<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1998
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SECURITY CAPITAL PACIFIC TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 6798 74-6056896
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
(I.R.S.
(STATE OR OTHER EMPLOYERIDENTIFICATION
JURISDICTION OF NUMBER)
INCORPORATION OR
ORGANIZATION)
7670 SOUTH CHESTER STREET ENGLEWOOD, COLORADO 80112 (303) 708-5959
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JEFFREY A. KLOPF, SENIOR VICE PRESIDENT AND SECRETARY SECURITY CAPITAL PACIFIC
TRUST 7670 SOUTH CHESTER STREET ENGLEWOOD, COLORADO 80112 (303) 708-5959
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
COPIES TO:
R. GREGORY MORGAN
MUNGER, TOLLES & OLSON
LLP 355 SOUTH GRAND
AVENUE, 35TH FLOOR LOS
ANGELES, CALIFORNIA
90071 (213) 683-9100
EDWARD J. SCHNEIDMAN MAYER, BROWN & PLATT 190 SOUTH LASALLE STREET CHICAGO,
ILLINOIS 60603 (312) 782-0600
PETER D. LYONS SHEARMAN
& STERLING 599 LEXINGTON
AVENUE NEW YORK, NEW
YORK 10022 (212) 848-
4000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF MAXIMUM MAXIMUM
SECURITIES TO BE AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED TO BE REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE(1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares of
Beneficial Interest,
$1.00 par value....... 47,752,052 $22.4375 $1,071,436,667 $316,074
- -----------------------------------------------------------------------------------------------
Series C Cumulative
Redeemable Preferred
Shares of Beneficial
Interest, $1.00 par
value................. 2,000,000 $25.28125 $50,562,500 $14,916
- -----------------------------------------------------------------------------------------------
Preferred Share Purchase
Rights................ N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------
Total.................. 49,752,052 N/A $1,121,999,167 $330,990
</TABLE>
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- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of determining the registration fee. In
accordance with Rule 457(f)(1), the above calculation is based on the
market value of the securities to be received by the registrant or
canceled in the exchange or transaction as established by the price of
securities of the same or corresponding class based on the average high
and low prices reported in the consolidated reporting system as of April
23, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
LOGO
To the Shareholders of Security Capital Pacific Trust ("PTR"):
You are invited to attend a special meeting of PTR shareholders to be held
in , on , , 1998 at a.m. mountain time.
The purpose of the special meeting is to consider a proposed merger between
PTR and Security Capital Atlantic Incorporated, a Maryland corporation
("ATLANTIC"). At the meeting you will be asked to consider and vote upon (i) a
proposed Merger Agreement which contemplates the merger of ATLANTIC (an
affiliate of Security Capital Group Incorporated ("Security Capital"), PTR's
largest shareholder) with and into PTR (the "Merger"), (ii) an Amended and
Restated Declaration of Trust for PTR which, among other things, would change
PTR's name to "Archstone Communities Trust" and (iii) amendments to PTR's
incentive plans increasing the number of PTR common shares available for award
thereunder in an amount equal to the number of shares authorized under the
corresponding ATLANTIC option plans. If the Merger is approved, each holder of
PTR common shares or preferred shares will retain his or her existing PTR
common shares or preferred shares; each holder of ATLANTIC common shares will
receive one PTR common share in exchange for each ATLANTIC common share held;
and each holder of ATLANTIC preferred shares will receive one comparable PTR
preferred share for each ATLANTIC preferred share held. The Merger and the
related proposals are described in detail in the accompanying Joint Proxy
Statement and Prospectus. Please review it carefully.
AFTER CAREFUL CONSIDERATION, THE PTR BOARD OF TRUSTEES HAS UNANIMOUSLY
APPROVED THE MERGER AND THE MERGER AGREEMENT, THE AMENDED AND RESTATED
DECLARATION OF TRUST AND THE AMENDMENTS TO PTR'S INCENTIVE PLANS AND
RECOMMENDS THAT ALL SHAREHOLDERS VOTE FOR THEIR APPROVAL. The affirmative vote
of holders of two-thirds of the outstanding common shares of PTR is necessary
for approval of the Merger and the Merger Agreement and the Amended and
Restated Declaration of Trust; and the affirmative vote of the holders of a
majority of the common shares of PTR voted at the meeting is required to
approve the amendments to PTR's incentive plans (provided that more than 50%
of the votes entitled to be cast are voted on the proposal). The approval of
each of the proposals is a condition to the approval of each other proposal,
including consummation of the Merger. Security Capital has agreed to vote all
of its PTR common shares, representing approximately 33.0% of the outstanding
shares, in favor of each proposal.
Please complete, sign and date your enclosed proxy card and return it to us
in the accompanying envelope as soon as possible. Failure to return your proxy
card or to vote in person at the special meeting will have the effect of a
vote against the Merger and the Merger Agreement, the Amended and Restated
Declaration of Trust and the amendments to PTR's incentive plans. Returning
your completed proxy card will not limit your right to vote in person if you
attend the special meeting.
If you have any questions regarding the proposed Merger, please call
Georgeson & Company, Inc., our proxy solicitation and information agent, at
(800) - .
Very truly yours,
R. Scot Sellers
President and Chief Executive
Officer
YOUR PROXY IS IMPORTANT--PLEASE RESPOND PROMPTLY
7670 South Chester Street . Englewood, Colorado 80112 . (303) 708-5959
<PAGE>
LOGO
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Security
Capital Pacific Trust, a Maryland real estate investment trust ("PTR"), will
be held on , , 1998, commencing at a.m., mountain time, at , for
the following purposes:
1. To consider and vote upon the approval of the Agreement and Plan of
Merger dated as of April 1, 1998 (the "Merger Agreement"), between PTR and
Security Capital Atlantic Incorporated, a Maryland corporation ("ATLANTIC")
(an affiliate of Security Capital Group Incorporated, PTR's largest
shareholder), pursuant to which, among other matters, ATLANTIC would be
merged with and into PTR, which will continue its existence under the name
"Archstone Communities Trust" (the "Merger"), each outstanding ATLANTIC
common share will be converted into the right to receive one PTR common
share and each outstanding ATLANTIC Series A preferred share will be
converted into the right to receive one PTR Series C preferred share, all
as more fully described in the accompanying Joint Proxy Statement and
Prospectus;
2. To consider and vote upon an Amended and Restated Declaration of Trust
(the "New Archstone Charter") which, among other things, would change PTR's
name to "Archstone Communities Trust";
3. To consider and vote upon a proposal to increase the number of shares
available for award under PTR's 1997 Long-Term Incentive Plan and PTR's
1996 Share Option Plan for Outside Trustees in an amount equal to the
number of shares authorized under the corresponding ATLANTIC option plans
to enable the combined company to continue to grant awards thereunder; and
4. To transact any other business that may properly come before the
special meeting or any adjournment or postponement thereof.
Copies of the Merger Agreement and the New Archstone Charter are set forth
as Annex I and Annex II, respectively, to the Joint Proxy Statement and
Prospectus attached hereto and are incorporated herein by reference.
The PTR Board of Trustees has fixed , 1998 as the record date for the
determination of shareholders entitled to notice of and to vote at the special
meeting. The affirmative vote of the holders of two-thirds of the outstanding
PTR common shares entitled to vote at the special meeting is necessary to
approve proposals 1 and 2 above and the affirmative vote of the holders of a
majority of the common shares voted at the meeting is required to approve
proposal 3 above (provided that more than 50% of the votes entitled to be cast
are voted on the proposal). The approval of each of the proposals is a
condition to the approval of each other proposal, including consummation of
the Merger. Holders of PTR common shares are not entitled to dissenters'
rights under Maryland law in connection with any of the proposals.
The attached Joint Proxy Statement and Prospectus is being sent to holders
of PTR's preferred shares for their information only; such holders are not
entitled to notice of, or to vote at, the special meeting.
Registered owners of PTR common shares who plan to attend the special
meeting must detach and retain the admission ticket which is attached to the
proxy card. Beneficial owners of PTR common shares who plan to attend the
special meeting in person may obtain admission tickets in advance by sending
written requests, along with proof of ownership, such as a bank or brokerage
firm account statement, to: Secretary, Security Capital Pacific Trust, 7670
South Chester Street, Englewood, Colorado 80112. Record owners and beneficial
owners (including the holders of valid proxies therefrom) who do not present
an admission ticket at the meeting will be admitted upon verification of
ownership at the admission counter at the special meeting. Verification of
ownership for record holders (including the holders of valid proxies
therefrom) will consist of a valid form of personal identification (such as a
driver's license or passport) and for beneficial owners will consist of a bank
or brokerage firm account statement showing beneficial ownership as of the
record date together with a valid form of personal identification.
Whether or not you plan to attend the special meeting, please fill in, date
and sign the proxy card furnished herewith and mail it promptly in the
enclosed pre-addressed envelope, which requires no postage if mailed in the
United States.
Very truly yours,
Jeffrey A. Klopf
Secretary
Englewood, Colorado
, 1998
7670 South Chester Street . Englewood, Colorado 80112 . (303) 708-5959
<PAGE>
LOGO
To the Shareholders of Security Capital Atlantic Incorporated ("ATLANTIC"):
You are invited to attend a special meeting of ATLANTIC shareholders to be
held in , on , , 1998 at a.m., eastern time.
The purpose of the special meeting is to consider a proposed merger between
ATLANTIC and Security Capital Pacific Trust, a Maryland real estate investment
trust ("PTR"). At the meeting you will be asked to consider and vote upon a
proposed Merger Agreement which contemplates the merger of ATLANTIC with and
into PTR (an affiliate of Security Capital Group Incorporated ("Security
Capital"), ATLANTIC's largest shareholder) which will continue its existence
under the name "Archstone Communities Trust" (the "Merger"). If the foregoing
proposal is approved, each holder of ATLANTIC common shares will receive one
PTR common share for each ATLANTIC common share held, each holder of ATLANTIC
preferred shares will receive one comparable PTR preferred share for each
ATLANTIC preferred share held and each holder of PTR common shares or
preferred shares will retain his or her existing PTR common shares or
preferred shares. The Merger and certain related matters are described in
detail in the accompanying Joint Proxy Statement and Prospectus. Please review
it carefully.
AFTER CAREFUL CONSIDERATION, THE ATLANTIC BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AND THE MERGER AGREEMENT AND RECOMMENDS THAT ALL
SHAREHOLDERS VOTE FOR THEIR APPROVAL. The affirmative vote of holders of a
majority of the outstanding common shares of ATLANTIC is necessary for
approval of the Merger and the Merger Agreement. Security Capital has agreed
to vote all of its ATLANTIC common shares, representing approximately 49.9% of
the outstanding shares, in favor of the proposal.
Please complete, sign and date your enclosed proxy card and return it to us
in the accompanying envelope as soon as possible. Failure to return your proxy
card or to vote in person at the special meeting will have the effect of a
vote against the Merger and the Merger Agreement. Returning your completed
proxy card will not limit your right to vote in person if you attend the
special meeting.
If you have any questions regarding the proposed Merger, please call
Georgeson & Company, Inc., our proxy solicitation and information agent, at
(800) - .
Very truly yours,
Constance B. Moore
Co-Chairman
YOUR PROXY IS IMPORTANT--PLEASE RESPOND PROMPTLY
Six Piedmont Center . Suite 600 . Atlantic, Georgia 30305 . (404) 237-9292
<PAGE>
LOGO
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Security
Capital Atlantic Incorporated, a Maryland corporation ("ATLANTIC"), will be
held on , , 1998, commencing at a.m., eastern time, at , for the
following purposes:
1. To consider and vote upon the approval of the Agreement and Plan of
Merger dated as of April 1, 1998 (the "Merger Agreement"), between ATLANTIC
and Security Capital Pacific Trust, a Maryland real estate investment trust
("PTR") (an affiliate of Security Capital Group Incorporated, ATLANTIC's
largest shareholder), pursuant to which, among other matters, ATLANTIC
would be merged with and into PTR, which will continue its existence under
the name "Archstone Communities Trust" (the "Merger"), each outstanding
ATLANTIC common share will be converted into the right to receive one PTR
common share and each outstanding ATLANTIC Series A preferred share will be
converted into the right to receive one PTR Series C preferred share, all
as more fully described in the accompanying Joint Proxy Statement and
Prospectus; and
2. To transact any other business that may properly come before the
special meeting or any adjournment or postponement thereof.
A copy of the Merger Agreement is set forth as Annex I to the Joint Proxy
Statement and Prospectus attached hereto and is incorporated herein by
reference.
The ATLANTIC Board of Directors has fixed , 1998 as the record date for
the determination of shareholders entitled to notice of and to vote at the
special meeting. The affirmative vote of the holders of a majority of the
outstanding ATLANTIC common shares entitled to vote at the special meeting is
necessary to approve proposal 1 above. Holders of ATLANTIC common shares are
not entitled to dissenters' rights under Maryland law in connection with the
proposals.
The attached Joint Proxy Statement and Prospectus is being sent to holders
of ATLANTIC's preferred shares for their information only; such holders are
not entitled to notice of, or to vote at, the special meeting.
Registered owners of ATLANTIC common shares who plan to attend the special
meeting must detach and retain the admission ticket which is attached to the
proxy card. Beneficial owners of ATLANTIC common shares who plan to attend the
special meeting in person may obtain admission tickets in advance by sending
written requests, along with proof of ownership, such as a bank or brokerage
firm account statement, to: Secretary, Security Capital Atlantic Incorporated,
Six Piedmont Center, Suite 600, Atlanta, Georgia 30305. Record owners and
beneficial owners (including the holders of valid proxies therefrom) who do
not present an admission ticket at the meeting will be admitted upon
verification of ownership at the admission counter at the special meeting.
Verification of ownership for record holders (including the holders of valid
proxies therefrom) will consist of a valid form of personal identification
(such as a driver's license or passport) and for beneficial owners will
consist of a bank or brokerage firm account statement showing beneficial
ownership as of the record date together with a valid form of personal
identification.
Whether or not you plan to attend the special meeting, please fill in, date
and sign the proxy card furnished herewith and mail it promptly in the
enclosed pre-addressed envelope, which requires no postage if mailed in the
United States.
Very truly yours,
Jeffrey A. Klopf
Secretary
Atlanta, Georgia
, 1998
Six Piedmont Center . Suite 600 . Atlanta, Georgia 30305 . (404) 237-9292
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS JOINT PROXY STATEMENT AND PROSPECTUS SHALL NOT +
+CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL +
+THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, +
+SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION +
+UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED APRIL 28, 1998
SECURITY CAPITAL PACIFIC TRUST
AND
SECURITY CAPITAL ATLANTIC INCORPORATED
JOINT PROXY STATEMENT
-----------
SECURITY CAPITAL PACIFIC TRUST
PROSPECTUS
-----------
This Joint Proxy Statement and Prospectus is being furnished to the holders
of common shares of beneficial interest, par value $1.00 per share ("PTR Common
Shares"), of Security Capital Pacific Trust, a Maryland real estate investment
trust ("PTR"), in connection with the solicitation of proxies by the Board of
Trustees of PTR (the "PTR Board") for use at a special meeting of shareholders
of PTR to be held on , 1998, and at any and all adjournments or
postponements thereof (the "PTR Special Meeting"). This Joint Proxy Statement
and Prospectus is also being furnished to the holders of common stock, par
value $0.01 per share ("ATLANTIC Common Shares"), of Security Capital Atlantic
Incorporated, a Maryland corporation ("ATLANTIC"), in connection with the
solicitation of proxies by the Board of Directors of ATLANTIC (the "ATLANTIC
Board") for use at a special meeting of shareholders of ATLANTIC to be held on
, 1998, and at any and all adjournments or postponements thereof (the
"ATLANTIC Special Meeting").
This Joint Proxy Statement and Prospectus also constitutes the Prospectus of
PTR with respect to the issuance of up to 47,752,052 PTR Common Shares to be
issued to holders of ATLANTIC Common Shares in connection with the Merger (as
defined below), and 2,000,000 Series C Cumulative Redeemable Preferred Shares
of Beneficial Interest, par value $1.00 per share (the "PTR Series C Preferred
Shares"), to be issued to the holders of ATLANTIC's Series A Cumulative
Redeemable Preferred Stock, par value $0.01 per share (the "ATLANTIC Series A
Preferred Shares"), in connection with the Merger. PTR Common Shares are listed
and traded on the New York Stock Exchange (the "NYSE") under the symbol "PTR"
and an application will be made to list the PTR Series C Preferred Shares on
the NYSE. On April 27, 1998, the closing price for PTR Common Shares as
reported by the NYSE Composite Tape was $22 9/16 per share.
This Joint Proxy Statement and Prospectus relates to (i) the proposed merger
(the "Merger") of ATLANTIC with and into PTR, pursuant to the Agreement and
Plan of Merger, dated as of April 1, 1998 (the "Merger Agreement"), by and
between PTR and ATLANTIC, (ii) a proposal to adopt an Amended and Restated
Declaration of Trust of PTR (the "New Archstone Charter"), which, among other
things, would change PTR's name to "Archstone Communities Trust" and (iii) a
proposal to increase the number of PTR Common Shares available for award under
the PTR 1997 Long-Term Incentive Plan (the "PTR Incentive Plan") and the PTR
1996 Share Option Plan for Outside Trustees (the "PTR Outside Trustees Plan"
and together with the PTR Incentive Plan, the "PTR Plans") in an amount equal
to the number of shares authorized under the corresponding ATLANTIC option
plans. PTR will be the surviving company in the Merger and the common shares of
the combined company will be listed on the NYSE under the symbol "ASN." Upon
completion of the Merger, the separate corporate existence of ATLANTIC will
cease. At the time the Merger becomes effective, each issued and outstanding
ATLANTIC Common Share will be converted into the right to receive one PTR
Common Share and each ATLANTIC Series A Preferred Share will be converted into
the right to receive one PTR Series C Preferred Share. Consummation of the
Merger is subject to various conditions (which must be satisfied or waived),
including approval of the Merger and the Merger Agreement and the New Archstone
Charter by the holders of two-thirds of the outstanding PTR Common Shares, the
approval of the amendments to the PTR Plans by the holders of a majority of the
PTR Common Shares voted at the PTR Special Meeting (provided that more than 50%
of the votes entitled to be cast are voted on the proposal) and the approval of
the Merger and the Merger Agreement by the holders of a majority of the
outstanding ATLANTIC Common Shares. Security Capital Group Incorporated
("Security Capital") which owns approximately 33.0% and 49.9% of the PTR Common
Shares and ATLANTIC Common Shares, respectively, has agreed to vote all of its
PTR Common Shares and ATLANTIC Common Shares in favor of each of the proposals.
Copies of the Merger Agreement and the New Archstone Charter are attached
hereto as Annex I and Annex II, respectively.
SEE "RISK FACTORS" AT PAGE 22 OF THIS JOINT PROXY STATEMENT AND PROSPECTUS
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING THE
MERGER.
-----------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT AND
PROSPECTUS 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 JOINT PROXY STATEMENT AND PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
The date of this Joint Proxy Statement and Prospectus is , 1998.
<PAGE>
AVAILABLE INFORMATION
PTR and ATLANTIC are each subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
regional offices of the Commission: Seven World Trade Center, Suite 1300, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and are also available on the Commission's Worldwide Web
site at http://www.sec.gov. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, reports, proxy and
information statements and other information concerning PTR and ATLANTIC can
be inspected at the offices of the NYSE at 20 Broad Street, New York, New York
10005, on which the PTR Common Shares and ATLANTIC Common Shares are listed.
PTR has filed with the Commission a registration statement on Form S-4
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the PTR Common Shares and PTR Series C Preferred Shares
to be issued pursuant to the Merger. This Joint Proxy Statement and Prospectus
does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby
made to the Registration Statement.
INCORPORATION BY REFERENCE
This Joint Proxy Statement and Prospectus incorporates certain documents by
reference which are not presented herein or delivered herewith. These
documents (other than the exhibits to such documents, unless such exhibits are
specifically incorporated by reference into such documents) are available
without charge upon oral or written request from, in the case of documents
relating to PTR, 7670 South Chester Street, Englewood, Colorado 80112,
Attention: Secretary (telephone: (303) 708-5959), or, in the case of documents
relating to ATLANTIC, Six Piedmont Center, Suite 600, Atlanta, Georgia 30305,
Attention: Secretary (telephone: (404) 237-9292). In order to ensure timely
delivery of the documents, any request should be made by , 1998.
PTR
The following documents, which have been filed with the Commission by PTR
pursuant to the Exchange Act, are hereby incorporated herein by reference:
(a) PTR's Annual Report on Form 10-K for the year ended December 31,
1997;
(b) PTR's Current Reports on Form 8-K filed March 4, April 3, and April
23, 1998;
(c) The description of PTR's policies with respect to certain activities
under the caption "PTR Policies with Respect to Certain Activities" on
pages 60-63 of PTR's Proxy Statement dated August 6, 1997 and filed August
8, 1997 in connection with PTR's special meeting of shareholders on
September 8, 1997;
(d) PTR's proxy statement dated April 30, 1998 and filed April 27, 1998
in connection with PTR's 1998 annual meeting of shareholders; and
(e) The description of PTR's Preferred Share Purchase Rights contained in
PTR's Registration Statement on Form 8-A filed with the Commission on July
12, 1994 (as amended by Form 8-A/A No. 1 dated July 20, 1994).
ATLANTIC
The following documents, which have been filed with the Commission by
ATLANTIC pursuant to the Exchange Act, are hereby incorporated herein by
reference:
(a) ATLANTIC's Annual Report on Form 10-K for the year ended December 31,
1997;
i
<PAGE>
(b) ATLANTIC's Current Reports on Form 8-K filed April 3, and April 24,
1998;
(c) The description of the ATLANTIC Common Shares and Preferred Share
Purchase Rights contained or incorporated by reference in ATLANTIC's
Registration Statement on Form 8-A, dated and filed October 9, 1996,
including any amendments thereto;
(d) ATLANTIC's proxy statement dated April 27, 1998 and filed April 27,
1998 in connection with ATLANTIC's 1998 annual meeting of shareholders; and
(e) The description of ATLANTIC's policies with respect to certain
activities under the caption "Policies with Respect to Certain Activities"
on pages 80-82 of ATLANTIC's proxy statement dated August 6, 1997 and filed
August 8, 1997 in connection with ATLANTIC's special meeting of
shareholders on September 8, 1997.
All documents filed by each of PTR and ATLANTIC pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
dates of the PTR Special Meeting and the ATLANTIC Special Meeting shall be
deemed to be incorporated herein by reference and to be a part hereof from the
date of filing of such documents. All information appearing in this Joint
Proxy Statement and Prospectus or in any document incorporated herein by
reference is not necessarily complete and is qualified in its entirety by the
information and financial statements (including notes thereto) appearing in
this Joint Proxy Statement and Prospectus or the documents incorporated by
reference herein and should be read together with such information and
documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement and Prospectus to the extent that a
statement contained herein or in any other subsequently filed document that is
deemed to be 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 Joint Proxy
Statement and Prospectus.
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Joint Proxy Statement and Prospectus, and if given or made, such information
or representations should not be relied upon as having been authorized. This
Joint Proxy Statement and Prospectus does not constitute an offer to sell, or
a solicitation of an offer to purchase, the securities offered by this Joint
Proxy Statement and Prospectus, or the solicitation of a proxy, in any
jurisdiction to or from any person to whom or from whom it is unlawful to make
such offer, solicitation of an offer or proxy solicitation in such
jurisdiction. Neither the delivery of this Joint Proxy Statement and
Prospectus nor any distribution of securities pursuant to this Joint Proxy
Statement and Prospectus shall, under any circumstances, create any
implication that there has been no change in the information set forth or
incorporated herein by reference or in the affairs of PTR or ATLANTIC since
the date of this Joint Proxy Statement and Prospectus. However, if any
material change occurs during the period that this Joint Proxy Statement and
Prospectus is required to be delivered, this Joint Proxy Statement and
Prospectus will be amended and supplemented accordingly. All information
regarding PTR in this Joint Proxy Statement and Prospectus has been supplied
by PTR, and all information regarding ATLANTIC in this Joint Proxy Statement
and Prospectus has been supplied by ATLANTIC.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THE STATEMENTS CONTAINED IN THIS JOINT PROXY STATEMENT AND PROSPECTUS THAT
ARE NOT HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. THESE
FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ESTIMATES AND
PROJECTIONS ABOUT THE INDUSTRY AND MARKETS IN WHICH ATLANTIC AND PTR OPERATE,
MANAGEMENT'S BELIEFS AND ASSUMPTIONS MADE BY MANAGEMENT. WORDS SUCH AS
"EXPECTS," "ANTICIPATES," "PLANS," "BELIEVES," "SEEKS," "ESTIMATES,"
VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND INVOLVE CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS WHICH ARE
DIFFICULT TO PREDICT. THEREFORE, ACTUAL OUTCOMES AND RESULTS MAY DIFFER
MATERIALLY FROM WHAT IS EXPRESSED OR FORECASTED IN SUCH FORWARD-LOOKING
STATEMENTS. PTR'S AND ATLANTIC'S OPERATING RESULTS DEPEND PRIMARILY ON INCOME
FROM MULTIFAMILY COMMUNITIES, WHICH IS SUBSTANTIALLY INFLUENCED BY (I) THE
DEMAND FOR AND SUPPLY OF MULTIFAMILY UNITS IN THEIR RESPECTIVE PRIMARY TARGET
MARKETS AND SUBMARKETS, (II) OPERATING EXPENSE LEVELS, (III) THE EFFECTIVENESS
OF PROPERTY-LEVEL OPERATIONS, AND (IV) THE PACE AND PRICE AT WHICH ADDITIONAL
MULTIFAMILY COMMUNITIES CAN BE ACQUIRED AND DEVELOPED. CAPITAL AND CREDIT
MARKET CONDITIONS WHICH AFFECT PTR'S AND ATLANTIC'S COST OF CAPITAL ALSO
INFLUENCE OPERATING RESULTS.
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TABLE OF CONTENTS
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SUMMARY................................ 2
The Companies........................ 2
Risk Factors......................... 4
The Merger........................... 4
The Merger Agreement................. 8
The Special Meetings of
Shareholders........................ 10
Comparison of Shareholder Rights..... 11
Summary Historical Financial Data of
PTR................................. 12
PTR Recent Operating Results......... 14
Summary Historical Financial Data of
ATLANTIC............................ 15
ATLANTIC Recent Operating Results.... 17
Archstone Communities Trust Pro Forma
Summary Financial Data.............. 18
Comparative Per Share Data........... 20
Comparative Market Data.............. 21
RISK FACTORS........................... 22
Fixed Exchange Ratio................. 22
Conflicts of Interest................ 22
Significant Influence of Principal Shareholder.. 22
Certain Real Estate Investment
Risks............................... 23
Substantial Expenses and Payments if
Merger Fails to Occur............... 23
Differences in Shareholder Rights.... 23
Potential Anti-Takeover Effect and
Certain Provisions of the New
Archstone Charter................... 23
No Dissenters' Rights................ 24
THE COMPANIES.......................... 25
PTR.................................. 25
ATLANTIC............................. 27
Archstone Communities Trust.......... 30
THE MERGER (Proposal 1)................ 32
Terms of the Merger.................. 32
Background of the Merger............. 32
Reasons for the Merger;
Recommendations of the PTR Board.... 40
Opinion of PTR's Financial Advisor... 41
Reasons for the Merger;
Recommendations of the ATLANTIC
Board............................... 45
Opinion of ATLANTIC's
Financial Advisor................... 46
Interests of Certain Parties......... 52
Voting Agreement..................... 53
Investor Agreement................... 53
Material Federal Income Tax Consequences.. 55
Accounting Treatment................. 56
Restrictions on Sales by Affiliates.. 57
New York Stock Exchange Listing...... 57
No Dissenters' Rights................ 57
THE MERGER AGREEMENT................... 57
Board Recommendations................ 57
General.............................. 57
</TABLE>
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Effective Time of the Merger................................................. 57
Exchange of ATLANTIC Share Certificates...................................... 58
Conditions to the Merger..................................................... 59
Representations and Warranties............................................... 60
Certain Covenants............................................................ 60
Distributions................................................................ 62
Termination.................................................................. 62
Termination Amount and Expenses.............................................. 63
Reduction of Termination Amount.............................................. 64
No Solicitation of Transactions.............................................. 64
Indemnification.............................................................. 66
Amendment and Waiver......................................................... 66
APPROVAL OF THE NEW ARCHSTONE CHARTER (Proposal 2)............................. 66
PTR Board Recommendation..................................................... 66
Name Change.................................................................. 67
Increase in Authorized Shares................................................ 67
Classified Board of Trustees................................................. 67
Vacancies Among Trustees..................................................... 68
Independence of Trustees..................................................... 68
Restrictions on Certain Transactions......................................... 68
Amendments to the New Archstone Charter...................................... 70
Restriction on Size of Holdings of Shares.................................... 70
Indemnification of Trustees and Officers..................................... 72
Material Federal Income Tax Consequences..................................... 73
AMENDMENTS TO THE PTR PLANS (Proposal 3)....................................... 74
PTR Incentive Plan........................................................... 74
PTR Outside Trustees Plan.................................................... 76
MANAGEMENT..................................................................... 78
THE SPECIAL MEETINGS OF SHAREHOLDERS........................................... 81
The PTR Special Meeting...................................................... 81
The ATLANTIC Special Meeting................................................. 82
COMPARISON OF SHAREHOLDER RIGHTS............................................... 83
DESCRIPTION OF SECURITIES...................................................... 85
PTR Common Shares............................................................ 85
PTR Series C Preferred Shares................................................ 87
LEGAL MATTERS.................................................................. 91
INDEPENDENT PUBLIC ACCOUNTANTS AND EXPERTS..................................... 91
EXPENSES OF SOLICITATION....................................................... 92
SHAREHOLDER PROPOSALS.......................................................... 92
ARCHSTONE COMMUNITIES TRUST INDEX TO PRO FORMA CONDENSED FINANCIAL STATEMENTS.. F-1
</TABLE>
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ANNEXES
I. Merger Agreement............... I-1
II. New Archstone Charter.......... II-1
III. Opinion of PTR's Financial
Advisor: Goldman, Sachs & Co.. III-1
IV. Opinion of ATLANTIC's Financial
Advisor: Morgan Stanley & Co.
Incorporated ................. IV-1
</TABLE>
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SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Joint Proxy Statement and Prospectus
(including the Annexes hereto) or incorporated herein by reference.
Shareholders are urged to review the entire Joint Proxy Statement and
Prospectus including the Annexes hereto. Unless otherwise indicated,
information contained herein regarding PTR assumes that (i) no new PTR Common
Shares are issued after April 15, 1998 pursuant to its Dividend Reinvestment
and Share Purchase Plan or otherwise, (ii) none of the outstanding Series A
Preferred Shares of PTR (the "PTR Series A Preferred Shares") are converted
into PTR Common Shares and (iii) no outstanding options or warrants to acquire
PTR Common Shares are exercised prior to the effective time of the Merger.
Unless otherwise indicated, information contained herein regarding ATLANTIC
assumes that no outstanding options to acquire ATLANTIC Common Shares are
exercised prior to the effective time of the Merger. All references to
Archstone Communities Trust ("Archstone"), the combined company in the Merger,
means PTR after consummation of the Merger.
THE COMPANIES
PTR
PTR is an internally managed equity real estate investment trust ("REIT")
which was formed in 1963. PTR's principal focus is to generate long-term,
sustainable growth in per share cash flow while providing outstanding services
to its customers. PTR's objective is to be the preeminent real estate operating
company focusing on the development, acquisition, operation and long-term
ownership of multifamily communities in markets and submarkets with strong
economic fundamentals and high barriers to entry throughout the United States.
Proprietary real estate and customer research provides the foundation for PTR's
investment and operating strategies.
PTR has elected to be taxed as a REIT for federal income tax purposes. PTR is
organized as a REIT under the laws of the State of Maryland. Its principal
executive offices are located at 7670 South Chester Street, Englewood, Colorado
80112 and its telephone number is (303) 708-5959.
ATLANTIC
The objective of ATLANTIC is to be the preeminent multifamily real estate
operating company in the eastern and midwestern growth areas of the United
States. ATLANTIC is an internally managed, fully integrated operating company
with 90 professionals and 550 property-level and support personnel dedicated to
carrying out its operating strategy which focuses on development, acquisition,
operation and long-term ownership of multifamily communities.
ATLANTIC has elected to be taxed as a REIT for federal income tax purposes.
ATLANTIC is organized as a corporation under the laws of the State of Maryland.
Its principal executive offices are located at Six Piedmont Center, Suite 600,
Atlanta, Georgia 30305 and its telephone number is (404) 237-9292.
ARCHSTONE COMMUNITIES TRUST
Upon completion of the Merger, Archstone will have a total market
capitalization of approximately $5.3 billion. Based on portfolios for each of
PTR and ATLANTIC as of March 31, 1998, Archstone will have 307 multifamily
communities, consisting of 91,201 units in 19 states and Washington, D.C.,
including 26,161 units under construction or in planning (including 25
communities consisting of 7,875 units under control).
The combined company resulting from the Merger is expected to have the
following important characteristics, which are intended to create long-term
shareholder value:
. A highly focused investment strategy emphasizing markets and submarkets
with strong economic fundamentals and high barriers to entry, as
identified by Archstone's research.
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. An investment strategy focused on producing consistent growth from three
principal sources:
--the development of new multifamily communities in submarkets
identified through research as having optimal long-term growth
prospects. Management believes that Archstone will be the dominant
multifamily development company in the United States, with a
development pipeline of more than $2 billion.
--an investment strategy emphasizing the creation of shareholder value
through deploying capital to take advantage of growth opportunities
created by changing market fundamentals.
--a highly focused operating strategy designed to create the highest
level of performance at the property level.
. A national branding strategy emphasizing a high level of customer service
with the objective of achieving long-term brand loyalty, lower resident
turnover and greater market share. Archstone's objective is to create a
dominant national brand in the multifamily industry.
. A larger market capitalization and national presence providing:
--increased liquidity for shareholders.
--the resources for continued investment in research and development.
--the ability to attract and retain a significant depth of management,
emphasizing thoughtful succession planning at all levels of
management.
. Economies of scale that are expected to produce identified cost savings
in excess of $5 million annually, beginning in 1999.
. A strong balance sheet featuring:
--a ratio of long-term debt to long term undepreciated book
capitalization of approximately 33%.
--an original weighted average life to maturity for unsecured long-term,
fixed rate debt currently outstanding of 13.02 years.
--a conservative debt strategy, with a relatively level principal
maturity schedule, emphasizing unsecured long-term, fixed rate debt.
The Merger is also expected to have the following potential detriments to
holders of PTR Common Shares and ATLANTIC Common Shares:
. Because the Exchange Ratio (as defined below) is fixed, the PTR Common
Shares that PTR will be required to exchange for the ATLANTIC Common
Shares may have a greater or lower aggregate value than the value
contemplated at the time the Merger Agreement was executed due to
fluctuations in the market prices of the PTR Common Shares and the
ATLANTIC Common Shares.
. The annual distribution rate per common share for Archstone following
the Merger will be $1.42 per share. This amount is less than the current
annual distribution rate of $1.60 per ATLANTIC Common Share, but greater
than the current annual distribution rate of $1.36 per PTR Common Share.
. As of April 1, 1998, the date the Merger Agreement was executed,
Security Capital owned approximately 33.0% of the outstanding PTR Common
Shares, which investment had a market value of approximately $740.3
million, and as of April 1, 1998, Security Capital owned approximately
49.9% of the outstanding ATLANTIC Common Shares, which investment had a
market value of approximately $500.9 million. Security Capital will own
approximately 38.7% of the outstanding shares of Archstone as a result
of the Merger and Security Capital will have the right to nominate four
persons to Archstone's 12-member Board of Trustees. No other person will
be permitted to own more than 9.8% of the outstanding shares of
Archstone, which is a similar restriction as currently in place for each
of PTR and ATLANTIC.
. The larger asset base of Archstone could make perpetuation of the rate
of growth in funds from operations from external investment activity
more difficult.
. The size of the transaction may make rapid integration of PTR and
ATLANTIC more difficult, which may be partially offset by the similar
cultures and consistent financial policies and accounting systems at the
two companies.
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<PAGE>
. The transaction will result in holders of PTR Common Shares and ATLANTIC
Common Shares being subject to the real estate risks of the markets in
which the other company currently operates.
Archstone will continue to be taxed as a REIT under the Code and be organized
as a REIT under the laws of the State of Maryland. Archstone's headquarters
will be located at 7670 South Chester Street, Englewood, Colorado 80112
(telephone: (303) 708-5959) and will have regional offices in Atlanta, Georgia;
Irvine and San Francisco, California; Austin, Texas; Phoenix, Arizona; Seattle,
Washington; and Washington, D.C.
RISK FACTORS
In considering whether to approve the matters described herein, PTR
shareholders and ATLANTIC shareholders should consider the following matters in
addition to the matters described in greater detail herein under "Risk
Factors."
. The price of PTR Common Shares and the value of ATLANTIC Common Shares
at the effective time of the Merger may vary from the price and value as
of the date the Exchange Ratio was established, including variances
which result from the announcement of the Merger.
. Conflicts of interest in the Merger, including the ownership of PTR
Common Shares by certain members of the ATLANTIC Special Committee and
the ownership of ATLANTIC Common Shares by certain members of the PTR
Special Committee.
. The ability of Security Capital to exercise significant influence over
the business and policies of the combined company due to its existing
ownership of 33.0% and 49.9% of the issued and outstanding PTR Common
Shares and ATLANTIC Common Shares, respectively (38.7% on a combined
basis after giving effect to the Merger), and its existing right to
designate up to three persons (and after the Merger to designate a
proportionate number of persons, based on its percentage ownership of
PTR Common Shares) to be nominated for election to the PTR Board.
. If the Merger is not consummated, PTR and ATLANTIC will have incurred
substantial expenses in connection with the transaction. Additionally,
if the Merger Agreement is terminated under certain circumstances,
ATLANTIC or PTR may be required to pay to the other party a $25 million
termination fee, plus the other party's out-of-pocket expenses.
. The concentration of Archstone's multifamily communities in certain
markets may make its operating results dependent on the local conditions
in such markets.
THE MERGER
BACKGROUND
In September 1997, PTR began considering the expansion of its target market
beyond the western United States. The principal reason to consider such an
expansion was the opportunity to create incremental shareholder value by
deploying PTR's capital in a greater number of markets identified by its
research as having attractive long-term growth prospects. Management also
believed that substantial shareholder value could be created by applying PTR's
proven strategy of deploying its capital to take advantage of growth
opportunities created by changing market fundamentals. PTR determined that a
merger with a multifamily company with a strong management team, proven
development capability and complementary geography and product type was the
most effective way to expand into new markets. PTR then evaluated a number of
companies with assets in the eastern and midwestern United States. In November
1997, because of its knowledge of the assets and markets represented by
ATLANTIC's portfolio, as well as ATLANTIC's experienced management team, PTR
focused on ATLANTIC as a potential merger candidate and analyzed the impact of
such a merger on the shareholders of PTR. PTR concluded that a business
combination with ATLANTIC would create significant shareholder value by
allowing PTR to expand its geography to markets in the eastern and midwestern
United States which present attractive opportunities for long-term growth. Such
a transaction would also add multifamily communities with strong cash flow
growth prospects to PTR's portfolio, provide PTR with greater flexibility to
implement its research driven investment strategy across more markets and
economic cycles, increase PTR's market
4
<PAGE>
capitalization thereby increasing shareholders' liquidity, enable PTR to gain
access to significant development opportunities, and add an experienced team of
operating and investment professionals to PTR. PTR also concluded that an
acquisition of ATLANTIC would improve PTR's operating results for 1998 and 1999
and strengthen PTR's balance sheet.
On December 5, 1997, the PTR Board met to discuss a possible business
combination between PTR and ATLANTIC. At such meeting, the PTR Board appointed
a special committee of Trustees (the "PTR Special Committee") to review and
consider a proposed business combination with ATLANTIC. The PTR Special
Committee consists of Messrs. Calvin K. Kessler, William G. Myers and John C.
Schweitzer. The PTR Special Committee retained Munger, Tolles & Olson LLP
("Munger Tolles") as its legal advisor and Goldman, Sachs & Co. ("Goldman
Sachs") as its financial advisor.
On January 30, 1998, PTR presented to the ATLANTIC Board a proposal for a
business combination between PTR and ATLANTIC. The principal terms of the PTR
proposal consisted of (i) a tax-free merger of ATLANTIC into PTR and (ii) an
exchange ratio of .936 of a PTR Common Share for each ATLANTIC Common Share
(based on the 10-day average trading prices of PTR Common Shares and ATLANTIC
Common Shares immediately prior to the January 30 meeting with no premium for
ATLANTIC Common Shares).
At that January 30, 1998 meeting, the ATLANTIC Board appointed a special
committee of Directors (the "ATLANTIC Special Committee") to review and
consider the proposed business combination with PTR. The ATLANTIC Special
Committee consists of Messrs. Manuel A. Garcia, III, Ned S. Holmes and John M.
Richman. At a separate meeting of the ATLANTIC Special Committee on January 30,
1998, the ATLANTIC Special Committee discussed retaining Morgan Stanley & Co.
Incorporated ("Morgan Stanley") to evaluate the fairness of the consideration
to be received by holders of ATLANTIC Common Shares from a financial point of
view. After consulting with Morgan Stanley, the ATLANTIC Special Committee in
February 1998 retained Shearman & Sterling as its legal advisor.
The original proposal made by the PTR Special Committee was rejected by the
ATLANTIC Special Committee. In rejecting the proposal, the ATLANTIC Special
Committee indicated that it would not consider a transaction without a premium
for holders of ATLANTIC Common Shares. Following approximately two months of
negotiations between members of the PTR Special Committee and the ATLANTIC
Special Committee, the PTR Special Committee and the ATLANTIC Special Committee
each agreed to recommend a transaction pursuant to which, among other things,
(i) ATLANTIC would be merged into PTR in a tax-free merger, (ii) each ATLANTIC
Common Share would be converted into one PTR Common Share (which represented a
6.75% premium to holders of ATLANTIC Common Shares based on the 30-day average
closing prices of the PTR Common Shares and ATLANTIC Common Shares for the
period ended March 19, 1998, the time the PTR Special Committee and the
ATLANTIC Special Committee reached agreement on the exchange ratio), (iii) the
annualized distribution level per share for the combined company would be $1.42
and (iv) the combined company would be called "Archstone Communities Trust."
Subsequent to the PTR Special Committee submitting a revised one-to-one
exchange ratio for the Merger, the market price of the PTR Common Shares
increased from $22 13/16 to $24 in part as the result of favorable comments by
a leading analyst regarding several large market capitalization REITs,
including PTR. After considering the matter and consulting with its advisors,
the PTR Special Committee decided not to renegotiate the exchange ratio because
the relative values of the PTR Common Shares and the ATLANTIC Common Shares
using the methodology employed by the PTR Special Committee (which was based on
the 30-day average closing prices for PTR Common Shares and ATLANTIC Common
Shares) had not changed materially, the fundamentals of the two companies had
not changed and the prices could continue to fluctuate until a transaction was
announced.
On March 31, 1998, the PTR Special Committee recommended the proposed
combination to the PTR Board. The PTR Board then unanimously approved the
Merger and the Merger Agreement and recommended that PTR shareholders vote in
favor of the Merger and the Merger Agreement and the transactions contemplated
thereby.
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On April 1, 1998, the ATLANTIC Special Committee recommended the proposed
combination to the ATLANTIC Board. The ATLANTIC Board then unanimously approved
the Merger and the Merger Agreement and recommended that ATLANTIC shareholders
vote in favor of the Merger and the Merger Agreement. See "The Merger--
Background of the Merger."
TERMS OF THE MERGER
The PTR Board and the ATLANTIC Board have each approved the Merger and the
Merger Agreement, pursuant to which, upon satisfaction (or waiver) of certain
conditions, at the time the Merger becomes effective (the "Effective Time") (i)
ATLANTIC will be merged with and into PTR, which will continue its existence
under the name "Archstone Communities Trust," (ii) each issued and outstanding
ATLANTIC Common Share will be converted into the right to receive one PTR
Common Share (the "Exchange Ratio") and (iii) each issued and outstanding
ATLANTIC Series A Preferred Share will be converted into the right to receive
one PTR Series C Preferred Share. No fractional PTR Common Shares will be
issued in connection with the Merger. In lieu thereof, a holder of ATLANTIC
Common Shares otherwise entitled to a fractional share will be paid cash in
respect of such fractional interest. See "The Merger Agreement--Exchange of
ATLANTIC Share Certificates."
Based upon the number of ATLANTIC Common Shares outstanding on April 15,
1998, the former holders of ATLANTIC Common Shares will hold, immediately after
the Merger, approximately 47,752,052 PTR Common Shares, representing
approximately 33.9% of the aggregate number of PTR Common Shares expected to be
outstanding after the Merger.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE PTR BOARD AND THE ATLANTIC BOARD
PTR
The PTR Special Committee unanimously approved the Merger and the Merger
Agreement as being fair and reasonable to PTR and on terms and conditions not
less favorable to PTR than those available from unaffiliated third parties. The
PTR Special Committee recommended that the PTR Board approve the Merger and the
Merger Agreement. The PTR Board unanimously approved the Merger and the Merger
Agreement as being fair and reasonable and on terms and conditions not less
favorable to PTR than those available from unaffiliated third parties. The PTR
Board considered a number of factors including the reasons emphasized by the
PTR Special Committee. The PTR Board also considered the PTR Special
Committee's receipt of a written opinion from Goldman Sachs to the effect that,
as of April 1, 1998, the Exchange Ratio pursuant to the Merger Agreement was
fair, from a financial point of view, to PTR and the holders of PTR Common
Shares other than Security Capital. The PTR Board did not quantify or otherwise
attempt to assign relative weights to the specific factors considered in making
its determination; it did, however, place special emphasis on the
recommendation of the PTR Special Committee. For a more detailed discussion of
PTR's reasons for the Merger and the factors considered by the PTR Board in
making its recommendation, see "The Merger--Reasons for the Merger;
Recommendations of the PTR Board."
THE PTR BOARD HAS UNANIMOUSLY APPROVED THE MERGER AND THE MERGER AGREEMENT
AND RECOMMENDS THAT PTR SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE MERGER AND
THE MERGER AGREEMENT. The affirmative vote of the holders of two-thirds of the
outstanding PTR Common Shares is required to approve this proposal.
ATLANTIC
The ATLANTIC Special Committee unanimously approved the Merger and the Merger
Agreement as being fair to, and in the best interests of, ATLANTIC. The
ATLANTIC Special Committee recommended that the ATLANTIC Board approve the
Merger and the Merger Agreement. The ATLANTIC Board unanimously approved the
Merger and the Merger Agreement. The ATLANTIC Board considered a number of
factors
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including the reasons emphasized by the ATLANTIC Special Committee. The
ATLANTIC Board also considered the ATLANTIC Special Committee's receipt of a
written opinion from Morgan Stanley that, as of the date of the Merger
Agreement, the consideration to be received by the holders of ATLANTIC Common
Shares pursuant to the Merger Agreement was fair from a financial point of view
to such holders (other than Security Capital and its affiliates and PTR and its
affiliates). The ATLANTIC Board did not quantify or otherwise attempt to assign
relative weights to the specific factors considered in making its
determination; it did, however, place special emphasis on the recommendation of
the ATLANTIC Special Committee. For a more detailed discussion of ATLANTIC's
reasons for the Merger and the factors considered by the ATLANTIC Board in
making its recommendation, see "The Merger--Reasons for the Merger;
Recommendations of the ATLANTIC Board."
THE ATLANTIC BOARD HAS UNANIMOUSLY APPROVED THE MERGER AND THE MERGER
AGREEMENT AND RECOMMENDS THAT ATLANTIC SHAREHOLDERS VOTE "FOR" THE APPROVAL OF
THE MERGER AND THE MERGER AGREEMENT. The affirmative vote of the holders of a
majority of the outstanding ATLANTIC Common Shares is required to approve this
proposal.
OPINIONS OF FINANCIAL ADVISORS
PTR
Goldman Sachs delivered its written opinion dated April 1, 1998 to the PTR
Special Committee that, as of such date, the Exchange Ratio pursuant to the
Merger Agreement was fair from a financial point of view to PTR and the holders
of PTR Common Shares other than Security Capital.
The full text of the written opinion of Goldman Sachs, which sets forth
assumptions made, matters considered and limitations on the review undertaken
in connection with the opinion is attached hereto as Annex III and is
incorporated herein by reference. The opinion of Goldman Sachs referred to
herein does not constitute a recommendation as to how any holder of PTR Common
Shares should vote with respect to the Merger. HOLDERS OF PTR COMMON SHARES ARE
URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. See "The Merger--
Opinion of PTR's Financial Advisor."
ATLANTIC
The ATLANTIC Special Committee retained Morgan Stanley to evaluate the
fairness, from a financial point of view, of the consideration to be received
by the holders of ATLANTIC Common Shares other than Security Capital and its
affiliates and PTR and its affiliates. On April 1, 1998, Morgan Stanley
delivered its written opinion to the ATLANTIC Special Committee and the
ATLANTIC Board to the effect that, as of such date and based upon and subject
to the assumptions made, the consideration to be received by the holders of
ATLANTIC Common Shares pursuant to the Merger Agreement was fair from a
financial point of view to such holders (other than Security Capital and its
affiliates and PTR and its affiliates). A copy of such opinion is attached
hereto as Annex IV and is incorporated herein by reference. SHAREHOLDERS OF
ATLANTIC ARE URGED TO READ THE OPINION OF MORGAN STANLEY IN ITS ENTIRETY. For
additional information concerning the assumptions made, matters considered and
limits of the review by Morgan Stanley in reaching its opinion and the fees
received by it, see "The Merger--Opinion of ATLANTIC's Financial Advisor."
CONFLICTS OF INTEREST
The Merger was initiated by individuals who are executive officers of PTR and
ATLANTIC. The PTR Board formed the PTR Special Committee and the ATLANTIC Board
formed the ATLANTIC Special Committee, which retained their own financial
advisors and legal counsel and negotiated the terms of the Merger on behalf of
PTR and ATLANTIC, respectively. Two of the members of the PTR Special
Committee, Messrs. Myers and Schweitzer, and two other members of the PTR
Board, C. Ronald Blankenship and John T. Kelley, III,
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beneficially own ATLANTIC Common Shares. All of the members of the PTR Board
beneficially own PTR and Security Capital common shares. One of the members of
the ATLANTIC Special Committee, Mr. Holmes, and two other members of the
ATLANTIC Board, Constance B. Moore and James C. Potts, beneficially own PTR
Common Shares. All of the members of the ATLANTIC Board beneficially own
ATLANTIC Common Shares and all of the members other than Mr. Garcia own common
shares of Security Capital. See "Risk Factors--Conflicts of Interests" and "The
Merger--Interests of Certain Parties." Additionally, Security Capital is the
largest shareholder of each of PTR and ATLANTIC and will be the largest
shareholder of Archstone after the Merger. See "Risk Factors--Significant
Influence of Principal Shareholder."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Mayer, Brown & Platt, based on certain representations of
PTR and ATLANTIC, the Merger will be treated for federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). See "The Merger--Material Federal Income
Tax Consequences."
ACCOUNTING TREATMENT
PTR will account for the Merger as a purchase in accordance with Accounting
Principles Board Opinion No. 16. Accordingly, PTR will record the assets and
liabilities acquired from ATLANTIC at PTR's cost (the purchase price). See "The
Merger--Accounting Treatment."
NEW YORK STOCK EXCHANGE LISTING
PTR has agreed to use its best efforts to list the PTR Common Shares and PTR
Series C Preferred Shares to be issued in the Merger on the NYSE. The
obligations of the parties to the Merger Agreement to consummate the Merger are
subject to authorization for listing by the NYSE upon notice of issuance of
such shares. See "The Merger Agreement--Conditions to the Merger."
NO DISSENTERS' RIGHTS
Under the Maryland General Corporation Law ("MGCL") and Title 8 of the
Corporations and Associations Articles of the Annotated Code of Maryland
("Title 8"), neither the shareholders of PTR nor those of ATLANTIC are entitled
to dissenters' rights in connection with the Merger. See "The Merger--No
Dissenters' Rights."
THE MERGER AGREEMENT
EFFECTIVE TIME OF THE MERGER
In accordance with the MGCL and Title 8, the Merger will become effective
upon the acceptance for record of the Articles of Merger by the State
Department of Assessments and Taxation of Maryland. Subject to the satisfaction
(or waiver) of the other conditions to the obligations of PTR and ATLANTIC to
consummate the Merger, it is currently expected that the Merger will be
consummated as soon as practicable following the approval by the shareholders
of PTR and ATLANTIC of the Merger and the Merger Agreement at their respective
Special Meetings. See "The Merger Agreement--Effective Time of the Merger."
EXCHANGE OF ATLANTIC SHARE CERTIFICATES
Promptly after the Effective Time, ChaseMellon Shareholder Services, L.L.C.,
PTR's transfer agent (the "Exchange Agent"), will mail a letter of transmittal
and instructions to each holder of record of a certificate representing
ATLANTIC Common Shares or ATLANTIC Series A Preferred Shares as of the
Effective Time for use in effecting the surrender of the certificate in
exchange for certificates representing PTR Common Shares or PTR Series C
Preferred Shares and cash in lieu of fractional shares. Upon surrender of a
certificate for cancellation to the Exchange Agent, together with such letter
of transmittal, duly executed and completed in accordance with the instructions
thereto, the holder of such certificate will be entitled to receive in exchange
8
<PAGE>
therefor (i) a certificate representing the number of whole PTR Common Shares
or PTR Series C Preferred Shares to which such holder is entitled and (ii) a
check representing the amount of cash in lieu of a fractional share, if any,
plus the amount of any dividends or distributions, if any, as provided in the
Merger Agreement, after giving effect to any required withholding tax, and the
certificate so surrendered will be canceled. CERTIFICATES SHOULD NOT BE
SURRENDERED UNTIL THE LETTER OF TRANSMITTAL AND INSTRUCTIONS ARE RECEIVED. See
"The Merger Agreement--Exchange of ATLANTIC Share Certificates."
CONDITIONS TO THE MERGER
The respective obligations of PTR and ATLANTIC to effect the Merger and the
other transactions contemplated in the Merger Agreement are subject to the
satisfaction or waiver of certain conditions at or prior to the Effective Time
including, among others: (a) approval of the Merger and the Merger Agreement by
the requisite vote of shareholders of ATLANTIC and PTR; (b) receipt of the
consent of the lenders under PTR's and ATLANTIC's lines of credit; (c) approval
of the New Archstone Charter and the amendments to the PTR Plans by the
requisite vote of shareholders of PTR; (d) the effectiveness under the Exchange
Act of the registration statement filed with the Commission relating to the
issuance of PTR Series C Preferred Shares in the Merger; (e) the authorization
for listing on the NYSE of the PTR Series C Preferred Shares in the Merger; (f)
receipt by PTR and ATLANTIC of a legal opinion regarding the impact of the
Merger on PTR's REIT status and (g) the receipt of legal opinions regarding
treatment of the Merger as a reorganization under Section 368(a) of the Code.
See "The Merger Agreement--Conditions to the Merger."
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger and the Merger Agreement
by the shareholders of ATLANTIC and PTR, in a number of circumstances,
including, among others: (a) by the mutual written consent of ATLANTIC and PTR;
(b) by either ATLANTIC or PTR if the Merger has not been consummated on or
before October 31, 1998 (other than due to the failure of the party seeking to
terminate the Merger Agreement to perform its obligations thereunder); (c) by
either ATLANTIC or PTR if the other party fails to perform under the Merger
Agreement in any material respect and does not cure such failure within 15
business days; (d) by PTR or ATLANTIC, if (1) the other party shall have
exercised a right specified in the Merger Agreement with respect to a PTR
Alternative Proposal or an ATLANTIC Alternative Proposal (as such terms are
defined below under "The Merger Agreement--No Solicitation of Transactions"),
as the case may be, and shall have continued discussions with any third party
concerning such Alternative Proposal for more than 15 business days after its
receipt; or (2) (A) an Alternative Proposal that is publicly disclosed has been
commenced, publicly proposed or communicated which contains a proposal as to
price and (B) the party that received the Alternative Proposal has not rejected
such proposal within 15 business days of its receipt or, if sooner, the date
its existence first becomes publicly disclosed; (e) by PTR or ATLANTIC if,
following receipt of an unsolicited Alternative Proposal, such party withdraws
or modifies its recommendation that its shareholders approve the Merger
Agreement and the transactions contemplated therein, but only if the PTR Board
or the ATLANTIC Board, as the case may be, concludes in good faith, after
consulting with outside counsel, that such action is required in the exercise
of its fiduciary duties. See "The Merger Agreement--Termination."
TERMINATION AMOUNT AND EXPENSES
In the event that the Merger Agreement is terminated by PTR or ATLANTIC
because, following receipt of an unsolicited Alternative Proposal, the PTR
Board or the ATLANTIC Board, as the case may be, withdraws or modifies its
recommendation that shareholders approve the Merger Agreement and the
transactions contemplated therein, after concluding in good faith and after
consulting with outside counsel that such action is required in the exercise of
its fiduciary duties, or the PTR Board or the ATLANTIC Board, as the case may
be, shall have taken
9
<PAGE>
any action to make the PTR shareholder rights agreement or the ATLANTIC
shareholder rights agreement inapplicable (through termination or otherwise) to
any person other than ATLANTIC or PTR, respectively, or Security Capital, then,
concurrently with any such termination, the terminating party is required to
pay to the non-terminating party a fee equal to $25 million and reimburse such
party for its out-of-pocket expenses (collectively, the "Termination Amount").
If at any time within one year after termination of the Merger Agreement,
unless such termination was pursuant to certain events or circumstances
specified in the Merger Agreement, PTR or ATLANTIC enters into an agreement
relating to an Alternative Proposal with another person, then, upon the entry
into such agreement, the party entering into such agreement is required to pay
to the other party the Termination Amount. See "The Merger Agreement--
Termination Amount and Expenses."
DISTRIBUTIONS
The first customary quarterly distribution to be paid by PTR on PTR Common
Shares after the Effective Time will be in the amount of $.355 per share.
Additionally, each of PTR and ATLANTIC has agreed that prior to the Merger,
they will not make distributions in excess of $0.34 per PTR Common Share and
$0.40 per ATLANTIC Common Share, the current quarterly distribution rate for
PTR and ATLANTIC, respectively. See "The Merger Agreement--Distributions."
THE SPECIAL MEETINGS OF SHAREHOLDERS
THE PTR SPECIAL MEETING
The PTR Special Meeting is scheduled to be held at a.m., mountain time, on
, 1998 at . The PTR Board has fixed the close of business on ,
1998 as the record date (the "PTR Record Date") for the determination of
holders of PTR Common Shares entitled to notice of and to vote at the PTR
Special Meeting. At the PTR Special Meeting, holders of PTR Common Shares will
consider and vote on (i) a proposal to approve the Merger and the Merger
Agreement, (ii) a proposal to approve the New Archstone Charter and (iii) a
proposal to amend the PTR Plans. A copy of the Merger Agreement and the New
Archstone Charter are set forth as Annex I and Annex II, respectively, to this
Joint Proxy Statement and Prospectus. Proposals (i) and (ii) above must be
approved by the affirmative vote of the holders of two-thirds of the
outstanding PTR Common Shares and proposal (iii) above must be approved by the
affirmative vote of the holders of a majority of the PTR Common Shares voted at
the meeting (provided that more than 50% of the votes entitled to be cast are
voted on the proposal). The approval of each of the proposals is a condition to
the approval and adoption of each other proposal, including consummation of the
Merger. The PTR Board is proposing that the New Archstone Charter be approved
by shareholders because not enough shares are authorized under the Old PTR
Charter (as defined below) to issue shares in the Merger and, if the Merger is
approved, Archstone will need additional authorized shares for financings and
other corporate purposes. Additionally, PTR is proposing to amend and restate
the Old PTR Charter because of the outdated nature of the Old PTR Charter, the
significant restrictions on PTR's operations contained in the Old PTR Charter
and to reduce the costs to Archstone of engaging in certain types of
transactions. See "Approval of the New Archstone Charter."
Pursuant to the Merger, each holder of an option to acquire ATLANTIC Common
Shares will be granted a corresponding option to acquire PTR Common Shares
under the PTR Plans. Without the proposed amendments to the PTR Plans, upon
completion of the Merger, only 1,183,738 shares and 84,000 shares, based on
April 15, 1998 balances, would be available for grant under the PTR Incentive
Plan and the PTR Outside Trustees Plan, respectively. As a result, in order to
allow Archstone to continue to provide incentives to its officers, employees
and trustees, PTR is proposing to amend the PTR Plans to increase the number of
shares available for award thereunder in an amount equal to the number of
shares authorized under the corresponding ATLANTIC option plans.
10
<PAGE>
As of the PTR Record Date, PTR's Trustees and executive officers, all of whom
have indicated that they will vote all of their PTR Common Shares in favor of
each of the proposals, were beneficial owners of approximately 563,454, or less
than 1%, of the outstanding PTR Common Shares. Security Capital, PTR's largest
shareholder, which as of the PTR Record Date owned approximately 33.0% of the
outstanding PTR Common Shares, has agreed to vote all of its PTR Common Shares
in favor of each of the proposals, subject to certain conditions. See "The
Merger--Voting Agreement."
THE ATLANTIC SPECIAL MEETING
The ATLANTIC Special Meeting is scheduled to be held at a.m., eastern time,
on , , 1998 at . The ATLANTIC Board has fixed the close of business
on , 1998 as the record date (the "ATLANTIC Record Date") for the
determination of holders of ATLANTIC Common Shares entitled to notice of and to
vote at the ATLANTIC Special Meeting. At the ATLANTIC Special Meeting, holders
of ATLANTIC Common Shares will consider and vote on a proposal to approve the
Merger and the Merger Agreement. A copy of the Merger Agreement is set forth as
Annex I to this Joint Proxy Statement and Prospectus. The proposal must be
approved by the affirmative vote of the holders of a majority of the
outstanding ATLANTIC Common Shares. As of the ATLANTIC Record Date, ATLANTIC's
Directors and executive officers, all of whom have indicated that they will
vote all of their ATLANTIC Common Shares in favor of the proposal, were
beneficial owners of approximately 397,112, or less than 1%, of the outstanding
ATLANTIC Common Shares. Security Capital, ATLANTIC's largest shareholder, which
as of the ATLANTIC Record Date owned approximately 49.9% of the outstanding
ATLANTIC Common Shares, has agreed to vote all of its ATLANTIC Common Shares in
favor of the proposal, subject to certain conditions. See "The Merger--Voting
Agreement." Assuming that Security Capital, as well as such Directors and
officers, vote in favor of the Merger, the approval of the proposal is assured.
COMPARISON OF SHAREHOLDER RIGHTS
The rights of shareholders of ATLANTIC are currently governed by the MGCL,
ATLANTIC's charter (the "ATLANTIC Charter") and ATLANTIC's By-Laws (the
"ATLANTIC By-Laws"). Holders of ATLANTIC Common Shares immediately prior to the
Effective Time will become shareholders of PTR, a Maryland REIT, and from and
after the Effective Time, their rights as shareholders of PTR will be governed
by Title 8, the New Archstone Charter and PTR's Amended and Restated By-Laws
(the "PTR By-Laws"). There are certain differences between the rights of
shareholders of a Maryland corporation and those of a Maryland REIT. There are
also certain differences between the rights of shareholders under the New
Archstone Charter and the PTR By-Laws as compared to the rights of shareholders
under the ATLANTIC Charter and the ATLANTIC By-Laws. See "Comparison of
Shareholder Rights."
11
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF PTR
The following table sets forth selected financial data relating to the
historical financial condition and results of operations of PTR for 1997, 1996,
1995, 1994 and 1993 (amounts in thousands, except per share data). Such
selected financial data is qualified in its entirety by and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operation" and the financial statements and notes thereto
included in PTR's 1997 Annual Report on Form 10-K which is incorporated by
reference herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
Rental revenues.......... $ 335,060 $ 322,046 $ 262,473 $ 183,472 $ 76,129
Interest income on
Homestead notes......... 16,687 2,035 -- -- --
Total revenues........... 355,662 326,246 264,873 186,105 78,418
Property management fees
paid to affiliate....... 7,642 11,610 8,912 7,148 3,862
REIT management fee paid
to affiliate............ 13,040 22,191 20,354 13,182 7,073
General and
administrative expense.. 4,036 1,077 952 784 660
Administrative services
provided by an
affiliate............... 1,274 -- -- -- --
Costs incurred in
acquiring management
companies from an
affiliate(1)............ 71,707 -- -- -- --
Earnings from
operations(1)(2)........ 24,686 94,089 81,696 46,719 23,191
Gain on dispositions of
depreciated real estate,
net..................... 48,232 37,492 2,623 -- 2,302
Preferred Share cash
dividends paid.......... 19,384 24,167 21,823 16,100 1,341
Net earnings attributable
to PTR Common
Shares(1)............... 53,534 106,544 62,496 30,619 24,152
PTR Common Share cash
distributions paid...... $ 105,547 $ 90,728 $ 76,804 $ 46,121 $ 29,162
PER SHARE DATA:
Net earnings attributable
to PTR Common Shares:
Basic(1)(2)............. $ 0.65 $ 1.46 $ 0.93 $ 0.66 $ 0.66
Diluted(1)(2)........... 0.65 1.44 0.93 0.65 0.66
PTR Common Share cash
distributions paid...... 1.30 1.24 1.15 1.00 0.82
Series A Preferred Share
cash dividends paid..... 1.751 1.75 1.75 1.75 0.1458
Series B Preferred Share
cash dividends paid..... $ 2.25 $ 2.25 $ 1.3625 $ -- $ --
Weighted-average PTR
Common Shares
outstanding--basic...... 81,870 73,057 67,052 46,734 36,549
Weighted-average PTR
Common Shares
outstanding--
diluted(3).............. 81,908 84,340 67,126 46,789 36,553
FINANCIAL POSITION:
Real estate owned, at
cost.................... $2,604,919 $2,153,363 $1,855,866 $1,296,288 $872,610
Homestead notes.......... 272,556 176,304 -- -- --
Total assets............. 2,805,686 2,282,432 1,840,999 1,295,778 890,301
Credit facilities(4)..... 231,500 110,200 129,000 102,000 51,500
Long-term debt........... 630,000 580,000 200,000 200,000 --
Mortgages payable........ 265,652 217,188 158,054 93,624 48,872
Total liabilities........ 1,265,250 1,014,924 565,331 455,136 135,284
Shareholders' equity(5).. $1,540,436 $1,267,508 $1,275,668 $ 840,642 $755,017
Number of PTR Common
Shares outstanding...... 92,634 75,511 72,211 50,456 44,645
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Net earnings attributable to
PTR Common Shares........... $ 53,534 $106,544 $ 62,496 $ 30,619 $ 24,152
Add (deduct):
Depreciation on real estate
investments................ 52,893 44,887 36,685 24,614 10,509
Provision for possible loss
on investments(2).......... 3,000 -- 420 1,600 2,270
Gain on dispositions of
depreciated real estate,
net........................ (48,232) (37,492) (2,623) -- (2,302)
Extraordinary item--loss on
early extinguishment of
debt, net.................. -- 739 -- -- --
Amortization related to
Homestead notes............ (1,281) (141) -- -- --
Costs incurred in acquiring
management companies from
an affiliate(1)............ 71,707 -- -- -- --
Other....................... -- -- -- -- 87
-------- -------- -------- -------- --------
Funds from operations
attributable to PTR Common
Shares(6)................... $131,621 $114,537 $ 96,978 $ 56,833 $ 34,716
======== ======== ======== ======== ========
Weighted-average PTR Common
Shares outstanding--basic... 81,870 73,057 67,052 46,734 36,549
Weighted-average PTR Common
Shares outstanding--
diluted(3).................. 81,908 84,340 67,126 46,789 36,553
Net cash provided by
operating activities........ $159,724 $143,939 $121,795 $ 94,625 $ 49,247
Net cash used by investing
activities.................. (403,112) (360,935) (294,488) (368,515) (529,065)
Net cash provided by
financing activities........ $242,672 $195,720 $191,520 $276,457 $478,345
Ratio of earnings to combined
fixed charges and preferred
share dividends(1)(7)....... 0.9 1.7 1.9 1.6 3.4
</TABLE>
- --------
(1) Earnings from operations and net earnings for 1997 reflect the impact of a
one-time, non-cash charge of $71.7 million associated with the costs
incurred in acquiring the management companies from an affiliate. The one-
time charge was not deducted for purposes of calculating funds from
operations, due to the non-recurring and non-cash nature of the expense.
(2) Earnings from operations for the years ended December 31, 1997, 1995, 1994
and 1993 reflect a $3.0 million, $0.4 million, $1.6 million and a $2.3
million provision, respectively, for possible losses relating to
investments.
(3) Weighted-average PTR Common Shares on a diluted basis excludes the impact
of anti-dilutive convertible securities for each period presented.
(4) At April 15, 1998, PTR had $150.0 million of borrowings outstanding under
its $350 million unsecured line of credit and $28.6 million of borrowings
outstanding under its $50 million unsecured borrowing facility.
(5) Includes redeemable PTR Series A Preferred Shares totaling $135.2 million
in 1997, $162.4 million in 1996 and $230.0 million in 1993 to 1995 and
redeemable Series B Preferred Shares ("PTR Series B Preferred Shares")
totaling $105.0 million as of December 31, 1997, 1996 and 1995.
(6) Funds from operations is defined as net earnings computed in accordance
with generally accepted accounting principals ("GAAP"), excluding real
estate depreciation, gains (or losses) from depreciated real estate,
provisions for possible losses, non-cash interest income, extraordinary
items and significant non-recurring items. Funds from operations should not
be considered as an alternative to net earnings or any other GAAP
measurement of performance as an indicator of PTR's operating performance
or as an alternative to cash flows from operating, investing or financing
activities as a measure of liquidity. PTR believes that funds from
operations is helpful to the reader as a measure of the performance of an
equity REIT because, along with cash flow from operating, investing and
financing activities, it provides the reader with an indication of the
ability of PTR to incur and service debt, to make capital expenditures and
to fund other cash needs. The funds from operations measure presented by
PTR, while consistent with the National Association of Real Estate
Investment Trusts' ("NAREIT") definition and calculated consistently with
ATLANTIC's definition of funds from operations, will not be comparable to
similarly titled measures of other REITs which do not compute funds from
operations in a manner consistent with PTR. Funds from operations is not
intended to represent cash made available to shareholders. Cash
distributions paid to shareholders are presented in the table above.
(7) For 1997, earnings from operations were insufficient to cover combined
fixed charges and preferred share dividends by $12.3 million because of the
one-time charge referenced in note (1) above. Excluding this charge, the
ratio of earnings to combined fixed charges and preferred share dividends
for the year ended December 31, 1997 would have been 1.6.
13
<PAGE>
PTR RECENT OPERATING RESULTS
The following table sets forth PTR's preliminary operating results for the
three months ended March 31, 1998 and 1997 (in thousands). These operating
results are not necessarily indicative of the results to be expected for the
entire year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ----------
<S> <C> <C>
Total revenues.......................................... $ 95,611 $ 83,494
Net earnings attributable to PTR Common Shares.......... 40,071 40,576
Net earnings attributable to PTR Common Shares per
share--basic........................................... 0.43 0.53
Net earnings attributable to PTR Common Shares per
share--diluted......................................... $ 0.42 $ 0.51
Weighted-average PTR Common Shares outstanding--basic... 92,783 75,872
Weighted-average PTR Common Shares outstanding--
diluted................................................ 99,970 84,326
Distributions paid on PTR Common Shares................. $ 31,495 $ 24,712
Reconciliation of net earnings attributable to PTR
Common Shares to funds from operations attributable to
PTR Common Shares:
Net earnings attributable to PTR Common Shares........ $ 40,071 $ 40,576
Add (deduct):
Depreciation on real estate investments.............. 16,258 12,049
Gain on dispositions of depreciated real estate,
net................................................. (15,484) (25,335)
Other, net........................................... (432) 1,255
-------- ----------
Funds from operations attributable to PTR Common
Shares(1).............................................. $ 40,413 $ 28,545
======== ==========
Cash Flow Summary:
Net cash provided by operating activities............. $ 34,151 $ 22,725
Net cash used by investing activities................. (36,227) (114,035)
Net cash provided by financing activities............. 2,459 93,650
</TABLE>
- --------
(1) See the definition of funds from operations in note (6) to the previous
table.
On April 23, 1998, PTR agreed to sell 2,049,587 PTR Common Shares in a public
offering at a gross public offering price of $22.6875 per share, with the
closing of such offering expected to occur on or about April 29, 1998. In
accordance with the terms of the Merger Agreement, the sale of such PTR Common
Shares was approved by the ATLANTIC Special Committee. See "The Merger
Agreement--Certain Covenants" and "--Amendment and Waiver."
14
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
OF ATLANTIC
The following table sets forth selected financial data relating to the
historical financial condition and results of operations of ATLANTIC as of and
for the years ended December 31, 1997, 1996, 1995 and 1994, and as of and for
the period from inception (October 26, 1993) through December 31, 1993 (amounts
in thousands, except per share data). Such selected financial data is qualified
in its entirety by, and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto included in ATLANTIC's 1997 Annual
Report on Form 10-K which is incorporated by reference herein. Unless otherwise
indicated, all ATLANTIC Common Share and per ATLANTIC Common Share amounts have
been adjusted to give effect to ATLANTIC's one-for-two reverse share split,
which was effective on September 10, 1996.
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993(1)
---------- ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
Rental income................. $ 168,459 $ 137,729 $103,634 $ 55,071 $ 156
Homestead convertible
mortgages interest income.... 4,453 -- -- -- --
Total revenues................ 173,549 138,156 103,879 55,220 159
Property management fees paid
to affiliate................. 3,848 4,208 3,475 1,536 --
Property management fees paid
to third parties............. 629 971 591 661 --
REIT management fee paid to
affiliate.................... 8,548 10,445 6,923 3,671 12
General and administrative
expenses..................... 2,362 673 646 266 1
Earnings before extraordinary
item......................... 52,723 42,569 19,639 9,926 38
Extraordinary item--loss on
early extinguishment of
debt......................... -- 3,940 -- -- --
Preferred share dividends
paid......................... 1,569 -- -- -- --
Net earnings attributable to
ATLANTIC Common Shares....... 51,154 38,629 19,639 9,926 38
ATLANTIC Common Share cash
distributions paid........... $ 65,976 $ 53,064 $ 35,119 $ 14,648 $ --
PER SHARE DATA:
Basic and diluted earnings
before extraordinary item.... $ 1.21 $ 1.33 $ 0.89 $ 0.81 $ 0.13
Basic and diluted net earnings
attributable to ATLANTIC
Common Shares................ $ 1.21 $ 1.21 $ 0.89 $ 0.81 $ 0.13
Weighted-average ATLANTIC
Common Shares outstanding--
basic........................ 42,449 32,028 21,944 12,227 286
Weighted-average ATLANTIC
Common Shares outstanding--
diluted...................... 42,450 32,028 21,944 12,227 286
ATLANTIC Common Share cash
distributions paid........... $ 1.56 $ 1.65 $ 1.60 $ 1.20 $ --
ATLANTIC Series A Preferred
Shares cash dividends paid... $ 0.785 $ -- $ -- $ -- $ --
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Real estate owned, at cost.... $1,364,572 $1,157,235 $888,928 $631,260 $31,005
Homestead convertible
mortgages.................... 122,482 -- -- -- --
Total assets.................. 1,441,411 1,135,065 885,824 637,846 31,850
Lines of credit(2)............ 164,743 228,000 190,000 153,000 --
Notes payable................. 150,000 -- -- -- --
Mortgages payable............. 170,525 155,790 118,524 107,347 --
Total liabilities............. 550,430 436,423 328,886 271,216 178
Total shareholders' equity.... $ 890,981 $ 698,642 $556,938 $366,630 $31,672
Number of ATLANTIC Common
Shares outstanding........... 47,761 37,892 27,763 18,567 1,582
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Net earnings
attributable to
ATLANTIC Common
Shares................. $ 51,154 $ 38,629 $ 19,639 $ 9,926 $ 38
Add (deduct):
Real estate
depreciation......... 26,963 20,824 15,925 8,770 28
Amortization related
to Homestead
convertible
mortgages............ (486) -- -- -- --
Gain on disposition of
real estate.......... (1,608) (6,732) -- -- --
Gain on sale of
Homestead assets..... -- (2,839) -- -- --
Provision for possible
loss on investments.. 200 2,500 -- -- --
Extraordinary item--
loss on early
extinguishment of
debt................. -- 3,940 -- -- --
--------- --------- --------- --------- --------
Funds from operations
attributable to
ATLANTIC Common
Shares(3).............. $ 76,223 $ 56,322 $ 35,564 $ 18,696 $ 66
--------- --------- --------- --------- --------
Weighted-average
ATLANTIC Common Shares
outstanding--basic..... 42,449 32,028 21,944 12,227 286
Weighted-average
ATLANTIC Common Shares
outstanding--diluted... 42,450 32,028 21,944 12,227 286
Net cash provided (used)
by operating activi-
ties................... $ 83,122 $ 54,356 $ 39,732 $ 23,564 $ (492)
Net cash used by invest-
ing activities......... (295,606) (287,418) (235,149) (390,077) (31,005)
Net cash provided by fi-
nancing activities..... 209,418 230,907 195,649 372,638 31,634
</TABLE>
- --------
(1) For the period from inception (October 26, 1993) to December 31, 1993.
(2) At April 15, 1998, ATLANTIC had $217.0 million of outstanding borrowings
under its $350 million unsecured line of credit and $29.3 million of
outstanding borrowings under its $50 million unsecured borrowing facility.
(3) Funds from operations is defined as net earnings computed in accordance
with GAAP, excluding real estate depreciation, gains (or losses) from
depreciated real estate, provisions for possible losses, non-cash interest
income, extraordinary items and significant non-recurring items. Funds from
operations should not be considered as an alternative to net earnings or
any other GAAP measurement of performance as an indicator of ATLANTIC's
operating performance or as an alternative to cash flows from operating,
investing or financing activities as a measure of liquidity. ATLANTIC
believes that funds from operations is helpful to a reader as a measure of
the performance of an equity REIT because, along with cash flow from
operating activities, financing activities and investing activities, it
provides a reader with an indication of the ability of ATLANTIC to incur
and service debt, to make capital expenditures and to fund other cash
needs. The funds from operations measure presented by ATLANTIC, while
consistent with the NAREIT definition and calculated consistently with
PTR's definition of funds from operations, will not be comparable to
similarly titled measures of other REITs which do not compute funds from
operations in a manner consistent with ATLANTIC. Funds from operations is
not intended to represent cash made available to shareholders. Cash
distributions paid to shareholders is presented in the table above.
16
<PAGE>
ATLANTIC RECENT OPERATING RESULTS
The following table sets forth ATLANTIC's preliminary operating results for
the three months ended March 31, 1998 and 1997 (in thousands). These operating
results are not necessarily indicative of the results to be expected for the
entire year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Total revenues.......................................... $ 48,425 $ 39,957
Net earnings attributable to ATLANTIC Common Shares..... 15,097 10,178
Net earnings attributable to ATLANTIC Common Shares per
share--basic and diluted............................... $ 0.32 $ 0.27
Weighted-average ATLANTIC Common Shares outstanding--
basic and diluted ..................................... 47,751 37,892
Distributions paid on ATLANTIC Common Shares............ $ 19,104 $ 14,778
Reconciliation of net earnings attributable to ATLANTIC
Common Shares to funds from operations attributable to
ATLANTIC Common Shares:
Net earnings attributable to ATLANTIC Common Shares... $ 15,097 $ 10,178
Add (deduct):
Real estate depreciation............................ 7,770 6,132
Provision for possible loss on investments.......... -- 200
Other, net.......................................... (111) (20)
--------- ---------
Fund from operations attributable to ATLANTIC Common
Shares(1).............................................. $ 22,756 $ 16,490
========= =========
Cash Flow Summary:
Net cash provided by operating activities............. $ 19,646 $ 16,913
Net cash used by investing activities................. (59,111) (69,354)
Net cash provided by financing activities............. 41,439 52,055
</TABLE>
- --------
(1) See the definition of funds from operations in note (3) to the previous
table.
17
<PAGE>
ARCHSTONE COMMUNITIES TRUST
PRO FORMA SUMMARY FINANCIAL DATA
The following table sets forth unaudited pro forma condensed financial
information as of and for the year ended December 31, 1997, giving effect to
(i) the Merger, (ii) the internalization of management transactions (as defined
in the Archstone pro forma condensed financial statements included elsewhere
herein) and (iii) the acquisition and disposition of certain multifamily
communities by PTR and ATLANTIC, as if the noted transactions had occurred on
January 1, 1997 for the Operations Summary information and Other Data
information and as of December 31, 1997 for Financial Position information. Pro
forma adjustments made to arrive at the pro forma amounts set forth below are
described in the Archstone pro forma condensed financial statements included
elsewhere in this Joint Proxy Statement and Prospectus. The following
information should be read in conjunction with and is qualified in its entirety
by the PTR and ATLANTIC historical and pro forma financial statements
incorporated herein by reference, and the Archstone pro forma condensed
financial statements included elsewhere herein. The unaudited pro forma summary
information is intended for informational purposes and is not necessarily
indicative of the future financial position or future results of operations of
Archstone or of the financial position or the results of operations of
Archstone that would have actually occurred had the noted transactions been
completed as of the date or for the periods presented (amounts in thousands,
except per share data).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
OPERATIONS SUMMARY:
Rental revenues.................................................. $ 522,692
Interest income on Homestead notes............................... 21,424
Total revenues................................................... 548,668
General and administrative expense............................... 11,698
Administrative services provided by an affiliate................. 7,019
Costs incurred in acquiring management companies from an
affiliate(1).................................................... 71,707
Earnings from operations(1)(2)................................... 81,520
Preferred Share cash dividends paid.............................. 21,022
Earnings from operations attributable to common shares........... $ 60,498
PER SHARE DATA:
Earnings from operations attributable to common shares:
Basic(1)(2).................................................... $ 0.47
Diluted(1)(2).................................................. $ 0.47
Weighted-average common shares outstanding--basic................ 128,260
Weighted-average common shares outstanding--diluted.............. 128,299
FINANCIAL POSITION:
Real estate owned, at cost....................................... $4,341,471
Homestead notes.................................................. 400,249
Total assets..................................................... 4,683,217
Credit facilities................................................ 524,923
Long-term debt................................................... 785,170
Mortgages payable................................................ 446,504
Total liabilities and minority interest.......................... 2,006,200
Shareholders' equity(3).......................................... $2,677,017
Number of common shares outstanding.............................. 140,242
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
OTHER DATA:
Earnings from operations attributable to common shares........... $ 60,498
Add (deduct):
Depreciation on real estate investments......................... 88,843
Provision for possible loss on investments(2)................... 3,200
Amortization related to Homestead notes......................... (1,281)
Costs incurred in acquiring management companies from an
affiliate(1)................................................... 71,707
Minority interest............................................... 2,203
----------
Funds from operations attributable to common shares(4)........... $ 225,170
==========
Weighted-average common shares outstanding--basic................ 129,672
Weighted-average common shares outstanding--diluted(5)........... 129,711
Net cash provided by operating activities........................ $ 258,781
Net cash used by investing activities............................ (830,255)
Net cash provided by financing activities........................ $ 577,529
Ratio of earnings to combined fixed charges and preferred share
dividends(6).................................................... 1.3
</TABLE>
- --------
(1) Earnings from operations for 1997 reflect the impact of a one-time, non-
cash charge of $71.7 million associated with the costs incurred in
acquiring the management companies from an affiliate. The one-time charge
was not deducted for purposes of calculating funds from operations due to
the non-recurring and non-cash nature of the expense.
(2) Earnings from operations reflects a $3.2 million provision for possible
losses relating to investments.
(3) Includes redeemable Series A Preferred Shares totaling $135.2 million,
redeemable Series B Preferred Shares totaling $105.0 million and redeemable
Series C Preferred Shares totaling $50.6 million.
(4) Funds from operations is defined as net earnings computed in accordance
with GAAP, before minority interest, excluding real estate depreciation,
gains (or losses) from depreciated real estate, provisions for possible
losses, non-cash interest income, extraordinary items, and significant non-
recurring items. Funds from operations should not be considered as an
alternative to net earnings or any other GAAP measurement of performance as
an indicator of Archstone's operating performance or as an alternative to
cash flows from operating, investing or financing activities as a measure
of liquidity. Management believes that funds from operations is helpful to
the reader as a measure of the performance of an equity REIT because, along
with cash flow from operating, investing and financing activities, it
provides the reader with an indication of the ability of Archstone to incur
and service debt, to make capital expenditures and to fund other cash
needs. The funds from operations measure presented by Archstone, while
consistent with the NAREIT definition and calculated consistently with PTR
and ATLANTIC definition of funds from operations, will not be comparable to
similarly titled measures of other REITs which do not compute funds from
operations in a manner consistent with Archstone. Funds from operations is
not intended to represent cash made available to shareholders. Furthermore,
management believes that an understanding of funds from operations will
enhance the reader's comprehension of the impact of the Merger to PTR and
ATLANTIC, which was a consideration of the PTR Special Committee and the
ATLANTIC Special Committee in making their recommendations to their
respective Boards.
(5) Weighted-average common shares on a diluted basis excludes the impact of
anti-dilutive convertible securities.
(6) Excluding the charge referenced in note (1), the ratio of earnings to
combined fixed charges and preferred share dividends for the year ended
December 31, 1997 would have been 1.9.
19
<PAGE>
COMPARATIVE PER SHARE DATA
The PTR Common Shares are listed and traded on the NYSE under the symbol
"PTR." On April 1, 1998 (the last trading day prior to the announcement of the
signing of the Merger Agreement), the closing price of the PTR Common Shares,
as reported on the NYSE Composite Tape, was $24 1/8 per share.
The ATLANTIC Common Shares are listed and traded on the NYSE under the symbol
"SCA." On April 1, 1998 (the last trading day prior to the announcement of the
signing of the Merger Agreement), the closing price of the ATLANTIC Common
Shares, as reported on the NYSE Composite Tape, was $21 per share. As a result
of the one-for-one Exchange Ratio, the value of an ATLANTIC Common Share on
such date on an equivalent per share basis was $24 1/8.
