all from time to time as more particularly set forth in the various Account Balance Agreements. Adjusted NOI shall mean, as to any Property, for any period, the actual Net Operating Income of such Property for such period; provided that (i) all annual expenses, including, but not limited to, taxes and insurance, shall be accounted for on an accrual basis; and (ii) expenses shall include an assumed management fee of five percent (5%) and capital expenses of Two Hundred Dollars ($200.00) per rental unit on average per year. Administrative Agent shall mean AmSouth Bank of Alabama, or its successors or assigns. Advances or Loan Advances shall mean advances of principal upon the Loans by the Lenders to either or both of the Borrowers under the terms of this Agreement, specifically including, without limitation, advances under the Swing Line Facility, the Notes and draws under the Letters of Credit. Affiliate of a specified Person means another Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the specified Person. In the foregoing definition, control of a Person means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Aggregate Commitment means the sum of the Commitments of the Lenders at any time available to the Borrower under the Loans. America First shall mean America First Florida REIT, Inc., a Delaware corporation, a wholly-owned Subsidiary of MAAC. Annualized Adjusted NOI shall mean, for the most recent two calendar quarters, the Adjusted NOI for such calendar quarters, multiplied by the integer two (2). Annualized EBITDA shall mean EBITDA for the most recent two calendar quarters, multiplied by the integer two (2). Apartment Community shall mean an apartment community owned by either Borrower or Arizona, whether or not it is subject to a Negative Pledge or Mortgage. Arizona shall mean America First Arizona REIT, Inc., an Arizona corporation, which is a wholly-owned Subsidiary of Mid- America. Assignee shall have the meaning assigned to such term in Section 10.7(c). Base Rate for a day means a rate per annum equal to the higher of (a) the Prime Rate or (b) the sum of the Federal Funds Rate for the day plus 1.00%. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Rate, respectively. Borrowers mean MAAC and Mid-America, jointly, and, individually, a "Borrower". Borrowing shall have the meaning assigned to that term in Section 1.2. Borrowing Base is the limitation on the amount of the Loan which may be outstanding at any time and from time to time during the term of this Agreement. The Borrowing Base shall equal (a) sixty- five percent (65%) of the fair market value of the Properties which at the time of determination are subject to the Negative Pledges or the Mortgages plus (b) the lesser of (i) $15,000,000 of construction costs approved by the Administrative Agent for a Development Project or (ii) fifty percent (50%) of such approved costs; provided, however, the amount available under (b) above shall in no event exceed thirty percent (30%) of the sum of (a) plus (b). The Properties existing as of the date hereof, the present fair market value of each thereof and the resulting Borrowing Base, are all as set forth in Schedule 2, attached hereto, and made a part hereof by reference. No other Apartment Community shall be deemed to constitute a Property until such time as the Administrative Agent shall have received and approved, inter alia, Level I Environmental Surveys together with such other information (including asbestos surveys) as may be recommended, by such Level I Environmental Surveys, and current information regarding the Adjusted NOI of such Property, and a Negative Pledge Agreement or Mortgage, as selected by the Borrowers (and related documentation as may be required by the Administrative Agent), all in form, content and conclusion satisfactory to the Administrative Agent. The fair market value of Properties shall be determined quarterly, on a "Net Operating Income" basis, not later than the twenty- second (22nd) day of each calendar quarter, but as of the last day of the immediately preceding calendar quarter, from the Effective Date until the Termination Date of the Loans, by multiplying the prior calendar quarter's Annualized Adjusted NOI of such Properties by the integer ten (10). MAAC shall have the right, at its option, to determine fair market value by appraisal, provided that (i) valuations shall not be mixed between appraisal and Net Operating Income, (ii) all appraisals must be current within eighteen (18) months, and (iii) all appraisals must meet Federal Institutions Reform, Recovery and Enforcement Act guidelines and be approved by the Administrative Agent and all Lenders. Notwithstanding anything to the contrary contained herein, if a Property has been injured or damaged by fire or other casualty to the extent that twenty-five