-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, mvu2lvNKxv6oO79vVowWBkfbupIGDxPNhRj+GmCjcPCHAngslM5jB4fDQaIFEBCX pa3PWmbL1ulZGGUuJ/yoyg== 0000950144-95-000401.txt : 19950515 0000950144-95-000401.hdr.sgml : 19950515 ACCESSION NUMBER: 0000950144-95-000401 CONFORMED SUBMISSION TYPE: 424B2 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950214 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERRY LAND & INVESTMENT CO INC CENTRAL INDEX KEY: 0000350071 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 580961876 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B2 SEC ACT: 1933 Act SEC FILE NUMBER: 033-57453 FILM NUMBER: 95510911 BUSINESS ADDRESS: STREET 1: 624 ELLIS ST CITY: AUGUSTA STATE: GA ZIP: 30901 BUSINESS PHONE: 7067226756 MAIL ADDRESS: STREET 1: PO BOX 1417 CITY: AUGUSTA STATE: GA ZIP: 30903 424B2 1 MERRYLAND PROSPECTUS SUPPLEMENT 1 Filed Pursuant to Rule 424(b)(2) Registration No. 33-57453 Subject To Completion PRELIMINARY PROSPECTUS SUPPLEMENT Dated February 14, 1995 (To Prospectus Dated February 10, 1995) 4,000,000 SHARES MERRYLAND & INVESTMENT COMPANY, INC. $ SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK LIQUIDATION PREFERENCE $25.00 PER SHARE ------------------ Dividends on the shares of Series C Cumulative Convertible Preferred Stock (the "Series C Preferred Stock") will be cumulative from April 1, 1995 and will be payable quarterly in arrears on the last day of March, June, September and December of each year in an amount per share equal to the greater of $ per annum or the cash dividends (determined on each of the quarterly dividend payment dates referred to above) on the number of shares of common stock, no par value (the "Common Stock"), or portion thereof, into which a share of Series C Preferred Stock is convertible. The first record date for determination of shareholders entitled to receive dividends on the Series C Preferred Stock is expected to be June 15, 1995. See "Description of Series C Preferred Stock -- Dividends." Shares of Series C Preferred Stock are convertible at any time at the option of the holders thereof into shares of Common Stock of the Company at a conversion price of $ per share of Common Stock (equivalent to a conversion rate of shares of Common Stock for each share of Series C Preferred Stock), subject to adjustment in certain circumstances. See "Description of Series C Preferred Stock -- Conversion Rights." On February 13, 1995, the last reported sale price of the Common Stock on the New York Stock Exchange (the "NYSE") was $20.63 per share. See "Market Prices of Stock and Dividends to Shareholders." The Series C Preferred Stock is not redeemable prior to March 31, 2000 and at no time will the Series C Preferred Stock be redeemable for cash. On and after March 31, 2000, the Series C Preferred Stock will be redeemable, in whole or in part, at the option of the Company, for such number of shares of Common Stock as are issuable at a conversion rate of shares of Common Stock for each share of Series C Preferred Stock, subject to adjustment in certain circumstances. The Company may exercise this option only if for 20 trading days within any period of 30 consecutive trading days, including the last trading day of such period, the closing price of the Common Stock on the NYSE equals or exceeds the conversion price per share, subject to adjustment in certain circumstances. The Series C Preferred Stock will not be entitled to the benefit of any sinking fund. See "Description of Series C Preferred Stock -- Redemption." The Company expects the shares of Series C Preferred Stock to be approved for listing on the NYSE under the symbol "MRYPrC." ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------ PRICE PROCEEDS TO UNDERWRITING DISCOUNTS TO PUBLIC AND COMMISSIONS COMPANY(1) ------------------------------------------------------------------------------------------------------------------------ Per Share.................................... $25.00 $ $ - ------------------------------------------------------------------------------------------------------------------------ Total(2)..................................... $100,000,000.00 $ $ - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------
(1) Before deducting expenses of the offering estimated at $250,000. (2) The Company has granted the Underwriters a 30-day option to purchase up to 600,000 additional shares of Series C Preferred Stock solely to cover over-allotments, if any. To the extent the option is exercised, the Underwriters will offer the additional shares of Series C Preferred Stock at the Price to Public shown above. If the option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to the Company will be $ , $ and $ , respectively. See "Underwriting." ------------------ THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. The shares of Series C Preferred Stock are offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by them, and subject to the right of the Underwriters to reject any order in whole or in part. It is expected that delivery of the shares of Series C Preferred Stock will be made at the offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about March , 1995. ALEX. BROWN & SONS INCORPORATED GOLDMAN, SACHS & CO. PAINEWEBBER INCORPORATED INTERSTATE/JOHNSON LANE CORPORATION THE DATE OF THIS PROSPECTUS SUPPLEMENT IS MARCH , 1995. 2 [MAP] [Map of the Southeast] IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 3 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus Supplement and the accompanying Prospectus or incorporated herein or therein by reference. Unless otherwise indicated, the information in this Prospectus Supplement does not give effect to the Underwriters' over-allotment option. THE COMPANY Merry Land & Investment Company, Inc. ("Merry Land" or the "Company") is one of the largest owners and operators of upscale garden apartments in the United States. At December 31, 1994, the Company owned a high quality portfolio of 71 apartment communities located primarily in the Southern United States, containing 18,851 units and having an aggregate cost of $796.4 million. At that date, the communities had an average occupancy of 96% and an average monthly rental rate of $591 per unit. Merry Land is a self-administered and self-managed real estate investment trust ("REIT") headquartered in Augusta, Georgia. Merry Land's objective is to increase funds from operations and distributions to shareholders using a two-part strategy: Increase cash flows at its existing apartment communities through effective management. The Company believes that it possesses a capable property management organization which has developed operating systems, financial controls and management procedures which help it to maintain high occupancy levels, increase rental rates, retain residents and control costs at its communities. The Company also believes that continued household growth in its market areas, combined with low levels of apartment construction, has produced a stronger rental market characterized by high occupancy and rising rental rates. For those 6,527 units which the Company owned for all of both 1994 and 1993, average occupancy rose 3%, rental revenues increased 8% and operating income increased 23%; Purchase and develop additional apartment properties. In recent years, Merry Land has conducted an active program of apartment acquisition. The Company buys properties which it expects will produce attractive initial rates of return and which have the potential for cash flow growth. The Company believes that its access to capital, its operating experience and its ability to quickly negotiate and close purchases give it a competitive advantage in making new acquisitions at favorable prices. The Company intends to continue to focus on the acquisition of apartments and also intends to develop communities in selected locations throughout the Southern region of the United States, including Texas. Reflecting the substantial growth of its portfolio, apartment revenues grew 86% from 1993 to 1994, while operating income grew 93%. In 1994, the 25 communities which the Company acquired in 1993 produced an aggregate return of 9.7% on cost. Return on cost is defined by the Company as rental income, less operating expenses, taxes and insurance, divided by average gross investment for the period. The Company has increased its quarterly dividend per share of Common Stock from $0.15 for the first quarter of 1992 to $0.35 for the last quarter of 1994. On January 16, 1995 the Board of Directors declared a dividend of $0.35 per share of Common Stock to be paid on March 31, 1995. The current annual dividend rate is $1.40 per common share. The $0.35 quarterly dividend represents a payout of 77% of funds from operations available for common shares for the quarter ended December 31, 1994, a payout ratio which the Company believes is conservative relative to its REIT peers. As of December 31, 1994, Peter S. Knox III, Chairman of the Board of Merry Land, beneficially owned 2,686,000 or 8.7% of the Company's Common Stock. At that date all directors and executive officers as a group, including Mr. Knox, beneficially owned 3,396,000 or 11.0% of the outstanding shares of Common Stock. S-3 4 THE OFFERING Securities Offered......... 4,000,000 shares of Series C Preferred Stock. Dividends.................. Cumulative commencing April 1, 1995 in an amount per share equal to the greater of $ per annum or the cash dividends (determined on each of the quarterly dividend payment dates referred to below) on the number of shares of the Common Stock, or portion thereof, into which a share of Series C Preferred Stock is convertible, payable quarterly in arrears on the last day of March, June, September and December of each year, commencing June 30, 1995. Conversion Rights.......... The Series C Preferred Stock is convertible, in whole or in part, at the option of the holder at any time, unless previously redeemed, into shares of Common Stock, at a conversion price of $ per share of Common Stock (equivalent to a conversion rate of shares of Common Stock per share of Series C Preferred Stock), subject to adjustment in certain circumstances (the "Conversion Price"). Liquidation Preference..... $25.00 per share, plus an amount equal to accrued and unpaid dividends. Redemption at Option of the Company.................. The Series C Preferred Stock is not redeemable prior to March 31, 2000 and at no time will the Series C Preferred Stock be redeemable for cash. On and after March 31, 2000, the Series C Preferred Stock will be redeemable by the Company, in whole or in part, at the option of the Company, for such number of shares of Common Stock as are issuable at a conversion rate of shares of Common Stock for each share of Series C Preferred Stock, subject to adjustment in certain circumstances. The Company may exercise this option only if for 20 trading days within any period of 30 consecutive trading days, including the last trading day of such period, the closing price of the Common Stock on the NYSE equals or exceeds the Conversion Price per share, subject to adjustment in certain circumstances. In order to exercise its redemption option, the Company must issue a press release announcing the redemption prior to the opening of business on the second trading day after the conditions described in the preceding sentences have been met. Voting Rights.............. If dividends on the Series C Preferred Stock or any Parity Stock (as defined below) are in arrears for six quarterly dividend periods, holders of the Series C Preferred Stock (voting as a single class with holders of shares of any series of Preferred Stock ranking on a parity with the Series C Preferred Stock with respect, in each case, to the payment of dividends and amounts upon liquidation, dissolution and winding up ("Parity Stock")) will have the right to elect two additional directors to serve on the Company's Board of Directors until such dividend arrearage is eliminated. In addition, certain changes that would be materially adverse to the rights of holders of the Series C Preferred Stock or Parity Stock cannot be made without the affirmative vote of two-thirds of the shares of Series C Preferred Stock and the shares of any Parity Stock similarly affected, voting as a single class, entitled to be cast thereon. Ranking.................... The Series C Preferred Stock will rank pari passu with the Company's Series A and Series B Preferred Stock and senior to the Common Stock with respect to the payment of dividends and amounts upon liquidation, dissolution or winding up. NYSE Listing............... The Company expects the shares of Series C Preferred Stock to be approved for listing on the NYSE under the symbol "MRYPrC". Use of Proceeds............ The net proceeds from the Offering will be used primarily to repay outstanding Company debt and to acquire and develop additional apartment properties. S-4 5 SUMMARY FINANCIAL DATA
YEARS ENDED DECEMBER 31, -------------------------------------------------------- PRO FORMA 1990 1991 1992 1993 1994 1994(1) ------ ------ ------- ------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE AND RATIO AMOUNTS) OPERATING DATA Operating income from properties................... $6,149 $6,360 $ 9,719 $24,504 $46,883 $56,751 Net income...................... 5,905 8,791 11,445 26,408 36,985 47,563 Preferred dividends............. -- -- -- 4,025 7,934 21,594 Net income available for common shares....................... 5,905 8,791 11,445 22,383 29,051 25,969 Net income per common share..... $ 0.62 $ 0.94 $ 1.07 $ 1.30 $ 1.10 $ 0.84 Weighted average common shares outstanding.................. 9,480 9,326 10,652 17,268 26,430 30,744 Weighted average fully diluted common shares................ 9,606 9,449 10,769 20,381 32,562 43,212 Dividends paid on common shares....................... $3,779 $4,116 $ 7,285 $16,934 $33,467 $33,467 Dividends paid per common share........................ $ 0.40 $ 0.44 $ 0.66 $ 0.90 $ 1.25 $ 1.25 Fixed charge coverage ratio..... 1.26x 1.69x 2.98x 5.58x 4.44x 6.04x Fixed charge and preferred stock dividend coverage ratio...... 1.26x 1.69x 2.98x 3.29x 2.56x 1.83x
DECEMBER 31, 1994 ----------------------- ACTUAL PRO FORMA(2) -------- ------------ BALANCE SHEET DATA Properties, at cost.......................................... $815,306 $815,306 Total assets................................................. 806,655 827,430 Debt......................................................... 212,810 137,835 Stockholders' equity......................................... 584,851 680,601
YEARS ENDED DECEMBER 31, ---------------------------------------------------- 1990 1991 1992 1993 1994 ------ ------- ------- ------- ------- (DOLLARS IN THOUSANDS, EXCEPT AVERAGE MONTHLY RENT) OTHER DATA Funds from operations(3).......... $6,316 $10,027 $12,853 $28,790 $54,588 Apartment units acquired.......... 592 986 2,845 7,452 4,872 Total apartment units owned at end of period...................... 2,722 3,708 6,527 13,979 18,851 Average occupancy(4).............. 95.6% 92.3% 91.0% 92.9% 95.2% Average monthly rent(5)........... $ 441 $ 456 $ 472 $ 551 $ 591
- --------------- (1) The pro forma data gives effect to the 1994 apartment acquisitions, the Common Stock and Series B Preferred Stock offerings completed during 1994, and the issuance of the Series C Preferred Stock discussed herein as if such transactions had occurred at the end of the prior period. (2) The pro forma data gives effect on December 31, 1994 to the issuance of 4,000,000 shares of Series C Preferred Stock. See "Use of Proceeds." (3) Funds from operations is defined as net income computed in accordance with generally accepted accounting principles, excluding nonrecurring costs and net realized gains, plus depreciation of real property. Funds from operations in 1990, 1991 and 1992 includes net income from mortgage backed securities, which was $3,002,000, $4,289,000 and $2,420,000 in 1990, 1991 and 1992, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Selected Financial Data." (4) Represents the average of physical occupancy at each month end for the period held. (5) Represents the weighted average monthly rent charged for occupied units and rent asked for unoccupied units at December month end. S-5 6 THE COMPANY Merry Land is one of the largest owners and operators of upscale garden apartments in the United States. At December 31, 1994, the Company owned a high quality portfolio of 71 apartment communities located primarily in the Southern United States, containing 18,851 units and having an aggregate cost of $796.4 million. At that date, the communities had an average occupancy of 96% and an average monthly rental rate of $591 per unit. Merry Land is a self-administered and self-managed real estate investment trust ("REIT") headquartered in Augusta, Georgia. Merry Land's objective is to increase funds from operations and distributions to shareholders by increasing cash flows at its existing apartment communities through effective management and also by purchasing and developing additional apartment properties. The following principles guide the Company's operations: - Operate the Company in the interest of its shareholders, not in the interest of advisors, related parties or management. - Control all costs associated with acquiring assets and operating its business, particularly overhead expenses, in order to deliver as much as possible of each dollar of revenue to its shareholders. - Specialize in the ownership and operation of one type of real estate -- apartments -- located in one part of the nation -- the South. - Maintain strong financial condition so that it can achieve a low cost of capital and take advantage of investment opportunities as they arise. - Hire, train and equip high quality employees, because the Company's business is one of people, as well as one of assets. - Operate its apartments in a manner that provides high quality service to its residents and apartment homes that are as pleasant, comfortable and appealing as possible. In recent years, Merry Land has conducted an active program of apartment acquisition. The Company buys properties which it expects will produce attractive initial rates of return and which have the potential for cash flow growth. The following table summarizes the Company's acquisitions in recent years (dollars in thousands):
1991 1992 1993 1994 -------- -------- -------- -------- Units acquired.................................. 986 2,845 7,452 4,872 Total units owned at end of period.............. 3,708 6,527(1) 13,979 18,851 Total cost of apartments........................ $121,072 $209,549 $554,444 $796,364 Total apartment rental income................... $ 15,354 $ 22,460 $ 54,565 $101,667
- --------------- (1) In 1992 the Company sold 26 of 140 duplex rental units at one of its properties. Substantially all of the Company's properties are relatively new, suburban garden apartments located in the Southern United States. The Company intends to continue to focus on the acquisition of apartments and also intends to develop communities in selected locations throughout the entire Southern region of the United States, including Texas. 1994 Apartment Acquisitions. In 1994, the Company bought 18 apartment communities containing 4,872 units at an aggregate cost of $226.2 million. Twelve of these communities containing 3,343 units were acquired in one portfolio transaction which was closed in November 1994, at a purchase price of $154.4 million. This transaction brought Merry Land ten communities S-6 7 located within its target market areas and two communities in Ohio. The following table summarizes the 1994 acquisitions.
COMMUNITY LOCATION UNITS - -------------------------------------------------------- ---------------------------- ----- Adams Farm.............................................. Greensboro, N.C. 300 Shadow Lake............................................. Atlanta, Ga. 228 Indigo Lakes............................................ Daytona Beach, Fla. 304 Waterford............................................... Delray Beach, Fla. 236 Promenade............................................... Tampa, Fla. 334 Bermuda Cove*........................................... Jacksonville, Fla. 350 Champions' Club*........................................ Richmond, Va. 212 Champions' Park*........................................ Atlanta, Ga. 252 Clarys Crossing*........................................ Columbia, Md. 198 Duraleigh Woods*........................................ Raleigh, N.C. 362 English Hills*.......................................... Charlotte, N.C. 280 Hickory Creek*.......................................... Richmond, Va. 294 Hunters Chase*.......................................... Cleveland, Oh. 244 Landings*............................................... Memphis, Tenn. 292 Sawmill Village*........................................ Columbus, Oh. 340 Steeplechase*........................................... Charlotte, N.C. 247 Windridge*.............................................. Atlanta, Ga. 272 Crystal Springs......................................... Nashville, Tenn. 127 ----- 4,872
- --------------- * Portfolio acquisition The apartment communities which the Company acquired in 1994 averaged seven years of age, 271 units in size and $46,774 per unit in cost at December 31, 1994. At that date, the Company's other apartment communities averaged seven years of age, 254 units in size and $40,670 per unit in cost. At December 31, 1994, rental rates at the 1994 acquisition communities averaged $629 per month compared to $578 for the Company's other communities. Development. In recent years, strong demand for apartment rentals in the South has caused rent rates and occupancy to rise to the extent that, in the Company's opinion, construction of new apartment communities has become financially feasible in certain locations. In order to take advantage of these conditions, the Company has commenced a program of apartment construction by engaging experienced apartment developers to provide development and construction management services to the Company on a project by project basis. The developers' fees will be computed as a share of the value of the completed projects, based on agreed upon formulas, less actual costs. Merry Land's employees will supervise development activities with the assistance of architects and engineers as required. The Company will own all land and improvements, will directly contract for construction and will bear essentially all risks of project development. While the Company intends to add several individuals to its acquisition and development department as a result of this program, it does not intend to establish a large, specialized development organization. The Company believes that this system of constructing new communities will allow it the flexibility to develop communities in a number of markets and to expand or contract such activities as conditions warrant. The Company's present intention is to limit its total financial commitment to development to no more than 10% of its total assets. Merry Land will manage these new communities during and after construction. In December 1994, the Company purchased three tracts of land on which it has begun to develop high quality garden apartment communities. The land acquired included tracts located in Atlanta, 43 acres for $3.7 million; Nashville, 67 acres for $3.5 million; and Savannah, 37 acres for $1.4 million. The Company expects to develop these three projects in a series of phases with construction scheduled to begin in the first half of 1995 and with the first units expected to be S-7 8 available for occupancy late that year. The initial phases of these projects are described as follows (dollars in thousands):
INITIAL PHASE ----------------- LOCATION UNITS COST(1) - -------------------------------------------------------------------------- ----- ------- Atlanta, Georgia.......................................................... 287 $17,200 Nashville, Tennessee(2)................................................... 244 13,300 Savannah, Georgia......................................................... 300 16,500 ----- ------- 831 $47,000
- --------------- (1) Represents current estimated total cost of the initial phase of each project, including capitalized interest, allocated land cost and development fees. Projects are in the planning stages and final costs may vary. (2) The Nashville parcel adjoins the 127 unit Crystal Springs apartments described above. USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of the Series C Preferred Stock are estimated at approximately $ million ($ million if the Underwriters' over-allotment option is exercised in full). The Company intends to use approximately $57.6 million to repay unsecured floating rate debt under its line of credit which has been incurred to acquire apartment properties. The interest on such indebtedness accrues at the rate of 0.65% above the thirty day London Interbank Offered Rate and the maturity date on such indebtedness is September 30, 1995. In addition, the Company intends to repay up to $17.4 million of indebtedness consisting of daily repurchase agreements bearing interest at rates adjusted daily. The Company intends to use the remaining net proceeds to acquire and develop additional apartment properties. Pending such uses, the Company intends to invest temporarily the excess proceeds in interest bearing securities. MARKET PRICES OF STOCK AND DIVIDENDS TO SHAREHOLDERS COMMON STOCK Merry Land's Common Stock is traded on the New York Stock Exchange under the symbol "MRY". The following table sets forth the reported high and low sales prices of the Common Stock on the NYSE, and the cash dividends declared per share of Common Stock.
DIVIDENDS HIGH LOW DECLARED ------ ------ --------- 1993 First Quarter.................................................... $17.75 $14.50 $ .20 Second Quarter................................................... 18.00 14.63 .22 Third Quarter.................................................... 21.63 16.38 .22 Fourth Quarter................................................... 22.13 17.50 .26 1994 First Quarter.................................................... 24.38 18.75 .30 Second Quarter................................................... 24.00 20.00 .30 Third Quarter.................................................... 20.75 18.75 .30 Fourth Quarter................................................... 21.88 16.25 .35 1995 First Quarter (through February 13, 1995)........................ $21.88 $19.75 $ .35
On December 31, 1994, the Company had 3,115 shareholders of record. On January 16, 1995, the Board of Directors declared a dividend of $0.35 per share of Common Stock to be paid on March 31, 1995 to holders of record on March 16, 1995. The current annual dividend rate is $1.40 per share. The $0.35 quarterly dividend represents a payout of 77% of funds from operations available for common shares for the quarter ended December 31, 1994, a payout S-8 9 ratio which the Company believes is conservative relative to its REIT peers. Future dividends will be declared at the discretion of the Board of Directors after considering the Company's distributable funds, financial requirements, tax considerations and other factors. Under the REIT rules of the Internal Revenue Code, the Company must pay at least 95% of its REIT taxable income as dividends in order to avoid taxation as a regular corporation. The Board makes decisions with respect to the distribution of capital gains on a case-by-case basis. A portion of the Company's dividends paid to its shareholders may be deemed either capital gain, ordinary income or a return of capital, or all of these. None of the Company's distributions have yet been classified as returns of capital, though the Company expects a portion of 1995 distributions on the Common Stock will be so classified. The Company annually provides its shareholders a statement as to its designation of the taxability of the dividends. The federal income tax status of dividends paid to holders of Common Stock was as follows:
1992 1993 1994 ---- ---- ----- Ordinary income.......................................................... $.51 $.53 $1.24 Capital gains............................................................ .15 .37 .01 Return of capital........................................................ -- -- -- ---- ---- ----- Total dividends paid........................................... $.66 $.90 $1.25 ==== ==== =====
The loan agreement for the Company's 6.625% Senior Notes prohibits the payment of any dividends or other distributions upon the occurrence of an event of default and otherwise limits dividends and distributions after September 30, 1993 to a cumulative amount which is not more than the Company's net earnings plus depreciation and amortization after that date, plus or minus, as applicable, any increase or decrease in stockholders' equity from the issuance or redemption of stock. PREFERRED STOCK Series A Preferred Stock On June 30, 1993, the Company issued 4,600,000 shares of $1.75 Series A Cumulative Convertible Preferred Stock at $25.00 per share in a public offering. The Series A Preferred Stock is traded on the New York Stock Exchange under the symbol "MRYPr". At December 31, 1994, 2,516,324 shares of Series A Preferred Stock were outstanding. The following table sets forth the reported high and low sales prices of the Series A Preferred Stock on the NYSE, and the cash dividends declared per share of Series A Preferred Stock.