BECAUSE THE EXCHANGE RATIO IS FIXED AND THE MARKET PRICE OF PTR COMMON SHARES
IS SUBJECT TO FLUCTUATION, THE MARKET VALUE OF THE PTR COMMON SHARES THAT
HOLDERS OF ATLANTIC COMMON SHARES WILL RECEIVE IN THE MERGER MAY INCREASE OR
DECREASE PRIOR TO AND FOLLOWING THE MERGER. SHAREHOLDERS ARE URGED TO OBTAIN
CURRENT MARKET QUOTATIONS FOR PTR COMMON SHARES AND ATLANTIC COMMON SHARES.
The following tables set forth for PTR Common Shares and ATLANTIC Common
Shares certain historical and pro forma summary per share financial information
as of and for the year ended December 31, 1997. The Archstone pro forma summary
amounts included in the table below are based on the purchase method of
accounting. The following information should be read in conjunction with and is
qualified in its entirety by the historical and/or pro forma financial
statements and accompanying notes of Archstone, PTR and ATLANTIC included or
incorporated by reference into this Joint Proxy Statement and Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------------
PTR ATLANTIC
-------- -----------
<S> <C> <C>
Earnings from operations attributable to common shares
per share (1):
Basic:
Historical............................................ $ 0.06 $ 1.17
Pro forma prior to Merger (2)......................... $ 0.09 $ 1.17
Archstone pro forma................................... $ 0.47 --
Diluted:
Historical............................................ $ 0.06 $ 1.17
Pro forma prior to Merger (2)......................... $ 0.09 $ 1.17
Archstone pro forma................................... $ 0.47 --
Distributions per common share:
Historical............................................ $ 1.30 $ 1.56
Archstone pro forma................................... $ 1.42(3) --
Book value per common share:
Historical............................................ $ 14.04 $ 17.61
Pro forma prior to Merger (2)......................... $ 14.04 $ 17.61
Archstone pro forma................................... $ 17.01 --
</TABLE>
- --------
(1) PTR's earnings from operations for 1997 reflect the impact of a one-time,
non-cash charge of $71.7 million associated with the costs incurred in
acquiring the management companies from an affiliate.
(2) Reflects the pro forma effect of the internalization of management
transactions and certain transactions involving the acquisitions and
dispositions of multifamily operating communities by PTR and ATLANTIC as
described on page F-2.
(3) The Archstone pro forma distributions per common share amount represents
the initial annual distribution level expected to be made by Archstone.
20
<PAGE>
COMPARATIVE MARKET DATA
The table below sets forth, for the calendar quarters indicated, the high and
low sales prices per share reported by the NYSE Composite Tape and
distributions paid for the PTR Common Shares and the ATLANTIC Common Shares.
<TABLE>
<CAPTION>
PTR COMMON SHARES ATLANTIC COMMON SHARES
--------------------------- ------------------------------------
PER SHARE PER SHARE
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
---- ---- --------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
1996:
First Quarter......... $22 1/4 $19 1/4 $ 0.31 $ (1) $ (1) $ 0.42
Second Quarter........ 22 3/8 20 1/2 0.31 (1) (1) 0.42
Third Quarter......... 22 5/8 20 1/4 0.31 (1) (1) 0.42
Fourth Quarter........ 23 5/8 19 0.31 24 5/8 20 7/8 0.39
1997:
First Quarter......... $25 1/8 $ 21 $0.325 $ 26 1/2 $ 22 $ 0.39
Second Quarter........ 24 1/4 21 1/2 0.325 24 1/8 20 3/4 0.39
Third Quarter......... 24 3/8 21 5/8 0.325 24 3/16 21 1/2 0.39
Fourth Quarter........ 25 1/8 21 7/8 0.325 23 1/8 20 7/16 0.39
1998:
First Quarter......... $24 1/2 $22 1/8 $0.340 $22 13/16 $20 5/8 $0.40
Second Quarter
(through April 15)... 24 1/16 22 9/16 -- 23 20 7/8 --
</TABLE>
- --------
(1)The ATLANTIC Common Shares commenced trading on the NYSE on October 15,
1996.
21
<PAGE>
RISK FACTORS
Holders of PTR Common Shares and ATLANTIC Common Shares should consider
carefully the specific factors set forth below as well as the other
information contained in this Joint Proxy Statement and Prospectus in
evaluating the Merger. This Joint Proxy Statement and Prospectus contains
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Archstone's actual results could
differ materially from those set forth in the forward-looking statements. See
"Disclosure Regarding Forward-Looking Statements." The following list of risk
factors may not be exhaustive.
FIXED EXCHANGE RATIO
The price of PTR Common Shares and the value of ATLANTIC Common Shares at
the Effective Time may vary from the price and value as of the date the
Exchange Ratio was determined, the date of the Merger Agreement, the date
hereof or the date on which shareholders vote on the Merger, due to changes in
the business, operations and prospects of PTR or ATLANTIC, general market and
economic conditions and other factors. PTR does not intend to obtain an
updated fairness opinion of Goldman Sachs and ATLANTIC does not intend to
obtain an updated fairness opinion of Morgan Stanley prior to the time the
Merger becomes effective. See "The Merger--Opinion of PTR's Financial Advisor"
and "The Merger--Opinion of ATLANTIC's Financial Advisor."
CONFLICTS OF INTEREST
Certain members of the Boards and Special Committees of each of PTR and
ATLANTIC, in addition to their interests in the company for which they serve,
have direct or indirect interests in the other party to the Merger, which
could create a potential conflict of interest. Two of the members of the PTR
Special Committee, Messrs. Myers and Schweitzer, and two other members of the
PTR Board, Messrs. Blankenship and Kelley beneficially own ATLANTIC Common
Shares. Messrs. Myers and Schweitzer beneficially own 104,061 and 6,250
ATLANTIC Common Shares, respectively, and Messrs. Blankenship and Kelley
beneficially own an aggregate of 1,050 ATLANTIC Common Shares. Messrs. Myers,
Schweitzer, Blankenship and Kelley also beneficially own 20,341, 34,602,
35,529 and 18,835 PTR Common Shares, respectively. The remaining members of
the PTR Board, Calvin K. Kessler, James H. Polk III and James A. Cardwell, are
the beneficial owners of 34,285, 51,028, and 35,706, PTR Common Shares,
respectively.
One of the members of the ATLANTIC Special Committee, Mr. Holmes, and two
other members of the ATLANTIC Board, Ms. Moore and Mr. Potts, beneficially own
PTR Common Shares. Mr. Holmes is the beneficial owner of 4,109 PTR Common
Shares. Ms. Moore and Mr. Potts beneficially own 16,444 and 5,555 PTR Common
Shares, respectively. Ms. Moore and Messrs. Potts and Holmes also beneficially
own 100,735, 102,186 and 59,500 ATLANTIC Common Shares, respectively. The
remaining members of the ATLANTIC Board, Manuel A. Garcia III and John M.
Richman, are the beneficial owners of 12,000 and 13,250 ATLANTIC Common
Shares, respectively.
Members of the PTR Board have an indirect interest in ATLANTIC through their
interest in Security Capital, which owns approximately 49.9% of the
outstanding ATLANTIC Common Shares, and members of the ATLANTIC Board have an
indirect interest in PTR through their interest in Security Capital, which
owns approximately 33.0% of the outstanding PTR Common Shares. Messrs.
Blankenship, Cardwell, Holmes, Kelley, Myers, Kessler, Polk, Potts, Richman
and Schweitzer and Ms. Moore beneficially own 324,261, 2,198, 10,050, 224,933,
283,676, 1,278, 133,036, 144,098, 123,330 and 23,277 and 86,360 shares,
respectively, of Security Capital's Class B common stock, which in the
aggregate represents less than 1% of the outstanding shares of Class B common
stock of Security Capital on a fully diluted basis.
SIGNIFICANT INFLUENCE OF PRINCIPAL SHAREHOLDER
As of April 15, 1998, Security Capital beneficially owned approximately
33.0% and 49.9% of the issued and outstanding PTR Common Shares and ATLANTIC
Common Shares, respectively. As a result, Security Capital currently controls
approximately 33.0% and 49.9%, respectively, of the vote on matters submitted
for
22
<PAGE>
PTR and ATLANTIC shareholder action, including the Merger. If the Merger is
consummated, Security Capital will own approximately 38.7% of the outstanding
PTR Common Shares. Under the Old PTR Charter, the New Archstone Charter and
the ATLANTIC Charter, no other shareholder may hold more than 9.8% of the
shares of the respective company. Pursuant to an investor agreement between
PTR and Security Capital, Security Capital is currently entitled to designate
up to three persons (and after the Merger will be entitled to designate a
proportionate number of persons, based on its percentage ownership of PTR
Common Shares) to be nominated for election to the PTR Board. See "The
Merger--Investor Agreement." Upon consummation of the Merger, Security Capital
will be entitled to designate four persons to be nominated for election to the
12-member Archstone Board, or one-third of the full Board of Trustees of
Archstone. The Trustees so elected are in a position to exercise significant
influence over the affairs of PTR if they act together. Additionally, after
the Merger, Security Capital will continue to have rights of prior approval
and consultation regarding certain important matters. See "The Merger--
Investor Agreement." Security Capital has agreed to vote all of its PTR Common
Shares and all of its ATLANTIC Common Shares in favor of the Merger, subject
to certain conditions. See "The Merger--Voting Agreement."
CERTAIN REAL ESTATE INVESTMENT RISKS
Real estate cash flows and values are affected by a number of factors,
including changes in the general economic climate and local conditions (such
as an oversupply of multifamily communities or a reduction in rental demand in
an area). Although management believes the Merger will lessen the impact that
any single local economy has on Archstone's operating results, those results
may be affected by variations in the economic climate and local conditions in
the western United States, including Arizona, California, Texas and
Washington, where a substantial portion of PTR's properties are located, and
in the eastern and midwestern United States, including Florida, Georgia and
North Carolina, where a substantial portion of ATLANTIC's properties are
located.
SUBSTANTIAL EXPENSES AND PAYMENTS IF MERGER FAILS TO OCCUR
No assurance can be given that the Merger will be consummated. If the Merger
is not consummated, PTR and ATLANTIC will have incurred substantial expenses
in connection with the transaction. If the Merger Agreement is terminated
under certain circumstances specified in the Merger Agreement, ATLANTIC will
be required to pay PTR a $25 million termination fee plus PTR's out-of-pocket
expenses or PTR will be required to pay ATLANTIC a $25 million termination fee
plus ATLANTIC's out-of-pocket expenses. For a more complete description of the
circumstances under which a termination fee may be payable, see "The Merger
Agreement--Termination Amount and Expenses."
DIFFERENCES IN SHAREHOLDER RIGHTS
The rights of shareholders of ATLANTIC currently are governed by the MGCL,
the ATLANTIC Charter and the ATLANTIC By-Laws. Upon completion of the Merger,
shareholders of ATLANTIC will become shareholders of PTR and their rights will
be governed by Title 8, the New Archstone Charter and the PTR By-Laws. Certain
differences exist between the rights of shareholders of ATLANTIC and the
rights of shareholders of PTR, some of which may be material. See "Comparison
of Shareholder Rights."
POTENTIAL ANTI-TAKEOVER EFFECT AND CERTAIN PROVISIONS OF THE NEW ARCHSTONE
CHARTER
Certain provisions of the New Archstone Charter and the Archstone By-Laws
could have a potential anti-takeover effect on Archstone. For example, the
staggered board provision in the New Archstone Charter prevents shareholders
from voting on the election of more than one class of Trustees at each annual
meeting of shareholders and, thus, may have the effect of keeping the members
of the board of Archstone in control for a longer period of time. The
staggered board provision and the provision in Archstone's By-Laws requiring
holders of at least a majority of the outstanding PTR Common Shares to call a
special meeting of shareholders may have the effect of making it more
difficult for a third party to acquire control of Archstone without the
consent of the Archstone Board of Trustees, including certain acquisitions
which shareholders may deem to be in their best interests.
23
<PAGE>
In addition, the New Archstone Charter generally provides that transactions
between PTR and any Trustee or any affiliates thereof must be approved by a
majority of the Trustees not otherwise interested in such transactions, while
the Old PTR Charter includes certain restrictions on PTR's operations and its
ability to engage in related party transactions that are not included in the
New Archstone Charter. See "Approval of the New Archstone Charter--
Restrictions on Certain Transactions."
NO DISSENTERS' RIGHTS
Under the MGCL and Title 8, neither the shareholders of PTR nor those of
ATLANTIC are entitled to dissenters' rights in connection with the Merger. See
"The Merger--No Dissenters' Rights."
24
<PAGE>
THE COMPANIES
PTR
PTR is an internally managed equity REIT which was formed in 1963. PTR's
principal focus is to generate long-term, sustainable growth in per share cash
flow while providing outstanding service to its customers. PTR's objective is
to be the preeminent real estate operating company focusing on the
development, acquisition, operation and long-term ownership of multifamily
communities in markets and submarkets with strong economic fundamentals and
high barriers to entry throughout the United States. Proprietary real estate
and customer research provides the foundation for PTR's investment and
operating strategies.
Investment Strategy
PTR's research-driven investment strategy is focused on deploying capital in
markets and submarkets which have the following characteristics: (i)
attractive long-term economic fundamentals; (ii) high barriers to entry
against new supply; and (iii) expensive single-family housing. Barriers to
entry exist when there is a very limited amount of land zoned for multifamily
development and where local municipalities are reluctant to zone additional
land for multifamily communities. The management of PTR believes that
investments in markets and submarkets that have these characteristics will
produce superior long-term cash flow growth and, therefore, will create
substantial long-term value for PTR's shareholders.
In addition to the acquisition of well-located existing communities, PTR
believes that substantial long-term shareholder value will be created through
the development of carefully planned multifamily communities in markets and
submarkets with high barriers to entry against new development. During the
past three years, PTR has assembled a $1.4 billion development pipeline of new
communities that are either under construction or in planning, including
$484.4 million in planning and under control (based on March 31, 1998 total
expected investment). This development pipeline creates a significant
competitive advantage for PTR in these markets and is expected to provide a
tremendous growth opportunity as the communities are completed and stabilized
at very attractive yields during the next four years.
The majority of PTR's development efforts emphasize the development of
multifamily communities targeted at moderate income households. PTR defines
moderate income households to be those households earning 65% to 90% of the
median income in a given submarket. Moderate income households represent one
of the largest and most underserved segments of the renter population. PTR
believes that these households exhibit a number of very important
characteristics that make them particularly desirable customers. For example,
they are typically longer-term residents, which results in lower resident
turnover and, therefore, lower overall costs to refurbish units for re-
leasing. In addition, there is relatively limited competition for this segment
of the market because most developers target the upper income segment of the
market. PTR believes that focusing on the moderate income segment will allow
it to achieve more consistent rental increases and higher occupancies over the
long-term and, thereby, realize sustainable cash flow growth and appreciation
in value.
25
<PAGE>
The table below illustrates the growth in PTR's multifamily portfolio, based
on total expected investment, resulting from the execution of its investment
strategy:
<TABLE>
<CAPTION>
TOTAL EXPECTED INVESTMENT(1)
---------------------------------------------------------------
DECEMBER 31,
MARCH 31, ----------------------------------------------------
1998 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Operating Communities:
Acquired(2)........... $1,682,379 $1,705,544 $1,514,019 $1,270,419 $ 937,683 $666,497
Developed(2).......... 614,611 600,175 377,809 244,848 171,505 66,893
---------- ---------- ---------- ---------- ---------- --------
Total operating
communities........ $2,296,990 $2,305,719 $1,891,828 $1,515,267 $1,109,188 $733,390
Communities under
construction........... 473,656 418,840 354,852 297,549 170,017 140,563
Communities in planning
and owned(3)........... 439,570 369,130 296,956 185,683 194,001 81,455
---------- ---------- ---------- ---------- ---------- --------
Total owned
communities........ $3,210,216 $3,093,689 $2,543,636 $1,998,499 $1,473,206 $955,408
========== ========== ========== ========== ========== ========
Communities in planning
and under control(3)... $ 484,354 $ 537,736 $ 451,914 $ 146,894 $ 152,313 $136,687
========== ========== ========== ========== ========== ========
</TABLE>
- --------
(1) For community developments, represents total budgeted land and development
costs; for operating communities, represents cost plus budgeted capital
expenditures, including planned rehabilitation costs needed to conform to
or maintain the community at PTR's standards.
(2) Net of any dispositions.
(3) The term "in planning" refers to parcels of land owned or under control
upon which multifamily construction is expected to commence within 36
months. The term "under control" refers to land parcels which PTR has an
exclusive right (through contingent contract or letter of intent) to
acquire during a contractually agreed-upon time period, subject to
approval of contingencies during the due diligence process. There can be
no assurance that such land will be acquired.
Customer Research
PTR uses its proprietary customer research to continuously refine its
product and service offering. PTR's customer research is also focused on
understanding which ancillary products and services add value for customers.
PTR's philosophy is to offer products and services to its customers that
emphasize increased convenience or lifestyle enhancement at attractive prices.
In 1996, PTR began establishing strategic alliances with a select number of
nationally recognized telecommunications providers to offer products and
services, including cable, local and long distance telephone and Internet
access, to its customers. In 1997, PTR introduced state-of-the-art, high-speed
data service in cooperation with Microsoft and GTE at three of its
communities. PTR has plans to offer high-speed data service in connection with
several nationally recognized providers at a number of its communities
throughout 1998.
During 1997, PTR launched a broad, customer-based research program to guide
it in further developing a highly focused, customer-driven approach to its
business. PTR interviewed more than 430 of its residents in an effort to
thoroughly understand their needs, as well as to understand the key variables
involved in selecting an apartment community. The results of this research
effort will allow PTR to create a comprehensive product offering encompassing
all aspects of its business, that should allow PTR to develop a strong long-
term brand
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identity. This innovative approach to its business is expected to create
significant incremental value for PTR's shareholders as a result of increasing
customer preference for PTR's unique combination of products and services.
Customer-Focused Property Management
PTR believes that its communities must be actively managed in order to
maximize cash flow and enhance long-term economic performance. As of March 31,
1998, approximately 98.3% of PTR's operating multifamily communities were
internally managed, based on total expected investment, with the balance of
the communities in various stages of transition from third-party management.
PTR emphasizes locally based management, as management believes it improves
PTR's ability to anticipate and respond to changes in local market conditions
and resident needs. PTR believes that it has developed superior operating
procedures, financial controls, information systems and training programs,
which it expects will positively affect growth in rental and occupancy rates.
PTR recognizes that a highly focused customer service approach to day-to-day
management is essential to maximize short and long-term cash flow growth from
each of its multifamily communities. As a result, PTR is dedicated to
maximizing the performance of each of its communities by providing consistent,
high-quality residential services to its customers through the development of
innovative ideas to enhance customer service and resident satisfaction while
maximizing cash flow growth.
These creative initiatives coupled with highly focused day-to-day management
have contributed and are expected to continue to contribute to the growth in
net operating income and cash flow generated by PTR's multifamily operating
communities.
Conservative Financial Strategy
PTR continues to focus on maintaining a strong balance sheet and has a
significant equity base, with a total equity market capitalization of $2.5
billion at March 31, 1998. PTR finances its investment activity primarily
through internally generated cash flow from operations, community
dispositions, the issuance of long-term unsecured senior notes and
strategically accessing the equity markets. Additionally, PTR's $350 million
unsecured line of credit and other credit facility are used for working
capital purposes and for short-term borrowings prior to arranging permanent
financing. PTR's strong balance sheet and access to capital provide
significant financial flexibility that allows PTR to take advantage of
attractive investment opportunities in an efficient manner.
A key component of PTR's conservative financial strategy is the issuance of
fixed rate, unsecured, long-term debt. In order to minimize refinancing risk,
PTR's long-term debt offerings are carefully structured to create a relatively
level principal maturity schedule, without large repayment obligations in any
future year. As of March 31, 1998, PTR's $755 million of unsecured long-term
debt had an effective average fixed interest rate of 7.67% and an original
weighted-average life to maturity of 13.31 years. PTR's long-term debt and
mortgages payable as a percentage of long-term undepreciated book
capitalization was 37.1% at March 31, 1998.
ATLANTIC
The objective of ATLANTIC is to be the preeminent multifamily real estate
operating company in its target market. ATLANTIC is an internally managed,
fully integrated operating company with 90 professionals and 550 property-
level and support personnel dedicated to carrying out its operating strategy
which focuses on the development, acquisition, operation and long-term
ownership of multifamily communities.
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As of March 31, 1998, ATLANTIC's portfolio consisted of 32,104 multifamily
units, including 9,923 units under construction or in planning (of which 2,584
units are under control), in 17 metropolitan areas and 52 submarkets in growth
areas of the south-Atlantic, mid-Atlantic and midwestern regions of the United
States. As of March 31, 1998, the total expected investment of ATLANTIC's 81
operating communities, including budgeted capital expenditures, was
approximately $1.17 billion and the total budgeted development cost of
ATLANTIC's 35 communities under construction or in planning was approximately
$665.9 million (of which $182.0 million is under control).
ATLANTIC has identified a business strategy that includes an operational,
investment and financing focus. In addition, ATLANTIC has put an "Operating
System" in place that it believes will enable it to successfully carry out
this business strategy. ATLANTIC believes that its business strategy and
"Operating System" position ATLANTIC to achieve long-term growth in per share
cash flow and distributions to its shareholders. The table below illustrates
the growth in ATLANTIC's multifamily portfolio (in thousands):
<TABLE>
<CAPTION>
TOTAL EXPECTED INVESTMENT(1)
-------------------------------------------
DECEMBER 31,
MARCH 31, --------------------------------
1998 1997 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating Communities:
Acquired, net of dispositions... $ 942,736 $ 921,214 $ 878,029 $ 757,986
Developed....................... 232,048 212,800 81,832 25,462
---------- ---------- ---------- ----------
Total operating communities... 1,174,784 1,134,014 959,861 783,448
Communities under construction.... 365,257 382,873 290,486 176,740
Communities in planning and
owned(2)......................... 118,732 66,923 53,410 69,788
---------- ---------- ---------- ----------
Total owned communities(3).... $1,658,773 $1,583,810 $1,303,757 $1,029,976
========== ========== ========== ==========
% of owned communities targeted to
the moderate income resident..... 58% 56% 47% 40%
========== ========== ========== ==========
Communities in planning and under
control(2)....................... $ 181,953 $ 127,518 $ 139,275 $ 48,261
========== ========== ========== ==========
</TABLE>
- --------
(1) For operating communities, represents cost, plus budgeted capital
expenditures. For communities under construction and in planning,
represents total budgeted development cost, which includes the cost of
land, fees, permits, payments to contractors, architectural and
engineering fees and interest and property taxes to be capitalized during
the construction period.
(2) The term "in planning" means that construction is anticipated to commence
within 12 months. The term "under control" means that ATLANTIC has an
exclusive right (through a contingent contract or letter of intent) during
a contractually agreed-upon time period to acquire land for future
development of multifamily communities, but does not currently own the
land.
(3) Does not include land held for future development (construction is not
anticipated to commence in the next 12 months), which is less than 1% of
assets, based on cost.
Investment Strategy
ATLANTIC's investment strategy, certain aspects of which are discussed
below, focuses on extensive real estate research, a strong target market, the
development of multifamily communities targeting the moderate income renter
through a value-conscious pricing approach and the disposition of assets that
no longer meet its long-term investment objectives.
Extensive Real Estate Research
ATLANTIC is dedicated to ongoing research and development related to markets
and products. ATLANTIC conducts comprehensive evaluations of its target market
on a submarket-by-submarket basis to identify those
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submarkets and product types that present attractive growth opportunities.
These evaluations, combined with ATLANTIC's extensive market experience in the
cities throughout its geography, enable ATLANTIC to identify submarkets that
offer continued opportunities for favorable yields and long-term growth in per
share cash flow. In addition to market research, considerable resources are
devoted to product research. ATLANTIC continually evaluates and refines its
multifamily communities to incorporate technologies and designs that will
enhance the long-term livability for its residents.
Multifamily Developments
ATLANTIC's research-driven investment strategy also includes the development
of state-of-the-art multifamily communities in submarkets with strong growth
prospects and barriers to entry that respond to renter preferences and
demographic trends. ATLANTIC believes that developing communities designed for
long-term appeal to the renter population will allow ATLANTIC to achieve more
consistent rental rate increases and higher occupancies over the long term and
thereby realize strong per share cash flow growth. ATLANTIC intends to be a
long-term owner of the communities that it develops. Hence, ATLANTIC
emphasizes long-term durability by using materials and designs that minimize
ongoing operation and maintenance costs.
ATLANTIC has 15 professionals with substantial multifamily development
experience dedicated to its objective of developing state-of-the-art
communities designed for long-term appeal to the renter population. As of
March 31, 1998, ATLANTIC's completed development communities and its
communities under construction and in planning (owned and under control)
together comprised 48.8% of its multifamily portfolio, based on total expected
investment.
Value-Conscious Pricing Approach
ATLANTIC utilizes a price-point strategy in determining the type of
multifamily community that is best suited for a particular submarket and
prices its units at a level that will appeal to the value-conscious resident.
These residents typically fall into the category of moderate income households
with incomes ranging from 65% to 90% of the submarket median household income
or middle income households with incomes ranging from 90% to 115% of the
submarket median household income (as compared to 115% to 140% for upper
middle income households). These residents typically are couples, single
parents and families with one or two children whose primary focus is on unit
livability and practical amenities such as washer/dryer hookups, storage space
and playgrounds, in addition to the physical characteristics of the community.
ATLANTIC prices the monthly rental rate for units in these communities from
$50 to $200 below that of other communities in the submarket that appeal to
higher income residents.
ATLANTIC believes that the moderate income segment in particular is a
significantly underserved market with limited competition because few
competitors in ATLANTIC's primary target market currently focus on communities
that appeal to these residents. Also, a smaller percentage of these residents
move out to purchase single family homes, resulting in lower overall turnover
and operating costs. Because the cost of refurbishing and re-leasing a unit
ranges from $700 to $1,500, lower resident turnover can have a material impact
on a community's profitability. Due to these positive operating
characteristics and market fundamentals, ATLANTIC believes that, by focusing
on the value-conscious resident, it is favorably positioned to achieve
sustainable cash flow growth.
Portfolio and Asset Optimization
ATLANTIC develops and acquires communities with a view to effective long-
term operation and ownership. However, ATLANTIC continually reviews its asset
base in light of prevailing market conditions. These reviews assist ATLANTIC
in identifying communities in its portfolio that no longer meet its long-term
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<PAGE>
investment objectives. ATLANTIC's asset optimization program allows ATLANTIC
to dispose of such assets and redeploy the proceeds, preferably through tax-
deferred exchanges, into assets with better prospects for long-term cash flow
growth.
Operating Strategy
As part of ATLANTIC's strategy to increase cash flow and enhance the long-
term economic performance of its communities, ATLANTIC actively manages its
communities and its operating personnel maintain a customer-driven focus.
Approximately 97% of ATLANTIC's operating multifamily units are managed
internally, with the balance in various stages of transition from third-party
management companies. ATLANTIC's operating personnel are dedicated to
maximizing the performance of ATLANTIC's communities by providing consistent
high-quality customer services to its residents. ATLANTIC emphasizes locally
based management through its 11 local offices and its approximately 570
employees (40 professionals and 530 property-level and support personnel)
working in the property management area. ATLANTIC's strong property management
system has contributed to the positive operating results of ATLANTIC's "same
store" communities. Net operating income on a same store basis increased 4.96%
in the first quarter of 1998 as compared to the first quarter of 1997 for the
50 communities that were stabilized during both periods.
Financing Strategy
The ability to efficiently access the capital markets, along with internally
generated cash from operations and proceeds from strategic dispositions,
enables ATLANTIC to capitalize on the development and acquisition
opportunities that exist in its target market. In addition, the borrowing
capacity available through ATLANTIC's $350 million and $50 million unsecured
lines of credit enables ATLANTIC to react quickly to investment opportunities
between securities offerings. ATLANTIC's long-term debt as a percentage of
total long-term book capitalization was 24.3% at March 31, 1998, a level that
provides considerable flexibility for ATLANTIC to continue to prudently
utilize long-term debt as a financing tool.
ARCHSTONE COMMUNITIES TRUST
The combined company resulting from the Merger is expected to have the
following important characteristics, which are intended to create long-term
shareholder value:
. A highly-focused investment strategy emphasizing markets and submarkets
with strong economic fundamentals and high barriers to entry, as
identified by Archstone's research.
. An investment strategy focused on producing consistent growth from three
principal sources:
--the development of new multifamily communities in submarkets
identified through research as having optimal long-term growth
prospects. Management believes that Archstone will be the dominant
multifamily development company in the United States, with a
development pipeline of more than $2 billion.
--an investment strategy emphasizing the creation of shareholder value
through deploying capital to take advantage of growth opportunities
created by changing market fundamentals.
--a highly focused operating strategy designed to create the highest
level of performance at the property level.
. A national branding strategy emphasizing a high level of customer service
with the objective of achieving long-term brand loyalty, lower resident
turnover and greater market share. Archstone's objective is to create a
dominant national brand in the multifamily industry.
. A larger market capitalization and national presence providing:
--increased liquidity for shareholders.
--the resources for continued investment in research and development.
--the ability to attract and retain a significant depth of management,
emphasizing thoughtful succession planning at all levels of
management.
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<PAGE>
. Economies of scale that are expected to produce identified cost savings
in excess of $5 million annually, beginning in 1999.
. A strong balance sheet featuring:
--a ratio of long-term debt to long-term undepreciated book
capitalization of approximately 33%.
--a conservative debt strategy, with a relatively level principal
maturity schedule, emphasizing unsecured long-term, fixed rate debt.
--an original weighted average life to maturity for unsecured long-
term, fixed rate debt currently outstanding of 13.02 years.
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THE MERGER
(PROPOSAL 1)
TERMS OF THE MERGER
The PTR Board and the ATLANTIC Board have each approved the Merger and the
Merger Agreement, a copy of which is attached hereto as Annex I and
incorporated herein by reference. Pursuant to the Merger Agreement, among
other things, upon satisfaction (or waiver) of the conditions set forth
therein, at the Effective Time, (i) ATLANTIC will be merged with and into PTR,
with PTR being the surviving entity, (ii) each issued and outstanding ATLANTIC
Common Share will be converted into the right to receive one PTR Common Share
and (iii) each issued and outstanding ATLANTIC Series A Preferred Share will
be converted into the right to receive one PTR Series C Preferred Share. No
fractional PTR Common Shares will be issued in connection with the Merger. In
lieu thereof, a holder of ATLANTIC Common Shares otherwise entitled to a
fractional PTR Common Share will be paid cash in respect of such fractional
interest.
As a result of the Merger and without any action on the part of the holder
thereof, at the Effective Time, all ATLANTIC Common Shares and ATLANTIC Series
A Preferred Shares will cease to be outstanding, will be canceled and retired
and will cease to exist. Each holder of a certificate representing ATLANTIC
Common Shares or ATLANTIC Series A Preferred Shares will thereafter cease to
have any rights with respect to such ATLANTIC Common Shares and ATLANTIC
Series A Preferred Shares, except the right to receive the PTR Common Shares
or PTR Series C Preferred Shares, as applicable, and cash in lieu of a
fractional share upon the surrender of such certificate. Promptly after the
Effective Time, the Exchange Agent will mail a letter of transmittal and
instructions to each holder of a certificate representing ATLANTIC Common
Shares and ATLANTIC Series A Preferred Shares as of the Effective Time for use
in effecting the surrender of the certificate in exchange for certificates
representing PTR Common Shares or PTR Series C Preferred Shares, as
applicable, and cash in lieu of a fractional share. See "The Merger
Agreement--Exchange of ATLANTIC Share Certificates."
BACKGROUND OF THE MERGER
In September 1997, PTR's management began considering expansion of its
target market beyond the western United States. The principal reason to
consider such an expansion was the opportunity to create incremental
shareholder value by deploying PTR's capital in a greater number of markets
identified by its research as having attractive long-term growth prospects.
Management also believed that substantial shareholder value could be created
by applying PTR's proven strategy of deploying its capital to take advantage
of growth opportunities created by changing market fundamentals. PTR's
management considered expansion through individual property acquisitions or
through merger and decided it would be more advantageous to expand through
merger because of the difficulty of hiring talented development and operating
professionals in today's competitive environment, coupled with the ability to
invest capital more quickly through a merger. PTR management identified
several important requirements for a potential merger candidate including
minimal geographic overlap with PTR's existing portfolio, proven operating
capability, proven development capability, a focus on middle or moderate
income properties and attractive pricing. After analyzing several potential
candidates, PTR management determined ATLANTIC best met PTR's criteria. PTR's
management had generally considered the possibility of merging PTR and
ATLANTIC as early as 1995. In November 1997, PTR began an analysis of
combining PTR with ATLANTIC. In November 1997, R. Scot Sellers, PTR's
President and Chief Executive Officer, had several discussions about a
potential merger with C. Ronald Blankenship, a Managing Director of Security
Capital, the non-executive Chairman of the PTR Board and an advisory Director
of ATLANTIC. Mr. Blankenship indicated that he believed that Security Capital
would support such a transaction, subject to reviewing the final terms and
conditions that PTR and ATLANTIC might negotiate. Following these discussions,
Mr. Blankenship contacted Constance B. Moore and James C. Potts, Co-Chairmen
of ATLANTIC, to determine whether ATLANTIC management would be interested in
pursuing a transaction with PTR. Mr. Blankenship informed Ms. Moore and Mr.
Potts that Security Capital would be open to such a transaction but that the
decision to proceed should be made by PTR's and ATLANTIC's management and
their respective boards.
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On December 2, 1997, immediately following a regular meeting of the PTR
Board, Mr. Sellers made a preliminary presentation to the Trustees regarding a
possible combination of PTR and ATLANTIC. Mr. Sellers discussed the reasons
for the proposed combination, including the following factors: an opportunity
to invest capital in ATLANTIC's markets at an attractive point in their
respective economic cycles, which should produce improving cash flow growth
and attractive returns; the ability for PTR to create incremental growth and
shareholder value by having more markets among which to deploy its capital
using its research; the acquisition of a proven team of development
professionals, together with a significant development pipeline in markets
with good long-term growth prospects; increased liquidity for its shareholders
through the larger market capitalization of the combined company; and
significant cost savings for the combined company. Mr. Sellers responded to
questions from the PTR Board about the value to be created for PTR's
shareholders from such a transaction, as well as the projected impact on PTR's
funds from operations per share. The Trustees present asked Mr. Blankenship
for Security Capital's views on the proposed combination. Mr. Blankenship
responded that, while he believed that Security Capital would be in favor of
such a transaction, Security Capital would not cause the transaction to occur,
but would encourage the PTR Board and the ATLANTIC Board and the managements
of each company to negotiate a potential transaction if the Boards of each
company determined that the transaction was in the best interests of the
shareholders of their respective companies. Mr. Sellers concluded by stating
that a more complete presentation would be made to the PTR Board at a special
meeting.
On December 3, 1997, Mr. Sellers met with Ms. Moore and Mr. Potts to discuss
a potential combination of PTR and ATLANTIC, to review financial information
regarding each company, to discuss a management structure for the combined
company, to discuss cost savings which could be achieved if the companies were
combined, and to discuss whether ATLANTIC's senior management would support a
combination. Ms. Moore and Mr. Potts indicated that they would support such a
transaction.
On December 5, 1997, at a special meeting of the PTR Board, PTR's management
presented its analysis and proposed that the PTR Board consider a stock-for-
stock merger, structured to be tax free, of ATLANTIC with and into PTR.
Because Security Capital is the largest shareholder of both PTR and ATLANTIC,
and therefore has an interest on both sides of the transaction, the PTR Board
appointed the PTR Special Committee, consisting of Messrs. Kessler, Myers and
Schweitzer, to consider the proposed transaction on behalf of the shareholders
of PTR, other than Security Capital, and to recommend action with respect to
the proposed transaction to the PTR Board. The PTR Special Committee decided
to retain Munger Tolles as its legal counsel and preliminarily decided to
retain Goldman Sachs as its financial advisor. Munger Tolles had advised a
special committee of the PTR Board in two prior transactions, and was chosen
on the basis of its previous work and familiarity with PTR. Goldman Sachs had
also advised a special committee of the PTR Board in a prior transaction.
On December 15, 1997, the PTR Special Committee met with Munger Tolles. At
this meeting, Munger Tolles advised the PTR Special Committee as to its legal
duties in evaluating the proposed transaction. In addition, the members of the
PTR Special Committee disclosed their respective securities holdings in PTR,
ATLANTIC, Security Capital, and other affiliates of Security Capital in order
fully to inform each other and Munger Tolles of any potential conflicts of
interest. See "--Interests of Certain Parties" and "Risk Factors--Conflicts of
Interest." Each of the members of the PTR Special Committee concluded that he
and the other members did not have a material financial interest in the
transaction and would be able to evaluate objectively the fairness of the
proposed transaction to the PTR shareholders, other than Security Capital.
Also at this meeting, the PTR Special Committee reviewed the preliminary
decision that it had made to retain Goldman Sachs as its financial advisor.
Because Goldman Sachs had previously worked for both Security Capital and
ATLANTIC, as well as other affiliates of Security Capital, and could
reasonably be expected to be a candidate for engagement by one or more of them
again, the PTR Special Committee weighed the advantages and disadvantages of
retaining Goldman Sachs. The PTR Special Committee considered Goldman Sachs'
prior familiarity with both PTR and ATLANTIC to be an advantage. Also, the PTR
Special Committee was concerned that interviewing other firms could result in
a leak of information. The PTR Special Committee concluded that
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<PAGE>
these factors, considered with Goldman Sachs' expertise and experience in the
real estate and REIT industries, outweighed the potential conflicts of
interest arising from Goldman Sachs' past and possible future engagement by
Security Capital and other affiliates of Security Capital.
On December 22, 1997, the PTR Special Committee met with PTR's management,
Munger Tolles and Goldman Sachs. PTR's management reviewed with the PTR
Special Committee the principal reasons for the proposed transaction. First,
the transaction would create a national business, giving the combined company
access to a larger number of attractive markets and business cycles than PTR
alone would have, including additional markets and submarkets with high
barriers to entry. A larger number of attractive markets would increase PTR's
ability to create value for shareholders through its proven strategy of
deploying capital to take advantage of opportunities created by changing
market fundamentals identified by its research. Second, the combined company
would have a larger market capitalization and liquidity than PTR alone would
have, which, together with its increased long-term growth prospects, is
expected to enhance the combined company's attractiveness to investors. Third,
management believes that many of ATLANTIC's markets are near the bottom of
their economic cycles, which should provide the opportunity for improving
future growth. Fourth, the combined company would provide a larger platform to
implement a strategy of creating long-term brand identity and preference for
PTR's product and service. PTR management also described potential detriments
of the transaction, including that some of the markets in which ATLANTIC does
business are currently growing more slowly and have lower barriers to entry
than some of PTR's markets, and that it might be more challenging to grow
funds from operations through external investment activity at a similar rate
to PTR's because of the combined company's incrementally larger size. PTR's
management again reviewed with the PTR Special Committee whether there were
other potential merger partners that might reasonably be as attractive as
ATLANTIC. The PTR Special Committee decided to pursue reviewing the proposed
transaction.
The PTR Special Committee met again on January 6, 1998 with PTR's management
and Munger Tolles. Based on analyses prepared by PTR's management, the PTR
Special Committee discussed a possible range of stock-for-stock exchange
ratios that PTR might offer to ATLANTIC. The expected scope and content of a
potential opinion from Goldman Sachs was also discussed.
On January 7, 1998, members of senior management of PTR and ATLANTIC held a
telephone conference call in which anticipated general and administrative
expense savings from the proposed merger were discussed, including employee
headcounts and financing cost savings.
On January 8, 1998, the PTR Special Committee, with Munger Tolles, met again
with PTR's management to review further the reasons described above why PTR's
management considered the proposed transaction advisable. At the conclusion of
this meeting the PTR Special Committee decided to meet with Goldman Sachs on
January 19, 1998 for the purpose of discussing Goldman Sachs' preliminary
financial analysis.
On January 19, 1998, the PTR Special Committee met with PTR's management,
Goldman Sachs and Munger Tolles. At this meeting, Goldman Sachs discussed its
preliminary financial analysis of the proposed transaction and Munger Tolles
described for the PTR Special Committee the principal terms and conditions of
the draft merger agreement that it had prepared. The PTR Special Committee
decided that Mr. Schweitzer, its Chairman, would report to the PTR Board, at
its meeting on January 20, 1998, that the PTR Special Committee recommended
that the PTR Board authorize Mr. Sellers and Mr. Schweitzer to propose the
transaction to ATLANTIC.
During the week of January 19, 1998, senior management of ATLANTIC contacted
outside Directors of ATLANTIC regarding a special meeting to be held on
January 30 and indicated that PTR would present a merger proposal at that
meeting.
On January 20, 1998, the PTR Board held a special meeting to consider the
proposed transaction. Mr. Schweitzer reported on the activities and
recommendations of PTR Special Committee. Mr. Schweitzer discussed a proposed
exchange ratio of PTR Common Shares for ATLANTIC Common Shares in the Merger.
Based on
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the recent prices of the PTR Common Shares and the ATLANTIC Common Shares and
various economic factors, Mr. Schweitzer stated that the PTR Special Committee
recommended an exchange ratio of up to .96 of a PTR Common Share for each
ATLANTIC Common Share (determined by reference to the 10-day trailing average
closing price of the PTR Common Shares and ATLANTIC Common Shares on the date
of the meeting). Mr. Schweitzer discussed reasons for the proposed exchange
ratio, with an emphasis on the implicit capitalization rate on ATLANTIC
properties to be acquired in connection with the Merger, together with the
value of land owned or controlled by PTR and ATLANTIC and the expected cost
savings for the combined company. Mr. Sellers also reviewed the accretion to
PTR which could occur from that exchange ratio, the anticipated development
activities of PTR and ATLANTIC, and the difference in distribution rates on
PTR Common Shares and ATLANTIC Common Shares. Mr. Sellers presented
management's views of the benefits of the Merger to PTR and its shareholders.
Mr. Sellers and Mr. Schweitzer also discussed whether PTR should offer a
premium for the ATLANTIC Common Shares and recommended that no premium should
be offered at that time. Mr. Schweitzer further discussed the potential
benefits to PTR of the Merger and potential negatives of the Merger, including
the amount of time and effort management would have to devote to negotiating
the transaction and integrating ATLANTIC into PTR after the transaction was
completed. Mr. Schweitzer then recommended, on behalf of the PTR Special
Committee, that the PTR Board authorize management to proceed with the
transaction in consultation with the PTR Special Committee. The PTR Board then
authorized management in consultation with the PTR Special Committee to
proceed to make a proposal to the ATLANTIC Board subject to the following
conditions: that the transaction be a merger of ATLANTIC into PTR, that the
transaction be a tax-free exchange, that the exchange ratio should not exceed
.96 of a PTR Common Share for each ATLANTIC Common Share and that the Merger
Agreement include a termination fee payable by ATLANTIC if ATLANTIC failed to
close a merger because of a competing bid.
In anticipation of Mr. Sellers and Mr. Schweitzer meeting with the ATLANTIC
Board on January 30, 1998, the PTR Special Committee met with PTR's management
and Munger Tolles on January 26, 1998 for a final review of the financial
terms and conditions to be proposed to ATLANTIC. Mr. Blankenship attended a
portion of this meeting and reaffirmed to the PTR Special Committee that
Security Capital would support the transaction, subject to its review of the
final negotiated terms and conditions.
On January 30, 1998, ATLANTIC held a special meeting of Directors which was
attended by all ATLANTIC Directors, Mr. Schweitzer, as chairman of the PTR
Special Committee, Mr. Sellers, Mr. Blankenship, and Jeffrey A. Klopf, Senior
Vice President and Secretary of each of PTR, ATLANTIC and Security Capital.
James C. Potts, Co-Chairman and Chief Investment Officer of ATLANTIC, first
presented management's view of the proposed merger and stated that ATLANTIC's
management was in favor of such a transaction. Mr. Sellers then presented the
proposal to merge ATLANTIC into PTR. He reviewed the background of discussions
which had been held with ATLANTIC management and the PTR Board's and PTR
Special Committee's review of the transaction. Mr. Sellers presented the
following reasons for the transaction: a national presence provides the best
platform for a REIT to deploy capital in order to produce the best long-term
growth; there was significant potential value creation over the long term for
shareholders of PTR and ATLANTIC; a merger would increase investor interest in
the combined company because it would substantially increase market
capitalization and liquidity; the combined company would have more markets
among which to deploy capital to take advantage of growth opportunities
created by changing market fundamentals; the combined entity would have a
lower cost of debt and preferred equity capital than the two companies would
have separately; and the combined entity should achieve operating efficiencies
with estimated expense savings of at least $4 million annually. Mr. Sellers
then discussed the opportunities that existed for the combined company to
pursue a national branding strategy focused on creating long-term brand
identity and preference for the combined company's products and services. Mr.
Sellers presented the following proposed structure for the Merger: a
combination of ATLANTIC into PTR; the exchange ratio would be based on the
average stock prices for the 10 trading days ending January 23, 1998 with no
premium for an exchange ratio of 0.936 of a PTR Common Share for each ATLANTIC
Common Share; a tax-free merger; the headquarters of the combined company
would be Englewood, Colorado (where PTR is headquartered); and the combined
company would have a regional operating structure with three regions. Mr.
Sellers then discussed the financial aspects of the proposed
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combination, based on a proposed exchange ratio of 0.936 of a PTR Common Share
for each ATLANTIC Common Share, including 1998 pro forma funds from operations
for the combined entity, 1998 distributions, 1998 equity capitalization, total
market capitalization and the ownership of Security Capital in the combined
entity. Mr. Sellers then described the management and employees of the
combined entity. He stated that the Merger would result in minimal staff
redundancy except in the accounting and financial organization of each
company. The combined entity would have a Co-Chairman structure with Mr.
Sellers as Co-Chairman and Chief Investment Officer and Ms. Moore as Co-
Chairman and Chief Operating Officer. Mr. Sellers then discussed a proposed
timetable for the transaction and discussed various events and approvals which
had to occur.
Mr. Blankenship then presented his views of the current state of the REIT
industry. He stated that, in the future, consolidation in the REIT industry
would continue and that large market capitalization REITs with a national
focus were likely to dominate the REIT industry because they attract capital
at a better price, have greater liquidity for their investors and could more
efficiently invest their capital on a national basis. Mr. Sellers then gave a
history of PTR and discussed its investment strategy. Mr. Schweitzer described
the PTR Special Committee's and the PTR Board's consideration of the proposed
transaction and why the PTR Board was not offering a premium for the ATLANTIC
Common Shares. Mr. Blankenship stated that Security Capital would support the
proposed transaction because of the value creation for both PTR and ATLANTIC.
Mr. Blankenship stated that Security Capital would not cause the transaction
to occur but would encourage the Boards and managements of each company,
together with their advisors, to consider and negotiate the transaction if the
Boards of each company determined that the transaction was in the best
interests of the shareholders of their respective companies. There followed a
discussion in which the members of the ATLANTIC Board sought clarification of
the terms of the PTR proposal.
The ATLANTIC Board then excused all persons other than ATLANTIC Directors
and held a brief discussion regarding the proposal. The ATLANTIC Board then
proceeded to appoint the ATLANTIC Special Committee, consisting of Messrs.
Holmes, as chairman, Garcia and Richman. The meeting then adjourned.
Immediately after the meeting of the ATLANTIC Board, the ATLANTIC Special
Committee held a meeting at which only the members were present. At the
meeting, the Special Committee discussed retaining Morgan Stanley as financial
advisor and decided to defer appointment of special counsel. Subsequent to
January 30, 1998, the ATLANTIC Special Committee retained Morgan Stanley as
financial advisor and Shearman & Sterling as legal counsel. The ATLANTIC
Special Committee indicated that they would not consider a merger transaction
with PTR without a substantial premium for holders of ATLANTIC Common Shares.
Shortly after the ATLANTIC Board meeting, Mr. Sellers and Mr. Schweitzer
contacted the other members of the PTR Special Committee and the PTR Board to
report on their meeting with the ATLANTIC Board. The PTR Special Committee met
again on February 16, 1998, with PTR's management, Goldman Sachs and Munger
Tolles, to review the status of the proposed transaction.
Between February 16, 1998 and March 3, 1998, Mr. Schweitzer and Mr. Sellers
engaged in several further discussions with Mr. Holmes and Mr. Blankenship
regarding the terms of the proposed transaction, principally regarding the
exchange ratio of PTR Common Shares for ATLANTIC Common Shares and the
distribution rate on the combined company's common shares. Also during this
period, Goldman Sachs and Morgan Stanley discussed various financial aspects
of the proposed transaction.
On February 23, 1998, Ms. Moore and Mr. Sellers had a telephone conference
call to discuss financial projections of ATLANTIC and PTR, management of the
combined company and cost savings which might be achieved through the Merger.
On February 25, 1998, the ATLANTIC Special Committee held a telephonic
meeting to discuss the merger proposed by PTR. In addition to the ATLANTIC
Special Committee members, Morgan Stanley and Shearman & Sterling also
participated in the call. During the meeting, conversations between members of
the ATLANTIC Special Committee and representatives of PTR and the PTR Special
Committee and the terms of the proposed transaction were discussed. In
addition, a review of the ATLANTIC Special Committee's duties was presented by
Shearman & Sterling. Subsequently, Ms. Moore and Mr. Potts joined the meeting
and discussed management's view of the proposed transaction. Morgan Stanley
then reviewed their financial analysis regarding the potential range for the
exchange ratio for the proposed transaction.
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On March 3, 1998, the PTR Special Committee met again with PTR's management
and Munger Tolles to review the status of negotiations. Mr. Schweitzer
reported that his discussions with Mr. Holmes had revealed that the parties'
views on an appropriate exchange rate differed substantially and had as yet
not resulted in any agreement upon an exchange ratio and that they were not
likely to agree on such terms without significant additional negotiations. The
PTR Special Committee discussed with PTR's management a range of exchange
ratios that the PTR Special Committee could recommend as fair to PTR's
shareholders other than Security Capital, and concluded that Mr. Sellers and
Mr. Schweitzer should attempt to renew negotiations with the ATLANTIC Special
Committee.
On March 4, 1998, members of senior management of PTR and ATLANTIC held a
meeting at which they discussed initiatives the companies had been pursuing
jointly, including national purchasing and telecommunications strategies. At
the conclusion of this meeting, the participants had a brief discussion about
the progress of negotiations between the PTR Special Committee and the
ATLANTIC Special Committee and determined that substantial additional
negotiations would be necessary if any agreement were to be reached.
On March 5, 1998, there was a special telephonic meeting of the ATLANTIC
Board which Mr. Blankenship attended. Mr. Blankenship described Security
Capital's views of the benefits of a merger to both companies and expressed
two concerns of Security Capital regarding the status of the negotiations of
the proposed transaction. First, the negotiations were consuming much of the
time and efforts of the senior management and Boards of the two companies.
Second, as the negotiations continued without conclusion, the possibility of a
leak of the proposed transaction, which could harm the employee morale of both
companies, became more likely. Mr. Blankenship stated that Security Capital
believed that the negotiations should be brought to a conclusion either
through agreement or termination as soon as reasonably practicable. Mr.
Blankenship stated that Security Capital would not cause the transaction to
occur, that its ATLANTIC Common Shares were not for sale and that he hoped
each party would continue to try to reach an agreement on an exchange ratio.
Mr. Holmes expressed the views of the ATLANTIC Special Committee that the
principal issue in the negotiations was the exchange ratio. He stated that the
ATLANTIC Special Committee was not interested in a transaction which did not
provide a premium for holders of ATLANTIC Common Shares. Mr. Holmes requested
a detailed written proposal from the PTR Special Committee outlining all terms
of a new offer.
On March 9, 1998, there was a special telephone meeting of the PTR Board at
which Mr. Blankenship discussed recent financing transactions in the REIT
industry, noting the decline in REIT multiples and premiums which had been
paid in recent REIT business contributions. Mr. Blankenship discussed his
meeting with the ATLANTIC Board on March 5, 1998. Mr. Blankenship expressed
two concerns of Security Capital regarding the status of the negotiations of
the proposed transaction. First, the negotiations were consuming much of the
time and efforts of the senior management and Boards of the two companies.
Second, as the negotiations continued without conclusion, the possibility of a
leak of the proposed transaction, which could harm the employee morale of both
companies, became more likely. Mr. Blankenship stated that Security Capital
believed that the negotiations should be brought to a conclusion either
through agreement or termination as soon as reasonably practicable. Mr.
Blankenship expressed his hope that each party would continue to try to reach
an agreement on an exchange ratio. The PTR Board then discussed ranges of
premiums which the PTR Board would be willing to accept.
On March 11, 1998, Mr. Schweitzer met with Ms. Moore to discuss the proposed
merger and financial projections of PTR and ATLANTIC in an effort to
understand the significant differences between the parties. At that meeting,
Mr. Schweitzer and Ms. Moore agreed to have PTR management and ATLANTIC
management provide updated financial information to Morgan Stanley and Goldman
Sachs.
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On March 11, 1998, there was a special meeting of the PTR Board at which the
PTR Board discussed the proposed transaction and asked PTR management
questions regarding implicit capitalization rates for ATLANTIC's assets at
various share prices, the expected revenue and net operating income growth
from ATLANTIC's portfolio, accretion from the proposed transaction, barriers
to entry in ATLANTIC's markets, benefits of the potential merger with ATLANTIC
and premiums paid in recent REIT transactions. Mr. Schweitzer discussed the
benefits to PTR of merging with ATLANTIC, including the acquisition of
approximately 28,000 units, access to new markets, the addition of a strong
management team, the implied capitalization rate of the properties owned by
ATLANTIC, a comparison of the pro forma contribution to funds from operations
to the combined company from PTR and ATLANTIC with the pro forma percentage
ownership of the PTR shareholders and the ATLANTIC shareholders in the
combined company at various exchange ratios. Mr. Schweitzer discussed the
premium which should be offered to ATLANTIC. The PTR Board concluded by
authorizing the PTR Special Committee to deliver a letter to the ATLANTIC
Special Committee with revised terms, including a premium based on the 30-day
average closing prices of the ATLANTIC Common Shares and PTR Common Shares.
Between March 3, 1998 and March 12, 1998, Mr. Schweitzer continued to have
discussions with Mr. Holmes and also with other members of the PTR Special
Committee. Also during this period Goldman Sachs had discussions with Morgan
Stanley, and Munger Tolles had a discussion with Shearman & Sterling. On March
12, 1998, Mr. Schweitzer, on behalf of the PTR Special Committee, delivered to
Mr. Holmes, for the ATLANTIC Special Committee, a letter specifying PTR's
revised terms and conditions for the proposed transaction, which included the
following: (i) an exchange ratio of .995 of a PTR Common Share for each
ATLANTIC Common Share; (ii) an exchange of one PTR Series C Preferred Share
for each ATLANTIC Series A Preferred Share; (iii) PTR would amend and restate
the Old PTR Charter to make it comparable to the ATLANTIC Charter; (iv) the
trustees of the combined company would consist of the current Directors and
Trustees of ATLANTIC and PTR, respectively, other than Mr. Blankenship, who
would become an advisory trustee; (v) an outline of the senior management of
the combined company; and (vi) the coordination of ATLANTIC's and PTR's
distributions.
Between March 12 and March 23, 1998, several discussions occurred between
the chairmen of the PTR Special Committee and the ATLANTIC Special Committee
and their respective financial advisors regarding the proposal, principally
focused on the exchange ratio and the distribution rate on the combined
company's common shares.
On March 19, 1998, the ATLANTIC Special Committee held a telephonic meeting
to discuss the proposed transaction. In addition to the members of the
ATLANTIC Special Committee, Morgan Stanley and Shearman & Sterling also
participated in the call. During the meeting, the letter received from PTR
summarizing the terms of the proposed transaction was discussed in detail with
Morgan Stanley and Shearman & Sterling. Morgan Stanley reviewed their
financial analysis regarding the potential range for the exchange ratio for
the proposed transaction and the distribution to be paid by the combined
company post-merger. The ATLANTIC Special Committee concluded the meeting by
requesting that Morgan Stanley contact Goldman Sachs with a counter offer of
an exchange ratio of 1.02 PTR Common Shares for each ATLANTIC Common Share and
an increase in PTR's distribution post-merger to $1.42 per share.
On March 20, 1998, the PTR Special Committee, through Goldman Sachs,
conveyed a revised proposal to the ATLANTIC Special Committee, the principal
terms of which consisted of an exchange ratio of one PTR Common Share for each
ATLANTIC Common Share (which represented a 6.75% premium to holders of
ATLANTIC Common Shares based on the 30-day average closing prices of the PTR
Common Shares and the ATLANTIC Common Shares for the period ended March 19,
1998) and an increase in PTR's distribution post-merger to $1.42 per PTR
Common Share, with an expiration of the offer of March 24, 1998.
On March 23, 1998, at a meeting of the PTR Board, Mr. Sellers and Mr.
Schweitzer reported that they had reached an agreement with Mr. Holmes to
recommend an exchange ratio of one PTR Common Share for each ATLANTIC Common
Share and a distribution rate of $1.42 on an annual basis for the combined
company's common shares, subject to the approval of each of the special
committees, the PTR Board and the ATLANTIC Board. At the meeting, the PTR
Board discussed the transaction in light of increases in the price of PTR
Common Shares which occurred on and after March 20, 1998 in part as a result
of a favorable report by a leading analyst
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regarding several large market capitalization REITs, including PTR. The PTR
Board discussed fluctuations in the prices of the shares of each company since
the transaction was first proposed to the PTR Board in December 1997 and
determined not to amend its offer as a result of the change in price, because
(i) prices could continue to fluctuate until a transaction was announced, (ii)
the relative value of the PTR Common Shares and the ATLANTIC Common Shares
using the methodology employed by the PTR Special Committee, which was based
on the 30-day average closing prices for PTR Common Shares and ATLANTIC Common
Shares of $22.7521 and $21.3125, respectively, had not changed materially and
(iii) the fundamentals of the two companies had not changed. The PTR Special
Committee recommended to the PTR Board that it authorize Goldman Sachs to
communicate acceptance of the one-to-one exchange ratio and the $1.42
distribution rate to the ATLANTIC Board and authorize Munger Tolles to deliver
merger documentation to Shearman & Sterling. The PTR Board granted the
recommended authorization. Later that day, Goldman Sachs communicated that
acceptance and Munger Tolles delivered the draft documentation.
On March 23, 1998, the ATLANTIC Special Committee held a telephonic meeting
to discuss the proposed transaction. In addition to members of the ATLANTIC
Special Committee, Morgan Stanley and Shearman & Sterling also participated in
the call. Morgan Stanley informed the ATLANTIC Special Committee that Goldman
Sachs, on behalf of PTR had responded to ATLANTIC's March 19, 1998 offer by
counter proposing an exchange ratio of one PTR Common Share for each ATLANTIC
Common Share. Goldman Sachs had also advised Morgan Stanley that a $1.42 PTR
distribution post-merger was acceptable. In addition, Morgan Stanley reviewed
their financial analysis regarding the potential range for the exchange ratio
for the proposed transaction and the proposed increase in PTR's distribution
rate. The ATLANTIC Special Committee concluded the meeting by requesting that
Morgan Stanley advise Goldman Sachs that the ATLANTIC Special Committee was
prepared to recommend acceptance of PTR's counter offer of an exchange ratio
of one PTR Common Share for each ATLANTIC Common Share and an increase in
PTR's distribution post-merger to $1.42 per share.
As part of the draft merger documentation, PTR requested that Security
Capital confirm by agreement its support of the transaction as proposed.
ATLANTIC joined in that request. Between March 23, 1998 and March 31, 1998,
Munger Tolles and Shearman & Sterling negotiated the Merger Agreement and
negotiated the Voting Agreement with Security Capital and Mayer, Brown &
Platt, counsel to Security Capital. On March 31, 1998, the PTR Special
Committee met with Goldman Sachs and Munger Tolles to review the final
negotiated terms and conditions of the Merger Agreement. Subject only to
finalizing the definitive documentation and receiving a fairness opinion from
Goldman Sachs, the PTR Special Committee resolved to recommend the proposed
transaction, on the terms and conditions expressed in the Merger Agreement and
the Voting Agreement, to the PTR Board as being fair and reasonable to PTR and
on terms and conditions not less favorable to PTR than those available from
unaffiliated third parties. The PTR Board voted unanimously to approve and
adopt the Merger Agreement. The PTR Special Committee and PTR Board met again
the following day, April 1, 1998, to review the finalized merger
documentation. At that meeting Goldman Sachs provided its written opinion
dated April 1, 1998 that, as of such date, the Exchange Ratio pursuant to the
Merger Agreement was fair from a financial point of view to PTR and the
holders of PTR Common Shares other than Security Capital.
On April 1, 1998, the ATLANTIC Special Committee met with Shearman &
Sterling and Morgan Stanley, to discuss the outcome of negotiations with PTR
regarding various terms of the proposed transaction. At this meeting, the
ATLANTIC Special Committee also reviewed with Shearman & Sterling the
documentation related to the proposed Merger. Morgan Stanley then delivered
its opinion to the ATLANTIC Special Committee to the effect that, as of such
date, the consideration to be received by the holders of ATLANTIC Common
Shares pursuant to the Merger Agreement was fair from a financial point of
view to such holders of ATLANTIC Common Shares (other than Security Capital
and its affiliates and PTR and its affiliates). Based upon all of its reviews,
deliberations and negotiations, its advice from its legal counsel, and the
Morgan Stanley opinion, (i) the ATLANTIC Special Committee concluded that the
proposed transaction is fair to ATLANTIC and its shareholders (other than
Security Capital and its affiliates and PTR and its affiliates) and (ii) the
ATLANTIC Special Committee recommended that the ATLANTIC Board approve the
proposed Merger and recommend to the shareholders of ATLANTIC that they
approve it.
Following the meeting of the ATLANTIC Special Committee, a special meeting
of the ATLANTIC Board was convened. After a review of the information
considered by the ATLANTIC Special Committee and a review
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of the terms of the Merger and the Merger Agreement, as well as consideration
of the recommendation of the ATLANTIC Special Committee, the ATLANTIC Board
approved the Merger and the Merger Agreement and resolved to recommend the
Merger to ATLANTIC's shareholders.
The Merger Agreement was executed after the close of business on April 1,
1998 and announced prior to the opening of business on April 2, 1998.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE PTR BOARD
At a special meeting of the PTR Board on March 31, 1998, following a review
of the information considered by PTR and a review of the terms of the Merger
Agreement, as well as consideration of the recommendation of the PTR Special
Committee, the PTR Board approved the Merger Agreement. As noted below, the
PTR Board considered the determination by the PTR Special Committee that the
proposed transaction is fair and reasonable to PTR and the holders of PTR
Common Shares (other than Security Capital) and their recommendation that the
PTR Board approve the Merger Agreement.
In making its determination with respect to the Merger, the PTR Board
considered the following material positive factors:
(i) The PTR Board believes that the Merger is a compelling investment
opportunity which will provide a return on investment in excess of PTR's
long-term cost of capital. Additionally, based on its research, PTR's
management believes that ATLANTIC's markets are generally at attractive
points in their respective real estate cycles.
(ii) The national scope of the combined company will, management
believes, make the combined company the dominant multifamily development
company in the United States, with a development pipeline of more than $2
billion. This platform will provide the combined company with the ability
to create incremental shareholder value from two principal sources: the
development of new multifamily communities in markets and submarkets on a
national scale identified through research as having optimal long-term
growth prospects and an investment strategy emphasizing the deployment of
capital to take advantage of growth opportunities created by changing
market fundamentals.
(iii) A larger market capitalization and national presence providing
increased liquidity for shareholders, the resources for continued
investment in research and development, and the ability to attract and
retain a significant depth of management.
(iv) The PTR Board believes that the management teams of PTR and ATLANTIC
are each skilled at creating shareholder value through development,
acquisitions and property operations and that the Merger presents an
opportunity to create value by implementing the best practices of each
company. Further, the similar culture of each of the companies will allow
for ease of integration and the opportunity to quickly add value to the
combined company.
(v) The PTR Board believes that the national scope of the combined
company will provide a platform to create the dominant national brand in
the multifamily industry, based upon a national branding strategy
emphasizing a high level of customer service with the objective of
achieving long-term brand loyalty, lower resident turnover and greater
market share.
(vi) The PTR Board considered management's belief that the Merger will
result in economies of scale that are expected to produce identified cost
savings in excess of $5 million annually, beginning in 1999.
(vii) The Merger will result in a strong balance sheet for the combined
company featuring (A) a ratio of long-term debt to long-term undepreciated
book capitalization of approximately 33%, (B) an original weighted average
life to maturity for unsecured long-term, fixed rate debt currently
outstanding of 13.02 years and (C) a relatively level principal maturity
schedule.
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(viii) The holders of PTR Common Shares will receive an increase in the
annual distribution level from $1.36 to $1.42 for 1998 following completion
of the Merger.
(ix) As noted above, the PTR Board placed special emphasis on the
recommendation of the PTR Special Committee. In reaching its determination,
the PTR Special Committee considered the same factors described herein
which were considered by the PTR Board as a whole. The PTR Special
Committee also consulted with Munger Tolles and with Goldman Sachs. In
addition, the PTR Special Committee considered the opinion, analyses and
presentations of Goldman Sachs described below under "--Opinion of PTR's
Financial Advisor," including the opinion of Goldman Sachs dated April 1,
1998 to the effect that, as of the date of such opinion, and based upon and
subject to certain matters stated therein, the Exchange Ratio was fair,
from a financial point of view, to PTR and the holders of PTR Common
Shares, other than Security Capital.
The PTR Board also considered the following potentially negative factors in
its deliberations concerning the Merger:
(i) Because the Exchange Ratio is fixed, the PTR Common Shares PTR will
be required to exchange for the ATLANTIC Common Shares may have a greater
aggregate value than the value contemplated at the time the Merger
Agreement was executed due to fluctuations in the market prices of the PTR
Common Shares and the ATLANTIC Common Shares.
(ii) The ownership of Security Capital in PTR could increase from
approximately 33.0% to 38.7% as a result of the Merger and Security Capital
will have the right to nominate four persons to Archstone's 12-member board
of trustees.
(iii) The larger asset base of the combined company could make
perpetuation of the rate of growth in funds from operations from external
investment activity more difficult.
(iv) The size of the transaction may make rapid integration of PTR and
ATLANTIC more difficult. The PTR Board believed that this detriment was
partially offset by the similar operating culture and consistent financial
policies and accounting systems at the two companies.
(v) The transaction will result in holders of PTR Common Shares being
subject to the risk of the markets in which ATLANTIC currently operates.
In view of the wide variety of factors considered by the PTR Board, the PTR
Board did not quantify or otherwise attempt to assign relative weights to the
specific factors considered in making its determination. However, in the view
of the PTR Board, the potentially negative factors considered by it were not
sufficient, either individually or collectively, to outweigh the positive
factors considered by it in its deliberations relating to the Merger.
OPINION OF PTR'S FINANCIAL ADVISOR
On April 1, 1998, Goldman Sachs delivered its written opinion to the PTR
Special Committee that as of such date, the Exchange Ratio pursuant to the
Merger Agreement was fair from a financial point of view to PTR and the
holders of PTR Common Shares other than Security Capital.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED APRIL 1, 1998
WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX III TO
THIS JOINT PROXY STATEMENT AND PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. HOLDERS OF PTR COMMON SHARES ARE URGED TO, AND SHOULD, READ SUCH
OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement; (ii) the Voting Agreement; (iii) the Annual Reports
to Shareholders of PTR for the two years ended December 31, 1996 and of
ATLANTIC for the year ended December 31, 1996; (iv) the Annual Reports on Form
10-K of PTR for the three years ended December 31, 1997 and of ATLANTIC for
the two years ended December 31, 1997; (v) certain interim reports to
shareholders and Quarterly Reports on Form 10-Q of PTR and ATLANTIC;
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(vi) certain other communications from PTR and ATLANTIC to their respective
shareholders; and (vii) certain internal financial analyses and forecasts for
PTR and ATLANTIC prepared by PTR's management, including the projected cost
savings and operating synergies resulting from the Merger. Goldman Sachs also
held discussions with members of the senior management of PTR regarding the
strategic rationale for, and the potential benefits of, the Merger and held
discussions with members of the senior management of PTR regarding its and
ATLANTIC's past and current business operations, financial condition and
future prospects. In addition, Goldman Sachs reviewed the reported price and
trading activity for the PTR Common Shares and the ATLANTIC Common Shares,
compared certain financial and stock market information for PTR and ATLANTIC
with similar information for certain other companies the securities of which
are publicly traded, reviewed the financial terms of certain recent business
combinations in the real estate industry specifically and in other industries
generally and performed such other studies and analyses as it considered
appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and has assumed such accuracy
and completeness for purposes of rendering its opinion. In that regard,
Goldman Sachs assumed, with the PTR Special Committee's consent, that the
financial forecasts for PTR and ATLANTIC, including, without limitation, the
projected cost savings and operating synergies resulting from the Merger were
reasonably prepared on a basis reflecting the best currently available
judgments and estimates of the management of PTR. In addition, Goldman Sachs
did not make an independent evaluation or appraisal of the assets and
liabilities of PTR or ATLANTIC or any of their subsidiaries and Goldman Sachs
was not furnished with any such evaluation or appraisal. The opinion referred
to herein was provided for the information and assistance of the PTR Special
Committee in connection with its consideration of the Merger and such opinion
does not constitute a recommendation as to how any holder of PTR Common Shares
should vote with respect to such transaction.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its written opinion, dated April 1,
1998, to the PTR Special Committee.
(i) Funds From Operations Contribution Analysis. Goldman Sachs reviewed
certain estimated future financial information for PTR, ATLANTIC and the
pro forma combined entity resulting from the Merger based on PTR
management's 1998 financial forecasts for each of PTR, ATLANTIC and the pro
forma combined entity, including PTR's management's forecast for operating
synergies. The analysis indicated that PTR would contribute 64% of the
funds from operations ("FFO") attributable to the common shares of the pro
forma combined entity and its shareholders would hold 67% of the common
shares outstanding in the pro forma combined entity and such analysis also
indicated that PTR would contribute 65% of the FFO to the pro forma
combined entity on a fully diluted basis and its shareholders would hold
68% of the shares outstanding in the pro forma combined entity on a fully
diluted basis.
(ii) FFO Accretion. Goldman Sachs reviewed 1998 and 1999 FFO estimates
for PTR prepared by PTR's management on a stand alone and pro forma basis
which estimates showed FFO accretion in 1998 and 1999 on a basic and fully
diluted basis.
(iii) ATLANTIC Comparable Companies Analysis. Goldman Sachs reviewed and
compared certain financial information relating to ATLANTIC to
corresponding financial information, ratios and multiples for two groups of
publicly traded multifamily REITs: (a) Colonial Properties Trust, Merry
Land & Investment Company, Inc., Mid-America Apartment Communities, Inc.
and United Dominion Realty Trust, Inc. (the "Southeast Companies"); and (b)
Avalon Properties, Inc., Gables Residential Trust, Post Properties, Inc.
and Summit Properties, Inc. (the "Development Companies"). The Southeast
Companies and the Development Companies were each chosen because they are
publicly-traded companies with operations that for purposes of analysis may
be considered similar to ATLANTIC. Goldman Sachs calculated and compared
various financial multiples and ratios. The multiples of ATLANTIC were
calculated using a price of $21.00 per ATLANTIC Common Share, the closing
price of the ATLANTIC Common Shares on the NYSE on March 27, 1998. The
multiples and ratios for each of the Southeast Companies, the Development
Companies and ATLANTIC were based on the most recent publicly available
information and on information provided by First Call Corporation ("First
Call"). With respect to the Southeast Companies and the Development
Companies, Goldman Sachs considered multiples of 1997,
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estimated 1998 and estimated 1999 FFO to stock price (based on the various
closing prices on March 27, 1998) which ranged from (a) 10.3x to 11.7x with
a mean of 10.9x for 1997 FFO, 9.2x to 10.6x with a mean of 10.0x for
estimated 1998 FFO, and 8.5x to 9.7x with a mean of 9.2x for estimated 1999
FFO for the Southeast Companies; and (b) 10.7x to 14.3x with a mean of
12.4x for 1997 FFO, 9.9x to 12.6x with a mean of 11.2x for estimated 1998
FFO, and 9.2x to 11.3x with a mean of 10.2x for 1999 FFO for the
Development Companies, compared to multiples for ATLANTIC of 11.7x for 1997
FFO, 10.7x for estimated 1998 FFO and 9.8x for estimated 1999 FFO. The
analysis further indicated estimated 1997-1999 FFO compound annual growth
rates which ranged from 6.5% to 10.3% with a mean of 8.5% for the Southeast
Companies, and from 7.5% to 12.7% with a mean of 9.8% for the Development
Companies, compared to 9.2% for ATLANTIC. Goldman Sachs also considered the
multiple of estimated 1998 FFO to growth rate which ranged from 0.89 to
1.59 with a mean of 1.22 for the Southeast Companies and 1.00 to 1.32 with
a mean of 1.16 for the Development Companies, compared to 1.17 for
ATLANTIC.
(iv) PTR Comparable Companies Analysis. Goldman Sachs reviewed and
compared certain financial information relating to PTR to corresponding
financial information, ratios and multiples for five publicly traded
corporations: Bay Apartment Communities, Inc., BRE Properties, Inc., Equity
Residential Properties Trust, Essex Property Trust, Inc. and Irvine
Apartment Communities, Inc. (the "PTR Selected Companies"). The PTR
Selected Companies were chosen because they are publicly-traded companies
with operations that for purposes of analysis may be considered similar to
PTR. Goldman Sachs calculated and compared various financial multiples and
ratios. The multiples for PTR were calculated using a price of $24.13 per
PTR Common Share, the closing price of the PTR Common Shares on the NYSE on
March 27, 1998. The multiples and ratios for PTR and the PTR Selected
Companies were based on the most recent publicly available information, on
information supplied by First Call and on the closing market price on March
27, 1998. With respect to the PTR Selected Companies, Goldman Sachs
considered multiples of 1997, estimated 1998 and estimated 1999 FFO to
closing stock market price which ranged from 13.2x to 15.5x with a mean of
14.5x for 1997 FFO, 12.0x to 13.9x with a mean of 12.9x for estimated 1998
FFO, and 10.7x to 12.5x with a mean of 11.5x for estimated 1999 FFO,
compared to 15.0x, 13.5x, and 12.1x, respectively, for PTR. The analysis
further indicated estimated 1997-1999 FFO compound annual growth rates for
the PTR Selected Companies which ranged from 10.6% to 14.8% with a mean of
12.1%, compared to 11.1% for PTR and 11.7% for the estimated pro forma
combined entity (based on estimates of PTR management). Goldman Sachs also
considered the multiples of estimated 1998 FFO to growth rate which ranged
from 0.87 to 1.25 with a mean of 1.07, compared to 1.21 for PTR.
(v) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to selected transactions in the public apartment REIT
industry since 1996 (the "Selected Transactions"). Such analysis indicated
for the Selected Transactions (i) percentage of FFO accretion per share of
the acquiring companies in the Selected Transactions for the first calendar
year following the particular Selected Transactions which ranged from 2.0%
to 5.0% with a mean of 2.9% and a median of 2.5% compared to 4.5% for the
Merger and (ii) transaction FFO multiples as a percentage of the acquiring
company's FFO multiple for the particular Selected Transaction which ranged
from 81.0% to 103.0% compared to 89.0% for the Merger.
(vi) Historical Exchange Ratio Analysis. Goldman Sachs analyzed the
implied premium to the ATLANTIC Common Shares based on a comparison of
certain historical average closing and closing prices for the PTR Common
Shares and the ATLANTIC Common Shares. Such analysis indicated (based on an
exchange ratio of one PTR Common Share for each ATLANTIC Common Share) an
implied premium to the ATLANTIC Common Shares of 14.9% based on the closing
price of the ATLANTIC Common Shares on March 27, 1998, 12.0% based on the
average closing share price of the ATLANTIC Common Shares for the prior ten
trading days, 9.4% based on the average closing share price of the ATLANTIC
Common Shares for the prior month, 8.3% based on the average closing share
price of the ATLANTIC Common Shares for the prior 30 trading days, 8.3%
based on the average closing share price of the ATLANTIC Common Shares for
the prior 60 trading days, 10.0% based on the average closing share price
of the ATLANTIC Common Shares for the prior 90 days and 14.8% based on the
closing price of the PTR Common Shares as of March 27, 1998 and the average
closing share price of the ATLANTIC Common Shares for the month prior.
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(viii) Implied Dividend Payout Ratio Analysis. Goldman Sachs analyzed the
implied dividend payout ratio for PTR, ATLANTIC and the pro forma combined
entity based on the changes to be made to the annual dividends paid per
share in the pro forma combined entity versus the 1997 annual dividend for
each of PTR and ATLANTIC and based on estimates of 1998 FFO for PTR,
ATLANTIC and the pro forma combined entity based on projections supplied by
PTR's management. Such analysis indicated that (i) on a basic basis PTR's
and the pro forma combined entity's implied dividend payout ratio were
equal to approximately 76% and ATLANTIC's was equal to approximately 82%
based on estimated 1998 FFO and (ii) on a fully diluted basis PTR's and the
pro forma combined entity's implied dividend payout ratio were equal to
approximately 77% and ATLANTIC's was equal to approximately 82% based on
estimated 1998 FFO.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying Goldman Sachs' opinion. In arriving at its fairness
determination, Goldman Sachs considered the results of all such analyses. No
company or transaction used in the above analyses as a comparison is directly
comparable to PTR or ATLANTIC or the Merger. The analyses were prepared solely
for purposes of Goldman Sachs' providing its opinion to the PTR Special
Committee as to the fairness from a financial point of view to PTR and the
holders of PTR Common Shares other than Security Capital and to not purport to
be appraisals or necessarily reflect the prices at which businesses or
securities actually may be sold. Analyses based upon forecasts or future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of the parties or their respective
advisors, none of PTR, ATLANTIC, Goldman Sachs or any other person assumes
responsibility if future results are materially different from those forecast.
As described above, Goldman Sachs' opinion to the PTR Special Committee was
one of many factors taken into consideration by the PTR Special Committee in
making its determination to approve the Merger Agreement. The foregoing
summary does not purport to be a complete description of the analysis
performed by Goldman Sachs and is qualified by reference to the written
opinion of Goldman Sachs set forth in Annex III hereto.
Goldman Sachs is familiar with PTR having provided certain investment
banking services to PTR from time to time, including having acted as (i) co-
manager for an offering of $125.0 million of 7.20% Notes due 2013 in March
1998, (ii) sole manager for an offering of $56.3 million of PTR Common Shares
in May 1997, (iii) co-manager for an offering of $50.0 million of 7.15% Notes
due 2010 and $100.0 million of 7.90% Notes due 2016 in February 1996, (iv)
lead manager for an offering of $105.0 million of PTR Series B Preferred
Shares in May 1995 and (v) co-manager for an offering of $100.0 million of
6.875% Notes due 2008 and $100.0 million of 7.5% Notes due 2014 in February
1994. Goldman Sachs is also familiar with PTR having acted as its financial
advisor in connection with the Merger Agreement. Goldman Sachs has also
provided certain investment banking services to ATLANTIC from time to time,
including having acted as (i) co-manager for an offering of $100.0 million of
7.25% Notes due 2009 and $50.00 million of 7.86% Notes due 2017 in August
1997, (ii) lead manager for an offering of $86.0 million of ATLANTIC Common
Shares in April 1997 and (iii) lead manager for ATLANTIC's initial public
offering of $108.6 million of ATLANTIC Common Shares in October 1996. In
addition, Goldman Sachs acted as co-manager for Security Capital's initial
public offering of $632.0 million of shares of Class B common stock in
September 1997. Goldman Sachs, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connections with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. The PTR Special Committee selected Goldman Sachs as its financial
advisor because it is a nationally recognized investment banking firm that has
substantial experience in transactions similar to the Merger and because of
Goldman Sachs' familiarity with PTR.
Goldman Sachs provides a full range of financial, advisory and security
services and in the course of its normal trading activities may from time to
time effect transactions and hold securities, including derivative securities,
of PTR, ATLANTIC or Security Capital.
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Pursuant to a letter agreement dated January 8, 1998 (the "Goldman
Engagement Letter"), the PTR Special Committee engaged Goldman Sachs to render
an opinion with respect to the fairness of the exchange ratio of the PTR
Common Shares to be paid for ATLANTIC Common Shares. Pursuant to the terms of
the Goldman Engagement Letter, PTR has agreed to pay Goldman Sachs a fee of
$750,000 for delivery of its written opinion dated April 1, 1998. PTR has
agreed to reimburse Goldman Sachs for its reasonable out-of-pocket expenses,
including attorney's fees, and to indemnify Goldman Sachs against certain
liabilities, including certain liabilities under the federal securities laws.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE ATLANTIC BOARD
At a special meeting of the ATLANTIC Board on April 1, 1998, following a
review of the information considered by ATLANTIC and a review of the terms of
the Merger Agreement, as well as consideration of the recommendation of the
ATLANTIC Special Committee, the ATLANTIC Board approved the Merger Agreement.
As noted below, the ATLANTIC Board considered the determination by the
ATLANTIC Special Committee that the Merger and the Merger Agreement are fair
to ATLANTIC and to the shareholders of ATLANTIC, other than Security Capital,
and their recommendation that the ATLANTIC Board approve the Merger Agreement.
In making its determination with respect to the Merger, the ATLANTIC Board
considered the following material positive factors:
(i) The national platform created by the combined company, together with
a significant incremental investment in markets with good long-term growth
prospects should provide ATLANTIC shareholders with a strong foundation for
continued long-term growth.
(ii) The ATLANTIC Board believes that the management teams of PTR and
ATLANTIC are each skilled at creating shareholder value through
development, acquisitions and property operations and that the Merger
presents an opportunity to create value by implementing the best practices
of each company. Further, the similar culture of each of the companies will
allow for ease of integration and the opportunity to quickly add value to
the combined company.
(iii) The ATLANTIC Board believes that the increased size of the combined
company will enable the combined company to attract and retain a
significant depth of management.
(iv) The ATLANTIC Board considered management's belief that the Merger
will result in economies of scale that are expected to produce identified
cost savings in excess of $5 million annually beginning in 1999.
(v) The ATLANTIC Board believes that the national scope of Archstone will
provide a platform to create the dominant national brand in the industry. A
successful branding strategy is expected to enhance customer loyalty, lower
resident turnover and allow the combined company to achieve greater market
share.
(vi) The ATLANTIC Board believes that the Merger will result in improved
liquidity and other trading characteristics for ATLANTIC shareholders as a
result of increased total equity capitalization of the combined company and
a possible increase in trading volume of the securities of the combined
company. In this regard, the ATLANTIC Board noted that PTR's average daily
trading volume is $2.8 million, as compared to $0.98 million for ATLANTIC
(calculated using March 27, 1998 closing share price).
(vii) The premium that ATLANTIC shareholders would receive for their
ATLANTIC Common Shares in the Merger.
(viii) As noted above, the ATLANTIC Board placed special emphasis on the
recommendation of the ATLANTIC Special Committee. In reaching this
determination, the ATLANTIC Special Committee considered the same factors
described herein which were considered by the ATLANTIC Board as a whole.
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The ATLANTIC Special Committee consulted with Shearman & Sterling and with
Morgan Stanley. In addition, the ATLANTIC Special Committee considered the
opinion, analyses and presentations of Morgan Stanley described below under
"--Opinion of ATLANTIC's Financial Advisor," including the opinion of
Morgan Stanley to the effect that, as of the date of such opinion, and
based upon and subject to certain matters stated therein, the consideration
to be received by the holders of ATLANTIC Common Shares pursuant to the
Merger Agreement was fair, from a financial point of view, to such holders
(other than Security Capital and its affiliates and PTR and its
affiliates).
The ATLANTIC Board also considered the following potentially negative
factors in its deliberations concerning the Merger:
(i) The fact that, because the Exchange Ratio is fixed, a decline in the
value of PTR Common Shares would reduce the value of the consideration to
be received by ATLANTIC's holders in the Merger.
(ii) Holders of ATLANTIC Common Shares will realize a reduction in the
annual distribution rate from $1.60 to $1.42 per share.
(iii) The larger asset base of the combined company could make
perpetuation of the rate of growth in funds from operations from external
investment activity more difficult.
(iv) The size of the transaction may make rapid integration of PTR and
ATLANTIC more difficult. The ATLANTIC Board believed that this detriment
was partially offset by the similar operating culture and consistent
financial policies and accounting systems at the two companies.
Additionally, management time and resources would be allocated to the
transaction rather than operating ATLANTIC's business.
(v) The Merger will result in holders of ATLANTIC Common Shares being
subjected to risk of the markets in which PTR currently operates.
In view of the wide variety of factors considered by the ATLANTIC Board, the
ATLANTIC Board did not quantify or otherwise attempt to assign relative
weights to the specific factors considered in making its determination.
However, in the view of the ATLANTIC Board, the potentially negative factors
considered by it were not sufficient, either individually or collectively, to
outweigh the positive factors considered by it in its deliberations regarding
the Merger.
OPINION OF ATLANTIC'S FINANCIAL ADVISOR
Morgan Stanley was retained by ATLANTIC as its financial advisor in
connection with the Merger. Morgan Stanley is an internationally recognized
investment banking firm and was selected by ATLANTIC based on Morgan Stanley's
qualifications, experience, expertise and reputation. As part of its
investment banking business, Morgan Stanley is regularly engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuation for real estate, corporate and other purposes.
In connection with Morgan Stanley's engagement, the ATLANTIC Special
Committee requested that Morgan Stanley evaluate the fairness, from a
financial point of view to the holders of ATLANTIC Common Shares other than
Security Capital and its affiliates and PTR and its affiliates ("ATLANTIC
Shareholders"), of the consideration to be received by the ATLANTIC
Shareholders pursuant to the Merger Agreement. On April 1, 1998, Morgan
Stanley rendered to the ATLANTIC Board an oral opinion to the effect that, as
of such date and subject to certain assumptions, limitations and other matters
stated therein, the aggregate consideration to be received by the ATLANTIC
Shareholders pursuant to the Merger Agreement was fair from a financial point
of view to the ATLANTIC Shareholders. Morgan Stanley subsequently confirmed
its oral opinion by delivery of a written opinion dated April 1, 1998 (the
"Morgan Stanley Opinion"). Although Morgan Stanley evaluated the fairness,
from a financial point of view to the ATLANTIC Shareholders, of the aggregate
consideration to be
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paid by PTR to acquire ATLANTIC pursuant to the Merger Agreement, the specific
consideration payable in the Merger and the terms of the Merger Agreement were
determined by the ATLANTIC Special Committee and the PTR Special Committee
through arm's length negotiation.
