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As filed with the Securities and Exchange Commission on June 8, 1999
Registration No. 333-77387
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ARCHSTONE COMMUNITIES TRUST
(Exact Name of Registrant as Specified in Its Charter)
Maryland 74-6056896
(State of Organization) (I.R.S. Employer Identification Number)
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7670 South Chester Street Jeffrey A. Klopf, Secretary Copy of Service to:
Englewood, Colorado 80112 Archstone Communities Trust Michael T. Blair
(303) 708-5959 7670 South Chester Street Mayer, Brown & Platt
(Address, Including Zip Code, and Englewood, Colorado 80112 190 South LaSalle Street
Telephone Number, Including (303) 708-5959 Chicago, Illinois 60603
Area Code, of Registrant's (Name, Address, Including Zip (312) 782-0600
Principal Executive Offices) Code, and Telephone Number,
Including Area Code, of Agent for
Service)
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Approximate date of commencement of proposed sale to the public: From time
to time after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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 Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 8, 1999
PROSPECTUS
- ----------
ARCHSTONE COMMUNITIES TRUST
908,927 Common Shares
We may issue up to 908,927 common shares to the limited partners of
Atlantic Multifamily Limited Partnership-I upon exchange of their units of
partnership interest in that partnership. Those limited partners may then offer
to resell those common shares. We are registering the common shares so that the
limited partners who may be affiliates of Archstone may resell those common
shares from time to time, but the registration of the common shares does not
necessarily mean that those limited partners will offer or sell any of the
common shares.
The limited partners may from time to time offer and sell the common shares
on the NYSE or otherwise and they may sell the common shares at market prices or
at negotiated prices. They may sell the common shares in ordinary brokerage
transactions, in block transactions, in privately negotiated transactions,
pursuant to Rule 144 under the Securities Act of 1933 or otherwise. If the
limited partners sell the common shares through brokers, they expect to pay
customary brokerage commissions and charges.
We will not receive any additional cash consideration when we issue common
shares to the limited partners upon exchange of their units of partnership
interest. Also, we will not receive any of the proceeds when the limited
partners sell any of those common shares. However, we have agreed to pay certain
expenses of the registration and sale of the common shares.
Our common shares are listed on the New York Stock Exchange under the
symbol "ASN". On June 7, 1999, the last reported sale price of our common shares
on the NYSE was $22 3/4 per share.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED ON THE ADEQUACY OR ACCURACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is June __, 1999
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
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We have not authorized any person to give any information or to make any
representation not contained in this prospectus in connection with any offering
of these common shares. This prospectus is not an offer to sell any security
other than these common shares and it is not soliciting an offer to buy any
security other than these common shares. This prospectus is not an offer to sell
these common shares to any person and it is not soliciting an offer from any
person to buy these common shares in any jurisdiction where the offer or sale to
that person is not permitted. You should not assume that the information
contained in this prospectus is correct on any date after the date of this
prospectus, even though this prospectus is delivered or these common shares are
offered or sold on a later date.
TABLE OF CONTENTS
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Page
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Archstone.................................................................. 3
Use of proceeds............................................................ 3
Description of common shares............................................... 4
Description of provisions of Maryland law and of
Archstone's declaration of trust and bylaws............................... 8
Description of units....................................................... 11
Exchange of units.......................................................... 16
Registration rights........................................................ 18
Comparison of ownership of units and common shares......................... 19
Federal income tax considerations.......................................... 31
Selling shareholders....................................................... 40
Plan of distribution....................................................... 40
Experts.................................................................... 41
Legal matters.............................................................. 41
Where you can find more information........................................ 42
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ARCHSTONE
In July 1998, Security Capital Atlantic Incorporated was merged with and
into Security Capital Pacific Trust. The combined company has continued its
existence under the name Archstone Communities Trust. Archstone (NYSE: ASN) is a
leading real estate operating company, focused on the development,
redevelopment, acquisition, operation and ownership of apartment communities in
markets and sub-markets with high barriers to entry throughout the United
States. Archstone's principal focus is to generate long-term sustainable growth
in cash flow from operations in order to maximize shareholder value. In
addition, Archstone expects to create significant value by building a well-known
brand image and reputation for quality around its products and services. The
foundation for Archstone's growth strategy is its commitment to fundamental real
estate and customer research, allowing Archstone to deploy its capital into
markets, products and new business opportunities which it believes have the
greatest potential for long-term cash flow growth.