DIVIDENDS HIGH LOW DECLARED ------ ------ --------- 1993 Third Quarter.................................................... $30.50 $25.00 $ .4375 Fourth Quarter................................................... 30.75 26.50 .4375 1994 First Quarter.................................................... 32.88 27.00 .4375 Second Quarter................................................... 31.63 27.00 .4375 Third Quarter.................................................... 27.63 25.25 .4375 Fourth Quarter................................................... 29.63 22.00 .4375 1995 First Quarter (through February 13, 1995)........................ $28.75 $27.50 $ .4375
S-9 10 The federal income tax status of dividends paid to holders of Series A Preferred Stock was as follows:
1993 1994 ----- ------ Ordinary income............................................................. $.550 $1.734 Capital gains............................................................... .325 .016 Return of capital........................................................... -- -- ----- ------ Total dividends paid.............................................. $.875 $1.750
The Series A Preferred Stock has an annual dividend rate of $1.75 per share, payable quarterly, and is convertible into shares of Common Stock at a conversion price of $18.65 per share of Common Stock. The Series A Preferred Stock may not be redeemed for cash at any time, but may be redeemed by the Company for shares of Common Stock after June 30, 1998, at a rate of 1.34 shares of Common Stock for each share of Series A Preferred Stock, provided the Common Stock is trading above the conversion price of $18.65 per share. Series B Preferred Stock On November 1, 1994, the Company issued 4,000,000 shares of $2.205 Series B Cumulative Convertible Preferred Stock at $25.00 per share in a private placement with a small group of institutional investors. The Series B Preferred Stock has an annual dividend rate of $2.205 per share, payable quarterly, and is convertible into shares of Common Stock at a conversion price of $21.04 per share of Common Stock. The Series B Preferred Stock may not be redeemed for cash at any time, but may be redeemed by the Company for shares of Common Stock after October 31, 1999, at a rate of 1.188 shares of Common Stock for each share of Series B Preferred Stock, provided the Company's Common Stock is trading above the conversion price of $21.04 per share. The shares of Series B Preferred Stock were not registered with the Securities and Exchange Commission at the time of issuance and are not publicly traded. The Company has granted to the holders of the Series B Preferred Stock certain registration rights which commence on April 2, 1995. On December 31, 1994, the Company paid a dividend of $.370 per share on the Series B Preferred Stock, of which $.003 was capital gain. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN The Company has adopted a Dividend Reinvestment and Stock Purchase Plan under which any holder of Common Stock or Preferred Stock may reinvest cash dividends or optional cash payments of up to $5,000 per quarter in additional shares of Common Stock purchased directly from the Company at a 5% discount. Optional cash payments are subject to the limitation that the number of shares of Common Stock which can be purchased with optional cash payments cannot exceed the number of shares of Common Stock and Preferred Stock owned by the shareholder. All Common and Preferred shareholders are eligible to join the plan including shareholders whose shares are held in the name of a nominee or broker. S-10 11 CAPITALIZATION The following table sets forth the capitalization of the Company on December 31, 1994 and after giving effect to the issuance of the Series C Preferred Stock offered by this Prospectus Supplement. This table should be read in conjunction with the financial statements of the Company and related notes.
DECEMBER 31, 1994 ------------------------ ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS) Debt: Repurchase agreements............................................. $ 17,375 $ -- Unsecured bank line(1)............................................ 57,600 -- Mortgage loans.................................................... 17,835 17,835 6.625% Senior Notes............................................... 120,000 120,000 Stockholders' Equity(2): Preferred Stock, no par value, 20,000,000 shares authorized; $1.75 Series A Cumulative Convertible, 2,516,324 shares issued and outstanding, $25.00 per share liquidation preference........... 62,908 62,908 $2.205 Series B Cumulative Convertible, 4,000,000 shares issued and outstanding, $25.00 per share liquidation preference....... 100,000 100,000 $ Series C Cumulative Convertible, 4,000,000 shares issued and outstanding, $25.00 per share liquidation preference........... -- 100,000 Common Stock, no par value, 50,000,000 shares authorized; 30,744,451 shares issued and outstanding....................... 30,744 30,744 Capital surplus................................................... 375,170 370,920 Cumulative undistributed net earnings............................. 23,112 23,112 Notes receivable from stockholders and ESOP....................... (10,283) (10,283) Unrealized gain on securities..................................... 3,200 3,200 -------- ----------- Total stockholders' equity................................... 584,851 680,601 -------- ----------- Total capitalization.................................... $797,661 $ 818,436 ========= ==========
- --------------- (1) Outstanding under a $100.0 million line of credit which bears interest at LIBOR plus 0.65%, and, subject to the bank's approval, is expected to be renewed annually. (2) As of December 31, 1994, 2,083,676 shares of Series A Preferred Stock had been converted into 2,792,126 shares of Common Stock. In addition, during January 1995, 949,450 shares of Series A Preferred Stock were converted into 1,272,263 shares of Common Stock. The conversions had no effect on total capitalization. S-11 12 SELECTED FINANCIAL DATA The following table sets forth selected financial data for the Company and should be read in conjunction with the financial statements and notes thereto incorporated by reference herein. The following amounts are in thousands, except for information with respect to per share amounts, coverage ratios and apartment units.
YEARS ENDED DECEMBER 31, PRO ---------------------------------------------------- FORMA 1990 1991 1992 1993 1994 1994(1) -------- -------- -------- -------- -------- -------- OPERATING DATA Income from property operations: Rental and mineral royalty revenue...................... $ 13,789 $ 16,447 $ 23,479 $ 56,181 $103,169 $130,393 Rental expenses, property taxes and insurance........... 5,521 7,065 9,604 22,611 38,409 50,340 Depreciation of real estate owned....................... 2,119 3,022 4,156 9,066 17,877 23,302 -------- -------- -------- -------- -------- -------- 6,149 6,360 9,719 24,504 46,883 56,751 Income from mortgage backed securities: Interest income......................................... 20,104 12,832 3,978 -- -- -- Interest expense........................................ 17,102 8,543 1,558 -- -- -- -------- -------- -------- -------- -------- -------- 3,002 4,289 2,420 -- -- -- Other income: Other interest and dividend income...................... 1,701 1,709 1,940 2,463 2,440 1,872 Other................................................... 76 297 196 10 25 25 -------- -------- -------- -------- -------- -------- 1,777 2,006 2,136 2,473 2,465 1,897 Expenses: Interest unrelated to mortgage backed securities........ 5,607 4,261 4,230 5,640 10,394 9,082 General and administrative.............................. 944 1,277 1,304 1,433 1,773 1,807 Depreciation -- other, amortization and other expenses.............................................. 182 112 44 180 470 470 Other non-recurring costs............................... -- -- -- 1,308 200 200 -------- -------- -------- -------- -------- -------- 6,733 5,650 5,578 8,561 12,837 11,559 Gains on sales of assets: Gains on sales of investments........................... 491 (698) 385 6,960 201 201 Gains on sales of real estate........................... 730 803 460 1,032 273 273 Gains on mortgage backed securities..................... 487 1,681 1,903 0 -- -- -------- -------- -------- -------- -------- -------- 1,708 1,786 2,748 7,992 474 474 Income tax (benefit)...................................... (2) -- -- -- -- -- -------- -------- -------- -------- -------- -------- Net income................................................ 5,905 8,791 11,445 26,408 36,985 47,563 Preferred dividends paid.................................. -- -- -- 4,025 7,934 21,594 -------- -------- -------- -------- -------- -------- Net income available for common shares.................... $ 5,905 $ 8,791 $ 11,445 $ 22,383 $ 29,051 $ 25,969 ========= ========= ========= ========= ========= ========= Weighted average common shares............................ 9,480 9,326 10,652 17,268 26,430 30,744 Weighted average fully diluted common shares.............. 9,606 9,449 10,769 20,381 32,562 42,212 Net income per common share............................... $ .62 $ .94 $ 1.07 $ 1.30 $ 1.10 $ 0.84 Common dividends paid..................................... 3,779 4,116 7,285 16,934 33,467 33,467 Common dividends paid per share........................... $ .40 $ .44 $ .66 $ .90 $ 1.25 $ 1.25 Fixed charge coverage ratio............................... 1.26x 1.69x 2.98x 5.58x 4.44x 6.04x Fixed charge and preferred stock dividend coverage ratio................................................... 1.26x 1.69x 2.98x 3.29x 2.56x 1.83x
DECEMBER 31, PRO ---------------------------------------------------- FORMA 1990 1991 1992 1993 1994 1994(1) -------- -------- -------- -------- -------- -------- BALANCE SHEET DATA Properties, at cost....................................... $103,981 $132,355 $220,615 $565,111 $815,306 $815,306 Mortgage backed securities................................ 196,620 115,973 -- -- -- Total assets.............................................. 318,947 262,881 235,695 562,172 806,655 827,430 Debt related to mortgage backed securities................ 185,118 112,854 -- -- -- -- Senior Notes.............................................. -- -- -- 120,000 120,000 120,000 Other debt................................................ 61,633 70,939 117,596 37,173 92,810 17,835 Total shareholders' equity................................ $ 66,302 $ 73,919 $106,831 $397,715 $584,851 $680,601 OTHER DATA Funds from operations(2).................................. $ 6,316 $ 10,027 $ 12,853 $ 28,790 $ 54,588 Funds from operations available to common shares.......... $ 6,316 $ 10,027 12,853 $ 24,765 $ 46,654 Apartment units acquired during year...................... 592 986 2,845 7,452 4,872 Total apartment units at end of year...................... 2,722 3,708 6,527 13,979 18,851
- --------------- (1) The unaudited pro forma financial data gives effect to the 1994 apartment acquisitions, the Common Stock and Series B Preferred Stock offerings completed during 1994 and the issuance of the Series C Preferred Stock as if such transactions had occurred at the end of the prior year in the case of operating data, and as of the end of the current year in the case of balance sheet data. In the opinion of management, all adjustments necessary to present fairly such pro forma data have been included. The unaudited pro forma data is not necessarily indicative of the results of operations of the Company for the year indicated had the transactions occurred on the date assumed, nor does such information purport to indicate the future results of operations. (2) Funds from operations is defined as net income computed in accordance with generally accepted accounting principles, excluding nonrecurring costs and net realized gains, plus depreciation of real property. Funds from operations in 1990, 1991 and 1992 includes net income from mortgage backed securities, which was $3,002,000, $4,289,000, and $2,420,000 in 1990, 1991 and 1992, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." S-12 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Over the past several years, Merry Land has significantly expanded its apartment holdings through an active program of acquisitions. The Company believes that its access to public and private debt and equity, its experience as an apartment operator, its knowledge of the Southern apartment markets and its acquisition expertise have allowed it to take advantage of favorable conditions to make acquisitions at attractive yields. Even though prices of apartments offered for sale have risen throughout 1993 and 1994, the Company believes that prices have recently stabilized at levels which present continued favorable opportunities for both acquisition and development. The following table describes the growth of the Company's apartment holdings in recent years:
DECEMBER 31, DECEMBER 31, DECEMBER 31, 1992 INCREASE 1993 INCREASE 1994 INCREASE ------------ -------- ------------ -------- ------------ -------- Units(1)........................ 6,527 76% 13,979 114% 18,851 35% Cost (in thousands)(1)(2)....... $209,549 73% $554,444 165% $796,364 44%
- --------------- (1) Excludes condominium unit held for sale. (2) Represents the total acquisition cost of the property plus the capitalized cost of improvements made subsequent to acquisition. In December 1994, the Company commenced a program of apartment development by buying three tracts of land on which it intends to build high quality suburban garden apartments. The Company will build these communities in a series of phases using experienced apartment developers to provide development and construction management services. Construction on all three communities is expected to commence in the first half of 1995 with the first units expected to be available for occupancy later that year. The Company's present intention is to limit its financial commitment to development to no more than 10% of total assets. RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 Rental Operations. The operating performance of the Company's apartments is summarized in the following table (dollars in thousands, except average monthly rent):
CHANGE FROM 1993 TO 1992 1993 1994 1994 ------- ------- -------- ----------- Rents....................................... $22,460 $54,565 $101,667 86% Operating expenses.......................... 6,954 16,572 27,578 66 Taxes and insurance......................... 2,596 4,833 9,634 99 Depreciation................................ 4,020 8,924 17,735 99 ------- ------- -------- ----- $ 8,890 $24,236 $ 46,720 93 Average occupancy(1)........................ 91.6% 92.9% 95.2% 2.3 Average monthly rent(2)..................... $ 472 $ 551 $ 591 7.3 Expense ratio(3)............................ 42.5% 39.2% 36.6% (2.6)%
- --------------- (1) Represents the average of physical occupancy at each month end for the period held. (2) Represents weighted average monthly rent charged for occupied units and rents asked for unoccupied units at December month end. (3) Represents total of operating expenses, taxes and insurance divided by rental revenues. Rental revenues and expenses have risen sharply with the Company's acquisition of new communities. The weighted average number of apartments owned rose to 16,415 in 1994 from 10,253 in 1993 and 5,118 in 1992. Most of the rental markets in which Merry Land operates are experiencing strong job growth and household formation, and occupancy levels and rent rates have risen. However, the 7.3% increase in portfolio average rental rates in 1994 from 1993 largely reflects S-13 14 the higher rents charged at the communities the Company acquired in 1993 and 1994, whose monthly rents averaged $626 at December 31, 1994, versus the total portfolio average of $591. Although construction starts of new apartment communities have increased in 1993 and 1994, the Company believes demand continues to outstrip supply and expects a strong rental market to continue throughout 1995, with continued high occupancy and rising rent rates. The performance of the 6,527 units which the Company held for all of both 1994 and 1993 ("same store" results), is summarized in the following table (dollars in thousands, except average monthly rent; see footnotes above):
CHANGE FROM 1993 TO 1993 1994 1994 ------- ------- ----------- Rents...................................................... $37,339 $40,407 8% Operating expenses......................................... 12,911 12,225 (5) Taxes and insurance........................................ 3,426 3,549 4 Depreciation............................................... 6,346 6,676 5 ------- ------- ----- $14,656 $17,957 23 Average occupancy.......................................... 92.6% 95.7% 3.1 Average monthly rent....................................... $ 510 $ 530 3.9 Expense ratio.............................................. 43.8% 39.0% (4.8)%
Reflecting the strong rental markets, rental revenues and operating income for those properties held for all of both periods rose as a result of 3.1% higher occupancy and 3.9% higher rental rates. Operating expenses decreased $0.7 million in 1994 as compared to 1993. Of this decrease, $0.5 million came from a change in capitalization policy which resulted in the capitalization of certain expenditures which had previously been expensed, including painting the exteriors of apartment communities, replacement of mini blinds and replacement of vinyl. The remaining decrease in expenses came from lower personnel costs. For those 3,360 apartments owned by the Company for both 1993 and 1992, rental revenues increased $1.0 million or 6% in 1993 over 1992 as monthly rental rates increased 3.4% to $491 per month from $475 per month, while occupancy for those units rose to 93.2% for 1993 from 92.2% for 1992. Operating expenses rose $1.1 million, or 19%, due to charging the cost of ESOP contributions to the communities, rather than to corporate overhead, and to higher maintenance expenditures, which included painting the exterior of three more communities than in the prior year. Taxes and insurance expense rose 8% while depreciation rose 2%. Mineral Royalty and Commercial Property Income. These amounts rose to $1.4 million in 1994 and $1.6 in 1993 from $1.0 million in 1992 largely as the result of the sale of sand under a contract which has now expired. Mineral royalties in 1995 should total less than half of 1994 amounts. Interest and Dividend Income. Interest and dividend income totaled $2.4 million for 1994 as compared to $2.5 million for 1993 and $5.9 million in 1992. Interest and dividend income includes interest received on temporary investments, notes receivable, and dividends earned on equity securities investments. The 1992 amount included interest on the Company's portfolio of mortgage backed securities, which was disposed of in that year. Interest Expense. Interest expense totaled $10.4 million for 1994, up from $5.6 million for 1993 and $5.8 million for 1992. The increase resulted both from an increase in the amount of debt outstanding and from higher interest rates. Average debt outstanding rose to $165.2 million in 1994 from $95.2 million in 1993 and $74.2 million in 1992, primarily as a result of financing apartment purchases. The 1992 amount included funds used to finance the mortgage backed securities portfolio. The weighted average interest rate charged on all the Company's debt increased to 6.4% for 1994 from 5.4% for 1993 and 5.0% for 1992, primarily as a result of the Company's shift to higher cost fixed rate debt from variable rate financing and also because of rising short term rates. At S-14 15 December 31, 1994, $85.3 million of the Company's $212.8 million of outstanding debt was at variable interest rates, and $9.9 million of this amount was tax exempt financing bearing interest at 75% of prime. General and Administrative Expenses. In 1994, general and administrative expense totaled $1.8 million, versus $1.4 million for 1993 and $1.3 million in 1992. In 1994, general and administrative expenses equaled 1.7% of rental revenues, down from 2.6% for 1993 and 5.6% in 1992. The decrease in this ratio is attributable to increased operating efficiency as the Company's overhead was spread over more apartment units. The Company expects that as it continues to grow, even though general and administrative expenses will increase in absolute terms, such expenses will continue to decline as a percentage of revenues. In 1994, the Company began charging the cost of property management activities conducted at the regional and corporate level to rental expense. Previously, such expenses had been included as part of general and administrative expenses. Results for both 1993 and 1992 have been presented on a basis consistent with 1994 expenses. Non-Recurring Costs. In 1994, the Company reserved $0.2 million as the estimated potential cost of its share of a possible environmental investigation of a landfill located on land the Company owns in Richmond County, Georgia. (See "Business -- Environmental Matters"). In 1993 the Company sold $120.0 million of 6.625% unsecured senior notes and used the $119.0 net proceeds to repay substantially all other debt. Prepayment penalties and the cost of closing out an interest rate swap agreement totaled $1.3 million. Gains on Sales of Assets. Net gains recognized on the sale of assets totaled $0.5 million for 1994, $8.0 million for 1993 and $2.7 million in 1992. Gains in 1994 came from the sale of securities and real estate. Gains in 1993 resulted primarily from the sale of thrift stocks and in 1992 from the sale of mortgage backed securities. Net income. Net income totaled $37.0 million for 1994, $26.4 million in 1993, and $11.4 million for 1992. Net income available for common shareholders totaled $29.1 million for 1994, $22.4 million for 1993, and $11.4 million for 1992. The increases in net income and net income available for common shareholders for 1994 when compared to 1993 arose principally from substantially increased operating income from apartments, which were partially offset by lower levels of gains recognized on sales of assets. Net income per share for 1994 fell to $1.10 from $1.30 in 1993 as a result of various factors, including the lower level of gains recognized, increased depreciation and the increased number of shares outstanding. The increase in net income for 1993 as compared to 1992 arose both from increased operating income from apartments and from greater gains recognized on the sale of assets, principally securities. Dividends to preferred shareholders. Dividends to preferred shareholders totaled $7.9 million for 1994 and $4.0 million in 1993. The increase in dividends arose from the sale of Preferred Stock during the two years. In June 1993, the Company sold 4.6 million shares of Series A Preferred Stock in a public offering. In November 1994, the Company completed a private placement of 4.0 million shares of its Series B Preferred Stock. During 1994, holders of Series A Preferred Stock converted 2.1 million shares of the Series A Preferred Stock into approximately 2.8 million shares of the Company's Common Stock. Funds From Operations. The Company believes that funds from operations is an important measure of the Company's operating performance. Funds from operations does not represent cash flows from operations as defined by generally accepted accounting principles ("GAAP") and should not be considered as an alternative to net income or as an indicator of the Company's operating performance, or as a measure of the Company's liquidity. Based on recently published recommendations of a task force of the National Association of Real Estate Investment Trusts, the Company defines funds from operations as net income computed in accordance with GAAP, excluding non-recurring costs and net realized gains, plus depreciation of real property. This revised definition eliminates from funds from operations any amortization of debt costs and any non-real estate S-15 16 depreciation, which reduced the Company's funds from operations by $0.5 million in 1994, $0.2 million in 1993 and $0.04 million in 1992. Funds from operations rose 90% to $54.6 million for 1994 as compared to $28.8 million for 1993 and $12.9 million for 1992. These increases were principally due to increased rental operating income resulting from the growth of the Company's apartment holdings. The following is a reconciliation of net income to funds from operations (data in thousands, except per share data):
1992 1993 1994 ------- ------- ------- Net income...................................................... $11,445 $26,408 $36,985 Less preferred dividends paid................................... -- 4,025 7,934 ------- ------- ------- Net income available for common shares.......................... 11,445 22,383 29,051 Add depreciation of real estate owned........................... 4,156 9,066 17,877 Add non-recurring costs......................................... -- 1,308 200 Less net realized gains......................................... 2,748 7,992 474 ------- ------- ------- Funds from operations available to common shares................ 12,853 24,765 46,654 Add preferred dividends......................................... -- 4,025 7,934 ------- ------- ------- Funds from operations -- fully diluted.......................... $12,853 $28,790 $54,588 ======== ======== ======== Weighted average common shares outstanding -- primary....................................................... 10,652 17,268 26,430 fully diluted................................................. 10,753 20,381 32,562 Funds from operations per share -- primary....................................................... $ 1.21 $ 1.43 $ 1.77 fully diluted................................................. $ 1.20 $ 1.41 $ 1.68
LIQUIDITY AND CAPITAL RESOURCES Merry Land's financial strategy is to buy apartment communities for cash, using amounts drawn on its unsecured line of credit, and subsequently to raise funds in the capital markets to permanently finance these investments. The Company completed a number of such acquisition and funding cycles in recent years and expects to continue to fund its acquisition and development activities in this manner. In 1994, the Company acquired 4,872 apartment units for $226.2 million and funded these purchases initially by liquidating temporary investments and borrowing funds under its line of credit. On June 30, 1994, the Company completed a public offering of 4.6 million shares of Common Stock at a price of $20.25 per share, for net proceeds of $87.5 million. Of this amount, $58.7 million was used to repay debt incurred in the acquisition and improvement of apartments and the remainder was used for further acquisitions. On November 1, 1994, the Company completed the private placement of $100.0 million of its $2.205 Series B Cumulative Convertible Preferred Stock for net proceeds of $96.7 million, and used this amount to pay in part for the $154.4 million apartment portfolio acquired on November 18, 1994. The remainder of the purchase price was financed with the Company's line of credit. The Series B Preferred Stock was sold in a private placement at a price of $25.00 per share to a small group of institutional investors. It has an annual dividend rate of $2.205 per year, payable quarterly, and is convertible into shares of Common Stock at a conversion price of $21.04 per share of Common Stock (equivalent to a conversion rate of 1.188 shares of Common Stock for each share of Series B Preferred Stock). The Series B Preferred Stock may not be redeemed for cash at any time, S-16 17 but may be redeemed by the Company for Common Stock after October 31, 1999, provided the Company's Common Stock is trading above the conversion price of $21.04 per share. Common Stock Repurchases. In December 1994, the Company's Board of Directors authorized the repurchase of up to 1.0 million shares of the Company's Common Stock. The Board took this action because in its judgment the Company's stock price had fallen significantly below price levels which the Board felt were appropriate. The Company bought and retired 175,440 shares for approximately $3.1 million, an average price of $17.94 per share. The Company discontinued the repurchase program as the stock price rose over the last weeks of the year. Financial Structure. At December 31, 1994, debt equaled 27% of total capitalization at cost, and 20% of total capitalization, with equity valued at market. At that date, the Company's financial structure was as follows (dollars in thousands):