THE FULL TEXT OF THE MORGAN STANLEY OPINION, WHICH SETS FORTH, AMONG OTHER
THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS ANNEX IV. ATLANTIC
SHAREHOLDERS ARE URGED TO, AND SHOULD, READ THE MORGAN STANLEY OPINION
CAREFULLY AND IN ITS ENTIRETY. THE MORGAN STANLEY OPINION IS DIRECTED TO THE
ATLANTIC BOARD OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL
POINT OF VIEW TO THE ATLANTIC SHAREHOLDERS, OTHER THAN SECURITY CAPITAL AND
ITS AFFILIATES AND PTR AND ITS AFFILIATES, OF THE CONSIDERATION TO BE RECEIVED
BY THE ATLANTIC SHAREHOLDERS PURSUANT TO THE AGREEMENT, AND IT DOES NOT
ADDRESS ANY OTHER ASPECT OF THE MERGER. THE MORGAN STANLEY OPINION DOES NOT
CONSTITUTE AN OPINION OR A RECOMMENDATION AS TO HOW ANY ATLANTIC SHAREHOLDERS
SHOULD VOTE WITH RESPECT TO THE TRANSACTION. THE SUMMARY OF THE MORGAN STANLEY
OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
In arriving at its opinion, Morgan Stanley, among other things: (i) reviewed
certain publicly available financial statements and other information of
ATLANTIC and PTR; (ii) reviewed certain internal financial statements and
other financial and operating data concerning ATLANTIC and PTR prepared by the
management of ATLANTIC and PTR; (iii) reviewed certain financial projections
prepared by the management of ATLANTIC and PTR; (iv) discussed the past and
current operations and financial condition and the prospects of ATLANTIC and
PTR and certain of the real property assets of each company with senior
executives of ATLANTIC and PTR; (v) reviewed the reported prices and trading
activity of ATLANTIC Common Shares and PTR Common Shares; (vi) compared the
financial performance of ATLANTIC and the prices and trading activity of
ATLANTIC Common Shares with that of certain other comparable publicly-traded
companies and their securities; (vii) compared the financial performance of
PTR and the prices and trading activity of PTR Common Shares with that of
certain other comparable publicly-traded companies and their securities;
(viii) discussed with senior management of each of ATLANTIC and PTR their
estimates of the synergies and other cost savings to be realized pursuant to
the Merger; (ix) participated in discussions and negotiations among
representatives of ATLANTIC and PTR and their financial and legal advisors;
(x) reviewed the Merger Agreement and certain related documents; and (xi)
performed such other analyses and considered such other factors Morgan Stanley
deemed appropriate.
In preparing the Morgan Stanley Opinion, Morgan Stanley assumed and relied
upon, without independent verification, the accuracy and completeness of the
information reviewed by Morgan Stanley for the purposes of its opinion. With
respect to the financial projections, Morgan Stanley assumed that they were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of ATLANTIC and PTR. In
addition, Morgan Stanley relied upon ATLANTIC's and PTR's estimate of the
synergies and other cost savings to be realized pursuant to the Merger. Morgan
Stanley did not make any independent valuation or appraisal of the assets or
liabilities of ATLANTIC or PTR, nor was Morgan Stanley furnished with any such
appraisals. The Morgan Stanley Opinion was necessarily based on economic,
market and other conditions as in effect on, and the information made
available to, Morgan Stanley as of such date.
Morgan Stanley expressed no opinion as to what the value of the PTR Common
Shares will be when issued to the ATLANTIC Shareholders or the prices at which
the PTR Common Shares will trade after the Merger.
The following is a brief summary of the analyses performed by Morgan Stanley
and reviewed with the ATLANTIC Board on April 1, 1998, in connection with the
oral opinion as of such date and in connection with the Morgan Stanley
Opinion.
In the following analyses, Morgan Stanley assumed the implied purchase price
per share for ATLANTIC Common Shares was $24.125 (the "Implied Purchase
Price"). Morgan Stanley arrived at this amount by
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multiplying the Exchange Ratio by $24.125, the last reported sale price of PTR
Common Shares on the NYSE on March 27, 1998.
SELECTED COMPARABLE PUBLIC COMPANIES ANALYSIS. As part of its analysis,
Morgan Stanley compared selected historical and projected financial and
operating data of both ATLANTIC and PTR with the corresponding data and stock
market performance data of certain publicly traded companies that Morgan
Stanley considered comparable in certain respects to ATLANTIC and PTR. The
comparable companies consisted of 17 multifamily REITs other than ATLANTIC and
PTR. Morgan Stanley selected these companies on the basis of corporate
structure, asset type, size and portfolio characteristics. The comparable
companies included: (i) Apartment Investment and Management Company; (ii) Amli
Residential Properties Trust; (iii) Avalon Properties, Inc.; (iv) Bay
Apartment Communities, Inc.; (v) BRE Properties, Inc.; (vi) Camden Property
Trust; (vii) Charles E. Smith Residential Realty, Inc.; (viii) Equity
Residential Properties Trust; (ix) Essex Property Trust, Inc.; (x) Gables
Residential Trust; (xi) Irvine Apartment Communities, Inc.; (xii) Merry Land &
Investment Company, Inc.; (xiii) Mid-America Apartment Communities, Inc.;
(xiv) Post Properties, Inc.; (xv) Summit Properties Inc.; (xvi) United
Dominion Realty Trust, Inc.; (xvii) Walden Residential Properties, Inc.;
(xviii) ATLANTIC (when comparing comparable companies to PTR); and (xix) PTR
(when comparing comparable companies to ATLANTIC) (collectively, the "Peer
Group").
Morgan Stanley calculated trading statistics for each member of the Peer
Group including (i) the multiple of the common stock trading price as of March
27, 1998 (the "Share Price") to forecasted 1998 FFO per share and to
forecasted 1999 FFO per share (each an "FFO Multiple") and (ii) the
premium/discount obtained by computing the percentage of the Share Price over
the net asset value per share ("Premium/Discount to NAV"). Morgan Stanley then
calculated the high, median and low statistics for the Peer Group. All FFO per
share estimates for the Peer Group were based on consensus security analyst
estimates as reported by First Call as of March 27, 1998. Net asset value per
share estimates were from Realty Stock Review, a publication of the Dow Jones
Financial Publishing Corp. which presents monthly market analyses of REITs and
operating companies, as of February 27, 1998.
For the Peer Group, Morgan Stanley noted that (i) FFO Multiples ranged from
9.2x to 13.9x forecasted 1998 FFO per share, and 8.5x to 12.5x forecasted 1999
FFO per share; and (ii) the Premium/Discount to NAV ranged from a discount of
12.1% to a premium of 45.1% over the estimated net asset value per share.
Morgan Stanley also noted that the median 1998 and 1999 FFO Multiples when
ATLANTIC was excluded from the Peer Group were 11.4x and 10.1x, respectively.
When PTR was excluded from the Peer Group, the 1998 and 1999 FFO Multiples
were 11.0x and 9.9x, respectively. In addition, the median Premium/Discount to
NAV with ATLANTIC and PTR excluded from the Peer Group were 15.1% and 11.9%,
respectively.
Morgan Stanley derived a range of valuations for PTR from the Peer Group
data set forth above. Applying the range of FFO Multiples derived from the
Peer Group (excluding PTR and the remaining high and low multiples from the
Peer Group) of 9.7x to 13.4x forecasted 1998 FFO per share to the First Call
consensus forecasted 1998 FFO per share for PTR resulted in a low to high
range of Share Prices for PTR of $17.43 to $23.95. Applying the range at which
the Share Price is trading over net asset value per share for the Peer Group
(excluding PTR, those REITs trading at discounts to net asset value, and the
remaining high and low premiums from the Peer Group) of 2.3% to 37.4% above
the net asset value per share (as estimated by Realty Stock Review) for PTR
resulted in a low to high range of Share Prices for PTR of $20.12 to $27.02.
Morgan Stanley derived a range of valuation for ATLANTIC from the Peer Group
data as well. Applying the range of FFO Multiples derived from the Peer Group
(excluding ATLANTIC and the remaining high and low multiples from the Peer
Group) of 9.7x to 13.5x forecasted 1998 FFO per share to the First Call
consensus forecasted 1998 FFO per share for ATLANTIC resulted in a low to high
range of Share Prices for ATLANTIC of $19.14 to $26.48. Applying the range of
premiums at which the Share Price is trading over net asset value per share
for the Peer Group (excluding ATLANTIC, those REITs trading at a discount to
net asset value, and the remaining high and low premiums from the Peer Group)
of 2.3% to 37.4% above the net asset value per share
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(as estimated by Realty Stock Review) for ATLANTIC resulted in a low to high
range of Share Prices for ATLANTIC of $22.22 to $29.84. Morgan Stanley
observed that the Implied Purchase Price for ATLANTIC is within the low and
high range (excluding ATLANTIC and the remaining high and low FFO Multiples
from the Peer Group) of the implied equity valuation of ATLANTIC.
As part of its analysis, Morgan Stanley also compared selected projected
financial and operating data of PTR with the corresponding data and stock
market performance data of another group of publicly traded companies that
Morgan Stanley considered comparable in certain respects to PTR. The
comparable companies consisted of eight REITs. Morgan Stanley selected these
companies on the basis of corporate structure, and the size relative to other
publicly traded companies in their respective asset sector categories. Morgan
Stanley selected the largest REITs in eight REIT industry sectors. The
companies selected included: (i) Equity Residential Properties Trust in the
multifamily REIT sector; (ii) Starwood Hotels & Resorts in the hotel REIT
sector; (iii) Simon DeBartolo Group, Inc. in the regional mall REIT sector;
(iv) Vornado Realty Trust in the non-mall retail REIT sector; (v) Public
Storage, Inc. in the self-storage REIT sector; (vi) Meditrust in the
healthcare REIT sector; (vii) Equity Office Properties Trust in the office
REIT sector; and (viii) The Mills Corporation in the factory outlet center
REIT sector (collectively, "Peer Group II").
For Peer Group II, Morgan Stanley noted that the premium/discount obtained
by computing the percentage excess of each company's FFO Multiple over the
median 1998 FFO Multiples for each company's respective industry sector
("Premium/Discount to Sector Median") ranged from a 0.9% discount to a 53.7%
premium. Morgan Stanley derived a range of valuations for PTR from the Peer
Group II data set forth above. Applying the range of Premiums to Sector Median
derived from Peer Group II (excluding discounts to Peer Group II median and
the high and low premiums from Peer Group II median) of 11.6% to 37.8% over
the median 1998 FFO Multiple for the multifamily REIT sector for PTR resulted
in a low to high range of Share Prices for PTR of $22.03 to $27.19.
No company utilized in the comparable company analyses for purposes of
comparison to PTR and ATLANTIC is identical to PTR or ATLANTIC. In selecting
and evaluating the Peer Group and Peer Group II, Morgan Stanley made certain
judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters.
Mathematical analysis (such as determining the average or median) of certain
financial ratios of the Peer Group and Peer Group II is not in itself a
meaningful method of using comparable company data.
COMPARABLE TRANSACTION ANALYSIS. Using publicly available information,
Morgan Stanley compared the principal terms of the Merger with those of
selected other comparable transactions ("Comparable Transactions"). These
transactions (some of which are pending), all involving combinations of two
multifamily REITs, were the mergers of: (i) Bay Apartment Communities, Inc.
with Avalon Properties, Inc.; (ii) Apartment Investment and Management Company
with Ambassador Apartments, Inc.; (iii) Camden Property Trust with Oasis
Residential, Inc.; (iv) Equity Residential Properties Trust with Evans
Withycombe Residential, Inc.; (v) Post Properties, Inc. with Columbus Realty
Trust; (vi) Camden Property Trust with Paragon Group, Inc.; (vii) United
Dominion Realty Trust, Inc. with South West Property Trust Inc.; (viii) BRE
Properties, Inc. with Real Estate Investment Trust of California; and (ix)
Wellsford Residential Property Trust with Holly Residential Properties, Inc.
Morgan Stanley noted that the premiums which the acquiring companies paid over
the targets' unaffected share price ("Premiums/Discounts to Unaffected Share
Price" defined by computing the percentage excess of the price per share paid
over the average stock price for the ten trading days ending five trading days
prior to the announcement of the transaction) and the premiums which the
acquiring companies paid over the targets' 52 week high share price
("Premiums/Discounts to 52 Week High Share Price") defined by computing the
percentage excess of the price per share paid over the high share price over
the course of the 52 weeks prior to the announcement of the transaction)
ranged from a discount of 1.0% to a premium of 38.1% and a discount of 19.2%
to a premium of 3.6%, respectively.
Morgan Stanley derived a range of valuations for ATLANTIC from the
Comparable Transaction data. Applying the range of Premiums to Unaffected
Share Price derived from the Comparable Transactions (excluding
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the high and low premiums from the Comparable Transactions) of 4.1% to 20.7%
to the current ATLANTIC share price resulted in a low to high range of Share
Prices for ATLANTIC of $21.86 to $25.35. Applying the range of
Premiums/Discounts to 52 Week High Share Price derived from the Comparable
Transactions (excluding the high and low premiums from the Comparable
Transactions) of a discount of 17.1% to a premium of 2.8% to the 52 week high
ATLANTIC share price resulted in a low to high range of Share Prices for
ATLANTIC of $20.05 to $24.87.
No transaction considered for purposes of the Comparable Transaction
analysis is identical to the Merger. Accordingly, an analysis of the results
of the foregoing necessarily involves complex considerations and judgments
concerning differences in financial operating characteristic of PTR and
ATLANTIC and other factors that could affect the public trading value of the
comparable companies to which they are being compared. In evaluating the
Comparable Transactions, Morgan Stanley made certain judgments and assumptions
with regard to industry performance, general business, economic, market and
financial conditions and other matters. Mathematical analysis (such as
determining the average or median) is not in itself a meaningful method of
using Comparable Transactions data.
STOCK TRADING HISTORY. Morgan Stanley reviewed the historical trading prices
for the PTR Common Shares for the last twelve months ended March 27, 1998, and
noted that the low and high closing prices for PTR Common Shares for this
period were $21.12 and $25.13, respectively. Morgan Stanley also reviewed the
historical trading prices for ATLANTIC Common Shares for the last twelve
months ended March 27, 1998, and noted that the low and high closing prices
for the ATLANTIC Common Shares for this period were $20.44 and $24.19,
respectively.
Morgan Stanley also reviewed the implied price obtained by multiplying the
average exchange ratio, computed by dividing ATLANTIC's closing share price by
PTR's closing share price, for the last twelve, six, three and one month
periods by PTR's closing share of $24.13 on March 27, 1998. These implied
prices per share for ATLANTIC were $23.23, $22.29, $22.27 and $22.07 for the
last twelve, six, three and one months, respectively.
DISCOUNTED CASH FLOW ANALYSIS. Morgan Stanley performed cash flow analyses
of PTR based upon projections and assumptions provided by PTR management of
PTR's FFO per PTR Common Share through 1999 and by maintaining a constant
distribution payout ratio ("Distribution Payout Ratio," defined as the ratio
of distributions per share of common stock over FFO per share of common stock)
equal to PTR's current Distribution Payout Ratio for the years ending December
31, 1998 to December 31, 2002, using discount rates reflecting an expected
equity total return of 13.0% to 15.0% and terminal multiples of 2003 FFO per
share of 10.0x to 12.0x (Morgan Stanley, for the purposes of this valuation,
derived 2003 FFO per share by growing 2002 FFO per share at a rate equal to
the compound annual growth rate of FFO per share from 1998-2002). Based on
this analysis, the range of present values per PTR Common Share was $20.28 to
$25.15.
Morgan Stanley performed discounted cash flow analyses of ATLANTIC based
upon projections and assumptions provided by ATLANTIC's management of
ATLANTIC's FFO per ATLANTIC Common Share through 1999 by maintaining a
constant Distribution Payout Ratio equal to ATLANTIC's current Distribution
Payout Ratio for the years ending December 31, 1998 to December 31, 2002,
using discount rates reflecting an expected equity total return of 13.0% to
15.0% and terminal multiples of 2003 FFO per share of 10.0x to 11.0x (Morgan
Stanley, for the purposes of this valuation, derived 2003 FFO per share by
growing 2002 FFO per share at a rate equal to the compound annual growth rate
of FFO per share from 1998-2002). Based on this analysis, the range of present
values per ATLANTIC Common Share was $22.57 to $26.15.
PRO FORMA MERGER ANALYSIS. As part of its analysis, Morgan Stanley analyzed
certain pro forma effects of the Merger for the fiscal years ended 1998 and
1999. These analyses were based on the First Call consensus estimates of FFO
per share for PTR and ATLANTIC, certain synergies estimated by management of
ATLANTIC, and certain other adjustments Morgan Stanley deemed appropriate.
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Morgan Stanley also compared PTR's projected stand-alone FFO per share to
PTR's pro forma combined FFO per share resulting from the Merger. Morgan
Stanley observed that, after giving effect to management's estimate of pro
forma synergies of at least $4.0 million for fiscal year 1998 and 1999, and
transaction expenses then estimated at $3 million to be financed with debt at
a weighted average interest rate of 7.19%, the transaction would be accretive
to FFO per share in the amount of $.08 per share in 1998 and in 1999.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, selecting any
portions of Morgan Stanley's analyses, without considering all analyses, would
create an incomplete view of the process underlying the Morgan Stanley
Opinion. In addition, Morgan Stanley may have deemed various assumptions more
or less probable than other assumptions, so that the ranges of valuations
resulting from any particular analysis described above should not be taken to
be Morgan Stanley's view of the actual value of PTR or ATLANTIC.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control
of PTR and ATLANTIC. Where appropriate, Morgan Stanley discounted comparable
industry and/or company data to reflect the combined company's current and
projected operating performance in relation to that of the relevant industry
or comparable company group. The analyses performed by Morgan Stanley are not
necessarily indicative of actual values, which may be significantly more or
less favorable than suggested by such analyses. Such analyses were prepared
solely as part of Morgan Stanley's analysis of whether the consideration to be
received by the holders of ATLANTIC Common Shares pursuant to the Merger
Agreement is fair from a financial point of view to such holders, and were
conducted in connection with the delivery of the Morgan Stanley Opinion. The
analyses do not purport to be appraisals or to reflect the prices at which
ATLANTIC might actually be sold. Morgan Stanley was not authorized to solicit,
nor did Morgan Stanley solicit, third-party indications of interest for the
acquisition of all or any part of ATLANTIC.
As described above (see "The Merger--Reasons for the Merger; Recommendation
of the ATLANTIC Board"), the Morgan Stanley Opinion and the information
provided by Morgan Stanley to the ATLANTIC Board was one of a number of
factors taken into consideration by the ATLANTIC Board in making its
determination to recommend approval of the Merger and the Merger Agreement.
Consequently, the Morgan Stanley analyses described above should not be viewed
as determinative of the opinion of the ATLANTIC Board with respect to the
value of ATLANTIC and PTR or whether a different valuation could have been
negotiated with PTR. The consideration received from PTR was determined
through negotiations between the ATLANTIC Special Committee and the PTR
Special Committee and was approved by the ATLANTIC Board. Morgan Stanley
provided advice to the ATLANTIC Board during the course of such negotiations;
however, the decision to enter into the Merger Agreement was solely that of
the ATLANTIC Board.
Pursuant to a letter agreement dated February 20, 1998, ATLANTIC has agreed
to pay Morgan Stanley, upon the delivery of the Morgan Stanley Opinion to the
ATLANTIC Special Committee, a fairness opinion fee of $750,000. Of such fee,
$325,000 was paid upon the execution of the letter and the remainder was paid
on April 27, 1998. In addition, ATLANTIC has agreed to reimburse and to
indemnify Morgan Stanley for liabilities and expenses arising out of the
engagement and the transactions in connection therewith, including liabilities
under federal securities laws.
In December 1995, Morgan Stanley acted as a placement agent in connection
with a private offering of securities by ATLANTIC. Additionally, in the
ordinary course of its business, Morgan Stanley and its affiliates may
actively trade the debt and equity securities of ATLANTIC and PTR for their
own account and for the accounts of customers and, accordingly, may at any
time hold a long- or short-term position in such securities. Morgan Stanley
has provided financial advisory and investment banking services to PTR and
ATLANTIC in the past, for which services Morgan Stanley has received customary
fees.
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INTERESTS OF CERTAIN PARTIES
If the Merger is consummated, the current Directors, officers and employees
of ATLANTIC will become Trustees, officers and employees of PTR and be
compensated for their services by PTR. Constance B. Moore, currently Co-
Chairman, Chief Operating Officer and a Director of ATLANTIC, will become Co-
Chairman, Chief Operating Officer and a Trustee of Archstone upon completion
of the Merger. James C. Potts, currently Co-Chairman, Chief Investment Officer
and a Director of ATLANTIC, will become a Trustee of Archstone upon completion
of the Merger. J. Lindsay Freeman and Bradley C. Miller, each currently a
Managing Director of ATLANTIC, will become Managing Directors of Archstone
upon completion of the Merger. William Kell, currently Senior Vice President
and Controller of ATLANTIC, will become Senior Vice President and Controller
of Archstone upon completion of the Merger. Additionally, each of the current
Directors of ATLANTIC will become Trustees of Archstone upon completion of the
Merger.
Upon completion of the Merger, R. Scot Sellers, currently President, Chief
Executive Officer and a nominee to become a Trustee of PTR, will become Co-
Chairman, Chief Investment Officer and a Trustee of Archstone. Upon completion
of the Merger, Patrick R. Whelan, Managing Director--Operations, Richard A.
Banks, Managing Director--West Region, and Jay S. Jacobson, Managing
Director--Central/Northwest Region, of PTR will continue with Archstone in
their respective positions. Additionally, Mr. Sellers and each of PTR's
current Trustees (other than Mr. Blankenship who will become an advisory
Trustee) will become Trustees of Archstone upon consummation of the Merger.
The following table shows the 1997 annual compensation for the two Co-
Chairmen and each of the Managing Directors of Archstone (the "Archstone Named
Executive Officers"). Base salaries will remain the same for 1998; bonuses
will be determined in December 1998 and will be based on individual
performance. In December, Archstone will conduct its bi-annual review of
management compensation.
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND TITLE SALARY($) BONUS($) COMPENSATION($)
-------------- --------- -------- ---------------
<S> <C> <C> <C>
Constance B. Moore ....................... 230,000 260,000 --
Co-Chairman and Chief Operating Officer
R. Scot Sellers........................... 250,000 350,000 --
Co-Chairman and Chief Investment Officer
Patrick R. Whelan......................... 200,000 270,000 --
Managing Director--Operations
Jay S. Jacobson........................... 198,000 127,000 --
Managing Director--Central/Northwest
Region
J. Lindsay Freeman........................ 195,000 115,000 --
Managing Director--Southeast Region--
Operations
Bradley C. Miller......................... 185,000 120,000 --
Managing Director--Southeast Region--
Developments
Richard A. Banks.......................... 74,667(1) 65,000 --
Managing Director--West Region
</TABLE>
- --------
(1) Mr. Banks was hired by PTR on September 18, 1997. On an annualized basis,
Mr. Banks' base salary was $200,000.
In addition, each Director, officer and employee of ATLANTIC who currently
owns options to acquire ATLANTIC Common Shares will receive options to acquire
an equal number of PTR Common Shares upon completion of the Merger. None of
the outstanding ATLANTIC options vest as a result of the Merger. See "The
Merger Agreement--Exchange of ATLANTIC Share Certificates" and "Amendments to
Benefit Plans."
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VOTING AGREEMENT
Concurrently with the execution of the Merger Agreement, PTR, ATLANTIC and
Security Capital entered into an agreement (the "Voting Agreement"), pursuant
to which, among other things, Security Capital agreed that, subject to the
terms and conditions of the Voting Agreement, Security Capital would vote all
PTR Common Shares and ATLANTIC Common Shares beneficially owned by it (i) in
favor of the Merger and the Merger Agreement and each of the other matters
presented at the PTR Special Meeting and the ATLANTIC Special Meeting and (ii)
against any ATLANTIC Alternative Proposal or PTR Alternative Proposal.
Additionally, Security Capital agreed that, subject to the terms and
conditions of the Voting Agreement, until the close of business on the date of
the later to occur of the PTR Special Meeting and the ATLANTIC Special
Meeting, Security Capital will not (a) sell or otherwise dispose of any PTR
Common Shares and ATLANTIC Common Shares (not including a pledge of PTR Common
Shares and ATLANTIC Common Shares as security with respect to a bona fide loan
from a financial institution), (b) deposit any PTR Common Shares and ATLANTIC
Common Shares into a voting trust or enter into a voting agreement or
arrangement with respect to any PTR Common Shares and ATLANTIC Common Shares
or grant any proxy with respect thereto or (c) enter into any contract, option
or other arrangement or undertaking with respect to the direct or indirect
sale, assignment, transfer or other disposition of any PTR Common Shares and
ATLANTIC Common Shares.
Pursuant to the Voting Agreement, Security Capital may not, directly or
through its directors, officers or other representatives, (i) initiate,
solicit, or encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to ATLANTIC's or PTR's shareholders) with respect to an
ATLANTIC Alternative Proposal or a PTR Alternative Proposal or (ii) engage in
any negotiations concerning, or provide any confidential information or data
to, or have any discussions with, any person relating to an ATLANTIC
Alternative Proposal or a PTR Alternative Proposal, or otherwise facilitate
any effort or attempt to make or implement an ATLANTIC Alternative Proposal or
a PTR Alternative Proposal. Further, Security Capital has agreed that it will
notify ATLANTIC and PTR immediately if it receives any such inquiries or
proposals or any such request for information, or any such negotiations or
discussions are sought to be initiated or continued with it, and ATLANTIC or
PTR, as the case may be, have agreed to notify Security Capital immediately if
it receives any such inquiries or proposals or any such request for
information, or any such negotiations or discussions are sought to be
initiated or continued with it.
If the ATLANTIC Board or the PTR Board validly exercises any of its
respective rights under the Merger Agreement with respect to an ATLANTIC
Alternative Proposal or a PTR Alternative Proposal, as the case may be,
Security Capital will no longer be subject to the restrictions described in
clause (ii) of the preceding paragraph with respect to, but only with respect
to, the particular ATLANTIC Alternative Proposal or PTR Alternative Proposal
at issue and only for so long as the ATLANTIC Board or the PTR Board, as
applicable, continues to exercise such rights.
Pursuant to the Voting Agreement, the parties have agreed that, as of the
Effective Time, the Amended and Restated Investor Agreement dated September 9,
1997 between Security Capital and ATLANTIC and the Administrative Services
Agreement dated September 9, 1997 between Security Capital and ATLANTIC will
automatically terminate. The parties have also agreed that, as of the
Effective Time, the limitation upon aggregate fees for services set forth in
the Administrative Services Agreement dated September 9, 1997 between Security
Capital and PTR will be increased as agreed upon between Security Capital and
PTR to reflect the increased level of services to be provided to Archstone.
The Voting Agreement terminates upon the earlier of the consummation of the
Merger and any termination of the Merger Agreement.
INVESTOR AGREEMENT
PTR and Security Capital are parties to an amended and restated investor
agreement dated as of September 9, 1997 (the "Investor Agreement"), which will
continue in effect after the Effective Time. The Investor
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<PAGE>
Agreement provides that, without first having consulted with the nominees of
Security Capital designated in writing, PTR may not seek PTR Board approval of
(i) PTR's annual budget; (ii) incurring expenses in any year exceeding (a) any
line item in the annual budget by the greater of $500,000 or 20% and (b) the
total expenses set forth in the annual budget by 15%; (iii) the acquisition or
sale of any assets in any single transaction or series of related transactions
in the ordinary course of PTR's business where the aggregate purchase price
paid or received by PTR exceeds $25.0 million; and (iv) entering into any new
contract with a service provider (a) for investment management, property
management or leasing services or (b) which reasonably contemplates annual
contract payments by PTR in excess of $1.0 million. PTR is under no obligation
to accept or comply with any advice offered by Security Capital with respect
to the foregoing matters.
Additionally, so long as Security Capital beneficially owns at least 25% of
the PTR Common Shares, Security Capital has the right to approve the following
matters proposed by PTR: (i) the issuance or sale of any PTR Common Shares
(including the grant of any rights, options or warrants to subscribe for or
purchase PTR Common Shares or any security convertible into or exchangeable
for PTR Common Shares or the issuance or sale of any security convertible into
or exchangeable for PTR Common Shares), at a price per share less than the
fair market value of a PTR Common Share on the date of that issuance or sale;
(ii) the issuance and sale of any disqualified shares (as defined) if, as a
result thereof, PTR's Fixed Charge Coverage Ratio (as defined) would be less
than 1.4 to 1.0; (iii) the adoption of any employee benefit plan pursuant to
which shares of PTR or any securities convertible into shares of PTR may be
issued and any action with respect to the compensation of the senior officers
of PTR (including the granting or award of any bonuses or share-based
incentive awards); and (iv) the incurrence of any additional indebtedness
(including guarantees and including renegotiations and restructurings of
existing indebtedness) if, as a result thereof, PTR's Interest Expense
Coverage Ratio (as defined) would be less than 2.0 to 1.0. The restriction
referred to in clause (i) above does not apply to (A) the sale or grant of any
options to purchase shares of PTR pursuant to the provisions of any benefit
plan approved by the shareholders of PTR, (B) the issuance or sale of shares
of PTR upon the exercise of any rights, options or warrants granted, or upon
the conversion or exchange of any convertible or exchangeable security issued
or sold, prior to the closing date of the Merger or in accordance with the
provisions of the investor agreement, (C) the issuance and sale of any shares
of PTR pursuant to any dividend reinvestment and share purchase plan approved
by the PTR Board or (D) the issuance, grant or distribution of rights, options
or warrants to all holders of PTR Common Shares entitling them to subscribe
for or purchase shares of PTR or securities convertible into or exercisable
for shares of PTR.
The agreement also provides that, so long as Security Capital owns at least
10% of the outstanding PTR Common Shares, PTR may not increase the number of
persons serving on the PTR Board to more than eight. Security Capital also is
entitled to designate one or more persons to be nominated for election to the
PTR Board, as follows: (i) so long as Security Capital owns at least 10% but
less than 25% of the outstanding PTR Common Shares, it is entitled to nominate
one person; and (ii) so long as Security Capital owns at least 25% of the
outstanding PTR Common Shares, it is entitled to nominate that number of
persons as bears approximately the same ratio to the total number of members
of the PTR Board as the number of PTR Common Shares beneficially owned by
Security Capital bears to the total number of outstanding PTR Common Shares;
provided that Security Capital is entitled to designate no more than three
persons so long as the PTR Board consists of no more than eight members. The
New Archstone Charter provides for a twelve-member board; as a result,
Security Capital will be entitled to designate four persons for nomination as
Trustees based on its expected ownership of PTR Common Shares after the
Merger.
As part of the Investor Agreement, Security Capital is permitted to make
employment opportunities with Security Capital or its affiliates available to
the officers and employees of PTR. Prior to commencing discussions with a
senior officer of PTR about any such opportunity, Security Capital is required
to give the PTR Board 14 days' prior written notice.
In addition, the Investor Agreement provides Security Capital with
registration rights pursuant to which, in certain specified circumstances,
Security Capital is permitted to request, at any time, registration of all of
Security Capital's PTR Common Shares pursuant to Rule 415 under the Securities
Act. Security Capital is permitted to request one registration for every $100
million (based on market value) of PTR Common Shares it owns.
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<PAGE>
In addition to the above provisions, the Investor Agreement restricts the
ability of Security Capital (or a group of which it is a member) from
acquiring in excess of 49% of the PTR Common Shares subject to certain
exceptions.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal income tax
consequences of the Merger. To the extent this summary discusses matters of
law, it is based upon the opinion of Mayer, Brown & Platt. This summary is
based upon the current provisions of the Code, its legislative history,
Treasury regulations, administrative pronouncements and judicial decisions,
all of which are subject to change, possibly with retroactive effect. This
summary does not purport to be a complete discussion of all U.S. federal
income tax consequences relating to the Merger. This summary does not address
the tax consequences of the Merger under state, local or non-U.S. tax laws. In
addition, this summary may not apply, in whole or in part, to particular
categories of PTR or ATLANTIC shareholders, such as financial institutions,
broker-dealers, life insurance companies, tax-exempt organizations, investment
companies, foreign taxpayers, individuals who received PTR Common Shares or
ATLANTIC Common Shares pursuant to stock options, restricted stock programs or
in other compensatory transactions, and other special status taxpayers.
Finally, a tax ruling from the Internal Revenue Service ("IRS") has not been
requested. THIS SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. ALL PTR AND
ATLANTIC SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING ANY STATE, LOCAL AND NON-
U.S. TAX CONSEQUENCES.
General
In the opinion of Mayer, Brown & Platt, based on certain representations of
ATLANTIC and PTR, the Merger will be treated for federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code. However,
no ruling from the IRS will be sought with respect to the federal income tax
consequences of the Merger, and there can be no complete assurance that the
IRS will agree with the conclusions set forth herein. The discussion below
assumes that the Merger will be treated as a reorganization within the meaning
of Section 368(a) of the Code.
Tax Treatment of ATLANTIC and PTR
No gain or loss will be recognized by ATLANTIC or PTR as a result of the
Merger.
Tax Treatment of holder of PTR Common Shares, PTR Series A Preferred Shares
and PTR Series B Preferred Shares
No gain or loss will be recognized by a holder of PTR Common Shares, PTR
Series A Preferred Shares or PTR Series B Preferred Shares. The tax basis and
holding period of the PTR Common Shares, PTR Series A Preferred Shares or PTR
Series B Preferred Shares owned by a holder will not change as a result of the
Merger.
Tax Treatment of holder of ATLANTIC Common Shares
No gain or loss will be recognized by a holder of ATLANTIC Common Shares who
receives only PTR Common Shares (except for cash received in lieu of a
fractional share) in exchange for all of his or her shares of ATLANTIC Common
Shares. The tax basis of the shares of PTR Common Shares received by a holder
in such exchange (including any fractional PTR Common Share deemed received
and subsequently sold or redeemed) will be equal to the tax basis of the
ATLANTIC Common Shares surrendered in exchange thereof. The holding period of
the PTR Common Shares received will include the holding period of ATLANTIC
Common Shares surrendered in exchange thereof; provided that such shares were
held as capital assets of the holder at the Effective Time of the Merger.
Tax Treatment of holder of ATLANTIC Series A Preferred Shares
No gain or loss will be recognized by a holder of ATLANTIC Series A
Preferred Shares who receives only PTR Series C Preferred Shares in exchange
for all of his or her shares of ATLANTIC Series A Preferred Shares.
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<PAGE>
The tax basis of the shares of PTR Series C Preferred Shares received by a
holder in such exchange will be equal to the tax basis of the ATLANTIC Series
A Preferred Shares surrendered in exchange thereof. The holding period of the
PTR Series C Preferred Shares received will include the holding period of
shares of ATLANTIC Series A Preferred Shares surrendered in exchange thereof;
provided that such shares were held as capital assets of the holder at the
Effective Time of the Merger.
Cash in Lieu of a Fractional PTR Common Shares
A holder of ATLANTIC Common Shares that receives cash in lieu of a
fractional share interest in PTR Common Shares in the Merger will be treated
as having received such fractional share interest in the Merger and as having
sold such fractional share interest for the amount of cash received. Such a
holder will recognize gain or loss in an amount equal to the difference
between the amount of cash received and such holder's adjusted tax basis
allocable to such fractional share. Such gain or loss will be capital gain or
loss if such holder's ATLANTIC Common Shares are held as a capital asset at
the Closing Date. The capital gain or loss so recognized generally will be
long-term capital gain or loss if the holding period for the fractional share
interest exceeds one year. In the case of an individual holder of ATLANTIC
Common Shares, such capital gain will be taxed at a maximum rate of 28%, if
such holder's holding period is more than one year but not more than 18
months, and at a maximum rate of 20% if such holding period is more than 18
months.
If, however, PTR elects at its option to pay each former holder of ATLANTIC
Common Shares an amount of cash equal to the product obtained by multiplying
(i) the fractional share interest to which such former holder would otherwise
be entitled by (ii) the closing price of a PTR Common Share, as reported on
the NYSE Composite Tape on the Closing Date, the holder of ATLANTIC Common
Shares that receives cash in lieu of a fractional share interest in PTR Common
Shares in the Merger will be treated as having received the fractional share
interest in PTR Common Shares in the Merger and as having received the cash in
redemption of the fractional share interest. The cash payment will be treated
as a distribution in payment of the fractional interest deemed redeemed under
Section 302 of the Code. A holder of ATLANTIC Common Shares who (i) is not
involved in directing corporate affairs, (ii) holds a minimal interest in
ATLANTIC, and (iii) is not considered to own indirectly shares of ATLANTIC or
PTR under the constructive ownership rules of Section 318 of the Code, will
recognize gain or loss on the deemed redemption in an amount equal to the
difference between the amount of cash received and such holder's adjusted tax
basis allocable to such fractional share. Such gain or loss will be capital
gain or loss if such holder's ATLANTIC Common Shares are held as a capital
asset at the Closing Date. The capital gain or loss so recognized generally
will be long-term capital gain or loss if the holding period for the
fractional share interest exceeds one year. In the case of individual holder
of ATLANTIC Common Shares, such capital gain will be taxed at a maximum rate
of 28%, if such holder's holding period is more than one year but not more
than 18 months, and at a maximum rate of 20% if such holding period is more
than 18 months. In the case of other holder of ATLANTIC Common Shares, Section
302 of the Code sets forth other tests, which, if met, would also result in
similar treatment of the holder. In the event, however, that none of these
tests could be met, the cash payment would be taxed as a dividend.
Consequences of the Merger on PTR's Qualification as a REIT
In the opinion of Mayer, Brown & Platt, based upon certain representations
of ATLANTIC and PTR, the consummation of the Merger will not jeopardize the
status of PTR as a REIT under the Code. PTR intends to operate in a manner
which permits it to satisfy the requirements for taxation as a REIT under the
applicable provisions of the Code, but no assurance can be given that these
requirements will be met.
ACCOUNTING TREATMENT
PTR will account for the Merger as a purchase in accordance with Accounting
Principles Board Opinion No. 16. Accordingly, PTR will record the assets and
liabilities acquired from ATLANTIC at PTR's cost (the purchase price).
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RESTRICTIONS ON SALES BY AFFILIATES
The PTR Common Shares to be issued in the Merger will have been registered
under the Securities Act. Such securities will be freely transferable under
the Securities Act, except for those issued to any person who may be deemed to
be an affiliate (as such term is defined for purposes of Rule 145 under the
Securities Act) of PTR or ATLANTIC. Affiliates may not sell their PTR Common
Shares acquired in connection with the Merger except pursuant to (i) an
effective registration statement under the Securities Act covering such
securities, (ii) paragraph (d) of Rule 145 or (iii) any other applicable
exemption under the Securities Act. ATLANTIC has agreed to use its best
efforts to procure written agreements ("Affiliate Agreements") from executive
officers, directors and other affiliates containing appropriate
representations and commitments intended to ensure compliance with the
Securities Act.
NEW YORK STOCK EXCHANGE LISTING
PTR has agreed to use its best efforts to list the PTR Common Shares and the
PTR Series C Preferred Shares to be issued in the Merger on the NYSE. The
obligations of the parties to the Merger Agreement to consummate the Merger
are subject to authorization for listing by the NYSE upon notice of issuance
of such shares. Upon completion of the Merger, the PTR Common Shares will be
listed on the NYSE under the symbol "ASN."
NO DISSENTERS' RIGHTS
Under the MGCL and Title 8, neither the shareholders of PTR nor of ATLANTIC
are entitled to dissenters' rights in connection with the Merger.
THE MERGER AGREEMENT
BOARD RECOMMENDATIONS
PTR. THE PTR BOARD HAS UNANIMOUSLY APPROVED THE MERGER AND THE MERGER
AGREEMENT AND RECOMMENDS THAT PTR SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE
MERGER AND THE MERGER AGREEMENT. The affirmative vote of the holders of two-
thirds of the outstanding PTR Common Shares is required to approve this
proposal.
ATLANTIC. THE ATLANTIC BOARD HAS UNANIMOUSLY APPROVED THE MERGER AND THE
MERGER AGREEMENT AND RECOMMENDS THAT ATLANTIC SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE MERGER AND THE MERGER AGREEMENT. The affirmative vote of the
holders of a majority of the outstanding ATLANTIC Common Shares is required to
approve this proposal.
GENERAL
The Merger Agreement provides for the merger of ATLANTIC with and into PTR
whereby the holders of ATLANTIC Common Shares would be issued PTR Common
Shares and the holders of ATLANTIC Series A Preferred Shares would be issued
PTR Series C Preferred Shares in a transaction intended to qualify as a tax-
free reorganization for federal income tax purposes. The discussion in this
Joint Proxy Statement and Prospectus of the Merger Agreement and the
description of the material terms of the Merger Agreement are subject to and
qualified in their entirety by reference to the Merger Agreement, a copy of
which is attached to this Joint Proxy Statement and Prospectus as Annex I and
which is incorporated herein by reference.
EFFECTIVE TIME OF THE MERGER
In accordance with the MGCL and Title 8, the Merger will become effective
upon the acceptance for record of the Articles of Merger by the State
Department of Assessments and Taxation of Maryland. Subject to the
satisfaction (or waiver) of the other conditions to the obligations of PTR and
ATLANTIC to consummate the Merger, it is currently expected that the Merger
will be consummated as soon as practicable following the approval by the
shareholders of PTR and ATLANTIC of the Merger and the Merger Agreement at
their respective Special Meetings (such date being the "Closing Date").
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EXCHANGE OF ATLANTIC SHARE CERTIFICATES
Promptly after the Effective Time, PTR will deposit the PTR Common Shares
and the PTR Series C Preferred Shares to be issued in the Merger with the
Exchange Agent for the benefit of the holders of ATLANTIC Common Shares and
ATLANTIC Series A Preferred Shares, respectively, for exchange in accordance
with the procedures outlined below.
As soon as practicable after the Effective Time, the Exchange Agent will
mail to each holder of an outstanding certificate or certificates which prior
thereto represented ATLANTIC Common Shares or ATLANTIC Series A Preferred
Shares (i) a letter of transmittal (which will specify that delivery will be
effected, and risk of loss and title to such certificate will pass, only upon
delivery of such certificates to the Exchange Agent), and (ii) instructions
for use in effecting the surrender of such certificates for the PTR Common
Shares or PTR Series C Preferred Shares, as the case may be. Upon surrender to
the Exchange Agent of such certificates for cancellation, together with such
letter of transmittal, the holder of such certificates shall be entitled to a
certificate or certificates representing the number of full PTR Common Shares
or PTR Series C Preferred Shares, as the case may be, and the amount of cash
in lieu of a fractional share, if any, into which the aggregate number of
ATLANTIC Common Shares previously represented by such certificate or
certificates surrendered were converted pursuant to the Merger Agreement.
HOLDERS OF ATLANTIC COMMON SHARES OR ATLANTIC SERIES A PREFERRED SHARES SHOULD
NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
No dividends or other distributions with respect to PTR Common Shares or PTR
Series C Preferred Shares with a record date after the Effective Time will be
paid to the holder of any unsurrendered certificate for ATLANTIC Common Shares
or ATLANTIC Series A Preferred Shares with respect to the PTR Common Shares or
PTR Series C Preferred Shares represented thereby and no cash payment in lieu
of fractional shares will be paid to any such holder until the surrender of
such certificate in accordance with the foregoing procedures. Subject to the
effect of applicable laws, following surrender of any such certificate, there
will be paid to the holder of the certificate representing whole PTR Common
Shares or PTR Series C Preferred Shares issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of any cash payable in
lieu of a fractional PTR Common Share to which such holder is entitled and the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole PTR Common Shares
or PTR Series C Preferred Shares and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to such surrender and a payment date subsequent to
such surrender payable with respect to such whole PTR Common Shares or PTR
Series C Preferred Shares.
No certificates or scrip representing fractional PTR Common Shares will be
issued upon the surrender for exchange of certificates representing ATLANTIC
Common Shares, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a shareholder of PTR. As soon as
practicable after the Effective Time, the Exchange Agent will aggregate and
sell all fractional PTR Common Shares on the NYSE or otherwise at then
prevailing market prices and remit the net proceeds to holders of ATLANTIC
Common Shares exchanged pursuant to the Merger who would otherwise have been
entitled to receive a fraction of a PTR Common Share. Alternatively, PTR may
elect at its option, exercised prior to the Effective Time, in lieu of the
issuance and sale of fractional shares and the making of the payments
described above, to pay each former holder of ATLANTIC Common Shares an amount
in cash equal to the product obtained by multiplying (i) the fractional share
interest to which such former holder would otherwise be entitled by (ii) the
closing price of a PTR Common Share as reported on the NYSE Composite Tape on
the Closing Date.
After the Effective Time, there will be no further transfer on the records
of ATLANTIC or its transfer agent of certificates representing ATLANTIC Common
Shares or ATLANTIC Series A Preferred Shares and if such certificates are
presented to ATLANTIC for transfer, they will be canceled against delivery of
certificates for PTR Common Shares and cash, if any, or PTR Series C Preferred
Shares as provided above.
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Any portion of the monies from which cash payments in lieu of fractional PTR
Common Shares will be made (including any proceeds from the investment
thereof) and any PTR Common Shares or PTR Series C Preferred Shares deposited
with the Exchange Agent which remain undistributed to the holders of the
certificates formerly representing ATLANTIC Common Shares or ATLANTIC Series A
Preferred Shares for 12 months after the Effective Time will be delivered to
Archstone. Any former holders of ATLANTIC Common Shares or ATLANTIC Series A
Preferred Shares may thereafter look only to Archstone for payment of their
claim for PTR Common Shares, PTR Series C Preferred Shares, any cash in lieu
of fractional PTR Common Shares and any dividends or distributions with
respect to PTR Common Shares or PTR Series C Preferred Shares to which such
holders may be entitled. None of PTR, ATLANTIC or the Exchange Agent will be
liable to any person in respect of any PTR Common Shares or PTR Series C
Preferred Shares (or dividends or distributions with respect to either) or
cash delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
No interest will be paid or will accrue on any cash payable in lieu of any
fractional PTR Common Shares.
All PTR Common Shares and PTR Series C Preferred Shares issued and all cash
paid upon the surrender for exchange of certificates representing ATLANTIC
Common Shares or ATLANTIC Series A Preferred Shares in accordance with the
procedures outlined above shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to the ATLANTIC Common Shares or
ATLANTIC Series A Preferred Shares theretofore represented by such
certificates.
The Merger Agreement provides that at the Effective Time, ATLANTIC's
obligations with respect to each option to acquire ATLANTIC Common Shares (the
"Existing ATLANTIC Options") will cease to represent a right to acquire such
shares and will be converted into an option to purchase an equal number of PTR
Common Shares (a "New PTR Option") at the same exercise price that such
Existing ATLANTIC Options had immediately prior to the Effective Time.
CONDITIONS TO THE MERGER
The respective obligations of PTR and ATLANTIC to effect the Merger and the
other transactions contemplated by the Merger Agreement are subject to the
satisfaction or waiver of each of the following conditions at or prior to the
Effective Time: (i) the other party shall have performed in all material
respects its agreements contained in the Merger Agreement required to be
performed on or prior to the Closing Date and the representations and
warranties of the other party shall be true and correct in all material
respects on and as of the date made and the Closing Date; (ii) the
shareholders of PTR shall have approved the Merger, the Merger Agreement and
the matters contemplated thereby (including the New Archstone Charter); (iii)
the shareholders of ATLANTIC shall have approved the Merger, the Merger
Agreement and the matters contemplated thereby; (iv) the registration
statement of PTR for the PTR Series C Preferred Shares under the Exchange Act
shall have been declared effective by the Commission and the Registration
Statement shall have become effective in accordance with the Securities Act,
and no stop order suspending such effectiveness shall have been issued and
remain in effect and no proceeding for that purpose shall have been initiated
or threatened by the Commission; (v) the PTR Common Shares and the PTR Series
C Preferred Shares issuable in the Merger shall have been approved for listing
on the NYSE, subject to notice of issuance; (vi) each of PTR and ATLANTIC
shall have received a favorable opinion (in form and substance reasonably
satisfactory to PTR and ATLANTIC, respectively) from Mayer, Brown & Platt (who
may rely upon factual representations made by PTR, ATLANTIC and shareholders
of ATLANTIC who hold 5% or more of the outstanding ATLANTIC Common Shares) to
the effect that for United States federal income tax purposes the Merger shall
qualify as a reorganization within the meaning of Section 368 of the Code and
that each of PTR and ATLANTIC shall be a party to the reorganization within
the meaning of Section 368(b) of the Code; (vii) each of PTR and ATLANTIC
shall have received a favorable opinion (in form and substance reasonably
satisfactory to PTR and ATLANTIC, respectively) from Mayer, Brown & Platt (who
may rely upon factual representations made by PTR and ATLANTIC) to the effect
that the consummation of the Merger and the performance of the Merger
Agreement will not jeopardize the status of PTR as a REIT under the Code;
(viii) no preliminary or permanent injunction or other order or decree by any
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federal or state court which prevents the consummation of the Merger shall
have been issued and remain in effect (each party agreeing to use its best
efforts to have any such injunction, order or decree lifted); (ix) any filings
by the parties that may be required by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and any filings by the
parties with various state blue sky authorities shall have been obtained and
be in effect at the Closing Date; and (x) the parties shall have received all
required consents and waivers from third parties.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things: (i) the due organization, power,
authority and standing of PTR and ATLANTIC and similar corporate matters; (ii)
the capital structure of PTR and ATLANTIC; (iii) the authorization, execution,
delivery and enforceability of the Merger Agreement, including conflicts under
charters or bylaws, violations of any instruments and required consents or
approvals; (iv) certain documents filed by PTR and ATLANTIC with the
Commission and the accuracy of information contained therein; (v) the absence
of certain changes or events from the information filed with the Commission;
(vi) the accuracy of the information to be supplied by each party for
inclusion in this Joint Proxy Statement and Prospectus; (vii) certain matters
relating to taxes; (viii) the absence of undisclosed liabilities; (ix)
litigation; (x) the absence of violations of law; (xi) properties; (xii) labor
matters; (xiii) employee benefit plans; (xiv) intellectual property; (xv)
material contracts; (xvi) environmental matters; (xvii) insurance; (xviii)
brokers and finders; (xix) investment company act matters; (xx) HSR Act
matters; (xxi) the absence of conflicts under each party's respective
shareholder rights agreement; (xxii) the exemption of the transaction from the
application of the Maryland Control Share Act and the Maryland Business
Combination Act; (xxiii) the vote required of each party's shareholders
necessary to approve the Merger, the Merger Agreement and the matters
contemplated thereby; (xxiv) the recommendation of the ATLANTIC Board and the
ATLANTIC Special Committee and the recommendation of the PTR Board and the PTR
Special Committee; and (xxv) the receipt of fairness opinions.
CERTAIN COVENANTS
Except as specifically required by the terms of the Merger Agreement or upon
written consent of the other party, each of PTR and ATLANTIC has agreed, among
other things, that they will, prior to the Effective Time, carry on their
respective businesses in the usual, regular and ordinary course of business
consistent with past practice and, to the extent consistent therewith, use
their best efforts to preserve intact their current business organizations,
keep available the services of their current officers and employees and
preserve their relationships with customers, suppliers, lessors, lessees and
others having business dealings with them, to the end that their goodwill and
ongoing businesses will not be impaired in any material respect at the
Effective Time.
In addition, except as contemplated by the Merger Agreement, unless the
other party has agreed in writing, PTR and ATLANTIC have each agreed that they
will not, and will not permit any of their respective subsidiaries to: (i)
authorize for issuance, issue, deliver, sell, pledge or otherwise encumber any
of their shares or the shares of any of their subsidiaries, any other voting
securities or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible
securities or any other securities or equity equivalents (including without
limitation stock appreciation rights), or contractual obligation valued or
measured by the value or market price of their shares (other than (a) the
issuance of PTR Common Shares in accordance with the PTR Dividend Reinvestment
and Share Purchase Plan, (b) the issuance of shares upon the exercise of
options outstanding on the date of the Merger Agreement and in accordance with
their present terms or pursuant to a 401(k) plan and in accordance with its
terms or (c) the issuance of securities pursuant to such party's shareholder
rights agreement); (ii) amend their articles or certificate of incorporation,
by-laws or other comparable charter or organizational documents; (iii) acquire
or agree to acquire by merging or consolidating with, or by purchasing a
substantial portion of the stock or assets of, or by any other manner, any
business or any corporation, partnership, joint venture, association or other
business organization or division thereof; (iv) sell, lease, mortgage or
otherwise encumber or subject to any lien or otherwise dispose of any of their
properties or assets that are material, alone or in the aggregate, to such
party and its subsidiaries, taken as a whole, except
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sales, leases, mortgages or other encumbrances or liens of properties or
assets in the ordinary course of business consistent with past practice; (v)
except in connection with interim financing for the acquisition of certain
portfolios (a) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or warrants
or other rights to acquire any debt securities of such party or any of its
subsidiaries, guarantee any debt securities of another person, enter into any
"keep well" or other agreement to maintain any financial statement condition
of another person or enter into any arrangement having the economic effect of
any of the foregoing, except for short-term borrowings incurred in the
ordinary course of business consistent with past practice, or (b) make any
loans, advances or capital contributions to, or investments in, any other
person, other than to such party or any of its wholly owned subsidiaries; (vi)
acquire or agree to acquire any assets that are material, alone or in the
aggregate, to such party and its affiliates, taken as a whole, or make or
agree to make any capital expenditures except in the ordinary course of
business consistent with past practice or in connection with the acquisition
of certain portfolios; (vii) pay, discharge or satisfy any claims (including
claims of shareholders), liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), except for the payment,
discharge or satisfaction, of (a) liabilities or obligations in the ordinary
course of business consistent with past practice or in accordance with their
terms as in effect on the date hereof, (b) liabilities reflected or reserved
against in, or contemplated by, the most recent consolidated audited financial
statements (or the notes thereof) of such party included in the documents
filed by it with the Commission, or waive, release, grant or transfer any
rights of material value or modify or change in any material respect any
existing license, lease, contract or other document, other than in the
ordinary course of business consistent with past practice; (viii) adopt or
amend in any material respect (except as may be required by law) any bonus,
profit sharing, compensation, share or stock option, pension, retirement,
deferred compensation, employment or other employee benefit plan, agreement,
trust, fund or other arrangement for the benefit or welfare of any employee,
director, trustee or former director, trustee or employee or, other than
increases for individuals (other than officers, directors and trustees) in the
ordinary course of business consistent with past practice; increase the
compensation or fringe benefits of any director, trustee, employee or former
director, trustee or employee; pay any benefit not required by any existing
plan, arrangement or agreement, grant any new or modified severance or
termination arrangement or increase or accelerate any benefits payable under
any severance or termination pay policies in effect on the date hereof, other
than any such increase or acceleration provided for under the benefit plans as
in effect on the date of the Merger Agreement; (ix) change any material
accounting principle used by them, except for such changes as may be required
to be implemented following the date of the Merger Agreement pursuant to GAAP
or rules and regulations of the Commission promulgated following the date of
the Merger Agreement; (x) take any action that would, or is reasonably likely
to, result in any of their representations and warranties in the Merger
Agreement becoming untrue, or in any of the conditions to the Merger not being
satisfied; (xi) except in the ordinary course of business and consistent with
past practice, make any tax election or settle or compromise any federal,
state, local or foreign income tax liability; or (xii) authorize any of, or
commit or agree to take any of, the foregoing actions.
PTR and ATLANTIC have agreed that: (a) each will afford to the other party
and its respective accountants, counsel, financial advisors and other
representatives full access during normal business hours throughout the period
prior to the Closing to all properties, books, contracts, commitments and
records of such party, as appropriate, and, during such period, each shall
furnish promptly to the other a copy of each report, schedule and other
document filed or received pursuant to the requirements of federal or state
securities laws or filed with the Commission in connection with the
transactions contemplated by the Merger Agreement, and such other information
concerning its business, properties and personnel as shall be reasonably
requested; (b) they will file with the Commission as soon as is reasonably
practicable after the date of the Merger Agreement, the Registration Statement
containing this Joint Proxy Statement and Prospectus, shall use all reasonable
efforts to have the Registration Statement declared effective by the
Commission as promptly as practicable, and shall take any action required to
be taken under applicable state blue sky or securities laws in connection with
the Merger; (c) they will use their respective best efforts to cause to be
delivered to the other party two letters of their respective certified public
accountants, one dated a date within two business days before the date on
which the Registration Statement becomes effective and one dated a date within
two business days before the Closing Date, each in form and substance
reasonably satisfactory to the other party and customary in scope and
substance for
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comfort letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement; (d) as soon as
practicable following the date upon which the Registration Statement is
declared effective by the Commission, each party will use its best efforts to
obtain the approval of its shareholders required by the Merger; and (e) they
will cooperate and use their respective best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations, and under contracts
giving rise to the required consents, to consummate and make effective the
transactions contemplated by the Merger Agreement, including using its best
efforts to identify and obtain all necessary or appropriate waivers, consents
and approvals, to effect all necessary registrations, filings and submissions
and to lift any injunction or other legal bar to the transactions contemplated
by the Merger Agreement.
ATLANTIC has agreed to use its best efforts to cause each principal
executive officer, each Director, and each other person who is an affiliate of
ATLANTIC to deliver to PTR on or prior to the Closing Date an Affiliate
Agreement to the effect that such person will not offer to sell, sell or
otherwise dispose of any PTR Common Shares or PTR Series C Preferred Shares
issued in the Merger, except, in each case, pursuant to an effective
registration statement or in compliance with Rule 145, as amended from time to
time, or in a transaction which, in the opinion of legal counsel satisfactory
to PTR, is exempt from the registration requirements of the Securities Act.
ATLANTIC and PTR have agreed that their respective Boards shall recommend to
their respective shareholders the approval of the Merger Agreement and the
Merger and the other transactions contemplated hereby; provided, however, that
prior to the ATLANTIC Special Meeting, the ATLANTIC Board may withdraw, modify
or amend such recommendation to the extent described below under "--No
Solicitation of Transactions" and prior to the PTR Special Meeting, the PTR
Board may withdraw, modify or amend such recommendation to the extent
described below under "--No Solicitation of Transactions."
DISTRIBUTIONS
The first customary quarterly distribution to be paid by PTR on PTR Common
Shares after the Effective Time will be in the amount of $0.355 per share,
subject to authorization by the PTR Board and the availability of funds
therefor. PTR and ATLANTIC have agreed to coordinate with each other the
payment of distributions with respect to PTR Common Shares and ATLANTIC Common
Shares after the date of the Merger Agreement, with the intention being that
holders of PTR Common Shares and ATLANTIC Common Shares will not receive two
distributions, or fail to receive one distribution, for any single calendar
quarter with respect to their PTR Common Shares or ATLANTIC Common Shares, on
the one hand, any PTR Common Shares that any such holder receives in exchange
for ATLANTIC Common Shares in the Merger, on the other hand. Additionally,
each of PTR and ATLANTIC has agreed that prior to the Merger, they will not
make quarterly distributions in excess of $0.34 per PTR Common Share and $0.40
per ATLANTIC Common Share, the current quarterly distribution rate for PTR and
ATLANTIC, respectively.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the shareholders of PTR and
ATLANTIC, under the following circumstances: (i) by mutual written consent of
PTR and ATLANTIC; (ii) by PTR or ATLANTIC, if the Merger shall not have been
consummated on or before October 31, 1998 (the "Termination Date") (other than
by reason of a breach by the party seeking to terminate the Merger Agreement
of its obligations thereunder); (iii) by PTR or ATLANTIC, if any preliminary
or permanent injunction or other order or decree has been issued and is in
effect and has become final and nonappealable; provided that the party seeking
to terminate the Merger Agreement has used its best efforts to have such
injunction, order, or decree lifted; and (iv) unilaterally by PTR or ATLANTIC
(a) if the other party (x) fails to perform any covenant or agreement in the
Merger Agreement in any material respect, and does not cure the failure in all
material respects within 15 business days after the terminating party delivers
written notice of the alleged failure or (y) fails to fulfill or complete a
condition to the obligations of the terminating party (which condition is not
waived) by reason of a breach by the non-terminating party of its obligations
under the
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Merger Agreement or (b) if any condition to the obligations of the terminating
party is not satisfied (other than by reason of a breach by that party of its
obligations under the Merger Agreement), and it reasonably appears that the
condition cannot be satisfied prior to the Termination Date.
Additionally, the Merger Agreement may be terminated by PTR, if (i) ATLANTIC
has exercised a right with respect to an ATLANTIC Alternative Proposal (as
defined below under "--No Solicitation of Transactions") and has, directly or
through representatives, continued discussions with any third party concerning
such ATLANTIC Alternative Proposal for more than 15 business days after
receipt thereof; or (ii) (A) an ATLANTIC Alternative Proposal that is publicly
disclosed has been commenced, publicly proposed or communicated to ATLANTIC
which contains a proposal as to price (without regard to whether such proposal
specifies a specific price or a range of potential prices) and (B) ATLANTIC
has not rejected such proposal within 15 business days of its receipt or, if
sooner, the date its existence first becomes publicly disclosed. The Merger
Agreement may be terminated by ATLANTIC, if (i) PTR has exercised a right with
respect to a PTR Alternative Proposal (as defined below under "--No
Solicitation of Transactions") and has, directly or through Representatives,
continued discussions with any third party concerning such PTR Alternative
Proposal for more than 15 business days after the date of receipt thereof; or
(ii) (A) a PTR Alternative Proposal that is publicly disclosed has been
commenced, publicly proposed or communicated to PTR which contains a proposal
as to price (without regard to whether such proposal specifies a specific
price or a range of potential prices) and (B) PTR has not rejected such
proposal within 15 business days of its receipt or, if sooner, the date its
existence first becomes publicly disclosed.
The Merger Agreement may also be terminated (i) by ATLANTIC, if the ATLANTIC
Board fails to make or withdraws or modifies its approval or recommendation of
the Merger Agreement and the Merger and (ii) by PTR, if the PTR Board fails to
make or withdraws or modifies its approval or recommendation of the Merger
Agreement and the Merger.
Any termination of the Merger Agreement as described above requires the
approval of the Special Committee of the Board of the terminating party.
TERMINATION AMOUNT AND EXPENSES
Termination by ATLANTIC
In the event that ATLANTIC terminates the Merger Agreement because (i) the
ATLANTIC Board has recommended that ATLANTIC shareholders accept or approve an
ATLANTIC Alternative Proposal or (ii) ATLANTIC or the ATLANTIC Board has taken
any action to make the ATLANTIC shareholder rights agreement inapplicable
(through termination or otherwise) to any person other than PTR or Security
Capital, then, concurrently with any such termination, ATLANTIC will pay PTR a
fee equal to the Termination Amount.
In the event that (i) an ATLANTIC Alternative Proposal has been made known
to ATLANTIC or has been made directly to its shareholders generally or any
person has publicly announced an intention (whether or not conditional) to
make an ATLANTIC Alternative Proposal and thereafter the Merger Agreement is
terminated by PTR because (a) ATLANTIC has exercised a right with respect to
an ATLANTIC Alternative Proposal and has, directly or through representatives,
continued discussions with any third party concerning such ATLANTIC
Alternative Proposal for more than 15 business days after receipt thereof; or
(b) (1) an ATLANTIC Alternative Proposal that is publicly disclosed has been
commenced, publicly proposed or communicated to ATLANTIC which contains a
proposal as to price (without regard to whether such proposal specifies a
specific price or a range of potential prices) and (2) ATLANTIC has not
rejected such proposal within 15 business days of its receipt or, if sooner,
the date its existence first becomes publicly disclosed and (ii) prior to the
date that is 12 months after the date of such termination, ATLANTIC enters
into any letter of intent, agreement in principle, acquisition agreement or
similar agreement relating to any ATLANTIC Alternative Proposal, then ATLANTIC
will pay PTR, within two business days after the date such agreement is
entered into, an amount equal to the Termination Amount.
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Termination by PTR
In the event that PTR terminates the Merger Agreement because (i) the PTR
Board has recommended that PTR shareholders accept or approve a PTR
Alternative Proposal or (ii) PTR or the PTR Board has taken any action to make
the PTR shareholder rights agreement inapplicable (through termination or
otherwise) to any person other than ATLANTIC or Security Capital, then,
concurrently with any such termination, PTR will pay ATLANTIC a fee equal to
the Termination Amount.
In the event that (i) a PTR Alternative Proposal has been made known to PTR
or has been made directly to its shareholders generally or any person has
publicly announced an intention (whether or not conditional) to make a PTR
Alternative Proposal and thereafter the Merger Agreement is terminated by
ATLANTIC because (a) PTR has exercised a right with respect to a PTR
Alternative Proposal and has, directly or through representatives, continued
discussions with any third party concerning such PTR Alternative Proposal for
more than 15 business days after receipt thereof; or (b) (1) a PTR Alternative
Proposal that is publicly disclosed has been commenced, publicly proposed or
communicated to PTR which contains a proposal as to price (without regard to
whether such proposal specifies a specific price or a range of potential
prices) and (2) PTR has not rejected such proposal within 15 business days of
its receipt or, if sooner, the date its existence first becomes publicly
disclosed and (ii) prior to the date that is 12 months after the date of such
termination, PTR enters into any letter of intent, agreement in principle,
acquisition agreement or similar agreement relating to any PTR Alternative
Proposal, then PTR will pay ATLANTIC, within two business days after the date
such agreement is entered into, an amount equal to the Termination Amount.
REDUCTION OF TERMINATION AMOUNT
In general, under the REIT provisions of the Code, at least 75% of a REIT's
gross income for each taxable year must consist of defined types of income
derived directly or indirectly from investments relating to real property (the
"75% income test"), and at least 95% of a REIT's gross income for each taxable
year must be derived from such real property investments and from certain
categories of investment income (the "95% income test"). The Merger Agreement
provides in effect for a reduction in the Termination Amount payable to PTR or
ATLANTIC if necessary to prevent such amounts from causing PTR or ATLANTIC, as
the case may be, to fail these REIT income requirements. Specifically, the
Merger Agreement provides that, notwithstanding anything to the contrary set
forth in the Merger Agreement, in the event that any party is obligated to pay
the other party the Termination Amount, the paying party will pay to the other
party an amount equal to the lesser of (i) the Termination Amount and (ii) the
sum of (A) the maximum amount that can be paid to the other party without
causing that party to fail to meet the requirements of the 75% income test and
the 95% income test determined as if the Termination Amount did not constitute
qualifying income ("Qualifying Income") for purposes of the 75% income test
and the 95% income test, plus (B) in the event that the other party receives
either a ruling from the IRS or an opinion of its counsel that the Termination
Amount would constitute Qualifying Income or would be excluded from gross
income for purposes of the 75% income test and the 95% income test, an amount
equal to the Termination Amount, less the amount payable under clause (A)
above.
NO SOLICITATION OF TRANSACTIONS
No Solicitation by ATLANTIC
Neither ATLANTIC nor any of its subsidiaries may directly or indirectly (a)
solicit, initiate or encourage (including by way of furnishing information),
or take any other action to facilitate the submission of inquiries, proposals
or offers from any person relating to any acquisition or purchase of a
substantial amount of assets of ATLANTIC or any of its subsidiaries (other
than in the ordinary course of business) or of over 9.8% of any class of
equity securities of ATLANTIC or any of its subsidiaries or any tender offer
(including a self tender offer) or exchange offer that if consummated would
result in any person beneficially owning 9.8% or more of any class of equity
securities of ATLANTIC or any of its subsidiaries, or any merger,
consolidation, business combination, sale of substantially all assets,
recapitalization, liquidation, dissolution or similar transaction
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involving ATLANTIC or any of its subsidiaries, other than the transactions
contemplated by the Merger Agreement, or any other transaction the
consummation of which would or could reasonably be expected to impede,
interfere with, prevent or materially delay the Merger (collectively,
"ATLANTIC Alternative Proposals") or agree to or endorse any ATLANTIC
Alternative Proposal, or (b) enter into or participate in any discussions or
negotiations regarding any of the foregoing, or furnish to any other person
any information with respect to its business, properties or assets or any of
the foregoing, or otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing; provided, however, that the
foregoing does not prohibit ATLANTIC from (i) furnishing information
concerning ATLANTIC and its businesses, properties or assets (pursuant to an
appropriate confidentiality agreement customary under the circumstances) to a
third party who has made an unsolicited ATLANTIC Alternative Proposal, (ii)
engaging in discussions or negotiations with a third party who has made an
unsolicited ATLANTIC Alternative Proposal, (iii) following receipt of an
unsolicited ATLANTIC Alternative Proposal, taking and disclosing to its
shareholders a position contemplated by Rule 14e-2(a) under the Exchange Act
or otherwise making disclosure to its shareholders, (iv) following receipt of
an unsolicited ATLANTIC Alternative Proposal, failing to make or withdrawing
or modifying its recommendation in favor of the Merger Agreement and the
transactions contemplated thereby, and/or (v) engaging in discussions or
negotiations with Security Capital regarding an unsolicited ATLANTIC
Alternative Proposal from a third party, but in each case referred to in the
foregoing clauses (i) through (iv) (not in the case of the foregoing clause
(v) above) only if and to the extent that the ATLANTIC Board has concluded in
good faith, after consulting with and considering the advice of outside
counsel, that such action is required by the ATLANTIC Board in the exercise of
its fiduciary duties to the shareholders of ATLANTIC under applicable law.
ATLANTIC may not take any of the actions referred to in clauses (i) through
(iv) (but not clause (v) above) until after giving at least one business day's
advance notice to PTR. In addition, if the ATLANTIC Board receives an
unsolicited ATLANTIC Alternative Proposal, then ATLANTIC must promptly inform
PTR in writing of the material terms of such proposal and the identity of the
person (or group) making it. ATLANTIC must immediately cease and cause to be
terminated all existing activities, discussions or negotiations, if any, with
any parties (other than Security Capital) conducted heretofore with respect to
any of the foregoing.
No Solicitation by PTR
Neither PTR nor any of its subsidiaries may directly or indirectly (a)
solicit, initiate or encourage (including by way of furnishing information),
or take any other action to facilitate the submission of inquiries, proposals
or offers from any person relating to any acquisition or purchase of a
substantial amount of assets of PTR or any of its subsidiaries (other than in
the ordinary course of business) or of over 9.8% of any class of equity
securities of PTR or any of its subsidiaries or any tender offer (including a
self tender offer) or exchange offer that if consummated would result in any
person beneficially owning 9.8% or more of any class of equity securities of
PTR or any of its subsidiaries, or any merger, consolidation, business
combination, sale of substantially all assets, recapitalization, liquidation,
dissolution or similar transaction involving PTR or any of its subsidiaries,
other than the transactions contemplated by the Merger Agreement, or any other
transaction the consummation of which would or could reasonably be expected to
impede, interfere with, prevent or materially delay the Merger (collectively,
"PTR Alternative Proposals") or agree to or endorse any PTR Alternative
Proposal, or (b) enter into or participate in any discussions or negotiations
regarding any of the foregoing, or furnish to any other person any information
with respect to its business, properties or assets or any of the foregoing, or
otherwise cooperate in any way with, or assist or participate in, facilitate
or encourage, any effort or attempt by any other person to do or seek any of
the foregoing; provided, however, that the foregoing does not prohibit PTR
from (i) furnishing information concerning PTR and its businesses, properties
or assets (pursuant to an appropriate confidentiality agreement customary
under the circumstances) to a third party who has made an unsolicited PTR
Alternative Proposal, (ii) engaging in discussions or negotiations with a
third party who has made an unsolicited PTR Alternative Proposal, (iii)
following receipt of an unsolicited PTR Alternative Proposal, taking and
disclosing to its shareholders a position contemplated by Rule 14e-2(a) under
the Exchange Act or otherwise making disclosure to its shareholders, (iv)
following receipt of an unsolicited PTR Alternative Proposal, failing to make
or withdrawing or modifying its recommendation in favor of the Merger
Agreement and the transactions
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contemplated thereby, and/or (v) engaging in discussions or negotiations with
Security Capital regarding an unsolicited PTR Alternative Proposal from a
third party, but in each case referred to in the foregoing clauses (i) through
(iv) (not in the case of the foregoing clause (v) above) only if and to the
extent that the PTR Board has concluded in good faith, after consulting with
and considering the advice of outside counsel, that such action is required by
the PTR Board in the exercise of its fiduciary duties to the shareholders of
PTR under applicable law. PTR may not take any of the actions referred to in
clauses (i) through (iv) (but not clause (v) above) until after giving at
least one business day's advance notice to ATLANTIC. In addition, if the PTR
Board receives an unsolicited PTR Alternative Proposal, then PTR must promptly
inform ATLANTIC in writing of the material terms of such proposal and the
identity of the person (or group) making it. PTR must immediately cease and
cause to be terminated all existing activities, discussions or negotiations,
if any, with any parties (other than Security Capital) conducted heretofore
with respect to any of the foregoing.
INDEMNIFICATION
PTR has agreed that all rights to indemnification from liabilities or acts
or omissions occurring at or prior to the Effective Time existing on the date
of the Merger Agreement in favor of the current or former directors or
officers of ATLANTIC and its subsidiaries as provided in their respective
articles of incorporation or bylaws (or comparable organizational documents)
and any indemnification agreements or arrangements of ATLANTIC and its
subsidiaries will survive the Merger and will continue in full force and
effect in accordance with their terms with respect to matters arising before
the Effective Time. PTR will pay any expenses of any of the foregoing
indemnified persons in advance of the final disposition of any action,
proceeding or claim relating to any such act or omission to the fullest extent
permitted under the MGCL upon receipt from the applicable indemnified person
to whom advances are to be advanced of any undertaking to repay such advances
required under the MGCL. In addition, from and after the Effective Time,
Directors or officers of ATLANTIC who become Trustees or officers of PTR will
be entitled to the same indemnity rights and protections as are afforded to
other Trustees and officers of PTR. See "Approval of the New Archstone
Charter--Indemnification of Trustees and Officers."
AMENDMENT AND WAIVER
The Merger Agreement may not be amended except by an instrument in writing
signed on behalf of both PTR and ATLANTIC and in compliance with applicable
law; provided that (a) the Merger Agreement may not be amended in any material
respect following the PTR Shareholders Approval or ATLANTIC Shareholders
Approval; (b) at any time prior to the Closing, PTR or ATLANTIC may (i) extend
the time for the performance of any of the obligations or other acts of the
other party, (ii) waive any inaccuracies in the representations and warranties
contained therein or in any document delivered pursuant thereto, and (iii)
waive compliance with any of the agreements or conditions contained therein
(any agreement on the part of either party to any such extension or waiver
being valid if set forth in an instrument in writing signed on behalf of such
party); and (c) the approval of each of the Special Committees will be
required for an amendment or modification of the Merger Agreement and the
approval of the Special Committee of the Board of the extending or waiving
party will be required for any extension by ATLANTIC or PTR of the time of the
performance of any obligations or other acts of PTR or ATLANTIC and any waiver
of any of PTR's or ATLANTIC's obligations under the Merger Agreement.
APPROVAL OF THE NEW ARCHSTONE CHARTER
(PROPOSAL 2)
PTR BOARD RECOMMENDATION
THE PTR BOARD HAS UNANIMOUSLY APPROVED THE NEW ARCHSTONE CHARTER AND
RECOMMENDS THAT PTR SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE NEW ARCHSTONE
CHARTER. The affirmative vote of holders of two-thirds of the outstanding PTR
Common Shares is required to approve this proposal.
PTR is governed by a Restated Declaration of Trust dated as of June 18,
1991, as subsequently amended and supplemented (the "Old PTR Charter"). The
PTR Board has approved the New Archstone Charter in the
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form attached as Annex II. The following description, which summarizes some of
the most significant changes in the New Archstone Charter, is qualified in its
entirety by reference to the form of New Archstone Charter attached as Annex
II.
NAME CHANGE
The New Archstone Charter would change PTR's name to "Archstone Communities
Trust." PTR's extensive customer research indicates that PTR has a unique
opportunity to increase awareness of its brand by adopting a name that is
distinctive, customer friendly and memorable. Increased brand awareness among
PTR's customers should assist PTR in attracting and retaining customers and
facilitating sales of related products and services. The PTR Board believes
that the name Archstone Communities meets these criteria and in so doing will
help PTR advance its long-term business objectives.
INCREASE IN AUTHORIZED SHARES
The New Archstone Charter would increase the number of authorized shares in
order to enable the issuance of PTR Common Shares in the Merger and to provide
additional authorized shares for financings and other corporate purposes. The
New Archstone Charter would increase the number of shares of beneficial
interest of PTR authorized for issuance from 150,000,000 to 250,000,000. The
New Archstone Charter would also permit the PTR Board to further increase or
decrease the number of shares of beneficial interest of PTR authorized for
issuance from time to time without shareholder approval. In addition, the New
Archstone Charter, as is the case under the Old PTR Charter, would permit the
PTR Board, without shareholder approval, to classify or reclassify any
unissued shares from time to time by setting or changing the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or distributions, qualifications or terms or conditions of
redemption. The shareholders do not have any preemptive rights with respect to
issuances of shares of PTR. The PTR Board believes that these changes are
desirable because they will enable PTR to issue additional shares for cash as
market conditions permit or in merger and acquisition transactions, although,
except as otherwise described herein, PTR currently has no specific plans to
issue any additional shares other than pursuant to the Merger or upon
conversion of outstanding convertible securities or upon exercise of options
granted under the PTR plans.
Under the Old PTR Charter, the number of shares of beneficial interest of
PTR authorized for issuance is 150,000,000. There are currently approximately
102,339,666 shares of beneficial interest outstanding (including PTR Common
Shares, PTR Series A Preferred Shares and PTR Series B Preferred Shares) and
3,692,089 shares of beneficial interest reserved for issuance pursuant to
convertible securities or options. After the Merger, there would be
152,091,718 shares of beneficial interest outstanding (including PTR Common
Shares, PTR Series A Preferred Shares, PTR Series B Preferred Shares and PTR
Series C Preferred Shares) and 4,917,787 shares of beneficial interest
reserved for issuance pursuant to convertible securities or options.
CLASSIFIED BOARD OF TRUSTEES
Under the New Archstone Charter, as is currently provided in the ATLANTIC
Charter, the PTR Board would be divided into three classes of Trustees,
designated Class I, Class II and Class III. Each class must consist, as nearly
as may be possible, of one-third of the total number of Trustees constituting
the entire PTR Board. The term of office of each Trustee is three years and
until his or her successor is elected and qualifies, subject to prior death,
resignation or removal. At the 1999 annual meeting of shareholders, Class I
Trustees will be elected; at the 2000 annual meeting of shareholders, Class II
Trustees will be elected; and at the 2001 annual meeting of shareholders,
Class III Trustees will be elected. At each succeeding annual meeting of
shareholders, beginning in 2002, successors to the class of Trustees whose
term expires at such annual meeting will be elected. If the authorized number
of Trustees constituting the PTR Board is changed, any increase or decrease
will be apportioned among the classes so as to maintain the number of Trustees
in each class as nearly equal as possible, and any additional Trustee of any
class elected to fill a vacancy resulting from an increase in such class will
hold office for a term which will coincide with the remaining term of such
class, but in no case will a decrease
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in the number of Trustees constituting the PTR Board shorten the term of any
incumbent Trustee. The persons constituting each class of Trustees is
comprised approximately evenly between PTR Trustees and ATLANTIC Directors.
The staggered board provision in the New Archstone Charter is substantially
the same as the staggered board provision of the existing ATLANTIC Charter,
and is designed to provide for a certain level of continuity of membership in
the Archstone Board. Such continuity would provide Archstone with consistency
in management and business approach over time. The staggered board provision
may have the effect of making it more difficult for a third party to acquire
control of Archstone without the consent of the Archstone Board. See "Risk
Factors--Potential Anti-Takeover Effect of Certain Provisions of the New
Archstone Charter."
Under the Old PTR Charter, all of the Trustees of the PTR Board were elected
at each annual meeting of the shareholders of PTR.
VACANCIES AMONG TRUSTEES
Under the New Archstone Charter, a vacancy or vacancies among the Trustees
(including vacancies resulting from an increase in the number of Trustees) are
required to be filled (i) at a special meeting of shareholders called for such
purpose (which may be by written consent), (ii) by the Trustee or Trustees
then in office, or (iii) at the next annual meeting of shareholders. Trustees
elected at special meetings of shareholders to fill vacancies or appointed by
the remaining Trustee or Trustees to fill vacancies will hold office until the
next annual meeting of shareholders. Under the Old PTR Charter, vacancies on
the PTR Board (including vacancies resulting from an increase in the number of
Trustees) are required to be filled either at a special meeting of
shareholders called for that purpose or at the next annual meeting of
shareholders. Trustees elected at special meetings of shareholders to fill
vacancies will hold office until the next annual meeting of shareholders.
Independent Trustees are required to nominate replacements for vacancies among
the Independent Trustees' positions. The provision under the New Archstone
Charter would provide Archstone with the ability to more quickly fill
vacancies occurring on the Board of Trustees of Archstone.
INDEPENDENCE OF TRUSTEES
The New Archstone Charter requires that a majority of the members of the PTR
Board not be officers or employees of PTR. The Old PTR Charter, as a result of
certain state securities law guidelines which are no longer applicable,
requires that a majority of the members of the PTR Board be "Independent
Trustees." An Independent Trustee is defined in the Old PTR Charter to mean a
Trustee who (i) is not affiliated, directly or indirectly, with an advisor of
PTR, whether by ownership of, ownership interest in, employment by, any
material business or professional relationship with, or service as an officer,
or director of, such advisor or a business entity which is an affiliate of
such advisor, (ii) is not serving as a Trustee or director for more than three
REITs organized by a sponsor of PTR, and (iii) performs no other services for
PTR, except as Trustee. The New Archstone Charter provision provides standard
and more easily understood restrictions.
RESTRICTIONS ON CERTAIN TRANSACTIONS
The provisions of the New Archstone Charter provide restrictions to certain
corporate actions, including related party transactions, which are clearer in
their interpretation and application than the comparable provisions of the Old
PTR Charter. The New Archstone Charter provisions would also provide Archstone
with the flexibility to take advantage of opportunities in a timely fashion as
such opportunities arise. The Old PTR Charter provides a variety of detailed
restrictions on the ability of PTR to take certain corporate actions and enter
into related party transactions. Many of these restrictions were required by
state securities law guidelines which are no longer applicable to PTR. In
addition, many of these restrictions are difficult in interpretation and
cumbersome in application. For example, the Old PTR Charter contains numerous
restrictions on transactions with an advisor. PTR is internally managed and no
longer has an advisor. Therefore, the provisions no longer have any relevance.
The New Archstone Charter
The New Archstone Charter would eliminate the more specific restrictions on
transactions with affiliates contained in the Old PTR Charter, and would
instead generally provide that all transactions between PTR and
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any Trustee or any affiliates thereof must be approved by a majority of the
Trustees not otherwise interested in such transactions as being fair and
reasonable to PTR. The PTR Board believes that these changes are desirable in
order to reduce the costs associated with entering into these types of
transactions. The general operating, financing, investment and conflict of
interest policies of PTR will remain in effect after the Merger. The New
Archstone Charter contains standard provisions which would provide Archstone
shareholders with certain protections in the event of related party
transactions, such as approval of related party transactions by a majority of
disinterested trustees, and would provide Archstone with the flexibility to
take advantage in a timely fashion of opportunities as such opportunities
arose. The New Archstone Charter permits Archstone to enter into certain types
of transactions, including mergers, with the approval of a majority of the
outstanding common shares rather than two-thirds as currently provided in the
Old PTR Charter.
The Old PTR Charter
Restrictions on PTR's Operations. The Old PTR Charter contains extensive
limitations on PTR's ability to undertake certain actions. The Old PTR Charter
provides that PTR may not: (i) be primarily engaged in investing, reinvesting,
or trading in securities; (ii) engage in margin transactions or short sales;
(iii) invest in puts, calls, straddles, spreads or any combination thereof;
(iv) invest or trade in commodities or commodity contracts; (v) invest more
than 10% of its total assets in unimproved real property, excluding property
which is being developed or will be developed within a reasonable period; (vi)
invest in junior mortgage loans unless, by appraisal or other method that the
Independent Trustees determine, (a) the capital invested in such mortgage loan
is adequately secured on the basis of the equity of the borrower in the
property underlining such investment and the ability of the borrower to repay
the mortgage loan, or (b) such mortgage loan is a financing device entered
into by PTR to establish the priority of its capital investment over the
capital invested by others investing with PTR in a real estate project; (vii)
issue warrants or options to purchase its securities to any person at exercise
prices less than the fair market value of such securities on the date of the
grant; (viii) compensate any independent contractor employed by PTR at a rate
higher than the going rate, if any, for like services in the community or
locale in which such services are performed; (ix) issue debt securities unless
the historical debt service coverage (in the most recently completed fiscal
year) as adjusted for known changes is sufficient to properly service that
higher level of debt; (x) invest in or make mortgage loans unless an appraisal
is obtained concerning the underlying property unless approved by a majority
of the Independent Trustees; (xi) make or invest in mortgage loans, including
construction loans, on any one property if the aggregate amount of all
mortgage loans outstanding on the property, including the loans of PTR, would
exceed an amount equal to 85% of the appraised value of the property as
determined by appraisal unless substantial justification exists because of the
presence of other underwriting criteria; (xii) make or invest in any mortgage
loans that are subordinate to any mortgage or equity interest of affiliates of
PTR; and (xiii) invest in land sale contracts, unless such contracts of sale
are in recordable form and are appropriately recorded in the chain of title.
Additionally, the Old PTR Charter provides that aggregate borrowing of PTR,
secured and unsecured, may not be unreasonable in relation to the net assets
of PTR and must be reviewed by the PTR Board at least quarterly. The Old PTR
Charter provides that the maximum amount of such borrowing in relation to the
net assets may, in the absence of a satisfactory showing that a higher level
of borrowing is appropriate, not exceed 300%. Any excess in borrowing over
such 300% level must be approved by a majority of the Independent Trustees and
disclosed to shareholders in the next quarterly report of PTR, along with
justification for such excess. The term "net assets" means the total assets
(other than intangibles) at cost, before deducting depreciation or other non-
cash reserves, less total liabilities, calculated at least quarterly on a
basis consistently applied.
The Old PTR Charter further provides that Total Operating Expenses (as
defined) of PTR may (in the absence of a satisfactory showing to the contrary)
not exceed in any fiscal year the greater of: (a) 2% of the average of the
aggregate book value of the assets of PTR invested, directly or indirectly, in
equity interests in and loans secured by real estate, before reserves for
depreciation or bad debts or other similar non-cash reserves, computed by
taking the average of such values at the end of each month during such period;
or (b) 25% of the
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Net Income of PTR for such year. "Net Income" means total revenues applicable
to such year, less the expenses applicable to such year other than additions
to reserves for depreciation or bad debts or other similar non-cash reserves.