percent (25%) of the apartment units included in such Property has been rendered uninhabitable, the Borrowing Base shall be immediately reduced, and the Loans repaid by the corresponding amount, in an amount equal to 65% of the fair market value of such Property (as determined in this definition) immediately prior to such damage or injury; provided, however, that if the damaged Property is insured in an amount sufficient to rebuild or restore such damage and if rental insurance is payable for the repair and reconstruction period, no reduction in the Borrowing Base will result hereunder. Borrowing Base Certificate shall mean a certificate substantially in the form of Exhibit F, duly executed by the Certifying Officer, setting forth in reasonable detail the calculations for each component of the Borrowing Base. Borrowing Notice shall have the meaning assigned to that such term in Section 2.1. Borrowing Rights of the Borrowers means the rights of the Borrowers under this Agreement to require the Lenders to make Loans. Business Day means a day other than a Saturday, Sunday or other day on which commercial banks in Birmingham, Alabama and New York, New York are authorized or required by law to close. Certifying Officer shall mean MAAC's chief financial officer. Claims shall have the meaning assigned to that term in Section 10.4. Code shall mean the Internal Revenue Code of 1986, as amended, or any successor Federal tax code. Commitment shall mean the portion of the Loans to be made available by a Lender. Controlled Group means, for a Borrower, all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control that, together with the Borrower, are treated as a single employer under Section 414 of the Internal Revenue Code. Conversion means shall have the meaning assigned to that term in Section 2.4. Conversion Date shall mean the date on which a Conversion occurs. Conversion Notice shall have the meaning assigned to that term in Section 2.4. Debt of a Person at a date means, without duplication, * all obligations of the Person for borrowed money, including all obligations of the Person evidenced by bonds, debentures, notes or other similar instruments, * all obligations of the Person to pay the deferred purchase price of property or services, except trade accounts payable and deferred compensation arising in the ordinary course of business, * all obligations of the Person as lessee under capital leases, * all Debt of others secured by a Lien on assets of the Person, whether or not the Debt is assumed by the Person, * all Debt of others Guaranteed by the Person, * all letters of credit (excluding letters of credit enhancements for other loans), banker's acceptances, swap transactions and similar hedge agreements, and * all Debt of any partnership for which such Person is a general partner. Default means a condition or event that constitutes an event of default hereunder or that with the giving of notice or lapse of time or both would, unless cured or waived, become a Default, as more specifically set forth in Section 7. Designated Account shall mean the demand deposit account of Mid-America with the Administrative Agent, designated for the cash management services contemplated by the Account Balance Agreements. Development Project is a real property which is being developed into, or upon which improvements are being constructed to enable it to become, an Eligible Property. EBITDA shall mean, on a consolidated basis, earnings before interest, taxes, depreciation and amortization, calculated in accordance with GAAP, consistently applied. Eligible Property shall mean an Apartment Community which has met (or which, upon completion of construction and development in accordance with plans and specifications approved by the Administrative Agent, will have met) all of the requirements of the Administrative Agent for approval as a Property. No Apartment Community shall be deemed to constitute an Eligible Property unless (a) a certificate of occupancy (or its equivalent) has been issued for the entire Apartment Community, or the Borrowers shall furnish satisfactory proof to the effect that the improvements for the entire Apartment Community have been completed and that the local government having jurisdiction does not issue a certificate of occupancy (or its equivalent) upon completion of construction; and (b) the Apartment Community has achieved an occupancy rate of at least eighty percent (80%) for at least two (2) consecutive months. Environmental Laws means all applicable local, state or federal laws, rules or regulations pertaining to environmental regulation, contamination or cleanup, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976 or any state lien or superlien or environmental cleanup statutes. ERISA means the Employee Retirement Income Security Act of 