% OF MARKET % OF COST TOTAL VALUE TOTAL -------- ----- ---------- ----- Advances under line of credit......................... $ 57,600 8% $ 57,600 5% Repurchase agreements................................. 17,375 2 17,375 2 Mortgage loans........................................ 17,835 2 17,835 2 6.625% Senior notes................................... 120,000 15 120,000 11 -------- ----- ---------- ----- Total debt.................................. 212,810 27 212,810 20 Common and preferred equity(1)........................ 584,851 73 850,245 80 -------- ----- ---------- ----- Total capitalization........................ $797,661 100% $1,063,055 100% ========= ==== ========== ====
- --------------- (1) Assumes conversion of all Preferred Stock outstanding into Common Stock. Merry Land's primary commercial bank provides the Company with a $100.0 million unsecured line of credit for property acquisitions and other general corporate purposes. This line bears interest at 0.65% over the 30 day LIBOR rate, matures on September 30, 1995, and, subject to the bank's approval, is expected to be renewed annually. At December 31, 1994, the Company had $42.4 million available under this line of credit. The Company is negotiating with a group of banks to obtain a syndicated credit facility in addition to the existing line. It generally is not the practice of the Company to finance its acquisitions using mortgage debt. At times, however, the Company finds it advantageous to assume such debt in order to successfully negotiate and close property acquisitions. During 1994, the Company repaid approximately $19.2 million of mortgage debt previously assumed in property acquisitions of prior years. Repurchase agreements are borrowings secured by the Company's temporary investments in U.S. Treasury Notes. The Company's Preferred Stock, and implicitly its 6.625% Senior Notes, are rated investment grade by Standard & Poor's Corporation and Moody's Investors Service, Inc. Liquidity. Merry Land expects to meet its short-term liquidity requirements with the net cash flow provided by operating activities and with its line of credit. The Company believes that its primary short-term liquidity needs are to fund operating expenses and capital improvements, debt service payments, dividend payments and current requirements of its program of new apartment development. The Company expects to meet its long-term liquidity requirements, including scheduled debt maturities and permanent financing for property acquisitions and development, with a variety of sources, including additional borrowings and the issuance and sale of debt or equity securities in the public and private markets. The Company is limited in the amount of debt it may incur under the terms of its existing loan agreements. At December 31, 1994, the Company's loan agreements would have allowed it to borrow an additional $180 million on an unsecured basis. Cash Flows. Operating cash flow has grown with the expansion of the Company's apartment holdings. Operating cash flow grew to $56.1 million in 1994 from $30.9 million in 1993 and $14.3 million in 1992. Sales of Common and Preferred Stock, however, have been the largest source of cash for the past three years. The primary use of cash has been to finance new apartment S-17 18 acquisitions and improvements. Dividends paid in 1994 and 1993 increased from levels in prior years due to an increase in the average amount of stock outstanding during 1994 and 1993, and in the case of the Company's Common Stock, an increase in the quarterly dividend per share from $0.15 for the first quarter of 1992 to $0.35 for the last quarter of 1994. The following table summarizes cash flows for 1992, 1993, and 1994:
SOURCES AND USES OF CASH YEAR ENDED DECEMBER 31, --------------------------------- 1992 1993 1994 --------- --------- --------- (IN THOUSANDS) Operating activities..................................... $ 14,256 $ 30,911 $ 56,099 Net sales of securities and temporary investments........ 99,913 1,659 -- Sales of Common and Preferred Stock...................... 27,703 283,560 187,939 Net borrowings........................................... -- 1,429 55,637 Other.................................................... 20,724 10,677 576 --------- --------- --------- Total sources....................................... 162,596 328,236 300,251 Acquisitions of and improvements to properties........... (88,841) (307,048) (250,263) Dividends paid........................................... (7,666) (20,959) (41,401) Net repayment of debt.................................... (66,197) -- -- Net purchase of temporary investments.................... -- -- (8,447) --------- --------- --------- Total uses.......................................... $(162,704) $(328,007) $(300,111)
Capital Expenditures. The Company capitalizes the cost of expenditures for the acquisition or development of additional productive assets and for expenditures which significantly increase the revenue producing capability or which reduce the cost of operating such assets. Normal operating costs are expensed as incurred. Certain items which are replaced on a regular basis, but which have lives of more than one year, such as carpet, vinyl flooring and exterior repainting, are capitalized. At newly acquired communities, the Company often finds it necessary to upgrade the physical appearance of such properties and to complete maintenance and repair work which had been deferred by prior owners. These activities often result in heavier capital expenditures in the early years of Company ownership. Inflation. Substantially all of the Company's leases are for terms of one year or less, which should enable the Company to replace existing leases with new leases at higher rentals in times of rising prices. The Company believes that this would offset the effect of cost increases stemming from inflation. S-18 19 BUSINESS ORGANIZATION Merry Land has 577 employees. Of this number, 535 operate its apartment communities, 21 are employed in accounting, administrative and general management, 15 in corporate property management and 6 in acquisitions and development. Merry Land's apartment communities are operated by on-site Property Managers and staff who are extensively trained by the Company in sales, management, accounting, maintenance and other disciplines. Each community functions as an individual business unit according to well developed policies and procedures. On-site staff participate in an incentive program under which cash bonus payments are made to individuals whose communities attain budgeted levels of cash flow. All full time employees are eligible to participate in the Company's Employee Stock Ownership Plan. Property Managers report to eight Regional Property Managers who report to the Company's two Vice Presidents of Property Management. Regional Property Managers are located in Raleigh, Charlotte, Augusta, Atlanta, Savannah, Jacksonville, Orlando and Tampa. The Company believes it has successfully integrated newly acquired apartment communities into its portfolio using the property management organization and expertise developed in its thirteen years of buying and operating apartments. The Company's operating efficiency has increased as it has grown. General and administrative expense for 1994 declined to 1.7% of rental revenues from 2.6% in 1993 as the Company spread its overhead over more apartment units. APARTMENT COMMUNITIES The Company manages all of its properties under the trade name "Merry Land Apartment Communities". The Company owns a high quality group of apartment communities, substantially all of which command rental rates in the upper range of their markets. They are generally newer "garden apartments", in wood-frame two and three story buildings without elevators, with individually metered electric and gas service and individual heating and cooling systems. The Company's apartments are 47% one bedroom units, 48% two bedroom units and 5% three bedroom units. The units average 900 square feet in area, seven years of age and are well equipped with modern appliances and other conveniences. The communities are heavily landscaped and offer extensive amenities, which generally include swimming pools, tennis courts, club rooms, exercise facilities and hot tubs. Some of the Company's communities also offer garages, racquetball courts, saunas, alarm systems and other features. Merry Land's apartment communities are all located in metropolitan areas with populations in excess of 250,000, primarily in the Southeastern states of Florida, Georgia and the Carolinas. The following table summarizes property information by market:
COST(1) % OF AVERAGE AVERAGE LOCATION COMMUNITIES UNITS (IN THOUSANDS) TOTAL COST RENT(2) OCCUPANCY(3) - ------------------------ ----------- ------ -------------- ---------- ------- ------------ Jacksonville............ 8 2,550 $102,153 12.8% $ 568 97% Orlando................. 6 1,902 88,935 11.2 622 92 Ft. Myers............... 3 948 45,462 5.7 638 97 Tampa................... 4 1,301 63,486 8.0 625 94 Ft. Lauderdale.......... 1 304 18,029 2.3 789 96 Melbourne............... 1 326 15,154 1.9 626 96 Delray Beach............ 1 236 13,015 1.6 731 94 Miami................... 1 175 11,837 1.5 851 98 Daytona Beach........... 1 304 11,057 1.4 544 90 Tallahassee............. 1 222 8,110 1.0 593 98 -- ------ -------------- ---------- ------- -- Florida....... 27 8,268 377,238 47.4 618 95
S-19 20
COST(1) % OF AVERAGE AVERAGE LOCATION COMMUNITIES UNITS (IN THOUSANDS) TOTAL COST RENT(2) OCCUPANCY(3) - ------------------------ ----------- ------ -------------- ---------- ------- ------------ Atlanta................. 10 3,086 126,342 15.9 591 96 Savannah................ 5 865 32,292 4.1 567 97 Augusta................. 4 490 14,714 1.8 431 89 -- ------ -------------- ---------- ------- -- Georgia....... 19 4,441 173,348 21.8 569 96 Charlotte............... 5 1,363 47,950 6.0 547 97 Raleigh................. 5 1,256 45,743 5.7 563 97 Greensboro.............. 2 508 21,572 2.7 570 98 -- ------ -------------- ---------- ------- -- North Carolina.... 12 3,127 115,265 14.4 557 97 Charleston.............. 4 880 32,818 4.1 507 93 Greenville.............. 1 216 6,769 0.8 511 98 Columbia................ 1 212 6,351 0.8 482 94 -- ------ -------------- ---------- ------- -- South Carolina........ 6 1,308 45,938 5.7 503 94 Columbus................ 1 340 19,651 2.5 699 93 Cleveland............... 1 244 13,884 1.7 708 97 -- ------ -------------- ---------- ------- -- Ohio.................. 2 584 33,535 4.2 703 95 Richmond, Virginia...... 2 506 24,360 3.1 661 92 Memphis................. 1 292 11,301 1.4 546 95 Nashville............... 1 127 3,536 0.4 388 97 -- ------ -------------- ---------- ------- -- Tennessee............. 2 419 14,837 1.9 498 96 Columbia, Maryland...... 1 198 11,843 1.5 782 97 -- ------ -------------- ---------- ------- -- Total......... 71 18,851 $796,364 100.0% $ 591 95% == ====== ============== ========== ======= ============
- --------------- (1) Represents the total acquisition cost of the property plus the capitalized cost of improvements made subsequent to acquisition. (2) Represents the weighted average of monthly rent charged for occupied units and rent asked for unoccupied units at December 31, 1994. (3) Represents the average of physical occupancy at each month end for the period held during 1994. The Company owns all of its communities in fee simple. The following table describes the Company's apartment communities.
AVERAGE RENT(2) ---------------------------- AVERAGE OCCUPANCY AVERAGE PER MONTH PER SQ. FT. (3) DATE COST(1) COST UNIT SIZE ------------ -------------- ------------ NAME LOCATION BUILT UNITS (IN THOUSANDS) PER UNIT(1) (SQ. FT.) 1993 1994 1993 1994 1993 1994 - ------------- ---------------- ----- ------ --------------- ----------- --------- ---- ---- ----- ----- ---- ---- FLORIDA Audubon Village..... Tampa 1990 447 $ 19,998 $44,738 849 $569 $583 $0.67 $0.69 99% 95% Augustine Club........ Tallahassee 1988 222 8,110 36,532 900 581 593 0.65 0.66 93 98 Auvers Village..... Orlando 1991 480 22,183 46,215 1,021 617 632 0.60 0.62 96 92 Bermuda Cove........ Jacksonville 1989 350 15,141 43,260 912 (4) 640 (4) 0.70 (4 ) 98 Bishop Park........ Orlando 1991 324 16,402 50,623 903 582 600 0.64 0.66 92 85 Claire Point....... Jacksonville 1986 256 11,987 46,824 1,010 594 603 0.59 0.60 100 97 Colony Place....... Ft. Myers 1991 300 18,023 60,077 1,136 669 689 0.59 0.61 98 97 Conway Station..... Orlando 1987 242 10,850 44,835 787 554 559 0.70 0.71 (4 ) 90 Copper Terrace..... Orlando 1989 300 11,723 39,077 902 623 644 0.69 0.71 95 95 Cypress Cove........ Melbourne 1990 326 15,154 46,488 1,027 608 626 0.59 0.61 93 96 Deerbrook.... Jacksonville 1983 144 6,958 48,319 1,293 630 664 0.49 0.51 96 98 Falls........ Tampa 1985 240 8,085 33,688 658 495 496 0.75 0.75 93 93 Indigo Lakes....... Daytona Beach 1989 304 11,057 36,372 882 (4) 544 (4) 0.62 (4 ) 90 Lakeridge.... Miami 1991 175 11,837 67,640 970 835 851 0.86 0.88 98 98 Lexington Park........ Orlando 1988 252 10,924 43,349 799 561 566 0.70 0.71 91 95 Lofton Place....... Tampa 1988 280 14,559 51,996 953 (4) 615 (4) 0.65 91 95 Mission Bay......... Orlando 1991 304 16,853 55,438 1,087 692 702 0.64 0.65 97 97 Polos........ Ft. Myers 1991 328 15,074 45,957 955 604 616 0.63 0.65 94 95 Princeton Square...... Jacksonville 1984 288 8,105 28,146 738 453 477 0.61 0.65 76 95 Promenade.... Tampa 1994 334 20,844 62,407 978 (4) 765 (4) 0.78 (4 ) 92 Royal Oaks... Jacksonville 1991 284 12,229 43,060 816 562 574 0.69 0.70 96 98
S-20 21
AVERAGE RENT(2) ---------------------------- AVERAGE OCCUPANCY AVERAGE PER MONTH PER SQ. FT. (3) DATE COST(1) COST UNIT SIZE ------------ -------------- ------------ NAME LOCATION BUILT UNITS (IN THOUSANDS) PER UNIT(1) (SQ. FT.) 1993 1994 1993 1994 1993 1994 - ------------- ---------------- ----- ------ --------------- ----------- --------- ---- ---- ----- ----- ---- ---- Spicewood Springs....... Jacksonville 1986 512 16,196 31,633 759 468 4840.620.649597Timberwalk... Jacksonville 1987 284 12,592 44,338 851 540 559 0.63 0.66 97 95 Viridian Lake........ Ft. Myers 1991 320 12,365 38,641 863 606 614 0.70 0.71 91 95 Waterford.... Jacksonville 1988 432 18,945 43,854 1,066 598 617 0.56 0.58 96 98 Waterford Village..... Delray Beach 1989 236 13,015 55,148 910 (4) 731 (4) 0.80 (4 ) 94 Welleby Lake Club........ Ft. Lauderdale 1991 304 18,029 59,306 951 746 789 0.78 0.83 99 96 GEORGIA Belmont Crossing.... Atlanta 1988 316 13,151 41,617 1,023 564 587 0.55 0.57 96 96 Belmont Landing..... Atlanta 1988 424 15,880 37,453 911 544 556 0.60 0.61 95 93 Champions' Park........ Atlanta 1987 252 11,362 45,087 806 (4) 628 (4) 0.78 (4 ) 98 Downtown..... Augusta (5) 76 3,351 44,092 961 425 442 0.48 0.47 95 94 Greentree.... Savannah 1983 194 7,016 36,165 852 529 533 0.62 0.63 97 93 Gwinnett Crossing.... Atlanta 1990 314 9,822 31,280 846 529 551 0.63 0.65 98 98 Harvest Grove....... Atlanta 1986 376 10,943 29,104 927 519 536 0.56 0.58 97 98 Huntington... Savannah 1986 147 5,106 34,735 812 557 570 0.69 0.70 99 99 Lexington Glen........ Atlanta 1990 480 30,792 64,150 1,095 692 740 0.63 0.68 97 95 Magnolia Villa....... Savannah 1986 144 5,366 37,264 1,119 550 548 0.49 0.49 98 98 Marsh Cove... Savannah 1983 188 7,818 41,585 1,053 569 587 0.54 0.56 98 97 Shadow Lake........ Atlanta 1989 228 9,684 42,474 1,018 (4) 579 (4) 0.57 (4 ) 98 South Augusta..... Augusta 1950 114 1,661 14,570 682 280 289 0.41 0.42 89 82 Sweetwater Glen........ Atlanta 1986 200 5,830 29,150 802 501 533 0.62 0.66 92 96 West Wind Landing..... Savannah 1985 192 6,986 36,385 1,124 541 594 0.48 0.53 99 99 Willow Trail....... Atlanta 1985 224 7,618 34,009 860 511 532 0.59 0.62 86 94 Windridge.... Atlanta 1982 272 11,260 41,397 845 (4) 578 (4) 0.68 (4 ) 98 Woodcrest.... Augusta 1982 248 8,223 33,157 875 475 494 0.54 0.56 80 88 Woodknoll.... Augusta 1975 52 1,479 28,442 900 417 432 0.46 0.48 98 98 MARYLAND Clarys Crossing.... Columbia 1984 198 11,843 59,813 938 (4) 782 (4) 0.83 (4 ) 97 NORTH CAROLINA Adams Farm... Greensboro 1987 300 14,543 48,477 1,005 (4) 633 (4) 0.63 (4 ) 98 Berkshire Place....... Charlotte 1982 240 8,632 35,967 882 493 540 0.56 0.61 98 98 Chatham Wood........ Greensboro 1986 208 7,029 33,793 811 465 479 0.57 0.59 97 98 Duraleigh Woods....... Raleigh 1987 362 17,670 48,812 784 (4) 625 (4) 0.80 (4 ) 96 English Hills....... Charlotte 1984 280 9,896 35,343 688 520 520 0.76 0.76 (4 ) 98 Hunt Club.... Charlotte 1990 300 10,561 35,203 891 586 622 0.66 0.70 87 98 Lake Point... Charlotte 1984 296 10,031 33,889 918 484 515 0.53 0.56 87 97 Misty Woods....... Raleigh 1984 360 10,168 28,244 766 507 532 0.66 0.69 97 98 Sailboat Bay......... Raleigh 1986 192 6,147 32,016 641 460 492 0.72 0.77 98 98 Sommerset Place....... Raleigh 1983 144 5,350 37,153 780 532 562 0.68 0.72 98 97 Steeplechase... Charlotte 1986 247 8,830 35,749 724 533 533 0.74 0.74 (4 ) 91 Timber Hollow...... Raleigh 1986 198 6,408 32,364 735 545 576 0.74 0.78 99 99 OHIO Hunters Chase....... Cleveland 1987 244 13,884 56,902 890 (4) 708 (4) 0.80 (4 ) 97 Saw Mill..... Columbus 1987 340 19,651 57,797 1,161 (4) 699 (4) 0.60 (4 ) 93 SOUTH CAROLINA Haywood Pointe...... Greenville 1985 216 6,769 48,812 848 491 511 0.58 0.60 92 98 Hollows...... Columbia 1987 212 6,351 29,958 762 469 482 0.62 0.63 89 94 Quarterdeck... Charleston 1986 230 9,405 40,891 810 519 531 0.64 0.66 85 98 Summit Place....... Charleston 1985 226 8,015 35,465 892 453 459 0.51 0.51 88 88 Waters Edge........ Charleston 1985 200 7,644 38,220 911 512 527 0.56 0.58 95 95 Windsor Place....... Charleston 1984 224 7,754 34,616 953 504 512 0.53 0.54 89 90 TENNESSEE Crystal Springs..... Nashville 1986 127 3,536 27,843 676 (4) 388 (4) 0.57 (4 ) 97 The Landings.... Memphis 1986 292 11,301 38,702 786 (4) 546 (4) 0.70 (4 ) 95 VIRGINIA Champions' Club........ Richmond 1988 212 10,0991 47,637 776 (4) 650 (4) 0.84 (4 ) 93 Hickory Creek....... Richmond 1984 294 14,261 48,507 851 (4) 668 (4) 0.79 (4 ) 92 - ------ --------------- ----------- --------- ---- ---- ----- ----- ---- Totals... 18,851 $ 796,364 $42,245 900 $551 $591 $0.62 $0.66 93% 95%
- --------------- (1) Represents the total acquisition cost of the property plus the capitalized cost of improvements made subsequent to acquisition. (2) Represents the weighted average of monthly rent charged for occupied units and rent asked for unoccupied units at December month end. (3) Represents the average of physical occupancy at each month end for the period held. (4) Properties not owned during period indicated. (5) These units consist of three locations, built and acquired at various times. Residents at the Company's apartments generally earn middle and upper middle levels of incomes, and typically include young professionals, white collar workers, medical personnel, S-21 22 teachers, members of the military, single parents, single adults and young families. These residents often have the means to own homes but choose to live in apartment communities because of their current employment, family or other personal circumstances. There is a steady turnover of leases at the Company's communities, allowing rents to be adjusted upward as demand allows. About 60% of the Company's units turn over each year, a rate the Company believes is typical for higher end apartment communities. Leases are generally for either six or twelve month terms. MARKET CONDITIONS The Company believes that investments in apartments in the Southern region of the U.S. are attractive because of the favorable relationship between supply and demand for apartment rentals in the region. The twenty-five metropolitan areas in which the Company operates contain 11% of the country's total population and as a group have experienced growth in households, a key determinant of apartment demand, well in excess of national averages during the 1980's and 1990's. U.S. Census data indicates that from 1980 to 1990 total households increased 27% in these cities as a group versus an increase of 13% nationally. From 1990 to 1993, households increased 9% in these cities versus an increase of 3% nationally and from 1993 to 1998 households are expected to increase 9% in these cities versus 7% nationally. In addition, multi-family housing starts in the Company's markets fell from a high of 165,200 units in 1987 to 23,905 in 1992, and were 35,213 in 1993 and 52,982 on an annualized basis for the first ten months of 1994. In part due to this favorable supply and demand relationship, the Company is experiencing its highest occupancy in recent years. In addition, the strong rental market has produced conditions which make the construction of new apartment communities financially feasible in certain locations. While construction has begun to rise from historically low levels in recent years, the Company does not expect added supply of apartments to meet added demand for the foreseeable future and believes that current prices of existing apartment properties offer it continued opportunities to acquire additional properties on favorable terms. The Company owns apartments in a number of cities with significant military employment. The reduction of the nation's armed forces has cut military payrolls in some of these cities and has adversely affected the rental market for some of the Company's properties. The effect of military cutbacks, which will continue for some time, are expected to be most severe in Charleston, and the Company anticipates significant weakness there over the next several years as many of that city's naval installations are closed. However, at December 31, 1994, the Company's average occupancy in Charleston was 96%. The Augusta market is weak as a result of job losses at local defense related industries and the city experienced 91% occupancy at December 31, 1994. In the Company's other markets, military employment is expected to either remain stable or rise or it is not a significant portion of total employment. At December 31, 1994, the percentages of the Company's occupants serving in the military were as follows: Augusta, 21%; Charleston, 17%; Savannah, 13%; Jacksonville, 6%; Melbourne, 5%; Orlando, 5%; Tampa, 1% and Columbia, 1%. Leases with military personnel account for less than 4% of the Company's total leases. ENVIRONMENTAL MATTERS Landfill Sites. Portions of the Company's land holdings in Richmond County, Georgia were used by the County for two municipal landfills during the late 1960's and early 1970's. One site is comprised of 71 acres and the other, the "New Savannah Road Landfill", 96 acres. Both landfills were closed in the mid-1970's and have been held by the Company and its predecessors as unimproved land since that time. Although the sites were used primarily as municipal landfills, there have been some reports that some industrial wastes may have been disposed of at the sites. In 1992, a contractor for the U. S. Environmental Protection Agency ("EPA") sampled air, surface water, soil and groundwater on the New Savannah Road Landfill in order to determine whether there was any contamination on the site and whether the site should be placed on the S-22 23 federal National Priorities List (the "NPL"), for potential clean up. In October 1992, the EPA issued its report which indicated that some contamination was present in soil samples but that sufficient groundwater samples had not been taken to permit a complete evaluation of the site. Accordingly, the report recommended that further action be taken which the Company believes would consist principally of additional testing of the site's groundwater and surface water. The Company has had no further contact with the EPA or its agents since that time and the site has not been included on the NPL. Following the EPA's 1992 study, Merry Land retained an environmental consultant to conduct similar studies of both sites. The consultant reported that its study of the sites did not reveal the presence on either site of contaminants in amounts likely to result in the EPA listing either site on the NPL. After receiving the EPA's report, the Company's consultant also reviewed the EPA contractor's test results and confirmed its prior conclusion that the level of contamination discovered on the New Savannah Road Landfill is not likely to result in the EPA listing this site on the NPL. However, the studies were limited in nature and did not represent an examination of all portions of the landfill sites. There can be no assurance that a more complete investigation or further testing would not reveal higher levels or different types of contamination at the sites. On July 1, 1994, the Environmental Protection Division of the State of Georgia published its initial hazardous site inventory under the State's 1992 "Superfund" law, which requires investigation, and if appropriate, clean up of listed sites. The New Savannah Road Landfill was included on this list in a category of sites identified as having released hazardous substances above reportable levels. The Company and its environmental consultants have evaluated the action by the State and have initiated discussions with the State of Georgia to determine whether it is appropriate for the New Savannah Road Landfill site to be included on this list. Should further investigation or remedial action be required for the landfill sites, the Company believes that there will likely be other entities which will be responsible for a portion of the cost of the investigation or remediation. These entities include Richmond County, which operated the landfills, any identified company or municipality whose waste was placed in the landfills, and the company that owned the sites at the time of the disposal of the waste. In the third quarter of 1994, the Company recognized a non-recurring charge against income of $0.2 million associated with this matter. This is the amount which the Company believes is the potential cost of its share of any expenses which may be incurred if further investigation of the New Savannah Road Landfill is required as a result of the action by the State of Georgia. There can be no assurances that the Company will not have material liability with respect to these landfill sites. Southern Wood Piedmont-Augusta Site. A portion of the Company's land holdings is located adjacent to a site formerly operated as a wood treatment facility by Southern Wood Piedmont-Augusta. Southern Wood Piedmont-Augusta was the subject of a property damage class action lawsuit arising from the alleged contamination of that site and neighboring properties, including the Company property. The Company received approximately $0.8 million in a 1990 settlement of its property damage claim. In June 1992, the Company sold 16 acres of land which may have been contaminated by Southern Piedmont-Augusta to that company. The contamination at the Southern Wood Piedmont-Augusta site is the subject of current remediation by Southern Wood Piedmont-Augusta under state oversight. This includes remediation of contamination on the remaining Company property in the area of the former plant. Although the Company expects that the state- supervised efforts will sufficiently address the contamination on the Company's property, there is no assurance that some remediation liability may not attach to the Company. S-23 24 MANAGEMENT The directors and executive officers of the Company are:
POSITION WITH THE COMPANY AND NAME AGE PRESENT PRINCIPAL OCCUPATION - ------------------------------ --- ------------------------------------------------ Peter S. Knox III............. 59 Chairman of the Board W. Tennent Houston............ 44 President of the Company; Director W. Hale Barrett............... 66 Secretary; Director; Member of law firm Hull, Towill, Norman & Barrett, counsel to the Company Pierce Merry, Jr.............. 70 Director; Former Chairman of Boral Bricks, Inc. (formerly Merry Companies, Inc.) Hugh Calvin Long II........... 43 Director; Capital Area President, First Union National Banks of Virginia, Maryland & Washington D.C. Michael N. Thompson........... 46 Vice President -- Acquisitions and Development Joseph P. Bailey, III......... 36 Vice President -- Property Management Ralph J. Simons............... 30 Vice President -- Property Management Ronald J. Benton.............. 37 Vice President -- Accounting Dorrie E. Green............... 36 Vice President -- Administration