Archstone was formed in 1963 and is organized as a real estate investment
trust under the laws of Maryland. Its principal executive offices are located at
7670 South Chester Street, Englewood, Colorado 80112, and its telephone number
is (303) 708-5959.
USE OF PROCEEDS
Archstone will not receive any additional consideration when it issues its
common shares to the limited partners of Atlantic Multifamily Limited
Partnership-I upon exchange of their units of partnership interest in the
partnership. Also, Archstone will not receive any of the proceeds from the sale
of any of the common shares by the limited partners. The limited partners will
receive all proceeds from the sale of the common shares.
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DESCRIPTION OF COMMON SHARES
General
Archstone's declaration of trust authorizes Archstone to issue up to
250,000,000 shares of beneficial interest, par value $1.00 per share, consisting
of common shares, preferred shares and such other types or classes of shares of
beneficial interest as Archstone's board of trustees may create and authorize
from time to time. Archstone's board of trustees may amend Archstone's
declaration of trust without shareholder consent to increase or decrease the
aggregate number of shares or the shares of any class which Archstone has
authority to issue. At June 7, 1999, 138,987,757 common shares were issued and
outstanding and held of record by approximately 3,100 shareholders.
The following description of certain general terms and provisions of the
common shares is not complete and you should refer to Archstone's declaration of
trust and bylaws for more information.
The outstanding common shares are fully paid and, except as described below
under "--Shareholder liability," non-assessable. Each common share entitles the
holder to one vote on all matters requiring a vote of shareholders, including
the election of trustees. Holders of 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 common shares can elect all of the trustees
then standing for election. Holders of common shares are entitled to such
distributions as Archstone's board of trustees may declare from time to time out
of funds legally available for the payment of distributions. Holders of common
shares have no conversion, redemption, preemptive or exchange rights to
subscribe to any securities of Archstone. If there is a liquidation, dissolution
or winding up of Archstone's affairs, the holders of the common shares are
entitled to share equally in Archstone's assets remaining after Archstone pays
or sets aside assets to pay all liabilities to its creditors and subject to the
rights of the holders of Archstone's preferred shares.
Purchase rights
On July 11, 1994, Archstone's board of trustees declared a dividend of one
preferred share purchase right for each common share outstanding, which was made
to holders of common shares of record at the close of business on July 21, 1994.
The holders of any additional common shares issued after that date and before
the redemption or expiration of the preferred share purchase rights also receive
one preferred share purchase right for each additional common share. Each
preferred share purchase right entitles the holder under certain circumstances
to purchase from Archstone one one-hundredth of a share of a series of
participating preferred shares, par value $1.00 per share, at a price of $60.00
per one one-hundredth of a participating preferred share. Archstone will adjust
that price from time to time to prevent dilution. Preferred share purchase
rights will be exercisable if a person or group of persons acquires 20% or more
of the outstanding common shares, or 49% in the case of Security Capital Group
Incorporated and its affiliates, or announces a tender offer or exchange offer
for 25% or more of the outstanding common shares. Under certain circumstances,
each preferred share purchase right will entitle the holder to purchase, at the
preferred share purchase right's then current exercise price, a number of common
shares having a market value at the time equal to twice the preferred share
purchase right's exercise price. If another company acquires Archstone in a
merger or other business transaction, each holder will have the right to
purchase, at the preferred share 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
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the preferred share purchase right's exercise price. The preferred share
purchase rights held by certain 20% shareholders, other than Security Capital
Group, would not be exercisable. The preferred share purchase rights will expire
on July 21, 2004 and Archstone may redeem them in whole, but not in part, at a
price of $.01 per preferred share purchase right payable in cash, shares of
Archstone or any other form of consideration determined by Archstone's board of
trustees.