1974. Eurocurrency Reserve Requirements for any day means the aggregate of the maximum reserve percentage (including any marginal, special, emergency or supplemental reserves) established by the Federal Reserve Board and any other banking authority to which a Lender is subject and applicable to 'eurocurrency liabilities', as such term is defined in Regulation D of the Federal Reserve Board, or any similar category of assets of liabilities relating to eurocurrency fundings. Eurocurrency Reserve Requirements shall be adjusted automatically on and as of the effective date of any change in such reserve percentage. Eurodollar Borrowing means a Borrowing bearing interest at the Eurodollar Rate. Eurodollar Loan means a Loan bearing interest at the Eurodollar Rate. Eurodollar Rate shall mean the LIBOR Rate, plus the Margin. Expenses of a Person means the Person's reasonable out of pocket expenses (including reasonable fees and expenses of the Person's outside counsel) and reasonably allocable expenses of counsel who are employees of the Person. Federal Funds Rate for a day means the rate per annum (rounded upwards, if necessary, to the nearest 0.01%) equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on the day, as published by the Federal Reserve Bank of New York on the Business Day following that day, provided that: * if the day is not a Business Day, the Federal Funds Rate for the day shall be the rate on such transactions on the preceding Business Day as so published on the following Business Day, and * if no such rate is so published on the following Business Day, the Federal Funds Rate for the day shall be the average rate on such transaction quoted to the Administrative Agent on the day by three federal funds brokers of recognized standing selected by the Administrative Agent. Federal Reserve Board means the Board of Governors of the Federal Reserve System. First Tennessee shall mean First Tennessee Bank National Association, a national banking association having its principal place of business in Memphis, Tennessee. FTB Letter of Credit shall have the meaning assigned to that term in Section 1.8. Funds from Operations has the meaning assigned in Section 6.9. GAAP means generally accepted accounting principles in the United States of America in effect from time to time, consistently applied. Hazardous Substances shall mean and include all hazardous and toxic substances, wastes or materials, any pollutants or contaminants (including, without limitation, asbestos and raw materials which include hazardous constituents), or any other similar substances or materials which are included under or regulated by any applicable Environmental Laws. Interest Period shall have the meaning assigned to that term in Section 1.14. Lenders shall have the meaning assigned to such term in the introductory paragraph of this Agreement. Letter(s) of Credit shall have the meaning assigned to that term in Section 1.8. Letter of Credit Facility shall mean the portion of the Aggregate Commitment that may be utilized for the issuance of Letters of Credit. LIBOR for an Interest Period means * the interest rate per annum for deposits in U.S. dollars for a maturity most nearly comparable to the Interest Period that appears on page 3750 (or a successor page) of the Dow Jones Telerate Screen as of 11 a.m., London time, on the second Business Day before the first day of the Interest Period, or * if such rate does not so appear on the Dow Jones Telerate Screen, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the rate at which U.S. dollar deposits approximately equal in principal amount to the Administrative Agent's portion of such Borrowing and for a maturity comparable to the Interest Period, are offered to the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11 a.m., London time, on the second Business Day before the first day of the Interest Period. Lien means, for an asset, a mortgage, lien (including without limitation statutory liens), pledge, charge, security interest or encumbrance of any kind in respect of the asset, including the interest of a vendor or lessor under a conditional sales agreement, capital lease or other title retention agreement, or any preferential arrangement of any kind. Loan Documents shall mean this Agreement, the Notes, the Negative Pledges, the Mortgages, any other instrument or document at any time evidencing or securing the Loans, and any other instrument or document executed by the Borrowers or Arizona with or in favor of the Administrative Agent or the Lenders in connection with the Loans. Loans shall have the meaning assigned to such term in Section 1.1, and, individually, a Loan. MAAC shall have the meaning given to such term in the introductory paragraph of this Agreement. Management Fees means, with respect to each Apartment Community for any period, an