As of December 31, 1994, Mr. Knox beneficially owned 2,686,000 or 8.7% of the Company's Common Stock. At that date all directors and executive officers as a group, including Mr. Knox, beneficially owned 3,396,000 or 11.0% of the outstanding shares of Common Stock. DESCRIPTION OF SERIES C PREFERRED STOCK The summary of certain terms and provisions of the Series C Preferred Stock contained in this Prospectus Supplement does not purport to be complete and is subject to, and qualified in its entirety by reference to, the terms and provisions of the Company's Articles of Incorporation, as amended (the "Articles"), Bylaws, as amended, and the amendment to the Articles setting forth the particular terms of the Series C Preferred Stock (the "Series C Amendment"). The Articles authorize the issuance of 20,000,000 shares of Preferred Stock, without par value (the "Preferred Stock"), of which 2,516,324 shares of the Company's $1.75 Series A Cumulative Convertible Preferred Stock, liquidation preference $25.00 per share, and 4,000,000 shares of the Company's $2.205 Series B Cumulative Convertible Preferred Stock, liquidation preference $25.00 per share, were outstanding on December 31, 1994. The Preferred Stock may be issued from time to time in one or more series, without shareholder approval, with such voting powers (full or limited), designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations, or restrictions thereof as shall be established by the Board of Directors. Thus, without shareholder approval, the Company could authorize the issuance of Preferred Stock with voting, conversion and other rights that could dilute the voting power and other rights of the holders of Common Stock and Series C Preferred Stock. GENERAL On , 1995, the Board of Directors authorized the Company to classify and issue the Series C Preferred Stock as part of the 20,000,000 shares of the Company's authorized Preferred Stock. When issued, the Series C Preferred Stock will be validly issued, fully paid and nonassessable. The holders of the Series C Preferred Stock will have no preemptive rights with respect to any shares S-24 25 of capital stock of the Company or any other securities of the Company convertible into or carrying rights or options to purchase any such shares. The Series C Preferred Stock will not be subject to any sinking fund or other obligation of the Company to redeem or retire the Series C Preferred Stock. Unless converted or redeemed by the Company into shares of Common Stock, the Series C Preferred Stock will have a perpetual term, with no maturity. The Company has filed a listing application with the NYSE for the listing of the shares of Series C Preferred Stock under the symbol "MRYPrC." RANKING The Series C Preferred Stock will rank senior to the Common Stock with respect to payment of dividends and amounts upon liquidation, dissolution or winding up. The Series C Preferred Stock will rank on a parity with the Series A Preferred Stock and the Series B Preferred Stock with respect to payment of dividends and amounts upon liquidation, dissolution and winding up. While any shares of Series C Preferred Stock are outstanding, the Company may not authorize, create or increase the authorized amount of any class or series of stock that ranks senior to the Series C Preferred Stock with respect to the payment of dividends or amounts upon liquidation, dissolution or winding up without the consent of the holders of two-thirds of the outstanding shares of Series C Preferred Stock and all other shares of Voting Preferred Shares (defined below), voting as a single class. However, the Company may create additional classes of stock, increase the authorized number of shares of Preferred Stock or issue series of Preferred Stock ranking on a parity with the Series C Preferred Stock with respect, in each case, to the payment of dividends and amounts upon liquidation, dissolution and winding up (a "Parity Stock") without the consent of any holder of Series C Preferred Stock. The Series A Preferred Stock and the Series B Preferred Stock are both Parity Stock. See "Voting Rights" below. DIVIDENDS Holders of shares of Series C Preferred Stock will be entitled to receive, when, as and if declared by the Board of Directors of the Company, out of funds of the Company legally available for payment, cumulative cash dividends in an amount per share equal to the greater of $ per annum or the cash dividends (determined on each of the quarterly dividend payment dates referred to below) on the number of shares of Common Stock, or portion thereof, into which a share of Series C Preferred Stock is convertible. Dividends on the Series C Preferred Stock will be payable quarterly in arrears on the last calendar day of March, June, September and December of each year, commencing June 30, 1995 (and, in the case of any accrued but unpaid dividends, at such additional times and for such interim periods, if any, as determined by the Board of Directors). Each such dividend will be payable to holders of record as they appear on the stock records of the Company at the close of business on such record dates, not exceeding 60 days preceding the payment dates thereof, as shall be fixed by the Board of Directors of the Company. Dividends will begin to accrue on April 1, 1995. Dividends will be cumulative from such date, whether or not in any dividend period or periods there shall be funds of the Company legally available for the payment of such dividends. Accumulations of dividends on shares of Series C Preferred Stock will not bear interest. Dividends payable on the Series C Preferred Stock for any period greater or less than a full dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends payable on the Series C Preferred Stock for each full dividend period will be computed by dividing the annual dividend rate by four. Except as provided in the next sentence, no dividend will be declared or paid on any Parity Stock unless full cumulative dividends have been declared and paid or are contemporaneously declared and funds sufficient for payment set aside on the Series C Preferred Stock for all prior dividend periods. If accrued dividends on the Series C Preferred Stock for all prior dividend periods have not been paid in full, then any dividend declared on the Series C Preferred Stock for any dividend period and on any Parity Stock will be declared ratably in proportion to accrued and unpaid dividends on the Series C Preferred Stock and such Parity Stock. S-25 26 The Company will not (i) declare, pay or set apart funds for the payment of any dividend or other distribution with respect to any Junior Stock (as defined below) or (ii) redeem, purchase or otherwise acquire for consideration any Junior Stock through a sinking fund or otherwise (other than a redemption or purchase or other acquisition of shares of Common Stock made for purposes of an employee incentive or benefit plan of the Company or any subsidiary), unless (A) all cumulative dividends with respect to the Series C Preferred Stock and any Parity Stock at the time such dividends are payable have been paid or funds have been set apart for payment of such dividends and (B) sufficient funds have been paid or set apart for the payment of the dividend for the current dividend period with respect to the Series C Preferred Stock and any Parity Stock. The foregoing limitations do not restrict the Company's ability to take the foregoing actions with respect to any Parity Stock. As used herein, (i) the term "dividend" does not include dividends payable solely in shares of Junior Stock on Junior Stock, or in options, warrants or rights to holders of Junior Stock to subscribe for or purchase any Junior Stock, and (ii) the term "Junior Stock" means the Common Stock, and any other class of capital stock of the Company now or hereafter issued and outstanding that ranks junior as to the payment of dividends or amounts upon liquidation, dissolution and winding up to the Series C Preferred Stock. REDEMPTION Shares of Series C Preferred Stock will not be redeemable by the Company prior to March 31, 2000, and at no time will the Series C Preferred Stock be redeemable for cash. On and after March 31, 2000, the shares of Series C Preferred Stock will be redeemable at the option of the Company, in whole or in part, for such number of shares of Common Stock as equals the liquidation preference of the Series C Preferred Stock to be redeemed (without regard to accrued and unpaid dividends) divided by the Conversion Price (as defined below under "Conversion Rights") as of the opening of business on the date set for such redemption (equivalent to a conversion rate of shares of Common Stock for each share of Series C Preferred Stock), subject to adjustment in certain circumstances. The Company may exercise this option only if for 20 trading days, within any period of 30 consecutive trading days, including the last trading day of such period, the closing price of the Common Stock on the NYSE equals or exceeds the Conversion Price per share, subject to adjustments in certain circumstances. In order to exercise its redemption option, the Company must issue a press release announcing the redemption prior to the opening of business on the second trading day after the conditions in the preceding sentences have, from time to time, been met, but in no event prior to February 29, 2000. Notice of redemption will be given by mail or by publication (with subsequent prompt notice by mail) to the holders of the Series C Preferred Stock not more than four business days after the Company issues the press release. The redemption date will be a date selected by the Company not less than 30 nor more than 60 days after the date on which the Company issues the press release announcing its intention to redeem the Series C Preferred Stock. If fewer than all of the shares of Series C Preferred Stock are to be redeemed, the shares to be redeemed shall be selected by lot or pro rata or in some other equitable manner determined by the Company. On the redemption date, the Company must pay on each share of Series C Preferred Stock to be redeemed any accrued and unpaid dividends, in arrears, for any dividend period ending on or prior to the redemption date. In the case of a redemption date falling after a dividend payment record date and prior to the related payment date, the holders of the Series C Preferred Stock at the close of business on such record date will be entitled to receive the dividend payable on such shares on the corresponding dividend payment date, notwithstanding the redemption of such shares following such dividend payment record date. Except as provided for in the preceding sentence, no payment or allowance will be made for accrued dividends on any shares of Series C Preferred Stock called for redemption or on the shares of Common Stock issuable upon such redemption. S-26 27 In the event that full cumulative dividends on the Series C Preferred Stock and any Parity Stock have not been paid or declared and set apart for payment, the Series C Preferred Stock may not be redeemed in part and the Company may not purchase or acquire shares of Series C Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of shares of Series C Preferred Stock. On and after the date fixed for redemption, provided that the Company has made available at the office of the Registrar and Transfer Agent a sufficient number of shares of Common Stock and an amount of cash to effect the redemption, dividends will cease to accrue on the Series C Preferred Stock called for redemption (except that, in the case of a redemption date after a dividend payment record date and prior to the related dividend payment date, holders of Series C Preferred Stock on the dividend payment record date will be entitled on such dividend payment date to receive the dividend payable on such shares), such shares shall no longer be deemed to be outstanding and all rights of the holders of such shares of Series C Preferred Stock shall cease except the right to receive the shares of Common Stock upon such redemption and any cash payable upon such redemption, without interest from the date of such redemption. At the close of business on the redemption date, each holder of Series C Preferred Stock (unless the Company defaults in the delivery of the shares of Common Stock or cash) will be, without any further action, deemed a holder of the number of shares of Common Stock for which such Series C Preferred Stock is redeemable. Fractional shares of Common Stock are not to be issued upon redemption of the Series C Preferred Stock, but, in lieu thereof, the Company will pay a cash adjustment based on the current market price of the Common Stock on the day prior to the redemption date. LIQUIDATION PREFERENCE The holders of shares of Series C Preferred Stock will be entitled to receive in the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, $25.00 per share of Series C Preferred Stock plus an amount per share of Series C Preferred Stock equal to all dividends (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to such holders (the "Liquidation Preference"), and no more. Until the holders of the Series C Preferred Stock have been paid the Liquidation Preference in full, no payment will be made to any holder of Junior Stock upon the liquidation, dissolution or winding up of the Company. If, upon any liquidation, dissolution or winding up of the Company, the assets of the Company, or proceeds thereof, distributable among the holders of the shares of Series C Preferred Stock are insufficient to pay in full the Liquidation Preference and the liquidation preference with respect to any other shares of Parity Stock, then such assets, or the proceeds thereof, will be distributed among the holders of shares of Series C Preferred Stock and any such Parity Stock ratably in accordance with the respective amounts which would be payable on such shares of Series C Preferred Stock and any such Parity Stock if all amounts payable thereon were paid in full. Neither a consolidation or merger of the Company with another corporation, a statutory share exchange by the Company nor a sale or transfer of all or substantially all of the Company's assets will be considered a liquidation, dissolution or winding up, voluntary or involuntary, of the Company. VOTING RIGHTS Except as indicated below, or except as otherwise from time to time required by applicable law, the holders of shares of Series C Preferred Stock will have no voting rights. If six quarterly dividends payable on the Series C Preferred Stock or any other Parity Stock are in arrears, whether or not earned or declared, the number of directors then constituting the Board of Directors of the Company will be increased by two and the holders of shares of Series C Preferred Stock, voting together as a class with the holders of any other series of Parity Stock (any such other series, the "Voting Preferred Shares"), will have the right to elect two additional directors to serve on the Company's Board of Directors at an annual meeting of shareholders or a properly called S-27 28 special meeting of the holders of the Series C Preferred Stock and such Voting Preferred Shares and at each subsequent annual meeting of shareholders until all such dividends and dividends for the current quarterly period on the Series C Preferred Stock and such other Voting Preferred Shares have been paid or declared and set aside for payment. The approval of two-thirds of the outstanding shares of Series C Preferred Stock and all other series of Voting Preferred Shares similarly affected, voting as a single class, will be required in order to amend the Articles to affect materially and adversely the rights, preferences or voting power of the holders of the Series C Preferred Stock or the Voting Preferred Shares or to authorize, create, or increase the authorized amount of, any class of stock having rights senior to the Series C Preferred Stock with respect to the payment of dividends or amounts upon liquidation, dissolution or winding up. However, the Company may create additional classes of Parity and Junior Stock, increase the authorized number of shares of Parity and Junior Stock and issue additional series of Parity and Junior Stock without the consent of any holder of Series C Preferred Stock. Except as required by law, the holders of Series C Preferred Stock will not be entitled to vote on any merger or consolidation involving the Company or a sale of all or substantially all of the assets of the Company. See "Conversion Price Adjustments" below. CONVERSION RIGHTS Shares of Series C Preferred Stock will be convertible, in whole or in part, at any time, at the option of the holders thereof, into shares of Common Stock at a conversion price of $ per share of Common Stock (equivalent to a conversion rate of shares of Common Stock for each share of Series C Preferred Stock), subject to adjustment as described below ("Conversion Price"). The right to convert shares of Series C Preferred Stock called for redemption will terminate at the close of business on a redemption date. For information as to notices of redemption, see "Redemption" above. Conversion of shares of Series C Preferred Stock, or a specified portion thereof, may be effected by delivering certificates evidencing such shares, together with written notice of conversion and a proper assignment of such certificates to the Company or in blank, to the office or agency to be maintained by the Company for that purpose. Initially such office will be the principal corporate trust office of First Union National Bank of North Carolina, Charlotte, North Carolina. Each conversion will be deemed to have been effected immediately prior to the close of business on the date on which the certificates for shares of Series C Preferred Stock shall have been surrendered and notice shall have been received by the Company as aforesaid (and if applicable, payment of an amount equal to the dividend payable on such shares shall have been received by the Company as described below) and the conversion shall be at the Conversion Price in effect at such time and on such date. Holders of shares of Series C Preferred Stock at the close of business on a dividend payment record date will be entitled to receive the dividend payable on such shares on the corresponding dividend payment date notwithstanding the conversion of such shares following such dividend payment record date and prior to such dividend payment date. However, shares of Series C Preferred Stock surrendered for conversion during the period between the close of business on any dividend payment record date and the opening of business on the corresponding dividend payment date (except shares converted after the issuance of a notice of redemption with respect to a redemption date during such period, which will be entitled to such dividend) must be accompanied by payment of an amount equal to the dividend payable on such shares on such dividend payment date. A holder of shares of Series C Preferred Stock on a dividend payment record date who (or whose transferee) tenders any such shares for conversion into shares of Common Stock on such dividend payment date will receive the dividend payable by the Company on such shares of Series C Preferred Stock on such date, and the converting holder need not include payment of the amount of such dividend upon surrender of shares of Series C Preferred Stock for conversion. Except as provided above, the S-28 29 Company will make no payment or allowance for unpaid dividends, whether or not in arrears, on converted shares or for dividends on the shares of Common Stock issued upon such conversion. Fractional shares of Common Stock are not to be issued upon conversion but, in lieu thereof, the Company will pay a cash adjustment based on the current market price of the Common Stock on the day prior to the conversion date. CONVERSION PRICE ADJUSTMENTS The Conversion Price is subject to adjustment upon certain events, including (i) dividends (and other distributions) payable in Common Stock or any class of capital stock of the Company, (ii) the issuance to all holders of Common Stock of certain rights or warrants entitling them to subscribe for or purchase Common Stock at a price per share less than the fair market value per share of Common Stock, (iii) subdivisions, combinations and reclassifications of Common Stock, and (iv) distributions to all holders of Common Stock of evidences of indebtedness of the Company or assets (including securities, but excluding those dividends, rights, warrants and distributions referred to above and excluding Permitted Common Stock Cash Distributions, as herein defined). "Permitted Common Stock Cash Distributions" means cash dividends and distributions paid with respect to the Common Stock after December 31, 1994 not in excess of the sum of the Company's cumulative undistributed net earnings at December 31, 1994, plus the cumulative amount of funds from operations, as determined by the Board of Directors on a basis consistent with the financial reporting practices of the Company, after December 31, 1994, minus the cumulative amount of dividends accrued or paid on the Series C Preferred Stock or any other class of Preferred Stock after the date of this Prospectus Supplement. In addition to the foregoing adjustments, the Company will be permitted to make such reductions in the Conversion Price as it considers to be advisable in order that any event treated for Federal income tax purposes as a dividend of stock or stock rights will not be taxable to the holders of the Common Stock, or, if that is not possible, to diminish any income taxes that are otherwise payable because of such event. In case the Company shall be a party to any transaction (including without limitation a merger, consolidation, statutory share exchange, tender offer for all or substantially all of the shares of Common Stock or sale of all or substantially all of the Company's assets), in each case as a result of which shares of Common Stock will be converted into the right to receive stock, securities or other property (including cash or any combination thereof), each share of Series C Preferred Stock, if convertible after the consummation of the transaction, will thereafter be convertible into the kind and amount of shares of stock and other securities and property receivable (including cash or any combination thereof) upon the consummation of such transaction by a holder of that number of shares or fraction thereof of Common Stock into which one share of Series C Preferred Stock was convertible immediately prior to such transaction (assuming such holder of Common Stock failed to exercise any rights of election and received per share the kind and amount received per share by a plurality of non-electing shares). The Company may not become a party to any such transaction unless the terms thereof are consistent with the foregoing. No adjustment of the Conversion Price will be required to be made in any case until cumulative adjustments amount to 1% or more of the Conversion Price. Any adjustments not so required to be made will be carried forward and taken into account in subsequent adjustments. TRANSFER AGENT, REGISTRAR, DIVIDEND DISBURSING AGENT AND REDEMPTION AGENT The transfer agent, registrar, dividend disbursing agent and redemption agent for the shares of Series C Preferred Stock will be First Union National Bank of North Carolina, Charlotte, North Carolina. S-29 30 TAXATION This section is a general summary of the material federal income tax considerations that may be relevant to prospective purchasers of shares of Series C Preferred Stock under the Internal Revenue Code of 1986, as amended (the "Code") and is based upon applicable Code provisions, rules and regulations promulgated thereunder, and reported judicial and administrative interpretations thereof, all of which are subject to change (possibly on a retroactive basis). The following discussion does not include all matters that may be relevant to any particular holder of shares of Series C Preferred Stock in light of such holder's particular facts and circumstances. Certain holders, such as foreign persons, tax-exempt entities, insurance companies and financial institutions, may be subject to special rules not discussed below. In particular, the following discussion does not discuss issues under the Employee Retirement Income Security Act of 1974, as amended, the Foreign Investment in Real Property Tax Act of 1980, and foreign, state and local tax laws. Each prospective purchaser should consult, and must depend on, his own tax advisor regarding the specific tax consequences to him of the purchase, ownership, and sale of the shares of Series C Preferred Stock and of the Company's election to be taxed as a REIT, including the federal, state, local, foreign and other tax consequences of such purchase, ownership, sale and election and of potential changes in applicable tax laws. TAXATION OF THE COMPANY Beginning with its taxable year 1987, and for all of its subsequent taxable years, the Company has elected to be taxed as a REIT under the Code. The Company has received an opinion of Hull, Towill, Norman & Barrett, P.C., counsel to the Company, that the Company met the requirements for qualification and taxation as a REIT for the years 1987 through 1993, subject to the qualification that, with respect to the taxable year 1989, an issue exists as to whether the Company satisfied the requirement that it distribute dividends equal to 95% of its REIT taxable income (other than net capital gain) for such taxable year. Hull, Towill, Norman & Barrett, P.C. is of the opinion, however, that if such issue were successfully asserted by the Internal Revenue Service, the Company would be entitled to pay "deficiency dividends" in compliance with the provisions of Section 860 of the Code and thus preserve its REIT qualification for the taxable year 1989 and subsequent taxable years. If a deficiency dividend is required, the Company has estimated that as of December 31, 1994 the amount of the dividend and interest thereon (net of related tax refunds) would be approximately $660,000. The Company also expects to receive an opinion from Hull, Towill, Norman & Barrett, P.C. that the Company met the requirements for qualification and taxation as a REIT for 1994 and that the Company's diversity of stock ownership and proposed method of operation should enable it to meet the requirements for qualification and taxation as a REIT for the taxable year 1995. The opinions referred to above are based upon (i) representations made by officers of the Company with respect to various factual matters relating to the Company's operations and stock ownership, (ii) current law, including relevant statutes, regulations, judicial and administrative precedent (which law is subject to change on a retroactive basis), and (iii) the assumption that the Company will continue to meet certain ownership tests and operate in the manner described in this Prospectus Supplement. In particular, the Company's ability to continue to qualify as a REIT under the requirements of the Code and the regulations promulgated thereunder is dependent upon the Company's ability to meet the stock ownership tests and, through actual annual operating results, the various other qualification tests discussed below. No assurance can be given that the actual results of the Company's operations and its stock ownership for the current or any future taxable year will satisfy such requirements. To qualify as a REIT under the Code for a taxable year, the Company must meet certain requirements relating to its assets, income, stock ownership and distributions to shareholders. Generally, at the end of each calendar quarter, (i) at least 75% of the value of the total assets of the S-30 31 Company must consist of real estate assets, cash or government securities, (ii) not more than 25% of the value of its total assets may consist of securities (other than government securities), and (iii) the Company may not own more than 10% of the outstanding voting securities of any one issuer and may not own securities of any one issuer whose value represents more than 5% of the total value of the Company's assets (shares of qualified REITs and of certain wholly-owned subsidiaries are exempt from the requirements described in clauses (ii) and (iii)). The Company must also satisfy three gross income tests. First, at least 75% of a REIT's gross