Transfer agent
The transfer agent and registrar for the common shares is ChaseMellon
Shareholder Services, L.L.C. The common shares are listed on the New York Stock
Exchange under the symbol "ASN."
Restrictions on size of holdings of shares
For Archstone to qualify as a REIT under the Internal Revenue Code of 1986,
no more than 50% in value of Archstone's shares, after taking into account
options to acquire shares, may be owned, directly or indirectly, by five or
fewer individuals during the last half of each taxable year or during a
proportionate part of any short taxable year. "Individuals" are defined in the
Internal Revenue Code to include certain entities and constructive ownership
among specified family members. Archstone's shares must also be beneficially
owned by 100 or more persons during at least 335 days of each taxable year or
during a proportionate part of any short taxable year.
Archstone's declaration of trust prohibits any shareholder from owning, or
being deemed to own by virtue of the attribution provisions of the Internal
Revenue Code or Section 13(d) of the Securities Exchange Act of 1934, more than
9.8% in number of shares or value of Archstone's outstanding shares. Archstone's
board of trustees, upon receipt of a ruling from the Internal Revenue Service or
an opinion of counsel or other evidence satisfactory to Archstone's board of
trustees and upon such other conditions as Archstone's board of trustees may
direct, may exempt a proposed transferee from the ownership limit. The proposed
transferee must give written notice to Archstone of the proposed transfer at
least 30 days prior to any transfer which, if consummated, would result in the
proposed transferee owning Archstone's shares in excess of the ownership limit.
Archstone's board of trustees may require such opinions of counsel, affidavits,
undertakings or agreements as it determines to be necessary or advisable in
order to determine or ensure Archstone's status as a REIT. Any transfer of
Archstone's shares that would:
(1) create a direct or indirect ownership of shares in excess of the
ownership limit;
(2) result in Archstone'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 Internal Revenue Code; or
(3) result in Archstone being "closely held" within the meaning of Section
856(h) of the Internal Revenue Code will not have any effect, and the
intended transferee will acquire no rights to the shares.
These restrictions on transferability and ownership will not apply if
Archstone's board of trustees determines that it is no longer in the best
interests of Archstone to attempt to qualify, or to continue to qualify, as a
REIT. Archstone's declaration of trust excludes Security Capital Group and its
affiliates
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from these restrictions to the extent that Security Capital Group beneficially
owns 49% or less of Archstone's outstanding shares.
If there is any purported transfer of Archstone's shares which would result
in a person owning Archstone's shares in excess of the ownership limit or would
cause Archstone to become "closely held" under Section 856(h) of the Internal
Revenue Code, those shares will constitute "excess shares." These excess shares
will be transferred pursuant to Archstone's declaration of trust to a party not
affiliated with Archstone designated by Archstone 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 Internal Revenue Code and identified by
Archstone's board of trustees as the charitable beneficiary or beneficiaries of
the trust, 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, Archstone will pay any distributions on the
excess shares to the trust for the benefit of the charitable beneficiary and the
excess shares may only be voted by the trustee for the benefit of the charitable
beneficiary. Subject to the ownership limit, the trustee will transfer the
excess shares at the direction of Archstone 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:
(1) the price paid by the purported transferee for the excess shares or,
if no consideration was paid, the fair market value of the excess
shares on the day of the event which caused the excess shares to be
held in trust; and
(2) the price received from the sale or other disposition of the excess
shares.
The trustee will pay any proceeds from the sale or other disposition of the
excess shares in excess of the amount payable to the purported transferee to the
charitable beneficiary. In addition, Archstone will have the right to purchase
the excess shares held in trust for a 90-day period at a purchase price equal to
the lesser of:
(1) the price paid by the purported transferee for the excess shares or,
if no consideration was paid, the fair market value of the excess
shares on the day of the event which caused the excess shares to be
held in trust; and
(2) the fair market value of the excess shares on the date Archstone
elects to purchase them.