For the purposes of the foregoing, Net Income excludes the gain from the sale
of PTR's assets. "Total Operating Expenses" means all operating, general and
administrative expenses of PTR as determined under GAAP except the expenses of
raising capital, interest payments, taxes, non-cash expenditures and costs
related directly to asset acquisition, operation and disposition. The
Independent Trustees have the fiduciary responsibility of limiting such
expenses to amounts that do not exceed such limitations unless the Independent
Trustees have made a finding that, based on such unusual and non-recurring
factors which they deem sufficient, a higher level of expenses is justified
for such year. Any such findings and the reasons in support thereof must be
reflected in the minutes of the meeting of the Trustees. "Independent Trustee"
means a trustee who (i) is not serving as a trustee or director for more than
three real estate investment trusts organized by a sponsor of PTR and (ii)
performs no other services for PTR, except as Trustee.
The Old PTR Charter provides that, within 60 days after the end of any
fiscal quarter of PTR for which Total Operating Expenses (for the 12 months
then ended) exceeded 2% of average invested assets (as calculated above) or
25% of Net Income, whichever is greater, there must be sent to the
shareholders of PTR a written disclosure of such fact. If the Independent
Trustees find that such higher operating expenses are justified, such
disclosure must be accompanied by an explanation of the facts the Independent
Trustees considered in arriving at the conclusion that such higher operating
expenses were justified.
Restrictions on Related Party Transactions. The Old PTR Charter provides PTR
may not: (i) purchase property from a sponsor, Trustee, or affiliates thereof,
unless a majority of the Trustees, including a majority of the Independent
Trustees not otherwise interested in such transaction, approve the transaction
as being fair and reasonable to PTR and at a price to PTR no greater than the
cost of the asset to such sponsor, Trustee or affiliates thereof, or, if the
price to PTR is in excess of such cost, that substantial justification for
such excess exists and such excess is not unreasonable (in no event shall the
cost of such asset to PTR exceed its current appraised value); (ii) sell
property to a sponsor, Trustee or affiliates thereof; (iii) make loans to or
borrow money from the sponsor, Trustees or affiliates thereof, unless a
majority of the Trustees (including a majority of the Independent Trustees)
not otherwise interested in such transaction approve the transaction as being
fair, competitive, and commercially reasonable and no less favorable to PTR
than loans between unaffiliated lenders and borrowers under the same
circumstances; and (iv) invest in joint ventures with the sponsor, Trustees or
affiliates thereof, unless a majority of Trustees (including a majority of the
Independent Trustees) not otherwise interested in such transactions, approve
the transaction as being fair and reasonable to PTR and shall be on
substantially the same terms and conditions as though received by the other
joint venturers. All other transactions between PTR and the sponsor, Trustees
or affiliates thereof shall require approval by a majority of the Trustees
(including a majority of the Independent Trustees) not otherwise interested in
such transactions as being fair and reasonable to PTR and on terms and
conditions not less favorable to PTR than those available from unaffiliated
third parties.
AMENDMENTS TO THE NEW ARCHSTONE CHARTER
Under both the Old PTR Charter and the New Archstone Charter, the Board of
Trustees, by a two-thirds vote, may amend the provisions thereof from time to
time, without a vote of shareholders, to qualify PTR as a REIT under the Code
or Title 8. Under the New Archstone Charter, the New Archstone Charter may
also be amended upon the approval of the shareholders by the affirmative vote
of a majority of the total number of votes entitled to be cast on the matter.
Except for REIT qualification purposes, the Old PTR Charter may be amended
only by the affirmative vote or written consent of the holders of not less
than two-thirds of the PTR Common Shares then outstanding. The Archstone
Charter provision would provide Archstone shareholders with greater
flexibility in amending the Archstone Charter.
RESTRICTION ON SIZE OF HOLDINGS OF SHARES
For PTR to qualify as a REIT under the Code, no more than 50% in value of
PTR's shares (after taking into account options to acquire shares) may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities and constructive ownership among specified
family members)
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during the last half of a taxable year (other than the first taxable year) or
during a proportionate part of a short taxable year. PTR's shares must also be
beneficially owned (other than during the first taxable year) by 100 or more
persons during at least 335 days of a taxable year or during a proportionate
part of a shorter taxable year.
The New Archstone Charter would update the transfer restrictions contained
in the Old PTR Charter to take into account changes in the Code and related
regulations and rulings. The PTR Board believes these changes are desirable in
order to preserve more clearly PTR's ability to qualify as a REIT for federal
income tax purposes. Subject to certain exceptions specified in the New
Archstone Charter, no holder would be permitted to own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 9.8% (49% in the
case of Security Capital (the "Ownership Limit"). The PTR Board, upon receipt
of a ruling from the IRS or an opinion of counsel or other evidence
satisfactory to the PTR Board and upon such other conditions as the PTR Board
may direct, may also exempt a proposed transferee from the Ownership Limit.
The proposed transferee must give written notice to PTR of the proposed
transfer no later than the fifteenth day prior to any transfer which, if
consummated, would result in the intended transferee owning PTR's shares in
excess of the Ownership Limit. The PTR Board may require such opinions of
counsel, affidavits, undertakings or agreements as it may deem necessary or
advisable in order to determine or ensure PTR's status as a REIT. Any transfer
of PTR's shares that would (i) create a direct or indirect ownership of PTR's
shares in excess of the Ownership Limit, (ii) result in PTR's shares being
beneficially owned by fewer than 100 persons (determined without reference to
any rules of attribution) as provided in Section 856(a) of the Code or (iii)
result in PTR being "closely held" within the meaning of Section 856(h) of the
Code, shall be null and void ab initio, and the intended transferee will
acquire no rights to PTR's shares. The foregoing restrictions on
transferability and ownership will not apply if the PTR Board determines,
which determination must be approved by the shareholders, that is no longer in
the best interests of PTR to attempt to qualify, or to continue to qualify, as
a REIT. The New Archstone Charter excludes Security Capital and its affiliates
from the foregoing ownership restriction to the extent that Security Capital
beneficially owns 49% or less of PTR's outstanding shares.
Any shares the purported transfer of which would result in a person owning
PTR's shares in excess of the Ownership Limit or cause PTR to become "closely
held" under Section 856(h) of the Code that is not otherwise permitted as
provided above will constitute excess shares ("Excess Shares"), which will be
transferred pursuant to the New Archstone Charter to a party not affiliated
with PTR designated by PTR as the trustee of a trust for the exclusive benefit
of an organization or organizations described in Sections 170(b)(1)(A) and
170(c) of the Code and identified by the PTR Board as the beneficiary or
beneficiaries of the trust (the "Charitable Beneficiary"), until such time as
the Excess Shares are transferred to a person whose ownership will not violate
the restrictions on ownership. While these Excess Shares are held in trust,
distributions on such Excess Shares will be paid to the trust for the benefit
of the Charitable Beneficiary and may only be voted by the trustee for the
benefit of the Charitable Beneficiary. Subject to the Ownership Limit, the
Excess Shares will be transferred by the trustee at the direction of PTR to
any person (if the Excess Shares would not be Excess Shares in the hands of
such person). The purported transferee will receive the lesser of (i) the
price paid by the purported transferee for the Excess Shares (or, if no
consideration was paid, fair market value on the day of the event causing the
Excess Shares to be held in trust) and (ii) the price received from the sale
or other disposition of the Excess Shares held in trust. Any proceeds in
excess of the amount payable to the purported transferee will be paid to the
Charitable Beneficiary. In addition, such Excess Shares held in trust are
subject to purchase by PTR for a 90-day period at a purchase price equal to
the lesser of (i) the price paid for the Excess Shares by the purported
transferee (or, if no consideration was paid, fair market value at the time of
the event causing the shares to be held in trust) and (ii) the fair market
value of the Excess Shares on the date PTR elects to purchase. Fair market
value, for these purposes, means the last reported sales price reported on the
NYSE on the trading day immediately preceding the relevant date, or if not
then traded on the NYSE, the last reported sales price on the trading day
immediately preceding the relevant date as reported on any exchange or
quotation system over or through which the relevant class of shares of stock
may be traded, or if not then traded over or through any exchange or quotation
system, then the market price on the relevant date as determined in good faith
by the PTR Board.
From and after the purported transfer to the purported transferee of the
Excess Shares, the purported transferee will cease to be entitled to
distributions (other than liquidating distributions), voting rights and other
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<PAGE>
benefits with respect to the Excess Shares except the right to payment on the
transfer of the Excess Shares as described above. Any distribution paid to a
purported transferee on Excess Shares prior to the discovery by PTR that such
Excess Shares have been transferred in violation of the provisions of either
the Old PTR Charter or the New Archstone Charter will be repaid, upon demand,
to PTR, which will pay any such amounts to the trust for the benefit of the
Charitable Beneficiary. If the foregoing transfer restrictions are determined
to be void, invalid or unenforceable by any court of competent jurisdiction,
then the purported transferee of any Excess Shares may be deemed, at the
option of PTR, to have acted as an agent on behalf of PTR in acquiring such
Excess Shares and to hold such Excess Shares on behalf of PTR.
All certificates evidencing shares will bear a legend referring to the
restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other percentage between 0.5% and 5%, as
provided in the rules and regulations promulgated under the Code) of the
number or value of PTR's outstanding shares must give a written notice
containing certain information to PTR by January 31 of each year. In addition,
each shareholder is upon demand required to disclose to PTR in writing such
information with respect to the direct, indirect and constructive ownership of
PTR shares as the PTR Board deems reasonably necessary to comply with the
provisions of the Code applicable to a REIT, to determine PTR's status as a
REIT, to comply with the requirements of any taxing authority or governmental
agency or to determine any such compliance.
The Old PTR Charter restricts beneficial ownership of PTR's outstanding
shares by a single person, or persons acting as a group, to 9.8% of PTR's
outstanding shares. The PTR Board has exempted Security Capital from this
restriction to the extent that Security Capital beneficially owns 49% or less
of PTR's outstanding shares. The purposes of these provisions are to assist in
protecting and preserving PTR's REIT status and to protect the interest of
shareholders in takeover transactions by preventing the acquisition of a
substantial block of shares unless the acquiror makes a cash tender offer for
all outstanding shares.
The ownership limitations under the New Archstone Charter or the Old PTR
Charter are designed to protect the REIT status of Archstone and PTR. The
limitations could have the effect of discouraging a takeover or other
transaction in which holders of some, or a majority, of the PTR Common Shares
might receive a premium for their shares over the then prevailing market price
or which such holders might believe to be otherwise in their best interest.
INDEMNIFICATION OF TRUSTEES AND OFFICERS
The Maryland REIT Law permits a REIT to indemnify or advance expenses to
trustees, officers, employees and agents of the REIT to the same extent as is
permitted for directors, officers, employees and agents of a Maryland
corporation under the MGCL. Under the New Archstone Charter, PTR would be
required to indemnify each Trustee, to the fullest extent permitted by
Maryland law, as amended from time to time, in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she was a
Trustee of PTR or is or was serving at the request of PTR as a director,
trustee, officer, partner, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan, from all claims and liabilities to which such person may become
subject by reason of service in such capacity and to pay or reimburse
reasonable expenses, as such expenses are incurred, of each Trustee in
connection with any such proceedings. The PTR Board believes that the
indemnification provision will enhance Archstone's ability to attract and
retain superior directors and officers for Archstone and subsidiaries of
Archstone.
The Old PTR Charter provides that PTR must indemnify and hold harmless each
Trustee from and against all claims and liabilities, whether they proceed to
judgment or are settled, to which such Trustee may become subject by reason of
his being or having been a Trustee, or by reason of any action alleged to have
been taken or omitted by him as Trustee, and must reimburse him for all legal
and other expenses reasonably incurred by him in connection with any such
claim or liability, including any claim or liability arising under the
provisions of
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federal or state securities laws. However, the Old PTR Charter provides that
no Trustee may be indemnified or reimbursed under the foregoing provisions in
relation to any matter unless it has been adjudicated that his action or
omission did not constitute willful misfeasance, bad faith or gross negligence
in the conduct of his duties, or, unless, in the absence of such an
adjudication, PTR has received a written opinion from independent counsel,
approved by the Trustees, to the effect that if the matter of willful
misfeasance, bad faith or gross negligence in the conduct of duties had been
adjudicated, it would have been adjudicated in favor of such Trustee.
Additionally, PTR has entered into indemnity agreements with each of its
officers and Trustees which provide for reimbursement of all expenses and
liabilities of such officer or Trustee, arising out of any lawsuit or claim
against such officer or Trustee due to the fact that he was or is serving as
an officer or Trustee, except for liabilities and expenses (i) the payment of
which is judicially determined to be unlawful, (ii) relating to claims under
Section 16(b) of the Exchange Act, or (iii) relating to judicially determined
criminal violations.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal income tax
consequences of the adoption of the New Archstone Charter. To the extent this
summary discusses matters of law, it is based upon the opinion of Mayer, Brown
& Platt. This summary is based upon the current provisions of the Code, its
legislative history, Treasury regulations, administrative pronouncements and
judicial decisions, all of which are subject to change, possibly with
retroactive effect. This summary does not purport to be a complete discussion
of all U.S. federal income tax consequences relating to the adoption of the
New Archstone Charter. This summary does not address the tax consequences of
the adoption of the New Archstone Charter under state, local or non-U.S. tax
laws. In addition, this summary may not apply, in whole or in part, to
particular categories of PTR shareholders, such as financial institutions,
broker-dealers, life insurance companies, tax-exempt organizations, investment
companies, foreign taxpayers, individuals who received PTR Common Shares
pursuant to stock options, restricted stock programs or in other compensatory
transactions, and other special status taxpayers. Finally, a tax ruling from
the IRS has not been requested. THIS SUMMARY IS INCLUDED FOR GENERAL
INFORMATION ONLY. ALL PTR SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS
TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE ADOPTION OF THE NEW
ARCHSTONE CHARTER, INCLUDING ANY STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES.
The adoption of the New Archstone Charter could result in a PTR shareholder
being considered to have exchanged for federal income tax purposes such
shareholder's former stock interest in PTR for a new stock interest in
"Archstone Communities Trust." If such an exchange is considered to have
occurred, in the opinion of Mayer, Brown & Platt, based on certain
representations of PTR, such exchange would be treated for federal income tax
purposes as pursuant to a reorganization within the meaning of Section 368(a)
of the Code. Accordingly, (i) no gain or loss would be recognized by a holder
of PTR Common Shares, PTR Series A Preferred Shares or PTR Series B Preferred
Shares as a result of the adoption of the New Archstone Charter, (ii) the tax
basis and holding period of the shares of PTR Common Shares, PTR Series A
Preferred Shares or PTR Series B Preferred Shares owned by a holder would not
change as a result of the adoption of the New Archstone Charter and (iii) no
gain or loss would be recognized by PTR as a result of the adoption of the New
Archstone Charter.
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AMENDMENTS TO THE PTR PLANS
(PROPOSAL 3)
THE PTR BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND THE
PTR PLANS. Assuming the presence of a quorum, the affirmative vote of a
majority of the PTR Common Shares voted at the meeting is required to approve
this proposal (provided that more than 50% of the votes entitled to be cast
are voted on the proposal).
PTR INCENTIVE PLAN
General
The PTR Incentive Plan was approved by the PTR Board in June 1997 and by PTR
shareholders in September 1997. The PTR Board has adopted, subject to
shareholder approval, an amendment to the PTR Incentive Plan to increase the
number of shares available for award thereunder from 5,650,000 to 8,650,000.
The only proposed change to the PTR Incentive Plan is to increase the number
of shares available for award thereunder by an amount equal to the number of
shares originally authorized under ATLANTIC's long-term incentive plan. PTR is
proposing the amendment to the PTR Incentive Plan in order to allow Archstone
to continue to provide incentives to its officers and employees. The terms and
conditions of the PTR Incentive Plan are summarized below.
Assuming approval of the amendment, the number of PTR Common Shares which
may be awarded under the PTR Incentive Plan may not exceed 8,650,000 shares in
the aggregate and no individual may be granted awards with respect to more
than 500,000 shares in any one-year period.
As of April 15, 1998, there were 1,863,696 shares subject to options granted
under the existing PTR Incentive Plan, 822,327 shares issued under the share
purchase program of the PTR Incentive Plan and 2,963,977 shares remaining
available for award. Subsequent to the Merger, there would be a total of
4,466,262 shares subject to options or issued under the PTR Incentive Plan and
only 1,183,738 shares available if the increase in authorized shares is not
approved. Consequently, the PTR Board has proposed an amendment to the PTR
Incentive Plan to enable the Compensation Committee to continue to provide
incentives to Archstone employees and officers after the Merger. Upon
completion of the Merger, assuming the amendment to the PTR Incentive Plan is
approved, the total number of shares subject to the PTR Incentive Plan will
constitute 5.4% of the fully diluted shares of Archstone after the Merger.
PTR Common Shares issued under the PTR Incentive Plan may be authorized and
unissued shares, or treasury shares. In the event of certain transactions
affecting the type or number of outstanding shares, the number of shares
subject to the PTR Incentive Plan, the number or type of shares subject to
outstanding awards and the exercise price thereof will be appropriately
adjusted. The PTR Incentive Plan authorizes the establishment of one or more
option programs and share purchase programs and authorizes the award of share
grants (any of which may be subject to restrictions). The Compensation
Committee of the PTR Board (the "Compensation Committee") administers the PTR
Incentive Plan. All employees of PTR or any of its affiliates designated by
the Compensation Committee are eligible to participate in the PTR Incentive
Plan. Subject to the terms of the PTR Incentive Plan, the Compensation
Committee determines which employees shall be eligible to receive awards under
the PTR Incentive Plan, and the amount, price, timing and other terms and
conditions applicable to such awards. Non-employee Trustees are not eligible
to participate in the PTR Incentive Plan.
Options awarded under the PTR Incentive Plan may be either incentive share
options which are intended to satisfy the requirements of Section 422 of the
Code, or non-qualified share options which are not intended to satisfy Section
422 of the Code. Options become exercisable in accordance with the terms
established by the Compensation Committee, which may include conditions
relating to completion of a specified period of service or achievement of
performance standards or such other criteria as the Compensation Committee
deems appropriate. Options expire on the date determined by the Compensation
Committee which shall not be later than the earliest to occur of (i) the tenth
anniversary of the grant date, (ii) the first anniversary of the participant's
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termination of employment by reason of death, disability or retirement or
(iii) the three-month anniversary of the participant's termination of
employment for any other reason. Shares transferred to a participant pursuant
to the exercise of an option may be subject to such additional restrictions or
limitations as the Compensation Committee may determine. The PTR Incentive
Plan provides generally that participants who are awarded options will also
receive dividend equivalent units with respect to the options. The dividend
equivalent units will be subject to the same vesting schedule as the options
and will be payable when the options are exercised, unless the participant
elects to defer receipt, or the options expire. Generally, each participant
will be credited with dividend equivalent units at the end of each calendar
year in an amount equal to (i) the average dividend yield during such year
with respect to a PTR Common Share that is in excess of the S&P 500 average
dividend yield for such year, multiplied by (ii) the number of PTR Common
Shares underlying the participant's outstanding options that were granted with
dividend equivalent units. Each dividend equivalent unit also accumulates
additional dividend equivalent units on an annual basis. All dividend
equivalent units are paid in the form of PTR Common Shares at the rate of one
PTR Common Share per dividend equivalent unit.
The PTR Incentive Plan provides that the Compensation Committee may award
participant performance stock, the distribution of which is subject to
achievement of performance objectives. The number of shares and the
performance measures and periods shall be established by the Compensation
Committee at the time the award is made; provided that any performance period
shall be at least one year.
Non-Qualified Options
The Compensation Committee may grant non-qualified options to acquire PTR
Common Shares. Concurrently with the consummation of the Merger, the officers
of ATLANTIC who have been granted options will receive substitute options to
purchase PTR Common Shares. The substitute options will become exercisable 25%
on the second anniversary of the original date of grant of ATLANTIC options
and an additional 25% on each of the third, fourth and fifth anniversaries of
the original date of grant and expire ten years after the original date of
grant. The participants have no rights as shareholders with respect to the
shares subject to his or her options until the option is exercised. No income
will be recognized by a participant at the time the options or the dividend
equivalent units are granted. The exercise of a non-qualified stock option is
generally a taxable event that requires the participant to recognize, as
ordinary income, the difference between the fair market value of the shares at
the time of exercise and the option exercise price. Receipt of a dividend
equivalent unit by the participant is generally a taxable event that requires
the participant to recognize, as ordinary income, the fair market value of the
shares at the time of receipt. PTR ordinarily will be entitled to claim a
federal income tax deduction on account of the exercise of a non-qualified
option and payment of dividend equivalent units. The amount of the deduction
is equal to the ordinary income recognized by a participant. PTR has adopted
the provisions of Statement of Financial Accounting Standards No. 123 ("SFAS
No. 123") "Accounting for Stock Based Compensation." Under the provisions of
this statement, PTR will continue to account for its share options under the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations.
Share Purchase Program
The PTR Incentive Plan permits the Compensation Committee to allow officers
and employees to purchase PTR Common Shares with, at the Compensation
Committee's discretion, matching options or shares for each share purchased.
Dividend equivalent units are not issued with respect to matching options. The
share purchases generally provide for a one-year restricted period during
which the participants may not, while employed, sell the purchased shares. If
a participant leaves the employ of PTR prior to the end of the restricted
period, PTR has the right to repurchase the shares at the fair market value of
such shares at the time the participant's employment is terminated. At the end
of the restricted period, the participant owns the shares without further
restriction. However, if the participant sells the restricted shares after the
end of the restricted period, the participant's matching options may be
adversely affected. PTR makes loans for up to 95% of the purchase price
available to participants. Each loan is fully recourse to the participant and
is secured by the purchased shares. Each loan has a 10 year term and an
interest rate which is equal to the lower of 6% or the dividend yield of a PTR
Common Share, determined based on the purchase date fair market value of a PTR
Common Share. The loan becomes
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due and payable (i) immediately upon sale of the purchased shares or PTR's
termination of the participant's employment for cause, (ii) 90 days following
the participant's termination of employment with PTR for any reason other than
death, disability, retirement or cause, provided such termination is not
following a change in control of PTR, (iii) 180 days following PTR's
termination of the participant's employment following a change in control or
(iv) 365 days following the participant's termination of employment with PTR
by reason of death, disability or retirement.
Plan Benefits
The following table shows the outstanding option awards under the PTR
Incentive Plan after consummation of the Merger held by (i) the Archstone
Named Executive Officers, (ii) all executive officers as a group and (iii) all
employees, including all officers who are not executive officers as a group.
No awards other than substitute options to former ATLANTIC option holders will
be made under the PTR Incentive Plan as a result of the Merger.
<TABLE>
<CAPTION>
DOLLAR VALUE OPTION AWARDS
OF SHARES ------------------------
SUBJECT TO NUMBER EXERCISE EXPIRATION
NAME AND TITLE OPTION(1) OF SHARES(2) PRICE($)(2) DATE(3)
-------------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Constance B. Moore............ $4,299,967 191,642 22.4375 9/8/07
Co-Chairman and Chief
Operating Officer
R. Scot Sellers............... 4,299,959 194,899 22.0625 9/8/07
Co-Chairman and Chief
Investment Officer
Patrick R. Whelan............. 4,049,947 183,567 22.0625 9/8/07
Managing Director--Operations
Jay S. Jacobson............... 2,220,944 100,666 22.0625 9/8/07
Managing Director--
Central/Northwest Region
J. Lindsay Freeman............ 2,175,473 96,957 22.4375 9/8/07
Managing Director--Southeast
Region--Operations
Bradley C. Miller............. 2,175,473 96,957 22.4375 9/8/07
Managing Director--Southeast
Region--Developments
Richard A. Banks.............. 2,099,953 95,182 22.0625 9/8/07
Managing Director--West
Region
All executive officers as a
group
(10 persons)................. 24,090,905 1,084,630 22.2112 9/8/07
All employees, including all
officers
who are not executive
officers, as a
group (179 persons).......... 62,023,177 2,791,366 22.2197 9/8/07
</TABLE>
- --------
(1) Non-qualified options with dividend equivalent units and vesting schedule
of 25% exercisable on the second anniversary of grant and an additional
25% on each of the third, fourth and fifth anniversaries of the date of
grant subject to certain conditions. In the case of substitute options,
the vesting schedule is based on the original date of grant.
(2) The exercise price and number of shares subject to substitute options is
the same as the exercise price and number of shares for the existing
ATLANTIC options. The exercise price shown is the weighted average
exercise price for shares subject to options.
(3) Ten years from the original date of grant.
PTR OUTSIDE TRUSTEES PLAN
The PTR Outside Trustees Plan was adopted by the PTR Board on December 10,
1996 and approved by shareholders on June 10, 1997. The PTR Board has adopted,
subject to shareholder approval, an amendment to
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the PTR Outside Trustees Plan to increase the number of shares available for
award thereunder from 100,000 to 200,000. As of April 15, 1998, there were
10,000 shares subject to options granted under the PTR Outside Trustees Plan
and 90,000 shares remaining available for award. The PTR Board has proposed an
amendment to the PTR Outside Trustees Plan to enable the continued grant of
options to Archstone Trustees after the Merger. Upon completion of the Merger,
assuming the amendment to the PTR Outside Trustees Plan is approved, the total
number of shares subject to the PTR Outside Trustees Plan will constitute less
than 1% of the outstanding shares of Archstone after the Merger. The amount of
the increase is equal to the number of shares authorized under ATLANTIC's
Share Option Plan for Outside Directors. The terms and conditions of the PTR
Incentive Plan are summarized below.
The PTR Outside Trustees Plan provides for grants of options to purchase PTR
Common Shares to enable the Outside Trustees of PTR to increase their
ownership of PTR and thereby increase the alignment of their interests with
those of PTR's other shareholders.
The number of PTR Common Shares reserved for issuance upon exercise of
options granted under the PTR Outside Trustees Plan is 10,000. PTR Common
Shares that are forfeited will again become available for awards under the PTR
Outside Trustees Plan.
On the date of each annual meeting of shareholders of PTR for the years 1997
through and including 2006, each Outside Trustee serving on such date (after
the election of Trustees in the meeting) will be granted an Option to purchase
2,000 PTR Common Shares at an exercise price equal to the average of the
highest and lowest sales price per share of the PTR Common Shares on the NYSE
on such date. In 1997, options for 2,000 PTR Common Shares were awarded under
the PTR Outside Trustees Plan to each of Messrs. Cardwell, Kelley, Kessler,
Myers and Schweitzer and additional options for 2,000 shares will be awarded
at PTR's 1998 annual meeting of shareholders. Directors of ATLANTIC who will
become Trustees of PTR in connection with the Merger will not be granted
options, other than substitute options, until the annual meeting of
shareholders in 1999.
Each option is immediately exercisable, but must be exercised before the
earliest of the following events to occur: the date that is three months after
the date that the option holder's position as a Trustee terminates for any
reason other than death or disability, the date that is twelve months after
the date the Trustee becomes disabled or dies or the date that is five years
after the date the option is granted.
The PTR Outside Trustees Plan may be amended or terminated at any time by
the PTR Board.
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MANAGEMENT
Under the Merger Agreement, the trustees and officers of PTR immediately
prior to the Merger will be the trustees and officers of Archstone Communities
Trust. As indicated above, the New Archstone Charter will be effective
immediately prior to the Merger, which provides for a classified board and the
members of the PTR Board who will serve in each class (which will include the
current members of the ATLANTIC Board). The members of the PTR Board
immediately before and the members of the Archstone Board after the Effective
Time will be as follows:
<TABLE>
<CAPTION>
NAME CLASS TERM EXPIRES
---- ----- ------------
<S> <C> <C>
James A. Cardwell I 1999
Manuel A. Garcia, III I 1999
James H. Polk, III I 1999
James C. Potts I 1999
John T. Kelley, III II 2000
Calvin K. Kessler II 2000
Constance B. Moore II 2000
William G. Myers II 2000
Ned S. Holmes III 2001
John M. Richman III 2001
John C. Schweitzer III 2001
R. Scot Sellers III 2001
</TABLE>
JAMES A. CARDWELL--66--Trustee of PTR since May 1980; since 1975 Chief
Executive Officer of Petro Stopping Centers, L.P., El Paso, Texas (operation
of full-service truck stopping centers) and its predecessor; Director, El Paso
Electric Company.
MANUEL A. GARCIA, III--54--Director of ATLANTIC since December 1995 and a
Director of Homestead Village Incorporated since April 1997. Since May 1969,
Mr. Garcia has been Chief Executive Officer of Davgar Restaurants, Inc. where
he is the owner/operator of ten Burger King Restaurants in central Florida,
five Pebbles Restaurants, Harvey's Bistro and Manuel's on the 28th Restaurant
in Orlando, Florida. Mr. Garcia is a Director of The Foundation for Orange
County Public Schools and the Florida Cities Sports Association and is
National Director of Cities in Schools. Mr. Garcia is also a member of the
Board of Directors of the National Conference of Christians and Jews and an
Honorary Director of the Boys' Clubs and Boy Scouts of Central Florida. Mr.
Garcia was a member of former President Bush's Drug Advisory Council.
JAMES H. POLK, III--55--Trustee of PTR since January 1976; Managing Director
of Security Capital Markets Group Incorporated from August 1992 to June 1997
and President from March 1997 to June 1997. Mr. Polk was affiliated with PTR
from January 1976 to June 1997 in various capacities, including President and
Chief Executive Officer. Mr. Polk is registered with the National Association
of Securities Dealers, Inc. and is past President and Trustee of the National
Association of Real Estate Investment Trusts, Inc.
JAMES C. POTTS--51--Co-Chairman and Chief Investment Officer of ATLANTIC
since January 1996 and Director of ATLANTIC since October 1993, where he has
overall responsibility for investments. Mr. Potts was Chairman of ATLANTIC
from May 1994 to December 1995. From December 1992 to April 1994, Mr. Potts
was Managing Director of PTR, where he supervised the asset management and on-
site management of all of PTR's multifamily communities.
JOHN T. KELLEY, III--57--Trustee of PTR since January 1988; founding officer
and Advisory Trustee of Security Capital Industrial Trust ("SCI"), Aurora,
Colorado (ownership and development of industrial parks in the United States,
Mexico and Europe). Mr. Kelley is also a Director of Security Capital and
Chairman of Pacific Retail Trust (ownership and development of infill retail
properties in the western United States).
CALVIN K. KESSLER--66--Trustee of PTR since January 1972; President and
principal shareholder, Kessler Industries, Inc., El Paso, Texas (manufacturer
of furniture and aluminum castings) since 1960.
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CONSTANCE B. MOORE--42--Co-Chairman, Chief Operating Officer and Director of
ATLANTIC since January 1996, where she has overall responsibility for
operations. From May 1994 to December 1995, Ms. Moore was Managing Director of
PTR, where she had overall responsibility for operations. She was Senior Vice
President of Security Capital from March 1993 to April 1994 and is a Director
of the National Multi Housing Council.
WILLIAM G. MYERS--70--Trustee of PTR since May 1994; Chief Executive Officer
of Ojai Ranch and Investment Company, Inc., Santa Barbara, California, which
he founded in 1963 (agribusiness and other investments); Director, Chalone
Wine Group, Napa, California. Mr. Myers is also a Trustee of SCI.
NED S. HOLMES--53--Director of ATLANTIC since May 1994. Mr. Holmes has been
the President and Chief Executive Officer of Laing Properties, Inc. since May
1990 and Chairman and President of Parkway Investment/Texas Inc., a Houston-
based real estate investment and development company which specializes in
residential (apartment and townhouse), commercial (office and warehouse) and
subdivision projects since April 1984. Mr. Holmes is a Director of Heritage
Bank and Commercial Bancshares, Inc. and Chairman of the Port Commission of
the Port of Houston Authority. He also serves as a Director of the Institute
of International Education, the Houston International Protocol Alliance and is
Vice Chairman of Greater Houston Partnership.
JOHN M. RICHMAN--70--Director of ATLANTIC since September 1996. Mr. Richman
has been Counsel to the law firm of Wachtell, Lipton, Rosen & Katz since
January 1990. He is a Director of BankAmerica Corporation and Bank of America
National Trust and Savings Association, USX Corporation, and Stream
International Inc. He is a Trustee of the Chicago Symphony Orchestra,
Northwestern University and The Johnson Foundation. He is a retired director
of R.R. Donnelley & Sons Company and served as Acting Chairman and Chief
Executive Officer of that company from October 1996 to April 1997. Mr. Richman
is a Director of The Chicago Council on Foreign Relations and Lyric Opera of
Chicago and a member of The Business Council, The Commercial Club of Chicago
and The Economic Club of Chicago.
JOHN C. SCHWEITZER--53--Trustee of PTR since April 1976; Director of
Homestead Village Incorporated since April 1997; Trustee of Pacific Retail
Trust since June 1997; Managing Partner, Continental Properties Company,
Austin, Texas (real estate and investments) since 1976; General Partner, G.P.
Campbell Capital Ltd. (real estate and investments) since 1976; Trustee, Texas
Christian University; Director, Austin Smiles, Westgate Corporation, Chase
Bank of Texas, and Continental Transmissions.
R. SCOT SELLERS--41--President and Chief Executive Officer of PTR since June
1997, where he has overall responsibility for PTR's operations and strategic
direction; previously, Managing Director of PTR from September 1994 to June
1997, where he had overall responsibility for PTR's investment strategy and
implementation. From May 1994 to September 1994, Senior Vice President of PTR;
from April 1993 to May 1994, Senior Vice President of Security Capital, where
he was responsible for portfolio acquisitions from institutional sources. From
September 1981 to April 1993, Mr. Sellers was an operating partner and Vice
President of Lincoln Property Company, where he was responsible for the
development of more than 6,500 multifamily units in a number of different
markets. The PTR Board has nominated Mr. Sellers for election as a Trustee at
the 1998 annual shareholders' meeting.
C. RONALD BLANKENSHIP--48--Advisory Trustee of Archstone upon completion of
the Merger; Non-Executive Chairman of PTR since June 1997; Chairman of PTR
from June 1991 to June 1997; Managing Director of Security Capital since March
1991; Advisory Director of ATLANTIC since September 1996 and Director from
April 1996 to September 1996; Director of Storage USA, Inc. since December
1997; Director of Strategic Hotel Capital Incorporated since April 1997.
Executive Officers
The executive officers of Archstone Communities Trust will be as follows:
RICHARD A. BANKS--50--Managing Director of PTR since December 1997 and
Senior Vice President of PTR from August 1997 to December 1997, where he has
overall responsibility for investments and operations in
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the West Region. From January 1995 to August 1997, Mr. Banks served as
President and Chief Executive Officer of Lincoln Residential Services, where
he was responsible for all aspects of leading a full service property
management company of approximately 40,000 multifamily units in the western
United States; from July 1993 to January 1995, Vice President of Lincoln
Property Company, Irvine, California, with responsibility for overall
management and revenue growth for the region. Prior thereto, Mr. Banks was
with American Real Estate Group, where he oversaw the asset management of a
$300 million portfolio of real estate assets.
RICHARD W. DICKASON--41--Senior Vice President of PTR since October 1997,
where he has overall responsibility for investments in the Northwest Region;
from March 1995 to October 1997, Vice President of PTR. From December 1993 to
March 1995, Vice President of Security Capital Pacific Incorporated
("PACIFIC") from July 1992 to September 1993, President of J.M. Peters
Company/Capital Pacific Homes, where he acquired property for the development
of single-family homes and multifamily communities. From May 1980 to January
1992, Partner and Vice President of Lincoln Property Company N.C. Inc., where
he was responsible for the acquisition, development, construction and
management of a 4,000 unit multifamily residential portfolio in California.
Prior thereto, Mr. Dickason represented private investors in the development
of condominiums, townhouses, shopping centers and single-family homes
throughout California.
J. LINDSAY FREEMAN--52--Managing Director of ATLANTIC since December 1997
where he has responsibility for operations and Senior Vice President of
ATLANTIC from May 1994 to November 1997. From June 1980 to March 1994, Mr.
Freeman was Senior Vice President and Operating Partner of Lincoln Property
Company in Atlanta, Georgia, where he was responsible for acquisitions,
financing, construction and management of multifamily communities within the
Atlantic region and oversaw operations of 16,000 multifamily units.
JAY S. JACOBSON--45--Managing Director of PTR since December 1997 and Senior
Vice President of PTR from June 1996 to December 1997, where he has overall
responsibility for investments and operations in the Central/Northwest Region;
Vice President of PTR from July 1993 to June 1996. From 1988 to June 1993,
Vice President--Residential Development for Michael Swerdlow Companies, Inc.
and Hollywood Inc., (South Florida real estate development/management
companies under common control), where he was responsible for the planning and
development of large scale single-family and multifamily developments as well
as other development properties.
JOHN JORDANO, III--41--Senior Vice President of PTR since October 1997,
where he has overall responsibility for PTR's investment activity in the West
Region; from March 1995 to October 1997, Vice President of PTR and from August
1994 to March 1995, Vice President of PACIFIC. From January 1992 to July 1994,
Senior Vice President of Prospect Partners, where he was responsible for
identifying and advising individual and corporate clients on financial
institution and Resolution Trust Corporation apartment acquisition and
investment opportunities in the western United States.
WILLIAM KELL--42--Senior Vice President of ATLANTIC since December 1997 and
Controller of ATLANTIC since January 1996, where he supervises accounting and
financial reporting for ATLANTIC and Vice President of ATLANTIC from January
1996 to November 1997. From June 1991 to December 1995, Mr. Kell was Vice
President and Controller of PTR, where he had overall responsibility for
multifamily accounting and financial reporting.
JEFFREY A. KLOPF--49--Senior Vice President and Secretary of PTR, ATLANTIC
and Security Capital since January 1996, where he provides securities
offerings and corporate acquisition services and oversees the provision of
legal services for affiliates of Security Capital. From January 1988 to
December 1995, Mr. Klopf was a partner of Mayer, Brown & Platt, where he
practiced corporate and securities law.
BRADLEY C. MILLER--50--Managing Director of ATLANTIC since December 1997
where he is responsible for investments and Senior Vice President of ATLANTIC
from June 1996 to November 1997. From October 1979 to May 1996, Mr. Miller was
Senior Vice President and Operating Partner of Lincoln Property Company in
Tampa, Florida, where he was responsible for acquisitions, financing,
construction and management of
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multifamily properties within the Atlantic region and oversaw the development
of over 6,500 new multifamily units and operations of 11,000 multifamily
units.
CONSTANCE B. MOORE--See above.
R. SCOT SELLERS--See above.
PATRICK R. WHELAN--41--Managing Director of PTR since December 1996, where
he has overall responsibility for PTR's operations; previously, President of
SCG Realty Services Incorporated ("SCG Realty Services"), where he had overall
responsibility for multifamily property management nationwide. From February
1994 to October 1994, Mr. Whelan was Senior Vice President and Co-Manager of
multifamily acquisitions for Security Capital; from July 1986 to January 1994,
Senior Vice President of Trammell Crow Company (development, acquisition and
management of commercial properties).
THE SPECIAL MEETINGS OF SHAREHOLDERS
THE PTR SPECIAL MEETING
Purpose of the Meeting. At the PTR Special Meeting, the holders of PTR
Common Shares will be asked to consider and vote upon (i) a proposal to
approve the Merger and the Merger Agreement, (ii) a proposal to approve the
New Archstone Charter and (iii) a proposal to amend the PTR Plans to increase
the number of shares available for award thereunder in an amount equal to the
number of shares authorized under the corresponding ATLANTIC option plans.
Copies of the Merger Agreement and the New Archstone Charter are set forth as
Annex I and Annex II, respectively, to this Joint Proxy Statement and
Prospectus which are incorporated herein by reference.
Date, Time and Place; Record Date. The PTR Special Meeting is scheduled to
be held at a.m., mountain time, on , , 1998, at . The PTR
Board has fixed the close of business on , 1998 as the record date for
the determination of holders of PTR Common Shares entitled to notice of and to
vote at the Special Meeting. On April 15, 1998 there were 93,019,851 PTR
Common Shares outstanding which were held by approximately 3,000 record
holders. As of April 15, 1998, Security Capital and PTR's Trustees and
executive officers beneficially owned an aggregate of 31,250,526 PTR Common
Shares or approximately 33.6% of the outstanding PTR Common Shares. Security
Capital has agreed, subject to certain conditions, and each of such other
persons has indicated his or her intent, to vote his or her PTR Common Shares
in favor of the Merger and the Merger Agreement as well as in favor of the New
Archstone Charter and the amendments to PTR's benefit plans.
Admission. Registered owners of PTR Common Shares who plan to attend the PTR
Special Meeting in person must detach and retain the admission ticket which is
attached to the proxy card. Beneficial owners who plan to attend the PTR
Special Meeting in person may obtain admission tickets in advance by sending
written requests, along with proof of ownership, such as a bank or brokerage
firm account statement, to: Assistant Secretary, Security Capital Pacific
Trust, 7670 South Chester Street, Englewood, Colorado 80012. Record owners and
beneficial owners (including the holders of valid proxies therefrom) who do
not present admission tickets at the meeting will be admitted upon
verification of ownership at the admissions counter at the PTR Special
Meeting. Verification of ownership for record holders (including holders of
valid proxies therefrom) will consist of a valid form of personal
identification (such as a driver's license or passport) and for beneficial
owners will consist of a bank or brokerage firm account statement showing
beneficial ownership as of the PTR Record Date together with a valid form of
personal identification.
Voting Rights. Assuming the existence of a quorum, the affirmative vote of
the holders of at least two-thirds of the outstanding PTR Common Shares is
required to approve each of the Merger and the Merger Agreement and the New
Archstone Charter and the approval of a majority of the PTR Common Shares
represented at the meeting is required to approve the amendments to the PTR
Plans (provided that more than
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50% of the votes entitled to be cast are voted on the proposal). Holders of
record of PTR Common Shares on the PTR Record Date are entitled to one vote
per PTR Common Share at the PTR Special Meeting. The presence, either in
person or by proxy, of the holders of a majority of the outstanding PTR Common
Shares is necessary to constitute a quorum at the PTR Special Meeting.
If a shareholder attends the PTR Special Meeting, he or she may vote by
ballot. However, since many shareholders may be unable to attend the PTR
Special Meeting, the PTR Board is soliciting proxies so that each holder of
PTR Common Shares on the PTR Record Date has the opportunity to vote on the
proposals to be considered at the Special Meeting. When a proxy card is
returned properly signed and dated, the PTR Common Shares represented thereby
will be voted in accordance with the instructions on the proxy card. If a
shareholder does not return a signed proxy card, his or her PTR Common Shares
will not be voted and thus will have the effect of a vote against the Merger
and the Merger Agreement, the New Archstone Charter and the amendments to the
PTR Plans. Similarly, a broker non-vote or an abstention will have the effect
of a vote against the Merger and the Merger Agreement and the New Archstone
Charter. With respect to the amendments to the PTR Plans, a broker non-vote or
an abstention will have the effect of a vote against the proposal unless
holders of more than 50% in interest of all securities entitled to vote on the
proposal cast votes, in which event neither a broker non-vote nor an
abstention will have any effect on the result of the vote. Shareholders are
urged to mark the box on the proxy card to indicate how their PTR Common
Shares are to be voted. If a shareholder returns a signed proxy card, but does
not indicate how his or her PTR Common Shares are to be voted, the PTR Common
Shares represented by the proxy card will be voted "FOR" the Merger and the
Merger Agreement, the New Archstone Charter and the amendments to the PTR
Plans. The proxy card also confers discretionary authority on the individuals
appointed by the PTR Board and named on the proxy card to vote the PTR Common
Shares represented thereby on any other matter that is properly presented for
action at the PTR Special Meeting. Such discretionary authority will not be
used to vote for adjournment of the PTR Special Meeting to permit further
solicitation of proxies if the shareholder votes against any proposal.
Any PTR shareholder who executes and returns a proxy card may revoke such
proxy at any time before it is voted by (i) notifying in writing the Secretary
of PTR at 7670 South Chester Street, Englewood, Colorado 80112, (ii) granting
a subsequent proxy or (iii) appearing in person and voting at the PTR Special
Meeting. Attendance at the PTR Special Meeting will not in and of itself
constitute revocation of a proxy.
Other Matters. PTR is not aware of any business or matter other than those
indicated above which may be properly presented at the PTR Special Meeting.
If, however, any other matter properly comes before the PTR Special Meeting,
the proxy holders will, in their discretion, vote thereon in accordance with
their best judgment.
THE ATLANTIC SPECIAL MEETING
Purpose of the Meeting. At the ATLANTIC Special Meeting, the holders of
ATLANTIC Common Shares will be asked to consider and vote upon a proposal to
approve the Merger and the Merger Agreement. A copy of the Merger Agreement is
set forth as Annex I to this Joint Proxy and Prospectus, which is incorporated
herein by reference.
Date, Time and Place; Record Date. The ATLANTIC Special Meeting is scheduled
to be held at a.m., eastern time, on , , 1998, at . The
ATLANTIC Board has fixed the close of business on , 1998 as the record
date for the determination of holders of ATLANTIC Common Shares entitled to
notice of and to vote at the ATLANTIC Special Meeting. On April 15, 1998 there
were 47,752,052 ATLANTIC Common Shares outstanding which were held by
approximately 300 record holders. As of April 15, 1998, Security Capital and
ATLANTIC's Directors and executive officers beneficially owned an aggregate of
24,250,323 ATLANTIC Common Shares or approximately 50.8% of the outstanding
ATLANTIC Common Shares. Security Capital has agreed, subject to certain
conditions, and each of such other persons has indicated his or her intent, to
vote his or her ATLANTIC Common Shares in favor of the Merger and the Merger
Agreement. Assuming that Security Capital, as well as such Directors and
officers, vote in favor of the Merger, the approval of the proposal is
assured.
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Admission. Registered owners of ATLANTIC Common Shares who plan to attend
the ATLANTIC Special Meeting in person must detach and retain the admission
ticket which is attached to the proxy card. Beneficial owners who plan to
attend the ATLANTIC Special Meeting in person may obtain admission tickets in
advance by sending written requests, along with proof of ownership, such as a
bank or brokerage firm account statement, to: Assistant Secretary, Security
Capital Atlantic Incorporated, Six Piedmont Center, Atlanta, Georgia 30305.
Record owners and beneficial owners (including the holders of valid proxies
therefrom) who do not present admission tickets at the meeting will be
admitted upon verification of ownership at the admissions counter at the
ATLANTIC Special Meeting. Verification of ownership for record holders
(including holders of valid proxies therefrom) will consist of a valid form of
personal identification (such as a driver's license or passport) and for
beneficial owners will consist of a bank or brokerage firm account statement
showing beneficial ownership as of the ATLANTIC Record Date together with a
valid form of personal identification.
Voting Rights. Assuming the existence of a quorum, the affirmative vote of
the holders of at least a majority of the outstanding ATLANTIC Common Shares
is required to approve the Merger and the Merger Agreement. Holders of record
of ATLANTIC Common Shares on the ATLANTIC Record Date are entitled to one vote
per ATLANTIC Common Share at the ATLANTIC Special Meeting. The presence,
either in person or by proxy, of the holders of a majority of the outstanding
ATLANTIC Common Shares is necessary to constitute a quorum at the ATLANTIC
Special Meeting.
If a shareholder attends the ATLANTIC Special Meeting, he or she may vote by
ballot. However, since many shareholders may be unable to attend the ATLANTIC
Special Meeting, the ATLANTIC Board is soliciting proxies so that each holder
of ATLANTIC Common Shares on the ATLANTIC Record Date has the opportunity to
vote on the proposals to be considered at the ATLANTIC Special Meeting. When a
proxy card is returned properly signed and dated, the ATLANTIC Common Shares
represented thereby will be voted in accordance with the instructions on the
proxy card. If a shareholder does not return a signed proxy card, his or her
ATLANTIC Common Shares will not be voted and thus will have the effect of a
vote against the Merger and the Merger Agreement. Similarly, broker non-votes
and abstentions have the effect of a vote against the Merger and the Merger
Agreement. Shareholders are urged to mark the box on the proxy card to
indicate how their ATLANTIC Common Shares are to be voted. If a shareholder
returns a signed proxy card, but does not indicate how his or her ATLANTIC
Common Shares are to be voted, the ATLANTIC Common Shares represented by the
proxy card will be voted "FOR" the Merger and the Merger Agreement. The proxy
card also confers discretionary authority on the individuals appointed by the
ATLANTIC Board and named on the proxy card to vote the ATLANTIC Common Shares
represented thereby on any other matter that is properly presented for action
at the ATLANTIC Special Meeting. Such discretionary authority will not be used
to vote for adjournment of the ATLANTIC Special Meeting to permit further
solicitation of proxies if the shareholder votes against any proposal.
Any ATLANTIC shareholder who executes and returns a proxy card may revoke
such proxy at any time before it is voted by (i) notifying in writing the
Secretary of ATLANTIC at Six Piedmont Center, Suite 600, Atlanta, Georgia
30305, (ii) granting a subsequent proxy or (iii) appearing in person and
voting at the ATLANTIC Special Meeting. Attendance at the ATLANTIC Special
Meeting will not in and of itself constitute revocation of a proxy.
Other Matters. ATLANTIC is not aware of any business or matter other than
those indicated above which may be properly presented at the ATLANTIC Special
Meeting. If, however, any other matter properly comes before the ATLANTIC
Special Meeting, the proxy holders will, in their discretion, vote thereon in
accordance with their best judgment.
COMPARISON OF SHAREHOLDER RIGHTS
The rights of shareholders of ATLANTIC are currently governed by the MGCL
and the ATLANTIC Charter and the ATLANTIC By-Laws. Holders of ATLANTIC Common
Shares immediately prior to the Effective Time will become shareholders of
PTR, a Maryland REIT, and from and after the Effective Time, their rights as
shareholders of PTR will be governed by Title 8 and the New Archstone Charter
and the PTR By-laws. There are certain differences between the rights of
shareholders of a Maryland corporation and those of a
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Maryland REIT. There are also certain differences between the rights of
shareholders under the New Archstone Charter and the PTR By-Laws and under the
ATLANTIC Charter and the ATLANTIC By-Laws.
Authorized and Issued Shares. The ATLANTIC Charter authorizes the issuance
of 250,000,000 of ATLANTIC Common Shares and the ATLANTIC Board may classify
or reclassify any unissued shares of stock from time to time by setting or
changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of stock. To date the ATLANTIC Board has authorized
2,000,000 ATLANTIC Series A Preferred Shares and 746,032 shares of Series A
Junior Participating Preferred Stock, $.01 par value per share.
Under the New Archstone Charter, the number of shares of beneficial interest
of PTR authorized for issuance is 250,000,000. There are currently 102,339,666
shares of beneficial interest outstanding (including PTR Common Shares and
preferred shares) and 3,692,089 shares of beneficial interest reserved for
issuance pursuant to convertible securities or options. After the Merger there
would be 152,091,718 shares of beneficial interests outstanding (including PTR
Common Shares and the PTR Series C Preferred Shares) and 4,917,787 shares of
beneficial interest reserved for issuance pursuant to convertible securities
or options.
Special Meetings. The ATLANTIC By-Laws provide that the Chairman of the
ATLANTIC Board (or any Co-Chairman, if more than one) may call a special
meeting of ATLANTIC's shareholders. A special meeting must be called by the
Secretary of ATLANTIC at the direction of a majority of the ATLANTIC Board or
at the written request of shareholders entitled to cast 25% of all votes
entitled to be cast at the meeting.
The PTR By-Laws provide that the Trustees, any officer of PTR or not less
than a majority of the shareholders entitled to vote of PTR may call a special
meeting of PTR's shareholders.
ATLANTIC Board/PTR Board. Pursuant to the ATLANTIC Charter, the Directors of
ATLANTIC are divided into classes with terms of three years, with the term of
one class of Directors expiring at the annual meeting of shareholders in each
year. Each Director holds office for the term for which he or she is elected
and until his or her or her successor is elected and qualified, or until his
or her resignation, removal or death. Section 2-406(b) of the MGCL permits a
Director to be removed with cause, but neither the MGCL nor the ATLANTIC
Charter defines "cause" in connection therewith. Because the term "cause" is
not defined, there may be uncertainty as to the circumstances in which
shareholders have the right to remove a Director.
Pursuant to the New Archstone Charter, the PTR Board is divided into classes
with terms of three years, with the term of one class of Trustees expiring at
the annual meeting of shareholders in each year. Each Trustee will hold office
for the term for which he or she is elected and until his or her successor is
elected and qualifies, or until his or her resignation, removal or death. The
New Archstone Charter provides that a Trustee may be removed with or without
cause, by the affirmative vote of two-thirds of all of the votes entitled to
be cast in the election of Trustees, or by two-thirds of the Trustees then in
office.
Standard of Conduct for Directors and Trustees. The MGCL requires a director
of a Maryland corporation, such as ATLANTIC, to perform his duties as a
director in good faith, in a manner he or she reasonably believes to be in the
best interest of the corporation and with the care that an ordinary person in
a like position would use under similar circumstances. Title 8 contains no
statutory standard of conduct for trustees of a Maryland REIT such as PTR.
Board Committees. The MGCL permits the board of a Maryland corporation, such
as ATLANTIC, to delegate to a committee of one or more directors any of its
powers except the powers to authorize dividends, issue stock in certain
situations, recommend to the shareholders any action which requires
shareholder approval, amend the By-Laws or approve any merger or share
exchange which does not require shareholder approval.
Title 8 contains no provision for or limitation on the composition of or
delegation of powers to committees of the board of trustees of a Maryland
REIT, such as PTR. Under the New Archstone Charter, the PTR Board
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may designate one or more committees which shall consist of one or more
Trustees. Such committees shall have and may exercise such powers as shall be
conferred or authorized by the resolution of the PTR Board. The PTR By-Laws,
or a majority of the Trustees, may authorize any one or more of the Trustees,
or any one or more of the officers or employees or agents of the Trust, on
behalf of the Trust, to exercise and perform any and all powers granted to the
PTR Board, and to discharge any and all duties imposed on the PTR Board, and
to do any acts and to execute any instruments deemed by such person or persons
to be necessary or appropriate to exercise such power or to discharge such
duties, and to exercise his or her own sound judgment in so doing.
Amendment of Charter or the New Archstone Charter. The MGCL requires the
approval of shareholders of a Maryland corporation, such as ATLANTIC, for any
amendment to the charter, except for minor changes in the corporate name.
Title 8 requires the approval of shareholders of a Maryland REIT, such as
PTR, for any amendment to the declaration of trust, with certain exceptions.
As permitted by Title 8, the New Archstone Charter permits the PTR Board,
without any action by the shareholders, to amend the New Archstone Charter to
increase or decrease the aggregate number of shares of beneficial interest or
the number of shares of beneficial interest of any class that PTR has
authority to issue. Also, as permitted by Title 8, the New Archstone Charter
permits the PTR Board, by a two-thirds vote, to amend the New Archstone
Charter to qualify as a real estate investment trust under the Code or under
Title 8.
Dividends and Other Distributions. The MGCL provides that no dividend or
other distribution may be paid to shareholders of a Maryland corporation, such
as ATLANTIC, unless, after payment of the distribution, the corporation is
able to pay its debts as they become due in the usual course of business and
the corporation's total assets at least equal the sum of its liabilities and,
unless the charter permits otherwise (which the charter of ATLANTIC does not),
the amount that would be needed to satisfy the preferential rights on
dissolution of shareholders whose preferential rights on dissolution are
superior to the shareholders receiving the distribution.
Title 8 contains no limitations on the payment of dividends or other
distributions by a Maryland REIT, such as PTR.
Maryland Asset Requirements. To maintain its qualification as a Maryland
REIT, Title 8 requires that PTR hold, either directly or indirectly, at least
75% of the value of its assets in real estate assets, mortgages or mortgage-
related securities, government securities, cash and cash equivalent items,
including high-grade short-term securities and receivables. Title 8 also
prohibits using or applying land for farming, agricultural, horticultural or
similar purposes. There is no such requirement for a Maryland corporation,
such as ATLANTIC.
DESCRIPTION OF SECURITIES
PTR COMMON SHARES
General
The New Archstone Charter authorizes PTR to issue up to 250,000,000 Shares
of Beneficial Interest, par value $1.00 per share, consisting of PTR Common
Shares, preferred shares and such other types or classes of shares of
beneficial interest as the PTR Board may create and authorize from time to
time. At April 15, 1998, approximately 93,019,851 PTR Common Shares were
issued and outstanding and held of record by approximately 3,000 shareholders.
The following description sets forth certain general terms and provisions of
the PTR Common Shares. The statements below describing the PTR Common Shares
are in all respects subject to and qualified in their entirety by reference to
the applicable provisions of the New Archstone Charter and the PTR By-Laws.
The outstanding PTR Common Shares are fully paid and, except as set forth
below under "--Shareholder Liability," non-assessable. Each PTR Common Share
entitles the holder to one vote on all matters requiring a
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vote of shareholders, including the election of Trustees. Holders of PTR
Common Shares do not have the right to cumulate their votes in the election of
Trustees, which means that the holders of a majority of the outstanding PTR
Common Shares can elect all of the Trustees then standing for election.
Holders of PTR Common Shares are entitled to such distributions as may be
decreed from time to time by the PTR Board out of funds legally available
therefor. Holders of PTR Common Shares have no conversion, redemption,
preemptive or exchange rights to subscribe to any securities of PTR. In the
event of a liquidation, dissolution or winding up of the affairs of PTR, the
holders of the PTR Common Shares are entitled to share ratably in the assets
of PTR remaining after provision for payment of all liabilities to creditors
and payment of liquidation preferences and accrued dividends, if any, on the
PTR Series A Preferred Shares and PTR Series B Preferred Shares, and subject
to the rights of holders of other series of preferred shares (including the
PTR Series C Preferred Shares), if any. The rights of holders of the PTR
Common Shares are subject to the rights and preferences established by the PTR
Board for the PTR Series A Preferred Shares and PTR Series B Preferred Shares
and any other series of preferred shares which may subsequently be issued by
PTR (including the PTR Series C Preferred Shares). See "--PTR Series C
Preferred Shares."
Purchase Rights
On July 11, 1994, the PTR Board declared a dividend of one preferred share
purchase right (a "Purchase Right") for each PTR Common Share outstanding,
payable to holders of PTR Common Shares of record at the close of business on
July 21, 1994. The holders of any additional PTR Common Shares issued after
such date and before the redemption or expiration of the Purchase Rights are
also entitled to receive one Purchase Right for each such additional PTR
Common Share. Each Purchase Right entitles the holder under certain
circumstances to purchase from PTR one one-hundredth of a share of a series of
participating preferred shares, par value $1.00 per share (the "Participating
Preferred Shares"), at a price of $60.00 per one one-hundredth of a
Participating Preferred Share, subject to adjustment. Purchase Rights are
exercisable when a person or group of persons acquires 20% or more of the
outstanding PTR Common Shares (49% in the case of Security Capital and its
affiliates) or announces a tender offer or exchange offer for 25% or more of
the outstanding PTR Common Shares. Under certain circumstances, each Purchase
Right entitles the holder to purchase, at the Purchase Right's then current
exercise price, a number of PTR Common Shares having a market value of twice
the Purchase Right's exercise price. The acquisition of PTR pursuant to
certain mergers or other business transactions would entitle each holder to
purchase, at the Purchase Right's then current exercise price, a number of the
acquiring company's common shares having a market value at the time equal to
twice the Purchase Right's exercise price. The Purchase Rights held by certain
20% shareholders (other than Security Capital) would not be exercisable. The
Purchase Rights will expire on July 21, 2004 and are subject to redemption in
whole, but not in part, at a price of $.01 per Purchase Right payable in cash,
shares of PTR or any other form of consideration determined by the PTR Board.
Transfer Agent
The transfer agent and registrar for the PTR Common Shares is ChaseMellon
Shareholder Services, L.L.C. The PTR Common Shares are listed on the NYSE
under the symbol "PTR." Upon completion of the Merger, the common shares of
Archstone will be listed on the NYSE under the symbol "ASN."
Restriction on Size of Holdings
The New Archstone Charter restricts beneficial ownership of PTR's
outstanding shares of beneficial interest by a single person, or persons
acting as a group, to 9.8% of such shares as described above under "Approval
of the New Archstone Charter--Restriction on Size of Holdings of Shares."
Shareholder Liability
Both Title 8 and the New Archstone Charter provide that shareholders shall
not be personally or individually liable for any debt, act, omission or
obligation of PTR or the PTR Board. The New Archstone Charter further
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provides that PTR shall indemnify and hold each shareholder harmless from all
claims and liabilities to which the shareholder may become subject by reason
of his or her being or having been a shareholder and that PTR shall reimburse
each shareholder for all legal and other expenses reasonably incurred by the
shareholder in connection with any such claim or liability, provided that such
shareholder gives PTR prompt notice of any such claim or liability and permits
PTR to conduct the defense thereof. In addition, PTR is required to, and as a
matter of practice does, insert a clause in its management and other contracts
providing that shareholders assume no personal liability for obligations
entered into on behalf of PTR. Nevertheless, with respect to tort claims,
contractual claims where shareholder liability is not so negated, claims for
taxes and certain statutory liability, the shareholders may, in some
jurisdictions, be personally liable to the extent that such claims are not
satisfied by PTR. Inasmuch as PTR carries public liability insurance which it
considers adequate, any risk of personal liability to shareholders is limited
to situations in which PTR's assets plus its insurance coverage would be
insufficient to satisfy the claims against PTR and its shareholders.
PTR SERIES C PREFERRED SHARES
The summary of certain terms and provisions of the PTR Series C Preferred
Shares set forth below does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the terms and provisions of the New
Archstone Charter and the PTR By-Laws, copies of which have been filed as
exhibits to the Registration Statement of which this Joint Proxy Statement and
Prospectus forms a part.
The PTR Board is authorized to classify or reclassify any authorized but
unissued shares of PTR from time to time by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of
redemption of such shares.
When issued, the PTR Series C Preferred Shares will be validly issued, fully
paid and non-assessable. The holders of the PTR Series C Preferred Shares will
have no preemptive rights with respect to any shares of PTR or any other
securities of PTR convertible into or carrying rights or options to purchase
any such shares. The PTR Series C Preferred Shares will not be subject to any
sinking fund or other obligations of PTR to redeem or retire the PTR Series C
Preferred Shares. Unless redeemed by PTR, the PTR Series C Preferred Shares
will have a perpetual term, with no maturity.
The transfer agent, registrar and distribution disbursing agent for the PTR
Series C Preferred Shares will be ChaseMellon Shareholder Services, L.L.C.
Distributions
The holders of the PTR Series C Preferred Shares will be entitled to
receive, when, as and if declared by the PTR Board, out of funds legally
available for that purpose, cumulative preferential cash distributions in an
amount per share equal to 8% of the liquidation preference per annum
(equivalent to $2.156 per share). Such distributions will begin to accrue and
will be fully cumulative from the date of original issue and will be payable
quarterly in arrears on the last day of each March, June, September and
December or, if not a business day, the next succeeding business day (each, a
"Distribution Payment Date"). The distribution for each full distribution
period will be computed by dividing the annual distribution rate by four. The
distribution for such period, or any other period shorter than a full
distribution period, will be computed on the basis of a 360-day year of twelve
30-day months. Distributions will be payable to holders of record as they
appear in the stock records of PTR at the close of business on such record
date as is fixed by the Board, which will be not less than 10 nor more than 50
days prior to the corresponding Distribution Payment Date (each, a
"Distribution Record Date").
No distributions on PTR Series C Preferred Shares may be declared or paid or
set apart for payment by PTR at such time as the terms and provisions of any
agreement of PTR, including any agreement relating to its indebtedness,
prohibits such declaration, payment or setting apart for payment or provides
that such declaration, payment or setting apart for payment would constitute a
breach thereof or a default thereunder, or if such declaration, payment or
setting apart for payment is restricted or prohibited by law.
87
<PAGE>
Notwithstanding the foregoing, distributions on the PTR Series C Preferred
Shares will accrue whether or not PTR has earnings, whether or not there are
funds legally available for the payment of such distributions and whether or
not such distributions are declared. Holders of the PTR Series C Preferred
Shares will not be entitled to any distributions in excess of full cumulative
distributions as described above. No interest, or sum of money in lieu of
interest, will be payable in respect of any distribution payment or payments
on the PTR Series C Preferred Shares which may be in arrears.
If, for any taxable year, PTR elects to designate as "capital gain
dividends" (as defined in Section 857 of the Code) any portion (the "Capital
Gain Amount") of the dividends (as determined for federal income tax purposes)
paid or made available for the year to holders of all classes of shares (the
"Total Dividends"), then the portion of the Capital Gain Amount that shall be
allocable to the holders of PTR Series C Preferred Shares shall be the amount
that the total dividends (as determined for federal income tax purposes) paid
or made available to the holders of the PTR Series C Preferred Shares for the
year bears to the Total Dividends.
So long as any PTR Series C Preferred Shares are outstanding, no full
distributions shall be declared or paid or set apart for payment on any series
of preferred shares ranking on parity with the PTR Series C Preferred Shares
as to distributions and in the distribution of assets ("Parity Shares") for
any period unless full cumulative distributions have been or contemporaneously
are paid or declared and a sum sufficient for the payment thereof set apart
for such payments for all past distribution periods and the then current
distribution period with respect to the PTR Series C Preferred Shares. When
distributions are not paid in full, or a sum sufficient for the payment
thereof is not set apart for payment, on the PTR Series C Preferred Shares and
any Parity Shares, all distributions declared on the PTR Series C Preferred
Shares and any Parity Shares will be declared ratably in proportion to the
respective amounts of distributions accrued and unpaid on the PTR Series C
Preferred Shares and on such Parity Shares.
So long as any PTR Series C Preferred Shares are outstanding, no
distributions (other than in Shares or any other class or series of stock of
PTR ranking junior to the PTR Series C Preferred Shares as to distributions
and in the distribution of assets ("Fully Junior Shares")) may be declared or
paid or set apart for payment or other distribution may be declared or made on
the PTR Common Shares or any other class or series of stock of PTR ranking
junior to the PTR Series C Preferred Shares as to distributions or in the
distribution of assets ("Junior Shares"), nor may any Junior Shares be
redeemed, purchased or otherwise acquired for any consideration (or any moneys
be paid to or made available for a sinking fund for the redemption of any
Junior Shares) by PTR (except by conversion into or exchange for Fully Junior
Shares), unless full cumulative distributions have been or contemporaneously
are paid or declared and a sum sufficient for the payment thereof set apart
for such payments for all past distribution periods and the then current
distribution period with respect to the PTR Series C Preferred Shares and any
Parity Shares.
Any distribution payment made on PTR Series C Preferred Shares will be first
credited against the earliest accrued but unpaid distribution due with respect
to PTR Series C Preferred Shares which remains payable.
Liquidation Rights
Upon any liquidation, dissolution or winding up of PTR, whether voluntary or
involuntary, before any payment or distribution is made to or set apart for
the holders of the PTR Common Shares or any other class or series of shares of
PTR ranking junior to the PTR Series C Preferred Shares in the distribution of
assets, the holders of the PTR Series C Preferred Shares will be entitled to
receive out of assets of PTR legally available for that purpose, liquidation
distributions in the amount of the liquidation preference ($25.00 per share),
plus an amount equal to all distributions (whether or not earned or declared)
thereon accrued and unpaid, if any; but such holders will not be entitled to
any further payment. If, upon any liquidation, dissolution or winding up of
PTR, the assets of PTR are insufficient to pay in full such preferential
amount with respect to the PTR Series C Preferred Shares and the corresponding
amounts with respect to all Parity Shares, then such assets will be
distributed among the holders of the PTR Series C Preferred Shares and all
such Parity Shares in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
88
<PAGE>
Subject to the rights of the holders of any class or series of stock of PTR
ranking on a parity with or senior to the PTR Series C Preferred Shares in the
distribution of assets, upon any liquidation, dissolution or winding up of
PTR, whether voluntary or involuntary, after payment has been made in full to
the holders of the PTR Series C Preferred Shares, the holders of Junior Shares
will be entitled to receive any and all remaining assets, and the holders of
the PTR Series C Preferred Shares will not be entitled to share therein.
For the above purposes, a consolidation or merger of PTR with or into any
other entity, a sale or transfer of all or substantially all of PTR's assets
or a statutory share exchange will not be deemed to be a liquidation,
dissolution or winding up of PTR, whether voluntary or involuntary.
Redemption
The PTR Series C Preferred Shares are not redeemable by PTR prior to August
20, 2002, except as required by the restrictions on ownership. See "--
Restrictions on Ownership." On and after August 20, 2002, PTR, at its option
on not less than 30 nor more than 90 days' written notice, may redeem the PTR
Series C Preferred Shares, in whole at any time or in part from time to time,
for cash at a redemption price of $25.00 per share, plus all distributions
thereon accrued and unpaid, if any, to the date fixed for redemption, without
interest. The redemption price of the PTR Series C Preferred Shares (other
than the portion thereof consisting of accrued and unpaid distributions) is
payable solely out of the sale proceeds of other shares of beneficial interest
of PTR, which may include other series of preferred shares. Holders of PTR
Series C Preferred Shares to be redeemed shall surrender such PTR Series C
Preferred Shares at the place designated in such notice and shall be entitled
to the redemption price and any accrued and unpaid distributions payable upon
such redemption following such surrender. If fewer than all the outstanding
PTR Series C Preferred Shares are to be redeemed, the PTR Series C Preferred
Shares to be redeemed will be selected by PTR by lot or pro rata or by any
other method determined by PTR.
Unless full cumulative distributions have been or contemporaneously are paid
or declared and a sum sufficient for the payment thereof set apart for such
payments for all past distribution periods and the then current distribution
period with respect to the PTR Series C Preferred Shares and any Parity
Shares, the PTR Series C Preferred Shares may not be redeemed in part and PTR
may not purchase or otherwise acquire PTR Series C Preferred Shares, except
pursuant to a purchase or exchange offer made on the same terms to all holders
of outstanding PTR Series C Preferred Shares or by conversion into or exchange
for Fully Junior Shares.
Notice of the redemption of any PTR Series C Preferred Shares will be mailed
not less than 30 days nor more than 90 days prior to the redemption date to
each holder of record of PTR Series C Preferred Shares at the address of such
holder as shown on PTR's share records. Each notice shall state: (i) the
redemption date, (ii) the number of PTR Series C Preferred Shares to be
redeemed, (iii) the redemption price, (iv) the place or places at which
certificates evidencing such PTR Series C Preferred Shares are to be
surrendered and (v) that distributions on the PTR Series C Preferred Shares to
be redeemed will cease to accrue on such redemption date. If fewer than all
PTR Series C Preferred Shares are to be redeemed, the notice mailed to each
such holder shall also specify the number of PTR Series C Preferred Shares to
be redeemed from such holder. If notice of redemption of any PTR Series C
Preferred Shares has been mailed and if PTR has deposited the funds necessary
for such redemption in trust for the benefit of the holders of PTR Series C
Preferred Shares so called for redemption, then from and after the redemption
date, distributions will cease to accrue on the PTR Series C Preferred Shares
so called for redemption, such PTR Series C Preferred Shares will no longer be
deemed outstanding and all rights of the holders thereof will terminate,
except the right to receive the redemption price.
If the redemption date falls after a Distribution Record Date and prior to
the corresponding Distribution Payment Date, then each holder of PTR Series C
Preferred Shares at the close of business on such Distribution Record Date
will be entitled to receive the distribution payable on such PTR Series C
Preferred Shares on the corresponding Distribution Payment Date
notwithstanding the redemption thereof before such Distribution Payment Date
or PTR's default in the payment of the distribution due. Except as provided
above, PTR will make
89
<PAGE>
no payment or allowance for unpaid distributions, whether or not in arrears,
on PTR Series C Preferred Shares called for redemption.
The PTR Series C Preferred Shares have no stated maturity and will not be
subject to any sinking fund or mandatory redemption. However, in order to
preserve PTR's status as a REIT as defined in the Code, the PTR Series C
Preferred Shares may be subject to redemption as described in "--Restrictions
on Ownership." Any such redemption would apply only to shares held, directly
or indirectly, by those shareholders with concentrated share ownership that
would violate the Preferred Shares Ownership Limit (as defined below) or the
9.8% ownership limitation on all outstanding shares of PTR's beneficial
interest. In addition, the number of shares subject to such a redemption would
be limited to that number of concentrated shares sufficient in the opinion of
the Board to maintain or bring the ownership of shares into conformity with
such limits. See "--Restrictions on Ownership."
Voting Rights
Except as indicated below, or except as otherwise from time to time required
by applicable law, the holders of PTR Series C Preferred Shares will have no
voting rights.
If and whenever six quarterly distributions (whether or not consecutive)
payable on the PTR Series C Preferred Shares or any Parity Shares are in
arrears, whether or not earned or declared, the number of Trustees then
constituting the Board will be increased by two, and the holders of PTR Series
C Preferred Shares, together with the holders of any Parity Shares (any such
Parity Shares, the "Voting Preferred Shares"), voting as a single class, will
have the right to elect two additional Trustees to serve on the Board at the
next annual meeting of shareholders or a special meeting of the holders of the
PTR Series C Preferred Shares and the Voting Preferred Shares and at each
subsequent annual meeting of shareholders until all such distributions in
arrears have been paid and a sum sufficient for the payment thereof has been
set aside for payment of the distribution for the current distribution period
with respect to the PTR Series C Preferred Shares and such Voting Preferred
Shares. The term of office of all Trustees so elected will terminate with the
termination of such voting rights. For so long as Security Capital and certain
of its affiliates beneficially own in excess of 10% of the outstanding Shares,
in any such vote by holders of the PTR Series C Preferred Shares and the
Voting Preferred Shares, any PTR Series C Preferred Shares and Voting
Preferred Shares beneficially owned by Security Capital and such affiliates
will be voted in the same respective percentages as the PTR Series C Preferred
Shares and Voting Preferred Shares that are not beneficially owned by such
persons.
The approval of two-thirds of the outstanding PTR Series C Preferred Shares
and Voting Preferred Shares similarly affected, voting as a single class, is
necessary in order to (i) amend the New Archstone Charter to materially and
adversely affect the voting powers, rights or preferences of the holders of
the PTR Series C Preferred Shares or the Voting Preferred Shares, (ii) enter
into a share exchange that affects the PTR Series C Preferred Shares,
consolidate with or merge into another entity, or permit another entity to
consolidate with or merge into PTR, unless in each such case, each PTR Series
C Preferred Share remains outstanding without a material and adverse change to
its terms and rights or is converted into or exchanged for preferred stock of
the surviving entity having preferences, rights, voting powers, restrictions,
limitations as to distributions, qualifications and terms or conditions of
redemption identical to those of a PTR Series C Preferred Share (except for
changes that do not materially and adversely affect the holders of the PTR
Series C Preferred Shares) or (iii) authorize, reclassify, create or increase
the authorized amount of any class of shares of beneficial interest ranking
senior to the PTR Series C Preferred Shares in the payment of distributions or
in the distribution of assets on any liquidation, dissolution or winding up of
PTR. However, PTR may create additional classes of Parity Shares and Junior
Shares, increase the authorized number of Parity Shares and Junior Shares and
issue additional series of Parity Shares and Junior Shares without the consent
of any holder of PTR Series C Preferred Shares.
Except as provided above and as required by law, the holders of PTR Series C
Preferred Shares are not entitled to vote on any merger or consolidation
involving PTR or a sale of all or substantially all of the assets of PTR.
90
<PAGE>
Conversion
The PTR Series C Preferred Shares are not convertible into or exchangeable
for any other property or securities of PTR.
Restrictions on Ownership
For PTR to qualify as a REIT under the Code, no more than 50% in value of
the shares of PTR's stock (after taking into account options to acquire
shares) may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities and constructive ownership
among specified family members) during the last half of a taxable year (other
than the first taxable year) or during a proportionate part of a short taxable
year. The shares of PTR's stock must also be beneficially owned by 100 or more
persons during at least 335 days of a taxable year or during a proportionate
part of a shorter taxable year. The Articles Supplementary relating to the PTR
Series C Preferred Shares will contain certain provisions restricting the
ownership and transfer of PTR Series C Preferred Shares (the "Preferred Shares
Ownership Limit").
The Preferred Shares Ownership Limit provides that, subject to certain
exceptions, no person or persons acting as a group may beneficially own more
than 25% of the PTR Series C Preferred Shares outstanding at any time, except
as a result of PTR's redemption of PTR Series C Preferred Shares. PTR Series C
Preferred Shares owned in excess of the Preferred Shares Ownership Limit must
be redeemed by PTR at a price equal to the average daily per share closing
sale price during the 30-day period ending on the Business Day prior to the
redemption date. Such redemption is not applicable if a person's ownership
exceeds the limitations due solely to PTR's redemption of PTR Series C
Preferred Shares; provided that thereafter any additional PTR Series C
Preferred Shares acquired by such person will constitute excess shares
("Excess Shares"). From and after the date of notice of such redemption, the
holder of the PTR Series C Preferred Shares thus redeemed will cease to be
entitled to any distribution (other than distributions declared prior to the
date of notice of redemption), voting rights and other benefits with respect
to such shares except the right to receive payment of the redemption price
determined as described above. The Preferred Shares Ownership Limit may not be
waived with respect to certain affiliates of PTR.
Legend
All certificates evidencing PTR Series C Preferred Shares will bear a legend
referring to the restrictions described above.
LEGAL MATTERS
The validity of the PTR Common Shares and PTR Series C Preferred Shares
offered to holders of ATLANTIC Common Shares and ATLANTIC Series A Preferred
Shares, respectively, by this Joint Proxy and Prospectus will be passed upon
for PTR by Mayer, Brown & Platt, Chicago, Illinois. Mayer, Brown & Platt will
rely on the opinion of Ballard Spahr Andrews & Ingersoll, LLP, Baltimore,
Maryland, as to certain matters of Maryland law. An opinion as to the tax
aspects of the Merger as they relate to PTR and the holders of PTR Common
Shares will be rendered for PTR by Mayer, Brown & Platt. An opinion as to the
tax aspects of the Merger as they relate to ATLANTIC and the holders of
ATLANTIC Common Shares will be rendered for ATLANTIC by Mayer, Brown & Platt.
Mayer, Brown & Platt has in the past represented, and currently represents,
each of ATLANTIC, PTR and Security Capital and their respective affiliates.
INDEPENDENT PUBLIC ACCOUNTANTS AND EXPERTS
The financial statements of PTR as of December 31, 1997 and 1996, and for
each of the years in the three-year period ended December 31, 1997 and the
related schedule incorporated by reference herein and in the Registration
Statement, have been incorporated by reference herein and in the Registration
Statement in reliance
91
<PAGE>
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein and upon the authority of said
firm as experts in accounting and auditing.
The financial statements of ATLANTIC as of December 31, 1997 and 1996, and
for each of the three years in the period ended December 31, 1997, the related
schedule and the combined historical summaries of gross income and direct
operating expenses for certain multifamily communities for the years ended
December 31, 1997 and 1996, incorporated by reference herein have been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
incorporated by reference herein. Such financial statements have been
incorporated by reference herein in reliance upon such reports and upon the
authority of such firm as experts in accounting and auditing.
EXPENSES OF SOLICITATION
All fees and expenses (including financial advisory and other professional
services fees) incurred in connection with the Merger Agreement and the
transactions contemplated thereby will be paid by the party incurring such
expenses, except that those fees and expenses incurred in connection with
filing, printing and distributing this Joint Proxy Statement and Prospectus
will be shared equally by PTR and ATLANTIC. The costs of solicitation of
proxies from PTR shareholders will be borne by PTR. The costs of solicitation
of proxies from ATLANTIC shareholders will be borne by ATLANTIC. PTR and
ATLANTIC will reimburse brokers, fiduciaries, custodians and other nominees
for reasonable out-of-pocket expenses incurred in sending this Joint Proxy
Statement and Prospectus and other proxy materials to, and obtaining
instructions relating to such materials from, beneficial owners of Common
Shares. PTR shareholder proxies may be solicited by Trustees or officers of
PTR in person, by letter or by telephone or telegram. ATLANTIC shareholder
proxies may be solicited by Directors or officers of ATLANTIC in person, by
letter or by telephone or telegram. In addition, both PTR and ATLANTIC have
retained Georgeson & Company, New York, New York, to assist in the
solicitation of proxies. It is estimated that its fees for services to PTR and
ATLANTIC will not exceed $ in the aggregate plus expenses.
Both PTR and ATLANTIC will also reimburse custodians, nominees and
fiduciaries for forwarding proxies and proxy materials to the beneficial
owners of their stock in accordance with regulations of the Commission and the
NYSE.
SHAREHOLDER PROPOSALS
Any proposal by a shareholder intended to be presented at the 1999 annual
meeting of shareholders must be received by PTR at its principal executive
offices located at 7670 South Chester Street, Englewood, Colorado 80112 not
later than , 1998 for inclusion in PTR's proxy statement and form of
proxy relating to PTR's 1999 annual meeting of shareholders.
92
<PAGE>
ARCHSTONE COMMUNITIES TRUST
INDEX TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Pro Forma Condensed Balance Sheet as of December 31, 1997 (Unaudited)..... F-3
Notes to Pro Forma Condensed Balance Sheet as of December 31, 1997
(Unaudited).............................................................. F-4
Pro Forma Condensed Statement of Earnings From Operations for the year
ended December 31, 1997 (Unaudited)...................................... F-6
Notes to Pro Forma Condensed Statement of Earnings From Operations for the
year ended December 31, 1997 (Unaudited)................................. F-7
</TABLE>
F-1
<PAGE>
ARCHSTONE COMMUNITIES TRUST
PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying pro forma condensed financial statements reflect the
proposed merger ("the Merger") of Security Capital Atlantic Incorporated
("ATLANTIC") with and into Security Capital Pacific Trust ("PTR"). For each
share of ATLANTIC common stock ("ATLANTIC Common Shares") held, the holder
will receive one share of PTR common stock ("PTR Common Shares"). ATLANTIC's
preferred shareholders will receive comparable preferred shares of PTR as a
result of the Merger. In addition, PTR will assume ATLANTIC's liabilities. The
Merger will be accounted for using the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16. Upon consummation
of the Merger, PTR will change its name to Archstone Communities Trust.
The accompanying pro forma condensed financial statements have been prepared
based on pro forma adjustments to certain pro forma financial statements filed
individually by PTR and ATLANTIC via Current Reports on Form 8-K ("Form 8-Ks")
which are referenced in the accompanying notes. Those previously filed pro
forma financial statements give effect to the following transactions:
(i) certain acquisitions and dispositions of multifamily operating
communities by PTR and ATLANTIC
(ii) the internalization of management transactions whereby on
September 9, 1997, PTR and ATLANTIC acquired their respective
management companies (the "REIT Manager and Property Manager")
from Security Capital Group Incorporated ("Security Capital") in
exchange for shares of their respective common stock.
The accompanying pro forma condensed balance sheet has been prepared as if
the Merger described above had occurred on December 31, 1997. The accompanying
pro forma condensed statements of earnings from operations for the year ended
December 31, 1997 has been prepared as if the Merger had occurred on
January 1, 1997.
The pro forma condensed financial statements do not purport to be indicative
of the financial position or results of operations which would actually have
been obtained had the transactions described above been completed on the dates
indicated or which may be obtained in the future. The pro forma condensed
financial statements should be read in conjunction with the historical
financial statements of PTR and ATLANTIC, as set forth in their respective
annual reports on Form 10-K and the pro forma financial statements included in
the Form 8-Ks referred to above. THE RELATIVE IMPACT OF MERGER-RELATED
INCREASES IN PRO FORMA EARNINGS FROM OPERATIONS, CASH PROVIDED BY OPERATING
ACTIVITIES AND FUNDS FROM OPERATIONS REFLECTED IN THE ACCOMPANYING PRO FORMA
CONDENSED STATEMENT OF EARNINGS FROM OPERATIONS SHOULD NOT BE EXTRAPOLATED TO
FUTURE PERIODS DUE TO LARGER BASES OF EARNINGS FROM OPERATIONS, FUNDS FROM
OPERATIONS AND WEIGHTED-AVERAGE SHARES OUTSTANDING IN FUTURE PERIODS RESULTING
FROM ACTUAL AND EXPECTED ONGOING GROWTH IN THE COMBINED COMPANY'S OPERATIONS.
In management's opinion, all material adjustments necessary to reflect the
effects of these transactions have been made.
F-2
<PAGE>
ARCHSTONE COMMUNITIES TRUST
PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ATLANTIC
--------------------------------------
PRO FORMA
--------------------------
PRE-MERGER PRO FORMA
PTR PRO PURCHASE PRICE PURCHASE MERGER ARCHSTONE
HISTORICAL(A) FORMA(B) ADJUSTMENTS(C) VALUE ADJUSTMENTS PRO FORMA
------------- ---------- -------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
------
Real estate............. $2,604,919 $1,536,889 $194,199 $1,731,088 $ 5,464 (k) $4,341,471
Less accumulated
depreciation........... 129,718 65,626 (65,626) -- -- 129,718
---------- ---------- -------- ---------- -------- ----------
2,475,201 1,471,263 259,825 (d) 1,731,088 5,464 4,211,753
Homestead Notes......... 272,556 122,482 5,211 (e) 127,693 -- 400,249
Other mortgage notes
receivable............. 12,682 -- -- -- -- 12,682
---------- ---------- -------- ---------- -------- ----------
Net Investments...... 2,760,439 1,593,745 265,036 1,858,781 5,464 4,624,684
Cash and cash
equivalents............ 4,927 1,273 -- 1,273 -- 6,200
Accounts receivable and
accrued interest....... 11,544 -- -- -- -- 11,544
Other assets............ 28,776 18,710 (6,697)(f) 12,013 -- 40,789
---------- ---------- -------- ---------- -------- ----------
Total assets......... $2,805,686 $1,613,728 $258,339 $1,872,067 $ 5,464 $4,683,217
========== ========== ======== ========== ======== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
---------------------
Liabilities:
Credit facilities...... $ 231,500 $ 290,182 $ -- $ 290,182 $ 3,241 (l) $ 524,923
Long-term debt......... 630,000 150,000 5,170 (g) 155,170 -- 785,170
Mortgages payable...... 265,652 170,525 10,327 (g) 180,852 -- 446,504
Distributions
payable............... 31,495 19,104 -- 19,104 -- 50,599
Accounts payable....... 35,352 22,774 -- 22,774 -- 58,126
Accrued expenses and
other liabilities..... 71,251 23,284 5,965 (h) 22,749 -- 94,000
(6,500)(i)
---------- ---------- -------- ---------- -------- ----------
Total liabilities.... 1,265,250 675,869 14,962 690,831 3,241 1,959,322
---------- ---------- -------- ---------- -------- ----------
Minority interest....... -- 46,878 -- 46,878 -- 46,878
---------- ---------- -------- ---------- -------- ----------
Shareholders' Equity:
Series A Preferred
Shares................ 135,210 50,000 -- 50,000 (50,000)(m) 135,210
Series B Preferred
Shares................ 105,000 -- -- -- -- 105,000
Series C Preferred
Shares................ -- -- -- -- 50,000 (m) 50,000
Common Shares (92,634
historical, 140,242
pro forma)............ 92,634 478 -- 478 47,282 (m) 140,242
(152)(n)
Additional paid-in
capital................ 1,268,741 904,668 243,377 (j) 1,148,045 3,064 (k) 2,316,827
(675)(l)
(3,248)(n)
(99,100)(o)
Employee share purchase
notes.................. (17,238) (12,347) -- (12,347) 3,234 (n) (26,351)
Unrealized holding gain
on Homestead Notes..... 83,794 16,707 -- 16,707 (16,707)(o) 83,794
Distributions in excess
of net earnings........ (127,705) (68,525) -- (68,525) 68,525 (o) (127,705)
---------- ---------- -------- ---------- -------- ----------
Total shareholders'
equity.............. 1,540,436 890,981 243,377 1,134,358 2,223 2,677,017
---------- ---------- -------- ---------- -------- ----------
Total liabilities and
shareholders'
equity.............. $2,805,686 $1,613,728 $258,339 $1,872,067 $ 5,464 $4,683,217
========== ========== ======== ========== ======== ==========
</TABLE>
See accompanying notes to pro forma condensed financial statements.