income must be derived from specified real estate sources for each taxable year. Income that qualifies under the 75% test includes certain qualified rents from real property, gains from the sale of real property not held primarily for sale to customers in the ordinary course of business, dividends on REIT shares, interest on loans secured by mortgages on real property, income from foreclosure property, and certain qualified temporary investment income attributable to the investment of new capital received by the REIT in exchange for either stock or certain debt instruments during the one- year period following the receipt of such new capital. In order for rents to qualify under the 75% test, they may not be derived from tenants having certain relationships with the Company and may not be based on the income or profits of any person, except that they may be based on a fixed percentage or percentages of gross income or receipts. Further, the REIT may not manage the property or furnish services to the tenants from whom the rents are received unless either (i) the property is managed by an independent contractor which is paid an arm's-length fee for its services and from which the REIT derives no income or (ii) any services performed are of a type customarily rendered in connection with the rental of space for occupancy only. In this regard, it should be noted that the Company manages its rental properties directly. The Company, however, has received a favorable ruling from the Internal Revenue Service with respect to the customary nature of most of the services that it currently provides in connection with its residential and commercial rental properties. The Company will be entitled to rely on the ruling only to the extent that its management operations do not differ materially from those described in its request for the ruling. Second, at least 95% of the Company's gross income for each taxable year must be derived from income that qualifies under the 75% test (other than qualified temporary investment income), plus dividends, interest or gains from disposition of certain stock or securities. Third, gross income from the sale or other disposition (i) of stock and securities held for less than one year (ii) of property in certain prohibited transactions and (iii) of real property held for less than four years must comprise less than 30% of the gross income for each taxable year of the Company. In order to qualify as a REIT, the Company must also satisfy certain ownership requirements with respect to its shares of capital stock, including both Common Stock and Preferred Stock. The shares of capital stock of the Company must be held by at least 100 shareholders, and no more than 50% in value of the outstanding shares may be owned, actually or constructively, by five or fewer individuals (including certain types of entities that are treated as individuals for this purpose) at any time during the last half of the Company's taxable year. There are no restrictions in the Company's Articles that would limit the ability of a holder of Series B Preferred Stock, Series C Preferred Stock or Common Stock to transfer shares if such transfer would cause or contribute to a violation of the stock ownership requirements. Thus, while the Company intends to monitor carefully the diversity of its stock ownership and expects to be able to meet the ownership requirements in the future, there can be no assurance that transfers of shares of capital stock beyond the control of the Company, or changes in the relative values of the Preferred Stock and the Common Stock, could not result in the Company's failure to satisfy the stock ownership requirements. Finally, the Company must distribute to its shareholders annually an amount (determined without regard to capital gains dividends) at least equal to (i) 95% of its REIT taxable income (computed without regard to net capital gains and the dividends received deduction), plus (ii) 95% of the after-tax income from any foreclosure property, minus (iii) certain noncash income. If the S-31 32 Company were to fail the 95%-distribution requirement as to a particular taxable year, then, provided certain conditions are met, the Company generally would be entitled to cure the deficiency retroactively by paying deficiency dividends to its shareholders. However, the Company would be liable for interest charges on such deficiency dividends. So long as the Company satisfies the above described requirements and thus qualifies for taxation as a REIT, it generally will not be subject to federal income tax on that portion of its taxable income and capital gain that is currently distributed to its shareholders. Any undistributed taxable income or capital gain, however, will be taxed to the Company at regular corporate rates. In addition, the Company may be subject to other special income and excise taxes (including the alternative minimum tax) in certain circumstances. If the Company fails to qualify as a REIT for any taxable year and certain relief provisions do not apply, the Company will be subject to federal income tax (including the alternative minimum tax) on its taxable income at regular corporate rates, and it will not receive a deduction for dividends paid to its shareholders. Additionally, any distributions to shareholders will still be taxable as ordinary income to the extent of current and accumulated earnings and profits (although such dividends will be eligible, subject to certain limitations, for the corporate dividends-received deduction as to a corporate shareholder). Thus, the Company's income would be subject to "double taxation" -- at the corporate level and the shareholder level -- to the extent such income is distributed to shareholders. Failure to qualify as a REIT could force the Company to reduce significantly its distributions and to incur substantial indebtedness or liquidate substantial investments in order to pay the resulting corporate taxes. In addition, the Company would not be eligible to elect REIT status for the four subsequent taxable years, unless its failure to qualify was due to reasonable cause and not willful neglect, and certain other requirements were satisfied. In order to elect again to be taxed as a REIT, the Company would be required to distribute all of its earnings and profits accumulated in any non-REIT taxable year. Because the Company had substantial earnings and profits attributable to pre-1987 taxable years, it could be required to incur substantial indebtedness or liquidate substantial investments in order to make such distributions which would be taxable as ordinary income to its shareholders. Further, the Company might be subject to taxation on any unrealized gain inherent in its assets at the time of such election. TAXATION OF THE SHAREHOLDERS OF THE COMPANY Distributions to Holders. Distributions with respect to the Series C Preferred Stock will be taxable as dividends to the extent of the Company's current or accumulated earnings and profits as determined for federal income tax purposes. Distributions with respect to Common Stock out of its current or accumulated earnings and profits that remain after an appropriate allocation of such earnings and profits to distributions made to holders of the Series C Preferred Stock will generally be taxed to the holders of Common Stock as ordinary income. Distributions with respect to the Series C Preferred Stock or Common Stock in excess of earnings and profits will be treated first as a tax-free return of capital to the holder, to the extent of the holder's basis in such stock (and will correspondingly reduce such basis) and then as a capital gain, to the extent of any excess over such basis (assuming the holder holds the Series C Preferred Stock or Common Stock as a capital asset). If distributions to holders of Preferred Stock exceed the Company's current and accumulated earnings and profits, the Company will allocate such earnings and profits among distributions to the holders of all classes of the Preferred Stock in proportion to the total distributions for such year with respect to such shares (but will allocate no part of the earnings and profits to holders of Common Stock). Dividends will be taxed as ordinary income to the holder except to the extent that the dividend is a distribution of the Company's net capital gain and is properly designated by the Company as a capital gain dividend. The Company presently intends to designate the respective dividends paid by the Company to the holders of all classes of the Preferred Stock and Common Stock in such a manner that the aggregate dividends paid to the holders of each such class of stock annually will S-32 33 have the same relative proportions of capital gain dividends (if any are so designated) and ordinary income dividends. The Company will notify each holder of the Series C Preferred Stock or Common Stock as to the portions of each distribution which, in its judgment and consistent with the intention stated in the preceding sentence, constitute ordinary income and capital gain. Capital gain distributions to corporate holders are generally taxed in the same manner as ordinary income, except that capital losses of such holders are deductible only to the extent of capital gains. Under sec.291 of the Code, however, corporate holders may be required to treat up to 20% of any such capital gain as ordinary income. For noncorporate shareholders, net capital gains are taxed at a maximum rate of 28%, while short-term capital gains and ordinary income are taxed at a maximum rate of 39.6%. However, because of certain limitations on itemized deductions and personal exemptions, the effective rate may be higher in certain circumstances. Except to a very limited extent, capital losses of noncorporate shareholders are deductible only to the extent of capital gains. Ordinary and capital gain dividends are not eligible for the dividends-received deduction that is generally allowed to corporate shareholders. Sale of Series C Preferred Stock or Common Stock. Upon the sale or exchange of Series C Preferred Stock or Common Stock, the holder will recognize gain or loss equal to the difference between the amount realized on such sale and the tax basis of such Series C Preferred Stock or Common Stock. Assuming such stock is held as a capital asset, such gain or loss will be a long-term capital gain or loss if the Series C Preferred Stock or Common Stock have been held for more than one year. However, any loss recognized by a holder on the sale of a share of Series C Preferred Stock or Common Stock held for not more than six months and with respect to which a capital gain dividend was received will be treated as a long-term capital loss to the extent of the amount of distributions from the Company with respect to such share that was required to be treated by such holder as long-term capital gain. Redemption or Conversion of Series C Preferred Stock to Common Stock. No gain or loss generally will be recognized upon redemption or conversion of Series C Preferred Stock into Common Stock except with respect to any cash paid in lieu of fractional shares of Common Stock. The tax basis of the Common Stock received upon redemption or conversion will be equal to the tax basis of the Series C Preferred Stock redeemed or converted and, provided the Series C Preferred Stock is held as a capital asset, the holding period of the Common Stock will include the holding period of the Series C Preferred Stock redeemed or converted. Additionally, if a conversion takes place when there is a dividend arrearage on the Series C Preferred Stock and the fair market value of the Common Stock exceeds the issue price of the Series C Preferred Stock, a portion of the Common Stock received might be treated as a dividend distribution taxable as ordinary income. Adjustment of Conversion Price. Under Section 305 of Code, holders of preferred stock may be deemed to have received a constructive distribution of stock that is taxable as a dividend where the conversion ratio is adjusted to reflect a cash or property distribution with respect to the common stock into which it is convertible. An adjustment to the conversion price made pursuant to a bona fide, reasonable adjustment formula which has the effect of preventing dilution of the interest of the holders, however, will generally not be considered to result in a constructive distribution of stock. Certain of the possible adjustments provided in the Series C Preferred Stock may not qualify as being pursuant to a bona fide, reasonable adjustment formula. If a nonqualifying adjustment were made, the holders of Series C Preferred Stock might be deemed to have received a taxable stock dividend. Unrelated Business Income Tax of Pension Trusts. If any exempt pension trust described in Section 401(a) becomes the owner of more than 10% (by value) of the outstanding stock of the Company and certain other conditions (generally related to the existence of a high concentration of ownership of Company stock in the hands of such pension trusts) are satisfied, a portion of the S-33 34 dividends received by the pension trust with respect to its Company stock may be subject to the unrelated business income tax. Exempt pension trusts should consult their tax advisors regarding the advisability of acquiring more than 10% (by value) of the outstanding stock of the Company. Backup Withholding. Under the backup withholding provisions of the Code and applicable Treasury regulations thereunder a holder of Series C Preferred Stock or Common Stock may be subject to backup withholding at the rate of 31% with respect to dividends paid on, or the proceeds of a sale or redemption of, such stock unless (i) such holder is a corporation or comes within certain other exempt categories and when required demonstrates this fact, or (ii) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with the applicable requirements of the backup withholding rules. The amount of any backup withholding from a payment to a holder will be allowed as a credit against the holder's federal income tax liability and may entitle such holder to a refund, provided that the required information is furnished to the Internal Revenue Service. Other Tax Matters. Holders of Series C Preferred Stock or Common Stock will not be permitted to deduct any losses of the Company (whether ordinary or capital) on their own income tax returns. In addition, under regulations to be promulgated by the Treasury Department, holders of Series C Preferred Stock or Common Stock may be required to report as tax preference items or adjustments certain items and adjustments of the Company for purposes of determining the holders' alternative minimum tax liability, if any. S-34 35 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Underwriters named below (the "Underwriters"), through their Representatives, Alex. Brown & Sons Incorporated, Goldman, Sachs & Co., PaineWebber Incorporated and Interstate/Johnson Lane Corporation, have severally agreed to purchase from the Company the following respective number of shares of Series C Preferred Stock at the public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus Supplement:
NUMBER OF UNDERWRITER SHARES - --------------------------------------------------------------------------------- --------- Alex. Brown & Sons Incorporated.................................................. Goldman, Sachs & Co.............................................................. PaineWebber Incorporated......................................................... Interstate/Johnson Lane Corporation.............................................. --------- Total............................................................................ 4,000,000 =========
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will purchase the total number of shares of Series C Preferred Stock offered hereby if any such shares of Series C Preferred Stock are purchased. The Company has been advised by the Representatives that the Underwriters propose to offer the shares of Series C Preferred Stock directly to the public at the public offering price set forth on the cover of this Prospectus Supplement and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the public offering, the public offering price and other selling terms may be changed by the Representatives. The Company has granted to the Underwriters an option, exercisable not later than 30 days after the date of this Prospectus Supplement, to purchase up to 600,000 additional shares of Series C Preferred Stock at the public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus Supplement. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof which the number of shares of Series C Preferred Stock to be purchased by it shown in the table above bears to 4,000,000, and the Company will be obligated, pursuant to the option, to sell such shares to the Underwriters. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of the shares of Series C Preferred Stock offered hereby. If purchased, the Underwriters will offer such additional shares on the same terms as those on which the 4,000,000 shares are being offered. The Underwriting Agreement contains covenants of indemnity among the Underwriters and the Company against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended. The Company and its Executive Officers and Directors have entered into agreements prohibiting the sale of their shares of Common Stock and Preferred Stock, if any, for 90 days after the date of this Prospectus Supplement without the prior consent of the Representatives of the Underwriters. EXPERTS The audited financial statements of the Company incorporated by reference in this Prospectus Supplement and elsewhere in the registration statement of which this Prospectus Supplement is a part, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in S-35 36 their reports with respect thereto, and are incorporated herein in reliance upon the authority of said firm as experts in giving said reports. LEGAL OPINIONS Certain legal opinions relating to tax matters and the shares of the Series C Preferred Stock offered hereby will be passed upon for the Company by Hull, Towill, Norman & Barrett, P.C., Augusta, Georgia. Certain legal matters relating to the validity of the Series C Preferred Stock offered hereby will be passed upon for the Underwriters by Piper & Marbury, Baltimore, Maryland. W. Hale Barrett, a member of the firm of Hull, Towill, Norman & Barrett, P.C., is a director and secretary of the Company. He and members of his firm own 25,751 shares of Common Stock. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE In addition to the documents incorporated by reference pursuant to the accompanying Prospectus dated February 10, 1995, there is incorporated by reference herein the Company's current report on Form 8-K filed by the Company with the Securities and Exchange Commission on February 14, 1995. For additional information with respect to documents incorporated by reference herein, see "Incorporation Of Certain Documents By Reference" in the accompanying Prospectus. S-36 37 PROSPECTUS $400,000,000 MERRYLAND & INVESTMENT COMPANY, INC. DEBT SECURITIES, PREFERRED STOCK, DEPOSITARY SHARES, COMMON STOCK AND COMMON STOCK WARRANTS ------------------ Merry Land & Investment Company, Inc. ("Merry Land" or the "Company") may from time to time offer in one or more series (i) its unsecured senior or subordinated debt securities (the "Debt Securities"), (ii) shares or fractional shares of its preferred stock, without par value (the "Preferred Stock"), (iii) shares of Preferred Stock represented by depositary shares (the "Depositary Shares"), (iv) shares of its common stock, without par value (the "Common Stock"), or (v) warrants to purchase Common Stock (the "Common Stock Warrants"), with an aggregate public offering price of up to $400,000,000 on terms to be determined at the time of offering. The Debt Securities, Preferred Stock, Depositary Shares, Common Stock and Common Stock Warrants (collectively, the "Offered Securities") may be offered, separately or together, in separate series in amounts, at prices and on terms to be set forth in a supplement to this Prospectus (each, a "Prospectus Supplement"). The Debt Securities will be direct unsecured obligations of the Company and may be either senior Debt Securities ("Senior Securities") or subordinated Debt Securities ("Subordinated Securities"). The Senior Securities will rank equally with all other unsecured and unsubordinated indebtedness of the Company. The Subordinated Securities will be subordinated to all existing and future Senior Debt of the Company, as defined. See "Description of Debt Securities." The specific terms of the Offered Securities in respect of which this Prospectus is being delivered will be set forth in the applicable Prospectus Supplement and will include, where applicable: (i) in the case of Debt Securities, the specific title, aggregate principal amount, currency, form (which may be registered or bearer, or certificated or global), authorized denominations, maturity, rate (or manner of calculation thereof) and time of payment of interest, terms for redemption at the option of the Company or repayment at the option of the Holder, terms for sinking fund payments, terms for conversion into Preferred Stock, Common Stock or other Company securities, additional covenants, and any initial public offering price; (ii) in the case of Preferred Stock, the specific title and stated value, any dividend, liquidation, redemption, conversion, voting and other rights, and any initial public offering price; (iii) in the case of Depositary Shares, the fractional share of Preferred Stock represented by each such Depositary Share; (iv) in the case of Common Stock, any initial public offering price; and (v) in the case of Common Stock Warrants, the duration, offering price, exercise price and detachability. In addition, such specific terms may include limitations on direct or beneficial ownership and restrictions on transfer of the Offered Securities, in each case as may be appropriate to preserve the status of the Company as a real estate investment trust for federal income tax purposes. The applicable Prospectus Supplement will also contain information, where applicable, about certain United States federal income tax considerations relating to, and any listing on a securities exchange of, the Offered Securities covered by such Prospectus Supplement. The Offered Securities may be offered directly by the Company, through agents designated from time to time by the Company, or to or through underwriters or dealers. If any agents or underwriters are involved in the sale of any of the Offered Securities, their names, and any applicable purchase price, fee, commission or discount arrangement between or among them, will be set forth, or will be calculable from the information set forth, in the applicable Prospectus Supplement. See "Plan of Distribution." No Offered Securities may be sold without delivery of the applicable Prospectus Supplement describing the Offered Securities and the method and terms of the offering. ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------ THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. THE DATE OF THIS PROSPECTUS IS FEBRUARY 10, 1995. 38 AVAILABLE INFORMATION The Company is subject to the information requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and its Regional Offices located at: 75 Park Place, New York, New York 10017; and 500 West Madison Street, Chicago, Illinois 60661; and can also be inspected and copied at the offices of the New York Stock Exchange at 20 Broad Street, New York, New York 10005. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the prescribed fees. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company has filed a registration statement with the Commission under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Offered Securities (the "Registration Statement"). As permitted by the rules and regulations of the Commission, this Prospectus does not contain all of the information set forth in the Registration Statement. For further information, reference is made to such Registration Statement and to the exhibits, which may be inspected and copied at or obtained from the Commission's public reference facilities, 450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of the prescribed fees. Each statement made in this Prospectus with respect to a document that is filed as an exhibit to the Registration Statement is qualified by reference to such exhibit for a complete statement of the terms and conditions thereof. There are incorporated herein by reference the following documents heretofore filed by the Company with the Commission: (i) the Company's annual report on Form 10-K for the year ended December 31, 1993; (ii) the Company's current reports on Form 8-K/A filed on March 1, 1994 and March 2, 1994, amending the Company's current reports on Form 8-K filed on November 19, 1993 and December 30, 1993, respectively; (iii) the Company's current reports on Form 8-K filed June 6, 1994, June 16, 1994, June 29, 1994, August 15, 1994 (as amended on Forms 8-K/A filed on September 27, 1994 and February 7, 1995), November 3, 1994 (as amended on Form 8-K/A filed on January 24, 1995, which contains a description of the Company's $2.205 Series B Cumulative Convertible Preferred Stock) and December 2, 1994; (iv) the Company's quarterly reports on Form 10-Q for the quarters ended March 31, 1994, June 30, 1994 and September 30, 1994; (v) the description of the Company's Common Stock and $1.75 Series A Cumulative Convertible Preferred Stock contained in the Company's registration statements on Form 8-A filed under the Exchange Act, including any amendments or reports filed for the purpose of updating such descriptions; and (vi) the Company's definitive proxy statement dated March 22, 1994 relating to the annual meeting of shareholders held on April 18, 1994. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date of filing such documents. Any statement contained herein or in a document incorporated herein by reference or deemed to be incorporated herein by reference shall be modified or superseded for purposes of this 2 39 Prospectus to the extent that a statement contained herein, in any accompanying Prospectus Supplement relating to a specific offering of Offered Securities or in any other amendment or supplement hereto or document subsequently incorporated herein by reference, modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. Copies of all documents incorporated herein by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into the information that this Prospectus incorporates), will be provided without charge to each person who receives a copy of this Prospectus on the written or oral request of such person directed to W. Hale Barrett, the Company's Secretary, 624 Ellis Street, Augusta, Georgia 30901, telephone number (706) 722-6756. 3 40 THE COMPANY Merry Land is one of the largest owners and operators of upscale garden apartments in the Southern region of the United States. Merry Land became an independent publicly owned company in 1981 and has been managing apartment communities since 1982. It is a self-administered and self-managed real estate investment trust ("REIT") headquartered in Augusta, Georgia. At December 31, 1994, the Company owned 71 apartment communities containing 18,851 units and having an aggregate cost of $796.4 million. At that date, the communities had an average occupancy of 96% and an average monthly rental rate of $591. The Company's apartment communities are located in Florida, Georgia, Maryland, North Carolina, Ohio, South Carolina, Tennessee and Virginia. Merry Land is a Georgia corporation. The Company's principal office is located at 624 Ellis Street, Augusta, Georgia 30901 and its telephone number is (706) 722-6756. USE OF PROCEEDS Unless otherwise set forth in the applicable Prospectus Supplement, the net proceeds from the sale of the Offered Securities will be used for general corporate purposes, which may include repayment of indebtedness, making improvements to apartment properties, the acquisition of additional apartment properties and the development and construction of new apartment properties. CERTAIN RATIOS The following table sets forth the Company's ratio of earnings to fixed charges and ratio of earnings to combined fixed charges and Preferred Stock dividends for the periods shown.