Fair market value, for these purposes, means the last reported sales price
on the NYSE on the trading day immediately preceding the relevant date, or if
those shares are 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 on which those shares are then traded. If the
shares aren't then traded on any exchange or quotation system, the fair market
value will be the market price on the relevant date as determined in good faith
by Archstone's board of trustees.
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
benefits with respect to the excess shares except the right to payment on the
transfer of the excess shares as described above. If the purported transferee
receives any distributions on excess
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shares prior to Archstone's discovery that those excess shares have been
transferred in violation of the provisions of Archstone's declaration of trust,
the purported transferee must repay those distributions to Archstone upon
demand, and Archstone will pay those amounts to the trust for the benefit of the
charitable beneficiary. If the restrictions on transferability and ownership are
determined to be void, invalid or unenforceable by any court of competent
jurisdiction, then Archstone may treat the purported transferee of any excess
shares to have acted as an agent on behalf of Archstone in acquiring those
excess shares and to hold those excess shares on behalf of Archstone.
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 Internal Revenue Code, more than 5%, or such other percentage between 0.5%
and 5%, as provided in the rules and regulations of the Internal Revenue Code,
of the number or value of Archstone's outstanding shares must give a written
notice containing certain information to Archstone by January 31 of each year.
In addition, each shareholder is upon demand required to disclose to Archstone
in writing such information with respect to its direct, indirect and
constructive ownership of Archstone's shares as Archstone's board of trustees
deems reasonably necessary to comply with the provisions of the Internal Revenue
Code applicable to a REIT, to determine Archstone's status as a REIT, to comply
with the requirements of any taxing authority or governmental agency or to
determine any such compliance.
The restrictions on share ownership in Archstone's declaration of trust are
designed to protect the REIT status of Archstone. The restrictions could have
the effect of discouraging a takeover or other transaction in which holders of
some, or a majority, of the 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 statutory law governing REITs 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 Maryland statutory law. Under Archstone's declaration
of trust, Archstone is required to indemnify each trustee, officer, employee and
agent to the fullest extent permitted by Maryland law, as amended from time to
time, against 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, officer, employee or agent of Archstone or is or
was serving at the request of Archstone 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 that capacity and to pay or reimburse reasonable expenses,
as those expenses are incurred, of each trustee in connection with any of those
proceedings. Archstone's board of trustees believes that the indemnification
provision enhances Archstone's ability to attract and retain superior trustees
and officers for Archstone and its subsidiaries.
Additionally, Archstone has entered into indemnity agreements with each of
its officers and trustees which provide for reimbursement of all expenses and
liabilities of the officer or trustee, arising out of any lawsuit or claim
against the officer or trustee due to the fact that he was or is serving as an
officer or trustee, except for liabilities and expenses, the payment of which is
judicially determined to
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be unlawful, relating to claims under Section 16(b) of the Securities Exchange
Act of 1934 or relating to judicially determined criminal violations.
Shareholder liability
Both the Maryland statutory law governing REITs and Archstone's declaration
of trust provide that shareholders shall not be personally or individually
liable for any debt, act, omission or obligation of Archstone or Archstone's
board of trustees. Archstone's declaration of trust further provides that
Archstone 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 Archstone 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 the
shareholder gives Archstone prompt notice of any such claim or liability and
permits Archstone to conduct the defense of the claim or liability. In addition,
Archstone is required to, and as a matter or 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 Archstone.
Nevertheless, with respect to tort claims, contractual claims where shareholder
liability is not so negated, claims for taxes and some statutory liabilities,
the shareholders may, in some jurisdictions, be personally liable to the extent
that those claims are not satisfied by Archstone. Inasmuch as Archstone carries
public liability insurance which it considers adequate, any risk of personal
liability to shareholders is limited to situations in which Archstone's assets
plus its insurance coverage would be insufficient to satisfy the claims against
Archstone and its shareholders.
DESCRIPTION OF PROVISIONS OF MARYLAND LAW AND OF
ARCHSTONE'S DECLARATION OF TRUST AND BYLAWS
The following description of some general provisions of Maryland law and of
Archstone's declaration of trust and bylaws is not complete and you should refer
to Maryland law, Archstone's declaration of trust and Archstone's bylaws for
more information.