amount equal to five percent (5%) of the aggregate rent due and payable for such period under leases with tenants at such Apartment Community. Market Value of Unencumbered Assets shall mean Annualized Adjusted NOI of Unencumbered Assets multiplied by the integer ten (10). Margin means 175 basis points. Margin Stock means 'margin stock' as defined in Regulation U of the Federal Reserve Board. Material Officer shall have the meaning assigned to such term in Section 7.1(l). Maturity Date means October 1, 1998. Mid-America shall have the meaning assigned to such term in the introductory paragraph of this Agreement. Moody's shall mean Moody's Investors Service, Inc. Mortgage shall mean any deed of trust, mortgage, deed to secure debt, or other similar lien instrument, executed by the Borrowers or Arizona for the purpose of securing the Loans, and constituting a valid first lien upon or security title in an Apartment Community. Mortgaged Property shall mean the Eligible Properties subject to the lien of a Mortgage. Negative Pledges shall mean each and all of those agreements now or at any time hereafter executed by either Borrower as a condition to or otherwise in connection with the Loans, pursuant to which such Borrower, as the owner of an Eligible Property, shall agree that it will not voluntarily sell, assign, transfer or convey such Eligible Property, nor place or permit the existence of any Lien upon such Eligible Property, in each instance without the prior written consent of Two- thirds of the Lenders. All such Negative Pledges shall be in recordable form and shall contain such terms and provisions as the Administrative Agent shall require; and such term shall include all renewals, modifications, restatements,and amendments thereof, in whole or in part. Negatively Pledged Property shall mean the Eligible Properties subject to a Negative Pledge. Net Operating Income or NOI means, with respect to any Apartment Community for the most recent two calendar quarters, "actual property rental and other income" (as determined by GAAP) attributable to such Apartment Community accruing for such period, minus the amount of all expenses (as determined in accordance with GAAP) incurred in connection with and directly attributable to the ownership and operations of such Apartment Community for such period, including, without limitation, Management Fees and amounts accrued for the payment of real estate taxes and insurance premiums, but excluding interest expense or other debt service charges and any non- cash charges such as depreciation or amortization of financing costs. In calculating NOI attributable to any Apartment Community first acquired or opened by either Borrower during a quarter, "actual property rental and other income" and expenses shall be adjusted for the purposes of this definition to reflect the full amount of "actual property rental and other income" and expenses that would have been attributable to such Apartment Community if it had been owned or opened for the full quarter. Net Operating Loss for any period shall mean the amount by which expenses exceed income, all determined in accordance with GAAP. Net Worth or Tangible Net Worth means the sum of consolidated shareholders' equity and minority interests in MAAC, determined in accordance with GAAP, reduced by the amount of any intangible assets of MAAC, determined in accordance with GAAP. Notes shall have the meaning assigned to such term in Section 1.4. Notice Addresses shall have the meaning assigned in Section 10.1. Office of a Lender means the Lender's office designated as its office and located at the address set forth on Schedule 3, or such other office as the Lender designates as its office by notice to the Borrowers and the Administrative Agent. Participant shall have the meaning assigned to such term in Section 10.7(b). Payrate shall mean, for any calendar quarter, the ratio of Annualized EBITDA to Total Liabilities. PBGC means the Pension Benefit Guaranty Corporation. Pension Plan at a time means an employee pension benefit plan that is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and is either (a) maintained by a member of the Controlled Group for employees of a member of the Controlled Group or (b) maintained pursuant to a collective bargaining agreement or other arrangement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions. Person means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. Prime Rate means the per annum rate of interest publicly announced by the Administrative Agent as its Prime Rate at its principal office in Birmingham, Alabama. Each change in the Prime Rate shall be effective on the date such change is publicly announced as effective. Property shall mean an Apartment Community, now owned or hereafter acquired by either Borrower or Arizona, which is now