F-3
<PAGE>
ARCHSTONE COMMUNITIES TRUST
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
(UNAUDITED)
(a)Reflects PTR's historical balance sheet as of December 31, 1997.
(b) Reference is made to ATLANTIC's Form 8-K filed on April 24, 1998 with
the Securities and Exchange Commission, which is incorporated by
reference, for the source of ATLANTIC's pre-merger pro forma balance
sheet as of December 31, 1997. The pro forma condensed balance sheet
gives effect to the actual or probable acquisitions and dispositions of
certain multifamily operating communities, as if the transactions had
occurred on December 31, 1997.
(c) Represents adjustments to record ATLANTIC's pro forma assets and
liabilities at their respective purchase values based on the purchase
method of accounting. The assumed purchase price was computed as
follows:
<TABLE>
<S> <C>
Issuance of PTR Common Shares (see note (j))............... $1,096,105
Issuance of PTR Series C Preferred Shares (see note (j))... 50,600
Assumption of ATLANTIC liabilities and minority interest at
estimated fair value (see note (g))....................... 737,709
----------
Assumed Purchase Price..................................... 1,884,414
Less employee share purchase notes received................ (12,347)
----------
Total liabilities and shareholders' equity................. $1,872,067
==========
</TABLE>
(d) Represents the step-up in basis of ATLANTIC's real estate assets in
accordance with the purchase method of accounting based on the assumed
purchase price. The stepped-up basis indicated is less than the
estimated fair value of ATLANTIC's real estate assets. Management's
fair value estimates were based on the application of estimated current
capitalization rates to each community's expected net operating income.
(e) Represents the adjustment of ATLANTIC's convertible mortgage notes from
Homestead Village Incorporated ("Homestead Notes") to their current
estimated fair value, considering the intrinsic value of the conversion
feature and the effective interest rates currently available for
convertible mortgage notes with similar terms and features.
(f) Represents the elimination of ATLANTIC's deferred loan costs.
(g) The increases to ATLANTIC's long-term debt and mortgages payable
reflect the premium to adjust these financial instruments to their
estimated fair value based on the present value of amounts to be paid,
using effective interest rates currently available for debt obligations
with similar terms and features.
(h) Represents the amount paid subsequent to December 31, 1997 to settle
certain ATLANTIC interest rate contracts entered into to hedge an
anticipated debt offering which was not consummated due to the Merger.
(i) Represents the adjustment to eliminate deferred revenue associated with
a commitment to fund ATLANTIC's Homestead Notes.
F-4
<PAGE>
ARCHSTONE COMMUNITIES TRUST
NOTES TO PRO FORMA CONDENSED BALANCE SHEET--(CONTINUED)
(j) Represents adjustment of ATLANTIC's shareholders' equity based on the
assumed fair value of the shares to be received from PTR as calculated
below:
<TABLE>
<S> <C>
47,761 ATLANTIC Common Shares at $22.95 per share (the
assumed per share value of the PTR Common Shares to be
issued to ATLANTIC holders on a one for one basis)....... $1,096,105
2,000 ATLANTIC Series A preferred shares at $25.30 per
share (the assumed per share value of the PTR Series C
Preferred Shares to be issued to ATLANTIC holders on a
one for one basis)....................................... 50,600
Less: ATLANTIC's historical shareholders' equity,
excluding $12,347 employee share purchase notes.......... (903,328)
----------
Adjustment................................................ $ 243,377
==========
</TABLE>
(k) Represents the adjustment to real estate associated with the $2,400 in
merger costs referenced in note (l) and $3,064 associated with the
estimated fair value of unvested PTR stock options to be issued to
ATLANTIC employees in exchange for unvested ATLANTIC stock options.
(l) Represents the expected incremental borrowings needed to fund the
following cash payments:
<TABLE>
<S> <C>
Merger transaction costs:
Professional fees................................................ $1,950
Employee termination and severance costs......................... 250
Other, including printing, filing, title and transfer costs...... 200
------
2,400
Merger registration costs........................................ 675
Cash payment to displaced employees related to the repurchase of
common stock issued under the PTR and ATLANTIC incentive plans
(see note (n)).................................................. 166
------
Total incremental borrowings on credit facilities................ $3,241
======
</TABLE>
(m) Represents the one for one exchange of 47,761 ATLANTIC Common Shares
($.01 par value) for PTR Common Shares ($1.00 par value) and the one
for one exchange of 2,000 ATLANTIC Series A Preferred Shares ($25 per
share stated liquidation preference) for comparable PTR Series C
Preferred Shares.
(n) Represents adjustments to eliminate the common stock ($152 aggregate
par value and $3,248 additional paid-in capital) and related stock
purchase notes of $3,234 associated with the repurchase of 152 shares
of common stock from displaced employees (see note (l) for the $166
cash portion of repurchase).
(o) Represents the following adjustments resulting from the application of
purchase accounting: (i) a $47,282 adjustment for the difference
between the $.01 par value of ATLANTIC's Common Shares as compared to
the $1.00 par value of PTR's Common Shares related to the shares
referenced in note (m); (ii) the reclassification of $68,525 of
distributions in excess of net earnings to additional paid-in capital;
and, (iii) reclassification of the unrealized holding gain recognized
by ATLANTIC of $16,707 to additional paid-in capital.
F-5
<PAGE>
ARCHSTONE COMMUNITIES TRUST
PRO FORMA CONDENSED STATEMENT OF EARNINGS FROM OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PTR ATLANTIC MERGER ARCHSTONE
PRO FORMA(P) PRO FORMA(Q) ADJUSTMENTS(R) PRO FORMA
------------ ----------- -------------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental revenues......... $ 336,933 $ 185,759 $ -- $ 522,692
Interest income on
Homestead Notes........ 16,687 4,453 284 (s) 21,424
Other interest income... 3,915 637 -- 4,552
--------- --------- ------- ---------
357,535 190,849 284 548,668
--------- --------- ------- ---------
Expenses:
Rental expenses......... 94,561 52,728 -- 147,289
Real estate taxes....... 27,387 15,724 -- 43,111
Property management
fees................... 803 629 -- 1,432
Depreciation on real
estate investments..... 54,020 30,444 4,657 (t) 89,121
Interest................ 62,704 27,252 (1,109)(u) 88,847
General and
administrative......... 10,395 4,866 (3,563)(v) 11,698
Administrative services
provided by an
affiliate.............. 4,377 3,245 (603)(v) 7,019
Costs incurred in
acquiring management
companies from an
affiliate.............. 71,707 -- -- 71,707
Other................... 4,415 306 -- 4,721
--------- --------- ------- ---------
Total expenses........ 330,369 135,194 (618) 464,945
--------- --------- ------- ---------
Earnings from operations
before minority
interest................ 27,166 55,655 902 83,723
Minority interest in net
earnings................ -- 2,203 -- 2,203
--------- --------- ------- ---------
Earnings from
operations.............. 27,166 53,452 902 81,520
Less preferred share
dividends............... 19,384 1,638 -- 21,022
--------- --------- ------- ---------
Earnings from operations
attributable to Common
Shares.................. $ 7,782 $ 51,814 $ 902 $ 60,498
--------- --------- ------- ---------
Weighted-average Common
Shares outstanding--
basic(w)................ 84,136 44,124 128,260
--------- --------- ---------
Weighted-average Common
Shares outstanding--
diluted(w).............. 84,174 44,125 128,299
--------- --------- ---------
Earnings from operations
attributable to Common
Shares per Common Share
(basic)................. $ 0.09 $ 1.17 $ 0.47
========= ========= =========
Earnings from operations
attributable to Common
Shares per Common Share
(diluted)............... $ 0.09 $ 1.17 $ 0.47
========= ========= =========
Reconciliation of
earnings from operations
attributable to Common
Shares to funds from
operations attributable
to Common Shares:
Earnings from operations
attributable to Common
Shares.................. $ 7,782 $ 51,814 $ 902 $ 60,498
Add (deduct):
Depreciation of real
estate................. 54,020 30,166 4,657 (t) 88,843
Provision for possible
loss on investments.... 3,000 200 -- 3,200
Amortization related to
Homestead Notes........ (1,281) (486) 486 (s) (1,281)
Costs incurred in
acquiring management
companies from an
affiliate.............. 71,707 -- -- 71,707
Minority interest....... -- 2,203 -- 2,203
--------- --------- ------- ---------
Funds from operations
attributable to Common
Shares(x)............... $ 135,228 $ 83,897 $ 6,045 $ 225,170
========= ========= ======= =========
Weighted-average Common
Shares outstanding
(basic)(x).............. 84,136 45,536 -- 129,672
--------- --------- ------- ---------
Weighted-average Common
Shares outstanding
(diluted)(x)............ 84,174 45,537 -- 129,711
--------- --------- ------- ---------
Cash Flow Summary:
Net cash provided by
operating activities... $ 163,924 $ 88,812 $ 6,045 $ 258,781
Net cash used in
investing activities... (408,556) (421,045) (654) (830,255)
Net cash provided by
financing activities... $ 242,672 $ 334,857 $ -- $ 577,529
</TABLE>
See accompanying notes to pro forma condensed financial statements.
F-6
<PAGE>
ARCHSTONE COMMUNITIES TRUST
NOTES TO PRO FORMA CONDENSED
STATEMENT OF EARNINGS FROM OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
(UNAUDITED)
(p) Reference is made to PTR's Form 8-K filed on April 23, 1998 with the
Securities and Exchange Commission, which is incorporated by reference,
for the source of PTR's pro forma statement of earnings from operations
for the year ended December 31, 1997, which gives pro forma effect to
the following transactions as if the transactions had occurred on
January 1, 1997:
(i) the acquisition of PTR's REIT Manager and Property Manager,
previously owned by Security Capital Group Incorporated ("Security
Capital"), in exchange for PTR Common Shares. This transaction
resulted in PTR becoming an internally managed real estate
investment trust ("REIT") and,
(ii) the acquisitions and dispositions of the multifamily communities
reported in PTR's Form 8-K dated April 23, 1998.
The pro forma financial statements incorporated by reference give effect,
where appropriate, to a March 1998 accounting rule requiring that
internal costs related to the acquisition of operating communities be
expensed as incurred.
(q) Reference is made to ATLANTIC's Form 8-K filed on April 24, 1998 with
the Securities and Exchange Commission, which is hereby incorporated by
reference, for the source of ATLANTIC's pro forma statement of earnings
from operations for the year ended December 31, 1997, which gives pro
forma effect to the following transactions as if the transactions had
occurred on January 1, 1997:
(i) the acquisition of ATLANTIC's REIT Manager and Property Manager,
previously owned by Security Capital, in exchange for ATLANTIC
Common Shares. This transaction resulted in ATLANTIC becoming an
internally managed REIT and,
(ii) the acquisitions and dispositions of the multifamily communities
reported in ATLANTIC's Form 8-K dated April 24, 1998.
The pro forma financial statements incorporated by reference give
effect, where appropriate, to a March 1998 accounting rule requiring
that internal costs related to the acquisition of operating communities
be expensed as incurred.
(r) The relative impact of Merger-related increases in pro forma earnings
from operations, cash provided by operating activities and funds from
operations reflected in the accompanying pro forma condensed statement
of earnings from operations should not be extrapolated to future
periods due to larger bases of earnings from operations, funds from
operations and weighted-average shares outstanding in future periods
resulting from actual and expected ongoing growth in the combined
company's operations.
(s) The changes in interest income and amortization related to Homestead
Notes result from the application of the pro forma effective interest
rate associated with the adjustment that recognizes the ATLANTIC
Homestead Notes at their current estimated fair value as discussed in
note (e).
(t) Represents the net increase in depreciation of real estate as a result
of the step-up in basis to record ATLANTIC's real estate at estimated
fair value as follows:
<TABLE>
<S> <C>
Step-up in real estate basis (see notes (d) and (k)).......... $ 265,289
Less: amount of step-up allocated to land and developments.... (102,284)
---------
Depreciable portion of step-up in basis....................... 163,005
---------
Estimated incremental depreciation expense based on an assumed
weighted-average life of 35 years............................ $ 4,657
=========
</TABLE>
F-7
<PAGE>
ARCHSTONE COMMUNITIES TRUST
NOTES TO PRO FORMA CONDENSED
STATEMENT OF EARNINGS FROM OPERATIONS--(CONTINUED)
(u) The net decrease in interest expense results from the following:
<TABLE>
<S> <C>
Decrease in ATLANTIC loan cost amortization related to
elimination of loan costs (See note (f))...................... $ 353
Increase related to borrowings on credit facilities to fund the
Merger-related costs identified in note (l)................... (227)
Decrease based on the pro forma effective interest rates
resulting from the $15,497 of adjustments made to record
ATLANTIC's debt at its estimated fair value (See note (g)).... 983
------
Net decrease in interest expense............................. $1,109
======
</TABLE>
(v) Represents estimated cost savings resulting from operating efficiencies
and economies of scale expected to occur as a result of the Merger
consisting of:
<TABLE>
<S> <C>
Salaries and benefits............................................ $2,903
Professional fees................................................ 294
Other............................................................ 366
------
Total.......................................................... $3,563
Reduction in administrative services paid to affiliate........... 603
------
Total savings.................................................. $4,166
======
</TABLE>
Management believes that the cost savings in future periods will be
greater than the amount summarized above as a result of incremental
operating efficiencies and economies of scale which are expected to be
realized in the future. Furthermore, management believes that there
will be sufficient depth of management and personnel such that
additional operating assets can be acquired, developed and managed
without a direct proportional increase in personnel and other costs.
(w) A reconciliation of the denominator used to compute basic earnings per
share ("EPS") to the denominator used to compute diluted EPS is as
follows:
<TABLE>
<CAPTION>
PTR ATLANTIC ARCHSTONE
PRO FORMA PRO FORMA PRO FORMA
--------- --------- ---------
<S> <C> <C> <C>
Basic EPS--Weighted-average number of
Common Shares outstanding............... 84,136 44,124 128,260
Incremental options outstanding.......... 38 1 39
------ ------ -------
Diluted EPS--Weighted-average number of
Common Shares outstanding(1)............ 84,174 44,125 128,299
====== ====== =======
</TABLE>
--------
(1) Weighted-average Common Shares on a diluted basis excludes the
impact of anti-dilutive convertible securities.
(x) Funds from operations represents net earnings computed in accordance
with GAAP, before minority interest, excluding real estate
depreciation, gains (or losses) from depreciated real estate,
provisions for possible losses, non-cash interest income, extraordinary
items, and significant non-recurring items. Funds from operations
should not be considered as an alternative to net earnings or any other
GAAP measurement of performance as an indicator of operating
performance or as an alternative to cash flows from operating,
investing or financing activities as a measure of liquidity. Management
believes that funds from operations is helpful to a reader as a measure
of the performance of an equity REIT because, along with cash flow from
operating activities, financing activities and investing activities, it
F-8
<PAGE>
ARCHSTONE COMMUNITIES TRUST
NOTES TO PRO FORMA CONDENSED
STATEMENT OF EARNINGS FROM OPERATIONS--(CONTINUED)
provides a reader with an indication of the ability of Archstone to
incur and service debt, to make capital expenditures and to fund other
cash needs. The funds from operations measure presented by Archstone,
PTR and ATLANTIC, while consistent with the National Association of Real
Estate Investment Trusts' definition, will not be comparable to
similarly titled measures of other REITs which do not compute funds from
operations in a manner consistent with Archstone, PTR and ATLANTIC.
Funds from operations is not intended to represent cash available to
shareholders. Furthermore, management believes that an understanding of
funds from operations will enhance the reader's comprehension of the
impact of the Merger to PTR and ATLANTIC, which was a consideration of
PTR's Board of Trustees and ATLANTIC's Board of Directors in approving
the Merger.
A reconciliation of the denominator used to compute basic funds from
operations per common share to the denominator used to compute diluted
funds from operations per common share is as follows:
<TABLE>
<CAPTION>
ATLANTIC
PTR PRO PRO ARCHSTONE
FORMA FORMA PRO FORMA
------- -------- ---------
<S> <C> <C> <C>
Basic funds from operations--weighted-
average number of Common Shares
outstanding.............................. 84,136 45,536(1) 129,672
Incremental options outstanding........... 38 1 39
------ ------ -------
Diluted funds from operations--weighted-
average number of Common Shares
outstanding(2)........................... 84,174 45,537 129,711
====== ====== =======
</TABLE>
--------
(1) With respect to funds from operations, weighted-average ATLANTIC
Common Shares outstanding assumes the exchange of a minority
partner's interest for 1,412 ATLANTIC Common Shares.
(2) Weighted-average Common Shares on a diluted basis excludes the
impact of anti-dilutive convertible securities.
F-9
<PAGE>
ANNEX I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF APRIL 1, 1998
BY AND BETWEEN
SECURITY CAPITAL PACIFIC TRUST
AND
SECURITY CAPITAL ATLANTIC INCORPORATED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I DEFINITIONS................................................... 1
Section 1.1 Definitions............................................ 1
ARTICLE II THE MERGER .................................................. 4
Section 2.1 The Merger............................................. 4
Section 2.2 The Closing............................................ 4
Section 2.3 Effective Time......................................... 4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EAST ..................... 5
Section 3.1 Organization And Qualification......................... 5
Section 3.2 Capitalization......................................... 5
Section 3.3 Authority; Non-contravention; Approvals................ 6
Section 3.4 Disclosure and Financial Statements.................... 7
Section 3.5 Absence of Certain Changes or Events................... 7
Section 3.6 Registration Statement and Proxy Statement and
Prospectus............................................ 7
Section 3.7 Taxes.................................................. 8
Section 3.8 Absence of Undisclosed Liabilities..................... 9
Section 3.9 Litigation............................................. 9
Section 3.10 No Violation of Law.................................... 9
Section 3.11 East Properties........................................ 10
Section 3.12 Labor Matters.......................................... 10
Section 3.13 Employee Benefit Plans................................. 10
Section 3.14 Intellectual Property.................................. 11
Section 3.15 East Material Contracts................................ 11
Section 3.16 Environmental Matters.................................. 11
Section 3.17 Insurance.............................................. 11
Section 3.18 Brokers and Finders.................................... 12
Section 3.19 Investment Company Act................................. 12
Section 3.20 HSR Act................................................ 12
Section 3.21 East Rights Agreement.................................. 12
Section 3.22 State Antitakeover Laws Not Applicable................. 12
Section 3.23 Required East Vote..................................... 12
Section 3.24 Board Recommendation................................... 13
Section 3.25 Opinion of Financial Advisor........................... 13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF WEST ...................... 13
Section 4.1 Organization and Qualification......................... 13
Section 4.2 Capitalization......................................... 13
Section 4.3 Authority; Non-contravention; Approvals................ 14
Section 4.4 Disclosure and Financial Statements.................... 15
Section 4.5 Absence of Certain Changes or Events................... 16
Section 4.6 Registration Statement and Proxy Statement and
Prospectus............................................ 16
Section 4.7 Taxes.................................................. 16
Section 4.8 Absence of Undisclosed Liabilities..................... 17
Section 4.9 Litigation............................................. 18
Section 4.10 No Violation of Law.................................... 18
Section 4.11 West Properties........................................ 18
Section 4.12 Labor Matters.......................................... 19
Section 4.13 Employee Benefit Plans................................. 19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 4.14 Intellectual Property.................................. 19
Section 4.15 West Material Contracts................................ 19
Section 4.16 Environmental Matters.................................. 19
Section 4.17 Insurance.............................................. 20
Section 4.18 Brokers and Finders.................................... 20
Section 4.19 Investment Company Act................................. 20
Section 4.20 HSR Act................................................ 20
Section 4.21 West Rights Agreement.................................. 20
Section 4.22 State Antitakeover Laws Not Applicable................. 20
Section 4.23 Required West Vote..................................... 21
Section 4.24 Board Recommendation................................... 21
Section 4.25 Opinion of Financial Advisor........................... 21
ARTICLE V CONDUCT OF BUSINESSES PENDING THE CLOSING..................... 21
Section 5.1 Conduct of Business by East............................ 21
Section 5.2 Conduct of Business by West............................ 23
Section 5.3 Coordination of Dividends.............................. 24
Section 5.4 No Solicitation........................................ 24
ARTICLE VI ADDITIONAL AGREEMENTS........................................ 26
Section 6.1 Access To Information.................................. 26
Section 6.2 Registration Statements and Proxy Statement and
Prospectus............................................ 26
Section 6.3 Letters of Accountants................................. 27
Section 6.4 Shareholders Approval.................................. 27
Section 6.5 Affiliate Agreements................................... 27
Section 6.6 Exchange............................................... 27
Section 6.7 Expenses............................................... 27
Section 6.8 Agreement to Cooperate................................. 27
Section 6.9 Public Statements...................................... 28
Section 6.10 Corrections to the Proxy Statement and Prospectus and
Registration Statement................................ 28
Section 6.11 Updated Schedules...................................... 28
Section 6.12 Standstill Agreements; Confidentiality Agreements...... 28
Section 6.13 Indemnification........................................ 28
ARTICLE VII CONDITIONS.................................................. 29
Section 7.1 Conditions to Each Party's Obligations................. 29
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.......................... 30
Section 8.1 Termination............................................ 30
Section 8.2 Effect of Termination.................................. 31
Section 8.3 Payment Upon Certain Terminations...................... 31
Section 8.4 Payment of Termination Amount.......................... 32
Section 8.5 Amendment.............................................. 32
ARTICLE IX GENERAL PROVISIONS .......................................... 33
Section 9.1 Nonsurvival of Representations and Warranties.......... 33
Section 9.2 Notices................................................ 33
Section 9.3 Interpretation......................................... 34
Section 9.4 Miscellaneous.......................................... 34
Section 9.5 Counterparts........................................... 34
Section 9.6 Parties In Interest.................................... 34
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 9.7 Limitation of Liability.................................. 34
Section 9.8 No Presumption Against Drafter........................... 34
EXHIBIT A ARTICLES OF MERGER ............................................. 36
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of
April 1, 1998 by and between SECURITY CAPITAL PACIFIC TRUST, a Maryland real
estate investment trust ("West"), and SECURITY CAPITAL ATLANTIC INCORPORATED,
a Maryland corporation ("East").
WHEREAS, the Board of Trustees of West and the Board of Directors of East
have approved, and deem it advisable and in the best interests of their
respective companies and shareholders to consummate, a merger of East with and
into West (the "Merger"), with West as the successor in the Merger, upon the
terms and subject to the conditions set forth in this Agreement;
WHEREAS, the Merger and this Agreement and the matters contemplated hereby
require the vote of two thirds of the outstanding common shares of beneficial
interest, $1.00 par value per share, of West ("West Common Stock") entitled to
vote thereon, and the vote of a majority of the outstanding shares of common
stock, $.01 par value per share, of East ("East Common Stock") entitled to
vote thereon, for the approval thereof (the "West Shareholders Approval" and
"East Shareholders Approval," respectively);
WHEREAS, concurrently with the execution of this Agreement, Security Capital
Group Incorporated, a Maryland corporation ("Shareholder"), is entering into
an agreement with East and West providing, among other things, that
Shareholder will vote or cause to be voted at the shareholder meetings at
which the East Shareholders Approval and West Shareholders Approval are
solicited all of the shares of East Common Stock and West Common Stock
beneficially owned by Shareholder at such time in favor of the Merger; and
WHEREAS, for United States federal income tax purposes it is intended that
the Merger shall qualify as a reorganization under the provisions of Section
368 of the Internal Revenue Code of 1986, as amended (the "Code"), and this
Agreement is intended to be and is adopted as a plan of reorganization within
the meaning of Section 368 of the Code.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Amended and Restated Declaration of Trust" shall mean the amended and
restated Declaration of Trust of West substantially in the form of Exhibit B.
"Articles of Merger" shall have the meaning set forth in Section 2.1.
"Closing" and "Closing Date" shall have the respective meanings set forth in
Section 2.2.
"East Affiliated Group" shall have the meaning set forth in Section 3.7.
"East Benefit Plans" shall have the meaning set forth in Section 3.13.
"East Board" shall mean the Board of Directors of East.
"East Common Stock" shall have the meaning set forth in the Recitals.
"East Disclosure Schedule" shall mean the schedule of disclosures, delivered
by East to West prior to the execution of this Agreement, setting forth those
items the disclosure of which is necessary or appropriate in relation to any
or all of East's representations and warranties herein.
1
<PAGE>
"East Investor Agreement" shall mean that certain Amended and Restated
Investor Agreement dated September 9, 1997 between East and Shareholder.
"East Junior Preferred Stock" shall mean the Series A Junior Participating
Preferred Stock of East.
"East License Agreement" shall mean that certain License Agreement dated
September 9, 1997 between East and Shareholder.
"East Required Statutory Approvals" shall have the meaning set forth in
Section 3.3(c).
"East Rights" shall mean the rights, issued pursuant to East Rights
Agreement, to purchase East Junior Preferred Stock.
"East Rights Agreement" shall mean the Rights Agreement dated as of March
12, 1996 between East and The First National Bank of Boston, as Rights Agent
(as such agreement may be amended).
"East SEC Documents" shall have the meaning set forth in Section 3.4.
"East SEC Financial Statements" shall have the meaning set forth in Section
3.4.
"East Series A Preferred Stock" shall mean the Series A Cumulative
Redeemable Preferred Stock of East.
"East Shareholders Approval" shall have the meaning set forth in the
Recitals.
"East Stock Options" shall mean options to purchase East Common Stock
granted pursuant to East's Share Option Plan for Outside Directors or East's
1997 Long-Term Incentive Plan.
"East Stock Purchase Plan" shall mean the stock purchase plan that is a part
of East's 1997 Long Term Incentive Plan.
"East Subsidiaries" shall mean the entities listed as East's subsidiaries in
the East Disclosure Schedule.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Environmental Laws" shall mean the Resource Conservation and Recovery Act,
as amended, and the Comprehensive Environmental Response Compensation and
Liability Act, as amended, and other federal laws governing the environment as
in effect on the date of this Agreement, together with their implementing
regulations as of the date of this Agreement, and all state, regional, county,
municipal and other local laws, regulations and ordinances as in effect on the
date hereof that are equivalent or similar to such federal laws or that
purport to regulate Hazardous Materials.
"Exchange" shall mean the New York Stock Exchange.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Ratio" shall have the meaning set forth in the Articles of Merger.
"Hazardous Materials" shall mean (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
polychlorinated biphenyls and, only to the extent it exists at levels which
are considered hazardous to human health, radon gas and (b) any chemicals,
materials or substances defined as or included in the definition of "hazardous
substances," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words of similar import, under any applicable Environmental
Laws.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Intellectual Property" shall mean all United States and foreign patents,
patent applications, patent licenses, trade names, trademarks, trade names and
trademark registrations (and applications therefor), copyrights and copyright
registrations (and applications therefor), trade secrets, inventions,
processes, designs, know-how and formulae.
2
<PAGE>
"Liens" shall mean pledges, claims, liens, charges, encumbrances, and
security interests of any kind or nature.
"Merger" shall have the meaning set forth in the Recitals.
"MGCL" shall have the meaning set forth in Section 2.3.
"Proxy Statement and Prospectus" shall mean the definitive joint proxy
statement and prospectus to be filed with the Commission as a part of the
Registration Statement.
"Registration Statement" shall mean the registration statement on Form S-4
of West, of which the Proxy Statement and Prospectus will form a part, to be
filed with the Commission in connection with the transactions contemplated
hereby.
"Representatives" shall have the meaning set forth in Section 6.1.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Taxes" shall mean all taxes, charges, fees, levies or other assessments,
including, without limitation, income, gross receipts, excise, property,
sales, withholding, social security, occupation, use, service, service use,
license, payroll, franchise, transfer and recording taxes, fees and charges,
imposed by the United States, or any state, local or foreign government or
subdivision or agency thereof whether computed on a separate, consolidated,
unitary, combined or any other basis; and such term shall include any
interest, fines, penalties or additional amounts attributable or imposed on or
with respect to any such taxes, charges, fees, levies or other assessments.
"Tax Returns" shall mean any return, report or other document or information
required to be supplied to a taxing authority in connection with Taxes.
"Termination Date" shall have the meaning set forth in Section 8.1(b).
"West Affiliated Group" shall have the meaning set forth in Section 4.7.
"West Benefit Plans" shall have the meaning set forth in Section 4.13.
"West Board" shall mean the Board of Trustees of West.
"West Common Stock" shall have the meaning set forth in the Recitals.
"West Disclosure Schedule" shall mean the schedule of disclosures, delivered
by West to East prior to the execution of this Agreement, setting forth those
items the disclosure of which is necessary or appropriate in relation to any
or all of West's representations and warranties herein.
"West Investor Agreement" shall mean that certain Third Amended and Restated
Investor Agreement dated September 9, 1997 between West and Shareholder.
"West Junior Preferred Stock" shall mean the Junior Participating Preferred
Shares of West.
"West License Agreement" shall mean that certain License Agreement dated
September 9, 1997 between West and Shareholder.
"West New Preferred Stock" shall mean the Series C Cumulative Redeemable
Preferred Shares of Beneficial Interest, $1.00 per value per share, of West
issued in exchange for East Series A Preferred Stock, as set forth in the
Articles of Merger.
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"West Required Statutory Approvals" shall have the meaning set forth in
Section 4.3(c).
"West Rights" shall mean the rights, issued pursuant to the West Rights
Agreement, to purchase West Junior Preferred Stock.
"West Rights Agreement" shall mean the Rights Agreement dated as of July 21,
1994 between West and Chemical Bank, as Rights Agent (as such agreement may be
amended).
"West SEC Documents" shall have the meaning set forth in Section 4.4.
"West SEC Financial Statements" shall have the meaning set forth in Section
4.4.
"West Series A Preferred Stock" shall mean the Series A Cumulative
Convertible Redeemable Preferred Shares of Beneficial Interest of West.
"West Series B Preferred Stock" shall mean the Series B Cumulative
Redeemable Preferred Shares of Beneficial Interest of West.
"West Shareholders Approval" shall have the meaning set forth in the
Recitals.
"West Stock Options" shall mean options to purchase West Common Stock
pursuant to West's Share Option Plan for Outside Trustees, 1996 Share Option
Plan for Outside Trustees or West's 1997 Long-Term Incentive Plan.
"West Stock Purchase Plan" shall mean the stock purchase plan that is a part
of West's 1997 Long-Term Incentive Plan.
"West Subsidiaries" shall mean the entities listed as West's subsidiaries in
the West Disclosure Schedule.
ARTICLE II
The Merger
Section 2.1 The Merger. Upon the terms and subject to the conditions of this
Agreement, West and East shall each take all actions necessary to cause East
to be merged with and into West, which shall be the successor in the Merger,
on the terms and conditions set forth in articles of merger substantially in
the form of Exhibit A hereto (the "Articles of Merger").
Section 2.2 The Closing. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned pursuant to
Section 8.1, and subject to the satisfaction or waiver of the conditions set
forth in Article VII, the closing of the Merger (the "Closing") will take
place at 10:00 a.m. local time as soon as practicable after satisfaction of
the conditions set forth in Section 7.1 (or, if not satisfied or waived at
that time, as soon as practicable thereafter following satisfaction or waiver
of the conditions set forth in Section 7.2) (the "Closing Date"), at the
offices of Mayer, Brown & Platt, 190 South LaSalle Street, Chicago, Illinois,
unless another date, time or place is agreed to in writing by the parties
hereto.
Section 2.3 Effective Time. On the Closing Date, the parties shall file the
Articles of Merger executed in accordance with the relevant provisions of the
Maryland General Corporation Law (the "MGCL") and Title 8 of the Corporations
and Associations Article of the Annotated Code of Maryland (the "Maryland REIT
Law") and shall make all other filings or recordings required under the MGCL
and the Maryland REIT Law. The Merger shall become effective at such time as
the Articles of Merger are duly filed with and accepted for record by the
State Department of Assessments and Taxation of the State of Maryland (the
"SDAT"), or at such other time as is permissible in accordance with the MGCL
and the Maryland REIT Law and as West and East shall agree and specify in the
Articles of Merger (the time when the Merger becomes effective being the
"Effective Time").
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ARTICLE III
Representations and Warranties of East
East represents and warrants to West as follows:
Section 3.1 Organization and Qualification. East and each of the East
Subsidiaries is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization and each has the requisite power,
corporate or otherwise, and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted and as it
is proposed by it to be conducted. East and each East Subsidiary is qualified
to do business and is in good standing in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure
to be so qualified and in good standing would not, alone or in the aggregate,
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of East and the East Subsidiaries, taken as a whole,
or prevent, hinder or materially delay the ability of East to consummate the
transactions contemplated by this Agreement. True, accurate and complete
copies of each of the Second Amended and Restated Articles of Incorporation,
as amended (the "East Articles of Incorporation") and Bylaws of East, as in
effect on the date hereof, including all amendments thereto, have heretofore
been delivered to West.
Section 3.2 Capitalization.
(a) The authorized capital stock of East consists of 250,000,000 shares. As
of the date of this Agreement, except as set forth in the East Disclosure
Schedule, there are (i) 47,760,912 shares of East Common Stock and 2,000,000
shares of East Series A Preferred Stock issued and outstanding, (ii) no shares
of East Common Stock or East Series A Preferred Stock held by any East
Subsidiary; (iii) 1,261,251 shares of East Common Stock reserved for issuance
upon exercise of authorized but unissued East Stock Options; (iv) 1,255,925
shares of East Common Stock issuable upon exercise of outstanding East Stock
Options; (v) 582,824 shares of East Common Stock issued and outstanding (and
included in the number stated in clause (i) above) subject to restrictions
under the East Stock Purchase Plan; (vi) 115,000 shares of East Common Stock
reserved for issuance as employer matching contributions under East's 401(k)
Savings Plan; and (vii) 746,032 shares of East Junior Preferred Stock, none of
which is outstanding, authorized for issuance and purchasable upon exercise of
East Rights. Except as set forth above or on the East Disclosure Schedule, no
shares of capital stock or other equity securities of East are issued,
reserved for issuance, or outstanding. All of the issued and outstanding
shares of East Common Stock and East Series A Preferred Stock are duly
authorized, validly issued, fully paid, nonassessable, and free of preemptive
rights.
(b) Except as set forth in Section 3.2(a), as contemplated by this
Agreement, or as set forth in the East Disclosure Schedule, as of the date
hereof there are no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement obligating East to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
obligating East to grant, extend or enter into any such agreement or
commitment. Except for the East Investor Agreement, there are no voting
trusts, proxies or other agreements or understandings to which East is a party
or by which East is bound with respect to the voting of any East Common Stock.
There are no outstanding bonds, debentures, notes or other indebtedness or
other securities of East having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
shareholders of East may vote. Other than East Stock Options, there are no
outstanding contractual obligations, commitments, understandings or
arrangements of East or any East Subsidiary to repurchase, redeem or otherwise
acquire or make any payment in respect of or measured or determined based on
the value or market price of any shares of capital stock of East or any East
Subsidiary. Except as set forth in the East Disclosure Schedule, there are no
agreements or arrangements pursuant to which East is or could be required to
register shares of East Common Stock or other securities under the Securities
Act, on behalf of any person other than Shareholder. East has delivered or
made available to West a complete and correct copy of the East Rights
Agreement, as amended to the date of this Agreement.
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(c) All of the outstanding shares of capital stock of the East Subsidiaries
have been validly issued and are fully paid and nonassessable and are owned by
East free and clear of all Liens. Except for shares of East Subsidiaries or as
set forth in the East Disclosure Schedule, East does not own, directly or
indirectly, any capital stock or other equity or ownership interest in any
entities. East owns good and marketable title to the stock of each East
Subsidiary owned by it and each East Subsidiary owns good and marketable title
to the securities of each other East Subsidiary owned by it, in each case free
and clear of all Liens.
(d) Except as set forth in the East Disclosure Schedule, there are no
outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement obligating East or any East Subsidiary to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock of any East Subsidiary or obligating East or any East Subsidiary to
grant, extend or enter into any such agreement or commitment. There are no
voting trusts, proxies or other agreements or understandings to which East or
any East Subsidiary is a party or is bound with respect to the voting of any
shares of the East Subsidiaries.
Section 3.3 Authority; Non-contravention; Approvals.
(a) East has full corporate power and authority to enter into this Agreement
and, subject to the East Shareholders Approval and East Required Statutory
Approvals, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation by East of the
transactions contemplated hereby have been duly authorized by the East Board
and no other proceedings on the part of East are necessary to authorize the
execution and delivery of this Agreement by East and the consummation by East
of the transactions contemplated hereby, except for the obtaining of the East
Shareholders Approval and East Required Statutory Approvals. This Agreement
has been duly and validly executed and delivered by East, and, assuming the
due authorization, execution and delivery hereof by West, constitutes a valid
and binding agreement of East enforceable against East in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally or (ii) general
equitable principles.
(b) The execution and delivery of this Agreement by East do not, and the
consummation by East of the transactions contemplated hereby will not,
violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration or any "put" right under, or result in the creation of any Lien
upon any of the properties or assets of East under any of the terms,
conditions or provisions of, (i) subject to obtaining the East Shareholders
Approval, East's Articles of Incorporation or Bylaws, (ii) subject to
obtaining the East Shareholders Approval and East Required Statutory
Approvals, any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to East or any East Subsidiary or any of their respective
properties, or (iii) subject to obtaining any consent or waiver set forth in
the East Disclosure Schedule (the "East Required Consents"), any loan or
credit agreement, note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument, obligation
or agreement of any kind to which East or any East Subsidiary is now a party
or by which East or any East Subsidiary may be bound, excluding from the
foregoing clauses (ii) and (iii) such violations, conflicts, breaches,
defaults, terminations, accelerations, put rights, or creations of Liens that
would not, alone or in the aggregate, be reasonably expected to have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of East and
the East Subsidiaries, taken as a whole, or prevent, hinder or materially
delay the ability of East to consummate the transactions contemplated by this
Agreement.
(c) Except for (i) any filings by the parties hereto that may be required by
the HSR Act, (ii) the filing of the Registration Statement, including the
Proxy Statement and Prospectus, with the SEC pursuant to the Securities Act
and the Exchange Act, and the declaration of the effectiveness thereof by the
SEC and any filings that may be required with various state blue sky
authorities, (iii) the filing of the Articles of Merger with, and the
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acceptance thereof for recording by, the SDAT, (iv) any required filings with
or approvals from applicable federal or state environmental authorities and
(v) any required filings with or approvals from applicable federal or state
housing authorities (the filings and approvals referred to in clauses (i)
through (v) are collectively referred to as the "East Required Statutory
Approvals"), no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by
East or the consummation by East of the transactions contemplated hereby,
other than such declarations, filings, registrations, notices, authorizations,
consents or approvals which, if not made or obtained, would not, alone or in
the aggregate, be reasonably expected to have a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of East and the East Subsidiaries, taken as
a whole or prevent, hinder or materially delay the ability of East to
consummate the transactions contemplated by this Agreement.
Section 3.4 Disclosure and Financial Statements. East has filed all required
reports, schedules, forms, registration statements and other documents with
the SEC since October 11, 1996 (collectively, and in each case including all
exhibits and schedules thereto and documents incorporated by reference
therein, the "East SEC Documents"). As of their respective dates, the East SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to the East SEC
Documents, and none of the East SEC Documents (including any and all financial
statements included therein) as of such dates contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of East included in the East SEC Documents (the "East SEC
Financial Statements") comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited consolidated
quarterly statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present the consolidated financial position of
East and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited quarterly statements, to normal year-
end audit adjustments).
Section 3.5 Absence of Certain Changes or Events. Since December 31, 1997
through the date hereof, except as set forth in the East Disclosure Schedule
or disclosed in any East SEC Documents there has not been (a) any material
adverse change or any event which would reasonably be expected to result in a
material adverse change, individually or in the aggregate, in the business,
operations, properties, assets, liabilities, condition (financial or other),
results of operations or prospects of East and the East Subsidiaries, taken as
a whole; provided, however, that a material adverse change shall not include
any (i) changes, effects, conditions, events or circumstances that affect the
real estate industry generally (including tax, legal and regulatory changes)
or (ii) changes arising from the consummation of the Merger or the
announcement of the execution of this Agreement; or (b) any event which, if it
had taken place after the date hereof, would not have been permitted by
Section 5.1 without the prior consent of West.
Section 3.6 Registration Statement and Proxy Statement and Prospectus. None
of the information supplied or to be supplied by East for inclusion or
incorporation by reference in (a) the Registration Statement or (b) the Proxy
Statement and Prospectus will, in the case of the Proxy Statement and
Prospectus or any amendments thereof or supplements thereto, at the time of
the mailing of the Proxy Statement and Prospectus and any amendments thereof
or supplements thereto, and at the time of the meetings of the shareholders of
East and West to be held in connection with the transactions contemplated by
this Agreement or, in the case of the Registration Statement, as amended or
supplemented, at the time it becomes effective and at the time of such
meetings, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that no representation is made by East with respect to
information supplied by West for inclusion or incorporation therein. The Proxy
Statement and Prospectus will comply as to form in all material
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respects with all applicable laws, including the provisions of the Securities
Act and Exchange Act and the rules and regulations promulgated thereunder.
Section 3.7 Taxes. Except as set forth in the East Disclosure Schedule:
(a) Each of East and the East Subsidiaries has timely filed, or shall timely
file, with the appropriate governmental authorities all Tax Returns required
to be filed by it (either separately or as a member of any affiliated group
within the meaning of Section 1504 of the Code or any similar group defined
under a similar provision of state, local or foreign law (an "East Affiliated
Group")) for all periods ending on or prior to the Closing Date, except to the
extent of any Tax Returns for which an extension of time for filing has been
properly filed. Each such return and filing is complete and correct in all
material respects. All Taxes shown on a Tax Return as owed by East or the East
Subsidiaries have been paid. No material issues have been raised in any
examination by any taxing authority with respect to the businesses and
operations of East or the East Subsidiaries which (i) reasonably could be
expected to result in an adjustment to the liability for Taxes for such period
examined or (ii), by application of similar principles, reasonably could be
expected to result in an adjustment to the liability for Taxes for any other
period not so examined. All Taxes which East or the East Subsidiaries are
required by law to withhold or collect, including Taxes required to have been
withheld in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party and sales, gross
receipts and use taxes, have been duly withheld or collected and, to the
extent required, have been paid over to the proper governmental authorities or
are held in separate bank accounts for such purpose. There are no Liens for
Taxes upon the assets of East or the East Subsidiaries except for statutory
Liens for Taxes not yet due.
(b) None of East, the East Subsidiaries or the East Affiliated Group has
filed for an extension of a statute of limitations with respect to any Tax and
no governmental authorities have requested an extension of the statute of
limitations with respect to any Tax. The Tax Returns of East, the East
Subsidiaries and the East Affiliated Group are not being and have not been
examined or audited by any taxing authority for any past year or periods. None
of East, the East Subsidiaries or the East Affiliated Group is a party to any
pending action or any formal or informal proceeding by any taxing authority
for a deficiency, assessment or collection of Taxes, and no claim for any
deficiency, assessment or collection of Taxes has been asserted, or, to the
knowledge of East, threatened against it, including claims by any taxing
authority in a jurisdiction where East and the East Subsidiaries do not file
tax returns that any of them is or may be subject to taxation in that
jurisdiction.
(c) Each of East and the East Subsidiaries has properly accrued on its
respective financial statements all Taxes due for which East or the East
Subsidiaries may be liable, whether or not shown on any Tax Return as being
due (including by reason of being a member of an East Affiliated Group or as a
transferee of the assets of, or successor to, any corporation, person,
association, partnership, joint venture or other entity). East and the East
Subsidiaries have established (and until the Closing Date shall continue to
establish and maintain) on its books and records reserves that are adequate
for the payment of all Taxes not yet due and payable.
(d) Neither East nor the East Subsidiaries (i) has filed a consent under
Section 341(f) of the Code concerning collapsible corporations, or (ii) is a
party to any Tax allocation or sharing agreement other than a tax sharing
agreement between the East Subsidiaries and East, which such agreement will be
terminated as of the Closing Date.
(e) The East Affiliated Group of which East and any East Subsidiary is or
was a member has duly and timely filed all Tax Returns that it was required to
file for each taxable period during which East and any such East Subsidiary
was a member of the group. All such Tax Returns were complete and correct in
all material respects and all Taxes owed by the East Affiliated Group, whether
or not shown on any Tax Return, have been paid for each taxable period during
which East and any East Subsidiary was a member of the group.
(f) Except as set forth in the East Disclosure Schedule, East does not have
any liability for the Taxes of any person other than East and the East
Subsidiaries and the East Subsidiaries do not have any liability for the
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Taxes of any person other than East and the East Subsidiaries (A) under
Treasury Regulation Section 1.1502-6 (or any similar provision of state, local
or foreign law), (B) as a transferee or successor, (C) by contract, or
(D) otherwise.
(g) Neither East nor the East Subsidiaries has made any payments, is
obligated to make any payments, or is a party to an agreement that could
obligate it to make any payments that will not be deductible under SECTION
280G of the Code. East and the East Subsidiaries have disclosed to the IRS all
positions taken on its federal income tax returns which could give rise to a
substantial understatement of tax under SECTION 6662 of the Code.
(h) For all taxable years commencing with the taxable year ended December
31, 1994 through the taxable year ended December 31, 1997, East has been
organized in conformity with the qualifications as a REIT (within the meaning
of the Code) and has satisfied all requirements to qualify as a REIT for such
years. East has operated, and intends to continue to operate, in such a manner
as to qualify as a REIT for the tax period ending on the Closing Date, and has
not taken or omitted to take any action which would reasonably be expected to
result in a challenge to its status as a REIT, and no such challenge is
pending or, to East's knowledge, threatened. Each East Subsidiary that is a
partnership, joint venture or limited liability company has been treated
during and since its formation and continues to be treated for federal income
tax purposes as a partnership and not as a corporation or an association
taxable as a corporation. Each East Subsidiary that is both (i) a corporation
for federal income tax purposes and (ii) with respect to which all of the
outstanding capital stock is owned solely by East (or solely by an East
Subsidiary that is a corporation wholly owned by East) is a "qualified REIT
subsidiary" as defined in SECTION 856(i) of the Code.
Section 3.8 Absence of Undisclosed Liabilities. Neither East nor any East
Subsidiary had, at December 31, 1997, and neither has incurred since that
date, any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature (other than ordinary and recurring operating expenses
consistent with past practices) except (a) liabilities, obligations or
contingencies which are accrued or reserved against in the East SEC Financial
Statements or reflected in the notes thereto, (b) as incurred in connection
with the transactions contemplated by this Agreement, and (c) any liabilities,
obligations or contingencies which (i) would not, alone or in the aggregate,
be reasonably expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of East and the East Subsidiaries, taken as a whole,
or prevent, hinder or materially delay the ability of East to consummate the
transactions contemplated by this Agreement or (ii) have been discharged or
paid in full prior to the date hereof.
Section 3.9 Litigation. Except as disclosed in the East SEC Documents or the
East Disclosure Schedule, there are no claims, suits, actions or proceedings
pending or, to East's knowledge, threatened, against, relating to or affecting
East or any East Subsidiary or any of their respective properties or assets
before or by any court, governmental department, commission, agency,
instrumentality or authority, or any arbitrator that would reasonably be
expected to have, alone or in the aggregate with all such claims, actions or
proceedings, a material adverse effect on the business, operations,
properties, assets, condition (financial or other), results of operations or
prospects of East and the East Subsidiaries, taken as a whole, or to prevent,
hinder or materially delay the ability of East to consummate the transactions
contemplated by this Agreement. Neither East nor any East Subsidiary is
subject to any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or authority, or
any arbitrator which prohibits or restricts the consummation of the
transactions contemplated hereby or would have a material adverse effect on
the business, operations, properties, assets, condition (financial or other),
results of operations or prospects of East and the East Subsidiaries, taken as
a whole or prevent, hinder or materially delay the ability of, East to
consummate the transactions contemplated by this Agreement.
Section 3.10 No Violation of Law. Neither East nor any East Subsidiary is in
violation of or has been given notice or been charged with any violation of
any law, statute, order, rule, regulation, ordinance or judgment (including
any applicable environmental law, ordinance or regulation) of any governmental
or regulatory body
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or authority, except for violations which, alone or in the aggregate, would
not reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of East and the East Subsidiaries, taken as a whole or
prevent, hinder or materially delay the ability of, East to consummate the
transactions contemplated by this Agreement. Neither East nor any East
Subsidiary is in violation or has been given notice or been charged with any
violation of any law, statute, order, rule, regulation, ordinance or judgment
(including any applicable environmental law, ordinance or regulation) of any
governmental or regulatory body or authority, except for violations which,
alone or in the aggregate, would not reasonably be expected to have a material
adverse effect on the business, operations, properties, assets, condition
(financial or other), results of operations or prospects of East and the East
Subsidiaries, taken as a whole or prevent, hinder or materially delay the
ability of, East to consummate the transactions contemplated by this
Agreement. No investigation or review of East or any East Subsidiary by any
governmental or regulatory body or authority is pending or, to the knowledge
of East, threatened, nor has any governmental or regulatory body or authority
indicated to East or any East Subsidiary an intention to conduct the same,
other than, in each case, those the outcome of which, as far as reasonably can
be foreseen, would not reasonably be expected to have a material adverse
effect on the business, operations, properties, assets, condition (financial
or other), results of operations or prospects of East and the East
Subsidiaries, taken as a whole or prevent, hinder or materially delay the
ability of, East to consummate the transactions contemplated by this
Agreement. Each of East and the East Subsidiaries has all permits, licenses,
franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct its business as
presently conducted and as proposed by East or any East Subsidiary to be
conducted, except for permits, licenses, franchises, variances, exemptions,
orders, authorizations, consents and approvals the absence of which, alone or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect on the business, operations, properties, assets, condition (financial
or other), results of operations or prospects of East and the East
Subsidiaries, taken as a whole or prevent, hinder or materially delay the
ability of, East to consummate the transactions contemplated by this
Agreement.
Section 3.11 East Properties. Except as disclosed in the East SEC Documents,
each of East and the East Subsidiaries (i) has good and marketable title to
all the properties and assets reflected in the latest audited balance sheet
included in the East SEC Documents as being owned by East or one of the East
Subsidiaries or acquired after the date thereof which are, alone or in the
aggregate, material to East's business on a consolidated basis (except
properties sold or otherwise disposed of since the date thereof in the
ordinary course of business), free and clear of (A) all Liens except (1)
statutory Liens securing payments not yet due and (2) such imperfections or
irregularities of title or other Liens (other than real property mortgages or
deeds of trust) as do not materially affect the use of the properties or
assets subject thereto or affected thereby or otherwise materially impair the
business operations presently conducted at such properties, and (B) all real
property mortgages and deeds of trust, and (ii) is the lessee of all leasehold
estates reflected in the latest audited financial statements included in the
East SEC Documents or acquired after the date thereof which are, alone or in
the aggregate, material to its business on a consolidated basis and is in
possession of the properties purported to be leased thereunder, and each such
lease is valid without default thereunder by the lessee or, to East's
knowledge, the lessor.
Section 3.12 Labor Matters. Neither East nor any East Subsidiary is a party
to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is
East or any East Subsidiary the subject of any proceeding asserting that it or
any subsidiary has committed an unfair labor practice or seeking to compel it
to bargain with any labor organization as to wages or conditions of employment
nor is there any strike, work stoppage or other labor dispute involving East
or any East Subsidiary pending, or, to East's knowledge, threatened, any of
which would, alone or in the aggregate, reasonably be expected to have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of East and
the East Subsidiaries, taken as a whole or prevent, hinder or materially delay
the ability of, East to consummate the transactions contemplated by this
Agreement.
Section 3.13 Employee Benefit Plans. East has previously provided or made
available to West a copy or description of each employee benefit plan
maintained by East or any East Subsidiary that provides retirement,
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pension, health care, long-term disability income, workers compensation, life
insurance and any other postretirement benefits that, as of the date hereof,
covers any employee of East or the East Subsidiaries and a copy or description
of each employment, severance, bonus, profit sharing, compensation,
termination, stock option, stock appreciation right, restricted stock, phantom
stock, performance unit, change-in-control, or other similar agreement
(collectively, the "East Benefit Plans") with any director or employee of East
or the East Subsidiaries. Each East Benefit Plan complies and has been
administered in form and in operation in all material respects with all
requirements of law to the extent applicable and no notice has been issued by
any governmental authority questioning or challenging such compliance. Except
as set forth in the East Disclosure Schedule, neither the execution or
delivery of this Agreement nor the consummation of the transactions
contemplated hereby constitutes or will constitute an event under any East
Benefit Plan that may result in any payment by East or any East Subsidiary,
any restriction or limitation upon the assets of any East Benefit Plan, any
acceleration of payment or vesting, increase in benefits or compensation, or
forgiveness of any loan from or other commitment to East or any East
Subsidiary.
Section 3.14 Intellectual Property. East and the East Subsidiaries own, free
of Liens, or have a valid license to use, all of the Intellectual Property
used in the conduct of the businesses of East and the East Subsidiaries,
subject to the terms and conditions of the East License Agreement with respect
to the Intellectual Property that is the subject matter thereof. None of such
Intellectual Property has been or is the subject of any pending, or to the
knowledge of East, threatened adverse claim, litigation or claim of
infringement based on the use thereof by East or any East Subsidiary or a
third party. Neither East nor any East Subsidiary has received any notice
contesting East's or the East Subsidiaries' right to use any of such
Intellectual Property and, to the knowledge of East, neither East nor any East
Subsidiary has infringed upon or misappropriated any intellectual property
rights of third parties. The consummation of the Merger will not result in the
loss of any rights by East or any East Subsidiaries of any of its or their
rights in such Intellectual Property.
Section 3.15 East Material Contracts. Except as disclosed in the East SEC
Documents filed prior to the date hereof, neither East nor any East
Subsidiary: is a party to or bound by (a) any "material contract" (as such
term is defined in Item 601(b)(10) of Regulation S-K of the SEC), or (b) any
non-competition agreement or any other agreement or obligation that purports
to limit in any respect the manner in which, or the localities in which, all
or any substantial portion of the business of East or the East Subsidiaries
would be conducted.
Section 3.16 Environmental Matters. Except as set forth in the East SEC
Documents, East has no knowledge of (a) any violation of Environmental Laws
relating to any property of East or any East Subsidiary, (b) the release or
potential release of Hazardous Materials on or from any such property, in
violation of any Environmental Laws, (c) underground storage tanks located on
any property, or (d) asbestos in or on any such property which would, alone or
in the aggregate, reasonably be expected to have a material adverse effect on
the business, operations, properties, assets, condition (financial or
otherwise), results of operations or prospects of East and the East
Subsidiaries, taken as a whole, or prevent, hinder or materially delay the
ability of East to consummate the transactions contemplated by this Agreement.
Except as set forth in the East Disclosure Schedule, neither East nor any East
Subsidiary has manufactured, introduced, released or discharged from or onto
any such property any Hazardous Materials or any toxic wastes, substances or
materials (including asbestos) in violation of any Environmental Laws, and
neither East nor any East Subsidiary has used any such property or any part
thereof for the generation, treatment, storage, handling or disposal of any
Hazardous Materials, in violation of any Environmental Laws which would, alone
or in the aggregate, reasonably be expected to have a material adverse effect
on the business, operations, properties, assets, condition (financial or
otherwise), results of operations or prospects of East and the East
Subsidiaries, taken as a whole, or prevent, hinder or materially delay the
ability of East to consummate the transactions contemplated by this Agreement.
Section 3.17 Insurance. East or the East Subsidiaries maintain insurance
coverage for East and the East Subsidiaries and their respective properties
and assets of a type and in amounts typical of similar companies engaged in
the respective businesses in which East and the East Subsidiaries are engaged.
All such insurance policies are (a) in full force and effect, and with respect
to all policies neither of East nor any East Subsidiary is
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delinquent in the payment of any premiums thereon, and no notice of
cancellation or termination has been received with respect to any such policy,
and (b) are sufficient for compliance with all requirements of law and of all
agreements to which East or the East Subsidiaries are a party or otherwise
bound and are valid, outstanding, collectable, and enforceable policies and
will remain in full force and effect through the Closing Date, except, and the
case of either clause (a) or (b), in such manner as would not, alone or in the
aggregate, be reasonably expected to have a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of East and the East Subsidiaries, taken as
a whole, or prevent, hinder or materially delay the ability of East to
consummate the transactions contemplated by this Agreement. Neither East nor
any East Subsidiary has received written notice within the last 12 months from
any insurance company or board of fire underwriters of any defects or
inadequacies that would materially adversely affect the insurability of, or
cause any material increase in the premiums for, insurance covering, either
East or any East Subsidiary or any of their respective properties or assets
that have not been cured or repaired to the satisfaction of the party issuing
the notice.
Section 3.18 Brokers and Finders. East has not employed any broker, finder,
other intermediary, or financial advisor in connection with the transactions
contemplated by this Agreement which would be entitled to any brokerage,
finder's or similar fee or commission, or financial advisory fee, in
connection with this Agreement or the transactions contemplated hereby, other
than Morgan Stanley & Co. Incorporated, the fees and expenses of which will be
paid by East (pursuant to fee agreement, a copy of which has been provided to
West).
Section 3.19 Investment Company Act. Neither East nor any of the East
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, nor an "investment adviser" within the
meaning of the Investment Advisers Act of 1940, as amended.
Section 3.20 HSR Act. For purposes of determining compliance with the HSR
Act, East confirms that the conduct of its businesses consists solely of
investing in, owning, operating and developing real estate for the benefit of
its shareholders.
Section 3.21 East Rights Agreement. East has taken all action required so
that the entering into of this Agreement and the consummation of the
transactions contemplated hereby do not and will not enable or require the
East Rights to be separated from the shares of East Common Stock with which
the East Rights are associated, or to be distributed, exercisable, exercised,
or nonredeemable.
Section 3.22 State Antitakeover Laws Not Applicable. By virtue of provisions
in East's Articles of Incorporation or Bylaws validly adopted under Section 3-
603(e)(1)(iii) or Section 3-702(b) of the MGCL, neither Section 3-602 of the
MGCL nor Subtitle 7 of the MGCL (Sections 3-701 through 3-709 of the MGCL)
applies to this Agreement or the Merger or the other transactions contemplated
hereby. Other than Section 3-602 and Subtitle 7 of the MGCL, no state takeover
statute or similar statute or regulation of the State of Maryland (and, to the
knowledge of East, of any other state or jurisdiction) applies or purports to
apply to this Agreement or the Merger or other transactions contemplated
hereby and no provision of the Articles of Incorporation, Bylaws or other
governing instruments of East or any East Subsidiary or the terms of any
rights plan or agreement of East (other than the East Rights Agreement) would,
directly or indirectly, restrict or impair the ability of West to vote, or
otherwise to exercise the rights of a shareholder with respect to, securities
of East and the East Subsidiaries that may be acquired or controlled by West
or permit any shareholder to acquire securities of East, any East Subsidiary,
West, or any West Subsidiary on a basis not available to West in the event
that West were to acquire securities of East.
Section 3.23 Required East Vote. The East Shareholders Approval, being the
affirmative vote of a majority of the outstanding shares of East Common Stock
entitled to vote, voting separately as a class, is the only vote of the
holders of any class or series of East's securities necessary to approve this
Agreement, the Merger and the other transactions contemplated hereby.
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Section 3.24 Board Recommendation. The East Board, at a meeting duly called
and held, has by a unanimous vote of those directors present (who constituted
100% of the directors then in office), including the unanimous vote of the
"Independent Directors" (as defined in East's Articles of Incorporation), (i)
determined and declared that this Agreement and the transactions contemplated
hereby, including the Merger, are advisable and fair to and in the best
interests of East and the shareholders of East, and (ii) resolved to recommend
that the holders of East Common Stock approve this Agreement and the
transactions contemplated herein, including the Merger.
Section 3.25 Opinion Of Financial Advisor. A special committee of the East
Board has received the opinion of Morgan Stanley & Co. Incorporated, dated the
date of this Agreement, to the effect that the Exchange Ratio is fair, from a
financial point of view, to the holders of East Common Stock other than the
Shareholder.
ARTICLE IV
Representations And Warranties Of West
West represents and warrants to East as follows:
Section 4.1 Organization And Qualification. West and each of the West
Subsidiaries is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization and has the requisite power,
corporate or otherwise, and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted and as it
is proposed by it to be conducted. Each of West and the West Subsidiaries is
qualified to do business and is in good standing in each jurisdiction in which
the properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure
to be so qualified and in good standing would, alone or in the aggregate, not
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of West and the West Subsidiaries, taken as a whole,
or prevent, hinder or materially delay the ability of West to consummate the
transactions contemplated by this Agreement. True, accurate and complete
copies of each of the Restated Declaration of Trust and Bylaws of West, as in
effect on the date hereof, including all amendments thereto, have heretofore
been delivered to East.
Section 4.2 Capitalization.
(a) The authorized capital of West consists of 150,000,000 shares of
beneficial interest. As of the date of this Agreement, except as set forth in
the West Disclosure Schedule, there are (i) 93,005,031.92 shares of West
Common Stock, 5,133,215 shares of West Series A Preferred Stock, and 4,200,000
shares of West Series B Preferred Stock issued and outstanding, (ii) no shares
of West Common Stock, West Series A Preferred Stock, or West Series B
Preferred Stock held in the treasury of West or held by any West Subsidiary;
(iii) 3,879,791 shares of West Common Stock reserved for issuance upon
exercise of authorized but unissued West Stock Options; (iv) 1,898,209 shares
of West Common Stock issuable upon exercise of outstanding West Stock Options;
(v) 820,132 shares of West Common Stock issued and outstanding (and included
in the number stated in clause (i) above) subject to restrictions under the
West Stock Purchase Plan; (vi) 200,000 shares of West Common Stock reserved
for issuance as employer matching contributions under West's 401(k) Savings
Plan; (vii) 930,050 shares of West Junior Preferred Stock, none of which is
outstanding, authorized for issuance and purchasable upon exercise of West
Rights. Except as set forth above or in the West Disclosure Schedule, no
shares of capital stock or other equity securities of West are issued,
reserved for issuance, or outstanding. All of the issued and outstanding
shares of West Common Stock, West Series A Preferred Stock, and West Series B
Preferred Stock are, and all shares of West Common Stock and West New
Preferred Stock issued pursuant to this Agreement will be when so issued, duly
authorized, validly issued, fully paid, and, except as set forth in the West
Disclosure Schedule, nonassessable and free of preemptive rights. All shares
of West Common Stock and West New Preferred Stock issued pursuant to this
Agreement will be, when so issued, registered under the Securities Act for
such issuance and registered under the Exchange Act, registered or exempt from
registration under any applicable state securities laws for such issuance, and
listed on the Exchange, subject to official notice of issuance.
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(b) Except as set forth in Section 4.2(a), or as contemplated by this
Agreement, or as set forth in the West Disclosure Schedule, as of the date
hereof there are no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement obligating West to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
obligating West to grant, extend or enter into any such agreement or
commitment; provided, however, that the foregoing shall not apply to the
adoption by West of any incentive plan providing for grants of options or
restricted shares to directors and employees nor to any grant of options or
restricted shares thereunder. Except for the West Investor Agreement or as
contemplated by this Agreement, there are no voting trusts, proxies or other
agreements or understandings to which West is a party or by which West is
bound with respect to the voting of any West Common Shares. There are no
outstanding bonds, debentures, notes or other indebtedness or other securities
of West having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which shareholders of
West may vote. Other than the West Stock Options, there are no outstanding
contractual obligations, commitments, understandings or arrangements of West
or any West Subsidiary to repurchase, redeem or otherwise acquire or make any
payment in respect of or measured or determined based on the value or market
price of any shares of capital stock of the West or any West Subsidiary.
Except as set forth in the West Disclosure Schedule, there are no agreements
or arrangements pursuant to which West is or could be required to register
shares of West Common Stock or other securities under the Securities Act on
behalf of any person other than Shareholder. West has delivered or made
available to East a complete and correct copy of the West Rights Agreement, as
amended to the date of this Agreement.
(c) All of the outstanding shares of capital stock of the West Subsidiaries
have been validly issued and are fully paid and, except as set forth in the
West Disclosure Schedule, nonassessable, and are owned by West free and clear
of all Liens. Except for shares of the West Subsidiaries or as set forth in
the West Disclosure Schedule, West does not own, directly or indirectly, any
capital stock or other equity or ownership interest in any entities. West owns
good and marketable title to the stock of each of the West Subsidiaries owned
by it and each West Subsidiary owns good and marketable title to the
securities of each other West Subsidiary owned by it, in each case free and
clear of all Liens.
(d) Except as set forth in the West Disclosure Schedule, there are no
outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement obligating West or the West Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of the West
Subsidiaries or obligating West or the West Subsidiaries to grant, extend or
enter into any such agreement or commitment. There are no voting trusts,
proxies or other agreements or understandings to which West or the West
Subsidiaries is a party or is bound with respect to the voting of any shares
of the West Subsidiaries.
Section 4.3 Authority; Non-contravention; Approvals.
(a) West has full power, trust or otherwise, and authority to enter into
this Agreement and, subject to the West Shareholders Approval and West
Required Statutory Approvals, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation by
West of the transactions contemplated hereby have been duly authorized by the
West Board and no other proceedings on the part of West are necessary to
authorize the execution and delivery of this Agreement by West and the
consummation by West of the transactions contemplated hereby, except for the
obtaining of the West Shareholders Approval and the West Required Statutory
Approvals. This Agreement has been duly and validly executed and delivered by
West, and, assuming the due authorization, execution and delivery hereof by
East, constitutes a valid and binding agreement of West enforceable against
West in accordance with its terms, except that such enforcement may be subject
to (i) bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting or relating to enforcement of creditors' rights generally or
(ii) general equitable principles.
(b) The execution and delivery of this Agreement by West do not, and the
consummation by West of the transactions contemplated hereby will not,
violate, conflict with or result in a breach of any provision of, or
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constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Lien upon any of the
properties or assets of West under any of the terms, conditions or provisions
of, (i) subject to obtaining the West Shareholders Approval, West's
Declaration of Trust or Bylaws, (ii) subject to obtaining the West Required
Statutory Approvals and West Shareholders Approval, any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any court or governmental authority applicable to West or any
West Subsidiary or any of their respective properties or (iii) subject to
obtaining any consent or waiver set forth in the West Disclosure Schedule
(the"West Required Consents"), any loan or credit agreement, note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which West or any West Subsidiary is now a party or by which West or any West
Subsidiary may be bound, excluding from the foregoing clauses (ii) and (iii)
such violations, conflicts, breaches, defaults, terminations, accelerations,
put rights, or creations of Liens that would not, alone or in the aggregate,
be reasonably expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of West and the West Subsidiaries, taken as a whole,
or prevent, hinder or materially delay the ability of West to consummate the
transactions contemplated by this Agreement.
(c) Except for (i) any filings by the parties hereto that may be required by
the HSR Act, (ii) the filing of the Registration Statement, including the
Proxy Statement and Prospectus, with the SEC pursuant to the Securities Act
and the Exchange Act, and the declaration of the effectiveness thereof by the
SEC and any filings that may be required with various state blue sky
authorities, (iii) the filing of the Articles of Merger with, and the
acceptance thereof for recording by, the SDAT, (iv) any required filings with
or approvals from applicable federal or state environmental authorities and
(v) any required filings with or approvals from applicable federal or state
housing authorities (the filings and approvals referred to in clauses (i)
through (v) are collectively referred to as the "West Required Statutory
Approvals"), no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by
West or the consummation by West of the transactions contemplated hereby,
other than such declarations, filings, registrations, notices, authorizations,
consents or approvals which, if not made or obtained, as the case may be,
would not, alone or in the aggregate, be reasonably expected to have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of West and
the West Subsidiaries, taken as a whole, or prevent, hinder or materially
delay the ability of West to consummate the transactions contemplated by this
Agreement.
Section 4.4 Disclosure And Financial Statements. West has filed all required
reports, schedules, forms, registration statements and other documents with
the SEC since January 1, 1996 (collectively, and in each case including all
exhibits and schedules thereto and documents incorporated by reference
therein, the "West SEC Documents"). As of their respective dates, the West SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such West SEC
Documents, and none of the West SEC Documents (including any and all financial
statements included therein) as of such dates contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of West included in the West SEC Documents (the "West SEC
Financial Statements") comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited consolidated
quarterly statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present the consolidated financial position of
West and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited quarterly statements, to normal year-
end audit adjustments).
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Section 4.5 Absence Of Certain Changes Or Events. Since December 31, 1997
through the date hereof, and except as set forth in the West Disclosure
Schedule or disclosed in any West SEC Documents, there has not been (a)any
material adverse change or any event which would reasonably be expected to
result in a material adverse change, individually or in the aggregate, in the
business, operations, properties, assets, liabilities, condition (financial or
other), results of operations or prospects of West and the West Subsidiaries,
taken as a whole, provided, however, that a material adverse change shall not
include any (i) changes, effects, conditions, events or circumstances that
affect the real estate industry generally (including tax, legal and regulatory
changes) or (ii) changes arising from the consummation of the Merger or the
announcement of the execution of this Agreement; or (b) any event which, if it
had taken place after the date hereof, would not have been permitted by
Section 5.2 without the prior consent of East.
Section 4.6 Registration Statement And Proxy Statement And Prospectus. None
of the information supplied or to be supplied by West for inclusion or
incorporation by reference in (a) the Registration Statement or (b) the Proxy
Statement and Prospectus will, in the case of the Proxy Statement and
Prospectus or any amendments thereof or supplements thereto, at the time of
the mailing of the Proxy Statement and Prospectus and any amendments thereof
or supplements thereto, and at the time of the meetings of the shareholders of
East and West to be held in connection with the transactions contemplated by
this Agreement or, in the case of the Registration Statement, as amended or
supplemented, at the time it becomes effective and at the time of such
meetings, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that no representation is made by West with respect to
information supplied by East for inclusion or incorporation therein. The
Registration Statement and Proxy Statement and Prospectus will comply as to
form in all material respects with all applicable laws, including the
provisions of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder.
Section 4.7 Taxes. Except as set forth in the West Disclosure Schedule:
(a) Each of West and the West Subsidiaries has timely filed, or shall timely
file, with the appropriate governmental authorities all Tax Returns required
to be filed by it (either separately or as a member of any affiliated group
within the meaning of SECTION 1504 of the Code or any similar group defined
under a similar provision of state, local or foreign law (a "West Affiliated
Group")) for all periods ending on or prior to the Closing, except to the
extent of any Tax Returns for which an extension of time for filing has been
properly filed. Each such return and filing is complete and correct in all
material respects. All Taxes shown on a Tax Return as owed by West or the West
Subsidiaries have been paid. No material issues have been raised in any
examination by any taxing authority with respect to the businesses and
operations of West or the West Subsidiaries which (i) reasonably could be
expected to result in an adjustment to the liability for Taxes such period
examined, or (ii) by application of similar principles, reasonably could be
expected to result in an adjustment to the liability for Taxes for any period
not so examined. All Taxes which West or any West Subsidiary is required by
law to withhold or collect, including Taxes required to have been withheld in
connection with amount paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party and sales, gross receipts and use
taxes, have been duly withheld or collected and, to the extent required, have
been paid over to the proper governmental authorities or are held in separate
bank accounts for such purpose. There are no Liens For Taxes upon the Assets
of West or the West Subsidiaries except for statutory Liens For Taxes not yet
due.
(b) None of West, the West Subsidiaries or the West Affiliated Group has
filed for an extension of a statute of limitations with respect to any Tax and
no governmental authorities have requested an extension of the statute of
limitations with respect to any Tax. The Tax Returns of West, the West
Subsidiaries and the West Affiliated Group are not being and have not been
examined or audited by any taxing authority for any past year or periods. None
of West, the West Subsidiaries or the West Affiliated Group is a party to any
pending action or any formal or informal proceeding by any taxing authority
for a deficiency, assessment or collection of Taxes, and no claim for any
deficiency, assessment or collection of Taxes has been asserted, or, to the
knowledge of West, threatened against it, including claims by any taxing
authority in a jurisdiction where West and the West Subsidiaries do not file
tax returns that any of them is or may be subject to taxation in that
jurisdiction.
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(c) Each of West and the West Subsidiaries has properly accrued on its
respective financial statements all Taxes due for which West or the West
Subsidiaries may be liable, whether or not shown on any Tax Return as being
due (including by reason of being a member of a West Affiliated Group or as a
transferee of the assets of, or successor to, any corporation, person,
association, partnership, joint venture or other entity). West and the West
Subsidiaries have established (and until the Closing Date shall continue to
establish and maintain) on its books and records reserves that are adequate
for the payment of all Taxes not yet due and payable.
(d) Neither West nor the West Subsidiaries (i) has filed a consent under
SECTION 341(f) of the Code concerning collapsible corporations, or (ii) is a
party to any Tax allocation or sharing agreement other than a tax sharing
agreement between the West Subsidiaries and West.
(e) The West Affiliated Group of which West and any West Subsidiary is or
was a member has duly and timely filed all Tax Returns that it was required to
file for each taxable period during which West and any such West Subsidiary
was a member of the group. All such Tax Returns were complete and correct in
all material respects and all Taxes owed by the West Affiliated Group, whether
or not shown on any Tax Return, have been paid for each taxable period during
which West and any West Subsidiary was a member of the group.
(f) Except as set forth in the West Disclosure Schedule, West does not have
any liability for the Taxes of any person other than West and the West
Subsidiaries and the West Subsidiaries do not have any liability for the Taxes
of any person other than West and the West Subsidiaries (A) under Treasury
Regulation SECTION 1.1502-6 (or any similar provision of state, local or
foreign law), (B) as a transferee or successor, (C) by contract, or (D)
otherwise.
(g) Neither West nor the West Subsidiaries has made any payments, is
obligated to make any payments, or is a party to an agreement that could
obligate it to make any payments that will not be deductible under SECTION
280G of the Code. West and the West Subsidiaries have disclosed to the IRS all
positions taken on its federal income tax returns which could give rise to a
substantial understatement of tax under SECTION 6662 of the Code.
(h) For all taxable years commencing with the taxable year ended December
31, 1963 through the taxable year ended December 31, 1997, West has been
organized in conformity with the qualifications as a REIT (within the meaning
of the Code) and has satisfied all requirements to qualify as a REIT for such
years. West has operated, and intends to continue to operate, in such a manner
as to qualify as a REIT for the tax year ending December 31, 1998, and has not
taken or omitted to take any action which would reasonably be expected to
result in a challenge to its status as a REIT, and no such challenge is
pending or, to West's knowledge, threatened. Each West Subsidiary that is a
partnership, joint venture or limited liability company has been treated
during and since its formation and continues to be treated for federal income
tax purposes as a partnership and not as a corporation or an association
taxable as a corporation. Each West Subsidiary that is both (i) a corporation
for federal income tax purposes and (ii) with respect to which all of the
outstanding capital stock is owned solely by West (or solely by a West
Subsidiary that is a corporation wholly owned by West) is a "qualified REIT
subsidiary" as defined in SECTION 856(i) of the Code.
Section 4.8 Absence Of Undisclosed Liabilities. Neither West nor any West
Subsidiary had, at December 31, 1997, and neither has incurred since that
date, any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature (other than ordinary and recurring operating
expenses) (a) except liabilities, obligations or contingencies which are
accrued or reserved against in the West SEC Financial Statements or reflected
in the notes thereto, and (b) as incurred in connection with the transactions
contemplated by this Agreement, and (c) except for any liabilities,
obligations or contingencies which (i) would not be, alone or in the
aggregate, reasonably expected to have a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of West and the West Subsidiaries, taken as
a whole or prevent, hinder or materially delay the ability of West to
consummate the transactions contemplated by this Agreement, or (ii) have been
discharged or paid in full prior to the date hereof.
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Section 4.9 Litigation. Except as disclosed in the West SEC Documents or the
West Disclosure Schedule, there are no claims, suits, actions or proceedings
pending or, to West's knowledge, threatened, against, relating to or affecting
West or any West Subsidiary or any of their respective properties or assets
before or by any court, governmental department, commission, agency,
instrumentality or authority, or any arbitrator that would reasonably be
expected to have, alone or in the aggregate with all such claims, actions or
proceedings, a material adverse effect on the business, operations,
properties, assets, condition (financial or other) results of operations or
prospects of West or the West Subsidiaries, taken as a whole, or to prevent,
hinder or materially delay the ability of West to consummate the transactions
contemplated by this Agreement. Neither West nor any West Subsidiary is
subject to any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or authority, or
any arbitrator which prohibits or restricts the consummation of the
transactions contemplated hereby or would have a material adverse effect on
the business, operations, properties, assets, condition (financial or other),
results of operations or prospects of West and the West Subsidiaries, taken as
a whole or prevent, hinder or materially delay the ability of West to
consummate the transactions contemplated by this Agreement.
Section 4.10 No Violation Of Law. Neither West nor any West Subsidiary is in
violation of or has been given notice or been charged with any violation of
any law, statute, order, rule, regulation, ordinance or judgment (including
any applicable environmental law, ordinance or regulation) of any governmental
or regulatory body or authority, except for violations which, alone or in the
aggregate, would not reasonably be expected to have a material adverse effect
on the business, operations, properties, assets, condition (financial or
other), results of operations or prospects of West and the West Subsidiaries,
taken as a whole or prevent, hinder or materially delay the ability of West to
consummate the transactions contemplated by this Agreement. Neither West nor
any of the West Subsidiaries is in violation or has been given notice or been
charged with any violation of any law, statute, order, rule, regulation,
ordinance or judgment (including any applicable environmental law, ordinance
or regulation) of any governmental or regulatory body or authority, except for
violations which, alone or in the aggregate, would not reasonably be expected
to have a material adverse effect on the business, operations, properties,
assets, condition (financial or other), results of operations or prospects of
West and the West Subsidiaries, taken as a whole or prevent, hinder or
materially delay the ability of West to consummate the transactions
contemplated by this Agreement. No investigation or review of West or any West
Subsidiary by any governmental or regulatory body or authority is pending or,
to the knowledge of West, threatened, nor has any governmental or regulatory
body or authority indicated to West or any West Subsidiary an intention to
conduct the same, other than, in each case, those the outcome of which, as far
as reasonably can be foreseen, would not, alone or in the aggregate,
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of West and the West Subsidiaries, taken as a whole or
prevent, hinder or materially delay the ability of West to consummate the
transactions contemplated by this Agreement. Each of West and the West
Subsidiaries have all permits, licenses, franchises, variances, exemptions,
orders and other governmental authorizations, consents and approvals necessary
to conduct its business as presently conducted and as proposed by West or any
West Subsidiary to be conducted, except for permits, licenses, franchises,
variances, exemptions, orders, authorizations, consents and approvals the
absence of which, alone or in the aggregate, would not reasonably be expected
to have a material adverse effect on the business, operations, properties,
assets, condition (financial or other), results of operations or prospects of
West and the West Subsidiaries, taken as a whole or prevent, hinder or
materially delay the ability of West to consummate the transactions
contemplated by this Agreement.
Section 4.11 West Properties. Except as disclosed in the West SEC Documents,
each of West and the West Subsidiaries (i) has good and marketable title to
all the properties and assets reflected in the latest audited balance sheet
included in such West SEC Documents as being owned by West or one of the West
Subsidiaries or acquired after the date thereof which are, alone or in the
aggregate, material to West's business on a consolidated basis (except
properties sold or otherwise disposed of since the date thereof in the
ordinary course of business), free and clear of (A) all Liens except (1)
statutory Liens securing payments not yet due and (2) such imperfections or
irregularities of title or other Liens (other than real property mortgages or
deeds of trust) as do not materially affect the use of the properties or
assets subject thereto or affected thereby or otherwise
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materially impair the business operations presently conducted at such
properties, and (B) all real property mortgages and deeds of trust, and (ii)
is the lessee of all leasehold estates reflected in the latest audited
financial statements included in such West SEC Documents or acquired after the
date thereof which are, alone or in the aggregate, material to its business on
a consolidated basis and is in possession of the properties purported to be
leased thereunder, and each such lease is valid without default thereunder by
the lessee or, to West's knowledge, the lessor.
Section 4.12 Labor Matters. Neither West nor any West Subsidiary is a party
to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is
West or any West Subsidiary the subject of any proceeding asserting that it or
any subsidiary has committed an unfair labor practice or seeking to compel it
to bargain with any labor organization as to wages or conditions of employment
nor is there any strike, work stoppage or other labor dispute involving West
or any West Subsidiary pending, or, to West's knowledge, threatened, any of
which would, alone or in the aggregate, reasonably be expected to have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of West and
the West Subsidiaries, taken as a whole or prevent, hinder or materially delay
the ability of West to consummate the transactions contemplated by this
Agreement.
Section 4.13 Employee Benefit Plans. Each employee benefit plan maintained
by West or any West Subsidiary ("West Benefit Plans") that provides
retirement, pension, health care, long-term disability income, workers
compensation, life insurance and any other postretirement benefits that, as of
the date hereof, covers any employee of West or the West Subsidiaries complies
and has been administered in form and in operation in all material respects
with all applicable requirements of law and no notice has been issued by any
governmental authority questioning or challenging such compliance. Neither the
execution or delivery of this Agreement nor the consummation of the
transactions contemplated hereby constitutes or will constitute an event under
any West Benefit Plan that may result in any payment by West or any West
Subsidiary, any restriction or limitation upon the assets of any West Benefit
Plan, any acceleration of payment or vesting, increase in benefits or
compensation, or forgiveness of any loan or other commitment to West or any
West Subsidiary.
Section 4.14 Intellectual Property. West and the West Subsidiaries own, free
of Liens, or have a valid license to use, all of the Intellectual Property
used in the conduct of the businesses of West and the West Subsidiaries,
subject to the terms and conditions of the West License Agreement with respect
to the Intellectual Property that is the subject matter thereof. None of such
Intellectual Property has been or is the subject of any pending adverse claim,
or to the knowledge of West, any threatened litigation or claim of
infringement based on the use thereof by West or any West Subsidiary or a
third party. Neither West nor any West Subsidiary has received any notice
contesting West's or the West Subsidiaries' right to use any of such
Intellectual Property, and, to the knowledge of West, neither West nor any
West Subsidiary has infringed upon or misappropriated any intellectual
property rights of third parties. The consummation of the Merger will not
result in the loss by West or any West Subsidiaries of any of it or their
rights in such Intellectual Property.
Section 4.15 West Material Contracts. Except as disclosed in the West SEC
Documents filed prior to the date hereof, neither West nor any West Subsidiary
is a party to or bound by (a) any "material contract" (as such term is defined
in Item 601(b)(10) of Regulation S-K of the SEC), or (b) any non-competition
agreement or any other agreement or obligation that purports to limit in any
respect the manner in which, or the localities in which, all or any
substantial portion of the business of West or the West Subsidiaries would be
conducted.
Section 4.16 Environmental Matters. Except as set forth in the West SEC
Documents, West has no knowledge of (a) any violation of Environmental Laws
relating to any property of West or any West Subsidiary, (b) the release or
potential release of Hazardous Materials on or from any such property, in
violation of any Environmental Laws, (c) underground storage tanks located on
any property, or (d) asbestos in or on any such property which would, alone or
in the aggregate, reasonably be expected to have a material adverse effect on
the business, operations, properties, assets, condition (financial or
otherwise), results of operations or prospects of East and the East
Subsidiaries, taken as a whole, or prevent, hinder or materially delay the
ability of East to
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consummate the transactions contemplated by this Agreement. Except as set
forth in West Disclosure Schedule, neither West nor any West Subsidiary has
manufactured, introduced, released or discharged from or onto any such
property any Hazardous Materials or any toxic wastes, substances or materials
(including asbestos) in violation of any Environmental Laws, and neither West
nor any West Subsidiary has used any such property or any part thereof for the
generation, treatment, storage, handling or disposal of any Hazardous
Materials, in violation of any Environmental Laws which would, alone or in the
aggregate, reasonably be expected to have a material adverse effect on the
business, operations, properties, assets, condition (financial or otherwise),
results of operations or prospects of East and the East Subsidiaries, taken as
a whole, or prevent, hinder or materially delay the ability of East to
consummate the transactions contemplated by this Agreement.
Section 4.17 Insurance. West or the West Subsidiaries maintain insurance
coverage for West and the West Subsidiaries and their respective properties
and assets of the types and in amounts typical of similar companies engaged in
the respective businesses in which West and the West Subsidiaries are engaged.
All such insurance policies are (a) in full force and effect, and with respect
to all policies neither West nor any West Subsidiary is delinquent in the
payment of any premiums thereon, and no notice of cancellation or termination
has been received with respect to any such policy, and (b) are sufficient for
compliance with all requirements of law and of all agreements to which West or
the West Subsidiaries are a party or otherwise bound and are valid,
outstanding, collectable, and enforceable policies and will remain in full
force and effect through their respective policy periods, except, and the case
of either clause (a) or (b), in such manner as would not, alone or in the
aggregate, be reasonably expected to have a material adverse effect on the
business, operations properties, assets, condition (financial or other),
results of operations or prospects of West and West Subsidiaries, taken as a
whole or prevent, hinder or materially delay the ability of West to consummate
the transactions contemplated by this Agreement. Neither West nor any West
Subsidiary has received written notice within the last 12 months from any
insurance company or board of fire underwriters of any defects or inadequacies
that would materially adversely affect the insurability of, or cause any
material increase in the premiums for insurance covering, either West or any
West Subsidiary or any of their respective properties or assets that have not
been cured or repaired to the satisfaction of the party issuing the notice.