Board of trustees
Archstone's declaration of trust provides that Archstone's board of
trustees will have not less than three nor more than fifteen trustees, as
determined from time to time by Archstone's board of trustees. The trustees are
divided into three classes. Each trustee will hold office for three years and
until his or her successor is duly elected and qualifies. The term of the Class
I Trustees will expire at the annual meeting of shareholders in 1999, the term
of the Class II Trustees will expire at the annual meeting of shareholders in
2000 and the term of the Class III Trustees will expire at the annual meeting of
shareholders in 2001. At each annual meeting of shareholders, the successors to
the class of trustees whose term expires at that meeting will be elected to hold
office for three years. The trustees then in office may fill vacancies on
Archstone's board of trustees, including vacancies resulting from any increase
in the number of trustees. Any trustees so appointed by the trustees then in
office will hold office until the next annual meeting of shareholders.
The classified board provision may have the effect of making it more
difficult for a third party to acquire control of Archstone without the consent
of Archstone's board of trustees, even if a change in control would be
beneficial to Archstone and its shareholders.
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Business combinations
Under Maryland law, certain "business combinations," including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities, between a Maryland REIT
and an "interested shareholder" or an affiliate of an interested shareholder are
prohibited for five years after the most recent date on which the interested
shareholder became an interested shareholder. After the five-year period, these
business combinations must be recommended by the board of trustees of the REIT
and approved by at least 80% of the votes entitled to be cast by shareholders of
the REIT, including at least two-thirds of the votes entitled to be cast by
shareholders other than the interested shareholder with whom the business
combination is to be effected, unless, among other things, the REIT's common
shareholders receive a minimum price (as defined under Maryland law) for their
shares and they receive the consideration in cash or in the same form as
previously paid by the interested shareholder for its shares. An "interested
shareholder" is a person who either beneficially owns 10% or more of the voting
power of the REIT's outstanding shares or is an affiliate of the REIT and, at
any time during the prior two years, beneficially owned 10% or more of the
voting power of the REIT's then outstanding shares. These provisions of Maryland
law do not apply, however, to business combinations which are approved or
exempted by the board of trustees of the REIT prior to the time that the
interested shareholder becomes an interested shareholder.
Archstone's declaration of trust exempts any business combination with
Security Capital Group and any entity in which it holds an equity interest from
these provisions of Maryland law to the extent that Security Capital Group
beneficially owns 49% or less of Archstone's outstanding shares.
Control share acquisitions
Maryland law provides that "control shares" of a Maryland REIT acquired in
a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast by
shareholders, other than the acquiror or officers or trustees who are employees
of the REIT. "Control shares" are voting shares which, if aggregated with all
other voting shares previously acquired by the acquiror or in respect of which
the acquiror is able to exercise voting power, would entitle the acquiror to
exercise at least one-fifth of the voting power in electing trustees. Control
shares do not include shares the acquiring person is then entitled to vote as a
result of having previously obtained shareholder approval. A "control share
acquisition" means the acquisition of control shares, subject to certain
exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions, including an undertaking to pay expenses,
may compel the board of trustees of the REIT to call a special meeting of
shareholders to be held within 50 days of demand to consider voting rights for
the shares. If no request for a meeting is made, the REIT may itself present the
question at any shareholders' meeting.
If the shareholders do not approve voting rights at the meeting or if the
acquiring person does not deliver an acquiring person statement as required by
Maryland law, then, subject to certain conditions and limitations, the REIT may
redeem any or all of the control shares, except those for which voting rights
have previously been approved, for fair market value. Fair market value will be
determined without regard to the absence of voting rights for the control shares
as of the date of the last control share acquisition by the acquiror or of any
meeting of shareholders at which the voting rights of those shares
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were considered and not approved. If the shareholders approve voting rights for
control shares and the acquiror becomes entitled to exercise a majority of the
voting power in electing trustees, all other shareholders may exercise appraisal
rights. The fair value of the shares for purposes of the appraisal rights may
not be less than the highest price per share paid by the acquiror for the
control shares.