or at any time hereafter subject to a Negative Pledge or a Mortgage in connection with the Loans. Proportionate Share means the respective pro rata interests of the Lenders in the Aggregate Commitment and in the Loans. Register shall have the meaning assigned to such term in Section 10.7(f). Regulatory Action means the adoption of an applicable law, rule or regulation, or a change therein, or a change in the interpretation or administration thereof by a governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by a Lender (or its Office) with a request or directive (whether or not having the force of law) of the authority, central bank or comparable agency. Related Person shall mean any Person (i) which now or hereafter directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with either Borrower, or (ii) which now or hereafter beneficially owns or holds ten percent (10%) or more of the partnership interests of Mid-America, or ten percent (10%) or more of the capital stock of MAAC, or (iii) ten percent (10%) or more of the capital stock, partnership interest or other form of ownership interest of which is beneficially owned or held by either Borrower. For the purposes hereof, "control" shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting stock or interests, by contract or otherwise. Responsible Officer shall have the meaning ascribed to that term in Section 1.7 hereof. S&P means Standard & Poor's Corporation or a successor. Secured Debt shall mean any indebtedness of either Borrower which is secured, in whole or in part, by a lien upon or security interest in an Apartment Community, except that the Loans shall not be deemed to constitute a Secured Debt. Subsidiary of a Person means a corporation or other entity a majority of whose Voting Stock is directly or indirectly owned by the Person. Swing Line Facility shall have the meaning assigned to such term in Section 1.7. Swing Line Facility Note shall mean that certain promissory note executed by the Borrowers in the principal amount of $5,000,000, evidencing the Swing Line Facility. Tax includes any present or future tax, assessment or governmental charge or levy. Tax Form shall have the meaning assigned to that term in Section 9.6. Termination Date shall mean the earlier of (a) October 31, 1998, or (b) the date as of which the Borrowers shall have terminated the Lender's commitment under the provisions of Section 1.17 hereof, or (c) the Lenders have terminated this Agreement under the provisions of Section 7 hereof. Title Documents shall mean any and all real property title searches, real property title abstracts, title reports and other real property title information regarding any Properties, issued by a title insurance company or other source pre-approved by the Administrative Agent, as the Administrative Agent may reasonably require hereunder or as the Administrative Agent may otherwise request from time to time. Total Annualized Debt Service on Indebtedness shall mean for any period the aggregate amount of principal and interest payments due for such period upon liabilities for borrowed money, but excluding balloon payments. Total Annualized Fixed Charges shall mean for any period the aggregate amount of preferred stock distributions; principal; and interest due for such period upon liabilities for borrowed money, but excluding balloon payments. Total Development and Joint Venture Investment shall mean the aggregate from time to time of (i) a Borrower's expenditures with respect to any Apartment Community for land acquisition, development and construction costs until a certificate of occupancy is received for such entire Apartment Community (or, if no certificate of occupancy is available from the local governmental authority having jurisdiction until all construction of the entire Apartment Community has been completed), plus (ii) the amount of funds or other assets invested by a Borrower in any joint venture arrangement with any Person, whether or not a Related Person. Total Liabilities shall mean the aggregate amount of all liabilities of both Borrowers, from time to time outstanding, calculated on a consolidated basis, in accordance with GAAP, applied on a consistent basis. (For the purposes hereof, with respect to indebtednesses of any joint venture in which a Borrower is a party, such Borrower's pro rata share of the joint venture's liabilities shall be considered a liability of such Borrower, if such joint venture liability is non-recourse; but if such joint venture liability is a recourse obligation, the total amount of such joint venture liability shall be considered a liability of the Borrower.) Total Market Value of Assets shall mean, for any calendar quarter, the EBITDA for the most recent two (2) calendar quarters, multiplied by the integer two (2) (thereby converting the calendar