YEAR ENDED DECEMBER 31, ---------------------------------------- 1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- Ratio of earnings to fixed charges.................... 1.26x 1.69x 2.98x 5.58x 4.44x Ratio of earnings to combined fixed charges and Preferred Stock dividends........................... 1.26x 1.69x 2.98x 3.29x 2.56x
The ratio of earnings to fixed charges was computed by dividing earnings by fixed charges. The ratio of earnings to combined fixed charges and Preferred Stock dividends was computed by dividing earnings by fixed charges and Preferred Stock dividends. For the purpose of computing these ratios, earnings consist of income before taxes plus fixed charges. Fixed charges consist of interest on borrowed funds and amortization of debt discount and expense. Preferred Stock dividends consist of those dividends paid on the Company's $1.75 Series A Cumulative Convertible Preferred Stock (the "Series A Preferred Stock") and $2.205 Series B Cumulative Convertible Preferred Stock (the "Series B Preferred Stock") during the respective periods set forth in the preceding table. DESCRIPTION OF DEBT SECURITIES GENERAL The Senior Securities are to be issued under an indenture dated as of February 1, 1995, as supplemented from time to time (the "Senior Indenture"), between the Company and First Union National Bank of Georgia (the "Senior Indenture Trustee"), and the Subordinated Securities are to be issued under an indenture dated as of February 1, 1995, as supplemented from time to time (the "Subordinated Indenture"), between the Company and First Union National Bank of Georgia (the "Subordinated Indenture Trustee"). The term "Trustee," as used herein, shall refer to the Senior Indenture Trustee or the Subordinated Indenture Trustee, as appropriate. The forms of the Senior Indenture and the Subordinated Indenture (being sometimes referred to herein collectively as the "Indentures" and individually as an "Indenture") are filed as exhibits to the Registration Statement 4 41 and are available for inspection at the corporate trust office of the Senior Indenture Trustee in Atlanta, Georgia and the corporate trust office of the Subordinated Indenture Trustee in Atlanta, Georgia or as described under "Available Information." The Indentures are subject to and governed by the Trust Indenture Act of 1939, as amended (the "TIA"). The statements made herein relating to the Indentures and the Debt Securities are summaries of certain provisions thereof, do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all provisions of the Indentures and the Debt Securities. All section references appearing herein are to sections of the Indentures, and capitalized terms used but not defined herein have the respective meanings set forth in the Indentures and the Debt Securities. TERMS The Debt Securities will be direct, unsecured obligations of the Company. The indebtedness represented by the Senior Securities will rank equally with all other unsecured and unsubordinated indebtedness of the Company. The indebtedness represented by the Subordinated Securities will be subordinated in right of payment to the prior payment in full of the Senior Debt of the Company, as described under "Subordination". Each Indenture provides that the Debt Securities may be issued without limit as to aggregate principal amount, in one or more series, in each case as established from time to time in or pursuant to authority granted by a resolution of the Board of Directors of the Company or as established in one or more indentures supplemental to such Indenture. Debt Securities may be issued with terms different from those of Debt Securities previously issued; all Debt Securities of one series need not be issued at the same time and, unless otherwise provided, a series may be reopened, without the consent of the Holders of the Debt Securities of such series, for issuances of additional Debt Securities of such series (Section 301 of each Indenture). Each Indenture provides that there may be more than one Trustee thereunder, each with respect to one or more series of Debt Securities. Any Trustee under either Indenture may resign or be removed with respect to one or more series of Debt Securities, and a successor Trustee may be appointed to act with respect to such series (Section 608 of each Indenture). In the event that two or more persons are acting as Trustee with respect to different series of Debt Securities, each such Trustee shall be a Trustee of a trust under the applicable Indenture separate and apart from the trust administered by any other Trustee (Sections 101 and 609 of each Indenture), and, except as otherwise indicated herein, any action described herein to be taken by the Trustee may be taken by each such Trustee with respect to, and only with respect to, the one or more series of Debt Securities for which it is Trustee under the applicable Indenture. Reference is made to the Prospectus Supplement relating to the series of Debt Securities being offered for the specific terms thereof, including: (1) the title of such Debt Securities and whether such Debt Securities are Senior Securities or Subordinated Securities; (2) the aggregate principal amount of such Debt Securities and any limit on such principal amount; (3) the percentage of the principal amount at which such Debt Securities will be issued and, if other than the principal amount thereof, the portion of the principal amount payable upon declaration of acceleration of the maturity thereof, or (if applicable) the portion of the principal amount of such Debt Securities that is convertible into Capital Stock (as defined in the Indentures), or the method by which any such portion will be determined; (4) if convertible, any applicable limitations on the ownership or transferability of the Capital Stock into which such Debt Securities are convertible; 5 42 (5) the date or dates, or the method by which such date or dates will be determined, on which the principal of such Debt Securities will be payable and the amount of principal payable thereon; (6) the rate or rates (which may be fixed or variable) at which such Debt Securities will bear interest, if any, or the method by which such rate or rates will be determined, the date or dates from which such interest will accrue or the method by which such date or dates will be determined, the Interest Payment Dates on which any such interest will be payable and the Regular Record Dates, if any, for such Interest payable on any Registered Security on any Interest Payment Dates, or the method by which such Dates will be determined, and the basis upon which interest will be calculated if other than that of a 360-day year consisting of twelve 30-day months; (7) the place or places where the principal of (and premium or Make-Whole Amount (as defined), if any), interest, if any, on, and Additional Amounts, if any, payable in respect of, such Debt Securities will be payable, where such Debt Securities may be surrendered for registration of transfer, conversion or exchange and where notices or demands to or upon the Company in respect of such Debt Securities and the applicable Indenture may be served; (8) the period or periods within which, the price or prices (including premium or Make-Whole Amount, if any) at which, the currency or currencies, currency unit or units or composite currency or currencies in which and other terms and conditions upon which such Debt Securities may be redeemed in whole or in part, at the option of the Company, if the Company is to have the option; (9) the obligation, if any, of the Company to redeem, repay or purchase such Debt Securities pursuant to any sinking fund or analogous provision or at the option of a Holder thereof, and the period or periods within which or the date or dates on which, the price or prices at which, the currency or currencies, currency unit or units or composite currency or currencies in which, and other terms and conditions upon which such Debt Securities will be redeemed, repaid or purchased, in whole or in part, pursuant to such obligation; (10) whether such Debt Securities will be in registered or bearer form and terms and conditions relating thereto, and, if other than $1,000 and any integral multiple thereof, the denominations in which any registered Debt Securities will be issuable and, if other than $5,000, the denomination or denominations in which any bearer Debt Securities will be issuable; (11) if other than United States dollars, the currency or currencies in which such Debt Securities will be denominated and payable, which may be a foreign currency or units of two or more foreign currencies or a composite currency or currencies; (12) whether the amount of payment of principal of (and premium or Make-Whole Amount, if any) or interest, if any, on such Debt Securities may be determined with reference to an index, formula or other method (which index, formula or method may be based, without limitation, on one or more currencies, currency units, composite currencies, commodities, equity indices or other indices), and the manner in which such amounts will be determined; (13) whether the principal of (and premium or Make-Whole Amount, if any) or interest or Additional Amounts, if any, on such Debt Securities are to be payable, at the election of the Company or a Holder thereof, in a currency or currencies, currency unit or units or composite currency or currencies other than that in which such Debt Securities are denominated or stated to be payable, the period or periods within which, and the terms and conditions upon which, such election may be made, and the time and manner of, and identity of the exchange rate agent with responsibility for, determining the exchange rate between the currency or currencies, currency unit or units or composite currency or currencies in which such Debt Securities are 6 43 denominated or stated to be payable and the currency or currencies, currency unit or units or composite currency or currencies in which such Debt Securities are to be so payable; (14) provisions, if any, granting special rights to the Holders of such Debt Securities upon the occurrence of such events as may be specified; (15) any deletions from, modifications of or additions to the Events of Default or covenants of the Company with respect to such Debt Securities, whether or not such Events of Default or covenants are consistent with the Events of Default or covenants set forth in the applicable Indenture; (16) whether such Debt Securities will be issued in certificated or book-entry form and terms and conditions related thereto; (17) the applicability, if any, of the defeasance and covenant defeasance provisions of Article Fourteen of the applicable Indenture; (18) whether and under what circumstances the Company will pay Additional Amounts as contemplated in the Indenture on such Debt Securities to any Holder who is not a United States person in respect of any tax, assessment or governmental charge and, if so, whether the Company will have the option to redeem such Debt Securities rather than pay such Additional Amounts (and the terms of any such option); (19) the obligation, if any, of the Company to permit the conversion of the Debt Securities of such series into shares of Capital Stock of the Company and the terms and conditions upon which such conversion shall be effected; and (20) any other terms of such Debt Securities, which terms shall not be inconsistent with the provisions of the applicable Indenture (Section 301 of each Indenture). The Debt Securities may provide for less than the entire principal amount thereof to be payable upon declaration of acceleration of the maturity thereof ("Original Issue Discount Securities") (Section 502 of each Indenture). Any special United States federal income tax, accounting and other considerations applicable to Original Issue Discount Securities will be described in the applicable Prospectus Supplement. DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER Unless otherwise specified in the applicable Prospectus Supplement, the Debt Securities of any series issued in registered form will be issuable in denominations of $1,000 and integral multiples thereof. Unless otherwise specified in the applicable Prospectus Supplement, the Debt Securities of any series issued in bearer form will be issuable in denominations of $5,000 (Section 302 of each Indenture). Unless otherwise specified in the applicable Prospectus Supplement, the principal of (and premium or Make-Whole Amount, if any) and interest on any series of Senior Securities will be payable at the corporate trust office of the Senior Indenture Trustee located at Corporate Trust Administration, 999 Peachtree Street, N.E., Suite 1100, Atlanta, Georgia 30309, and the principal of (and premium or Make-Whole Amount, if any) and interest on any series of Subordinated Securities will be payable at the corporate trust office of the Subordinated Indenture Trustee located at Corporate Trust Administration, 999 Peachtree Street, N.E., Suite 1100, Atlanta, Georgia 30309; provided that at the option of the Company payment of interest on any series of Debt Securities may be made by check mailed to the address of the Person entitled thereto as it appears in the Security Register for such series or by wire transfer of funds to such Person at an account maintained within the United States (Sections 301, 305, 306, 307 and 1002 of each Indenture). Any interest not punctually paid or duly provided for on any Interest Payment Date with respect to a Debt Security ("Defaulted Interest") will forthwith cease to be payable to the Holder on the 7 44 applicable Regular Record Date and may either be paid to the Person in whose name such Debt Security is registered at the close of business on a special record date (the "Special Record Date") for the payment of such Defaulted Interest to be fixed by the Trustee, in which case notice thereof shall be given to the Holder of such Debt Security not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner, all as more completely described in the applicable Indenture (Section 307 of each Indenture). Subject to certain limitations imposed upon Debt Securities issued in book-entry form, the Debt Securities of any series will be exchangeable for other Debt Securities of the same series and of a like aggregate principal amount and tenor of different authorized denominations upon surrender of such Debt Securities at the corporate trust office of the Trustee referred to above. In addition, subject to certain limitations imposed upon Debt Securities issued in book-entry form, the Debt Securities of any series may be surrendered for conversion or registration of transfer thereof at the corporate trust office of the Trustee referred to above. Every Debt Security surrendered for conversion, registration of transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer. No service charge will be made for any registration of transfer or exchange of any Debt Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith (Section 305 of each Indenture). If the applicable Prospectus Supplement refers to any transfer agent (in addition to the Trustee) initially designated by the Company with respect to any series of Debt Securities, the Company may at any time rescind the designation of any such transfer agent or approve a change in the location through which such transfer agent acts, except that the Company will be required to maintain a transfer agent in each Place of Payment for such series. The Company may at any time designate additional transfer agents with respect to any series of Debt Securities (Section 1002 of each Indenture). Neither the Company nor the Trustee shall be required to (i) issue, register the transfer of or exchange Debt Securities of any series during a period beginning at the opening of business 15 days before any selection of Debt Securities of that series to be redeemed and ending at the close of business on the day of mailing or publication of the relevant notice of redemption; (ii) register the transfer of or exchange any Registered Security, or portion thereof, called for redemption, except the unredeemed portion of any Registered Security being redeemed in part; (iii) exchange any Bearer Security selected for redemption, except that such a Bearer Security may be exchanged for a Registered Security of that series and like tenor, provided that such Registered Security shall be simultaneously surrendered for redemption; or (iv) issue, register the transfer of or exchange any Debt Security which has been surrendered for repayment at the option of the Holder, except the portion, if any, of such Debt Security not to be so repaid (Section 305 of each Indenture). MERGER, CONSOLIDATION OR SALE The Company may consolidate with, or sell, lease or convey all or substantially all of its assets to, or merge with or into, any other entity, provided that (a) either the Company shall be the continuing entity, or the successor entity (if other than the Company) formed by or resulting from any such consolidation or merger or which shall have received the transfer of such assets is a Person organized and existing under the laws of the United States or any State thereof and shall expressly assume payment of the principal of (and premium or Make-Whole Amount, if any) and interest (including all Additional Amounts, if any) on all of the Debt Securities and the due and punctual performance and observance of all of the covenants and conditions contained in each Indenture; (b) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or any Subsidiary as a result thereof as having been incurred by the Company or such Subsidiary at the time of such transaction, no Event of Default under an Indenture, and no event which, after notice or the lapse of time, or both, would become such an Event of Default, shall have occurred and be continuing; and (c) an Officers' Certificate and legal opinion covering such conditions shall be delivered to the Trustee (Sections 801 and 803 of each Indenture). 8 45 CERTAIN COVENANTS Existence. Except as described above under "Merger, Consolidation or Sale," the Company will do or cause to be done all things necessary to preserve and keep in full force and effect the existence, rights (charter and statutory) and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any right or franchise if it determines that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries as a whole and that the loss thereof is not disadvantageous in any material respect to the Holders of the Debt Securities of any series (Section 1005 of each Indenture). Maintenance of Properties. The Company will cause all of its properties used or useful in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that the Company and its Subsidiaries shall not be prevented from selling or otherwise disposing of for value their properties in the ordinary course of business (Section 1006 of each Indenture). Insurance. The Company will, and will cause each of its Subsidiaries to, keep all of its insurable properties insured against loss or damage in an amount at least equal to their then full insurable value with financially sound and reputable insurance companies (Section 1007 of each Indenture). Payment of Taxes and other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same become delinquent, (i) all taxes, assessments and governmental charges levied or imposed upon it or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary, and (ii) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings (Section 1008 of each Indenture). Provision of Financial Information. Whether or not the Company is subject to Section 13 or 15(d) of the Exchange Act, the Company will, to the extent permitted under the Exchange Act, file with the Commission the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to such Section 13 and 15(d) if the Company were so subject, such documents to be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been required so to file such documents if the Company were so subject. The Company will also in any event (x) within 15 days of each Required Filing Date (i) transmit by mail to all Holders of Debt Securities, as their names and addresses appear in the Security Register, without cost to such Holders, copies of the annual reports and quarterly reports which the Company would have been required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Company were subject to such Sections and (ii) file with the Trustee copies of the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Company were subject to such Sections and (y) if filing such documents by the Company with the Commission is not permitted under the Exchange Act, promptly upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such documents to any prospective Holder (Section 1009 of each Indenture). Waiver of Certain Covenants. The Company may omit to comply with any term, provision or condition of the foregoing covenants, and with any other term, provision or condition with respect to the Debt Securities of any series specified in Section 301 of the Indentures (except any such term, 9 46 provision or condition which could not be amended without the consent of all Holders of Debt Securities of such series), if before or after the time for such compliance the Holders of at least a majority in principal amount of all outstanding Debt Securities of such series, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect (Section 1012 of each Indenture). Additional Covenants. The Prospectus Supplement for a particular series of Debt Securities may contain additional covenants of the Company with respect to such series of Debt Securities. EVENTS OF DEFAULT, NOTICE AND WAIVER Each Indenture provides that the following events are "Events of Default" with respect to any series of Debt Securities issued thereunder: (a) default for 30 days in the payment of any installment of interest or Additional Amounts payable on any Debt Security of such series; (b) default in the payment of the principal of (or premium or Make-Whole Amount, if any, on) any Debt Security of such series at its Maturity; (c) default in making any sinking fund payment as required for any Debt Security of such series; (d) default in the performance of any other covenant of the Company contained in the Indenture (other than a covenant added to the Indenture solely for the benefit of a series of Debt Securities issued thereunder other than such series), continued for 60 days after written notice as provided in the Indenture; (e) default under any bond, debenture, note, mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company (or by any Subsidiary, the repayment of which the Company has guaranteed or for which the Company is directly responsible or liable as obligor or guarantor) having an aggregate principal amount outstanding of at least $10,000,000, whether such indebtedness now exists or shall hereafter be created, which default shall have resulted in such indebtedness being declared due and payable prior to the date on which it would otherwise have become due and payable, without such acceleration having been rescinded or annulled within 10 days after written notice to the Company as provided in the Indenture; (f) the entry by a court of competent jurisdiction of one or more judgments, orders or decrees against the Company or any Subsidiary in an aggregate amount (excluding amounts fully covered by insurance) in excess of $10,000,000 and such judgments, orders or decrees remain undischarged, unstayed and unsatisfied in an aggregate amount (excluding amounts fully covered by insurance) in excess of $10,000,000 for a period of 30 consecutive days; (g) certain events of bankruptcy, insolvency or reorganization, or court appointment of a receiver, liquidator or trustee of the Company or any Significant Subsidiary or for all or substantially all of the property of the Company or any Significant Subsidiary; and (h) any other Event of Default provided with respect to such series of Debt Securities (Section 501 of each Indenture). The term "Significant Subsidiary" means each significant subsidiary (as defined in Regulations S-X promulgated under the Securities Act) of the Company. If an Event of Default under either Indenture with respect to Debt Securities of any series at the time outstanding occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Debt Securities of that series may declare the principal amount (or, if the Debt Securities of that series are Original Issue Discount Securities or Indexed Securities, such portion of the principal amount as may be specified in the terms thereof) of, and premium or Make-Whole Amount, if any, on, all of the Debt Securities of that series to be due and payable immediately by written notice thereof to the Company (and to the Trustee if given by the Holders). However, at any time after such declaration of acceleration with respect to Debt Securities of such series (or of all Debt Securities then Outstanding under the applicable Indenture, as the case may be) has been made, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the Holders of not less than a majority in principal amount of the 10 47 Outstanding Debt Securities of such series (or of all Debt Securities then Outstanding under the applicable Indenture, as the case may be) may rescind and annul such declaration and its consequences if (a) the Company shall have deposited with the Trustee all required payments of the principal of (and premium or Make-Whole Amount, if any) and interest, and any Additional Amounts, on the Debt Securities of such series (or of all Debt Securities then Outstanding under the applicable Indenture, as the case may be), plus certain fees, expenses, disbursements and advances of the Trustee and (b) all Events of Default, other than the nonpayment of accelerated principal (or specified portion thereof and the premium or Make-Whole Amount, if any) or interest, with respect to the Debt Securities of such series (or of all Debt Securities then Outstanding under the applicable Indenture, as the case may be) have been cured or waived as provided in the Indenture (Section 502 of each Indenture). Each Indenture also provides that the Holders of not less than a majority in principal amount of the Outstanding Debt Securities of any series (or of all Debt Securities then Outstanding under the applicable Indenture, as the case may be) may waive any past default with respect to such series and its consequences, except a default (x) in the payment of the principal of (or premium or Make-Whole Amount, if any) or interest or Additional Amounts payable on any Debt Security of such series or (y) in respect of a covenant or provision contained in the applicable Indenture that cannot be modified or amended without the consent of the Holder of each Outstanding Debt Security affected thereby (Section 513 of each Indenture). The Trustee is required to give notice to the Holders of Debt Securities within 90 days of a default under the applicable Indenture; provided, however, that such Trustee may withhold notice to the Holders of any series of Debt Securities of any default with respect to such series (except a default in the payment of the principal of (or premium or Make-Whole Amount, if any) or interest or Additional Amounts payable on any Debt Security of such series or in the payment of any sinking fund installment in respect of any Debt Security of such series) if the Responsible Officers of such Trustee consider such withholding to be in the interest of such Holders (Section 601 of each Indenture). Each Indenture provides that no Holders of Debt Securities of any series may institute any proceedings, judicial or otherwise, with respect to such Indenture or for any remedy thereunder, except in the case of failure of the Trustee, for 60 days, to act after it has received a written request to institute proceedings in respect of an Event of Default from the Holders of not less than 25% in principal amount of the Outstanding Debt Securities of such series, as well as an offer of reasonable indemnity (Section 507 of each Indenture). This provision will not prevent, however, any Holder of Debt Securities from instituting suit for the enforcement of payment of the principal of (and premium or Make-Whole Amount, if any), interest on and Additional Amounts payable with respect to, such Debt Securities at the respective due dates or redemption dates thereof (Section 508 of each Indenture). MODIFICATION OF THE INDENTURES Modifications and amendments of either Indenture may be made with the consent of the Holders of not less than a majority in principal amount of all Outstanding Debt Securities issued under such Indenture that are affected by such modification or amendment; provided, however, that no such modification or amendment may, without the consent of the Holder of each such