The control share acquisition law does not apply to shares acquired in a
merger, consolidation or share exchange if the REIT is a party to the
transaction, or to acquisitions approved or exempted by the declaration of trust
or bylaws of the REIT.
Archstone's declaration of trust exempts Security Capital Group and any
entity in which it holds an equity interest from these provisions of Maryland
law to the extent that Security Capital Group beneficially owns 49% or less of
Archstone's outstanding shares.
Amendments to Archstone's declaration of trust
Maryland law requires the shareholder of a REIT to approve any amendment to
its declaration of trust, with certain exceptions. As permitted by Maryland law,
Archstone's declaration of trust permits Archstone's board of trustees, without
any action by the shareholders, to amend Archstone's declaration of trust to
increase or decrease the aggregate number of shares or the number of shares of
any class which Archstone may issue. Also, as permitted by Maryland law,
Archstone's declaration of trust permits Archstone's board of trustees, by a
two-thirds vote, to amend Archstone's declaration of trust to enable Archstone
to qualify as a REIT. A majority of the votes entitled to be cast by
shareholders must approve any other amendment to Archstone's declaration of
trust.
Termination of Archstone
Archstone has a perpetual term and intends to continue its operations for
an indefinite time period. However, Archstone's declaration of trust permits
Archstone's board of trustees to terminate Archstone, after a majority of
Archstone's board of trustees approves the termination, if the holders of a
majority of Archstone's outstanding shares also approve the termination.
Advance notice of director nominations and new business
For a shareholder to properly bring nominations or other business before an
annual meeting of shareholders, Archstone's bylaws require that shareholder to
deliver a notice to the secretary, absent specified circumstances, not less than
60 days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting setting forth:
(1) as to each person whom the shareholder proposes to nominate for
election or reelection as a director, all information relating to that
person which is required to be disclosed in solicitations of proxies
for the election of directors pursuant to Regulation 14A of the
Securities Exchange Act of 1934;
(2) as to any other business which the shareholder proposes to bring
before the meeting, a brief description of that business, the reasons
for conducting that business at the meeting and any material interest
of that shareholder and of the beneficial owner, if any, on whose
behalf the proposal is made; and
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(3) as to the shareholder giving the notice and the beneficial owner, if
any, on whose behalf the nomination or proposal is made, the name and
address of that shareholder as they appear on Archstone's stock
records and of that beneficial owner and the number of shares which
are owned beneficially and of record by that shareholder and that
beneficial owner.
DESCRIPTION OF UNITS
SCA-I Incorporated, a wholly owned subsidiary of Archstone, is the sole
general partner of the partnership and owned approximately 82.49% of the units
on June 1, 1999. The remaining units are held by the limited partners of the
partnership. The following description of certain general terms and provisions
of the units is not complete and you should refer to Delaware law and the
partnership's agreement of limited partnership for more information. For a
comparison of the voting and other rights of holders of units and holders of
common shares you should read the section "Exchange of units--Comparison of
ownership of units and common shares."
General
Holders of units, other than SCA-I in its capacity as general partner, hold
limited partnership interests in the partnership, and all holders of units,
including SCA-I in its capacity as general partner, are entitled to share in
distributions from, and in the profits and losses of, the partnership. Each unit
held by a limited partner is generally entitled to receive distributions in the
same amount as paid on each common share. SCA-I, as general partner, is entitled
to receive all cash available for distribution after payment of distributions to
limited partners.
Holders of units have the rights to which limited partners are entitled
under the partnership agreement and Delaware law. The units have not been
registered pursuant to Federal or state securities laws and are not listed on
any exchange or quoted on any national quotation system. The units cannot be
sold, assigned, pledged or otherwise disposed of by a holder unless they are
registered under Federal and state securities laws or an exemption from
registration is available.