quarter's EBITDA to an annualized amount), and then multiplying the result so obtained by the integer ten (10). Two-Thirds of the Lenders means Lenders having Commitments aggregating at least two-thirds of the Aggregate Commitment except that if the Borrowers' Borrowing Rights have terminated or for purposes of Section 7.2 (Action on Event of Default), Two-Thirds of the Lenders means Lenders having two-thirds of the aggregate unpaid principal amount of all Loans to the Borrowers. Unencumbered Assets shall mean assets which are not subject to any Lien securing an indebtedness or obligation owed to any Person, and, in addition, Mortgaged Properties. Unfunded Amount shall have the meaning assigned to such term in Section 2.3. Unfunded Vested Liabilities for a Pension Plan at a time means the amount (if any) by which (i) the present value of all vested nonforfeitable benefits under the Pension Plan exceeds (ii) the fair market value of all Pension Plan assets allocable to such benefits, all determined as of the then most recent valuation date for the Pension Plan, but only to the extent that such excess represents a potential liability of a member of the Controlled Group to the PBGC or the Pension Plan under Title IV of ERISA. Unsecured Debt shall mean the aggregate amount of all liabilities of both Borrowers not secured by a Lien upon or in either Borrower's assets; and such term shall include, for the purposes of this Agreement, the Loans. Unused Fees shall have the meaning assigned to that term in Section 1.11. Withdrawal Liability means liability to a multiemployer plan as a result of a complete or partial withdrawal from the multiemployer plan, as such terms are defined in Part I of Subtitle E of ERISA. 11.2 Accounting terms andUnless otherwise stated, all accounting determinations terms used in this Agreement shall be interpreted, all accounting determinations under this Agreement shall be made and all financial statements of a Borrower required to be delivered under this Agreement shall be prepared in accordance with GAAP. 11.3 Miscellaneous usagesIn this Agreement, unless otherwise stated or the context otherwise clearly requires, the following usages apply: time periods In computing periods from a specified date to a later specified date, the words 'from' and 'commencing on' (and the like) mean 'from and including,' and the words 'to,' 'until' and 'ending on'( and the like) mean 'to but excluding.' when action may be taken Any action permitted to be taken under this Agreement may be taken at any time and from time to time. Birmingham, Alabama All indications of time of day shall mean Central Standard Time in effect in Birmingham, Alabama. 'including'; 'or' 'Including' means 'including, but not limited to.' 'A or B' means 'A or B or both.' statutes and References to a statute include all regulations regulations promulgated under or implementing the statute, as in effect at the relevant time. agreements References to an agreement (including this Agreement) shall refer to the agreement as amended at the relevant time. governmental agencies References to any governmental or quasi- governmental agency or authority shall include any successor agency or authority. section references References to numbered sections in this Agreement shall refer to all included sections. For example, references to Section 6 shall also refer to Sections 6.1, 6.1(a), etc. other defined terms Other defined terms are contained within the body of this Agreement. List of Schedules Schedule 1 List of Lenders (1.3) Schedule 1.13 Fees Schedule 2 List of Existing Properties and Fair Market Value (3.1) Schedule 3 Notice Addresses (10.1) List of Exhibits Exhibit A Notes (1.4) Exhibit B Swingline Request (1.7) Exhibit C Borrowing Notice (2.1) Exhibit D Conversion Notice (2.4) Exhibit E Attorney Opinion (3.1) Exhibit F Borrowing Base Certificate (5.1) Exhibit G Assignment (9.8) MID-AMERICA APARTMENT COMMUNITIES, INC. By______________________________ Name__________________________ Title_________________________ By______________________________ Name__________________________ Title_________________________ MID-AMERICA APARTMENTS, L.P. By Mid-America Apartments Communities, Inc. Its Sole General Partner By______________________________ Name__________________________ Title_________________________ By______________________________ Name__________________________ Title_________________________ Signature page to Revolving Credit Agreement AMSOUTH BANK OF ALABAMA, in its individual capacity as Lender and as Administrative Agent By______________________________ Name__________________________ Title_________________________ Signature page to Revolving Credit Agreement HIBERNIA NATIONAL BANK By______________________________ Name__________________________ Title_________________________ Signature page to