Debt Security affected thereby, (a) change the stated Maturity of the principal of (or premium or Make-Whole Amount, if any), or any installment of principal of or interest or Additional Amounts payable on, any such Debt Security; (b) reduce the principal amount of, or the rate or amount of interest on, or any premium or Make-Whole Amount payable on redemption of, or any Additional Amount payable with respect to, any such Debt Security, or reduce the amount of principal of an Original Issue Discount Security or Make-Whole Amount, if any, that would be due and payable upon declaration of acceleration of the maturity thereof or would be provable in bankruptcy, or adversely affect any right of repayment of the Holder of any such Debt Security; (c) change the Place of Payment, or the coin or currency, for payment of principal of (and premium or Make-Whole Amount, 11 48 if any), or interest on, or any Additional Amounts payable with respect to, any such Debt Security; (d) impair the right to institute suit for the enforcement of any payment on or with respect to any such Debt Security; (e) reduce the percentage of Outstanding Debt Securities of any series, the consent of whose Holders is necessary to modify or amend the applicable Indenture, to waive compliance with certain provisions thereof or certain defaults and consequences thereunder or to reduce the quorum or voting requirements set forth in the Indenture; or (f) modify any of the foregoing provisions or any of the provisions relating to the waiver of certain past defaults or certain covenants, except to increase the required percentage to effect such action or to provide that certain other provisions may not be modified or waived without the consent of the Holder of each such Debt Security (Section 902 of each Indenture). The Holders of not less than a majority in principal amount of Outstanding Debt Securities issued under either Indenture have the right to waive compliance by the Company with certain covenants in such Indenture (Section 1012 of each Indenture). Modifications and amendments of either Indenture may be made by the Company and the respective Trustee thereunder without the consent of any Holder of Debt Securities for any of the following purposes: (i) to evidence the succession of another Person to the Company as obligor under such Indenture; (ii) to add to the covenants of the Company for the benefit of the Holders of all or any series of Debt Securities or to surrender any right or power conferred upon the Company in such Indenture; (iii) to add Events of Default for the benefit of the Holders of all or any series of Debt Securities; (iv) to add or change any provisions of either Indenture to facilitate the issuance of, or to liberalize certain terms of, Debt Securities in bearer form, or to permit or facilitate the issuance of Debt Securities in uncertificated form provided that such action shall not adversely affect the interests of the Holders of the Debt Securities of any series in any material respect; (v) to add, change or eliminate any provisions of either Indenture, provided that any such addition, change or elimination shall become effective only when there are no Debt Securities Outstanding of any series created prior thereto which are entitled to the benefit of such provision; (vi) to secure the Debt Securities; (vii) to establish the form or terms of Debt Securities of any series, including the provisions and procedures, if applicable, for the conversion of such Debt Securities into Common Stock or Preferred Stock of the Company; (viii) to provide for the acceptance of appointment by a successor Trustee or facilitate the administration of the trusts under either Indenture by more than one Trustee; (ix) to cure any ambiguity, defect or inconsistency in either Indenture, provided that such action shall not adversely affect the interests of Holders of Debt Securities of any series issued under such Indenture; (x) to close either Indenture with respect to the authentication and delivery of additional series of Debt Securities or to qualify, or maintain qualification of, either Indenture under the Trust Indenture Act; or (xi) to supplement any of the provisions of either Indenture to the extent necessary to permit or facilitate defeasance and discharge of any series of such Debt Securities, provided that such action shall not adversely affect the interests of the Holders of the Debt Securities of any series in any material respect (Section 901 of each Indenture). SUBORDINATION Upon any distribution to creditors of the Company in a liquidation, dissolution, bankruptcy, insolvency or reorganization, the payment of the principal of and interest on the Subordinated Securities will be subordinated to the extent provided in the Subordinated Indenture in right of payment to the prior payment in full of all Senior Debt (Sections 1601 and 1602 of the Subordinated Indenture), but the obligation of the Company to make payment of the principal and interest on the Subordinated Securities will not otherwise be affected (Section 1608 of the Subordinated Indenture). No payment of principal or interest may be made on the Subordinated Securities at any time if a default on Senior Debt exists that permits the holders of such Senior Debt to accelerate its maturity and the default is the subject of judicial proceedings or the Company receives notice of the default (Section 1603 of the Subordinated Indenture). The Company may resume payments on the Subordinated Securities when the default is cured or waived, or 120 days pass after the notice is 12 49 given if the default is not the subject of judicial proceedings, if the subordination provisions of the Subordinated Indenture otherwise permit payment at that time (Section 1603 of the Subordinated Indenture). After all Senior Debt is paid in full and until the Subordinated Securities are paid in full, holders will be subrogated to the rights of holders of Senior Debt to the extent that distributions otherwise payable to holders have been applied to the payment of Senior Debt (Section 1607 of the Subordinated Indenture). By reason of such subordination, in the event of a distribution of assets upon insolvency, certain general creditors of the Company may recover more, ratably, than holders of the Subordinated Securities. Senior Debt is defined in the Subordinated Indenture as the principal of and interest on, or substantially similar payments to be made by the Company in respect of, the following, whether outstanding at the date of execution of the Subordinated Indenture or thereafter incurred, created or assumed: (a) indebtedness of the Company for money borrowed or represented by purchase-money obligations, (b) indebtedness of the Company evidenced by notes, debentures, or bonds, or other securities issued under the provisions of an indenture, fiscal agency agreement or other instrument, (c) obligations of the Company as lessee under leases of property either made as part of any sale and leaseback transaction to which the Company is a party or otherwise, (d) indebtedness of partnerships and joint ventures that is included in the consolidated financial statements of the Company, (e) indebtedness, obligations and liabilities of others in respect of which the Company is liable contingently or otherwise to pay or advance money or property or as guarantor, endorser or otherwise or which the Company has agreed to purchase or otherwise acquire, and (f) any binding commitment of the Company to fund any real estate investment or to fund any investment in any entity making such real estate investment, in each case other than (1) any such indebtedness, obligation or liability referred to in clauses (a) through (f) above as to which, in the instrument creating or evidencing the same pursuant to which the same is outstanding, it is provided that such indebtedness, obligation or liability is not superior in right of payment to the Subordinated Securities or ranks pari passu with the Subordinated Securities, (2) any such indebtedness, obligation or liability which is subordinated to indebtedness of the Company to substantially the same extent as or to a greater extent than the Subordinated Securities are subordinated, and (3) the Subordinated Securities (Section 101 of the Subordinated Indenture). At December 31, 1994, Senior Debt aggregated approximately $212.8 million. There are no restrictions in the Subordinated Indenture upon the creation of additional Senior Debt or other indebtedness. DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE Under each Indenture, the Company may discharge certain obligations to Holders of any series of Debt Securities issued thereunder that have not already been delivered to the applicable Trustee for cancellation and that either have become due and payable or will become due and payable within one year (or scheduled for redemption within one year) by irrevocably depositing with the applicable Trustee, in trust, funds in such currency or currencies, currency unit or units or composite currency or currencies in which such Debt Securities are payable in an amount sufficient to pay the entire indebtedness on such Debt Securities in respect of principal (and premium or Make-Whole Amount, if any) and interest and any Additional Amounts payable to the date of such deposit (if such Debt Securities have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be (Section 401 of each Indenture). Each Indenture provides that, if the provisions of Article Fourteen thereof are made applicable to the Debt Securities of or within any series pursuant to section 301 of such Indenture, the Company may elect either (a) to defease and be discharged from any and all obligations with respect to such Debt Securities (except for the obligation to pay Additional Amounts, if any, upon the occurrence of certain events of tax, assessment or governmental charge with respect to payments on such Debt Securities and the obligations to register the transfer or exchange of such Debt Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt Securities, to maintain an office or agency in respect of such Debt Securities and to hold moneys for payment in trust) 13 50 ("defeasance") (Section 1402 of each Indenture) or (b) to be released from its obligations with respect to such Debt Securities under provisions of each Indenture described under "Certain Covenants," or, if provided pursuant to Section 301 of each Indenture, its obligations with respect to any other covenant, and any omission to comply with such obligations shall not constitute a default or an Event or Default with respect to such Debt Securities ("covenant defeasance") (Section 1403 of each Indenture), in either case upon the irrevocable deposit by the Company with the applicable Trustee, in trust, of an amount, in such currency or currencies, currency unit or currency units or composite currency or currencies in which such Debt Securities are payable at Stated Maturity, or Government Obligations (as defined below), or both, applicable to such Debt Securities which through the scheduled payment of principal and interest in accordance with their terms will provide money in an amount sufficient to pay the principal of (and premium or Make-Whole Amount, if any) and interest on such Debt Securities, and any mandatory sinking fund or analogous payments thereon, on the scheduled due dates therefor. Such a trust may only be established if, among other things, the Company has delivered to the applicable Trustee an Opinion of Counsel (as specified in each Indenture) to the effect that the Holders of such Debt Securities will not recognize income, gain or loss for United States federal income tax purposes as a result of such defeasance or covenant defeasance and will be subject to United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance or covenant defeasance had not occurred, and such Opinion of Counsel, in the case of defeasance, must refer to and be based upon a ruling of the Internal Revenue Service or a change in applicable United States federal income tax laws occurring after the date of such Indenture (Section 1404 of each Indenture). "Government Obligations" means securities which are (i) direct obligations of the United States of America or the government which issued the Foreign Currency in which the Debt Securities of a particular series are payable, for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America or the government which issued the Foreign Currency in which the Debt Securities of such series are payable, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America or such other government, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such Government Obligation or a specific payment of interest on or principal of any such Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of interest on or principal of the Government Obligation evidenced by such depository receipt (Section 101 of each Indenture). Unless otherwise provided in the applicable Prospectus Supplement, if after the Company has deposited funds and/or Government Obligations to effect defeasance or covenant defeasance with respect to Debt Securities of any series, (a) the Holder of a Debt Security of such series is entitled to, and does, elect pursuant to Section 301 of either Indenture or the terms of such Debt Security to receive payment in a currency, currency unit or composite currency other than that in which such deposit has been made in respect to such Debt Security, or (b) a Conversion Event (as defined below) occurs in respect of the currency, currency unit or composite currency in which such deposit has been made, the indebtedness represented by such Debt Security shall be deemed to have been, and will be, fully discharged and satisfied through the payment of the principal of (and premium or Make-Whole Amount, if any) and interest on such Debt Security as they become due out of the proceeds yielded by converting the amount so deposited in respect of such Debt Security into the currency, currency unit or composite currency in which such Debt Security becomes payable as a 14 51 result of such election or such cessation of usage based on the applicable market exchange rate (Section 1405 of each Indenture). "Conversion Event" means the cessation of use of (i) a currency, currency unit or composite currency issued by the government of one or more countries other than the United States (other than the ECU or other currency unit) both by the government of the country that issued such currency and for the settlement of transactions by a central bank or other public institutions of or within the international banking community, (ii) the ECU both within the European Monetary System and for the settlement of transactions by public institutions of or within the European Communities or (iii) any currency unit or composite currency other than the ECU for the purposes for which it was established (Section 101 of each Indenture). Unless otherwise provided in the applicable Prospectus Supplement, all payments of principal of (and premium or Make-Whole Amount, if any) and interest on any Debt Security that is payable in a Foreign Currency that ceases to be used by its government of issuance shall be made in United States dollars. In the event the Company effects covenant defeasance with respect to any Debt Securities and such Debt Securities are declared due and payable because of the occurrence of any Event of Default other than the Event of Default described in clause (d) under "Events of Default, Notice and Waiver" with respect to Sections 1004 to 1009, inclusive, of either Indenture (which Sections would no longer be applicable to such Debt Securities) or described in clause (h) under "Events of Default, Notice and Waiver" with respect to a covenant as to which there has been covenant defeasance, the amount in such currency, currency unit or composite currency in which such Debt Securities are payable, and Government Obligations on deposit with the Trustee, will be sufficient to pay amounts due on such Debt Securities at the time of their Stated Maturity but may not be sufficient to pay amounts due on such Debt Securities at the time of the acceleration resulting from such Event of Default. However, the Company would remain liable to make payment of such amounts due at the time of acceleration. The applicable Prospectus Supplement may further describe the provisions, if any, permitting such defeasance or covenant defeasance, including any modifications to the provisions described above, with respect to the Debt Securities of or within a particular series. CONVERSION RIGHTS The terms and conditions, if any, upon which the Debt Securities are convertible into Capital Stock will be set forth in the applicable Prospectus Supplement relating thereto. Such terms will include whether such Debt Securities are convertible into Capital Stock, the conversion price (or manner of calculation thereof), the conversion period, provisions as to whether conversion will be at the option of the Holders or the Company, the events requiring an adjustment of the conversion price and provisions affecting conversion in the event of the redemption of such Debt Securities. BOOK-ENTRY SYSTEM The Debt Securities of a series may be issued in whole or in part in the form of one or more global securities ("Global Securities") that will be deposited with, or on behalf of, a depository (the "Depository") identified in the Prospectus Supplement relating to such series. Global Securities, if any, issued in the United States are expected to be deposited with the Depository Trust Company, as Depository. Global Securities may be issued in fully registered form and may be issued in either temporary or permanent form. Unless and until it is exchanged in whole or in part for the individual Debt Securities represented thereby, a Global Security may not be transferred except as a whole by the Depository for such Global Security to a nominee of such Depository or by a nominee of such Depository to such Depository or another nominee of such Depository or by such Depository or any nominee of such Depository to a successor Depository or any nominee of such successor. The specific terms of the depository arrangement with respect to a series of Debt Securities will be described in the Prospectus Supplement relating to such series. The Company expects that unless 15 52 otherwise indicated in the applicable Prospectus Supplement, the following provisions will apply to depository arrangements. Upon the issuance of a Global Security, the Depository for such Global Security or its nominee will credit on its book-entry registration and transfer system the respective principal amounts of the individual Debt Securities represented by such Global Security to the accounts of persons that have accounts with such Depository ("Participants"). Such accounts shall be designated by the underwriters, dealers or agents with respect to such Debt Securities or by the Company if such Debt Securities are offered directly by the Company. Ownership of beneficial interests in such Global Security will be limited to Participants or persons that may hold interests through Participants. Ownership of beneficial interests in such Global Security will be shown on, and the transfer of that ownership will be effected only through, records maintained by the Depository for such Global Security or its nominee (with respect to beneficial interests of Participants) and records of Participants (with respect to beneficial interests of persons who hold through Participants). The laws of some states require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and laws may impair the ability to own, pledge or transfer beneficial interest in a Global Security. So long as the Depository for a Global Security or its nominee is the registered owner of such Global Security, such Depository or such nominee, as the case may be, will be considered the sole owner or holder of the Debt Securities represented by such Global Security for all purposes under the applicable Indenture. Except as described below or in the applicable Prospectus Supplement, owners of beneficial interest in a Global Security will not be entitled to have any of the individual Debt Securities represented by such Global Security registered in their names, will not receive or be entitled to receive physical delivery of any such Debt Securities in definitive form and will not be considered the owners or holders thereof under the applicable Indenture. Payments of principal of, any premium or Make-Whole Amount and any interest on, or any Additional Amounts payable with respect to, individual Debt Securities represented by a Global Security registered in the name of a Depository or its nominee will be made to the Depository or its nominee, as the case may be, as the registered owner of the Global Security. None of the Company, the Trustee, any Paying Agent or the Security Registrar for such Debt Securities will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Security for such Debt Securities or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The Company expects that the Depository for any Debt Securities or its nominee, upon receipt of any payment of principal, premium, Make-Whole Amount, interest or Additional Amounts in respect of the Global Security representing such Debt Securities, will immediately credit Participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Security as shown on the records of such Depository or its nominee. The Company also expects that payments by Participants to owners of beneficial interests in such Global Security held through such Participants will be governed by standing instructions and customary practices, as is the case with securities held for the account of customers in bearer form or registered in street name. Such payments will be the responsibility of such Participants. If a Depository for any Debt Securities is at any time unwilling, unable or ineligible to continue as depository and a successor depository is not appointed by the Company within 90 days, the Company will issue individual Debt Securities in exchange for the Global Security representing such Debt Securities. In addition, the Company may at any time and in its sole discretion, subject to any limitations described in the Prospectus Supplement relating to such Debt Securities, determine not to have any of such Debt Securities represented by one or more Global Securities and in such event will issue individual Debt Securities in exchange for the Global Security or Securities representing such Debt Securities. Individual Debt Securities so issued will be issued in denominations of $1,000 and integral multiples thereof. 16 53 TRUSTEES First Union National Bank of North Carolina, the Senior Indenture Trustee and the Subordinate Indenture Trustee, also provides the Company's revolving line of credit facility and from time to time directly or through affiliates performs other services for the Company in the normal course of business. GOVERNING LAW The Indentures are governed by and shall be construed in accordance with the laws of the State of Georgia. DESCRIPTION OF COMMON STOCK This summary of certain terms and provisions of the Company's Common Stock does not purport to be complete and is subject to, and qualified in its entirety by reference to, the terms and provisions of the Company's Articles of Incorporation, as amended (the "Articles"), and By-laws, as amended, which are filed as exhibits to the Registration Statement of which this Prospectus is a part. The Company has 50,000,000 shares of Common Stock authorized and 30,744,451 shares were outstanding at December 31, 1994. All outstanding shares of Common Stock are fully paid and nonassessable. The transfer agent and registrar for the Common Stock is First Union National Bank of North Carolina, Charlotte, North Carolina. The Company's Common Stock is traded on the New York Stock Exchange under the symbol "MRY". The holders of Common Stock are entitled to receive such dividends as are declared by the Board of Directors, after payment of, or provision for, full cumulative dividends for outstanding Preferred Stock. Each share of Common Stock is entitled to one vote on all matters submitted to a vote of shareholders, including the election of directors. Cumulative voting for directors is not permitted, which means that holders of more than 50% of all of the shares of Common Stock voting can elect all of the directors if they choose to do so, and, in such event, the holders of the remaining shares of Common Stock will not be able to elect any directors. Holders of Common Stock and Preferred Stock, when outstanding and when entitled to vote, vote as a class, except with respect to matters that relate only to the rights, terms or conditions of the Preferred Stock, that affect only the holders of the Preferred Stock, or that relate to the rights of the holders of the Preferred Stock if the Company fails to fulfill any of its obligations regarding the Preferred Stock. Upon any dissolution, liquidation or winding up of the Company, the holders of Common Stock are entitled to receive pro rata all of the Company's assets and funds remaining after payment of, or provision for, creditors and distribution of, or provision for, preferential amounts and unpaid accumulated dividends to holders of Preferred Stock. Holders of Common Stock have no preemptive right to purchase or subscribe for any shares of capital stock of the Company. DESCRIPTION OF PREFERRED STOCK This summary of certain terms and provisions of the Company's Preferred Stock does not purport to be complete and is subject to, and qualified in its entirety by reference to, the terms and provisions of the Company's Articles and By-laws, as amended, which are filed as exhibits to the Registration Statement of which this Prospectus is a part. The Articles authorize the issuance of 20,000,000 shares of Preferred Stock, without par value, of which 2,516,324 shares of Series A Preferred Stock and 4,000,000 shares of Series B Preferred Stock were issued and outstanding at December 31, 1994. All outstanding shares of the Series A Preferred Stock and the Series B Preferred Stock are fully paid and nonassessable. 