Purpose, business and management
The purpose of the partnership includes the conduct of any business that
may be lawfully conducted by a Delaware limited partnership, except that the
business of the partnership must be conducted in a manner that will permit
Archstone at all times to be classified as a REIT, unless Archstone notifies the
partnership that it intends to cease or has ceased to qualify as a REIT. Subject
to that limitation, the partnership may enter into partnerships, joint ventures
or similar arrangements and may own interests in other entities.
SCA-I, as general partner of the partnership, has the exclusive power and
authority to conduct the business of the partnership. However, SCA-I may not,
without the written consent of all the limited partners, do anything which would
make it impossible to carry on the partnership's business, possess partnership
property for a non-partnership purpose, admit a new partner to the partnership,
do anything that would subject a limited partner to unlimited liability or do
anything to cause the partnership to be taxed as a corporation for Federal
income tax purposes. Except for those matters, no limited partner may
participate in or exercise control or management over the business of the
partnership.
11
<PAGE>
Ability to engage in other businesses; transactions with the general partner and
its affiliates
The partnership agreement does not prohibit SCA-I or its affiliates from
engaging in activities or performing services which are competitive with the
partnership. Neither SCA-I nor any of its affiliates is required to offer any
interest in those activities to the partnership or any of the limited partners.
The partnership agreement does prohibit SCA-I and its affiliates from
engaging in any transactions with or providing services to the partnership
except on terms that are fair and reasonable and no less favorable to the
partnership than would be obtained from an unaffiliated third party.
Distributions; allocations of income and loss
The partnership agreement requires the partnership to make fully cumulative
quarterly distributions of the partnership's "available cash" to the limited
partners generally in an amount equal to the distribution per common share paid
by Archstone for the same calendar quarter. "Available cash" generally means all
cash revenues and funds received by the partnership from whatever source plus
the amount of any reduction in the reserves of the partnership and less payments
on indebtedness, cash expenditures, investments and increases in reserves. Upon
any exchange of units for common shares, the partnership will pay the limited
partners all cumulated and unpaid distributions, together with interest thereon.
The partnership will distribute any available cash remaining after the payment
of distributions to the limited partners to SCA-I, as general partner.
The partnership agreement generally provides that net income will be
allocated first, to the limited partners to the extent that net losses
previously allocated to the limited partners exceed net income allocated to
them. Second, net income will be allocated to the limited partners until they
have been allocated net income equal to distributions paid to them and their
accrued and unpaid distributions. All remaining net income will be allocated to
the general partner. Except as described above, all items of partnership income,
gain, loss and deduction will generally be allocated to the partners in
accordance with their respective percentage interests in the partnership.
Borrowing by the partnership
SCA-I may cause the partnership to borrow money and to issue and guarantee
debt as it deems necessary to conduct the business of the partnership. SCA-I
also may cause any debt to be secured by mortgages, deeds of trust or other
liens or encumbrances on the assets of the partnership. SCA-I also may cause the
partnership to borrow money to enable the partnership to make distributions in
an amount sufficient to permit Archstone, so long as it qualifies as a REIT, to
avoid the payment of any Federal income tax. SCA-I also may pledge the assets of
the partnership to secure a loan or other financing of SCA-I or Archstone and
the proceeds of the loan or financing are not required to be contributed to the
partnership. If the partnership is required to pay debt service on any loan or
other financing and, as a result, the partnership is unable to make
distributions to limited partners, the partnership agreement requires SCA-I to
contribute to the partnership an amount sufficient to enable the partnership to
make those distributions.
12
<PAGE>
Reimbursement of SCA-I
SCA-I does not receive any compensation for its services as general partner
of the partnership. However, as a partner in the partnership, SCA-I does receive
distributions from the partnership and is allocated items of partnership profits
and losses. In addition, the partnership reimburses SCA-I for all expenses it
incurs relating to the partnership's ownership of its assets and the operation
of the partnership; provided, however, that the amount of the reimbursement is
reduced by any interest earned by SCA-I with respect to bank accounts for the
partnership's funds.
Liability of general partner and limited partners
SCA-I, as general partner of the partnership, is liable for all general
recourse obligations of the partnership to the extent they are not paid by the
partnership. SCA-I is not liable for the nonrecourse obligations of the
partnership.