Section 4.18 Brokers and Finders. West has not employed any broker, finder,
other intermediary, or financial advisor in connection with the transactions
contemplated by this Agreement that would be entitled to any brokerage,
finder's or similar fee or commission, or financial advisory fee, in
connection with this Agreement or the transactions contemplated hereby, other
than Goldman, Sachs & Co., whose fees and expenses will be paid by West.
Section 4.19 Investment Company Act. None of West nor any of the West
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, nor an "investment adviser" within the
meaning of the Investment Advisers Act of 1940, as amended.
Section 4.20 HSR Act. For purposes of determining compliance with the HSR
Act, West confirms that conduct of its businesses consists solely of investing
in, owning, operating and developing real estate for the benefit of its
shareholders.
Section 4.21 West Rights Agreement. West has taken all action so that the
entering into of this Agreement and the consummation of the transactions
contemplated hereby do not and will not enable or require the West Rights to
be separated from the shares of West Common Stock with which the West Rights
are associated, or to be distributed, exercisable, exercised, or
nonredeemable.
Section 4.22 State Antitakeover Laws Not Applicable. By virtue of provisions
in West's Declaration of Trust, Bylaws or resolutions of the West Board
validly adopted under Section 3-603(e)(1) or Section 3-702(b) of the MGCL,
neither Section 3-602s of the MGCL nor Subtitle 7 of the MGCL (Sections 3-701
through 3-709 of the MGCL) applies to this Agreement or the Merger or the
other transactions contemplated hereby. Other than Section 3-602 and Subtitle
7 of the MGCL, no state takeover statute or similar statute or regulation of
the State of Maryland (and, to the knowledge of West, of any other state or
jurisdiction) applies or purports to apply to this Agreement or the Merger or
other transactions contemplated hereby.
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Section 4.23 Required West Vote. The West Shareholders Approval (including
the requisite shareholder approval of West's Amended and Restated Declaration
of Trust necessary to consummate the Merger), being the affirmative vote of
two thirds of the outstanding shares of West Common Stock entitled to vote,
voting separately as a class, is the only vote of the holders of any class or
series of West's securities necessary to approve this Agreement, the Merger
and the other transactions contemplated hereby.
Section 4.24 Board Recommendation. The West Board, at a meeting duly called
and held, has by a unanimous vote of those trustees present (who constituted
100% of the trustees then in office), including the unanimous vote of the
"Independent Trustees" (as defined in West's Declaration of Trust), (i)
determined and declared that this Agreement and the transactions contemplated
hereby, including the Merger, are advisable and fair to and in the best
interests of West and the shareholders of West, and (ii) resolved to recommend
that the holders of West Common Stock approve this Agreement and the
transactions contemplated herein, including the Merger.
Section 4.25 Opinion Of Financial Advisor. A special committee of the West
Board has received the opinion of Goldman, Sachs & Co., dated the date of this
Agreement, to the effect that the Exchange Ratio is fair, from a financial
point of view, to West and to the holders of West Common Stock other than the
Shareholder.
ARTICLE V
Conduct Of Businesses Pending The Closing
Section 5.1 Conduct Of Business By East. From the date of this Agreement to
the Effective Time (except as otherwise specifically required by the terms of
this Agreement), East shall, and shall cause the East Subsidiaries to, act and
carry on their respective businesses in the usual. Without limiting the
generality of the foregoing, from the date of this Agreement to the Effective
Time, East shall not, and shall not permit any of the East Subsidiaries to,
without the prior consent of the West:
(a) (i) except as contemplated by Section 5.3, declare, set aside or pay any
dividends on, or make any other distributions in respect of, any of its
capital stock, other than dividends and distributions by a direct or indirect
wholly owned East Subsidiary to its parent and the declaration and payment by
East of regular quarterly cash dividends on East Common Stock in an amount not
in excess of $.40 per share and regular quarterly cash dividends on East
Series A Preferred Stock in an amount not exceeding $.53906 per share, in each
case with usual record and payment dates for such dividends in accordance with
East's past dividend practices, (ii) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
(iii) purchase, redeem or otherwise acquire any shares of capital stock of
East or any East Subsidiary or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities other than
in accordance with East's 1997 Long-Term Incentive Plan or the redemption of
the East Rights in accordance with the East Rights Agreement;
(b) authorize for issuance, issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock or the capital stock of any East
Subsidiary, any other voting securities or any securities convertible into, or
any rights, warrants or options to acquire, any such shares, voting securities
or convertible securities or any other securities or equity equivalents
(including without limitation stock appreciation rights), or contractual
obligation valued or measured by the value or market price of East Common
Stock (other than (y) the issuance of East Common Stock upon the exercise of
East Stock Options outstanding on the date of this Agreement and in accordance
with their present terms or pursuant to East's 401(k) Savings Plan and in
accordance with its terms or (z) the issuance of East securities pursuant to
the East Rights Agreement, such issuances being referred to herein as "East
Permitted Changes");
(c) amend its articles or certificate of incorporation, by-laws or other
comparable charter or organizational documents;
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(d) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association, or other business organization or division thereof;
(e) sell, lease, mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of any of its properties or assets that are material, alone
or in the aggregate, to East and the East Subsidiaries, taken as a whole,
except sales, leases, mortgages, or other encumbrances or Liens of properties
or assets in the ordinary course of business consistent with past practice;
(f) except in connection with interim financing for the acquisition of
portfolio properties referred to in the East Disclosure Schedule, (i) incur
any indebtedness for borrowed money or guarantee any such indebtedness of
another person, issue or sell any debt securities or warrants or other rights
to acquire any debt securities of East or any East Subsidiary, guarantee any
debt securities of another person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another person or
enter into any arrangement having the economic effect of any of the foregoing,
except for short-term borrowings incurred in the ordinary course of business
consistent with past practice, or (ii) make any loans, advances or capital
contributions to, or investments in, any other person, other than to East or
any direct or indirect wholly owned East Subsidiary;
(g) acquire or agree to acquire any assets that are material, alone or in
the aggregate, to East and the East Subsidiaries, taken as a whole, or make or
agree to make any capital expenditures except in the ordinary course of
business consistent with past practice or in connection with the acquisition
of portfolio properties referred to in the East Disclosure Schedule; pay,
discharge or satisfy any claims (including claims of shareholders),
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), except for the payment, discharge or satisfaction,
of (i) liabilities or obligations in the ordinary course of business
consistent with past practice or in accordance with their terms as in effect
on the date hereof, (ii) liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated audited financial statements (or
the notes thereof) of East included in the East SEC Documents, or waive,
release, grant, or transfer any rights of material value or modify or change
in any material respect any existing license, lease, contract or other
document, other than in the ordinary course of business consistent with past
practice;
(h) adopt or amend in any material respect (except as may be required by
law) any bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation, employment or other employee benefit plan,
agreement, trust, fund or other arrangement for the benefit or welfare of any
employee, director or former director or employee or, other than increases for
individuals (other than officers and directors) in the ordinary course of
business consistent with past practice; increase the compensation or fringe
benefits of any director, employee or former director or employee; pay any
benefit not required by any existing plan, arrangement or agreement, grant any
new or modified severance or termination arrangement or increase or accelerate
any benefits payable under any severance or termination pay policies in effect
on the date hereof, other than any such increase or acceleration provided for
under the East Benefit Plans as in effect on the date of this Agreement;
(i) change any material accounting principle used by it, except for such
changes as may be required to be implemented following the date of this
Agreement pursuant to generally accepted accounting principles or rules and
regulations of the SEC promulgated following the date hereof;
(j) take any action that would, or is reasonably likely to, result in any of
its representations and warranties in this Agreement becoming untrue, or in
any of the conditions to the Merger set forth in Article VII not being
satisfied;
(k) except in the ordinary course of business and consistent with past
practice, make any tax election or settle or compromise any federal, state,
local or foreign income tax liability; or
(l) authorize any of, or commit or agree to take any of, the foregoing
actions.
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Section 5.2 Conduct Of Business By West. From the date of this Agreement to
the Effective Time (except as specifically required by the terms of this
Agreement), West shall, and shall cause the West Subsidiaries to, act and
carry on their respective businesses in the usual, regular and ordinary course
of business consistent with past practice and, to the extent consistent
therewith, use their best efforts to preserve intact their current business
organizations, keep available the services of their current officers and
employees and preserve their relationships with customers, suppliers, lessors,
lessees, and others having business dealings with them, to the end that their
goodwill and ongoing businesses shall not be impaired in any material respect
at the Effective Time. Without limiting the generality of the foregoing, from
the date of this Agreement to the Effective Time, West shall not, and shall
not permit any of West Subsidiaries to, without the prior consent of East:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions by a direct or indirect wholly owned West Subsidiary to its
parent and the declaration and payment by West of regular quarterly cash
dividends on West Common Stock in an amount not in excess of $.34 per share
and regular quarterly cash dividends on West Series A Preferred Stock and West
Series B Preferred Stock in amounts not exceeding $.457946 and $.5625,
respectively, per share, in each case with usual record and payment dates for
such dividends in accordance with West's past dividend practices, (ii) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or (iii) purchase, redeem or otherwise
acquire any shares of capital stock of West or any West Subsidiary or any
other securities thereof or any rights, warrants, or options to acquire any
such shares or other securities other than in accordance with West's 1997
Long-Term Incentive Plan or the redemption of the West Rights in accordance
with the West Rights Agreement;
(b) authorize for issuance, issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock or the capital stock of any West
Subsidiary, any other voting securities or any securities convertible into, or
any rights, warrants or options to acquire, any such shares, voting securities
or convertible securities or any other securities or equity equivalents
(including without limitation stock appreciation rights), or contractual
obligation valued or measured by the value or market price of West Common
Stock (other than (x) the issuance of West Common Stock in accordance with
West's 1998 Dividend Reinvestment and Share Purchase Plan, (y) the issuance of
West Common Stock upon the exercise of West Stock Options outstanding on the
date of this Agreement and in accordance with their present terms or pursuant
to West's 401(k) Savings Plan and in accordance with its terms or (z) the
issuance of West securities pursuant to the West Rights Agreement, such
issuances being referred to herein as "West Permitted Changes");
(c) amend its Declaration of Trust, except as contemplated by this Agreement
or as required to allow for the consummation of the Merger (including such
amendment as required to create the series of West New Preferred Stock as
contemplated by the Articles of Merger);
(d) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association, or other business organization or division thereof, unless such
transaction would not reasonably be expected to materially delay or impede the
consummation of the Merger;
(e) sell, lease, mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of any of its properties or assets that are material, alone
or in the aggregate, to West and the West Subsidiaries, taken as a whole,
except sales, leases, mortgages, or other encumbrances or Liens of properties
or assets in the ordinary course of business consistent with past practice;
(f) (i) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or warrants
or other rights to acquire any debt securities of West or any West Subsidiary,
guarantee any debt securities of another person, enter into any "keep well" or
other agreement to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of any of the
foregoing, except for short-term borrowings incurred in the ordinary course of
business
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consistent with past practice, or (ii) make any loans, advances or capital
contributions to, or investments in, any other person, other than to West or
any direct or indirect wholly owned West Subsidiary;
(g) acquire or agree to acquire any assets that are material, alone or in
the aggregate, to West and the West Subsidiaries, taken as a whole, or make or
agree to make any capital expenditures except in the ordinary course of
business consistent with past practice; pay, discharge or satisfy any claims
(including claims of shareholders), liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), except for the
payment, discharge or satisfaction, of (i) liabilities or obligations in the
ordinary course of business consistent with past practice or in accordance
with their terms as in effect on the date hereof, (ii) liabilities reflected
or reserved against in, or contemplated by, the most recent consolidated
audited financial statements (or the notes thereof) of West included in the
West SEC Documents, or waive, release, grant, or transfer any rights of
material value or modify or change in any material respect any existing
license, lease, contract or other document, other than in the ordinary course
of business consistent with past practice;
(h) adopt or amend in any material respect (except as may be required by
law) any bonus, profit sharing, compensation, share option, pension,
retirement, deferred compensation, employment or other employee benefit plan,
agreement, trust, fund or other arrangement for the benefit or welfare of any
employee, director, trustee, or former director, trustee, or employee or,
other than increases for individuals (other than officers and directors) in
the ordinary course of business consistent with past practice; increase the
compensation or fringe benefits of any director, trustee, employee or former
director, trustee or employee; pay any benefit not required by any existing
plan, arrangement or agreement, grant any new or modified severance or
termination arrangement or increase or accelerate any benefits payable under
any severance or termination pay policies in effect on the date hereof, other
than any such increase or acceleration provided for under the West Benefit
Plans as in effect on the date of this Agreement;
(i) change any material accounting principle used by it, except for such
changes as may be required to be implemented following the date of this
Agreement pursuant to generally accepted accounting principles or rules and
regulations of the SEC promulgated following the date hereof;
(j) take any action that would, or is reasonably likely to, result in any of
its representations and warranties in this Agreement becoming untrue, or in
any of the conditions to the Merger set forth in Article VII not being
satisfied;
(k) except in the ordinary course of business and consistent with past
practice, make any tax election or settle or compromise any federal, state,
local or foreign income tax liability; or
(l) authorize any of, or commit or agree to take any of, the foregoing
actions.
Section 5.3 Coordination of Dividends. The first customary quarterly
dividend to be paid by West on West Common Stock after the Effective Time
shall be in the amount of $.355 per share. West and East shall coordinate with
each other the payment of dividends with respect to West Common Stock and East
Common Stock after the date hereof, it being the intention of the parties that
holders of West Common Stock and East Common Stock shall not receive two
dividends, or fail to receive one dividend, for any single calendar quarter
with respect to their shares of West Common Stock or East Common Stock or any
shares of West Common Stock that any such holder receives in exchange for
shares of East Common Stock in the Merger.
Section 5.4 No Solicitation.
(a) Neither East nor any of the East Subsidiaries shall, nor shall East or
any of the East Subsidiaries authorize or permit any of its or their officers,
directors, agents, representatives, advisors or subsidiaries to, directly or
indirectly (a) solicit, initiate or encourage (including by way of furnishing
information), or take any other action to facilitate the submission of
inquiries, proposals or offers from any person relating to any acquisition or
purchase of a substantial amount of assets of East or any of the East
Subsidiaries (other than in the ordinary course of business) or of over 9.8%
of any class of equity securities of East or any of the East
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Subsidiaries or any tender offer (including a self tender offer) or exchange
offer that if consummated would result in any person beneficially owning 9.8%
or more of any class of equity securities of East or any of the East
Subsidiaries, or any merger, consolidation, business combination, sale of
substantially all assets, recapitalization, liquidation, dissolution or
similar transaction involving East or any of the East Subsidiaries, other than
the transactions contemplated by this Agreement, or any other transaction the
consummation of which would or could reasonably be expected to impede,
interfere with, prevent or materially delay the Merger (collectively, "East
Alternative Proposals") or agree to or endorse any East Alternative Proposal,
or (b) enter into or participate in any discussions or negotiations regarding
any of the foregoing, or furnish to any other person any information with
respect to its business, properties or assets or any of the foregoing, or
otherwise cooperate in any way with, or assist or participate in, facilitate
or encourage, any effort or attempt by any other person to do or seek any of
the foregoing; provided, however, that the foregoing shall not prohibit East
from (i) furnishing information concerning East and its businesses, properties
or assets (pursuant to an appropriate confidentiality agreement customary
under the circumstances) to a third party who has made an unsolicited East
Alternative Proposal, (ii) engaging in discussions or negotiations with a
third party who has made an unsolicited East Alternative Proposal, (iii)
following receipt of an unsolicited East Alternative Proposal, taking and
disclosing to its shareholders a position contemplated by Rule 14e-2(a) under
the Exchange Act or otherwise making disclosure to its shareholders, (iv)
following receipt of an unsolicited East Alternative Proposal, failing to make
or withdrawing or modifying its recommendation referred to in Section 3.24,
and/or (v) engaging in discussions or negotiations with Shareholder regarding
an unsolicited East Alterative Proposal from a third party, but in each case
referred to in the foregoing clauses (i) through (iv) (not in the case of the
foregoing clause (v)) only if and to the extent that the East Board shall have
concluded in good faith, after consulting with and considering the advice of
outside counsel, that such action is required by the East Board in the
exercise of its fiduciary duties to the shareholders of East under applicable
law; provided, further, that the Board of Directors of East shall not take any
of the foregoing actions referred to in clauses (i) through (iv) (but not
clause (v)) until after giving at least one business day's advance notice to
West with respect to any of the actions specified in the foregoing clauses (i)
through (iv) that it shall take. In addition, if the East Board receives an
unsolicited East Alternative Proposal, then East shall promptly inform West in
writing of the material terms of such proposal and the identity of the person
(or group) making it. East will immediately cease and cause to be terminated
all existing activities, discussions or negotiations, if any, with any parties
(other than Shareholder) conducted heretofore with respect to any of the
foregoing. Without limiting the foregoing, it is understood that any violation
of the restrictions set forth in this Section 5.4(a) by any director or
executive officer of East or any of its subsidiaries or by any investment
banker, financial adviser, attorney, accountant, or other representative of
East or any of its subsidiaries shall be deemed to be a breach of this Section
by East.
(b) Neither West nor any of the West Subsidiaries shall, nor shall West or
any of the West Subsidiaries authorize or permit any of its or their officers,
trustees, directors, agents, representatives, advisors or subsidiaries to,
directly or indirectly (a) solicit, initiate or encourage (including by way of
furnishing information), or take any other action to facilitate the submission
of inquiries, proposals or offers from any person relating to any acquisition
or purchase of a substantial amount of assets of West or any of the West
Subsidiaries (other than in the ordinary course of business) or of over 9.8%
of any class of equity securities of West or any of the West Subsidiaries or
any tender offer (including a self tender offer) or exchange offer that if
consummated would result in any person beneficially owning 9.8% or more of any
class of equity securities of West or any of the West Subsidiaries, or any
merger, consolidation, business combination, sale of substantially all assets,
recapitalization, liquidation, dissolution or similar transaction involving
West or any of the West Subsidiaries, other than the transactions contemplated
by this Agreement, or any other transaction the consummation of which would or
could reasonably be expected to impede, interfere with, prevent or materially
delay the Merger (collectively, "West Alternative Proposals") or agree to or
endorse any West Alternative Proposal, or (b) enter into or participate in any
discussions or negotiations regarding any of the foregoing, or furnish to any
other person any information with respect to its business, properties or
assets or any of the foregoing, or otherwise cooperate in any way with, or
assist or participate in, facilitate or encourage, any effort or attempt by
any other person to do or seek any of the foregoing; provided, however, that
the foregoing shall not prohibit West from (i) furnishing information
concerning West and its businesses, properties or assets (pursuant to an
appropriate confidentiality
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agreement customary under the circumstances) to a third party who has made an
unsolicited West Alternative Proposal, (ii) engaging in discussions or
negotiations with a third party who has made an unsolicited West Alternative
Proposal, (iii) following receipt of an unsolicited West Alternative Proposal,
taking and disclosing to its shareholders a position contemplated by Rule 14e-
2(a) under the Exchange Act or otherwise making disclosure to its
shareholders, (iv) following receipt of an unsolicited West Alternative
Proposal, failing to make or withdrawing or modifying its recommendation
referred to in Section 4.24, and/or (v) engaging in discussions or
negotiations with Shareholder regarding an unsolicited West Alterative
Proposal from a third party, but in each case referred to in the foregoing
clauses (i) through (iv) (not in the case of the foregoing clause (v)) only if
and to the extent that the West Board shall have concluded in good faith,
after consulting with and considering the advice of outside counsel, that such
action is required by the West Board in the exercise of its fiduciary duties
to the shareholders of West under applicable law; provided, further, that the
West Board shall not take any of the foregoing actions referred to in clauses
(i) through (iv) (but not clause (v)) until after giving at least one business
day's advance notice to East with respect to any of the actions specified in
the foregoing clauses (i) through (iv) that it shall take. In addition, if the
Board of Trustees of West receives an unsolicited West Alternative Proposal,
then West shall promptly inform East in writing of the material terms of such
proposal and the identity of the person (or group) making it. West will
immediately cease and cause to be terminated existing activities, discussions
or negotiations, if any, with any parties (other than Shareholder) conducted
heretofore with respect to any of the foregoing. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth
in this Section 5.4(b) by any trustee or executive officer of West or any of
its subsidiaries or by any investment banker, financial adviser, attorney,
accountant, or other representative of West or any of its subsidiaries shall
be deemed to be a breach of this SECTION by West.
ARTICLE VI
Additional Agreements
Section 6.1 Access To Information. Each of the parties shall afford to the
other party and its respective accountants, counsel, financial advisors and
other representatives (the "Representatives") full access during normal
business hours throughout the period prior to the Closing to all properties,
books, contracts, commitments and records (including, but not limited to, Tax
Returns) of such party, as appropriate, and, during such period, each shall
furnish promptly to the other (a) a copy of each report, schedule and other
document filed or received pursuant to the requirements of federal or state
securities laws or filed with the SEC in connection with the transactions
contemplated by this Agreement, and (b) such other information concerning its
business, properties and personnel as shall be reasonably requested; provided
that no investigation pursuant to this Section 6.1 shall affect any
representation or warranty made herein or the respective conditions to the
obligations of the parties hereto to consummate the transactions contemplated
hereby. Each party shall promptly advise each other party in writing of any
change or the occurrence of any event after the date of this Agreement having,
or which, insofar as can reasonably be foreseen, in the future may have, a
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of such
party or its subsidiaries taken as a whole.
Section 6.2 Registration Statements And Proxy Statement And Prospectus. West
and East shall file with the SEC as soon as is reasonably practicable after
the date hereof the Proxy Statement and Prospectus, shall use all reasonable
efforts to have the Registration Statement declared effective by the SEC as
promptly as practicable, and shall take any action required to be taken under
applicable state blue sky or securities laws in connection with the Merger.
West and East shall promptly furnish to each other all information, and take
such other actions as may reasonably be requested in connection with any
action by either of them in connection with this Section and shall cooperate
with one another and use their respective best efforts to facilitate the
expeditious consummation of the transactions contemplated by this Agreement.
West shall also file with the SEC a registration statement on Form 8-A under
the Exchange Act to register the West New Preferred Stock as soon as
reasonably practicable after the date thereof and shall use all reasonable
efforts to have such registration statement declared effective prior to the
Closing Date.
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Section 6.3 Letters of Accountants.
(a) East shall use its best efforts to cause to be delivered to West two
letters of Ernst & Young, East's independent public accountants, one dated a
date within two business days before the date on which the Registration
Statement shall become effective and one dated a date within two business days
before the Closing Date, each addressed to West, in form and substance
reasonably satisfactory to West and customary in scope and substance for
comfort letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
(b) West shall use its best efforts to cause to be delivered to East two
letters of KPMG Peat Marwick LLP, West's independent public accountants, one
dated a date within two business days before the date on which the
Registration Statement shall become effective and one dated a date within two
business days before the Closing Date, each addressed to East, in form and
substance reasonably satisfactory to East and customary in scope and substance
for comfort letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
Section 6.4 Shareholders Approval. As soon as practicable following the date
upon which the Registration Statement is declared effective by the SEC, West
shall use its best efforts to obtain the West Shareholders Approval, including
the requisite shareholder approval of amendments to West's Declaration of
Trust necessary to consummate the Merger, and East shall use its best efforts
to obtain the East Shareholders Approval. The West Board and East Board shall
recommend to their respective shareholders the approval of this Agreement and
the Merger and the other transactions contemplated hereby; provided, however,
that (a) prior to the meeting of shareholders of East, the East Board may
withdraw, modify or amend such recommendation to the extent permitted by the
first proviso to Section 5.4(a) and subject to compliance with Section 5.4(a),
and (b) prior to the meeting of shareholders of West, the West Board may
withdraw, modify or amend such recommendation to the extent permitted by the
first proviso to Section 5.4(b) and subject to compliance with Section 5.4(b).
Section 6.5 Affiliate Agreements. East shall use its best efforts to cause
each principal executive officer, each director, and each other person who is
an "affiliate," as that term is used in paragraphs (c) and (d) of Rule 145
under the Securities Act (including Shareholder), of East to deliver to West
on or prior to the Closing Date a written agreement (an "Affiliate Agreement")
to the effect that such person will not offer to sell, sell or otherwise
dispose of any West Stock or West New Preferred Stock issued in the Merger,
except, in each case, pursuant to an effective registration statement or in
compliance with Rule 145, as amended from time to time, or in a transaction
which, in the opinion of legal counsel satisfactory to West, is exempt from
the registration requirements of the Securities Act.
Section 6.6 Exchange. West shall use its best efforts to effect, at or
before the Closing Date, authorization for listing on the Exchange, upon
official notice of issuance, the West Common Stock and West New Preferred
Stock to be issued in the Merger.
Section 6.7 Expenses. Except as provided in Section 8.3, whether or not the
Merger is consummated, all fees and expenses (including financial advisory and
other professional services fees) incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses, except that those fees and expenses incurred in connection with
filing, printing and distributing the Proxy Statement and Prospectus shall be
shared equally by West and East.
Section 6.8 Agreement to Cooperate. Subject to the terms and conditions
herein provided, the parties hereto shall cooperate and use its respective
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations, and under contracts giving rise to the East Required Consents or
West Required Consents, to consummate and make effective the transactions
contemplated by this Agreement, including using its best efforts to identify
and obtain all necessary or appropriate waivers, consents and approvals, to
effect all necessary registrations, filings and
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submissions (including, but not limited to, the East Required Statutory
Approvals, West Required Statutory Approvals, any filings under federal and
state securities laws and the HSR Act) and to lift any injunction or other
legal bar to the transactions contemplated hereby (and, in such case, to
proceed with such transactions as expeditiously as possible), subject,
however, to obtaining the East Shareholders Approval and West Shareholders
Approval. West agrees to expressly assume as of the Effective Time the
obligations of East under the Indenture dated August 14, 1997 between East and
State Street Bank and Trust Company, as trustee, by executing and delivering a
supplemental indenture in accordance with the terms of such Indenture. In
addition, each of West and East agrees to use all reasonable efforts to cause
the Merger to qualify as a reorganization within the meaning of Section 368 of
the Code, to maintain the status of West as a "real estate investment trust"
under the Code, and to obtain the tax opinions contemplated in Sections 7.1(e)
and 7.1(f) from Mayer, Brown & Platt (including using all reasonable efforts
to cause shareholders of East who own 5% or more of the outstanding East
Common Stock to make such factual representations to Mayer, Brown & Platt as
that firm may request in connection with its tax opinions).
Section 6.9 Public Statements. The parties shall consult with each other
prior to issuing any press release or any written public statement with
respect to this Agreement or the transactions contemplated hereby and shall
not issue any such press release or written public statement prior to review
and approval by the other parties, except that prior review and approval shall
not be required if, in the reasonable judgment of the party seeking to issue
such release or public statement, prior review and approval would prevent the
timely dissemination of such release or announcement in violation of any
applicable law, rule, regulation or policy of the Exchange.
Section 6.10 Corrections to the Proxy Statement and Prospectus and
Registration Statement. Prior to the date of the East Shareholders Approval
and West Shareholders Approval, each of West and East shall correct promptly
any information provided by it to be used specifically in the Proxy Statement
and Prospectus and Registration Statement or relating to it and incorporated
by reference into the Proxy Statement and Prospectus and Registration
Statement that shall have become false or misleading in any material respect
and shall take all steps necessary to file with the SEC and have declared
effective or cleared by the SEC any amendment or supplement to the Proxy
Statement and Prospectus or the Registration Statement so as to correct the
same and to cause the Proxy Statement and Prospectus as so corrected to be
disseminated to the shareholders of East and West, in each case to the extent
required by applicable law.
Section 6.11 Updated Schedules. Each party shall deliver to the other party
at least two days prior to the Closing Date updated schedules to this
Agreement reflecting any changes in such party's scheduled items occurring
from the date hereof to the Closing Date.
Section 6.12 Standstill Agreements; Confidentiality Agreements. During the
period from the date of this Agreement through the Effective Time, each of
West and East shall not terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it or any of its subsidiaries
is a party. During such period, each of West and East shall enforce, to the
fullest extent permitted under applicable law, the provisions of any such
agreement, including by obtaining injunctions to prevent any breaches of such
agreements and to enforce specifically the terms and provisions thereof in any
federal or state court having jurisdiction.
Section 6.13 Indemnification.
(a) West agrees that all rights to indemnification from liabilities or acts
or omissions occurring at or prior to the Effective Time now existing in favor
of the current or former directors or officers of East and the East
Subsidiaries as provided in their respective articles of incorporation or
bylaws (or comparable organizational documents) and any indemnification
agreements or arrangements of East and the East Subsidiaries shall survive the
Merger and shall continue in full force and effect in accordance with their
terms with respect to matters arising before the Effective Time. West shall
pay any expenses of any indemnified person under this Section 6.13 in advance
of the final disposition of any action, proceeding or claim relating to any
such act or omission to the fullest extent permitted under the MGCL upon
receipt from the applicable indemnified person to whom
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advances are to be advanced of any undertaking to repay such advances required
under the MGCL. In addition, from and after the Effective Time, directors or
officers of East who become trustees or officers of West will be entitled to
the same indemnity rights and protections as are afforded to other trustees
and officers of West.
(b) In the event that West or any of its successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, proper provision will be made so that
the successors and assigns of West will assume the obligations set forth in
this SECTION .
(c) The provisions of this Section 6.13 are intended to be for the benefit
of, and will be enforceable by, each indemnified party, his or her heirs and
his or her representatives and are in addition to, and not in substitution
for, any other rights to indemnification or contribution that any such person
may have by contract or otherwise.
ARTICLE VII
Conditions
Section 7.1 Conditions To Each Party's Obligations. The respective
obligations of each party to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Closing of the following conditions:
(a) The other party shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Closing and the representations and warranties of the other party shall be
true and correct in all material respects on and as of (i) the date made and
(ii) the Closing Date with the same effect as if made on that date; and the
other party shall have delivered a certificate of its chief executive officer
or a co-chairman to that effect;
(b) Each of the West Shareholders Approval (including the requisite approval
of West's shareholders to West's Amended and Restated Declaration of Trust)
and the East Shareholders Approval shall have been obtained;
(c) The Form 8-A registration statement of West for the West New Preferred
Stock shall have been declared effective by the SEC and the Registration
Statement shall have become effective in accordance with the Securities Act,
and no stop order suspending such effectiveness shall have been issued and
remain in effect and no proceeding for that purpose shall have been initiated
or threatened by the Commission;
(d) The shares of West Common Stock and West New Preferred Stock issuable in
the Merger shall have been approved for listing on the Exchange, subject to
notice of issuance;
(e) Each of West and East shall have received a favorable opinion (in form
and substance reasonably satisfactory to West and East, respectively) from
Mayer, Brown & Platt (who may rely upon factual representations made by West,
East, and shareholders of East who hold 5% or more of the outstanding East
Common Stock) to the effect that for United States federal income tax purposes
the Merger shall qualify as a reorganization within the meaning of SECTION 368
of the Code and that each of West and East will be a party to the
reorganization within the meaning of SECTION 368(b) of the Code;
(f) Each of West and East shall have received a favorable opinion (in form
and substance reasonably satisfactory to West and East, respectively) from
Mayer, Brown & Platt (who may rely upon factual representations made by West
and East) to the effect that the consummation of the Merger and the
performance of this Agreement will not jeopardize the status of West as a
"real estate investment trust" under the Code;
(g) No preliminary or permanent injunction or other order or decree by any
federal or state court which prevents the consummation of the Merger shall
have been issued and remain in effect (each party agreeing to use its best
efforts to have any such injunction, order or decree lifted); and
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(h) Each of the East Required Statutory Approvals described in Section
3.3(c)(i) and (ii) and West Required Statutory Approvals described in Section
4.3(c)(i) and (ii) shall have been obtained and be in effect at the Closing,
and the East Required Consents and West Required Consents shall have been
obtained and be in effect at the Closing.
ARTICLE VIII
Termination, Amendment And Waiver
Section 8.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval by the shareholders of
West and East:
(a) by mutual written consent of West and East;
(b) by West or East, if the Merger shall not have been consummated on or
before October 31, 1998 (the "Termination Date") (other than by reason of a
breach by the party seeking to terminate this Agreement of its obligations
hereunder);
(c) by West or East, if an injunction, order or decree described in SECTION
7.1(g) shall be in effect and shall have become final and nonappealable,
provided that the party seeking to terminate this Agreement has used its best
efforts to have such injunction, order, or decree lifted;
(d) unilaterally by West or East (i) if the other party (A) fails to perform
any covenant or agreement in this Agreement in any material respect, and does
not cure the failure in all material respects within 15 business days after
the terminating party delivers written notice of the alleged failure or (B)
fails to fulfill or complete a condition to the obligations of the terminating
party (which condition is not waived) by reason of a breach by the non-
terminating party of its obligations hereunder or (ii) if any condition to the
obligations of the terminating party is not satisfied (other than by reason of
a breach by that party of its obligations hereunder), and it reasonably
appears that the condition cannot be satisfied prior to the Termination Date;
(e) by West, if (1) East shall have exercised a right specified in the first
proviso to Section 5.4(a) with respect to an East Alternative Proposal and
shall, directly or through Representatives, continue discussions with any
third party concerning such East Alternative Proposal for more than 15
business days after the date of receipt of such East Alternative Proposal; or
(2) (A) an East Alternative Proposal that is publicly disclosed shall have
been commenced, publicly proposed or communicated to East which contains a
proposal as to price (without regard to whether such proposal specifies a
specific price or a range of potential prices) and (B) East shall not have
rejected such proposal within 15 business days of its receipt or, if sooner,
the date its existence first becomes publicly disclosed;
(f) by East, if East validly exercises, pursuant to Section 5.4(a), the
right specified in clause (iv) of the first proviso to Section 5.4(a);
(g) by East, if (1) West shall have exercised a right specified in the first
proviso to Section 5.4(b) with respect to a West Alternative Proposal and
shall, directly or through Representatives, continue discussions with any
third party concerning such West Alternative Proposal for more than 15
business days afer the date of receipt of such West Alternative Proposal; or
(2) (A) a West Alternative Proposal that is publicly disclosed shall have been
commenced, publicly proposed or communicated to West which contains a proposal
as to price (without regard to whether such proposal specifies a specific
price or a range of potential prices) and (B) West shall not have rejected
such proposal within 15 business days of its receipt or, if sooner, the date
its existence first becomes publicly disclosed; or
(h) by West, if West validly exercises, pursuant to Section 5.4(b), the
right specified in clause (iv) of the first proviso to Section 5.4(b);
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provided, however, that any termination of this Agreement pursuant to this
SECTION 8.1 shall require the approval of the Special Committee of the Board
of the terminating party.
Section 8.2 Effect Of Termination. In the event of termination of this
Agreement, as provided in Section 8.1, this Agreement shall forthwith become
void and there shall be no further obligation on the part of any party hereto
or their respective officers or directors or trustees (except as set forth in
this Section 8.2 and in Sections 6.7 and 8.3). Nothing in this Section 8.2
shall relieve any party from liability for any breach of this Agreement.
Section 8.3 Payment Upon Certain Terminations.
(a) In the event that this Agreement is terminated by East pursuant to
Section 8.1(f) or, after the date hereof but prior to any termination of this
Agreement, East or the East Board shall have taken any action to make the East
Rights Agreement inapplicable (through termination or otherwise) to any person
other than West or Shareholder, then, concurrently with any such termination,
East shall pay West, in accordance with Section 8.4, a fee equal to $25
million by wire transfer of same day funds, and East shall reimburse West its
out-of-pocket expenses promptly upon request therefor.
(b) In the event that (A) an East Pre-Termination Alternative Proposal Event
(as defined below) shall occur and thereafter this Agreement is terminated by
West pursuant to Section 8.1(e) and (B) prior to the date that is 12 months
after the date of such termination East enters into any letter of intent,
agreement in principle, acquisition agreement or similar agreement relating to
any East Alternative Proposal, then East shall promptly, but in no event later
than two business days after the date such agreement is entered into, pay
West, in accordance with Section 8.4, a fee equal to $25 million by wire
transfer of same day funds, and East shall reimburse West its out-of-pocket
expenses promptly upon request therefor.
(c) For purposes of Section 8.3(b), an "East Pre-Termination Alternative
Proposal Event" shall be deemed to occur if an East Alternative Proposal shall
have been made known to East or has been made directly to its shareholders
generally or any person shall have publicly announced an intention (whether or
not conditional) to make an East Alternative Proposal. East acknowledges that
the agreements contained in Section 8.3(a) and (b) are an integral part of the
transactions contemplated by this Agreement, and that the amounts to be paid
pursuant to Section 8.3(a) and (b) constitute liquidated damages and not a
penalty.
(d) In the event that this Agreement is terminated by West pursuant to
Section 8.1(h) or, after the date hereof but prior to any termination of this
Agreement, West or the West Board shall have taken any action to make the West
Rights Agreement inapplicable (through termination or otherwise) to any person
other than East or Shareholder, then, concurrently with any such termination,
West shall pay East, in accordance with Section 8.4, a fee equal to $25
million by wire transfer of same day funds, and West shall reimburse East its
out-of-pocket expenses promptly upon request therefor.
(e) In the event that (A) a West Pre-Termination Alternative Proposal Event
(as defined below) shall occur and thereafter this Agreement is terminated by
East pursuant to Section 8.1(g) and (B) prior to the date that is 12 months
after the date of such termination West enters into any letter of intent,
agreement in principle, acquisition agreement or similar agreement relating to
any West Alternative Proposal, then West shall (1) promptly, but in no event
later than two business days after the date such agreement is entered into,
pay East, in accordance with Section 8.4, a fee equal to $25 million by wire
transfer of same day funds, and West shall reimburse East its out-of-pocket
expenses promptly upon request therefor.
(f) For purposes of Section 8.3(e), a "West Pre-Termination Alternative
Proposal Event" shall be deemed to occur if a West Alternative Proposal shall
have been made known to West or has been made directly to its shareholders
generally or any person shall have publicly announced an intention (whether or
not conditional) to make a West Alternative Proposal. West acknowledges that
the agreements contained in Section 8.3(d) and (e) are an integral part of the
transactions contemplated by this Agreement, and that the amounts to be paid
pursuant to Section 8.3(d) and (e) constitute liquidated damages and not a
penalty.
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Section 8.4 Payment of Termination Amount.
(a) In the event that West or East (for purposes of this Section, the
"Paying Party") is obligated to pay an amount pursuant to Section 8.3 (the
"Section 8.3 Amount"), the Paying Party shall pay to the other party hereto
(for purposes of this Section , the "Receiving Party"), from the applicable
Section 8.3 Amount deposited into escrow in accordance with the next sentence,
an amount equal to the lesser of (m) the SECTION 8.3 Amount or (n) the sum of
(1) the maximum amount that can be paid to the Receiving Party without causing
the Receiving Party to fail to meet the requirements of SECTIONS 856(c)(2) and
(3) of the Code determined as if the payment of such amount did not constitute
income described in SECTIONS 856(c)(2)(A)-(H) or 856(c)(3)(A)-(I) of the Code
("Qualifying Income"), as determined by the Receiving Party's certified public
accountants, plus (2) in the event the Receiving Party receives either (X) a
letter from the Receiving Party's counsel indicating that the Receiving Party
has received a ruling from the U.S. Internal Revenue Service ("IRS") described
in Section 8.4(b)(ii) or (Y) an opinion from the Receiving Party's counsel as
described in Section 8.4(b)(ii), an amount equal to the Section 8.3 Amount
less the amount payable under clause (1) above. To secure the Paying Party's
obligation to pay these amounts, the Paying Party shall deposit into escrow an
amount in cash equal to the Section 8.3 Amount with an escrow agent selected
by the Receiving Party and on such terms (subject to Section 8.4(b)) as shall
be agreed upon by the Receiving Party and the escrow agent. The payment of
deposit into escrow of the Section 8.3 Amount pursuant to this Section 8.4(a)
shall be made on the date payment is due under Section 8.3 by wire transfer of
same day funds.
(b) The escrow agreement shall provide that the Section 8.3 Amount in escrow
or any portion thereof shall not be released to the Receiving Party unless the
escrow agent receives any one or combination of the following: (i) a letter
from the Receiving Party's certified public accountants indicating the maximum
amount that can be paid by the escrow agent to the Receiving Party without
causing the Receiving Party to fail to meet the requirements of Sections
856(c)(2) and (3) of the Code determined as if the payment of such amount did
not constitute Qualifying Income or a subsequent letter from the Receiving
Party's accountants revising that amount, in which case the escrow agent shall
release such amount to the Receiving Party, or (ii) a letter from the
Receiving Party's counsel indicating that the Receiving Party received a
ruling from the IRS holding that the receipt by the Receiving Party of the
Section 8.3 Amount would either constitute Qualifying Income or would be
excluded from gross income within the meaning of SECTIONS 856(c)(2) and (3) of
the Code (or alternatively, the Receiving Party's legal counsel has rendered a
legal opinion to the effect that the receipt by the Receiving Party of the
Section 8.3 Amount would either constitute Qualifying Income or would be
excluded from gross income within the meaning of SECTION 856(c)(2) and (3) of
the Code), in which case the escrow agent shall release the remainder of the
SECTION 8.3 Amount to the Receiving Party. The Paying Party agrees to amend
this Section 8.4 at the request of the Receiving Party in order to (x)
maximize the portion of the Section 8.3 Amount that may be distributed to the
Receiving Party hereunder without causing the Receiving Party to fail to meet
the requirements of SECTIONS 856(c)(2) and (3) of the Code, (y) improve the
Receiving Party's chances of securing a favorable ruling described in this
Section 8.6(b) or (z) assist the Receiving Party in obtaining a favorable
legal opinion from its counsel as described in this Section 8.6(b); provided
that the Receiving Party's legal counsel has rendered a legal opinion to the
Receiving Party to the effect that such amendment would not cause the
Receiving Party to fail to meet the requirements of SECTION 856(c)(2) or (3)
of the Code. The escrow agreement shall also provide that any portion of the
Section 8.3 Amount held in escrow for five years shall be released by the
escrow agent to the Paying Party. The Paying Party shall not be a party to
such escrow agreement and shall not bear any cost of or have liability
resulting from the escrow agreement.
(c) Notwithstanding anything to the contrary set forth in this Agreement, in
the event that the Receiving Party is required to file suit to seek all or a
portion of an amount pursuant to Section 8.3, it shall be entitled to all
expenses, including attorneys' fees and expenses, which it has incurred in
enforcing its rights hereunder, provided that payment of such expenses shall
be subject to the limitations of Section 8.4(a) (determined as if such
expenses were included in the Section 8.3 Amount).
Section 8.5 Amendment and Waiver. This Agreement may not be amended except
by an instrument in writing signed on behalf of both of the parties hereto and
in compliance with applicable law; provided, that,
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(a) this Agreement may not be amended in any material respect following the
West Shareholders Approval or East Shareholders Approval; (b) at any time
prior to the Closing, the parties hereto may (i) extend the time for the
performance of any of the obligations or other acts of the other party hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein (any agreement on
the part of a party hereto to any such extension or waiver being valid if set
forth in an instrument in writing signed on behalf of such party); and (c) the
approval of each of the Special Committees shall be required for an amendment
or modification of this Agreement and the approval of the Special Committee of
the Board of the extending or waiving party shall be required for any
extension by East or West of the time of the performance of any obligations or
other acts of West or East and any waiver of any of West's or East's
obligations under this Agreement.
ARTICLE IX
General Provisions
Section 9.1 Nonsurvival Of Representations And Warranties. None of the
representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time. This
Section 9.1 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
Section 9.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent via a
recognized overnight courier with delivery confirmed in writing or sent via
facsimile with confirmed receipt to the parties at the following addresses (or
at such other address for a party as shall be specified by like notice):
(a)If to West, to:
Security Capital Pacific Trust
7670 South Chester Street
Englewood, Colorado 80112
Attention: R. Scot Sellers
Fax: 303-858-0021
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Edward J. Schneidman
Fax: (312) 701-7711
and to:
Munger, Tolles & Olson LLP
355 South Grand Avenue, 35th Floor
Los Angeles, California 90071
Attention: R. Gregory Morgan
Fax: (213) 687-3702
(b)If to East, to:
Security Capital Atlantic Incorporated
Six Piedmont Center, Suite 600
Atlanta, Georgia 30305
Attention: Constance B. Moore
Fax: 404-233-2379
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<PAGE>
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Edward J. Schneidman
Fax: (312) 701-7711
and
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Peter D. Lyons
Fax: 212-848-7179
Section 9.3 Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
Section 9.4 Miscellaneous. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof and thereof; (b) shall not be assigned by operation of law or
otherwise; and (c) shall be governed in all respects, including validity,
interpretation and effect, by the laws of the State of Maryland (without
giving effect to the provisions thereof relating to conflicts of law).
Section 9.5 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
Section 9.6 Parties In Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto. Except as provided in
Section 6.13, nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement.
Section 9.7 Limitation Of Liability. Any obligation or liability whatsoever
of East or West which may arise at any time under this Agreement or any
obligation or liability which may be incurred by it pursuant to any other
instrument, transaction or undertaking contemplated hereby shall be satisfied,
if at all, only out of East's or West's assets respectively. No such
obligation or liability shall be personally binding upon, nor shall resort for
the enforcement thereof be had to, the property of any of its shareholders,
trustees, officers, employees or agents, regardless of whether such obligation
or liability is in the nature of contract, tort or otherwise.
Section 9.8 No Presumption Against Drafter. Each of the parties hereto have
jointly participated in the negotiation and drafting of this Agreement. In the
event of an ambiguity or a question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by each of the parties
hereto and no presumptions or burdens of proof shall arise favoring any party
by virtue of the authorship of any of the provisions of this Agreement.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
Security Capital Pacific Trust
/s/ R. Scot Sellers
By: _________________________________
R. Scot Sellers
Chief Executive Officer and
President
Security Capital Atlantic
Incorporated
/s/ Constance B. Moore
By: _________________________________
Constance B. Moore
Co-Chairman and Chief Operating
Officer
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ANNEX II
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITY CAPITAL PACIFIC TRUST
ARTICLES OF AMENDMENT AND RESTATEMENT
AMENDED AND RESTATED DECLARATION OF TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE I. THE TRUST .................................................... 1
Section 1. Name..................................................... 1
Section 2. Resident Agent........................................... 2
Section 3. Nature of Trust.......................................... 2
Section 4. Powers and Purposes...................................... 2
Section 5. Conflicts of Interest.................................... 2
ARTICLE II. SHARES ...................................................... 2
Section 1. Shares of Beneficial Interest............................ 2
Section 2. Series A Preferred Shares................................ 4
Section 3. Series B Preferred Shares................................ 4
Section 4. Series C Preferred Shares................................ 4
Section 5. Sale of Shares........................................... 4
Section 6. General Nature........................................... 4
Section 7. Acquisition of Shares.................................... 4
Transferability; Transfer Restrictions and Ownership
Section 8. Limitations.............................................. 5
Section 9. Exemptions from Certain Provisions of Maryland Law....... 15
ARTICLE III. SHAREHOLDERS ............................................... 15
Section 1. Meetings................................................. 15
Section 2. Voting................................................... 15
Section 3. Distributions............................................ 16
Section 4. Annual Report............................................ 16
Section 5. Inspection Rights........................................ 16
Section 6. Nonliability and Indemnification......................... 16
Section 7. Notice of Nonliability................................... 16
ARTICLE IV. THE TRUSTEES ................................................ 17
Section 1. Number, Qualification, Compensation and Term............. 17
Section 2. Resignation, Removal and Death........................... 18
Section 3. Vacancies................................................ 18
Section 4. Successor Trustees....................................... 18
Section 5. Meetings and Action Without a Meeting.................... 18
Section 6. Authority................................................ 18
Section 7. Powers................................................... 19
Section 8. Right to Own Shares...................................... 20
Section 9. Transactions with Trust.................................. 20
Section 10. Limitation of Liability.................................. 20
Section 11. Indemnification.......................................... 21
Section 12. Persons Dealing with Trustees............................ 21
Section 13. Administrative Powers.................................... 21
Section 14. Election of Officers..................................... 21
Section 15. Committees and Delegation of Powers and Duties........... 21
ARTICLE V. TERMINATION AND DURATION ..................................... 22
Section 1. Termination.............................................. 22
Section 2. Organization as a Corporation............................ 22
Section 3. Merger, Consolidation or Sale............................ 22
Section 4. Duration................................................. 22
</TABLE>
i
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<TABLE>
<C> <S> <C>
ARTICLE VI. AMENDMENTS .................................................... 22
Section 1. Amendment by Shareholders.................................. 22
Section 2. Amendment by Trustees...................................... 23
Section 3. Requirements of Maryland Law............................... 23
ARTICLE VII. MISCELLANEOUS ................................................ 23
Section 1. Construction............................................... 23
Section 2. Headings for Reference Only................................ 23
Section 3. Filing and Recording....................................... 23
Section 4. Applicable Law............................................. 23
Section 5. Certifications............................................. 23
Section 6. Severability............................................... 24
Section 7. Bylaws..................................................... 24
Section 8. Recording.................................................. 24
ARTICLE VIII. LIMITATION OF LIABILITY AND INDEMNIFICATION ................. 24
Section 1. Limitation of Liability of Officers and Employees.......... 24
Section 2. Indemnification of Officers and Employees.................. 24
Section 3. Insurance.................................................. 24
ANNEX ACUMULATIVE CONVERTIBLE SERIES A PREFERRED SHARES OF BENEFICIAL
INTEREST.................................................................. A-1
ANNEX BSERIES B CUMULATIVE REDEEMABLE PREFERRED SHARES OF BENEFICIAL
INTEREST.................................................................. B-1
ANNEX CSERIES C CUMULATIVE REDEEMABLE PREFERRED SHARES OF BENEFICIAL
INTEREST.................................................................. C-1
</TABLE>
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SECURITY CAPITAL PACIFIC TRUST
ARTICLES OF AMENDMENT AND RESTATEMENT
AMENDED AND RESTATED DECLARATION OF TRUST
This Amended and Restated Declaration of Trust of Security Capital Pacific
Trust is made as of , 1998.
RECITALS
1. Security Capital Pacific Trust, a Maryland real estate investment trust
(the "Trust"), desires to amend and restate its declaration of trust as
currently in effect and as hereinafter amended and to change its name to
Archstone Communities Trust.
2. The amendment to and restatement of the declaration of trust of the Trust
as hereinafter set forth was advised by the Board of Trustees (the "Board") of
the Trust and approved by the shareholders (the "Shareholders") of the Trust
as required by law.
3. The Trustees desire that the Trust continue to qualify as a "real estate
investment trust" under the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), and under Title 8 of the Corporations and
Associations Article of the Annotated Code of Maryland, as amended ("Title
8"), so long as such qualification, in the opinion of the Trustees, is
advantageous to the Shareholders of the Trust.
4. The beneficial interests in the Trust are divided into transferable
Shares of one or more classes of shares of beneficial interest evidenced by
certificates.
DECLARATION
Now, Therefore, the Trustees hereby declare that they hold the duties of
Trustees hereunder and hold all assets of the Trust presently existing and
hereafter to be received, and all rents, income, profits and gains therefrom,
from whatever source derived, in trust for the Shareholders in accordance with
the terms and conditions hereinafter provided, which are all of the provisions
of the Trust's declaration of trust as currently in effect and as hereinafter
amended.
ARTICLE I.
The Trust
Section 1. Name.
(a) The Trust governed by this Amended and Restated Declaration of Trust (as
amended, supplemented or restated from time to time, this "Declaration of
Trust") is herein referred to as the "Trust" and shall be known by the name
"Archstone Communities Trust." So far as may be practicable, legal and
convenient, the affairs of the Trust shall be conducted and transacted under
such name, which name shall not refer to the Trustees individually or
personally or to the beneficiaries or Shareholders of the Trust, or to any
officers, employees or agents of the Trust. Under circumstances in which the
Board determines that the use of the name "Archstone Communities Trust" is not
practicable, legal or convenient, it may as appropriate use the Trustees'
names with suitable reference to their Trustee status, or some other suitable
designation, or it may adopt another name under which the Trust may hold
property or operate in any jurisdiction which name shall not, to the knowledge
of the Board, refer to beneficiaries or Shareholders of the Trust.
(b) Legal title to all of the properties subject from time to time to this
Declaration of Trust shall be transferred to, vested in and held by the Trust
in its own name or by the Trustees as joint tenants with right of
<PAGE>
survivorship as Trustees of the Trust, except that the Board shall have the
power to cause legal title to any property of the Trust to be held by and/or
in the name of one or more of the Trustees, or any other person as nominee, on
such terms, in such manner and with such powers as the Board may determine,
provided that the interest of the Trust therein is, in the judgment of the
Board, appropriately protected.
(c) The Trust shall have the authority to operate under an assumed name or
names in such state or states or any political subdivision thereof where it
would not be legal, practical or convenient to operate in the name of the
Trust. The Trust shall have the authority to file such assumed name
certificates or other instruments in such places as may be required by
applicable law to operate under such assumed name or names.
Section 2. Resident Agent. The name and address of the resident agent of the
Trust in the State of Maryland is CSC Lawyers Incorporating Service Company,
11 East Chase Street, Baltimore, Maryland 21202. The principal office of the
Trust is 7670 South Chester Street, Englewood, Colorado 80112. The Trust may
have such other offices or places of business within or without the State of
Maryland as the Board may from time to time determine.
Section 3. Nature of Trust. The Trust is a real estate investment trust
under Maryland law. The Trust is not intended to be, shall not be deemed to be
and shall not be treated as, a general partnership, limited partnership, joint
stock association or, except as provided in Section 2 of Article V, a
corporation. The Shareholders shall be beneficiaries in such capacity in
accordance with the rights conferred on them hereunder.
Section 4. Powers and Purposes. The Trust is formed pursuant to the
provisions of, and shall have all of the powers provided in, Title 8, as it
may be amended from time to time, and shall have such additional powers as are
not inconsistent with, and are appropriate with respect to, the purposes of
the Trust as set forth in this Declaration of Trust. The purposes of the Trust
are to purchase, hold, lease, manage, sell, exchange, develop, subdivide and
improve real property and interests in real property and to invest in notes,
bonds and other obligations secured by mortgages on real property, and in
general, to do all other things in connection with the foregoing and to have
and exercise all powers conferred by Maryland law on real estate investment
trusts formed under Maryland law, and to do any or all of the things set forth
herein to the same extent as natural persons might or could do. In addition,
it is intended that the business of the Trust shall be conducted so that the
Trust will qualify (so long as such qualification, in the opinion of the
Board, is advantageous to the Shareholders) as a "real estate investment
trust" as defined in the Code.
Section 5. Conflicts of Interest. Any transactions between the Trust and any
Trustee or any affiliates thereof shall be approved by a majority of the
Trustees not otherwise interested in such transactions as being fair and
reasonable to the Trust.
ARTICLE II.
Shares
Section 1. Shares of Beneficial Interest.
(a) The units into which the beneficial interests in the Trust shall be
divided shall be designated as shares of beneficial interest ("Shares"), with
a par value of $1.00 per Share. Ownership of Shares shall be evidenced by
certificates in such form as shall be determined by the Board from time to
time in accordance with Maryland law. The owners of the Shares, who are the
beneficiaries of the Trust, shall be designated as "Shareholders". The
certificates shall be negotiable and title thereto shall be transferred by
assignment or delivery in all respects as a stock certificate of a Maryland
corporation. The Shares shall consist of common shares of beneficial interest,
par value $1.00 per Share (the "Common Shares"), and such other types or
classes of Shares as the Board may create and authorize from time to time and
designate as representing a beneficial interest in the Trust. The
consideration paid for the issuance of Shares shall be determined by the Board
and shall consist of money paid, tangible or intangible property or labor or
services actually performed. Shares shall not be issued until the full
2
<PAGE>
amount of the consideration has been received by the Trust. The Board may
authorize Share dividends or Share splits. All Shares issued hereunder shall
be, when issued, fully paid, and no assessment shall ever be made on the
Shareholders.
(b) Immediately before the adoption of this Declaration of Trust, the total
number of Shares of all classes which the Trust had authority to issue was
150,000,000 consisting of 136,600,000 Common Shares, 9,200,000 Cumulative
Convertible Series A Preferred Shares of Beneficial Interest, par value $1.00
per Share (the "Series A Preferred Shares"), and 4,200,000 Series B Cumulative
Redeemable Preferred Shares of Beneficial Interest, par value $1.00 per Share
(the "Series B Preferred Shares"), representing an aggregate par value of
$150,000,000. Immediately after the adoption of this Declaration of Trust, the
total number of Shares of all classes which the Trust has authority to issue
is 250,000,000 consisting of 234,600,000 Common Shares, 9,200,000 Series A
Preferred Shares, 4,200,000 Series B Preferred Shares and 2,000,000 Series C
Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $1.00
per Share (the "Series C Preferred Shares"), representing an aggregate par
value of $250,000,000, provided that the Board may amend this Declaration of
Trust, without Shareholder consent, to increase or decrease the aggregate
number of Shares or the number of Shares of any class which the Trust has
authority to issue.
(c) The Board may classify or reclassify any unissued Shares from time to
time by setting or changing the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or distributions,
qualifications or terms or conditions of redemption of the Shares by filing
articles supplementary pursuant to Maryland law. The Board is authorized to
issue from the authorized but unissued Shares of the Trust preferred Shares in
series and to establish from time to time the number of preferred Shares to be
included in each such series and to fix the designation and any preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption of the Shares
of each series. Except for Shares so classified or reclassified and any
preferred Shares issued hereunder, all other Shares shall be designated as
Common Shares, each of which Common Shares shall be equal in all respects to
every other Common Share. The authority of the Board with respect to each
unissued series shall include, but not be limited to, determination of the
following:
(i) The number of Shares constituting such series and the distinctive
designation of such series;
(ii) The rate of dividend, if any, payable on Shares of such series and
whether (and, if so, on what terms and conditions) such dividends shall be
cumulative (and, if so, whether unpaid dividends shall compound or accrue
interest) or shall be payable in preference or in any other relation to the
dividends payable on any other class or series of Shares;
(iii) Whether Shares of such series shall have voting rights in addition
to the voting rights provided by law and, if so, the terms and extent of
such voting rights;
(iv) Whether Shares of such series shall be issued with the privilege of
conversion or exchange and, if so, the terms and conditions of such
conversion or exchange (including, without limitation, the price or prices
or the rate or rates of conversion or exchange or any terms for adjustment
thereof);
(v) Whether Shares of such series may be redeemed and, if so, the terms
and conditions on which they may be redeemed (including, without
limitation, the dates on or after which they may be redeemed and the price
or prices at which they may be redeemed, which price or prices may be
different in different circumstances or at different redemption dates);
(vi) The amount, if any, payable on Shares of such series upon the
voluntary liquidation, dissolution or winding up of the Trust in preference
to Shares of any other class or series and whether Shares of such series
shall be entitled to participate generally in distributions on the Common
Shares under such circumstances;
(vii) The amount, if any, payable on Shares of such series upon the
involuntary liquidation, dissolution or winding up of the Trust in
preference to Shares of any other class or series and whether Shares of
such series shall be entitled to participate generally in distributions on
the Common Shares under such circumstances;
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<PAGE>
(viii) Sinking fund provisions, if any, for the redemption or purchase of
Shares of such series (including any similar fund, however designated); and
(ix) Any other relative rights, preferences, limitations and powers of
Shares of such series.
Section 2. Series A Preferred Shares. The Board has classified 9,200,000
Shares of the Trust as Series A Preferred Shares. A description of the Series
A Preferred Shares, including the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption thereof, is set forth in Annex A hereto,
which is hereby incorporated by reference as if it were set forth in this
Section 2 in its entirety.
Section 3. Series B Preferred Shares. The Board has classified 4,200,000
Shares of the Trust as Series B Preferred Shares. A description of the Series
B Preferred Shares, including the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption thereof, is set forth in Annex B hereto,
which is hereby incorporated by reference as if it were set forth in this
Section 3 in its entirety.
Section 4. Series C Preferred Shares. The Board has classified 2,000,000
Shares of the Trust as Series C Preferred Shares. A description of the Series
C Preferred Shares, including the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption thereof, is set forth in Annex C hereto,
which is hereby incorporated by reference as if it were set forth in this
Section 4 in its entirety.
Section 5. Sale of Shares. The Board, in its discretion, may from time to
time issue or sell or contract to issue or sell, Shares to such party or
parties and for such consideration, as allowed by Maryland law, at such time
or times, and on such terms as the Board may deem appropriate. In connection
with any issuance of Shares, the Board, in its discretion, may provide for the
issuance of fractional Shares or may provide for the issuance of scrip for
fractions of Shares and determine the terms of such scrip including, but not
limited to, the time within which any such scrip must be surrendered in
exchange for Shares and the right, if any, of holders of scrip upon the
expiration of the time so fixed, the right, if any, to receive proportional
distributions, and the right, if any, to redeem scrip for cash, or the Board
may, in its discretion, or if it sees fit at the option of each holder,
provide in lieu of scrip for the adjustment of fractions in cash. Except as
may be provided in any agreement between the Trust and any of its
Shareholders, the Shareholders shall have no preemptive rights of any kind
whatsoever (including, but not limited to, the right to purchase or subscribe
for or otherwise acquire any Shares of the Trust of any class, whether now or
hereafter authorized, or any securities or obligations convertible into or
exchangeable for, or any right, warrant or option to purchase such Shares,
whether or not such Shares are issued and/or disposed of for cash, property or
other consideration of any kind).
Section 6. General Nature. All Shares shall be personal property entitling
the Shareholders only to those rights provided in this Declaration of Trust or
in the resolution creating any class or series of Shares. The legal ownership
of the property of the Trust and the right to conduct the business of the
Trust are vested exclusively in the Trustees; the Shareholders shall have no
interest therein other than beneficial interest in the Trust conferred by
their Shares and shall have no right to compel any partition, division,
dividend or distribution of the Trust or any of its property. The death of a
Shareholder shall not terminate the Trust or give his or her legal
representative any rights against other Shareholders, the Trustees or the
Trust property, except the right, exercised in accordance with applicable
provisions of the Trust's Bylaws (the "Bylaws"), to receive a new certificate
for Shares in exchange for the certificate held by the deceased Shareholder.
Section 7. Acquisition of Shares. The Trust may repurchase or otherwise
acquire its own Shares at such price or prices as may be determined by the
Board, and for such purpose the Trust may create and maintain such reserves as
are deemed necessary and proper. Shares issued hereunder and purchased or
otherwise acquired for the account of the Trust shall not, so long as they
belong to the Trust, either receive distributions (except that they shall be
entitled to receive distributions payable in Shares of the Trust) or be voted
at any meeting of the
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<PAGE>
Shareholders. Such Shares may, in the discretion of the Board, be disposed of
by the Board at such time or times, to such party or parties, and for such
consideration, as the Board may deem appropriate or may be returned to the
status of authorized but unissued Shares of the Trust.
Section 8. Transferability; Transfer Restrictions and Ownership
Limitations. Shares in the Trust shall be transferable (subject to the further
provisions of this Section 8) in accordance with the procedure prescribed from
time to time in the Bylaws. The persons in whose name the Shares are
registered on the books of the Trust shall be deemed the absolute owners
thereof and, until a transfer is effected on the books of the Trust, the Board
shall not be affected by any notice, actual or constructive, of any transfer.
Any issuance, redemption or transfer of Trust Shares which would operate to
disqualify the Trust as a REIT, shall be null and void ab initio.
(a) Definitions. For purposes of this Section 8, the following terms shall
have the following meanings:
"Adoption Date" shall mean the date of the adoption of the ownership
restrictions contained in this Section 8 by resolution of the Board, which
shall be deemed to occur upon the Board's adoption of this Declaration of
Trust.
"Beneficial Ownership" shall mean, except as provided below in the
following sentence, ownership of Shares by a Person (whether or not treated
as an individual for purposes of Section 544 of the Code) who is or would
be treated as an owner of such Shares either directly or constructively
through the application of Section 544 of the Code, as modified by Section
856(h)(1)(B) of the Code. However, Section 544 shall be modified so that no
corporate shareholder of an Excluded Holder owning directly or indirectly
less than 10% of the stock of such Excluded Holder shall be treated as
owning any of the Shares of the Trust owned by such Excluded Holder so long
as no individual directly or indirectly owns 50 percent or more in value of
the stock of such corporate shareholder. "Beneficial Ownership" shall also
mean beneficial ownership as defined under Rule 13(d) under the Securities
Exchange Act of 1934, as amended, and, with respect to such meaning,
Beneficial Ownership by any Person shall include Beneficial Ownership by
other Persons who are part of the same group as the original Person for
purposes of such Rule 13(d). The terms "Beneficial Owner," "Beneficially
Owns," "Beneficially Own" and "Beneficially Owned" shall have correlative
meanings.
"Charitable Beneficiary" shall mean an organization or organizations
described in Sections 170(b)(1)(A) and 170(c) of the Code and identified by
the Board as the beneficiary or beneficiaries of the Excess Share Trust.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Constructive Ownership" shall mean ownership of Shares by a Person who
would be treated as an owner of such Shares, either directly or
constructively, through the application of Section 318 of the Code, as
modified by Section 856(d)(5) of the Code. The terms "Constructive Owner",
"Constructively Owns", "Constructively Owning" and "Constructively Owned"
shall have correlative meanings.
"Excess Shares" shall mean Shares resulting from an exchange described in
subsection (c) of this Section 8.
"Excess Share Trust" shall mean the trust created pursuant to
subsections(c) and (o) of this Section 8.
"Excess Share Trustee" shall mean a person, who shall be unaffiliated
with the Trust, any Purported Beneficial Transferee and any Purported
Record Transferee, identified by the Board as the trustee of the Excess
Share Trust.
"Excluded Holder" shall mean Security Capital Group and its affiliates,
successors or assignees, but only to the extent that Security Capital Group
Beneficially Owns not more than 49% of the outstanding Shares. However, an
affiliate, successor or assignee of Security Capital Group shall be treated
as an Excluded Holder only if the Board determines, based on such evidence
as it deems appropriate, that any ownership of Shares by such affiliate,
successor or assignee will not jeopardize the status of the Trust as a
REIT.
"Existing Holder" shall mean any Person (other than an Excluded Holder)
who is, or would be upon the exchange of Units, debt or any security of the
Trust, the Beneficial Owner of Shares in excess of the
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Ownership Limit both on and immediately after the Adoption Date, so long
as, but only so long as, such Person Beneficially Owns or would, upon
exchange of Units, debt or any security of the Trust, Beneficially Own
Shares in excess of the Ownership Limit.
"Existing Holder Limit" for any Existing Holder shall mean the percentage
of the outstanding Shares Beneficially Owned, or which would be
Beneficially Owned upon the exchange of Units, debt or any security of the
Trust, by such Existing Holder on and immediately after the Adoption Date,
and, after any adjustment pursuant to subsection(i) of this Section 8,
shall mean such percentage of the outstanding Shares as so adjusted. Any
Existing Holder Limit shall not be modified except as provided in
subsection (i) of this Section 8. From the Adoption Date until the
Restriction Termination Date, the Trust shall maintain and, upon request,
make available to each Existing Holder, a schedule which sets forth the
then current Existing Holder Limit for each Existing Holder.
"Market Price" shall mean the last reported sales price reported on the
NYSE for Shares on the trading day immediately preceding the relevant date,
or if not then traded on the NYSE, the last reported sales price for Shares
on the trading day immediately preceding the relevant date as reported on
any exchange or quotation system over or through which such Shares may be
traded, or if not then traded over or through any exchange or quotation
system, then the market price of such Shares on the relevant date as
determined in good faith by the Board.
"Non-U.S. Person" shall mean a Person other than a U.S. Person.
"Ownership Limit" shall initially mean 9.8%, in number of Shares or
value, of the outstanding Shares, and, after any adjustment as set forth in
subsection (j) of this Section 8, shall mean such lesser or greater
percentage of the outstanding Shares as so adjusted. The number and value
of the outstanding Shares of the Trust shall be determined by the Board in
good faith, which determination shall be conclusive for all purposes
hereof.
"Person" shall mean an individual, corporation, partnership, estate,
trust (including a trust qualified under Section 401(a) or 501(c)(17) of
the Code), portion of a trust permanently set aside for or to be used
exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company or other entity.
"Presumption" shall mean the assumption, subject to subsection (v) of
this Section 8, that the Excluded Holders are Non-U.S. Persons and own a
percentage of the outstanding Shares (by value) equal to 49.99%.
"Purported Beneficial Transferee" shall mean, with respect to any
purported Transfer which results in Excess Shares, as defined in subsection
(c) of this Section 8, the beneficial holder of such Shares, if such
Transfer had been valid under subsection(b) of this Section 8.
"Purported Record Transferee" shall mean, with respect to any purported
Transfer which results in Excess Shares, as defined in subsection (c) of
this Section 8, the record holder of such Shares, if such Transfer had been
valid under subsection (b) of this Section 8.
"REIT" shall mean a real estate investment trust under Section 856 of the
Code.
"REIT Provisions of the Code" means Sections 856 through 860 of the Code
and any successor or other provisions of the Code relating to REITs
(including provisions as to the attribution of ownership of beneficial
interests therein) and the regulations promulgated thereunder.
"Related Tenant Limit" shall mean 9.9% by value of the outstanding Shares
of the Trust.
"Related Tenant Owner" shall mean any Constructive Owner who also owns,
directly or indirectly, an interest in a Tenant, which interest is equal to
or greater than (i) 9.9% of the combined voting power of all classes of
stock of such Tenant, (ii) 9.9% of the total number of shares of all
classes of stock of such Tenant or (iii) if such Tenant is not a
corporation, 9.9% of the assets or net profits of such Tenant, in each case
only if such ownership would cause the Trust to fail the 95% gross income
test set forth in Section 856(c)(2) of the Code or the 75% gross income
test set forth in Section 856(c)(3) of the Code.
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"Restriction Termination Date" shall mean the first day after the
Adoption Date on which the Board determines that it is no longer in the
best interests of the Trust to continue to qualify as a REIT.
"Security Capital Group" shall mean Security Capital Group Incorporated,
a Maryland corporation.
"Shares" shall mean the shares of beneficial interest of the Trust as may
be authorized and issued from time to time pursuant to this Article II.
"Tenant" shall mean any tenant (including a subtenant) of (i) the Trust,
(ii) a subsidiary of the Trust which is deemed to be a "qualified REIT
subsidiary" under Section 856(i) (2) of the Code or (iii) a partnership or
limited liability company in which the Trust or one or more of its
qualified REIT subsidiaries is a partner or a member.
"Transfer" shall mean any sale, transfer, gift, assignment, devise or
other disposition of Shares (including (i) the granting of any option or
entering into any agreement for the sale, transfer or other disposition of
Shares, (ii) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for Shares, but
excluding the exchange of Units, debt or any security of the Trust for
Shares and (iii) any transfer or other disposition of any interest in
Shares as a result of a change in the marital status of the holder
thereof), whether voluntary or involuntary, whether of record,
constructively or beneficially and whether by operation of law or
otherwise. The terms "Transfers" and "Transferred" shall have correlative
meanings.
"Units" shall mean units of any partnership which are convertible into or
exchangeable for Shares or in respect of which any Shares may be issued in
satisfaction of a unitholder's redemption right.
"U.S. Person" shall mean a person defined as a "United States Person" in
Section 7701(a)(30) of the Code.
(b) Ownership Limitation.
(i) Except as provided in subsections(l) and (u) of this Section 8 and
subject to subsection (b)(ix) of this Section 8, from the Adoption Date
until the Restriction Termination Date, no Person or Persons acting as a
group (other than an Excluded Holder or an Existing Holder) shall
Beneficially Own Shares in excess of the Ownership Limit.
(ii) Except as provided in subsections(l) and (u) of this Section 8 and
subject to subsection (b)(ix) of this Section 8, from the Adoption Date
until the Restriction Termination Date, any Transfer which, if effective,
would result in any Person (other than an Excluded Holder or an Existing
Holder) Beneficially Owning Shares in excess of the Ownership Limit shall
be void ab initio as to the Transfer of the Shares which would be otherwise
Beneficially Owned by such Person in excess of the Ownership Limit; and the
intended transferee shall acquire no rights in such Shares.
(iii) Except as provided in subsections(l) and (u) of this Section 8 and
subject to subsection (b)(ix) of this Section 8, from the Adoption Date
until the Restriction Termination Date, any Transfer which, if effective,
would result in any Existing Holder Beneficially Owning Shares in excess of
the applicable Existing Holder Limit shall be void ab initio as to the
Transfer of the Shares which would be otherwise Beneficially Owned by such
Existing Holder in excess of the applicable Existing Holder Limit; and such
Existing Holder shall acquire no rights in such Shares.
(iv) Except as provided in subsections(l) and (u) of this Section 8 and
subject to subsection (b)(ix) of this Section 8, from the Adoption Date
until the Restriction Termination Date, any Transfer which, if effective,
would result in the Shares being beneficially owned (as provided in Section
856(a) of the Code) by fewer than 100 Persons (determined without reference
to any rules of attribution) shall be void ab initio as to the Transfer of
the Shares which would be otherwise beneficially owned (as provided in
Section 856(a) of the Code) by the transferee; and the intended transferee
shall acquire no rights in such Shares.
(v) Except as provided in subsection(l) of this Section 8 and subject to
subsection (b)(ix) of this Section 8, from the Adoption Date until the
Restriction Termination Date, any Transfer which, if effective, would
result in the Trust being "closely held" within the meaning of Section
856(h) of the Code shall be
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void ab initio as to the Transfer of the Shares which would cause the Trust
to be "closely held" within the meaning of Section 856(h) of the Code; and
the intended transferee shall acquire no rights in such Shares.
(vi) Subject to subsection (b)(ix) of this Section 8, from the Adoption
Date until the Restriction Termination Date, any Transfer of Shares to a
Non-U.S. Person (other than an Excluded Holder) shall be void ab initio as
to the Transfer of such Shares if, as a result of such Transfer, the fair
market value of Shares owned directly or indirectly by Non-U.S. Persons
would comprise 50% or more of the fair market value of the issued and
outstanding Shares of the Trust (determined based on the Presumption); and
such Non-U.S. Person shall acquire no rights in such Shares.
(vii) Subject to subsection (b)(ix) of this Section 8, from the Adoption
Date until the Restriction Termination Date, any Transfer of Shares which,
if effective, would result in any Related Tenant Owner Constructively
Owning Shares in excess of the Related Tenant Limit shall be void ab initio
as to the Transfer of such Shares which would be otherwise Constructively
Owned by such Related Tenant Owner in excess of the Related Tenant Limit;
and the intended transferee shall acquire no rights in such Shares.
(viii) Subject to subsection (b)(ix) of this Section 8, from the Adoption
Date until the Restriction Termination Date, any Transfer which, if
effective, would result in the disqualification of the Trust as a REIT by
virtue of actual, Beneficial or Constructive Ownership of Shares shall be
void ab initio as to such portion of the Transfer resulting in the
disqualification; and the intended transferee shall acquire no rights in
such Shares.
(ix) Nothing contained in this Section 8 shall preclude the settlement of
any transaction entered into through the facilities of the New York Stock
Exchange (the "NYSE"). The fact that the settlement of any transaction is
permitted shall not negate the effect of any other provision of this
Section 8 and any transferee in such a transaction shall be subject to all
of the provisions and limitations set forth in this Section 8.
(c) Excess Shares.
(i) If, notwithstanding the other provisions contained in this Section 8,
at any time after the Adoption Date until the Restriction Termination Date,
there is a purported Transfer which is not void ab initio pursuant to
subsection (b) of this Section 8 such that (i) any Person (other than an
Excluded Holder or an Existing Holder) would Beneficially Own Shares in
excess of the applicable Ownership Limit or (ii) any Existing Holder would
Beneficially Own Shares in excess of the applicable Existing Holder Limit,
then, except as otherwise provided in subsection(l) of this Section 8,
Shares directly owned by such Person or Existing Holder, as the case may
be, shall be automatically exchanged for an equal number of Excess Shares
until such Person or Existing Holder, as the case may be, does not
Beneficially Own Shares in excess of the applicable Ownership Limit or
Existing Holder Limit. Such exchange shall be effective as of the close of
business on the business day prior to the date of the purported Transfer.
If, after exchanging all of the Shares owned directly by a Person or
Existing Holder, such Person or Existing Holder still Beneficially Owns
Shares in excess of the applicable Ownership Limit or Existing Holder
Limit, Shares owned by such Person or Existing Holder constructively
through the application of Section 544 of the Code, as modified by Section
856(h)(1)(B) of the Code, shall be exchanged for an equal number of Excess
Shares until such Person or Existing Holder, as the case may be, does not
Beneficially Own Shares in excess of the applicable Ownership Limit or
Existing Holder Limit. If such Person or Existing Holder owns Shares
constructively through one or more Persons and the Shares held by such
other Persons must be exchanged for an equal number of Excess Shares, the
exchange of Shares by such other Persons shall be pro rata. However, if
such Person or Existing Holder owns Shares constructively through an
Excluded Holder, the Excluded Holder shall not have to exchange its Shares
for Excess Shares and the exchange shall be pro rata among the other
Persons.
(ii) If, notwithstanding the other provisions contained in this Section
8, at any time after the Adoption Date until the Restriction Termination
Date, there is a purported Transfer of Shares or any sale, transfer, gift,
assignment, devise or other disposition of shares or other interests of a
direct or indirect Shareholder of the Trust which is not void ab initio
pursuant to subsection (b) of this Section 8 and which, if effective, would
cause the Trust to become "closely held" within the meaning of Section
856(h) of the Code, then
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any Shares being Transferred which would cause the Trust to be "closely
held" within the meaning of Section 856(h) of the Code (rounded up to the
nearest whole Share) shall be automatically exchanged for an equal number
of Excess Shares and be treated as provided in this Section 8. Such
designation and treatment shall be effective as of the close of business on
the business day prior to the date of the purported Transfer. If, after the
exchange of any such Shares, the Trust is still "closely held" within the
meaning of Section 856(h) of the Code, any individual whose Beneficial
Ownership of Shares in the Trust increased as a result of the sale,
transfer, gift, assignment, devise or other disposition of shares or other
interests of a direct or indirect Shareholder of the Trust or any other
event and is one of the five individuals who caused the Trust to be
"closely held" within the meaning of Section 856(h) of the Code, shall
exchange Shares owned directly for an equal number of Excess Shares until
the Trust is not "closely held" within the meaning of Section 856(h) of the
Code. If similarly situated individuals exist, the exchange shall be pro
rata. If, after applying the foregoing provisions, the Trust is still
"closely held" within the meaning of Section 856(h) of the Code, then any
Shares constructively owned by such individuals shall be exchanged for
Excess Shares (other than Shares held by an Excluded Holder), on a pro rata
basis among similarly situated individuals, until the Trust is not "closely
held" within the meaning of Section 856(h) of the Code.
(iii) If, at any time after the Adoption Date until the Restriction
Termination Date, an event other than a purported Transfer (an "Event")
occurs which would (i) cause any Person (other than an Excluded Holder or
an Existing Holder) to Beneficially Own Shares in excess of the Ownership
Limit or (ii) cause an Existing Holder to Beneficially Own Shares in excess
of the Existing Holder Limit, then, except as otherwise provided in
subsection(l) of this Section 8, Shares Beneficially Owned by such Person
or Existing Holder, as the case may be, shall be automatically exchanged
for an equal number of Excess Shares to the extent necessary to eliminate
such excess ownership. Such exchange shall be effective as of the close of
business on the business day prior to the date of the Event. In determining
which Shares are exchanged, Shares Beneficially Owned by any Person who
caused the Event to occur shall be exchanged before any Shares not so held
are exchanged. If similarly situated Persons exist, the exchange shall be
pro rata. If any Person is required to exchange Shares pursuant to this
subsection (c)(iii), such Person shall first exchange Shares directly held
by such Person before exchanging Shares owned constructively through the
application of Section 544 of the Code, as modified by Section 856(h)(1)(B)
of the Code. If such Person or Existing Holder owns Shares constructively
through one or more Persons and the Shares held by such other Persons must
be exchanged for an equal number of Excess Shares, the exchange of Shares
by such other Persons shall be pro rata. However, if such Person or
Existing Holder owns Shares constructively through an Excluded Holder, the
Excluded Holder shall not have to exchange its Shares for Excess Shares and
the exchange shall be pro rata among the other Persons.
(iv) If, at any time after the Adoption Date until the Restriction
Termination Date, an Event occurs which would cause the Trust to become
"closely held" within the meaning of Section 856(h) of the Code, then
Shares Beneficially Owned by any Person or Existing Holder (other than an
Excluded Holder), as the case may be, shall be automatically exchanged for
an equal number of Excess Shares to the extent necessary to eliminate such
excess ownership. Such exchange shall be effective as of the close of
business on the business day prior to the date of the Event. In determining
which Shares are exchanged, Shares Beneficially Owned by any Person (other
than an Excluded Holder) who caused the Event to occur shall be exchanged
before any Shares not so held are exchanged. If similarly situated Persons
exist, the exchange shall be pro rata. If any Person is required to
exchange Shares pursuant to this subsection (c)(iv), such Person shall
first exchange Shares directly held by such Person before exchanging Shares
owned constructively through the application of Section 544 of the Code, as
modified by Section 856(h)(1)(B) of the Code. If any Person (other than an
Excluded Holder) owns Shares constructively through one or more Persons and
the Shares held by such other Persons must be exchanged for an equal number
of Excess Shares, the exchange of Shares by such other Persons shall be pro
rata. However, if such Person or Existing Holder owns Shares constructively
through an Excluded Holder, the Excluded Holder shall not have to exchange
its Shares for Excess Shares and the exchange shall be pro rata among the
other Persons.
(v) If, notwithstanding the other provisions contained in this Article
II, there is a purported Transfer of Shares which is not void ab initio
pursuant to subsection (b) of this Section 8 to (i) a Non-U.S. Person
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(other than an Excluded Holder) or (ii) a U.S. Person whose Shares would be
treated as owned indirectly by a Non-U.S. Person (other than an Excluded
Holder), then any Shares being Transferred which would result in the fair
market value of Shares owned directly or indirectly by Non-U.S. Persons
comprising 50% or more of the fair market value of the issued and
outstanding Shares of the Trust (determined based on the Presumption) shall
be automatically exchanged for an equal number of Excess Shares and be
treated as provided in this Section 8. Such designation and treatment shall
be effective as of the close of business on the business day prior to the
date of the purported Transfer.
(vi) If, notwithstanding the other provisions contained in this Article
II, there is an event other than those described in subsection (c)(v) of
this Section 8 (a "Non-U.S. Event") which would result in the fair market
value of Shares owned directly or indirectly by Non-U.S. Persons comprising
50% or more of the fair market value of the issued and outstanding Shares
of the Trust (determined based on the Presumption), then Shares owned
directly or indirectly by Non-U.S. Persons (other than by an Excluded
Holder) shall be automatically exchanged for an equal number of Excess
Shares to the extent necessary to eliminate such excess ownership. Such
exchange shall be effective as of the close of business on the business day
prior to the date of the Non-U.S. Event. In determining which Shares are
exchanged, Shares owned directly or indirectly by any Non-U.S. Person who
caused the Non-U.S. Event to occur shall be exchanged before any Shares not
so held are exchanged. If similarly situated Persons exist, the exchange
shall be pro rata. If the Non-U.S. Event was not caused by a Non-U.S.
Person, Shares owned directly or indirectly by Non-U.S. Persons (other than
Shares owned directly or indirectly by an Excluded Holder) shall be chosen
by random lot and exchanged for Excess Shares until Non-U.S. Persons do not
own directly or indirectly 50% or more of the issued and outstanding Shares
(determined based on the Presumption).
(vii) If, notwithstanding the other provisions contained in this Section
8, at any time after the Adoption Date until the Restriction Termination
Date, there is a purported Transfer of Shares or any sale, transfer, gift,
assignment, devise or other disposition of shares or other interests of a
direct or indirect Shareholder of the Trust which, if effective, would
cause any Related Tenant Owner to Constructively Own Shares in excess of
the Related Tenant Limit, then any Shares purportedly owned by such Related
Tenant Owner which would cause such Related Tenant to Constructively Own
Shares in excess of the Related Tenant Limit shall be automatically
exchanged for an equal number of Excess Shares and be treated as provided
in this Section 8. Such designation and treatment shall be effective as of
the close of business on the business day prior to the date of the
purported Transfer or event described in the preceding sentence. In
determining which Shares are exchanged, Shares owned directly or indirectly
by any Person (other than an Excluded Holder) who caused the Related Tenant
Event to occur shall be exchanged before any Shares not so held are
exchanged. If similarly situated Persons exist, the exchange shall be pro
rata. If the Related Tenant Limit is still exceeded and the Related Tenant
Event was not caused by the Related Tenant Owner in question, Shares owned
directly or indirectly by such Related Tenant Owner (other than Shares
owned directly or indirectly by an Excluded Holder) shall be exchanged for
Excess Shares until the Related Tenant Owner does not own Shares in excess
of the Related Tenant Limit. If, after the exchanges described above in
this subsection (c)(vii), the Related Tenant Owner still owns Shares in
excess of the Related Tenant Limit, Shares owned directly or indirectly by
the Excluded Holders shall be exchanged pro rata for Excess Shares until
the Related Tenant Owner does not own Shares in excess of the Related
Tenant Limit.
(viii) If, at any time after the Adoption Date until the Restriction
Termination Date, there is an event (a "Related Tenant Event") which would
cause any Related Tenant Owner to Constructively Own Shares in excess of
the Related Tenant Limit, then Shares which would cause the Related Tenant
Limit to be exceeded shall be automatically exchanged for an equal number
of Excess Shares to the extent necessary to eliminate such excess
ownership. Such exchange shall be effective as of the close of business on
the business day prior to the date of the Related Tenant Event. In
determining which Shares are exchanged, Shares owned directly or indirectly
by any Person (other than an Excluded Holder) who caused the Related Tenant
Event to occur shall be exchanged before any Shares not so held are
exchanged. If similarly situated Persons exist, the exchange shall be pro
rata. If the Related Tenant Limit is still exceeded and the Related Tenant
Event was not caused by the Related Tenant Owner in question, Shares owned
directly or indirectly by such Related Tenant Owner (other than Shares
owned directly or indirectly by an Excluded Holder) shall
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be exchanged for Excess Shares until the Related Tenant Owner does not own
Shares in excess of the Related Tenant Limit. If, after the exchanges
described above in this subsection (c)(viii), the Related Tenant Owner
still owns Shares in excess of the Related Tenant Limit, Shares owned
directly or indirectly by the Excluded Holders shall be exchanged pro rata
for Excess Shares until the Related Tenant Owner does not own Shares in
excess of the Related Tenant Limit.