Revolving Credit Agreement SIGNET BANK By______________________________ Name__________________________ Title_________________________ Signature page to Revolving Credit Agreement FIRST TENNESSEE BANK, N.A. By______________________________ Name__________________________ Title_________________________ SCHEDULE 1 List of Lenders AmSouth Bank of Alabama Hibernia National Bank Signet Bank First Tennessee Bank, N.A. SCHEDULE 1.13 Fees TOTAL FEES $206,250.00 Administrative Agent $52,500.00 AmSouth Bank of Alabama, as Lender 37,500.00 Signet Bank 56,250.00 Hibernia National Bank 56,250.00 First Tennessee Bank, N.A. 3,750.00 EX-10.19 9 FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT This First Amendment to Revolving Credit Agreement is dated as of December 23, 1996, by and among Mid-America Apartment Communities, Inc. ("MAAC"), Mid-America Apartments, L.P. ("Mid- America"), AmSouth Bank of Alabama, as Administrative Agent (the "Administrative Agent"), and the financial institutions listed on Schedule 1 (the "Lenders"). Recitals A. MAAC, Mid-America, the Lenders and the Administrative Agent entered that certain Revolving Credit Agreement dated as of December 23, 1996 (the "Agreement"). Unless otherwise defined in this First Amendment, capitalized terms shall have the meaning assigned to them in the Agreement. B. The Borrowers and the Lenders desire to amend the definition of "Base Rate". Agreement NOW, THEREFORE, in consideration of the above Recitals, the Borrowers and the Lenders hereby amend the Agreement as follows: 1. Section 11.1, Definitions, is hereby amended by deleting in its entirety the definition of Base Rate where it appears on page 62 and replacing it with the following: Base Rate for a day means a rate per annum equal to the higher of (a) the Prime Rate minus .75% or (b) the sum of the Federal Funds Rate for the day plus 1.00%. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Rate, respectively. Except as expressly amended hereby, the Agreement shall remain in full force and effect in accordance with its terms. IN WITNESS WHEREOF, the Borrowers, the Lenders and the Administrative Agent have caused this First Amendment to be executed by their respective, duly authorized representatives as of the date first set forth above. MID-AMERICA APARTMENT COMMUNITIES, INC. By______________________________ Name__________________________ Title_________________________ By______________________________ Name__________________________ Title_________________________ MID-AMERICA APARTMENTS, L.P. By Mid-America Apartment Communities, Inc. Its Sole General Partner By_________________________ Name_____________________ Title____________________ By_________________________ Name_____________________ Title____________________ SIGNATURE PAGE TO FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT AMSOUTH BANK OF ALABAMA, in its individual capacity as Lender and as Administrative Agent By______________________________ Name__________________________ Title_________________________ SIGNATURE PAGE TO FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT HIBERNIA NATIONAL BANK By______________________________ Name__________________________ Title_________________________ SIGNATURE PAGE TO FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT SIGNET BANK By______________________________ Name__________________________ Title_________________________ SIGNATURE PAGE TO FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT FIRST TENNESSEE BANK, N.A. By______________________________ Name__________________________ Title_________________________ EX-23.1 10 Accountants' Consent The Board of Directors and Shareholders Mid-America Apartment Communities, Inc.: We consent to incorporation by reference in the registration statement (No. 33-91416) on Form S-8 and the registration statements (Nos. 33-95734, 33-96852 and 333-3274) on Form S-3 of Mid-America Apartment Communities, Inc. of our report dated February 14, 1997 to the consolidated balance sheets of Mid- America Apartment Communities, Inc. as of December 31, 1996 and 1995, 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, 1996 and our report dated February 14, 1997 to the financial statement schedule of Mid-America Apartment Communities, Inc., which reports are herein included in the 1996 Annual Report on Form 10-K of Mid- America Apartment Communities, Inc. Our reports refer to the Company's change in its accounting method to capitalize replacement purchases for major appliances and carpet in 1996. KPMG Peat Marwick LLP Memphis, Tennessee March 28, 1997 EX-27.1 11
5 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 9,591 0 0 0 0 9,273 641,893 49,558 611,199 15,338 315,239 0 20 109 241,384 611,199 110,090 111,882 42,570 42,570 21,443 0 26,427 17,473 0 14,260 0 0 0 14,260 1.21 0
-----END PRIVACY-ENHANCED MESSAGE-----