17 54 The transfer agent and registrar for the Series A Preferred Stock and the Series B Preferred Stock is First Union National Bank of North Carolina, Charlotte, North Carolina. The following description of the terms of the Preferred Stock sets forth certain general terms and provisions of the Preferred Stock to which a Prospectus Supplement may relate. Specific terms of any series of Preferred Stock offered by a Prospectus Supplement will be described in that Prospectus Supplement. The description set forth below is subject to and qualified in its entirety by reference to the Articles of Amendment to the Articles fixing the preferences, limitations and relative rights of a particular series of Preferred Stock. GENERAL Under the Articles, the Board of Directors of the Company is authorized, without further shareholder action, to provide for the issuance of up to 20,000,000 shares of Preferred Stock, in one or more series, with such voting powers and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions, as the Board of Directors shall approve. At December 31, 1994 the Company had 6,516,324 shares of Preferred Stock issued and outstanding of its 20,000,000 authorized shares of Preferred Stock. The Preferred Stock will have the dividend, liquidation, redemption, conversion and voting rights set forth below unless otherwise provided in the Prospectus Supplement relating to a particular series of Preferred Stock. Reference is made to the Prospectus Supplement relating to the particular series of Preferred Stock offered thereby for specific terms, including: (i) the title and liquidation preference per share of such Preferred Stock and the number of shares offered; (ii) the price at which such series of Preferred Stock will be issued; (iii) the dividend rate (or method of calculation), the dates on which dividends shall be payable and the dates from which dividends shall commence to accumulate; (iv) any redemption or sinking fund provisions of such series of Preferred Stock; (v) any conversion provisions of such series of Preferred Stock; and (vi) any additional dividend, liquidation, redemption, sinking fund and other rights, preferences, privileges, limitations and restrictions of such series of Preferred Stock. The Preferred Stock will, when issued, be fully paid and nonassessable. Unless otherwise specified in the Prospectus Supplement relating to a particular series of Preferred Stock, each series will rank on a parity as to dividends and distributions in the event of a liquidation with each other series of Preferred Stock and, in all cases, will be senior to the Common Stock. DIVIDEND RIGHTS Holders of Preferred Stock of each series will be entitled to receive, when as and if declared by the Board of Directors, out of assets of the Company legally available therefor, cash dividends at such rates and on such dates as are set forth in the Prospectus Supplement relating to such series of Preferred Stock. Such rate may be fixed or variable or both and may be cumulative, noncumulative or partially cumulative. If the applicable Prospectus Supplement so provides, as long as any shares of Preferred Stock are outstanding, no dividends will be declared or paid or any distributions be made on the Common Stock, other than a dividend payable in Common Stock, unless the accrued dividends on each series of Preferred Stock have been fully paid or declared and set apart for payment and the Company shall have set apart all amounts, if any, required to be set apart for all sinking funds, if any, for each series of Preferred Stock. If the applicable Prospectus Supplement so provides, when dividends are not paid in full upon any series of Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with such series of Preferred Stock, all dividends declared upon such series of Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends will be declared pro rata so that the amount of dividends declared per share on such series of Preferred Stock and such 18 55 other series will in all cases bear to each other the same ratio that accrued dividends per share on such series of Preferred Stock and such other series bear to each other. Each series of Preferred Stock will be entitled to dividends as described in the Prospectus Supplement relating to such series, which may be based upon one or more methods of determination. Different series of Preferred Stock may be entitled to dividends at different dividend rates or based upon different methods of determination. Except as provided in the applicable Prospectus Supplement, no series of Preferred Stock will be entitled to participate in the earnings or assets of the Company. RIGHTS UPON LIQUIDATION In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of each series of Preferred Stock will be entitled to receive out of the assets of the Company available for distribution to shareholders, the amount stated or determined on the basis set forth in the Prospectus Supplement relating to such series, which may include accrued dividends, if such liquidation, dissolution or winding up is involuntary or may equal the current redemption price per share (otherwise than for the sinking fund, if any, provided for such series) provided for such series set forth in such Prospectus Supplement, if such liquidation, dissolution or winding up is voluntary, and on such preferential basis as is set forth in such Prospectus Supplement. If, upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the amounts payable with respect to Preferred Stock of any series and any other shares of stock of the Company ranking as to any such distribution on a parity with such series of Preferred Stock are not paid in full, the holders of Preferred Stock of such series and of such other shares will share ratably in any such distribution of assets of the Company in proportion to the full respective preferential amounts to which they are entitled or on such other basis as is set forth in the applicable Prospectus Supplement. The rights, if any, of the holders of any series of Preferred Stock to participate in the assets of the Company remaining after the holders of other series of Preferred Stock have been paid their respective specified liquidation preferences upon any liquidation, dissolution or winding up of the Company will be described in the Prospectus Supplement relating to such series. REDEMPTION A series of Preferred Stock may be redeemable, in whole or in part, at the option of the Company, and may be subject to mandatory redemption pursuant to a sinking fund, in each case upon terms, at the times and the redemption prices and for the types of consideration set forth in the Prospectus Supplement relating to such series. The Prospectus Supplement relating to a series of Preferred Stock which is subject to mandatory redemption shall specify the number of shares of such series that shall be redeemed by the Company in each year commencing after a date to be specified, at a redemption price per share to be specified, together with an amount equal to any accrued and unpaid dividends thereon to the date of redemption. Except as indicated in the applicable Prospectus Supplement, the Preferred Stock is not subject to any mandatory redemption at the option of the holder. SINKING FUND The Prospectus Supplement for any series of Preferred Stock will state the terms, if any, of a sinking fund for the purchase or redemption of that series. CONVERSION RIGHTS The Prospectus Supplement for any series of Preferred Stock will state the terms, if any, on which shares of that series are convertible into shares of Common Stock or another series of Preferred Stock. The Preferred Stock will have no preemptive rights. 19 56 VOTING RIGHTS Except as indicated in the Prospectus Supplement relating to a particular series of Preferred Stock, or except as expressly required by Georgia law, a holder of Preferred Stock will not be entitled to vote. Except as indicated in the Prospectus Supplement relating to a particular series of Preferred Stock, in the event the Company issues full shares of any series of Preferred Stock, each such share will be entitled to one vote on matters on which holders of such series of Preferred Stock are entitled to vote. TRANSFER AGENT AND REGISTRAR The transfer agent, registrar and dividend disbursement agent for a series of Preferred Stock will be selected by the Company and be described in the applicable Prospectus Supplement. The registrar for shares of Preferred Stock will send notices to shareholders of any meetings at which holders of Preferred Stock have the right to vote on any matter. OUTSTANDING PREFERRED STOCK Series A Preferred Stock. The Series A Preferred Stock ranks senior to the Common Stock, and pari passu with the Series B Preferred Stock, with respect to payment of dividends and amounts upon liquidation, dissolution or winding up. Holders of Series A Preferred Stock are entitled to receive, when, as and if declared by the Board of Directors of the Company, out of funds legally available for payment, cumulative cash dividends at the rate per annum of $1.75 per share of Series A Preferred Stock. Dividends on the Series A Preferred Stock are payable quarterly in arrears on the last calendar day of March, June, September and December of each year. Shares of Series A Preferred Stock are not redeemable by the Company prior to June 30, 1998, and at no time are the shares of Series A Preferred Stock redeemable for cash. On and after June 30, 1998, the shares of Series A Preferred Stock are redeemable at the option of the Company, in whole or in part, for such number of shares of Common Stock as equals the liquidation preference of the Series A Preferred Stock to be redeemed divided by the applicable conversion price as of the opening of business on the date set for such redemption, subject to adjustment in certain circumstances. The Company may exercise this option only if for 20 trading days, within any period of 30 consecutive trading days, including the last trading day of such period, the closing price of the Common Stock on the New York Stock Exchange equals or exceeds the conversion price per share, subject to adjustments in certain circumstances. The holders of Series A Preferred Stock are entitled to receive in the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, $25.00 per share of Series A Preferred Stock plus an amount per share of Series A Preferred Stock equal to all dividends (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to such holders, and no more. Except under certain circumstances or except as otherwise from time to time required by applicable law, the holders of Series A Preferred Stock have no voting rights. Series B Preferred Stock. The Series B Preferred Stock ranks senior to the Common Stock, and pari passu with the Series A Preferred Stock, with respect to payment of dividends and amounts upon liquidation, dissolution or winding up. Holders of Series B Preferred Stock are entitled to receive, when, as and if declared by the Board of Directors of the Company, out of funds legally available for payment, cumulative cash dividends at the rate per annum of $2.205 per share of Series B Preferred Stock. Dividends on the Series B Preferred Stock are payable quarterly in arrears on the last calendar day of March, June, September and December of each year. Shares of Series B Preferred Stock are not redeemable by the Company prior to October 31, 1999, and at no time are the shares of Series B Preferred Stock redeemable for cash. On and after October 31, 1999, the shares of Series B Preferred Stock are redeemable at the option of the Company, in whole or in part, for such number of shares of Common Stock as equals the liquidation 20 57 preference of the Series B Preferred Stock to be redeemed divided by the applicable conversion price as of the opening of business on the date set for such redemption, subject to adjustment in certain circumstances. The Company may exercise this option only if for 20 trading days, within any period of 30 consecutive trading days, including the last trading day of such period, the closing price of the Common Stock on the New York Stock Exchange equals or exceeds the conversion price per share, subject to adjustments in certain circumstances. The holders of Series B Preferred Stock are entitled to receive in the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, $25.00 per share of Series B Preferred Stock plus an amount per share of Series B Preferred Stock equal to all dividends (whether or not earned or declared) accrued and unpaid thereon to the date of final distributions to such holders, and no more. Except under certain circumstances or except as otherwise from time to time required by applicable law, the holders of Series B Preferred Stock have no voting rights. DESCRIPTION OF COMMON STOCK WARRANTS The Company may issue Common Stock Warrants for the purchase of Common Stock. Common Stock Warrants may be issued independently or together with any other Offered Securities offered by any Prospectus Supplement and may be attached to or separate from such Offered Securities. Each series of Common Stock Warrants will be issued under a separate warrant agreement (each, a "Warrant Agreement") to be entered into between the Company and a warrant agent specified in the applicable Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will act solely as an agent of the Company in connection with the Common Stock Warrants of such series and will not assume any obligation or relationship of agency or trust for or with any holders or beneficial owners of Common Stock Warrants. The following sets forth certain general terms and provisions of the Common Stock Warrants offered hereby. Further terms of the Common Stock Warrants and the applicable Warrant Agreements will be set forth in the applicable Prospectus Supplement. The applicable Prospectus Supplement will describe the terms of the Common Stock Warrants in respect of which this Prospectus is being delivered, including, where applicable, the following: (1) the title of such Common Stock Warrants; (2) the aggregate number of such Common Stock Warrants; (3) the price or prices at which such Common Stock Warrants will be issued; (4) the designation, number and terms of the shares of Common Stock purchasable upon exercise of such Common Stock Warrants; (5) the designation and terms of the other Offered Securities with which such Common Stock Warrants are issued and the number of such Common Stock Warrants issued with each such Offered Security; (6) the date, if any, on and after which such Common Stock Warrants and the related Common Stock will be separately transferable; (7) the price at which each share of Common Stock purchasable upon exercise of such Common Stock Warrants may be purchased; (8) the date on which the right to exercise such Common Stock Warrants shall commence and the date on which such right shall expire; (9) the minimum or maximum amount of such Common Stock Warrants which may be exercised at any one time; (10) information with respect to book-entry procedures, if any; (11) a discussion of certain federal income tax considerations; and (12) any other terms of such Common Stock Warrants, including terms, procedures and limitations relating to the exchange and exercise of such Common Stock Warrants. DESCRIPTION OF DEPOSITARY SHARES The Company may, at its option, elect to offer receipts for fractional interests ("Depositary Shares") in Preferred Stock. In such event, receipts ("Depositary Receipts") for Depositary Shares, each of which will represent a fraction (to be set forth in the Prospectus Supplement relating to a particular series of Preferred Stock) of a share of a particular series of Preferred Stock, will be issued as described below. 21 58 The shares of any series of Preferred Stock represented by Depositary Shares will be deposited under a Deposit Agreement (the "Deposit Agreement") between the Company and the depositary named in the Prospectus Supplement relating to such shares (the "Preferred Stock Depositary"). Subject to the terms of the Deposit Agreement, each owner of a Depositary Share will be entitled, in proportion to the applicable fraction of a share of Preferred Stock represented by such Depositary Share, to all the rights and preferences of the Preferred Stock represented thereby (including dividend, voting, redemption, subscription and liquidation rights). The following summary of certain provisions of the Deposit Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Deposit Agreement, including the definitions therein of certain terms. Whenever particular sections of the Deposit Agreement are referred to, it is intended that such sections shall be incorporated herein by reference. Copies of the forms of Deposit Agreement and Depositary Receipt are filed as exhibits to the Registration Statement of which this Prospectus is a part, and the following summary is qualified in its entirety by reference to such exhibits. The Preferred Stock Depositary will distribute all cash dividends or other cash distributions received in respect of the Preferred Stock to the record holders of Depositary Shares relating to such Preferred Stock in proportion to the numbers of such Depositary Shares owned by such holders. (Deposit Agreement, Section 4.01) In the event of a distribution other than in cash, the Preferred Stock Depositary will distribute property received by it to the record holders of Depositary Shares in an equitable manner, unless the Preferred Stock Depositary determines that it is not feasible to make such distribution, in which case the Preferred Stock Depositary may sell such property and distribute the net proceeds from such sale to such holders. (Deposit Agreement, Section 4.02) Upon surrender of the Depositary Receipts at the corporate trust office of the Preferred Stock Depositary and upon payment of the taxes, charges and fees provided for in the Deposit Agreement and subject to the terms thereof, the holder of the Depositary Shares evidenced thereby is entitled to delivery at such office, to or upon his or her order, of the number of whole shares of the related series of Preferred Stock and any money or other property, if any, represented by such Depositary Shares. If a series of Preferred Stock represented by Depositary Shares is subject to redemption, the Depositary Shares will be redeemed from the proceeds received by the Preferred Stock Depositary resulting from the redemption, in whole or in part, of such series of Preferred Stock held by the Preferred Stock Depositary. The redemption price per Depositary Share will be equal to the applicable fraction of the redemption price per share payable with respect to such series of the Preferred Stock. Whenever the Company redeems shares of Preferred Stock held by the Preferred Stock Depositary, the Preferred Stock Depositary will redeem as of the same redemption date the number of Depositary Shares representing shares of Preferred Stock so redeemed. If fewer than all the Depositary Shares are to be redeemed, the Depositary Shares to be redeemed will be selected by lot, pro rata or by any other equitable method as may be determined by the Preferred Stock Depositary. (Deposit Agreement, Section 2.08) Upon receipt of notice of any meeting at which the holders of the Preferred Stock are entitled to vote, the Preferred Stock Depositary will mail the information contained in such notice of meeting to the record holders of the Depositary Shares relating to such Preferred Stock. Each record holder of such Depositary Shares on the record date (which will be the same date as the record date for the Preferred Stock) will be entitled to instruct the Preferred Stock Depositary as to the exercise of the voting rights pertaining to the amount of the Preferred Stock represented by such holder's Depositary Shares. The Preferred Stock Depositary will endeavor, insofar as practicable, to vote the amount of the Preferred Stock represented by such Depositary Shares in accordance with such instructions, and the Company will agree to take all reasonable action which may be deemed necessary by the Preferred Stock Depositary in order to enable the Preferred Stock Depositary to do 22 59 so. The Preferred Stock Depositary will abstain from voting shares of the Preferred Stock to the extent it does not receive specific instructions from the holder of Depositary Shares representing such Preferred Stock. (Deposit Agreement, Section 4.05) The form of Depositary Receipt evidencing the Depositary Shares and any provision of the Deposit Agreement may at any time be amended by agreement between the Company and the Preferred Stock Depositary. However, any amendment which materially and adversely alters the rights of the holders of Depositary Shares will not be effective unless such amendment has been approved by the holders of at least a majority of the Depositary Shares then outstanding. (Deposit Agreement, Section 6.01) The Deposit Agreement will only terminate if (i) all outstanding Depositary Shares have been redeemed or (ii) there has been a final distribution in respect of the Preferred Stock in connection with any liquidation, dissolution or winding-up of the Company and such distribution has been distributed to the holders of Depositary Receipts. (Deposit Agreement, Section 6.02) The Company will pay all transfer and other taxes and governmental charges arising solely from the existence of the depositary arrangements. The Company will pay charges of the Preferred Stock Depositary in connection with the initial deposit of the Preferred Stock and issuance of Depositary Receipts, all withdrawals of shares of Preferred Stock by owners of Depositary Shares and any redemption of the Preferred Stock. Holders of Depositary Receipts will pay other transfer and other taxes and governmental charges and such other charges as are expressly provided in the Deposit Agreement to be for their accounts. (Deposit Agreement, Section 5.07) The Preferred Stock Depositary may resign at any time by delivering to the Company notice of its election to do so, and the Company may at any time remove the Preferred Stock Depositary, any such resignation or removal to take effect upon the appointment of a successor Preferred Stock Depositary and its acceptance of such appointment. Such successor Preferred Stock Depositary must be appointed within 60 days after delivery of the notice of resignation or removal and must be a bank or trust company having its principal office in the United States and having a combined capital and surplus of at least $50,000,000. (Deposit Agreement, Section 5.04) The Preferred Stock Depositary will forward all reports and communications from the Company which are delivered to the Preferred Stock Depositary and which the Company is required or otherwise determines to furnish to the holders of the Preferred Stock. (Deposit Agreement, Section 4.07) Neither the Preferred Stock Depositary nor the Company will be liable under the Deposit Agreement to holders of Depositary Receipts other than for its negligence, willful misconduct or bad faith. Neither the Company nor the Preferred Stock Depositary will be obligated to prosecute or defend any legal proceeding in respect of any Depositary Shares or Preferred Stock unless satisfactory indemnity is furnished. The Company and the Preferred Stock Depositary may rely upon written advice of counsel or accountants, or upon information provided by persons presenting Preferred Stock for deposit, holders of Depositary Receipts or other persons believed to be competent and on documents believed to be genuine. (Deposit Agreement, Section 5.03) PLAN OF DISTRIBUTION The Company may sell the Offered Securities to or through underwriters or may sell the Offered Securities to investors directly or through designated agents. Any such underwriter or agent involved in the offer and sale of the Offered Securities will be named in the applicable Prospectus Supplement. Underwriters may offer and sell the Offered Securities at a fixed price or prices, which may be changed, or from time to time at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. The Company also may, from time to time, authorize underwriters acting as agents to offer and sell the Offered Securities upon the terms and conditions set forth in any Prospectus Supplement. In connection with the sale of Offered Securities, 23 60 underwriters may be deemed to have received compensation from the Company in the form of underwriting discounts or commissions and may also receive commissions from purchasers of Offered Securities for whom they may act as agent. Underwriters may sell Offered Securities to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions (which may be changed from time to time) from the underwriters and from the purchasers for whom they may act as agent. Any underwriting compensation paid by the Company to underwriters or agents in connection with the offering of Offered Securities and any discounts, concessions or commissions allowed by underwriters to participating dealers will be set forth in the applicable Prospectus Supplement. Underwriters, dealers and agents participating in the distribution of the Offered Securities may be deemed to be underwriters, and any discounts and commissions received by them and any profit realized by them on resale of the Offered Securities may be deemed to be underwriting discounts and commissions, under the Securities Act. Underwriters, dealers and agents may be entitled, under agreements entered into with the Company, to indemnification against and contribution toward certain civil liabilities, including liabilities under the Securities Act. If so indicated in the applicable Prospectus Supplement, the Company will authorize dealers acting as the Company's agents to solicit offers by certain institutions to purchase Offered Securities from the Company at the public offering price set forth in such Prospectus Supplement pursuant to Delayed Delivery Contracts ("Contracts") providing for payment and delivery on the date or dates stated in such Prospectus Supplement. Each Contract will be for an amount not less than, and the principal amount of Offered Securities sold pursuant to Contracts shall not be less nor more than, the respective amounts stated in such Prospectus Supplement. Institutions with which Contracts, when authorized, may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions and other institutions, but will in all cases be subject to the approval of the Company. Contracts will not be subject to any conditions except (i) the purchase by an institution of the Offered Securities covered by its Contract shall not at the time of delivery be prohibited under the laws of any jurisdiction in the United States to which such institution is subject and (ii) the Company shall have sold to such underwriters the total principal amount of the Offered Securities less the principal amount thereof covered by Contracts. A commission indicated in the Prospectus Supplement will be paid to agents and underwriters soliciting purchases of Offered Securities pursuant to Contracts accepted by the Company. Agents and underwriters shall have no responsibility in respect of the delivery or performance of Contracts. Certain of the underwriters and their affiliates may be customers of, engage in transactions with, and perform services for, the Company in the ordinary course of business. EXPERTS The audited financial statements and schedules of the Company incorporated by reference in this Prospectus and elsewhere in the registration statement of which this Prospectus is a part, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are incorporated herein in reliance upon the authority of said firm as experts in giving said reports. LEGAL OPINIONS Certain legal opinions relating to tax matters and the Offered Securities will be passed upon for the Company by Hull, Towill, Norman & Barrett, P.C., Augusta, Georgia. Certain legal matters relating to the validity of the Offered Securities will be passed upon for the Underwriters by Piper & Marbury, Baltimore, Maryland. W. Hale Barrett, a member of the firm of Hull, Towill, Norman & Barrett, P.C., is a director and secretary of the Company. He and members of his firm own 25,751 shares of the Company's Common Stock. 24 61 (Photo) PROMENADE, Tampa, Florida (Photo) WATERFORD VILLAGE, Delray Beach, Florida (Photo) CHAMPIONS' CLUB, Richmond, Virginia (Photo) BERMUDA COVE, Jacksonville, Florida (Photo) LOFTON PLACE, Tampa, Florida 62 - --------------------------------------------------------- - --------------------------------------------------------- No dealer, salesperson or other individual has been authorized to give any information or to make any representations other than those contained or incorporated by reference in this Prospectus Supplement and the Prospectus in connection with the offer made by this Prospectus Supplement and the Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or the Underwriters. Neither the delivery of this Prospectus Supplement or the Prospectus nor any sale made hereunder shall, under any circumstance, create any implication that there has been no change in the facts set forth in this Prospectus Supplement or in the Prospectus or in affairs of the Company since the date hereof. This Prospectus Supplement and the Prospectus do not constitute an offer or solicitation by anyone in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. ------------------ TABLE OF CONTENTS PROSPECTUS SUPPLEMENT
PAGE ----- Prospectus Summary...................... S-3 The Company............................. S-6 Use of Proceeds......................... S-8 Market Prices of Stock and Dividends to Shareholders.......................... S-8 Capitalization.......................... S-11 Selected Financial Data................. S-12 Management's Discussion and Analysis of Financial Condition and Results of Operations............................ S-13 Business................................ S-19 Management.............................. S-24 Description of Series C Preferred Stock................................. S-24 Taxation................................ S-30 Underwriting............................ S-35 Experts................................. S-35 Legal Opinions.......................... S-36 Incorporation of Certain Documents by Reference............................. S-36 PROSPECTUS Available Information................... 2 Incorporation of Certain Documents by Reference............................. 2 The Company............................. 4 Use of Proceeds......................... 4 Certain Ratios.......................... 4 Description of Debt Securities.......... 4 Description of Common Stock............. 17 Description of Preferred Stock.......... 17 Description of Common Stock Warrants.... 21 Description of Depositary Shares........ 21 Plan of Distribution.................... 23 Experts................................. 24 Legal Opinions.......................... 24
- --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- 4,000,000 SHARES MERRYLAND & INVESTMENT COMPANY, INC. $ SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK --------------------------------- PROSPECTUS SUPPLEMENT --------------------------------- ALEX. BROWN & SONS INCORPORATED GOLDMAN, SACHS & CO. PAINEWEBBER INCORPORATED INTERSTATE/JOHNSON LANE CORPORATION MARCH , 1995 - --------------------------------------------------------- - --------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----