(ix) If, notwithstanding the other provisions contained in this Section
8, at any time after the Adoption Date until the Restriction Termination
Date, there is a purported Transfer of Shares or any sale, transfer, gift,
assignment, devise or other disposition of shares or other interests of a
direct or indirect Shareholder of the Trust which, if effective, would
result in the disqualification of the Trust as a REIT by virtue of actual,
Beneficial or Constructive Ownership of Shares, then any Shares being
Transferred which would result in such disqualification shall be
automatically exchanged for an equal number of Excess Shares and shall be
treated as provided in this Section 8. Such designation and treatment shall
be effective as of the close of business on the business day prior to the
date of the purported Transfer.
(x) If, at any time after the Adoption Date until the Restriction
Termination Date, notwithstanding the other provisions contained in this
Section 8, there is an event (a "Prohibited Owner Event") which would
result in the disqualification of the Trust as a REIT by virtue of actual,
Beneficial or Constructive Ownership of Shares, then Shares which would
result in the disqualification of the Trust shall be automatically
exchanged for an equal number of Excess Shares to the extent necessary to
avoid such disqualification. Such exchange shall be effective as of the
close of business on the business day prior to the date of the Prohibited
Owner Event. In determining which Shares are exchanged, Shares owned
directly or indirectly by any Person (other than the Excluded Holder) who
caused the Prohibited Owner Event to occur shall be exchanged before any
Shares not so held are exchanged. If similarly situated Persons exist, the
exchange shall be pro rata. If the Trust is still disqualified, Shares
owned directly or indirectly by Persons who did not cause the Prohibited
Owner Event to occur (other than Shares owned directly or indirectly by an
Excluded Holder) shall be chosen by random lot and exchanged for Excess
Shares until the Trust is no longer disqualified as a REIT. If, after the
exchanges described above in this subsection (c)(x), the Trust is still
disqualified as a REIT, Shares owned directly or indirectly by the Excluded
Holders shall be exchanged pro rata for Excess Shares until the Trust is no
longer disqualified as a REIT.
(d) Prevention of Transfer. If the Board or its designee shall at any time
determine in good faith that a Transfer has taken place in violation of
subsection (b) of this Section 8 or that a Person intends to acquire or has
attempted to acquire Beneficial Ownership (determined without reference to any
rules of attribution) of any Shares in violation of subsection (b) of this
Section 8, the Board or its designee shall take such action as it deems
advisable to refuse to give effect to or to prevent such Transfer, including,
but not limited to, refusing to give effect to such Transfer on the books of
the Trust or instituting proceedings to enjoin such Transfer; provided,
however, that any Transfers or attempted Transfers in violation of subsection
(b) of this Section 8 shall automatically result in the designation and
treatment described in subsection (c) of this Section 8, irrespective of any
action (or non-action) by the Board.
(e) Notice to Trust. Any Person who acquires or attempts to acquire Shares
in violation of subsection (b) of this Section 8, or any Person who is a
transferee such that Excess Shares result under subsection (c) of this Section
8, shall immediately give written notice or, with respect to a proposed or
attempted Transfer, give at least 30 days' prior written notice to the Trust
of such event and shall provide to the Trust such other information as the
Trust may request in order to determine the effect, if any, of such Transfer
or attempted Transfer on the Trust's status as a REIT.
(f) Information for Trust. From the Adoption Date until the Restriction
Termination Date:
(i) Every Beneficial Owner of more than 5% (or such other percentage,
between 0.5% and 5%, as provided in the income tax regulations promulgated
under the Code) of the number or value of outstanding Shares of the Trust
shall, within 30 days after January 1 of each year, give written notice to
the Trust stating the name and address of such Beneficial Owner, the number
of Shares Beneficially Owned and a description
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of how such Shares are held; and each such Beneficial Owner shall provide
to the Trust such additional information as the Trust may reasonably
request in order to determine the effect, if any, of such Beneficial
Ownership on the Trust's status as a REIT; and
(ii) Each Person who is a Beneficial Owner of Shares and each Person
(including the Shareholder of record) who is holding Shares for a
Beneficial Owner shall provide to the Trust in writing such information
with respect to direct, indirect and constructive ownership of Shares as
the Board deems reasonably necessary to comply with the provisions of the
Code applicable to a REIT, to determine the Trust's status as a REIT, to
comply with the requirements of any taxing authority or governmental agency
or to determine any such compliance.
(g) Other Action by Board. Subject to subsection (b) of this Section 8,
nothing contained in this Section 8 shall limit the authority of the Board to
take such other action as it deems necessary or advisable to protect the Trust
and the interests of its Shareholders by preservation of the Trust's status as
a REIT; provided, however, that no provision of this Section 8 shall preclude
the settlement of any transaction entered into through the facilities of the
NYSE.
(h) Ambiguities. In the case of an ambiguity in the application of any of
the provisions of this Section 8, including any definition contained in
subsection (a) of this Section 8, the Board shall have the power to determine
the application of the provisions of this Section 8 with respect to any
situation based on the facts known to it.
(i) Modification of Existing Holder Limits. The Existing Holder Limits may
be modified as follows:
(i) Subject to the limitations provided in subsection (k) of this Section
8, the Board may grant options which result in Beneficial Ownership of
Shares by an Existing Holder pursuant to an option plan approved by the
Board and/or the Shareholders. Any such grant shall increase the Existing
Holder Limit for the affected Existing Holder to the maximum extent
possible under subsection (k) of this Section 8 to permit the Beneficial
Ownership of Shares issuable upon the exercise of such option.
(ii) Subject to the limitations provided in subsection (k) of this
Section 8, an Existing Holder may elect to participate in a dividend
reinvestment plan approved by the Board which results in Beneficial
Ownership of Shares by such participating Existing Holder and any
comparable reinvestment plan of any partnership, wherein those Existing
Holders holding Units are entitled to purchase additional Units. Any such
participation shall increase the Existing Holder Limit for the affected
Existing Holder to the maximum extent possible under subsection (k) of this
Section 8 to permit Beneficial Ownership of the Shares acquired as a result
of such participation.
(iii) The Board shall reduce the Existing Holder Limit for any Existing
Holder after any Transfer permitted in this Section 8 by such Existing
Holder by the percentage of the outstanding Shares so Transferred or after
the lapse (without exercise) of an option described in subsection (i)(i) of
this Section 8 by the percentage of the Shares which the option, if
exercised, would have represented, but in either case no Existing Holder
Limit shall be reduced to a percentage which is less than the Ownership
Limit.
(j) Increase or Decrease in Ownership Limit. Subject to the limitations
provided in subsection (k) of this Section 8, the Board may from time to time
increase or decrease the Ownership Limit; provided, however, that any decrease
may only be made prospectively as to subsequent holders (other than a decrease
as a result of a retroactive change in existing law which would require a
decrease to retain REIT status, in which case such decrease shall be effective
immediately).
(k) Limitations on Changes in Existing Holder and Ownership Limits.
(i) Neither the Ownership Limit nor any Existing Holder Limit may be
increased (nor may any additional Existing Holder Limit be created) if,
after giving effect to such increase (or creation), five individual
Beneficial Owners of Shares (including all of the then Existing Holders)
could Beneficially Own, in the aggregate, more than 49.9% in number or
value of the outstanding Shares.
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(ii) Prior to the modification of any Existing Holder Limit or Ownership
Limit pursuant to subsection (i) or (j) of this Section 8, the Board may
require such opinions of counsel, affidavits, undertakings or agreements as
it may deem necessary or advisable in order to determine or ensure the
Trust's status as a REIT.
(iii) No Ownership Limit may be increased to a percentage which is
greater than 9.9%.
(l) Waivers by the Board. The Board, upon receipt of a ruling from the
Internal Revenue Service, an opinion of counsel to the effect that such
exemption will not result in the Trust being "closely held" within the meaning
of Section 856(h) of the Code or such other evidence as the Board deems
necessary in its sole discretion, may exempt, on such conditions and terms as
the Board deems necessary in its sole discretion, a Person from the Ownership
Limit or the Existing Holder Limit, as the case may be, if the Board obtains
such representations and undertakings from such Person as the Board may deem
appropriate and such Person agrees that any violation or attempted violation
shall result in, to the extent necessary, the exchange of Shares held by such
Person for Excess Shares in accordance with subsection (c) of this Section 8.
(m) Legend. Each certificate for Shares shall bear substantially the
following legend:
The securities represented by this certificate are subject to
restrictions on ownership and transfer for purposes of the Trust's
maintenance of its status as a real estate investment trust under the
Internal Revenue Code of 1986, as amended. Except as otherwise provided
pursuant to the Amended and Restated Declaration of Trust of the Trust, no
Person may Beneficially Own Shares in excess of 9.8% (or such greater
percentage as may be determined by the Board of Trustees of the Trust) of
the number or value of the outstanding Shares of the Trust (unless such
Person is an Existing Holder or an Excluded Holder). Any Person who
attempts or proposes to Beneficially Own Shares in excess of the above
limitations must notify the Trust in writing at least 30 days prior to such
proposed or attempted Transfer. In addition, Share ownership by and
transfers of Shares to non-U.S. persons and certain tenants of the Trust
are subject to certain restrictions. If the restrictions on transfer are
violated, the securities represented hereby shall be designated and treated
as Excess Shares which shall be held in trust by the Excess Share Trustee
for the benefit of the Charitable Beneficiary. All capitalized terms in
this legend have the meanings defined in the Amended and Restated
Declaration of Trust of the Trust, a copy of which, including the
restrictions on transfer, shall be furnished to each Shareholder on request
and without charge.
(n) Severability. If any provision of this Section 8 or any application of
any such provision is determined to be void, invalid or unenforceable by any
court having jurisdiction over the issue, the validity and enforceability of
the remaining provisions shall be affected only to the extent necessary to
comply with the determination of such court.
(o) Transfer of Excess Shares. Upon any purported Transfer which results in
Excess Shares pursuant to subsection (c) of this Section 8, such Excess Shares
shall be deemed to have been transferred to the Excess Share Trustee, as
trustee of a special trust for the exclusive benefit of the Charitable
Beneficiary or Charitable Beneficiaries to whom an interest in such Excess
Shares may later be transferred pursuant to subsection (c) of this Section 8.
Excess Shares so held in trust shall be issued and outstanding Shares of the
Trust. The Purported Record Transferee or Purported Record Holder shall have
no rights in such Excess Shares except as provided in subsection (r) of this
Section 8.
(p) Distributions on Excess Shares. Any dividends (whether taxable as a
dividend, return of capital or otherwise) on Excess Shares shall be paid to
the Excess Share Trust for the benefit of the Charitable Beneficiary. Upon
liquidation, dissolution or winding up, the Purported Record Transferee shall
receive the lesser of (i) the amount of any distribution made upon
liquidation, dissolution or winding up or (ii) the price paid by the Purported
Record Transferee for the Shares, or if the Purported Record Transferee did
not give value for the Shares, the Market Price of the Shares on the day of
the event causing the Shares to be held in trust. Any such dividend paid or
distribution paid to the Purported Record Transferee in excess of the amount
provided in the preceding sentence prior to the discovery by the Trust that
the Shares with respect to which the dividend or
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distribution was made had been exchanged for Excess Shares shall be repaid to
the Excess Share Trust for the benefit of the Charitable Beneficiary.
(q) Voting of Excess Shares. The Excess Share Trustee shall be entitled to
vote the Excess Shares for the benefit of the Charitable Beneficiary on any
matter. Any vote taken by a Purported Record Transferee prior to the discovery
by the Trust that the Excess Shares were held in trust shall, subject to
applicable law, be rescinded ab initio, provided, however that if the Trust
has taken irreversible action, a vote need not be rescinded. The owner of the
Excess Shares shall be deemed to have given an irrevocable proxy to the Excess
Share Trustee to vote the Excess Shares for the benefit of the Charitable
Beneficiary.
(r) Non-Transferability of Excess Shares. Excess Shares shall be
transferable only as provided in this subsection (r). At the direction of the
Trust, the Excess Share Trustee shall transfer the Shares held in the Excess
Share Trust to a Person whose ownership of the Shares will not violate the
Ownership Limit or Existing Holder Limit. If Shares were transferred to the
Excess Share Trustee pursuant to subsection (c)(i), (c)(ii), (c)(iii) or
(c)(iv) of this Section 8, at the direction of the Trust, the Excess Share
Trustee shall transfer the Shares held by the Excess Share Trustee to a Person
who makes the highest offer for the Excess Shares and pays the purchase price
and whose ownership of the Shares will not violate the Ownership Limit. If
Shares were transferred to the Excess Shares Trustee pursuant to subsection
(c)(v) or (c)(vi) of this Section 8, at the direction of the Trust, the Excess
Share Trustee shall transfer the Shares held by the Excess Share Trustee to
the U.S. Person who makes the highest offer for the Excess Shares and pays the
purchase price. If such a transfer is made to a Person, the interest of the
Charitable Beneficiary shall terminate and proceeds of the sale shall be
payable to the Purported Record Transferee and to the Charitable Beneficiary.
The Purported Record Transferee shall receive (i) the lesser of (A) the price
paid by the Purported Record Transferee for the Shares or, if the Purported
Record Transferee did not give value for the Shares, the Market Price of the
Shares on the day of the event causing the Shares to be held in trust, and (B)
the price received by the Excess Share Trust from the sale or other
disposition of the Shares minus (ii) any dividend paid or distribution paid to
the Purported Record Transferee which the Purported Record Transferee was
under an obligation to repay to the Excess Share Trustee but has not repaid to
the Excess Share Trustee at the time of the distribution of the proceeds. Any
proceeds in excess of the amount payable to the Purported Record Transferee
shall be paid to the Charitable Beneficiary. Prior to any transfer of any
Excess Shares by the Excess Share Trustee, the Trust must have waived in
writing its purchase rights under subsection (t) of this Section 8. It is
expressly understood that the Purported Record Transferee may enforce the
provisions of this Section 8 against the Charitable Beneficiary.
(s) Acting as Agent. If any of the foregoing restrictions on transfer of
Excess Shares is determined to be void, invalid or unenforceable by any court
of competent jurisdiction, then the Purported Record Transferee may be deemed,
at the option of the Trust, to have acted as an agent of the Trust in
acquiring such Excess Shares and to hold such Excess Shares on behalf of the
Trust.
(t) Call by Trust on Excess Shares. Excess Shares shall be deemed to have
been offered for sale to the Trust, or its designee, at a price per Share
equal to the lesser of (i) the price per Share in the transaction which
created such Excess Shares (or, in the case of a devise, gift or other
transaction in which no value was given for such Excess Shares, the Market
Price at the time of such devise, gift or other transaction) and (ii) the
Market Price of the Shares to which such Excess Shares relate on the date the
Trust, or its designee, accepts such offer (the "Redemption Price"). The Trust
shall have the right to accept such offer for a period of 90 days after the
later of (A) the date of the Transfer which resulted in such Excess Shares and
(B) the date the Board determines in good faith that a Transfer resulting in
Excess Shares has occurred, if the Trust does not receive a notice of such
Transfer pursuant to subsection (e) of this Section 8, but in no event later
than a permitted Transfer pursuant to and in compliance with the terms of
subsection (r) of this Section 8. Unless the Board determines that it is in
the interests of the Trust to make earlier payments of all of the amount
determined as the Redemption Price per Share in accordance with the preceding
sentence, the Redemption Price may be payable at the option of the Board at
any time up to but not later than five years after the date the Trust accepts
the offer to purchase the Excess Shares. In no event shall the Trust have an
obligation to pay interest to the Purported Record Transferee.
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(u) Underwritten Offerings. The Ownership Limit shall not apply to the
acquisition of Shares or rights, options or warrants for, or securities
convertible into, Shares by an underwriter in a public offering, provided that
the underwriter makes a timely distribution of such Shares or rights, options
or warrants for, or securities convertible into, Shares.
(v) Waiver of Presumption. The Excluded Holders may, in their sole
discretion, with prior notice to and the approval of the Board, waive in
writing all or any portion of the Presumption on such terms and conditions as
they in their sole discretion determine.
Section 9. Exemptions from Certain Provisions of Maryland Law. The
provisions of Title 3, Subtitle 6 of the Corporations and Associations Article
of the Annotated Code of Maryland entitled "Special Voting Requirements"
(Section 3-601 through and including Section 3-604), or any successor statute,
shall not apply to any business combination between (i) the Trust and (ii)
Security Capital Group or any person in which Security Capital Group or any
wholly owned subsidiary of Security Capital Group then directly holds an
equity interest (but only if Security Capital Group or such wholly owned
subsidiary directly holds an equity interest in such person at the time of
such combination). The provisions of Title 3, Subtitle 7 of the Corporations
and Associations Article of the Annotated Code of Maryland entitled "Voting
Rights of Certain Control Shares" (Section 3-701 through and including Section
3-709), or any successor statute, shall not apply to any Shares owned or
acquired by Security Capital Group or any person in which Security Capital
Group or any wholly owned subsidiary of Security Capital Group then directly
holds an equity interest (but such provisions shall apply to any Shares
acquired by such person after Security Capital Group or such wholly owned
subsidiary no longer directly holds an equity interest in such person). The
foregoing exemptions shall only apply to the extent Security Capital Group
beneficially owns 49% or less of the Shares.
ARTICLE III.
Shareholders
Section 1. Meetings.
(a) There shall be an annual meeting of Shareholders at such time and place,
either within or without the State of Maryland, as the Board shall prescribe,
at which Trustees shall be elected or re-elected and any other proper business
may be conducted. The annual meeting of Shareholders shall be held upon
reasonable notice at a convenient location and within a reasonable period
following delivery of the annual report. Special meetings of Shareholders may
be called by a majority of the Trustees or by any officer of the Trust, and
shall be called upon the written request of Shareholders holding in the
aggregate not less than 25 percent of the outstanding Shares of the Trust
entitled to vote in the manner provided in the Bylaws. If there shall be no
Trustees, the officers of the Trust shall promptly call a special meeting of
the Shareholders for the election of successor Trustees. Written or printed
notice stating the place, date and time of the Shareholders' meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting
is called, shall be delivered not less than 10 nor more than 60 days before
the day of the meeting either personally or by mail, by or at the direction of
the Board or any officer or the person calling the meeting, to each
Shareholder of record entitled to vote at such meeting. No other business than
that which is stated in the call for a special meeting shall be considered at
such meeting.
(b) A majority of the outstanding Shares entitled to vote at any meeting
represented in person or by proxy shall constitute a quorum at such meeting.
Whenever any action is to be taken by the Shareholders, it shall, except as
otherwise required by law or this Declaration of Trust or the Bylaws, be
authorized by a majority of the number of votes entitled to be cast on the
matter.
Section 2. Voting. At each meeting of Shareholders, each Shareholder
entitled to vote shall have the right to vote, in person or by proxy, the
number of Shares of the Trust owned by him or her on each matter on which the
vote of the Shareholders is taken. In any election of Trustees in which more
than one vacancy is to be
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<PAGE>
filled, each Shareholder may vote the number of Shares of the Trust owned by
him or her for each vacancy to be filled. There shall be no right of
cumulative voting. Each outstanding Share, regardless of class, shall be
entitled to one vote on each matter submitted to a vote at a meeting of
Shareholders, except (i) to the extent that this Declaration of Trust or
articles supplementary (to the extent permitted by Maryland law) limit or deny
voting rights to the holders of the Shares of any class or series or (ii) as
otherwise provided by Maryland law.
Section 3. Distributions. The Board may from time to time authorize the
Trust to pay to Shareholders such dividends or distributions in cash, property
or other assets of the Trust or in securities of the Trust or from any other
source as the Board in its discretion shall determine. The Board shall
endeavor to authorize the Trust to pay such dividends and distributions as
shall be necessary for the Trust to qualify as a REIT under the REIT
Provisions of the Code (so long as such qualification, in the opinion of the
Board, is in the best interests of the Shareholders); however, Shareholders
shall have no right to any dividend or distribution unless and until
authorized by the Board. The exercise of the powers and rights of the Board
pursuant to this Section 3 shall be subject to the provisions of any class or
series of Shares at the time outstanding. The receipt by any Person in whose
name any Shares are registered on the records of the Trust or by his or her
duly authorized agent shall be a sufficient discharge for all dividends or
distributions payable or deliverable in respect of such Shares and from all
liability with respect to the application thereof.
Section 4. Annual Report. The Trust shall prepare an annual report
concerning its operations for the preceding fiscal year in the manner and
within the time prescribed by Title 8.
Section 5. Inspection Rights. The books and records of the Trust shall be
open to inspection upon the written demand of a Shareholder at any reasonable
time for a purpose reasonably related to his or her interests as a
Shareholder. Such inspection by a Shareholder may be made in person or by
agent or attorney and the right of inspection includes the right to make
extracts. Demand of inspection shall be made in writing on the Chief Executive
Officer or the Secretary of the Trust at the principal office of the Trust.
Section 6. Nonliability and Indemnification. Shareholders shall not be
personally or individually liable in any manner whatsoever for any debt, act,
omission or obligation incurred by the Trust or the Board and shall be under
no obligation to the Trust or its creditors with respect to their Shares other
than the obligation to pay to the Trust the full amount of the consideration
for which the Shares were issued or to be issued. The Shareholders shall not
be liable to assessment and the Board shall have no power to bind the
Shareholders personally. The Trust shall indemnify and hold each Shareholder
harmless from and against all claims and liabilities, whether they proceed to
judgment or are settled or otherwise brought to a conclusion, to which such
Shareholder may become subject by reason of his or her being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him or her in connection with any such claim
or liability; provided, however, that such Shareholder must give prompt notice
as to any such claims or liabilities or suits and must take such action as
will permit the Trust to conduct the defense thereof. The rights accruing to a
Shareholder under this Section 6 shall not exclude any other right to which
such Shareholder may be lawfully entitled, nor shall anything contained herein
restrict the right of the Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided herein; provided,
however, that the Trust shall have no liability to reimburse Shareholders for
taxes assessed against them by reason of their ownership of Shares, nor for
any losses suffered by reason of changes in the market value of securities of
the Trust. No amendment to this Declaration of Trust increasing or enlarging
the liability of the Shareholders shall be made without the unanimous vote or
written consent of all of the Shareholders.
Section 7. Notice of Nonliability. The Board shall use every reasonable
means to assure that all persons having dealings with the Trust shall be
informed that the private property of the Shareholders and the Trustees shall
not be subject to claims against and obligations of the Trust to any extent
whatever. The Board shall cause
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to be inserted in every written agreement, undertaking or obligation made or
issued on behalf of the Trust, an appropriate provision to the effect that the
Shareholders and the Trustees shall not be personally liable thereunder, and
that all parties concerned shall look solely to the Trust property for the
satisfaction of any claim thereunder, and appropriate reference shall be made
to this Declaration of Trust. The omission of such a provision from any such
agreement, undertaking or obligation, or the failure to use any other means of
giving such notice, shall not, however, render the Shareholders or the
Trustees personally liable or such agreement, undertaking or obligation
unenforceable.
ARTICLE IV.
The Trustees
Section 1. Number, Qualification, Compensation and Term.
(a) The Board shall be comprised of not less than three nor more than 15
Trustees. The current number of Trustees is 12, which may be changed from time
to time by resolution of the Board within the limits provided in the preceding
sentence. Trustees may succeed themselves in office. Trustees shall be
individuals who are at least 21 years old and not under any legal disability.
No Trustee shall be required to give bond, surety or securities to secure the
performance of his or her duties or obligations hereunder. No reduction in the
number of Trustees shall have the effect of removing any Trustee from office
prior to the expiration of his or her term. Whenever a vacancy among the
Trustees shall occur, until such vacancy is filled as provided in Section 3,
the Trustee or Trustees continuing in office, regardless of their number,
shall have all of the powers granted to the Board and shall discharge all of
the duties imposed on the Board by this Declaration of Trust. The Trustees
shall receive such fees for their services and expenses as they shall deem
reasonable and proper. A majority of the Trustees shall not be officers or
employees of the Trust.
(b) The Board shall be divided into three classes of Trustees, designated
Class I, Class II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of Trustees constituting the entire
Board. The term of office of each Trustee shall be three years and until his
or her successor is elected and qualifies, subject to prior death, resignation
or removal. At the 1999 annual meeting of Shareholders, Class I Trustees shall
be elected; at the 2000 annual meeting of Shareholders, Class II Trustees
shall be elected; and at the 2001 annual meeting of Shareholders, Class III
Trustees shall be elected. At each succeeding annual meeting of Shareholders,
beginning in 2002, successors to the class of Trustees whose term expires at
such annual meeting shall be elected. If the authorized number of Trustees
constituting the Board is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of Trustees in each
class as nearly equal as possible, and any additional Trustee of any class
elected to fill a vacancy resulting from an increase in such class shall hold
office until the next annual meeting of shareholders, but in no case shall a
decrease in the number of Trustees constituting the Board shorten the term of
any incumbent Trustee. The names, classes and addresses of the current
Trustees, are as follows:
<TABLE>
<CAPTION>
NAME CLASS ADDRESS
- ---- ----- -------
<S> <C> <C>
James A. Cardwell....... I 7670 South Chester Street, Englewood, Colorado 80112
Manuel A. Garcia III.... I 7670 South Chester Street, Englewood, Colorado 80112
James H. Polk, III...... I 7670 South Chester Street, Englewood, Colorado 80112
James C. Potts.......... I 7670 South Chester Street, Englewood, Colorado 80112
John T. Kelley, III..... II 7670 South Chester Street, Englewood, Colorado 80112
Calvin K. Kessler....... II 7670 South Chester Street, Englewood, Colorado 80112
Constance B. Moore...... II 7670 South Chester Street, Englewood, Colorado 80112
William G. Myers........ II 7670 South Chester Street, Englewood, Colorado 80112
Ned S. Holmes........... III 7670 South Chester Street, Englewood, Colorado 80112
John M. Richman......... III 7670 South Chester Street, Englewood, Colorado 80112
John C. Schweitzer...... III 7670 South Chester Street, Englewood, Colorado 80112
R. Scot Sellers......... III 7670 South Chester Street, Englewood, Colorado 80112
</TABLE>
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The records of the Trust shall be revised to reflect the names, classes and
addresses of the current Trustees, at such times as any change has occurred.
The Board may, but is not required to, amend this Declaration of Trust,
without Shareholder consent, at such times as the names, classes and addresses
of the Trustees have changed.
Section 2. Resignation, Removal and Death. A Trustee may resign at any time
by giving written notice thereof in recordable form to the other Trustees at
the principal office of the Trust. The acceptance of a resignation shall not
be necessary to make it effective. A Trustee may be removed with or without
cause by the shareholders by the affirmative vote of two-thirds of all of the
votes entitled to be cast in the election of Trustees or by the Trustees then
in office by a two-thirds vote (which action shall be taken only by vote at a
meeting and not by authorization without a meeting, notwithstanding anything
in Section 5 of this Article IV to the contrary). Upon the resignation or
removal of any Trustee, he or she shall execute and deliver such documents and
render such accounting as the remaining Trustee or Trustees shall require and
shall thereupon be discharged as Trustee. Upon the incapacity or death of any
Trustee, his or her status as a Trustee shall immediately terminate, and his
or her legal representatives shall perform the acts set forth in the preceding
sentence.
Section 3. Vacancies. The resignation, removal, incompetency or death of any
or all of the Trustees shall not terminate the Trust or affect its continuity.
During a vacancy, the remaining Trustee or Trustees may exercise the powers of
the Trustees hereunder. Whenever there shall be a vacancy or vacancies among
the Trustees (including vacancies resulting from an increase in the number of
Trustees), such vacancy or vacancies shall be filled (i) at a special meeting
of Shareholders called for such purpose (which may be by written consent),
(ii) by the Trustee or Trustees then in office or (iii) at the next annual
meeting of Shareholders. Trustees elected at special meetings of Shareholders
to fill vacancies or appointed by the remaining Trustee or Trustees to fill
vacancies shall hold office until the next annual meeting of Shareholders.
Section 4. Successor Trustees. The right, title and interest of the Trustees
in and to the Trust property shall vest automatically in all persons who may
hereafter become Trustees upon their due election and qualification without
any further act, and thereupon they shall have the same rights, privileges,
powers, duties and immunities as though named as Trustees in this Declaration
of Trust. Appropriate written evidence of the election and qualification of
successor Trustees shall be filed with the records of the Trust and in such
other offices or places as the Board may deem necessary, appropriate or
desirable. Upon the resignation, removal or death of a Trustee, he or she (and
upon his or her death, his or her estate) shall automatically cease to have
any right, title or interest in or to any of the Trust property, and the
right, title and interest of such Trustee in and to the Trust property shall
vest automatically in the remaining Trustee or Trustees without any further
act.
Section 5. Meetings and Action Without a Meeting. The Board may act with or
without a meeting. Except as otherwise provided herein, any action of a
majority of Trustees present at a duly convened meeting of the Board shall be
conclusive and binding as an action of the Board. A quorum for meetings of the
Board shall be a majority of all of the Trustees in office. Action may be
taken without a meeting in any manner and by any means permitted by Maryland
law only by unanimous consent of all of the Trustees in office and shall be
evidenced by a written certificate or instrument signed by all of the Trustees
in office. Any action taken by the Board in accordance with the provisions of
this Section 5 shall be conclusive and binding on the Trust, the Trustees and
the Shareholders, as an action of all of the Trustees, collectively, and of
the Trust. Any deed, mortgage, evidence of indebtedness or other instrument,
agreement or document of any character, whether similar or dissimilar,
executed by one or more of the Trustees, when authorized at a meeting or by
written authorization without a meeting in accordance with the provisions of
this Section 5, shall be valid and binding on the Trustees, the Trust and the
Shareholders.
Section 6. Authority. The Trustees may hold the legal title to all property
belonging to the Trust. They shall have absolute and exclusive control,
management and disposition thereof, and absolute and exclusive control over
the management and conduct of the business affairs of the Trust, free from any
power or control on the part of the Shareholders, in the same manner as if
they were the absolute owners thereof, subject only to the express limitations
in this Declaration of Trust.
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Section 7. Powers. The Board shall have all of the powers necessary,
convenient or appropriate to effectuate the purposes of the Trust and may take
any action which it deems necessary or desirable and proper to carry out such
purposes. Any determination of the purposes of the Trust made by the Board in
good faith shall be conclusive. In construing the provisions of this
Declaration of Trust, the presumption shall be in favor of the grant of powers
to the Board. Without limiting the generality of the foregoing, the Board's
powers on behalf of the Trust shall include the following:
(a) To purchase, acquire through the issuance of Shares in the Trust,
obligations of the Trust or otherwise, mortgage, sell, acquire on lease,
hold, manage, improve, lease to others, option, exchange, release and
partition real estate interests of every nature, including freehold,
leasehold, mortgage, ground rent and other interests therein; and to erect,
construct, alter, repair, demolish or otherwise change buildings and
structures of every nature.
(b) To purchase, acquire through the issuance of Shares in the Trust,
obligations of the Trust or otherwise, option, sell and exchange stocks,
bonds, notes, certificates of indebtedness and securities of every nature.
(c) To purchase, acquire through the issuance of Shares in the Trust,
obligations of the Trust or otherwise, mortgage, sell, acquire on lease,
hold, manage, improve, lease to others, option and exchange personal
property of every nature.
(d) To hold legal title to property of the Trust in the name of the
Trust, or in the name of one or more of the Trustees for the Trust, or of
any other person for the Trust, without disclosure of the interest of the
Trust therein.
(e) To borrow money for the purposes of the Trust and to give notes or
other negotiable or nonnegotiable instruments of the Trust therefor; to
enter into other obligations or guarantee the obligations of others on
behalf of and for the purposes of the Trust; and to mortgage or pledge or
cause to be mortgaged or pledged real and personal property of the Trust to
secure such notes, debentures, bonds, instruments or other obligations.
(f) To lend money on behalf of the Trust and to invest the funds of the
Trust.
(g) To create reserve funds for such purposes as it deems advisable.
(h) To deposit funds of the Trust in banks and other depositories without
regard to whether such accounts will draw interest.
(i) To pay taxes and assessments imposed on or chargeable against the
Trust or the Trustees by virtue of or arising out of the existence,
property, business or activities of the Trust.
(j) To purchase, issue, sell or exchange Shares of the Trust as provided
in Article II.
(k) To exercise with respect to property of the Trust, all options,
privileges and rights, whether to vote, assent, subscribe or convert, or of
any other nature; to grant proxies; and to participate in and accept
securities issued under any voting trust agreement.
(l) To participate in any reorganization, readjustment, consolidation,
merger, dissolution, sale or purchase of assets, lease or similar
proceedings of any corporation, partnership or other organization in which
the Trust shall have an interest and in connection therewith to delegate
discretionary powers to any reorganization, protective or similar committee
and to pay assessments and other expenses in connection therewith.
(m) To engage or employ agents, representatives and employees of any
nature, or independent contractors, including, but not limited to, transfer
agents for the transfer of Shares in the Trust, registrars, underwriters
for the sale of Shares in the Trust, independent certified public
accountants, attorneys at law, appraisers and real estate agents and
brokers; and to delegate to one or more Trustees, agents, representatives,
employees, independent contractors or other persons such powers and duties
as the Board deems appropriate.
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(n) To determine conclusively the allocation between capital and income
of the receipts, holdings, expenses and disbursements of the Trust,
regardless of the allocation which might be considered appropriate in the
absence of this provision.
(o) To determine conclusively the value from time to time and to revalue
the real estate, securities and other property of the Trust by means of
independent appraisals.
(p) To compromise or settle claims, questions, disputes and controversies
by, against or affecting the Trust.
(q) To solicit proxies of the Shareholders.
(r) To adopt a fiscal year for the Trust and to change such fiscal year
in accordance with the REIT Provisions of the Code.
(s) To adopt and use a seal.
(t) To merge the Trust with or into any other trust, corporation or other
entity in accordance with Maryland law.
(u) To deal with the Trust property in every way, including joint
ventures, partnerships and any other combinations or associations, which it
would be lawful for an individual to deal with the same, whether similar to
or different from the ways herein specified.
(v) To determine whether or not, at any time or from time to time, to
attempt to cause the Trust to qualify for taxation, or to terminate the
status of the Trust, as a REIT.
(w) To make, adopt, amend or repeal Bylaws containing provisions relating
to the business of the Trust, the conduct of its affairs, its rights or
powers and the rights or powers of its Shareholders, Trustees or officers
not inconsistent with law or this Declaration of Trust.
(x) To do all other such acts and things as are incident to the foregoing
and to exercise all powers which are necessary or useful to carry on the
business of the Trust, to promote any of the purposes of the Trust and to
carry out the provisions of this Declaration of Trust.
Section 8. Right to Own Shares. A Trustee may acquire, hold and dispose of
Shares in the Trust for his or her individual account and may exercise all
rights of a Shareholder to the same extent and in the same manner as if he or
she were not a Trustee.
Section 9. Transactions with Trust. Subject to the provisions of Section 5
of Article I, and to any restrictions in this Declaration of Trust or adopted
by the Board in the Bylaws or by resolution, the Trust may enter into any
contract or transaction of any kind (including, but not limited to, for the
purchase or sale of property or for any type of services, including those in
connection with underwriting or the offer or sale of securities of the Trust)
with any person, including any Trustee, officer, employee or agent of the
Trust or any person affiliated with a Trustee, officer, employee or agent of
the Trust, whether or not any of them has a financial interest in such
transaction.
Section 10. Limitation of Liability. To the maximum extent that Maryland law
in effect from time to time permits limitation of the liability of trustees of
a real estate investment trust, no Trustee of the Trust shall be liable to the
Trust or to any Shareholder for money damages. Neither the amendment nor
repeal of this Section 10, nor the adoption or amendment of any other
provision of this Declaration of Trust inconsistent with this Section 10,
shall apply to or affect in any respect the applicability of the preceding
sentence with respect to any act or failure to act which occurred prior to
such amendment, repeal or adoption. In the absence of any Maryland statute
limiting the liability of trustees of a Maryland real estate investment trust
for money damages in a suit by or on behalf of the Trust or by any
Shareholder, no Trustee of the Trust shall be liable to the Trust or to any
Shareholder for money damages except to the extent that (i) the Trustee
actually received an improper benefit or profit in money, property or
services, for the amount of the benefit or profit in money, property or
services actually received; or (ii) a judgment or other final adjudication
adverse to the Trustee is entered in a proceeding based on a finding in the
proceeding that the Trustee's action or failure to act was the result of
active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding.
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Section 11. Indemnification. The Trust shall indemnify each Trustee, to the
fullest extent permitted by Maryland law, as amended from time to time, in
connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she was a Trustee of the Trust or is or was
serving at the request of the Trust as a director, trustee, officer, partner,
manager, member, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, limited liability company, other enterprise
or employee benefit plan, from all claims and liabilities to which such person
may become subject by reason of service in such capacity and shall pay or
reimburse reasonable expenses, as such expenses are incurred, of each Trustee
in connection with any such proceedings.
Section 12. Persons Dealing with Trustees. No corporation, person, transfer
agent or other party shall be required to examine or investigate the trusts,
terms or conditions contained in this Declaration of Trust or otherwise
applicable to the Trust, and every such corporation, person, transfer agent or
other party may deal with Trust property and assets as if the Trustees were
the sole and exclusive owners thereof free of all trusts; and no such
corporation, person, transfer agent or other party dealing with the Trustees
or with the Trust or Trust property and assets shall be required to see to the
application of any money or property paid or delivered to any Trustee, or
nominee, agent or representative of the Trust or the Trustees. A certificate
executed by or on behalf of the Trustees or by any other duly authorized
representative of the Trust delivered to any person or party dealing with the
Trust or Trust property and assets, or, if relating to real property, recorded
in the deed records for the county or district in which such real property
lies, certifying as to the identity and authority of the Trustees, agents or
representatives of the Trust for the time being, or as to any action of the
Trustees or of the Trust, or of the Shareholders, or as to any other fact
affecting or relating to the Trust or this Declaration of Trust, may be
treated as conclusive evidence thereof by all persons dealing with the Trust.
No provision of this Declaration of Trust shall diminish or affect the
obligation of the Trustees and every other representative or agent of the
Trust to deal fairly and act in good faith with respect to the Trust and the
Shareholders insofar as the relationship and accounting among the parties to
the Trust is concerned; but no third party dealing with the Trust or with any
Trustee, agent or representative of the Trust shall be obliged or required to
inquire into, investigate or be responsible for the discharge and performance
of such obligation.
Section 13. Administrative Powers. The Board shall have the power to pay the
expenses of administration of the Trust, including all legal and other
expenses in connection with the preparation and carrying out of the
acquisition of properties and the issuance of Shares; and to employ such
officers, experts, counsel, managers, salesmen, agents, workmen, clerks and
other persons as they deem appropriate.
Section 14. Election of Officers. The Board shall annually elect a Chairman
of the Board (or two or more Co-Chairmen of the Board) and a Secretary of the
Trust. The Board may also annually elect one or more Vice Presidents, a
Treasurer, Assistant Secretaries, Assistant Treasurers and such other officers
as the Board shall deem proper. Except as required by law, the officers of the
Trust need not be Trustees. All officers and agents of the Trust shall have
such authority and perform such duties in the management of the Trust as may
be provided in the Bylaws or as may be determined by the Board not
inconsistent with the Bylaws. Any officer or agent elected or appointed by the
Board may be removed by the Board whenever in its judgment the best interest
of the Trust will be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Election
or appointment of any officer or agent shall not of itself create contract
rights. The Board shall fix the compensation of all officers.
Section 15. Committees and Delegation of Powers and Duties. The Board may,
in its discretion, by resolution passed by a majority of the Trustees,
designate from among its members one or more committees which shall consist of
one or more Trustees. The Board may designate one or more Trustees as
alternate members of any such committee, who may replace any absent or
disqualified member at any meeting of the committee. Such committees shall
have and may exercise such powers as shall be conferred or authorized by the
resolution appointing them (including, but not limited to, the determination
of the type and amount of consideration at which Shares are to be issued). A
majority of any such committee may determine its action and fix the time and
place of its meetings, unless the Board shall otherwise provide. The Board, by
resolution passed by a majority of the Trustees, may at any time change the
membership of any such committee, fill vacancies on it or dissolve it.
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The Bylaws, or a majority of the Trustees, may authorize any one or more of
the Trustees, or any one or more of the officers or employees or agents of the
Trust, on behalf of the Trust, to exercise and perform any and all powers
granted to the Board, and to discharge any and all duties imposed on the
Board, and to do any acts and to execute any instruments deemed by such person
or persons to be necessary or appropriate to exercise such power or to
discharge such duties, and to exercise his or her own judgment in so doing.
ARTICLE V.
Termination and Duration
Section 1. Termination. Subject to the provisions of any class or series of
Shares at the time outstanding, after approval by a majority of the entire
Board of Trustees the Trust may be terminated at any meeting of Shareholders
called for such purpose, by the affirmative vote of the holders of not less
than a majority of the outstanding Shares. In connection with any termination
of the Trust, the Board, upon receipt of such releases or indemnity as they
deem necessary for their protection, may
(a) Sell and convert into cash the property of the Trust and distribute
the net proceeds among the Shareholders ratably; or
(b) Convey the property of the Trust to one or more persons, entities,
trusts or corporations for consideration consisting in whole or in part of
cash, shares of stock or other property of any kind, and distribute the net
proceeds among the Shareholders ratably, at valuations fixed by the Board,
in cash or in kind, or partly in cash and partly in kind.
Upon termination of the Trust and distribution to the Shareholders as herein
provided, a majority of the Trustees shall execute and place among the records
of the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder, and the right, title and interest of all
Shareholders shall cease and be canceled and discharged.
Section 2. Organization as a Corporation. If the Board deems it in the best
interests of the Shareholders that the Trust be organized as a corporation
under the laws of any state, the Board shall have full power to organize such
corporation, under the laws of such state as it may consider appropriate, in
the place and stead of the Trust without procuring the consent of any of the
Shareholders, in which event the capital stock of such corporation shall be
and remain the same as fixed under this Declaration of Trust and the
Shareholders shall receive and accept stock in such corporation on the same
basis as they hold Shares in the Trust.
Section 3. Merger, Consolidation or Sale. The Trust shall have the power to
(i) merge with or into another entity, (ii) consolidate the Trust with one or
more other entities into a new entity or (iii) sell or otherwise dispose of
all or substantially all of the assets of the Trust; provided that such action
shall have been approved by the Board of Trustees and by the Shareholders, at
a meeting called for such purpose, by the affirmative vote of the holders of
not less than a majority of the Shares then outstanding and entitled to vote
thereon.
Section 4. Duration. Subject to possible earlier termination in accordance
with the provisions of this Article V, the duration of the Trust shall be
perpetual or, in any jurisdiction in which such duration is not permitted,
then the Trust shall terminate on the latest date permitted by the law of such
jurisdiction.
ARTICLE VI.
Amendments
Section 1. Amendment by Shareholders. Except as provided in Section 2 of
this Article VI and in Section 1 of Article III and in Article IV, this
Declaration of Trust may be amended only by the affirmative vote or written
consent of the holders of at least a majority of the Shares then outstanding
and entitled to vote thereon.
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Section 2. Amendment by Trustees. The Trustees by a two-thirds vote may
amend provisions of this Declaration of Trust from time to time to enable the
Trust to qualify as a real estate investment trust under the REIT Provisions
of the Code or under Title 8.
Section 3. Requirements of Maryland Law. Except as provided in Article II,
Section 1(b) or in this Article VI, this Declaration of Trust may only be
amended in accordance with Section 8-501 of Title 8.
ARTICLE VII.
Miscellaneous
Section 1. Construction. This Declaration of Trust shall be construed in
such a manner as to give effect to the intent and purposes of the Trust and
this Declaration of Trust. If any provisions hereof appear to be in conflict,
more specific provisions shall control over general provisions. This
Declaration of Trust shall govern all of the relationships among the Trustees
and Shareholders of the Trust; and each provision hereof shall be effective
for all purposes and to all persons dealing with the Trust to the fullest
extent possible under applicable law in each jurisdiction in which the Trust
shall engage in business. In defining or interpreting the powers and duties of
the Trust and the Trustees and officers of the Trust, reference may be made,
to the extent appropriate and not inconsistent with the Code, Title 8 and this
Declaration of Trust, to Titles 1 through 3 of the Corporations and
Associations Article of the Annotated Code of Maryland.
Section 2. Headings for Reference Only. Headings preceding the text of
articles, sections and subsections hereof have been inserted solely for
convenience and reference, and shall not be construed to affect the meaning,
construction or effect of this Declaration of Trust.
Section 3. Filing and Recording. This Declaration of Trust shall be filed in
the manner prescribed for real estate investment trusts under Maryland law and
may be filed for record in any county where real property is owned by the
Trust.
Section 4. Applicable Law. This Declaration of Trust has been executed with
reference to, and its construction and interpretation shall be governed by,
Maryland law, and the rights of all parties and the construction and effect of
every provision hereof shall be subject to and construed according to Maryland
law.
Section 5. Certifications. Any certificates signed by a person who,
according to the records of the State Department of Assessments and Taxation
of Maryland, appears to be a Trustee hereunder, shall be conclusive evidence
as to the matters so certified in favor of any person dealing with the Trust
or the Trustees or any one or more of them, and the successors or assigns of
such persons, which certificate may certify to any matter relating to the
affairs of the Trust, including, but not limited to, any of the following: a
vacancy among the Trustees; the number and identity of Trustees; this
Declaration of Trust and any amendments or supplements thereto, or any
restated declaration of trust and any amendments or supplements thereto, or
that there are no amendments to this Declaration of Trust or any restated
declaration of trust; a copy of the Bylaws or any amendment thereto; the due
authorization of the execution of any instrument or writing; the vote at any
meeting of the Board or a committee thereof or Shareholders; the fact that the
number of Trustees present at any meeting or executing any written instrument
satisfies the requirements of this Declaration of Trust; a copy of any Bylaw
adopted by the Shareholders or the identity of any officer elected by the
Board; or the existence or nonexistence of any fact or facts which in any
manner relate to the affairs of the Trust. If this Declaration of Trust or any
restated declaration of trust is filed or recorded in any recording office
other than the State Department of Assessments and Taxation of Maryland, any
one dealing with real estate so located that instruments affecting the same
should be filed or recorded in such recording office may rely conclusively on
any certificate of the kind described above which is signed by a person who
according to the records of such recording office appears to be a Trustee
hereunder. In addition, the Secretary or any Assistant Secretary of the Trust
or any other officer of the Trust designated by the Bylaws or by action of the
Board may sign any certificate of the kind described in this Section 5, and
such
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certificate shall be conclusive evidence as to the matters so certified in
favor of any person dealing with the Trust, and the successors and assigns of
such person.
Section 6. Severability. If any provision of this Declaration of Trust shall
be invalid or unenforceable, such invalidity or unenforceability shall attach
only to such provision and shall not in any manner affect or render invalid or
unenforceable any other provision of this Declaration of Trust and this
Declaration of Trust shall be carried out, if possible, as if such invalid or
unenforceable provision were not contained herein.
Section 7. Bylaws. The Bylaws may be altered, amended or repealed, and new
Bylaws may be adopted, at any meeting of the Board by vote of a majority of
the Trustees, subject to repeal or change by action of the Shareholders of the
Trust entitled to vote thereon.
Section 8. Recording. This Declaration of Trust shall be filed in the manner
prescribed for real estate investment trusts under Maryland law and may also
be filed or recorded in such other places as the Board deems appropriate, but
failure to file for record this Declaration of Trust or any amendment hereto
in any office other than in the State Department of Assessments and Taxation
of Maryland shall not affect or impair the validity or effectiveness of this
Declaration of Trust or any amendment or supplement hereto.
ARTICLE VIII.
Limitation of Liability and Indemnification
Section 1. Limitation of Liability of Officers and Employees. To the maximum
extent that Maryland law in effect from time to time permits limitation of the
liability of officers, employees or agents of a real estate investment trust,
no officer, employee or agent of the Trust shall be liable to the Trust or to
any Shareholder for money damages. Neither the amendment nor repeal of this
Section 1, nor the adoption or amendment of any other provision of this
Declaration of Trust inconsistent with this Section 1, shall apply to or
affect in any respect the applicability of the preceding sentence with respect
to any act or failure to act which occurred prior to such amendment, repeal or
adoption. In the absence of any Maryland statute limiting the liability of
officers, employees or agents of a Maryland real estate investment trust for
money damages in a suit by or on behalf of the Trust or by any Shareholder, no
officer, employee or agent of the Trust shall be liable to the Trust or to any
Shareholder for money damages except to the extent that (i) the officer,
employee or agent actually received an improper benefit or profit in money,
property or services, for the amount of the benefit or profit in money,
property or services actually received; or (ii) a judgment or other final
adjudication adverse to the officer, employee or agent is entered in a
proceeding based on a finding in the proceeding that the officer's, employee's
or agent's action or failure to act was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding.
Section 2. Indemnification of Officers and Employees. The Trust shall
indemnify each officer, employee and agent, to the fullest extent permitted by
Maryland law, as amended from time to time, in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she was an
officer, employee or agent of the Trust or is or was serving at the request of
the Trust as a director, trustee, officer, partner, manager, member, employee
or agent of another foreign or domestic corporation, partnership, joint
venture, trust, limited liability company, other enterprise or employee
benefit plan, from all claims and liabilities to which such person may become
subject by reason of service in such capacity and shall pay or reimburse
reasonable expenses, as such expenses are incurred, of each officer, employee
or agent in connection with any such proceedings.
Section 3. Insurance. Notwithstanding any other provisions of this
Declaration of Trust, the Trust, for purposes of providing indemnification for
its Trustees, officers, employees and agents, shall have the authority,
without specific Shareholder approval, to enter into insurance or other
arrangements, with persons or entities which are regularly engaged in the
business of providing insurance coverage, to indemnify all Trustees, officers,
employees and agents of the Trust against any and all liabilities and expenses
incurred by them by reason of
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their being Trustees, officers, employees or agents of the Trust, whether or
not the Trust would otherwise have the power under this Declaration of Trust
or under Maryland law to indemnify such persons against such liability.
Without limiting the power of the Trust to procure or maintain any kind of
insurance or other arrangement, the Trust may, for the benefit of persons
indemnified by it, (i) create a trust fund, (ii) establish any form of self-
insurance, (iii) secure its indemnity obligation by grant of any security
interest or other lien on the assets of the Trust or (iv) establish a letter
of credit, guaranty or surety arrangement. Any such insurance or other
arrangement may be procured, maintained or established within the Trust or
with any insurer or other person deemed appropriate by the Board regardless of
whether all or part of the stock or other securities thereof are owned in
whole or in part by the Trust. In the absence of fraud, the judgment of the
Board as to the terms and conditions of insurance or other arrangement and the
identity of the insurer or other person participating in any arrangement shall
be conclusive, and such insurance or other arrangement shall not be subject to
voidability, nor subject the Trustees approving such insurance or other
arrangement to liability, on any ground, regardless of whether Trustees
participating in and approving such insurance or other arrangement shall be
beneficiaries thereof.
* * * * *
In Witness Whereof, the Trust has caused this Declaration of Trust to be
signed in its name and on its behalf as of the date first written above, by
the undersigned who acknowledges that to the best of his or her
knowledge, information and belief, the matters and facts set forth herein are
true in all material respects and that this statement is made under the
penalties for perjury.
Security Capital Pacific Trust
By: _________________________________
Name:
Title:
ATTEST:
_____________________________________
Secretary
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ANNEX A
CUMULATIVE CONVERTIBLE SERIES A PREFERRED
SHARES OF BENEFICIAL INTEREST
(a) Number of Shares and Designation. This class of preferred Shares shall
be designated as Cumulative Convertible Series A Preferred Shares of
Beneficial Interest ("Series A Preferred Shares") and the number of Shares
which shall constitute such series shall not be more than 9,200,000 Shares,
par value $1.00 per Share, which number may be decreased (but not below the
number thereof then outstanding plus the number required to fulfill the
Trust's obligations under options, warrants or similar rights issued by the
Trust) from time to time by the Board.
(b) Definitions. For purposes of the Series A Preferred Shares, the
following terms shall have the meanings indicated:
"Board" shall mean the Board or any committee authorized by the Board to
perform any of its responsibilities with respect to the Series A Preferred
Shares.
"Business Day" shall mean any day other than a Saturday, Sunday or a day
on which state or federally chartered banking institutions in New York
City, New York are not required to be open.
"Call Date" shall mean the date of the notice to holders required under
subsection (e)(iv) of this Section 2.
"Common Shares" shall mean the common shares of beneficial interest of
the Trust, par value $1.00 per Share.
"Constituent Person" shall have the meaning set forth in subsection
(f)(viii) of this Section 2.
"Conversion Price" shall mean the conversion price per Common Share for
which the Series A Preferred Shares are convertible, as such Conversion
Price may have been and may be adjusted pursuant to subsection (f) of this
Section 2. The initial conversion price was $20.556 (equivalent to a
conversion rate of 1.2162 Common Shares for each Series A Preferred Share).
"Current Market Price" of publicly traded common shares or any other
class of shares or capital stock or other security of the Trust or any
other issuer for any day shall mean the last reported sales price, regular
way on such day, or, if no sale takes place on such day, the average of the
reported closing bid and asked prices on such day, regular way, in either
case as reported on the New York Stock Exchange (the "NYSE") or, if such
security is not listed or admitted for trading on the NYSE, on the
principal national securities exchange on which such security is listed or
admitted for trading or, if not listed or admitted for trading on any
national securities exchange, on the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or, if such security is not quoted on such National Market
System, the average of the closing bid and asked prices on such day in the
over-the-counter market as reported by NASDAQ or, if bid and asked prices
for such security on such day shall not have been reported through NASDAQ,
the average of the bid and asked prices on such day as furnished by any
NYSE member firm regularly making a market in such security selected for
such purpose by the Chairman of the Board or the Board.
"Dividend Payment Date" shall mean the last calendar day of March, June,
September and December in each year, commencing on December 31, 1993;
provided, however, that if any Dividend Payment Date falls on any day other
than a Business Day, the dividend payment due on such Dividend Payment Date
shall be paid on the Business Day immediately following such Dividend
Payment Date.
"Dividend Periods" shall mean quarterly dividend periods commencing on
April 1, July 1, October 1 and January 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend
Period (other than the initial Dividend Period, which commenced on the
Issue Date and ended on and included December 31, 1994).
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"Fair Market Value" shall mean the average of the daily Current Market
Prices of a Common Share during the five consecutive Trading Days selected
by the Trust commencing not more than 20 Trading Days before, and ending
not later than, the earlier of the day in question and the day before the
"ex date" with respect to the issuance or distribution requiring such
computation. The term "ex date," when used with respect to any issuance or
distribution, means the first day on which the Common Shares trade regular
way, without the right to receive such issuance or distribution, on the
exchange or in the market, as the case may be, used to determine such day's
Current Market Price.
"Fully Junior Shares" shall mean the Common Shares and any other class or
series of Shares of the Trust now or hereafter issued and outstanding over
which the Series A Preferred Shares have preference or priority in both (i)
the payment of dividends and (ii) the distribution of assets on any
liquidation, dissolution or winding up of the Trust.
"Issue Date" shall mean the first date on which the Series A Preferred
Shares were issued and sold.
"Junior Shares" shall mean the Common Shares and any other class or
series of Shares of the Trust now or hereafter issued and outstanding over
which the Series A Preferred Shares have preference or priority in the
payment of dividends or in the distribution of assets on any liquidation,
dissolution or winding up of the Trust.
"Non-Electing Share" shall have the meaning set forth in subsection
(f)(viii) of this Section 2.
"Parity Shares" shall have the meaning set forth in subsection (h)(ii) of
this Section 2.
"Person" shall mean any individual, firm, partnership, corporation or
other entity, and shall include any successor (by merger or otherwise) of
such entity.
"Securities" and "Security" shall have the meanings set forth in
paragraph (C) of subsection (f)(vii) of this Section 2.
"Series A Preferred Shares" shall have the meaning set forth in
subsection (a) of this Section 2.
"set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Trust in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to
a declaration of dividends or other distribution by the Board, the
allocation of funds to be so paid on any series or class of Shares of the
Trust; provided, however, that if any funds for any class or series of
Junior Shares or any class or series of Shares ranking on a parity with the
Series A Preferred Shares as to the payment of dividends are placed in a
separate account of the Trust or delivered to a disbursing, paying or other
similar agent, then "set apart for payment" with respect to the Series A
Preferred Shares shall mean placing such funds in a separate account or
delivering such funds to a disbursing, paying or other similar agent.
"Trading Day" shall mean any day on which the securities in question are
traded on the NYSE, or if such securities are not listed or admitted for
trading on the NYSE, on the principal national securities exchange on which
such securities are listed or admitted, or if not listed or admitted for
trading on any national securities exchange, on the National Market System
of NASDAQ, or if such securities are not quoted on such National Market
System, in the applicable securities market in which the securities are
traded.
"Transaction" shall have the meaning set forth in subsection (f)(viii) of
this Section 2.
"Transfer Agent" means ChaseMellon Shareholder Services, L.L.C., New York
City, New York, or such other agent or agents of the Trust as may be
designated by the Board or its designee as the transfer agent for the
Series A Preferred Shares.
"Voting Preferred Shares" shall have the meaning set forth in subsection
(i) of this Section 2.
(c) Dividends.
(i) The holders of Series A Preferred Shares shall be entitled to
receive, when, as and if declared by the Board out of funds legally
available for such purpose, dividends payable in cash in an amount per
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Series A Preferred Share equal to the greater of (i) $1.75 per annum or
(ii) the dividends (determined on each Dividend Payment Date) on the Common
Shares, or portion thereof, into which a Series A Preferred Share is
convertible. Such dividends shall equal the number of Common Shares, or
portion thereof, into which a Series A Preferred Share is convertible,
multiplied by the most current quarterly dividend on a Common Share on or
before the applicable Dividend Payment Date. Such dividends shall begin to
accrue and shall be fully cumulative from the Issue Date, whether or not in
any Dividend Period or Periods there shall be funds of the Trust legally
available for the payment of such dividends, and shall be payable
quarterly, when, as and if declared by the Board, in arrears on Dividend
Payment Dates, commencing on the first Dividend Payment Date after the
Issue Date. Each such dividend shall be payable in arrears to the holders
of record of Series A Preferred Shares, as they appear on the Share records
of the Trust at the close of business on such record dates, not more than
50 days preceding such Dividend Payment Dates thereof, as shall be fixed by
the Board. Accrued and unpaid dividends for any past Dividend Periods may
be declared and paid at any time and for such interim periods, without
reference to any regular Dividend Payment Date, to holders of record on
such date, not exceeding 50 days preceding the payment date thereof, as may
be fixed by the Board.
(ii) The amount of dividends payable for each full Dividend Period for
the Series A Preferred Shares shall be computed by dividing the annual
dividend rate by four. The amount of dividends payable for the initial
Dividend Period, or any other period shorter or longer than a full Dividend
Period, on the Series A Preferred Shares shall be computed on the basis of
twelve 30-day months and a 360-day year. Holders of Series A Preferred
Shares shall not be entitled to any dividends, whether payable in cash,
property or stock, in excess of cumulative dividends, as herein provided,
on the Series A Preferred Shares. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments
on the Series A Preferred Shares which may be in arrears.
(iii) So long as any Series A Preferred Shares are outstanding, no
dividends, except as described in the immediately following sentence, shall
be declared or paid or set apart for payment on any class or series of
Parity Shares for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series A
Preferred Shares for all Dividend Periods terminating on or prior to the
Dividend Payment Date on such class or series of Parity Shares. When
dividends are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, all dividends declared on Series A Preferred
Shares and all dividends declared on any other class or series of Parity
Shares shall be declared ratably in proportion to the respective amounts of
dividends accumulated and unpaid on the Series A Preferred Shares and
accumulated and unpaid on such Parity Shares.
(iv) So long as any Series A Preferred Shares are outstanding, no
dividends (other than dividends or distributions paid solely in, or
options, warrants or rights to subscribe for or purchase, Fully Junior
Shares) shall be declared, or paid or set apart for payment or other
distribution declared or made on Junior Shares, nor shall any Junior Shares
be redeemed, purchased or otherwise acquired (other than a redemption,
purchase or other acquisition of Common Shares made for purposes of an
employee incentive or benefit plan of the Trust or any subsidiary) for any
consideration (or any moneys be paid to or made available for a sinking
fund for the redemption of any such Shares) by the Trust, directly or
indirectly (except by conversion into or exchange for Fully Junior Shares),
unless in each case (i) the full cumulative dividends on all outstanding
Series A Preferred Shares and any other Parity Shares of the Trust shall
have been paid or declared and set apart for payment for all past Dividend
Periods with respect to the Series A Preferred Shares and all past dividend
periods with respect to such Parity Shares and (ii) sufficient funds shall
have been paid or declared and set apart for the payment of the dividend
for the current Dividend Period with respect to the Series A Preferred
Shares and the current dividend period with respect to such Parity Shares.
(d) Liquidation Preference.
(i) Upon any liquidation, dissolution or winding up of the Trust, whether
voluntary or involuntary, before any payment or distribution of the assets
of the Trust (whether capital or surplus) shall be made to or set apart for
the holders of Junior Shares, the holders of the Series A Preferred Shares
shall be entitled to
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receive Twenty-Five Dollars ($25.00) per Series A Preferred Share plus an
amount equal to all dividends (whether or not earned or declared) accrued
and unpaid thereon to the date of final distribution to such holders; but
such holders shall not be entitled to any further payment. If, upon any
liquidation, dissolution or winding up of the Trust, the assets of the
Trust, or proceeds thereof, distributable among the holders of the Series A
Preferred Shares shall be insufficient to pay in full the preferential
amount aforesaid and liquidating payments on any other class or series of
Parity Shares, then such assets, or the proceeds thereof, shall be
distributed among the holders of Series A Preferred Shares and any such
other Parity Shares ratably in accordance with the respective amounts which
would be payable on such Series A Preferred Shares and any such other
Parity Shares if all amounts payable thereon were paid in full. For
purposes of this subsection (d), (i) a consolidation or merger of the Trust
with one or more corporations, (ii) a sale or transfer of all or
substantially all of the Trust's assets or (iii) a statutory share exchange
shall not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary, of the Trust.
(ii) Subject to the rights of the holders of any series or class or
classes of Shares ranking on a parity with or prior to the Series A
Preferred Shares upon liquidation, dissolution or winding up, upon any
liquidation, dissolution or winding up of the Trust, after payment shall
have been made in full to the holders of the Series A Preferred Shares, as
provided in this subsection (d), any other series or class or classes of
Junior Shares shall, subject to the respective terms and provisions (if
any) applying thereto, be entitled to receive any and all assets remaining
to be paid or distributed, and the holders of the Series A Preferred Shares
shall not be entitled to share therein.
(e) Redemption at the Option of the Trust.
(i) Subject to subsection (j) of this Section 2, the Series A Preferred
Shares shall not be redeemable by the Trust prior to the tenth anniversary
of the Issue Date. On and after the tenth anniversary of the Issue Date,
the Trust, at its option, may redeem the Series A Preferred Shares, in
whole at any time or from time to time in part at the option of the Trust
at a redemption price of Twenty-Five Dollars ($25.00) per Series A
Preferred Share, plus the amounts indicated in subsection (e)(ii) of this
Section 2.
(ii) Upon any redemption of Series A Preferred Shares pursuant to this
subsection (e), the Trust shall pay any accrued and unpaid dividends in
arrears for any Dividend Period ending on or prior to the Call Date. If the
Call Date falls after a dividend payment record date and prior to the
corresponding Dividend Payment Date, then each holder of Series A Preferred
Shares at the close of business on such dividend payment record date shall
be entitled to the dividend payable on such Series A Preferred Shares on
the corresponding dividend payment date notwithstanding the redemption of
such Series A Preferred Shares before such Dividend Payment Date. Except as
provided above, the Trust shall make no payment or allowance for unpaid
dividends, whether or not in arrears, on Series A Preferred Shares called
for redemption.
(iii) If full cumulative dividends on the Series A Preferred Shares and
any other class or series of Parity Shares of the Trust have not been paid
or declared and set apart for payment, the Series A Preferred Shares may
not be redeemed under this subsection (e) in part and the Trust may not
purchase or acquire Series A Preferred Shares, otherwise than pursuant to a
purchase or exchange offer made on the same terms to all holders of Series
A Preferred Shares or pursuant to subsection (j) of this Section 2.
(iv) Notice of the redemption of any Series A Preferred Shares under this
subsection (e) shall be mailed by first-class mail to each holder of record
of Series A Preferred Shares to be redeemed at the address of each such
holder as shown on the Trust's record, not less than 30 nor more than 90
days prior to the Call Date. Neither the failure to mail any notice
required by this subsection (e)(iv), nor any defect therein or in the
mailing thereof, to any particular holder, shall affect the sufficiency of
the notice or the validity of the proceedings for redemption with respect
to the other holders. Any notice which was mailed in the manner herein
provided shall be conclusively presumed to have been duly given on the date
mailed whether or not the holder receives the notice. Each such mailed
notice shall state, as appropriate: (i) the Call Date; (ii) the number of
Series A Preferred Shares to be redeemed and, if fewer than all of the
Series A Preferred Shares held by such holder are to be redeemed, the
number of Series A Preferred Shares to be redeemed from such
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holder; (iii) the place or places at which certificates for such Series A
Preferred Shares are to be surrendered; (iv) the then-current Conversion
Price; and (v) that dividends on the Series A Preferred Shares to be
redeemed shall cease to accrue on such Call Date except as otherwise
provided herein. Notice having been mailed as aforesaid, from and after the
Call Date (unless the Trust shall fail to make available an amount of cash
necessary to effect such redemption), (A) except as otherwise provided
herein, dividends on the Series A Preferred Shares so called for redemption
shall cease to accrue, (B) such Series A Preferred Shares shall no longer
be deemed to be outstanding and (C) all rights of the holders thereof as
holders of Series A Preferred Shares of the Trust shall cease (except the
rights to convert and to receive cash payable upon such redemption, without
interest thereon, upon surrender and endorsement of their certificates if
so required and to receive any dividends payable thereon). The Trust's
obligation to provide cash in accordance with the preceding sentence shall
be deemed fulfilled if, on or before the Call Date, the Trust shall deposit
with a bank or trust company (which may be an affiliate of the Trust) which
has an office in the Borough of Manhattan, City of New York, and which has,
or is an affiliate of a bank or trust company which has, capital and
surplus of at least $50,000,000, necessary for such redemption, in trust,
with irrevocable instructions that such cash be applied to the redemption
of the Series A Preferred Shares so called for redemption. No interest
shall accrue for the benefit of the holders of Series A Preferred Shares to
be redeemed on any cash so set aside by the Trust. Subject to applicable
escheat laws, any such cash unclaimed at the end of two years from the Call
Date shall revert to the general funds of the Trust, after which reversion
the holders of such Series A Preferred Shares so called for redemption
shall look only to the general funds of the Trust for the payment of such
cash.
(v) As promptly as practicable after the surrender in accordance with
such notice of the certificates for any such Series A Preferred Shares so
redeemed (properly endorsed or assigned for transfer, if the Trust shall so
require and if the notice shall so state), such Series A Preferred Shares
shall be exchanged for any cash (without interest thereon) for which such
Series A Preferred Shares have been redeemed. If fewer than all of the
outstanding Series A Preferred Shares are to redeemed, the Series A
Preferred Shares to be redeemed shall be selected by the Trust from
outstanding Series A Preferred Shares not previously called for redemption
by lot or pro rata (as nearly as may be) or by any other method determined
by the Trust in its sole discretion to be equitable. If fewer than all of
the Series A Preferred Shares represented by any certificate are redeemed,
then new certificates representing the unredeemed Series A Preferred Shares
shall be issued without cost to the holder thereof.
(f) Conversion. Holders of Series A Preferred Shares shall have the right to
convert all or a portion of such Series A Preferred Shares into Common Shares,
as follows:
(i) Subject to and upon compliance with the provisions of this subsection
(f), a holder of Series A Preferred Shares shall have the right, at his or
her option, at any time to convert such Series A Preferred Shares into the
number of fully paid and non-assessable Common Shares obtained by dividing
the aggregate liquidation preference of such Series A Preferred Shares by
the Conversion Price (as in effect at the time and on the date provided for
in subsection (f)(v) of this Section 2 by surrendering such Series A
Preferred Shares to be converted, such surrender to be made in the manner
provided in subsection (f)(ii) of this Section 2; provided, however, that
the right to convert Series A Preferred Shares called for redemption
pursuant to subsection (e) of this Section 2 shall terminate at the close
of business on the fifth Business Day prior to the Call Date fixed for such
redemption, unless the Trust shall default in making payment of the cash
payable upon such redemption under subsection (e) of this Section 2.
(ii) In order to exercise the conversion right, the holder of each Series
A Preferred Share to be converted shall surrender the certificate
representing such Series A Preferred Share, duly endorsed or assigned to
the Trust or in blank, at the office of the Transfer Agent, accompanied by
written notice to the Trust that the holder thereof elects to convert such
Series A Preferred Shares. Unless the Series A Preferred Shares issuable on
conversion are to be issued in the same name as the name in which such
Series A Preferred Share is registered, each Series A Preferred Share
surrendered for conversion shall be accompanied by instruments of transfer,
in form satisfactory to the Trust, duly executed by the holder or
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such holder's duly authorized attorney and an amount sufficient to pay any
transfer or similar tax (or evidence reasonably satisfactory to the Trust
demonstrating that such taxes have been paid).
(iii) Holders of Series A Preferred Shares at the close of business on a
dividend payment record date shall be entitled to receive the dividend
payable on such Series A Preferred Shares on the corresponding Dividend
Payment Date notwithstanding the conversion thereof following such dividend
payment record date and prior to such Dividend Payment Date. However,
Series A Preferred Shares 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
Series A Preferred Shares converted after the issuance of notice of
redemption with respect to a Call Date during such period, such Series A
Preferred Shares being entitled to such dividend on the Dividend Payment
Date) must be accompanied by payment of an amount equal to the dividend
payable on such Series A Preferred Shares on such Dividend Payment Date. A
holder of Series A Preferred Shares on a dividend payment record date who
(or whose transferee) tenders any such Series A Preferred Shares for
conversion into Common Shares on the corresponding Dividend Payment Date
shall receive the dividend payable by the Trust on such Series A Preferred
Shares on such date, and the converting holder need not include payment of
the amount of such dividend upon surrender of Series A Preferred Shares for
conversion. Except as provided above, the Trust shall make no payment or
allowance for unpaid dividends, whether or not in arrears, on converted
Series A Preferred Shares or for dividends on the Common Shares issued upon
such conversion.
(iv) As promptly as practicable after the surrender of certificates for
Series A Preferred Shares as aforesaid, the Trust shall issue and shall
deliver at such office to such holder, or on his or her written order, a
certificate or certificates for the number of full Common Shares issuable
upon the conversion of such Series A Preferred Shares in accordance with
provisions of this subsection (f), and any fractional interest in respect
of a Common Share arising upon such conversion shall be settled as provided
in subsection (f) (vi) of this Section 2.
(v) Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates for
Series A Preferred Shares shall have been surrendered and such notice (and
if applicable, payment of an amount equal to the dividend payable on such
Series A Preferred Shares) received by the Trust as aforesaid, and the
person or persons in whose name or names any certificate or certificates
for Common Shares shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the Common Shares
represented thereby at such time on such date and such conversion shall be
at the Conversion Price in effect at such time on such date unless the
Share transfer books of the Trust shall be closed on such date, in which
event such person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding day on
which such Share transfer books are open, but such conversion shall be at
the Conversion Price in effect on the date on which such Series A Preferred
Shares shall have been surrendered and such notice received by the Trust.
(vi) No fractional Common Shares or scrip representing fractions of
Common Shares shall be issued upon conversion of the Series A Preferred
Shares. Instead of any fractional interest in a Common Share which would
otherwise be deliverable upon the conversion of a Series A Preferred Share,
the Trust shall pay to the holder of such Series A Preferred Share an
amount in cash based on the Current Market Price of Common Shares on the
Trading Day immediately preceding the date of conversion. If more than one
Series A Preferred Share shall be surrendered for conversion at one time by
the same holder, the number of full Common Shares issuable upon conversion
thereof shall be computed on the basis of the aggregate number of Series A
Preferred Shares so surrendered.
(vii) The Conversion Price shall be adjusted from time to time as
follows:
(A) If the Trust shall after the Issue Date (i) pay a dividend or
make a distribution on its Shares in Common Shares, (ii) subdivide its
outstanding Common Shares into a greater number of Common Shares, (iii)
combine its outstanding Common Shares into a smaller number of Common
Shares or (iv) issue any Shares by reclassification of its Common
Shares, the Conversion Price in effect at the opening of business on
the day following the date fixed for the determination of Shareholders
entitled
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to receive such dividend or distribution or at the opening of business
on the Business Day next following the day on which such subdivision,
combination or reclassification becomes effective, as the case may be,
shall be adjusted so that the holder of any Series A Preferred Share
thereafter surrendered for conversion shall be entitled to receive the
number of Common Shares which such holder would have owned or have been
entitled to receive after the happening of any of the events described
above as if such Series A Preferred Shares had been converted
immediately prior to the record date in the case of a dividend or
distribution or the effective date in the case of a subdivision,
combination or reclassification. An adjustment made pursuant to this
paragraph (A) shall become effective immediately after the opening of
business on the Business Day next following the record date (except as
provided in subsection (f)(xi) of this Section 2) in the case of a
dividend or distribution and shall become effective immediately after
the opening of business on the Business Day next following the
effective date in the case of a subdivision, combination or
reclassification.
(B) If the Trust shall issue after the Issue Date rights, options or
warrants to all holders of Common Shares entitling them (for a period
expiring within 45 days after the record date mentioned below) to
subscribe for or purchase Common Shares at a price per Common Share
less than 94% (100% if a stand-by underwriter is used and charges the
Trust a commission) of the Fair Market Value per Common Share on the
record date for the determination of Shareholders entitled to receive
such rights, option or warrants, then the Conversion Price in effect at
the opening of business on the Business Day next following such record
date shall be adjusted to equal the price determined by multiplying (i)
the Conversion Price in effect immediately prior to the opening of
business on the Business Day next following the date fixed for such
determination by (ii) a fraction, the numerator of which shall be the
sum of (A) the number of Common Shares outstanding on the close of
business on the date fixed for such determination and (B) the number of
Common Shares which the aggregate proceeds to the Trust from the
exercise of such rights, option or warrants for Common Shares would
purchase at 94% of such Fair Market Value (or 100% in the case of a
stand-by underwriting), and the denominator of which shall be the sum
of (X) the number of Common Shares outstanding on the close of business
on the date fixed for such determination and (Y) the number of
additional Common Shares offered for subscription or purchase pursuant
to such rights, options or warrants. Such adjustment shall become
effective immediately after the opening of business on the day next
following such record date (except as provided in subsection (f)(xi) of
this Section 2). In determining whether any rights, options or warrants
entitle the holders of Common Shares to subscribe for or purchase
Common Shares at less than 94% of such Fair Market Value (or 100% in
the case of a stand-by underwriting), there shall be taken into account
any consideration received by the Trust upon issuance and upon exercise
of such rights, options or warrants, the value of such consideration,
if other than cash, to be determined by the Chairman of the Board or
the Board.
(C) If the Trust shall distribute to all holders of its Common Shares
any Shares of the Trust (other than Common Shares) or evidence of its
indebtedness or assets (excluding cumulative cash dividends or
distributions paid with respect to the Common Shares after September
30, 1993 which are not in excess of the following: the sum of (i) the
Trust's cumulative undistributed funds from operations at September 30,
1993, plus (ii) the cumulative amount of funds from operations, as
determined by the Board, after September 30, 1993, minus (iii) the
cumulative amount of dividends accrued or paid in respect of the Series
A preferred Shares or any other class or series of preferred Shares of
the Trust after the Issue Date) or rights, options or warrants to
subscribe for or purchase any of its securities (excluding those
rights, options and warrants issued to all holders of Common Shares
entitling them for a period expiring within 45 days after the record
date referred to in paragraph (B) above to subscribe for or purchase
Common Shares, which rights and warrants are referred to in and treated
under paragraph (B) above) (any of the foregoing being hereinafter in
this paragraph (C) collectively called the "Securities" and
individually a "Security"), then in each such case the Conversion Price
shall be adjusted so that it shall equal the price determined by
multiplying (A) the Conversion Price in effect immediately prior to the
close of business on the date fixed for the determination of
Shareholders entitled to receive such distribution by (B) a fraction,
the numerator of which shall be the Fair Market
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Value per Common Share on the record date mentioned below less the then
fair market value (as determined by the Chairman of the Board or the
Board, whose determination shall be conclusive), of the portion of the
Shares or assets or evidences of indebtedness so distributed or of such
rights or warrants applicable to one Common Share, and the denominator
of which shall be the Fair Market Value per Common Share on the record
date mentioned below. Such adjustment shall become effective
immediately at the opening of business on the Business Day next
following (except as provided in subsection (f)(xi) of this Section 2)
the record date for the determination of Shareholders entitled to
receive such distribution. For purposes of this paragraph (C), the
distribution of a Security, which is distributed not only to the
holders of the Common Shares on the date fixed for the determination of
Shareholders entitled to such distribution of such Security, but also
is distributed with each Common Share delivered to a Person converting
a Series A Preferred Share after such determination date, shall not
require an adjustment of the Conversion Price pursuant to this
paragraph (C); provided that on the date, if any, on which a person
converting a Series A Preferred Share would no longer be entitled to
receive such Security with a Common Share (other than as a result of
the termination of all such Securities), a distribution of such
Securities shall be deemed to have occurred and the Conversion Price
shall be adjusted as provided in this paragraph (C) (and such day shall
be deemed to be "the date fixed for the determination of the
Shareholders entitled to receive such distribution" and "the record
date" within the meaning of the two preceding sentences).
(D) In case a tender or exchange offer made by the Trust or any
subsidiary of the Trust for all or any portion of the Common Shares
shall expire and such tender or exchange offer shall involve the
payment by the Trust or such subsidiary of consideration per Common
Share having a fair market value (as determined in good faith by the
Board, whose determination shall be conclusive and described in a
resolution of the Board), at the last time (the "Expiration Time")
tenders or exchanges may be made pursuant to such tender or exchange
offer, which exceeds the Current Market Price per Common Share on the
Trading Day next succeeding the Expiration Time, the Conversion Price
shall be reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the
effectiveness of the Conversion Price reduction contemplated by this
paragraph (D), by a fraction of which the numerator shall be the number
of Common Shares outstanding (including any tendered or exchanged
Common Shares) at the Expiration Time, multiplied by the Current Market
Price per Common Share on the Trading Day next succeeding the
Expiration Time, and the denominator shall be the sum of (i) the fair
market value (determined as aforesaid) of the aggregate consideration
payable to Shareholders based on the acceptance (up to any maximum
specified in the terms of the tender or exchange offer) of all Common
Shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the Common Shares deemed so accepted, up to any
maximum, being referred to as the "Purchased Shares") and (ii) the
product of the number of Common Shares outstanding (less any Purchased
Shares) at the Expiration Time and the Current Market Price per Common
Share on the Trading Day next succeeding the Expiration Time, such
reduction to become effective immediately prior to the opening of
business on the day following the Expiration Time.
(E) No adjustment in the Conversion Price shall be required unless
such adjustment would require a cumulative increase or decrease of at
least 1% in such price; provided, however, that any adjustments which
by reason of this paragraph (E) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment
until made; and provided, further, that any adjustment shall be
required and made in accordance with the provisions of this subsection
(f) (other than this paragraph (E)) not later than such time as may be
required in order to preserve the tax-free nature of a distribution to
the holders of Common Shares. Notwithstanding any other provisions of
this subsection (f), the Trust shall not be required to make any
adjustment of the Conversion Price for the issuance of any Common
Shares pursuant to any plan providing for the reinvestment of dividends
or interest payable on securities of the Trust and the investment of
additional optional amounts in Common Shares under such plan. All
calculations under this subsection (f) shall be made to the nearest
cent (with $0.005 being rounded upward) or to the nearest one-tenth of
a Share (with 0.05 of a Share being rounded upward),
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as the case may be. Anything in this subsection (f)(vii) to the
contrary notwithstanding, the Trust shall be entitled, to the extent
permitted by law, to make such reductions in the Conversion Price, in
addition to those required by this subsection (f)(vii), as it in its
discretion shall determine to be advisable in order that any Share
dividends, subdivision of Shares, reclassification or combination of
Shares, distribution of rights or warrants to purchase Shares or
securities, or a distribution of other assets (other than cash
dividends) hereafter made by the Trust to its Shareholders shall not be
taxable.
(viii) If the Trust shall be a party to any transaction (including
without limitation a merger, consolidation, statutory share exchange, self
tender offer for all or substantially all Common Shares, sale of all or
substantially all of the Trust's assets or recapitalization of the Common
Shares and excluding any transaction as to which paragraph (A) of
subsection (f)(vii) of this Section 2 applies) (each of the foregoing being
referred to herein as a "Transaction"), in each case as a result of which
all or substantially all Common Shares are converted into the right to
receive stock, securities or other property (including cash or any
combination thereof), each Series A Preferred Share which is not redeemed
or converted into the right to receive stock, securities or other property
prior to such Transaction shall thereafter be convertible into the kind and
amount of shares of stock, securities and other property (including cash or
any combination thereof) receivable upon the consummation of such
Transaction by a holder of such number of Common Shares into which one
Series A Preferred Share was convertible immediately prior to such
Transaction, assuming such holder of Common Shares (i) is not a Person with
which the Trust consolidated or into which the Trust merged or which merged
into the Trust or to which such sale or transfer was made, as the case may
be (a "Constituent Person"), or an affiliate of a Constituent Person and
(ii) failed to exercise his rights of election, if any, as to the kind or
amount of stock, securities and other property (including cash) receivable
upon such Transaction (provided that if the kind or amount of stock,
securities and other property (including cash) receivable upon such
Transaction is not the same for each Common Share held immediately prior to
such Transaction by other than a Constituent Person or an affiliate thereof
and in respect of which such rights of election shall not have been
exercised (a "Non-Electing Share"), then for purposes of this subsection
(f)(viii) the kind and amount of stock, securities and other property
(including cash) receivable upon such Transaction by each Non-Electing
Share shall be deemed to be the kind and amount so receivable per share by
a plurality of the Non-Electing Shares). The Trust shall not be a party to
any Transaction unless the terms of such Transaction are consistent with
the provisions of this subsection (f)(viii), and it shall not consent or
agree to the occurrence of any Transaction until the Trust has entered into
an agreement with the successor or purchasing entity, as the case may be,
for the benefit of the holders of the Series A Preferred Shares which shall
contain provisions enabling the holders of the Series A Preferred Shares
which remain outstanding after such Transaction to convert into the
consideration received by holders of Common Shares at the Conversion Price
in effect immediately prior to such Transaction. The provisions of this
subsection (f)(viii) shall similarly apply to successive Transactions.
(ix) If:
(A) the Trust shall declare a dividend (or any other distribution) on
the Common Shares (other than cash dividends or distributions paid with
respect to the Common Shares after September 30, 1993 not in excess of
the sum of the Trust's cumulative undistributed funds from operations
at September 30, 1993, plus the cumulative amount of funds from
operations, as determined by the Board, after September 30, 1993, minus
the cumulative amount of dividends accrued or paid in respect of the
Series A Preferred Shares or any other class or series of Preferred
Shares of the Trust after the Issue Date); or
(B) the Trust shall authorize the granting to the holders of Common
Shares of rights, options or warrants to subscribe for or purchase any
Shares of any class or any other rights, options or warrants; or
(C) there shall be any reclassification of the Common Shares (other
than an event to which paragraph (A) of subsection (f)(vii) of this
Section 2 applies) or any consolidation or merger to which the Trust is
a party and for which approval of any Shareholders of the Trust is
required, or a statutory share exchange, or a self tender offer by the
Trust for all or substantially all of the outstanding
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Common Shares or the sale or transfer of all or substantially all of
the assets of the Trust as an entirety; or
(D) there shall occur the voluntary or involuntary liquidation,
dissolution or winding up of the Trust,
then the Trust shall cause to be filed with the Transfer Agent and shall
cause to be mailed to the holders of Series A Preferred Shares at their
addresses as shown on the Share records of the Trust, as promptly as
possible, but at least 10 days prior to the applicable date hereinafter
specified, a notice stating (i) the date on which a record is to be taken
for purposes of such dividend, distribution or granting of rights, options
or warrants, or, if a record is not to be taken, the date as of which the
holders of Common Shares of record to be entitled to such dividend,
distribution or granting of rights, options or warrants are to be
determined or (ii) the date on which such reclassification, consolidation,
merger, statutory share exchange, sale, transfer, liquidation, dissolution
or winding up is expected to become effective, and the date as of which it
is expected that holders of Common Shares of record shall be entitled to
exchange their Common Shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, statutory
share exchange, sale, transfer, liquidation, dissolution or winding up.
Failure to give or receive such notice or any defect therein shall not
affect the legality or validity of the proceedings described in this
subsection (f).
(x) Whenever the Conversion Price is adjusted as herein provided, the
Trust shall promptly file with the Transfer Agent an officer's certificate
setting forth the Conversion Price after such adjustment and setting forth
a brief statement of the facts requiring such adjustment which certificate
shall be conclusive evidence of the correctness of such adjustment absent
manifest error. Promptly after delivery of such certificate, the Trust
shall prepare a notice of such adjustment of the Conversion Price setting
forth the adjusted Conversion Price and the effective date of such
adjustment and shall mail such notice of such adjustment of the Conversion
Price to the holder of each Series A Preferred Share at such holder's last
address as shown on the Share records of the Trust.
(xi) In any case in which subsection (f)(vii) of this Section 2 provides
that an adjustment shall become effective on the day next following the
record date for an event, the Trust may defer until the occurrence of such
event (i) issuing to the holder of any Series A Preferred Share converted
after such record date and before the occurrence of such event the
additional Common Shares issuable upon such conversion by reason of the
adjustment required by such event over and above the Common Shares issuable
upon such conversion before giving effect to such adjustment and (ii)
paying to such holder any amount of cash in lieu of any fraction pursuant
to subsection (f)(vi) of this Section 2.
(xii) There shall be no adjustment of the Conversion Price in case of the
issuance of any Shares of the Trust in a reorganization, acquisition or
other similar transaction except as specifically set forth in this
subsection (f). If any action or transaction would require adjustment of
the Conversion Price pursuant to more than one paragraph of this subsection
(f), only one adjustment shall be made and such adjustment shall be the
amount of adjustment which has the highest absolute value.
(xiii) If the Trust shall take any action affecting the Common Shares,
other than action described in this subsection (f), which in the opinion of
the Board would materially and adversely affect the conversion rights of
the holders of the Series A Preferred Shares, the Conversion Price for the
Series A Preferred Shares may be adjusted, to the extent permitted by law,
in such manner, if any, and at such time, as the Board, in its sole
discretion, may determine to be equitable in the circumstances.
(xiv) (A) The Trust covenants that it shall at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Shares, for purposes of effecting conversion
of the Series A Preferred Shares, the full number of Common Shares
deliverable upon the conversion of all outstanding Series A Preferred
Shares not theretofore converted. For purposes of this subsection (f)(xiv),
the number of Common Shares which shall be deliverable upon the conversion
of all outstanding Series A Preferred Shares shall be computed as if at the
time of computation all such outstanding Series A Preferred Shares were
held by a single holder.
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(B) The Trust covenants that any Common Shares issued upon conversion of
the Series A Preferred Shares shall be validly issued, fully paid and non-
assessable. Before taking any action which would cause an adjustment
reducing the Conversion Price below the then-par value of the Common Shares
deliverable upon conversion of the Series A Preferred Shares, the Trust
shall take any trust action which, in the opinion of its counsel, may be
necessary in order that the Trust may validly and legally issue fully paid
and (subject to any customary qualification based on the nature of a
business trust) non-assessable Common Shares at such adjusted Conversion
Price.
(C) The Trust shall endeavor to list the Common Shares required to be
delivered upon conversion of the Series A Preferred Shares, prior to such
delivery, on each national securities exchange, if any, on which the
outstanding Common Shares are listed at the time of such delivery.
(D) Prior to the delivery of any securities which the Trust shall be
obligated to deliver upon conversion of the Series A Preferred Shares, the
Trust shall endeavor to comply with all federal and state laws and
regulations thereunder requiring the registration of such securities with,
or any approval of or consent to the delivery thereof by, any governmental
authority.
(xv) The Trust shall pay any and all documentary stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of Common
Shares or other securities or property on conversion of the Series A
Preferred Shares pursuant hereto; provided, however, that the Trust shall
not be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of Common Shares or other
securities or property in a name other than that of the holder of the
Series A Preferred Shares to be converted, and no such issue or delivery
shall be made unless and until the person requesting such issue or delivery
has paid to the Trust the amount of any such tax or established, to the
reasonable satisfaction of the Trust, that such tax has been paid.
(g) Shares To Be Retired. All Series A Preferred Shares which shall have
been issued and reacquired in any manner by the Trust shall be restored to the
status of authorized but unissued Shares of the Trust, without designation as
to class or series.
(h) Ranking. Any class or series of Shares of the Trust shall be deemed to
rank:
(i) prior to the Series A Preferred Shares, as to the payment of
dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, if the holders of such class or series shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference
or priority to the holders of Series A Preferred Shares;
(ii) on a parity with the Series A Preferred Shares, as to the payment of
dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per Share thereof be
different from those of the Series A Preferred Shares, if the holders of
such class or series and the Series A Preferred Shares shall be entitled to
the receipt of dividends and of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective amounts of
accrued and unpaid dividends per Share or liquidation preferences, without
preference or priority one over the other ("Parity Shares");
(iii) junior to the Series A Preferred Shares, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution
or winding up, if such class or series shall be Junior Shares; and
(iv) junior to the Series A Preferred Shares, as to the payment of
dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Fully Junior
Shares.
(i) Voting.
(i) If and whenever six quarterly dividends (whether or not consecutive)
payable on the Series A Preferred Shares or any series or class of Parity
Shares shall be in arrears (which shall, with respect to any such quarterly
dividend, mean that any such dividend has not been paid in full), whether
or not earned or declared, the number of Trustees then constituting the
Board shall be increased by two and the holders of Series A Preferred
Shares, together with the holders of Shares of every other series of Parity
Shares (any
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such other series, the "Voting Preferred Shares"), voting as a single class
regardless of series, shall be entitled to elect the two additional
Trustees to serve on the Board at any annual meeting of Shareholders or
special meeting held in place thereof, or at a special meeting of the
holders of the Series A Preferred Shares and the Voting Preferred Shares
called as hereinafter provided. Whenever all arrears in dividends on the
Series A Preferred Shares and the Voting Preferred Shares then outstanding
shall have been paid and dividends thereon for the current quarterly
dividend period shall have been paid or declared and set apart for payment,
then the right of the holders of the Series A Preferred Shares and the
Voting Preferred Shares to elect such additional two Trustees shall cease
(but subject always to the same provision for the vesting of such voting
rights in the case of any similar future arrearages in six quarterly
dividends), and the terms of office of all persons elected as Trustees by
the holders of the Series A Preferred Shares and the Voting Preferred
Shares shall forthwith terminate and the number of the Board shall be
reduced accordingly. At any time after such voting power shall have been so
vested in the holders of Series A Preferred Shares and the Voting Preferred
Shares, the Secretary of the Trust may, and upon the written request of any
holder of Series A Preferred Shares (addressed to the Secretary at the
principal office of the Trust) shall, call a special meeting of the holders
of the Series A Preferred Shares and of the Voting Preferred Shares for the
election of the two Trustees to be elected by them as herein provided, such
call to be made by notice similar to that provided in the Trust's Bylaws
(the "Bylaws") for a special meeting of the Shareholders or as required by
law. If any such special meeting required to be called as provided above
shall not be called by the Secretary within 20 days after receipt of any
such request, then any holder of Series A Preferred Shares may call such
meeting, upon the notice provided above, and for such purpose shall have
access to the Share records of the Trust. The Trustees elected at any such
special meeting shall hold office until the next annual meeting of the
Shareholders or special meeting held in lieu thereof if such office shall
not have previously terminated as provided above. If any vacancy shall
occur among the Trustees elected by the holders of the Series A Preferred
Shares and the Voting Preferred Shares, a successor shall be elected by the
Board, upon the nomination of the then-remaining Trustee elected by the
holders of the Series A Preferred Shares and the Voting Preferred Shares or
the successor of such remaining Trustee, to serve until the next annual
meeting of the Shareholders or special meeting held in place thereof if
such office shall not have previously terminated as provided above.
Notwithstanding any other provisions of this subsection (i), in any vote
for the election of additional Trustees hereunder, the Series A Preferred
Shares and Voting Preferred Shares beneficially owned by Security Capital
Group Incorporated, a Maryland corporation ("Security Capital Group"), any
of its direct or indirect subsidiaries and any of their respective
directors, officers or controlling stockholders (together, the "Restricted
Parties"), shall be voted in the same respective percentages as the Series
A Preferred Shares and Voting Preferred Shares which are not beneficially
owned by the Restricted Parties. The provisions in the preceding sentence
shall cease and be of no further force and effect from and after such time,
but only as long as, the Restricted Parties together no longer beneficially
own in excess of 10% of the Trust's outstanding Common Shares.
(ii) So long as any Series A Preferred Shares are outstanding, in
addition to any other vote or consent of Shareholders required by law or by
this Declaration of Trust, the affirmative vote of at least two-thirds of
the votes entitled to be cast by the holders of the Series A Preferred
Shares and the Voting Preferred Shares, at the time outstanding, acting as
a single class regardless of series, given in person or by proxy, either in
writing without a meeting or by vote at any meeting called for the purpose,
shall be necessary for effecting or validating:
(A) Any amendment, alteration or repeal of any of the provisions of
this Declaration of Trust which materially and adversely affects the
voting powers, rights or preferences of the holders of the Series A
Preferred Shares or the Voting Preferred Shares; provided, however,
that the amendment of the provisions of this Declaration of Trust so as
to authorize or create or to increase the authorized amount of, any
Fully Junior Shares, Junior Shares which are not senior in any respect
to the Series A Preferred Shares, or any Shares of any class ranking on
a parity with the Series A Preferred Shares or the Voting Preferred
Shares shall not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Series A Preferred
Shares; and provided, further, that if any such amendment, alteration
or repeal would materially and adversely affect any voting powers,
rights or
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preferences of the Series A Preferred Shares or another series of
Voting Preferred Shares which are not enjoyed by some or all of the
other series otherwise entitled to vote in accordance herewith, the
affirmative vote of at least two-thirds of the votes entitled to be
cast by the holders of all series similarly affected, similarly given,
shall be required in lieu of the affirmative vote of at least two-
thirds of the votes entitled to be cast by the holders of the Series A
Preferred Shares and the Voting Preferred Shares otherwise entitled to
vote in accordance herewith; or
(B) A share exchange which affects the Series A Preferred Shares, a
consolidation with or merger of the Trust into another entity, or a
consolidation with or merger of another entity into the Trust, unless
in each such case each Series A Preferred Share (i) shall remain
outstanding without a material and adverse change to its terms and
rights or (ii) shall be converted into or exchanged for convertible
preferred stock of the surviving entity having preferences, conversion
or other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms or conditions of redemption thereof
identical to that of a Series A Preferred Share (except for changes
which do not materially and adversely affect the holders of the Series
A Preferred Shares); or
(C) The authorization or creation of, or the increase in the
authorized amount of, any Shares of any class or any security
convertible into Shares of any class ranking prior to the Series A
Preferred Shares in the distribution of assets on any liquidation,
dissolution or winding up of the Trust or in the payment of dividends;
provided, however, that no such vote of the holders of Series A Preferred
Shares shall be required if, at or prior to the time when such amendment,
alteration or repeal is to take effect, or when the issuance of any such
prior Shares or convertible security is to be made, as the case may be,
provision is made for the redemption of all Series A Preferred Shares at
the time outstanding.
(iii) For purposes of the foregoing provisions of this subsection (i),
each Series A Preferred Share shall have one vote per Share, except that
when any other series of preferred Shares shall have the right to vote with
the Series A Preferred Shares as a single class on any matter, then the
Series A Preferred Shares and such other series shall have with respect to
such matters one vote per $25.00 of stated liquidation preference. Except
as otherwise required by applicable law or as set forth herein, the Series
A Preferred Shares shall not have any relative, participating, optional or
other special voting rights and powers other than as set forth herein, and
the consent of the holders thereof shall not be required for the taking of
any Trust action.
(j) Limitation on Ownership.
(i) Notwithstanding any other provision of the terms of the Series A
Preferred Shares, except as provided in the next sentence and in subsection
(j)(ii) of this Section 2, no Person, or Persons acting as a group, shall
at any time directly or indirectly acquire ownership of more than 25% of
the outstanding Series A Preferred Shares. Any Series A Preferred Shares
owned by a Person or Persons acting as a group in excess of such 25% shall
be deemed "Excess Preferred Shares," except that any such Series A
Preferred Shares in excess of 25% shall not be considered Excess Preferred
Shares if the 25% limitation is exceeded solely as a result of the Trust's
redemption of Series A Preferred Shares, provided that thereafter any
additional Series A Preferred Shares acquired by such Person or Persons
acting as a group shall be considered Excess Preferred Shares. Within 10
days of becoming aware of the existence of Excess Preferred Shares (whether
by notice on Schedule 13D or otherwise), the Trust shall redeem any and all
Excess Preferred Shares by giving notice of redemption to the holder or
holders thereof, unless, prior to the giving of such notice, the holder
shall have disposed of its ownership in the Excess Preferred Shares. Such
notice shall set forth the number of Series A Preferred Shares constituting
Excess Preferred Shares, the redemption price and the place or places at
which the certificates representing such Excess Preferred Shares are to be
surrendered and such notice shall set forth the matters described in the
following sentence. From and after the date of giving such notice of
redemption, the Series A Preferred Shares called for redemption shall cease
to be outstanding and the holder thereof shall cease to be entitled to
dividends (other than dividends declared but unpaid prior to the notice of
redemption), voting rights and other benefits with respect to such Series A
Preferred Shares excepting the rights to payment of the redemption price
determined and payable as set
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forth in the next two sentences. Subject to the limitation on payment set
forth in the following sentence, the redemption price of each Excess
Preferred Share called for redemption shall be the average daily per Series
A Preferred Share closing sales price, if the Series A Preferred Shares are
listed on a national securities exchange or, if not, are reported on the
NASDAQ National Market System, and if the Series A Preferred Shares are not
so listed or reported, shall be the mean between the average per Series A
Preferred Share closing bid prices and the average per Series A Preferred
Share closing asked prices, in each case during the 30 day period ending on
the business day prior to the redemption date, or if there have been no
sales on a national securities exchange or the NASDAQ National Market
System and no published bid quotations and no published asked quotations
with respect to Series A Preferred Shares during such 30 day period, the
redemption price shall be the price determined by the Board in good faith.
Unless the Board determines that it is in the interest of the Trust to make
earlier payment of all of the amount determined as the redemption price per
Series A Preferred Share in accordance with the preceding sentence, the
redemption price may be payable, at the option of the Board, at any time or
times up to, but not later than the earlier of (i) five years after the
redemption date or (ii) the liquidation of the Trust, in which latter event
the redemption price shall not exceed an amount which is the sum of the per
Series A Preferred Share distributions designated as liquidating
distributions and return of capital distributions declared with respect to
unredeemed Series A Preferred Shares of the Trust of record subsequent to
the redemption date; and in any event, no interest shall accrue with
respect to the period subsequent to the redemption date to the date of such
payment. Nothing in this subsection (j)(i) shall preclude the settlement of
any transaction entered into through the facilities of the NYSE.
(ii) The limitation on ownership set forth in subsection (j)(i) of this
Section 2 shall not apply to the acquisition of Series A Preferred Shares
by an underwriter in a public offering of Series A Preferred Shares. The
Board, in its sole and absolute discretion, may exempt from the ownership
limitation set forth in subsection (j)(i) of this Section 2 certain
designated Series A Preferred Shares owned by a person (other than any of
the Restricted Parties) who has provided the Board with evidence and
assurances acceptable to the Board that the qualification of the Trust as a
REIT would not be jeopardized thereby.
(k) Record Holders. The Trust and the Transfer Agent may deem and treat the
record holder of any Series A Preferred Shares as the true and lawful owner
thereof for all purposes, and neither the Trust nor the Transfer Agent shall
be affected by any notice to the contrary.
(l) Sinking Fund. The Series A Preferred Shares shall not be entitled to the
benefits of any retirement or sinking fund.
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ANNEX B
SERIES B CUMULATIVE REDEEMABLE PREFERRED
SHARES OF BENEFICIAL INTEREST
(a) Number of Shares and Designation. This class of preferred Shares shall
be designated as Series B Cumulative Redeemable Preferred Shares of Beneficial
Interest ("Series B Preferred Shares") and the number of Shares which shall
constitute such series shall not be more than 4,200,000 Shares, par value
$1.00 per Share, which number may be decreased (but not below the number
thereof then outstanding plus the number required to fulfill the Trust's
obligations under options, warrants or similar rights issued by the Trust)
from time to time by the Board.
(b) Definitions. For purposes of the Series B Preferred Shares, the
following terms shall have the meanings indicated:
"Board" shall mean the Board or any committee authorized by the Board to
perform any of its responsibilities with respect to the Series B Preferred
Shares.
"Business Day" shall mean any day other than a Saturday, Sunday or a day
on which state or federally chartered banking institutions in New York
City, New York are not required to be open.
"Call Date" shall mean the date specified in the notice to holders
required under subsection (e)(iv) of this Section 3 as the Call Date.
"Common Shares" shall mean the common shares of beneficial interest of
the Trust, par value $1.00 per Share.
"Dividend Payment Date" shall mean the last calendar day of March, June,
September and December in each year, commencing on June 30, 1995; provided,
however, that if any Dividend Payment Date falls on any day other than a
Business Day, the dividend payment due on such Dividend Payment Date shall
be paid on the Business Day immediately following such Dividend Payment
Date.
"Dividend Periods" shall mean quarterly dividend periods commencing on
April 1, July 1, October 1, and January 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend
Period (other than the initial Dividend Period, which commenced on the
Issue Date and ended on and included June 30, 1995).
"Fully Junior Shares" shall mean the Common Shares and any other class or
series of Shares of the Trust now or hereafter issued and outstanding over
which the Series B Preferred Shares have preference or priority in both (i)
the payment of dividends and (ii) the distribution of assets on any
liquidation, dissolution or winding up of the Trust.
"Issue Date" shall mean the first date on which the Series B Preferred
Shares were issued and sold.
"Junior Shares" shall mean the Common Shares and any other class or
series of Shares of the Trust now or hereafter issued and outstanding over
which the Series B Preferred Shares have preference or priority in the
payment of dividends or in the distribution of assets on any liquidation,
dissolution or winding up of the Trust.
"Parity Shares" shall have the meaning set forth in subsection (g)(ii) of
this Section 3.
"Person" shall mean any individual, firm, partnership, corporation or
other entity, and shall include any successor (by merger or otherwise) of
such entity.
"Series B Preferred Shares" shall have the meaning set forth in
subsection (a) of this Section 3.
"set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Trust in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to
a declaration of dividends or other distribution by the Board, the
allocation of funds to be so paid on any series or class of Shares of the
Trust; provided, however, that if any funds for any class or series of
Junior Shares or any class or series of Shares ranking on a parity with the
Series B Preferred Shares
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as to the payment of dividends are placed in a separate account of the
Trust or delivered to a disbursing, paying or other similar agent, then
"set apart for payment" with respect to the Series B Preferred Shares shall
mean placing such funds in a separate account or delivering such funds to a
disbursing, paying or other similar agent.
"Transfer Agent" means ChaseMellon Shareholder Services, L.L.C., New York
City, New York, or such other agent or agents of the Trust as may be
designated by the Board or its designee as the transfer agent for the
Series B Preferred Shares.
"Voting Preferred Shares" shall have the meaning set forth in subsection
(h) of this Section 3.
(c) Dividends.
(i) The holders of Series B Preferred Shares shall be entitled to
receive, when, as and if declared by the Board out of funds legally
available for such purpose, dividends payable in cash in an amount per
Series B Preferred Share equal to $2.25. Such dividends shall begin to
accrue and shall be fully cumulative from the Issue Date, whether or not in
any Dividend Period or Periods there shall be funds of the Trust legally
available for the payment of such dividends, and shall be payable
quarterly, when, as and if declared by the Board, in arrears on Dividend
Payment Dates, commencing on the first Dividend Payment Date after the
Issue Date. Each such dividend shall be payable in arrears to the holders
of record of Series B Preferred Shares, as they appear on the Share records
of the Trust at the close of business on such record dates, not less than
10 nor more than 50 days preceding such Dividend Payment Dates thereof, as
shall be fixed by the Board. Accrued and unpaid dividends for any past
Dividend Periods may be declared and paid at any time and for such interim
periods, without reference to any regular Dividend Payment Date, to holders
of record on such date, not less than 10 nor more than 50 days preceding
the payment date thereof, as may be fixed by the Board.
(ii) The amount of dividends payable for each full Dividend Period for
the Series B Preferred Shares shall be computed by dividing the annual
dividend rate by four. The amount of dividends payable for the initial
Dividend Period, or any other period shorter or longer than a full Dividend
Period, on the Series B Preferred Shares shall be computed on the basis of
twelve 30-day months and a 360-day year. Holders of Series B Preferred
Shares shall not be entitled to any dividends, whether payable in cash,
property or stock, in excess of cumulative dividends, as herein provided,
on the Series B Preferred Shares. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments
on the Series B Preferred Shares which may be in arrears.
(iii) So long as any Series B Preferred Shares are outstanding, no
dividends, except as described in the immediately following sentence, shall
be declared or paid or set apart for payment on any class or series of
Parity Shares for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series B
Preferred Shares for all Dividend Periods terminating on or prior to the
Dividend Payment Date on such class or series of Parity Shares. When
dividends are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, all dividends declared on Series B Preferred
Shares and all dividends declared on any other class or series of Parity
Shares shall be declared ratably in proportion to the respective amounts of
dividends accumulated and unpaid on the Series B Preferred Shares and
accumulated and unpaid on such Parity Shares.
(iv) So long as any Series B Preferred Shares are outstanding, no
dividends (other than dividends or distributions paid solely in, or
options, warrants or rights to subscribe for or purchase, Fully Junior
Shares) shall be declared or paid or set apart for payment or other
distribution declared or made on Junior Shares, nor shall any Junior Shares
be redeemed, purchased or otherwise acquired (other than a redemption,
purchase or other acquisition of Common Shares made for purposes of an
employee incentive or benefit plan of the Trust or any subsidiary) for any
consideration (or any moneys be paid to or made available for a sinking
fund for the redemption of any such Shares) by the Trust, directly or
indirectly (except by conversion into or exchange for Fully Junior Shares),
unless in each case (i) the full cumulative dividends on all outstanding
Series B Preferred Shares and any other Parity Shares of the Trust shall
have been paid
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<PAGE>
or declared and set apart for payment for all past Dividend Periods with
respect to the Series B Preferred Shares and all past dividend periods with
respect to such Parity Shares and (ii) sufficient funds shall have been
paid or declared and set apart for the payment of the dividend for the
current Dividend Period with respect to the Series B Preferred Shares and
the current dividend period with respect to such Parity Shares.
(v) No distributions on Series B Preferred Shares shall be declared by
the Board or paid or set apart for payment by the Trust at such time as the
terms and provisions of any agreement of the Trust, including any agreement
relating to its indebtedness, prohibits such declaration, payment or
setting apart for payment or provides that such declaration, payment or
setting apart for payment would constitute a breach thereof or a default
thereunder, or if such declaration or payment shall be restricted or
prohibited by law.
(d) Liquidation Preference.
(i) Upon any liquidation, dissolution or winding up of the Trust, whether
voluntary or involuntary, before any payment or distribution of the assets
of the Trust (whether capital or surplus) shall be made to or set apart for
the holders of Junior Shares, the holders of the Series B Preferred Shares
shall be entitled to receive Twenty-Five Dollars ($25.00) per Series B
Preferred Share plus an amount equal to all dividends (whether or not
earned or declared) accrued and unpaid thereon to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. If, upon any liquidation, dissolution or winding up of the
Trust, the assets of the Trust, or proceeds thereof, distributable among
the holders of the Series B Preferred Shares shall be insufficient to pay
in full the preferential amount aforesaid and liquidating payments on any
other class or series of Parity Shares, then such assets, or the proceeds
thereof, shall be distributed among the holders of Series B Preferred
Shares and any such other Parity Shares ratably in accordance with the
respective amounts which would be payable on such Series B Preferred Shares
and any such other Parity Shares if all amounts payable thereon were paid
in full. For purposes of this subsection (d), (i) a consolidation or merger
of the Trust with one or more corporations, (ii) a sale or transfer of all
or substantially all of the Trust's assets or (iii) a statutory share
exchange shall not be deemed to be a liquidation, dissolution or winding
up, voluntary or involuntary, of the Trust.
(ii) Subject to the rights of the holders of any series or class or
classes of Shares ranking on a parity with or prior to the Series B
Preferred Shares upon liquidation, dissolution or winding up, upon any
liquidation, dissolution or winding up of the Trust, after payment shall
have been made in full to the holders of the Series B Preferred Shares, as
provided in this subsection (d), any other series or class or classes of
Junior Shares shall, subject to the respective terms and provisions (if
any) applying thereto, be entitled to receive any and all assets remaining
to be paid or distributed, and the holders of the Series B Preferred Shares
shall not be entitled to share therein.
(e) Redemption at the Option of the Trust.
(i) Subject to subsection (i) of this Section 3, the Series B Preferred
Shares shall not be redeemable by the Trust prior to the fifth anniversary
of the Issue Date. On and after the fifth anniversary of the Issue Date,
the Trust, at its option, may redeem the Series B Preferred Shares, in
whole at any time or from time to time in part at the option of the Trust
at a redemption price of Twenty-Five Dollars ($25.00) per Series B
Preferred Share, plus the amounts indicated in subsection (e)(ii) of this
Section 3.
(ii) Upon any redemption of Series B Preferred Shares pursuant to this
subsection (e), the Trust shall pay any accrued and unpaid dividends in
arrears for any Dividend Period ending on or prior to the Call Date. If the
Call Date falls after a dividend payment record date and prior to the
corresponding Dividend Payment Date, then each holder of Series B Preferred
Shares at the close of business on such dividend payment record date shall
be entitled to the dividend payable on such Series B Preferred Shares on
the corresponding Dividend Payment Date notwithstanding the redemption of
such Series B Preferred Shares before such Dividend Payment Date. Except as
provided above, the Trust shall make no payment or allowance for unpaid
dividends, whether or not in arrears, on Series B Preferred Shares called
for redemption.
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(iii) If full cumulative dividends on the Series B Preferred Shares and
any other class or series of Parity Shares of the Trust have not been paid
or declared and set apart for payment, the Series B Preferred Shares may
not be redeemed under this subsection (e) in part and the Trust may not
purchase or acquire Series B Preferred Shares, otherwise than pursuant to a
purchase or exchange offer made on the same terms to all holders of Series
B Preferred Shares or pursuant to subsection (i) of this Section 3.
(iv) The redemption price to be paid upon any redemption of the Series B
Preferred Shares (other than any amounts indicated in subsection (e)(ii) of
this Section 3 and other than a redemption pursuant to subsection (i) of
this Section 3) shall be payable solely out of the sale proceeds of other
Shares of the Trust and from no other source.
(v) Notice of the redemption of any Series B Preferred Shares under this
subsection (e) shall be mailed by first-class mail to each holder of record
of Series B Preferred Shares to be redeemed at the address of each such
holder as shown on the Trust's record, not less than 30 nor more than 90
days prior to the Call Date. Neither the failure to mail any notice
required by this subsection (e)(v), nor any defect therein or in the
mailing thereof, to any particular holder, shall affect the sufficiency of
the notice or the validity of the proceedings for redemption with respect
to the other holders. Any notice which was mailed in the manner herein
provided shall be conclusively presumed to have been duly given on the date
mailed whether or not the holder receives the notice. Each such mailed
notice shall state, as appropriate: (i) the Call Date; (ii) the number of
Series B Preferred Shares to be redeemed and, if fewer than all of the
Series B Preferred Shares held by such holder are to be redeemed, the
number of Series B Preferred Shares to be redeemed from such holder; (iii)
the place or places at which certificates for such Series B Preferred
Shares are to be surrendered; and (iv) that dividends on the Series B
Preferred Shares to be redeemed shall cease to accrue on such Call Date
except as otherwise provided herein. Notice having been mailed as
aforesaid, from and after the Call Date (unless the Trust shall fail to
make available an amount of cash necessary to effect such redemption), (A)
except as otherwise provided herein, dividends on the Series B Preferred
Shares so called for redemption shall cease to accrue, (B) such Series B
Preferred Shares shall no longer be deemed to be outstanding and (C) all
rights of the holders thereof as holders of Series B Preferred Shares of
the Trust shall cease (except the right to receive cash payable upon such
redemption, without interest thereon, upon surrender and endorsement of
their certificates if so required and to receive any dividends payable
thereon). The Trust's obligation to provide cash in accordance with the
preceding sentence shall be deemed fulfilled if, on or before the Call
Date, the Trust shall deposit with a bank or trust company (which may be an
affiliate of the Trust) which has an office in the Borough of Manhattan,
City of New York, and which has, or is an affiliate of a bank or trust
company which has, capital and surplus of at least $50,000,000, necessary
for such redemption, in trust, with irrevocable instructions that such cash
be applied to the redemption of the Series B Preferred Shares so called for
redemption. No interest shall accrue for the benefit of the holders of
Series B Preferred Shares to be redeemed on any cash so set aside by the
Trust. Subject to applicable escheat laws, any such cash unclaimed at the
end of two years from the Call Date shall revert to the general funds of
the Trust, after which reversion the holders of such Series B Preferred
Shares so called for redemption shall look only to the general funds of the
Trust for the payment of such cash.
(vi) As promptly as practicable after the surrender in accordance with
such notice of the certificates for any such Series B Preferred Shares so
redeemed (properly endorsed or assigned for transfer, if the Trust shall so
require and if the notice shall so state), such Series B Preferred Shares
shall be exchanged for any cash (without interest thereon) for which such
Series B Preferred Shares have been redeemed. If fewer than all of the
outstanding Series B Preferred Shares are to redeemed, the Series B
Preferred Shares to be redeemed shall be selected by the Trust from
outstanding Series B Preferred Shares not previously called for redemption
by lot or pro rata (as nearly as may be) or by any other method determined
by the Trust in its sole discretion to be equitable. If fewer than all of
the Series B Preferred Shares represented by any certificate are redeemed,
then new certificates representing the unredeemed Series B Preferred Shares
shall be issued without cost to the holder thereof.
(f) Shares To Be Retired. All Series B Preferred Shares which shall have
been issued and reacquired in any manner by the Trust shall be restored to the
status of authorized but unissued Shares of the Trust, without designation as
to class or series.
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(g) Ranking. Any class or series of Shares of the Trust shall be deemed to
rank:
(i) prior to the Series B Preferred Shares, as to the payment of
dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, if the holders of such class or series shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference
or priority to the holders of Series B Preferred Shares;
(ii) on a parity with the Series B Preferred Shares, as to the payment of
dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per Share thereof be
different from those of the Series B Preferred Shares, if the holders of
such class or series and the Series B Preferred Shares shall be entitled to
the receipt of dividends and of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective amounts of
accrued and unpaid dividends per Share or liquidation preferences, without
preference or priority one over the other ("Parity Shares");
(iii) junior to the Series B Preferred Shares, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution
or winding up, if such class or series shall be Junior Shares; and
(iv) junior to the Series B Preferred Shares, as to the payment of
dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Fully Junior
Shares.
(h) Voting.
(i) If and whenever six quarterly dividends (whether or not consecutive)
payable on the Series B Preferred Shares or any series or class of Parity
Shares shall be in arrears (which shall, with respect to any such quarterly
dividend, mean that any such dividend has not been paid in full), whether
or not earned or declared, the number of Trustees then constituting the
Board shall be increased by two and the holders of Series B Preferred
Shares, together with the holders of Shares of every other series of Parity
Shares (any such other series, the "Voting Preferred Shares"), voting as a
single class regardless of series, shall be entitled to elect two
additional Trustees to serve on the Board at any annual meeting of
Shareholders or special meeting held in place thereof, or at a special
meeting of the holders of the Series B Preferred Shares and the Voting
Preferred Shares called as hereinafter provided. Whenever all arrears in
dividends on the Series B Preferred Shares and the Voting Preferred Shares
then outstanding shall have been paid and dividends thereon for the current
quarterly dividend period shall have been paid or declared and set apart
for payment, then the right of the holders of the Series B Preferred Shares
and the Voting Preferred Shares to elect such additional two Trustees shall
cease (but subject always to the same provision for the vesting of such
voting rights in the case of any similar future arrearages in six quarterly
dividends), and the terms of office of all persons elected as Trustees by
the holders of the Series B Preferred Shares and the Voting Preferred
Shares shall forthwith terminate and the number of the Board shall be
reduced accordingly. At any time after such voting power shall have been so
vested in the holders of Series B Preferred Shares and the Voting Preferred
Shares, the Secretary of the Trust may, and upon the written request of any
holder of Series B Preferred Shares (addressed to the Secretary at the
principal office of the Trust) shall, call a special meeting of the holders
of the Series B Preferred Shares and of the Voting Preferred Shares for the
election of the two Trustees to be elected by them as herein provided, such
call to be made by notice similar to that provided in the Bylaws for a
special meeting of the Shareholders or as required by law. If any such
special meeting required to be called as provided above shall not be called
by the Secretary within 20 days after receipt of any such request, then any
holder of Series B Preferred Shares may call such meeting, upon the notice
provided above, and for such purpose shall have access to the Share records
of the Trust. The Trustees elected at any such special meeting shall hold
office until the next annual meeting of the Shareholders or special meeting
held in lieu thereof if such office shall not have previously terminated as
provided above. If any vacancy shall occur among the Trustees elected by
the holders of the Series B Preferred Shares and the Voting Preferred
Shares, a successor shall be elected by the Board, upon the nomination of
the then-remaining Trustee elected by the holders of the Series B Preferred
Shares and the Voting Preferred Shares or the successor of such remaining
Trustee, to serve until the next annual meeting of the Shareholders or
special meeting held in place thereof if such office shall not have
previously
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terminated as provided above. Notwithstanding any other provisions of this
subsection (h), in any vote for the election of additional Trustees
hereunder, the Series B Preferred Shares and Voting Preferred Shares
beneficially owned by Security Capital Group, any of its direct or indirect
subsidiaries and any of their respective directors, officers or controlling
stockholders (together, the "Restricted Parties"), shall be voted in the
same respective percentages as the Series B Preferred Shares and Voting
Preferred Shares which are not beneficially owned by the Restricted
Parties. The provisions in the preceding sentence shall cease and be of no
further force and effect from and after such time, but only as long as, the
Restricted Parties together no longer beneficially own in excess of 10% of
the Trust's outstanding Common Shares.
(ii) So long as any Series B Preferred Shares are outstanding, in
addition to any other vote or consent of Shareholders required by law or by
this Declaration of Trust, the affirmative vote of at least two-thirds of
the votes entitled to be cast by the holders of the Series B Preferred
Shares and the Voting Preferred Shares, at the time outstanding, acting as
a single class regardless of series, given in person or by proxy, either in
writing without a meeting or by vote at any meeting called for the purpose,
shall be necessary for effecting or validating:
(A) Any amendment, alteration or repeal of any of the provisions of
this Declaration of Trust which materially and adversely affects the
voting powers, rights or preferences of the holders of the Series B
Preferred Shares or the Voting Preferred Shares; provided, however,
that the amendment of the provisions of this Declaration of Trust so as
to authorize or create or to increase the authorized amount of, any
Fully Junior Shares, Junior Shares which are not senior in any respect
to the Series B Preferred Shares, or any Shares of any class ranking on
a parity with the Series B Preferred Shares or the Voting Preferred
Shares shall not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Series B Preferred
Shares; and provided, further, that if any such amendment, alteration
or repeal would materially and adversely affect any voting powers,
rights or preferences of the Series B Preferred Shares or another
series of Voting Preferred Shares which are not enjoyed by some or all
of the other series otherwise entitled to vote in accordance herewith,
the affirmative vote of at least two-thirds of the votes entitled to be
cast by the holders of all series similarly affected, similarly given,
shall be required in lieu of the affirmative vote of at least two-
thirds of the votes entitled to be cast by the holders of the Series B
Preferred Shares and the Voting Preferred Shares otherwise entitled to
vote in accordance herewith; or
(B) A share exchange which affects the Series B Preferred Shares, a
consolidation with or merger of the Trust into another entity, or a
consolidation with or merger of another entity into the Trust, unless
in each such case each Series B Preferred Share (i) shall remain
outstanding without a material and adverse change to its terms and
rights or (ii) shall be converted into or exchanged for convertible
preferred stock of the surviving entity having preferences, conversion
or other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms or conditions of redemption thereof
identical to that of a Series B Preferred Share (except for changes
which do not materially and adversely affect the holders of the Series
B Preferred Shares); or
(C) The authorization or creation of, or the increase in the
authorized amount of, any Shares of any class or any security
convertible into Shares of any class ranking prior to the Series B
Preferred Shares in the distribution of assets on any liquidation,
dissolution or winding up of the Trust or in the payment of dividends;
provided, however, that no such vote of the holders of Series B Preferred
Shares shall be required if, at or prior to the time when such amendment,
alteration or repeal is to take effect, or when the issuance of any such
prior Shares or convertible security is to be made, as the case may be,
provision is made for the redemption of all Series B Preferred Shares at
the time outstanding.
(iii) For purposes of the foregoing provisions of this subsection (h),
each Series B Preferred Share shall have one vote per Share, except that
when any other series of preferred Shares shall have the right to vote with
the Series B Preferred Shares as a single class on any matter, then the
Series B Preferred Shares and such other series shall have with respect to
such matters one vote per $25.00 of stated liquidation preference. Except
as otherwise required by applicable law or as set forth herein, the Series
B Preferred Shares shall
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<PAGE>
not have any relative, participating, optional or other special voting
rights and powers other than as set forth herein, and the consent of the
holders thereof shall not be required for the taking of any Trust action.
(i) Limitation on Ownership.
(i) Notwithstanding any other provision of the terms of the Series B
Preferred Shares, except as provided in the next sentence and in subsection
(i)(ii) of this Section 3, no Person, or Persons acting as a group, shall
at any time directly or indirectly acquire ownership of more than 25% of
the outstanding Series B Preferred Shares. Any Series B Preferred Shares
owned by a Person or Persons acting as a group in excess of such 25% shall
be deemed "Excess Preferred Shares," except that any such Series B
Preferred Shares in excess of 25% shall not be considered Excess Preferred
Shares if the 25% limitation is exceeded solely as a result of the Trust's
redemption of Series B Preferred Shares, provided that thereafter any
additional Series B Preferred Shares acquired by such Person or Persons
acting as a group shall be considered Excess Preferred Shares. Within 10
days of becoming aware of the existence of Excess Preferred Shares (whether
by notice on Schedule 13D or otherwise), the Trust shall redeem any and all
Excess Preferred Shares by giving notice of redemption to the holder or
holders thereof, unless, prior to the giving of such notice, the holder
shall have disposed of its ownership in the Excess Preferred Shares. Such
notice shall set forth the number of Series B Preferred Shares constituting
Excess Preferred Shares, the redemption price and the place or places at
which the certificates representing such Excess Preferred Shares are to be
surrendered and such notice shall set forth the matters described in the
following sentence. From and after the date of giving such notice of
redemption, the Series B Preferred Shares called for redemption shall cease
to be outstanding and the holder thereof shall cease to be entitled to
dividends (other than dividends declared but unpaid prior to the notice of
redemption), voting rights and other benefits with respect to such Series B
Preferred Shares excepting the rights to payment of the redemption price
determined and payable as set forth in the next two sentences. Subject to
the limitation on payment set forth in the following sentence, the
redemption price of each Excess Preferred Share called for redemption shall
be the average daily per Series B Preferred Share closing sales price, if
the Series B Preferred Shares are listed on a national securities exchange
or, if not, are reported on the NASDAQ National Market System, and if the
Series B Preferred Shares are not so listed or reported, shall be the mean
between the average per Series B Preferred Share closing bid prices and the
average per Series B Preferred Share closing asked prices, in each case
during the 30 day period ending on the business day prior to the redemption
date, or if there have been no sales on a national securities exchange or
the NASDAQ National Market System and no published bid quotations and no
published asked quotations with respect to Series B Preferred Shares during
such 30 day period, the redemption price shall be the price determined by
the Board in good faith. Unless the Board determines that it is in the
interest of the Trust to make earlier payment of all of the amount
determined as the redemption price per Series B Preferred Share in
accordance with the preceding sentence, the redemption price may be
payable, at the option of the Board, at any time or times up to, but not
later than the earlier of (i) five years after the redemption date or (ii)
the liquidation of the Trust, in which latter event the redemption price
shall not exceed an amount which is the sum of the per Series B Preferred
Share distributions designated as liquidating distributions and return of
capital distributions declared with respect to unredeemed Series B
Preferred Shares of the Trust of record subsequent to the redemption date;
and in any event, no interest shall accrue with respect to the period
subsequent to the redemption date to the date of such payment. Nothing in
this subsection (i)(i) shall preclude the settlement of any transaction
entered into through the facilities of the NYSE.
(ii) The limitation on ownership set forth in subsection (i)(i) of this
Section 3 shall not apply to the acquisition of Series B Preferred Shares
by an underwriter in a public offering of Series B Preferred Shares and
shall not apply to the ownership of Series B Preferred Shares by a managing
underwriter in the initial public offering of Series B Preferred Shares.
The Board, in its sole and absolute discretion, may exempt from the
ownership limitation set forth in subsection (i)(i) of this Section 3
certain designated Series B Preferred Shares owned by a person (other than
any of the Restricted Parties) who has provided the Board with evidence and
assurances acceptable to the Board that the qualification of the Trust as a
REIT would not be jeopardized thereby.
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<PAGE>
(j) Record Holders. The Trust and the Transfer Agent may deem and treat the
record holder of any Series B Preferred Shares as the true and lawful owner
thereof for all purposes, and neither the Trust nor the Transfer Agent shall
be affected by any notice to the contrary.
(k) Sinking Fund. The Series B Preferred Shares shall not be entitled to the
benefits of any retirement or sinking fund.
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<PAGE>
ANNEX C
SERIES C CUMULATIVE REDEEMABLE PREFERRED
SHARES OF BENEFICIAL INTEREST
(a) Number of Shares and Designation. This class of preferred Shares shall
be designated as Series C Cumulative Redeemable Preferred Shares of Beneficial
Interest ("Series C Preferred Shares") and the number of shares which shall
constitute such series shall be not more than 2,000,000 Shares, par value
$1.00 per Share, which number may be decreased (but not below the number then
outstanding plus the number required to fulfill the Trust's obligations under
options, warrants or similar rights issued by the Trust) from time to time by
the Board.
(b) Definitions. For purposes of the Series C Preferred Shares, the
following terms shall have the meanings indicated:
"Board" shall mean the Board or any committee authorized by the Board to
perform any of its duties or exercise any of its powers with respect to the
Series C Preferred Shares.
"Business Day" shall mean any day other than a Saturday, Sunday or a day
on which state or federally chartered banking institutions in New York
City, New York are not required to be open.
"Call Date" shall mean the date specified in the notice to holders
required under subsection (e)(v) of this Section 4 as the Call Date.
"Common Shares" shall mean the common shares of beneficial interest, par
value $1.00 per share, of the Trust.
"Dividend Payment Date" shall mean the last calendar day of March, June,
September and December in each year, commencing on the first of such days
to occur at the conclusion of the Initial Dividend Period; provided,
however, that if any Dividend Payment Date falls on any day other than a
Business Day, the dividend payment due on such Dividend Payment Date shall
be paid on the next succeeding Business Day.
"Dividend Periods" shall mean quarterly dividend periods commencing on
January 1, April 1, July 1 and October 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend
Period.
"Dividend Record Date" shall have the meaning set forth in subsection
(c)(i) of this Section 4.
"Fully Junior Shares" shall mean the Common Shares and any other class or
series of Shares of the Trust now or hereafter issued and outstanding to
which the Series C Preferred Shares have preference or priority in both (i)
the payment of dividends and (ii) the distribution of assets on any
liquidation, dissolution or winding up of the Trust.
"Initial Dividend Period" shall mean the first quarterly dividend period
immediately following the most recent dividend record date relating to the
Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share
(the "Atlantic Series A Preferred Shares"), of Security Capital Atlantic
Incorporated, a Maryland corporation, exchanged for the Series C Preferred
Shares in connection with the merger of Security Capital Atlantic
Incorporated with and into the Trust (it being the intention of the Trust
that holders of Atlantic Series A Preferred Shares and the Series C
Preferred Shares shall not receive two dividends, or fail to receive one
dividend, for any single calendar quarter with respect to their Atlantic
Series A Preferred Shares or Series C Preferred Shares).
"Junior Shares" shall mean the Common Shares and any other class or
series of Shares of the Trust now or hereafter issued and outstanding to
which the Series C Preferred Shares have preference or priority in either
(i) the payment of dividends or (ii) the distribution of assets on any
liquidation, dissolution or winding up of the Trust and, unless the context
clearly indicates otherwise, shall include Fully Junior Shares.
"Parity Shares" shall have the meaning set forth in subsection (g)(i) of
this Section 4.
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"Person" shall mean any individual, firm, partnership, corporation, real
estate investment trust or other entity, and shall include any successor
(by merger or otherwise) of such entity.
"Series C Preferred Shares" shall have the meaning set forth in
subsection (a) of this Section 4.
"set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Trust in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to
authorization or declaration of dividends or other distribution by the
Board, the allocation of funds to be so paid on any class or series of
Shares of the Trust; provided, however, that if any funds for any Junior
Shares or any Parity Shares are placed in a separate account of the Trust
or delivered to a disbursing, paying or other similar agent, then "set
apart for payment" with respect to the Series C Preferred Shares shall mean
placing such funds in a separate account or delivering such funds to a
disbursing, paying or other similar agent.
"Transfer Agent" means ChaseMellon Shareholder Services, L.L.C., New York
City, New York, or such other agent or agents of the Trust as may be
designated by the Board or its designee as the transfer agent for the
Series C Preferred Shares.
"Voting Preferred Shares" shall have the meaning set forth in subsection
(h) of this Section 4.
(c) Dividends.
(i) The holders of Series C Preferred Shares shall be entitled to
receive, when, as and if authorized or declared by the Board, out of funds
legally available for such purpose, cash dividends in an amount per share
equal to 8.625% of the liquidation preference per annum (equivalent to
$2.15625 per share). Such dividends shall begin to accrue and shall be
fully cumulative from the first day of the Initial Dividend Period, whether
or not in any Dividend Period or Periods there are funds of the Trust
legally available for the payment of such dividends, and shall be payable
quarterly, when, as and if declared by the Board, in arrears on Dividend
Payment Dates, commencing with the first Dividend Payment Date to occur at
the conclusion of the Initial Dividend Period. Each such dividend shall be
payable in arrears to the holders of record of Series C Preferred Shares,
as they appear in the Share records of the Trust at the close of business
on such record date as is fixed by the Board, which shall be not less than
10 nor more than 50 days prior to the corresponding Dividend Payment Date
(each, a "Dividend Record Date"). Accrued and unpaid dividends for any past
Dividend Periods may be authorized or declared and paid at any time and for
such interim periods, without reference to any regular Dividend Payment
Date, to holders of record on such record date as may be fixed by the
Board, which shall be not less than 10 nor more than 50 days prior to the
corresponding payment date.
(ii) The dividend for each full Dividend Period for the Series C
Preferred Shares shall be computed by dividing the annual dividend rate by
four. The dividend for any period shorter than a full Dividend Period on
the Series C Preferred Shares shall be computed on the basis of a 360-day
year of twelve 30-day months. Holders of Series C Preferred Shares shall
not be entitled to any dividends, whether payable in cash, property or
stock, in excess of full cumulative dividends, as provided herein, on the
Series C Preferred Shares. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments
on the Series C Preferred Shares which may be in arrears.
(iii) So long as any Series C Preferred Shares are outstanding, no
dividends, except as described in the immediately following sentence, shall
be declared or paid or set apart for payment on any Parity Shares for any
period unless (i) full cumulative dividends have been or contemporaneously
are paid or declared and a sum sufficient for the payment thereof set apart
for payment for all past Dividend Periods with respect to the Series C
Preferred Shares and (ii) a sum sufficient for the payment thereof has been
or contemporaneously is set apart for payment of the dividend for the
current Dividend Period with respect to the Series C Preferred Shares. When
dividends are not paid in full, or a sum sufficient for the payment thereof
is not set apart for payment, on the Series C Preferred Shares and any
Parity Shares as provided above, all dividends declared on the Series C
Preferred Shares and any Parity Shares shall be declared ratably in
proportion to the respective amounts of dividends accrued and unpaid on the
Series C Preferred Shares and on such Parity Shares.
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<PAGE>
(iv) So long as any Series C Preferred Shares are outstanding, no
dividends (other than dividends or distributions paid solely in, or
options, warrants or rights to subscribe for or purchase, Fully Junior
Shares) shall be declared or paid or set apart for payment or other
distribution shall be declared or made on Junior Shares, nor shall any
Junior Shares be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of Common Shares made for
purposes of an employee incentive or benefit plan of the Trust or any
subsidiary) for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any Junior Shares) by
the Trust, directly or indirectly (except by conversion into or exchange
for Fully Junior Shares), unless in each case (i) full cumulative dividends
have been or contemporaneously are paid or declared and a sum sufficient
for the payment thereof set apart for payment for all past Dividend Periods
with respect to the Series C Preferred Shares and all past dividend periods
with respect to any Parity Shares and (ii) a sum sufficient for the payment
thereof has been or contemporaneously is set apart for payment of the
dividend for the current Dividend Period with respect to the Series C
Preferred Shares and the current dividend period with respect to any Parity
Shares.
(v) No distributions on Series C Preferred Shares shall be declared or
paid or set apart for payment by the Trust at such time as the terms and
provisions of any agreement of the Trust, including any agreement relating
to its indebtedness, prohibits such declaration, payment or setting apart
for payment or provides that such declaration, payment or setting apart for
payment would constitute a breach thereof or a default thereunder, or if
such declaration, payment or setting apart for payment is restricted or
prohibited by law.
(d) Liquidation Preference.
(i) Upon any liquidation, dissolution or winding up of the Trust, whether
voluntary or involuntary, before any payment or distribution of the assets
of the Trust (whether capital or surplus) is made to or set apart for the
holders of the Common Shares or any other class or series of Shares of the
Trust now or hereafter issued and outstanding to which the Series C
Preferred Shares have preference or priority in the distribution of assets
on any liquidation, dissolution or winding up at the Trust, the holders of
Series C Preferred Shares shall be entitled to receive out of assets of the
Trust legally available for such purpose, liquidating distributions in the
amount of $25.00 per Series C Preferred Share, plus an amount equal to all
dividends (whether or not earned or authorized or declared) accrued and
unpaid thereon to the date of final distribution to such holders, if any;
but such holders shall not be entitled to any further payment. If, upon any
liquidation, dissolution or winding up of the Trust, the assets of the
Trust, or the proceeds thereof, distributable among the holders of Series C
Preferred Shares are insufficient to pay in full such preferential amount
with respect to the Series C Preferred Shares and the corresponding amounts
with respect to all Parity Shares, then such assets, or the proceeds
thereof, shall be distributed among the holders of Series C Preferred
Shares and all such Parity Shares in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
(ii) Subject to the rights of the holders of shares of any class or
series of Shares ranking on a parity with or senior to the Series C
Preferred Shares in the distribution of assets on any liquidation,
dissolution or winding up of the Trust, upon any liquidation, dissolution
or winding up of the Trust, whether voluntary or involuntary, after payment
has been made in full to the holders of Series C Preferred Shares, as
provided in this Section 4, the holders of any Junior Shares shall, subject
to the respective terms and provisions (if any) applying thereto, be
entitled to receive any and all assets remaining to be paid or distributed,
and the holders of Series C Preferred Shares shall not be entitled to share
therein.
(iii) For the purposes of this Section 4, (i) a consolidation or merger
of the Trust with or into one or more corporations, real estate investment
trusts or other entities, (ii) a sale or transfer of all or substantially
all of the Trust's assets or (iii) a statutory share exchange shall not be
deemed to be a liquidation, dissolution or winding up of the Trust, whether
voluntary or involuntary.
(e) Redemption at the Option of the Trust.
(i) Subject to subsection (i) of this Section 4, the Series C Preferred
Shares are not redeemable by the Trust prior to August 20, 2002. On and
after such date, the Trust, at its option, may redeem the Series C
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Preferred Shares, in whole at any time or in part from time to time, for
cash at a redemption price of $25.00 per Series C Preferred Share, plus the
amounts indicated in subsection (e)(ii) of this Section 4.
(ii) Upon any redemption of Series C Preferred Shares pursuant to this
subsection (e), the Trust shall pay all dividends accrued and unpaid
thereon, if any, in arrears for any Dividend Period ending on or prior to
the Call Date. If the Call Date falls after a Dividend Record Date and
prior to the corresponding Dividend Payment Date, then each holder of
Series C Preferred Shares at the close of business on such Dividend Record
Date shall be entitled to receive the dividend payable on such Series C
Preferred Shares on the corresponding Dividend Payment Date notwithstanding
the redemption of such Series C Preferred Shares before such Dividend
Payment Date. Except as provided above, the Trust shall make no payment or
allowance for unpaid dividends, whether or not in arrears, on Series C
Preferred Shares called for redemption.
(iii) Unless (i) full cumulative dividends have been or contemporaneously
are paid or declared and a sum sufficient for the payment thereof set apart
for payment for all past Dividend Periods with respect to the Series C
Preferred Shares and all past dividend periods with respect to any Parity
Shares and (ii) a sum sufficient for the payment thereof has been or
contemporaneously is set apart for payment of the dividend for the current
Dividend Period with respect to the Series C Preferred Shares and the
current dividend period with respect to any Parity Shares, the Series C
Preferred Shares may not be redeemed under this subsection (e) in part and
the Trust may not purchase or otherwise acquire Series C Preferred Shares,
except pursuant to a purchase or exchange offer made on the same terms to
all holders of Series C Preferred Shares or by conversion into or exchange
for Fully Junior Shares or pursuant to subsection (i) of this Section 4.
(iv) The redemption price to be paid upon any redemption of the Series C
Preferred Shares (other than any amounts indicated in subsection (e)(ii) of
this Section 4 and other than a redemption pursuant to subsection (i) of
this Section 4) shall be payable solely out of the sale proceeds of other
Shares of the Trust and from no other source.
(v) Notice of the redemption of any Series C Preferred Shares under this
subsection (e) shall be mailed by first class mail, not less than 30 nor
more than 90 days prior to the Call Date, to each holder of record of
Series C Preferred Shares to be redeemed at the address of such holder as
shown on the Trust's Share records. Neither the failure to mail any notice
required by this subsection (e)(v), nor any defect therein or in the
mailing thereof, to any particular holder, shall affect the sufficiency of
the notice or the validity of the proceedings for redemption with respect
to any other holder. Any notice which was mailed in the manner provided
herein shall be conclusively presumed to have been duly given on the date
mailed whether or not the holder receives the notice. Each such mailed
notice shall state, as appropriate: (i) the Call Date; (ii) the number of
Series C Preferred Shares to be redeemed and, if fewer than all Series C
Preferred Shares held by such holder are to be redeemed, the number of
Series C Preferred Shares to be redeemed from such holder; (iii) the
redemption price; (iv) the place or places at which certificates
representing such Series C Preferred Shares are to be surrendered; and (v)
that dividends on the Series C Preferred Shares to be redeemed shall cease
to accrue on the Call Date except as otherwise provided herein. If notice
of redemption of any Series C Preferred Shares has been mailed as provided
above, then from and after the Call Date (unless the Trust fails to make
available an amount of cash necessary to effect such redemption), (A)
except as otherwise provided herein, dividends shall cease to accrue on the
Series C Preferred Shares so called for redemption, (B) such Series C
Preferred Shares shall no longer be deemed to be outstanding and (C) all
rights of the holders thereof as holders of Series C Preferred Shares shall
terminate (except the right to receive cash payable upon such redemption,
without interest thereon, upon surrender and endorsement of their
certificates if so required and to receive any dividends payable thereon).
The Trust's obligation to provide cash in accordance with the preceding
sentence shall be deemed fulfilled if, on or before the Call Date, the
Trust deposits with a bank or trust company (which may be an affiliate of
the Trust) which has an office in the Borough of Manhattan, City of New
York, and which has, or is an affiliate of a bank or trust company which
has, capital and surplus of at least $50,000,000, the funds necessary for
such redemption, in trust, with irrevocable instructions that such cash be
applied to the redemption of the Series C Preferred Shares so called for
redemption. No interest shall accrue for the benefit of the holders of
Series C Preferred Shares to be redeemed on any cash so set aside by the
Trust. Subject to applicable escheat laws, any such
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cash unclaimed at the end of two years after the Call Date shall revert to
the general funds of the Trust, after which reversion the holders of Series
C Preferred Shares so called for redemption shall look only to the general
funds of the Trust for the payment of such cash.
As promptly as practicable after the surrender in accordance with such
notice of the certificates representing any Series C Preferred Shares so
redeemed (properly endorsed or assigned for transfer, if the Trust so
requires and if the notice so states), such Series C Preferred Shares shall
be exchanged for any cash (without interest thereon) for which such Series
C Preferred Shares have been redeemed. If fewer than all the outstanding
Series C Preferred Shares are to redeemed, the Series C Preferred Shares to
be redeemed shall be selected by the Trust from outstanding Series C
Preferred Shares not previously called for redemption by lot or pro rata
(as nearly as may be) or by any other method determined by the Board or the
Chairman or any Co-Chairman of the Trust in its, his or her sole discretion
to be equitable. If fewer than all the Series C Preferred Shares
represented by any certificate are redeemed, then new certificates
representing the unredeemed Series C Preferred Shares shall be issued
without cost to the holder thereof.
(f) Shares To Be Retired. All Series C Preferred Shares which are issued and
reacquired in any manner by the Trust shall be restored to the status of
authorized but unissued Shares of the Trust, without designation as to class
or series.
(g) Ranking. Any class or series of Shares of the Trust shall be deemed to
rank:
(i) senior to the Series C Preferred Shares, in the payment of dividends
or in the distribution of assets on any liquidation, dissolution or winding
up of the Trust, if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable on any liquidation,
dissolution or winding up of the Trust, as the case may be, in preference
or priority to the holders of Series C Preferred Shares;
(ii) on a parity with the Series C Preferred Shares, in the payment of
dividends and in the distribution of assets on any liquidation, dissolution
or winding up of the Trust, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per share thereof are
different from those of the Series C Preferred Shares, if the holders of
such class or series and the holders of Series C Preferred Shares are
entitled to the receipt of dividends and amounts distributable on any
liquidation, dissolution or winding up of the Trust in proportion to their
respective amounts of dividends accrued and unpaid per share or liquidation
preferences, without preference or priority to each other ("Parity
Shares");
(iii) junior to the Series C Preferred Shares, in the payment of
dividends or in the distribution of assets on any liquidation, dissolution
or winding up of the Trust, if such class or series is Junior Shares; and
(iv) junior to the Series C Preferred Shares, in the payment of dividends
and in the distribution of assets on any liquidation, dissolution or
winding up of the Trust, if such class or series is Fully Junior Shares.
(h) Voting.
(i) If and whenever six quarterly dividends (whether or not consecutive)
payable on the Series C Preferred Shares or any Parity Shares are in
arrears (which shall, with respect to any such quarterly dividend, mean
that any such dividend has not been paid in full), whether or not earned or
declared, the number of Trustees then constituting the Board shall be
increased by two, and the holders of Series C Preferred Shares, together
with the holders of any Parity Shares (any such Parity Shares, the "Voting
Preferred Shares"), voting as a single class regardless of class or series,
shall have the right to elect two additional Trustees to serve on the Board
at the next annual meeting of Shareholders or a special meeting held in
lieu thereof, or at a special meeting of the holders of Series C Preferred
Shares and Voting Preferred Shares called as provided hereinafter. Whenever
all dividends in arrears on the Series C Preferred Shares and Voting
Preferred Shares then outstanding have been paid and a sum sufficient for
the payment thereof has been set apart for payment of the dividend for the
current Dividend Period with respect to the Series C Preferred Shares and
the current dividend period with respect to the Voting Preferred Shares,
then the right of the holders of Series C Preferred Shares and Voting
Preferred Shares to elect such additional two Trustees
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shall cease (but subject always to the same provision for the vesting of
such voting rights in the case of any similar future arrearages in six
quarterly dividends), and the terms of office of all persons elected as
Trustees by the holders of Series C Preferred Shares and Voting Preferred
Shares shall immediately terminate and the number of Trustees constituting
the Board shall be reduced accordingly. At any time after such voting
rights have so vested in the holders of Series C Preferred Shares and
Voting Preferred Shares, the Secretary of the Trust may, and upon the
written request of any holder of Series C Preferred Shares (addressed to
the Secretary at the principal office of the Trust) shall, call a special
meeting of the holders of Series C Preferred Shares and Voting Preferred
Shares for the election of the two Trustees to be elected by them as
provided herein, such call to be made by notice similar to that provided in
the Bylaws of the Trust for a special meeting of the Shareholders or as
required by law. If any such special meeting required to be called as
provided above is not called by the Secretary within 20 days after receipt
of any such request, then any holder of Series C Preferred Shares may call
such meeting, upon the notice provided above, and for such purpose shall
have access to the Share records of the Trust. The Trustees elected at any
such special meeting shall hold office until the next annual meeting of the
Shareholders or special meeting held in lieu thereof if the term of such
Trustees has not previously terminated as provided above. If any vacancy
occurs among the Trustees elected by the holders of Series C Preferred
Shares and Voting Preferred Shares, a successor shall be elected by the
Board, upon the nomination of the then remaining Trustee elected by the
holders of Series C Preferred Shares and Voting Preferred Shares or the
successor of such remaining Trustee, to serve until the next annual meeting
of the Shareholders or special meeting held in lieu thereof if the term of
such Trustees has not previously terminated as provided above.
Notwithstanding any other provisions of this subsection (h), in any vote
for the election of additional Trustees hereunder, any Series C Preferred
Shares and Voting Preferred Shares beneficially owned by Security Capital
Group, any of its direct or indirect subsidiaries, and any of their
respective directors, trustees, officers or controlling stockholders
(together, the "Restricted Parties"), shall be voted in the same respective
percentages as the Series C Preferred Shares and Voting Preferred Shares
which are not beneficially owned by the Restricted Parties. The provisions
in the preceding sentence shall cease and be of no further force and effect
from and after such time, but only for so long as, the Restricted Parties
together no longer beneficially own in excess of ten percent of the Trust's
outstanding Common Shares.
(ii) So long as any Series C Preferred Shares are outstanding, in
addition to any other vote or consent of Shareholders required by this
Declaration of Trust, the affirmative vote of at least two-thirds of the
votes entitled to be cast by the holders of Series C Preferred Shares and
Voting Preferred Shares similarly affected, at the time outstanding, voting
as a single class regardless of class or series, given in person or by
proxy, either in writing without a meeting or by vote at any meeting called
for such purpose, shall be necessary for effecting or validating:
(A) any amendment, alteration or repeal of any of the provisions of
this Declaration of Trust which materially and adversely affects the
voting powers, rights or preferences of the holders of Series C
Preferred Shares or Voting Preferred Shares; provided, however, that
the amendment of the provisions of this Declaration of Trust so as to
authorize or create or to increase the authorized amount of, any Fully
Junior Shares, any Junior Shares which do not rank senior to the Series
C Preferred Shares in any respect, or any Parity Shares shall not be
deemed to materially and adversely affect the voting powers, rights or
preferences of the holders of Series C Preferred Shares or Voting
Preferred Shares, and provided, further, that, if any such amendment,
alteration or repeal would materially and adversely affect any voting
powers, rights or preferences of the holders of Series C Preferred
Shares or another series of Voting Preferred Shares which are not
enjoyed by the holders of some or all of the other series otherwise
entitled to vote in accordance herewith, the affirmative vote of at
least two-thirds of the votes entitled to be cast by the holders of all
series similarly affected, similarly given, shall be required in lieu
of the affirmative vote of at least two-thirds of the votes entitled to
be cast by the holders of Series C Preferred Shares and Voting
Preferred Shares otherwise entitled to vote in accordance herewith; or
(B) a share exchange which affects the Series C Preferred Shares, a
consolidation with or merger of the Trust into another entity, or a
consolidation with or merger of another entity into the Trust,
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unless in each such case each Series C Preferred Share (A) remains
outstanding without a material and adverse change to its terms and
rights or (B) is converted into or exchanged for preferred stock of the
surviving entity having preferences, rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption identical to those of a Series C Preferred
Share (except for changes which do not materially and adversely affect
the holders of Series C Preferred Shares); or
(C) the authorization, reclassification or creation of, or the
increase in the authorized amount of, Shares of any class, or
securities convertible into Shares of any class, ranking senior to the
Series C Preferred Shares in the payment of dividends or in the
distribution of assets on any liquidation, dissolution or winding up of
the Trust;
provided, however, that no such vote of the holders of Series C Preferred
Shares shall be required if, at or prior to the time when such amendment,
alteration or repeal is to take effect, or when the issuance of any such
senior Shares or convertible security is to be made, as the case may be,
provision is made for the redemption of all Series C Preferred Shares at
the time outstanding.
(iii) For purposes of the foregoing provisions of this subsection (h),
each Series C Preferred Share shall have one vote per Share, except that
when any other series of preferred Shares has the right to vote with the
Series C Preferred Shares as a single class on any matter, then the Series
C Preferred Shares and such other series shall have with respect to such
matters one vote per $25.00 of stated liquidation preference. Except as
otherwise set forth herein, the Series C Preferred Shares shall not have
any relative, participating, optional or other special voting rights and
powers other than as set forth herein, and the consent of the holders
thereof shall not be required for the taking of any Trust action.
(i) Limitation on Ownership.
(i) Notwithstanding any other provision of the terms of the Series C
Preferred Shares, except as provided in the next sentence and in subsection
(i)(ii) of this Section 4, no Person, or Persons acting as a group, shall
at any time directly or indirectly acquire ownership of more than 25% of
the outstanding Series C Preferred Shares. Any Series C Preferred Shares
owned by a Person or Persons acting as a group in excess of such 25% shall
be deemed "Excess Preferred Shares," except that any such Series C
Preferred Shares in excess of such 25% will not be considered Excess
Preferred Shares if such 25% is exceeded solely as a result of the Trust's
redemption of Series C Preferred Shares, provided that thereafter any
additional Series C Preferred Shares acquired by such Person or Persons
shall be considered Excess Preferred Shares. Within 10 days of becoming
aware of the existence of Excess Preferred Shares (whether by notice on
Schedule 13D or otherwise), the Trust shall redeem any and all Excess
Preferred Shares by giving notice of redemption to the holder or holders
thereof, unless prior to the giving of such notice the holders have
disposed of such Excess Preferred Shares. Such notice shall set forth the
number of Series C Preferred Shares constituting Excess Preferred Shares,
the redemption price and the place or places at which certificates
representing such Excess Preferred Shares are to be surrendered and such
notice shall set forth the matters described in the following sentence.
From and after the date of giving such notice of redemption, the Series C
Preferred Shares so called for redemption shall cease to be outstanding and
the holders thereof shall cease to be entitled to dividends (other than
dividends authorized or declared but unpaid prior to the notice of
redemption), voting rights and other benefits with respect to such Series C
Preferred Shares except for the right to payment of the redemption price
determined and payable as set forth in the next two sentences. Subject to
the limitation on payment set forth in the following sentence, the
redemption price of each Excess Preferred Share called for redemption shall
be the average daily per Series C Preferred Share closing sales price, if
the Series C Preferred Shares are listed on a national securities exchange
or are reported on the NASDAQ National Market System, and if the Series C
Preferred Shares are not so listed or reported, shall be the mean between
the average per Series C Preferred Share closing bid prices and the average
per Series C Preferred Share closing asked prices, in each case during the
30-day period ending on the business day prior to the redemption date, or
if there have been no sales on a national securities exchange or the NASDAQ
National Market System and no published bid quotations and no published
asked quotations with respect to Series C Preferred Shares during such 30-
day period, the redemption price shall
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be the price determined by the Board in good faith. Unless the Board
determines that it is in the best interests of the Trust to make earlier
payment of all of the amount determined as the redemption price per Series
C Preferred Share in accordance with the preceding sentence, the redemption
price may be payable, at the option of the Board, at any time or times up
to, but not later than, the earlier of (i) five years after the redemption
date or (ii) the liquidation of the Trust, in which latter event the
redemption price shall not exceed an amount which is equal to the sum of
the per Series C Preferred Share distributions designated as liquidating
distributions and return of capital distributions declared with respect to
unredeemed Series C Preferred Shares with record dates subsequent to the
redemption date; and in any event, no interest shall accrue with respect to
the period subsequent to the redemption date to the date of such payment.
Nothing in this subsection (i)(i) shall preclude the settlement of any
transaction entered into through the facilities of the NYSE.
(ii) The limitation on ownership set forth in subsection (i)(i) of this
Section 4 shall not apply to the acquisition of Series C Preferred Shares
by an underwriter in a public offering of Series C Preferred Shares and
shall not apply to the ownership of Series C Preferred Shares by a managing
underwriter in the initial public offering of Series C Preferred Shares.
The Board, in its sole and absolute discretion, may exempt from the
ownership limitation set forth in subsection (i)(i) of this Section 4
certain designated Series C Preferred Shares owned by a person (other than
any of the Restricted Parties) who has provided the Board with evidence and
assurances acceptable to the Board that the qualification of the Trust as a
REIT would not be jeopardized thereby.
(iii) Each certificate for Series C Preferred Shares shall bear a legend
stating that the Trust will furnish information about the foregoing
restrictions to any holder of Series C Preferred Shares on request and
without charge.
(j) Record Holders. The Trust and the Transfer Agent may deem and treat the
record holder of any Series C Preferred Shares as the true and lawful owner
thereof for all purposes, and neither the Trust nor the Transfer Agent shall
be affected by any notice to the contrary.
(k) Sinking Fund. The Series C Preferred Shares shall not be entitled to the
benefit of any retirement or sinking fund.
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ANNEX III
[To be filed by Amendment]
<PAGE>
ANNEX IV
[To be filed by amendment]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 4, Section 13 of the Registrant's Declaration of Trust provides as
follows with respect to indemnification of Trustees:
"The Trust shall indemnify and hold harmless each Trustee from and
against all claims and liabilities, whether they proceed to judgment or are
settled, to which such Trustee may become subject by reason of his being or
having been a Trustee, or by reason of any action alleged to have been
taken or omitted by him as Trustee, and shall reimburse him for all legal
and other expenses reasonably incurred by him in connection with any such
claim or liability, including any claim or liability arising under the
provisions of federal or state securities laws; provided, however, that no
Trustee shall be indemnified or reimbursed under the foregoing provisions
in relation to any matter unless it shall have been adjudicated that his
action or omission did not constitute willful misfeasance, bad faith or
gross negligence in the conduct of his duties, or, unless, in the absence
of such an adjudication, the Trust shall have received a written opinion
from independent counsel, approved by the Trustees, to the effect that if
the matter of willful misfeasance, bad faith or gross negligence in the
conduct of duties had been adjudicated, it would have been adjudicated in
favor of such Trustee. The rights accruing to a Trustee under these
provisions shall not exclude any other right to which he may be lawfully
entitled, nor shall anything herein contained restrict the right of the
Trust to indemnify or reimburse such Trustee in any proper cause even
though not specifically provided for herein."
Article 8, Section 1 of the Registrant's Declaration of Trust provides as
follows with respect to the limitation of liability for Trustees and officers
and indemnification:
"A Trustee or officer of the Trust shall not be liable for monetary
damages to the Trust or its shareholders for any act or omission in the
performance of his duties unless:
(1) The Trustee or officer actually received an improper benefit in
money, property or services (in which case, such liability shall be for
the amount of the benefit in money, property or services actually
received);
(2) The Trustee's or officer's action or failure to act was the
result of active and deliberate dishonesty and was material to the
cause of action being adjudicated;
(3) The Trustee's or officer's action or failure to act constitutes
willful misconduct or deliberate recklessness; or
(4) Such liability to the Trust is specifically imposed upon Trustees
or officers by statute."
Article 8, Section 6 of the Registrant's Declaration of Trust provides as
follows with respect to the indemnification of Trustees and officers:
"Notwithstanding any other provisions of this Restated Declaration of
Trust, the Trust, for the purpose of providing indemnification for its
Trustees and officers, shall have the authority, without specific
shareholder approval, to enter into insurance or other arrangements, with
persons or entities which are not regularly engaged in the business of
providing insurance coverage, to indemnify all Trustees and officers of the
Trust against any and all liabilities and expenses incurred by them by
reason of their being Trustees or officers of the Trust, whether or not the
Trust would otherwise have the power under this Restated Declaration of
Trust or under Maryland law to indemnify such persons against such
liability. Without limiting the power of the Trust to procure or maintain
any kind of insurance or other arrangement, the Trust may, for the benefit
of persons indemnified by it, (i) create a trust fund, (ii) establish any
form of self-insurance, (iii) secure its indemnity obligation by grant of
any security interest or other lien on the assets of the corporation, or
(iv) establish a letter of credit, guaranty or surety arrangement. Any such
insurance or
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other arrangement may be procured, maintained or established within the
Trust or with any insurer or other person deemed appropriate by the Board
of Trustees regardless of whether all or part of the stock or other
securities thereof are owned in whole or in part by the Trust. In the
absence of fraud, the judgment of the Board of Trustees as to the terms and
conditions of insurance or other arrangement and the identity of the
insurer or other person participating in any arrangement shall be
conclusive, and such insurance or other arrangement shall not be subject to
voidability, nor subject, the Trustees approving such insurance or other
arrangement to liability, on any ground, regardless of whether Trustees
participating and approving such insurance or other arrangement shall be
beneficiaries thereof."
Article 4, Section 11 of the Registrant's Declaration of Trust provides as
follows with respect to the limitation of liability for Trustees:
"The Trustees shall have no rights of indemnity or exoneration against
any Shareholder individually with respect to any liability or obligation of
the Trust; but, as hereinafter provided the Trustees may satisfy any claims
they have against the Trust out of the Trust assets. No Trustee shall be
liable for any act or neglect of any person or firm with respect to the
performance of any duty, service or act which has been delegated to such
person or firm by the Trustees pursuant to authority contained in these
Trust Articles; the Trustees shall, however, use good faith in selecting
and appointing agents or representatives to whom authority to act on behalf
of the Trust is delegated. No Trustee shall be individually liable for any
obligation or liability incurred by or on behalf of the Trust or by the
Trustees for the benefit and on behalf of the Trust."
The Registrant has entered into indemnity agreements with each of its
officers and Trustees which provide for reimbursement of all expenses and
liabilities of such officer or Trustee, arising out of any lawsuit or claim
against such officer or Trustee due to the fact that he was or is serving as
an officer or Trustee, except for such liabilities and expenses (a) the
payment of which is judicially determined to be unlawful, (b) relating to
claims under Section 16(b) of the Securities Exchange Act of 1934 or (c)
relating to judicially determined criminal violations.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS.
(a) Refer to Index to Exhibits.
(b) Refer to Index to Financial Statements included as part of the
Prospectus.
(c) Refer to Annex I and Annex II to the Prospectus.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes: (1) to file, during any period
in which offers or sales are being made, a post-effective amendment to this
registration statement: (i) to include any prospectus required by section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereto) which, individually or
in the aggregate, represent a fundamental change in the information set forth
in the registration statement; notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective registration
statement; (iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; (2) that,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
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bona fide offering thereof; and (3) to remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of any
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities being offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
The registrant undertakes that every prospectus: (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a trustee, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such trustee, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
ENGLEWOOD, STATE OF COLORADO ON THE 27TH DAY OF APRIL, 1998.
Security Capital Pacific Trust
/s/ R. Scot Sellers
By: _________________________________
R. SCOT SELLERSPRESIDENT AND CHIEF
EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints R. Scot Sellers, Charles E. Mueller, Jr.,
Jeffrey A. Klopf and Mark W. Pearson, and each of them singly, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and any and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform any and
all acts and things requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or his substitute or nominee, may lawfully do or cause
to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ C. Ronald Blankenship Chairman of the April 27, 1998
- ------------------------------------- Board of Trustees
C. RONALD BLANKENSHIP
/s/ R. Scot Sellers President and Chief April 27, 1998
- ------------------------------------- Executive Officer
R. SCOT SELLERS (principal executive
officer)
/s/ Bryan J. Flanagan Senior Vice April 27, 1998
- ------------------------------------- President
BRYAN J. FLANAGAN (principal
financial officer)
/s/ Ash K. Atwood Vice President and April 27, 1998
- ------------------------------------- Co-Controller
ASH K. ATWOOD (principal
accounting officer)
II-4
<PAGE>
SIGNATURE TITLE DATE
/s/ James A. Cardwell Trustee April 27, 1998
- -------------------------------------
JAMES A. CARDWELL
/s/ John T. Kelley, III Trustee April 27, 1998
- -------------------------------------
JOHN T. KELLEY, III
Trustee April , 1998
- -------------------------------------
CALVIN K. KESSLER
/s/ William G. Myers Trustee April 27, 1998
- -------------------------------------
WILLIAM G. MYERS
/s/ James H. Polk, III Trustee April 27, 1998
- -------------------------------------
JAMES H. POLK, III
/s/ John C. Schweitzer Trustee April 27, 1998
- -------------------------------------
JOHN C. SCHWEITZER
II-5
<PAGE>
INDEX TO EXHIBITS
Certain of the following documents are filed herewith. Certain other of the
following documents have been previously filed with the Securities and
Exchange Commission and, pursuant to Rule 12b-32, are incorporated herein by
reference.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated April 1, 1998, between Security
Capital Pacific Trust ("PTR") and Security Capital Atlantic
Incorporated ("ATLANTIC") (incorporated by reference to Exhibit 2.1
to PTR's Form 8-K dated April 1, 1998)
2.2+ Form of Articles of Merger
4.1 Form of Amended and Restated Declaration of Trust of PTR (included as
Annex II to the Joint Proxy Statement and Prospectus included in this
Registration Statement)
4.2+ Form of Amended and Restated Bylaws of PTR
5.1+ Opinion of Mayer, Brown & Platt regarding legality of shares
8.1+ Opinion of Mayer, Brown & Platt regarding certain tax matters
10.1 Shareholder Voting Agreement, dated as of April 1, 1998, by and among
Security Capital, ATLANTIC and PTR (incorporated by reference to
Exhibit 99.1 to PTR's Form 8-K dated April 1, 1998)
10.2+ Form of Amendment No. 1 to PTR 1997 Long-Term Incentive Plan
10.3+ Form of Amendment to the 1996 Share Option Plan for Outside Trustees
12.1 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Share Dividends
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Ernst & Young LLP
23.3+ Consent of Mayer, Brown & Platt (included in Exhibits 5.1 and 8.1)
24 Power of Attorney (included at page II-4)
99.1 PTR Form of Proxy
99.2 ATLANTIC Form of Proxy
</TABLE>
- --------
+ To be filed by amendment
<PAGE>
EXHIBIT 12.1
SECURITY CAPITAL PACIFIC TRUST
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
PTR Historical
-----------------------------------------------------
Archstone PTR Twelve months ended December 31,
Pro Forma Pro Forma -----------------------------------------------------
1997(1) 1997(1) 1997(1) 1996 1995 1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings from operations... $ 81,520 $27,166 $24,686 $ 94,089 $ 81,696 $46,719 $23,191 $ 9,037
Add:
Interest Expense......... 88,847 62,704 61,153 35,288 19,584 19,442 3,923 3,214
---------------------------------------------------------------------------
Earnings as adjusted....... $170,367 $89,870 $85,839 $129,377 $101,280 $66,161 $27,114 $12,251
===========================================================================
Combined fixed charges
and preferred share
dividends:
Interest expense......... $ 88,847 $62,704 $61,153 $ 35,288 $ 19,584 $19,442 $ 3,923 $ 3,214
Capitalized interest..... 17,606 17,606 17,606 16,941 11,741 6,029 2,818 989
---------------------------------------------------------------------------
Total fixed charges... 106,453 80,310 78,759 52,229 31,525 25,471 6,741 4,203
Preferred share dividends.. 21,022 19,384 19,384 24,167 21,823 16,100 1,341 --
---------------------------------------------------------------------------
Combined fixed charges and
preferred charges.......... $127,475 $99,694 $98,143 $ 76,396 $ 53,148 $41,571 $ 8,082 $ 4,203
===========================================================================
Ratio of earnings to
combined fixed charges and
preferred share dividends.. 1.3 0.9 0.9 1.7 1.9 1.6 3.4 2.9
===========================================================================
</TABLE>
(1) Earnings from operations for 1997 includes a one-time, non-cash charge of
$71.7 million associated with costs incurred in acquiring the management
companies from an affiliate. Accordingly, earnings from operations were
insufficient to cover combined fixed charges and preferred share dividends
by $12.3 million. Excluding this charge, the ratio of earnings to combined
fixed charges and preferred share dividends for the year ended December 31,
1997 for Archstone Pro Forma, PTR Pro Forma, and PTR Historical would be
1.9, 1.6 and 1.6, respectively.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees of
Security Capital Pacific Trust:
We consent to the incorporation by reference in this Registration Statement
on Form S-4 of Security Capital Pacific Trust and in the registration statement
on Form S-3 (No. 333-38477), the registration statement on Form S-8 (No. 333-
31419), and the registration statement on Form S-8 (No. 333-25993) of Security
Capital Atlantic Incorporated of our report dated January 31, 1998, except as to
Note 13 which is as of March 6, 1998, relating to the balance sheets of Security
Capital Pacific Trust as of December 31, 1997 and 1996, the related statements
of earnings, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1997, and the related schedule as of
December 31, 1997, which report appears in the December 31, 1997 annual report
on Form 10-K of Security Capital Pacific Trust, and to the reference to our firm
under the heading "Independent Public Accountants and Experts" in the
Registration Statement.
KPMG Peat Marwick LLP
Chicago, Illinois
April 24, 1998
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Public
Accountants and Experts" in the Registration Statement on Form S-4 of Security
Capital Pacific Trust and related Prospectus and Joint Proxy Statement of
Security Capital Pacific Trust (PTR) and Security Capital Atlantic Incorporated
(ATLANTIC) and to the incorporation by reference therein and in the registration
statements on Form S-3 (No. 333-44639, 333-42283 and 333-24035) and in the
registration statements on Form S-8 (No. 333-31031, 333-31033, and 333-31404) of
PTR of our report dated January 27, 1998, with respect to the financial
statements and schedule of ATLANTIC included in ATLANTIC's Annual Report (Form
10K) for the year ended December 31, 1997, and of our report dated December 31,
1997, with respect to the combined Historical Summary of Gross Income and Direct
Operating Expenses of the Group F Communities and our report dated April 7,
1998, with respect to the Historical Summary of Gross Income and Direct
Operating Expenses of the Arbor Green Community, both of which are included in
ATLANTIC's Report on Form 8-K dated April 24, 1998 filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
Dallas, Texas
April 24, 1998
<PAGE>
EXHIBIT 99.1
FORM OF PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
OF SECURITY CAPITAL PACIFIC TRUST
The undersigned shareholder of Security Capital Pacific Trust, a Maryland
real estate investment trust ("PTR"), hereby appoints R. Scot Sellers, Charles
E. Mueller, Jr. and Jeffrey A. Klopf, and each of them, as proxy for the
undersigned, with full power of substitution, to attend the Special Meeting of
Shareholders of PTR to be held on , 1998, at a.m., mountain time, at
and at any adjournment(s) or postponement(s) thereof, and to vote and
otherwise represent all the shares that the undersigned is entitled to vote
with the same effect as if the undersigned were present and voting such
shares, on the following matters and in the following manner as further
described in the accompanying Joint Proxy Statement and Prospectus. The
undersigned hereby revokes any proxy previously given with respect to such
shares.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Shareholders and the accompanying Joint Proxy Statement and Prospectus.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF THIS PROXY IS EXECUTED BUT NO SPECIFICATION IS MADE,
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED "FOR" ITEMS 1, 2 AND 3
BELOW, AND IN THE DISCRETION OF THE PROXY HOLDERS ON ANY OTHER MATTER THAT MAY
PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT(S) OR POSTPONEMENT(S)
THEREOF.
1. The approval and adoption of the Merger Agreement, dated as of April 1,
1998, between PTR and Security Capital Atlantic Incorporated, and the
transactions contemplated thereby.
[_] FOR [_] AGAINST [_] ABSTAIN
2. The approval and adoption of the Amended and Restated Declaration of Trust.
[_] FOR [_] AGAINST [_] ABSTAIN
3. The approval of the amendment to the Security Capital Pacific Trust 1997
Long-Term Incentive Plan and the amendment to the Security Capital Pacific
Trust 1996 Share Option Plan for Outside Trustees.
[_] FOR [_] AGAINST [_] ABSTAIN
4. To vote and otherwise represent the shares on any other matter which may
properly come before the meeting or any adjournment(s) or postponement(s)
thereof in their discretion.
[_] MARK HERE IF YOU PLAN TO ATTEND
THE MEETING
Please sign exactly as name appears
hereon and date. If the shares are
held jointly, each holder should
sign. When signing as an attorney,
executor, administrator, trustee,
guardian or as an officer signing
for a corporation, please give the
full title under signature.
_____________________________________
Signature
_____________________________________
Signature, if held jointly
Dated: , 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
[INSERT PTR LOGO]
ANNUAL MEETING
OF SHAREHOLDERS
ADMISSION TICKET
[INSERT RECORDHOLDER INFORMATION] , , 1998
10:00 a.m. (mountain time)
[ADDRESS]
Please present this ticket for admittance of shareholder(s) named above and
guest.
<PAGE>
EXHIBIT 99.2
FORM OF PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SECURITY CAPITAL ATLANTIC INCORPORATED
The undersigned shareholder of Security Capital Atlantic Incorporated, a
Maryland corporation ("ATLANTIC"), hereby appoints Constance B. Moore, William
Kell and Jeffrey A. Klopf, and each of them, as proxy for the undersigned,
with full power of substitution, to attend the Special Meeting of Shareholders
of ATLANTIC to be held on , 1998, at a.m., eastern time, at and at
any adjournment(s) or postponement(s) thereof, and to vote and otherwise
represent all the shares that the undersigned is entitled to vote with the
same effect as if the undersigned were present and voting such shares, on the
following matters and in the following manner as further described in the
accompanying Joint Proxy Statement and Prospectus. The undersigned hereby
revokes any proxy previously given with respect to such shares.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
shareholders and the accompanying Joint Proxy Statement and Prospectus.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF THIS PROXY IS EXECUTED BUT NO SPECIFICATION IS MADE,
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED "FOR" ITEM 1 BELOW, AND IN
THE DISCRETION OF THE PROXY HOLDERS ON ANY OTHER MATTER THAT MAY PROPERLY COME
BEFORE THE MEETING OR ANY ADJOURNMENT(S) OR POSTPONEMENT(S) THEREOF.
1. The approval and adoption of the Merger Agreement, dated as of April 1,
1998, between ATLANTIC and Security Capital Pacific Trust and the
transactions contemplated thereby.
[_] FOR [_] AGAINST [_] ABSTAIN
2. To vote and otherwise represent the shares on any other matter which may
properly come before the meeting or any adjournment(s) or postponement(s)
thereof in their discretion.
[_]MARK HERE IF YOU PLAN TO ATTEND
THE MEETING
PLEASE SIGN EXACTLY AS NAME APPEARS
HEREON AND DATE. IF THE SHARES ARE
HELD JOINTLY, EACH HOLDER SHOULD
SIGN. WHEN SIGNING AS AN ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE,
GUARDIAN OR AS AN OFFICER SIGNING
FOR A CORPORATION, PLEASE GIVE THE
FULL TITLE UNDER SIGNATURE.
-------------------------------------
SIGNATURE
-------------------------------------
SIGNATURE, IF HELD JOINTLY
DATED: , 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
[INSERT ATLANTIC LOGO] ANNUAL MEETING
OF SHAREHOLDERS
ADMISSION TICKET , , 1998
[INSERT RECORDHOLDER INFORMATION] 10:00 A.M. (EASTERN TIME)
[ADDRESS]
PLEASE PRESENT THIS TICKET FOR ADMITTANCE OF SHAREHOLDER(S) NAMED ABOVE AND
GUEST.