Except for limited circumstances with respect to tax withholdings, the
partnership may not require the limited partners to make additional
contributions to the partnership. If a limited partner does not take part in the
control of the business of the partnership and otherwise acts in accordance with
the provisions of the partnership agreement, the liability of the limited
partner for obligations of the partnership under the partnership agreement and
Delaware law is generally limited, subject to some limited exceptions, to the
loss of the limited partner's investment in the partnership represented by his
units.
The partnership is qualified to conduct business in Arizona, California,
Colorado, Georgia, North Carolina, Oregon, Texas, Utah, Virginia and Washington
and may qualify to conduct business in other jurisdictions. In order for the
partnership to maintain the limited liability of the limited partners, the
partnership may have to satisfy certain legal requirements of those
jurisdictions and certain other jurisdictions. Limitations on the liability of a
limited partner for the obligations of a limited partnership have not been
clearly established in many states; accordingly, if a court determined that the
limited partners' right to make certain amendments to the partnership agreement
or to take other action pursuant to the partnership agreement constituted
"control" of the partnership's business for the purposes of the statutes of any
relevant state, the limited partners might be held personally liable for the
partnership's obligations.
Exculpation and indemnification of the general partner
SCA-I, as general partner of the partnership, will not be liable to the
partnership or any limited partner for losses sustained or liabilities incurred
as a result of errors in judgment or of any act or omission, unless SCA-I
actually received an improper benefit in money, property or services or SCA-I's
action or failure to act was the result of active and deliberate dishonesty and
was material to the matter. In addition, the partnership is required to
indemnify SCA-I and its directors, officers and employees, against all losses
and liabilities relating to the operations of the partnership, unless the
indemnitee's action or omission was committed in bad faith or was the result of
active and deliberate dishonesty and was material to the matter, the indemnitee
actually received an improper personal benefit in money, property or services or
in the case of any criminal proceeding, the indemnitee had reasonable cause to
believe that the act or omission was unlawful.
13
<PAGE>
SCA-I, as general partner of the partnership, is not responsible for any
misconduct or negligence on the part of any of its agents as long as it
appointed the agent in good faith. SCA-I may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisers selected by it and may rely on them as to matters which
SCA-I reasonably believes to be within their professional or expert competence.
SCA-I is not required to consider the consequences to individual limited
partners, including tax consequences, of any action taken by it in exercising
its authority under the partnership agreement.
Sales of assets
Under the partnership agreement, SCA-I generally has the exclusive
authority to determine whether, when and on what terms the partnership will sell
or refinance its assets. The partnership will distribute the proceeds from any
sale or refinancing of its assets first to the limited partners to pay any
accrued and unpaid distributions. The partnership will distribute the remaining
proceeds to SCA-I, as general partner.
Removal of the general partner; transfer of the general partner's interest
The partnership agreement provides that the limited partners may not remove
SCA-I as general partner of the partnership with or without cause. SCA-I may not
transfer any of its interests in the partnership except to one of its affiliates
or in connection with a reclassification, recapitalization, merger,
consolidation or sale of all or substantially all of its assets. However,
Archstone may not enter into a reclassification, recapitalization, merger,
consolidation or sale of all or substantially all of its assets unless, as a
result of the transaction, the limited partners remain entitled to exchange
their units for the greatest amount of consideration which holders of common
shares received in the transaction.
Restrictions on transfers of units by limited partners
A limited partner may not transfer its interest in the partnership without
the prior written consent of SCA-I, which SCA-I may withhold in its sole and
absolute discretion. In order to transfer its interest in the partnership, the
limited partner must deliver to SCA-I a duly executed copy of the transfer
document. The transfer document must include the written acceptance by the
transferee of all of the terms and conditions of the partnership agreement and
must represent that the transfer was made in accordance with all applicable laws
and regulations. A limited partner may substitute any transferee as a limited
partner in his place.
A transferee who has been admitted as a substituted limited partner in
accordance with the partnership agreement has all the rights and powers and is
subject to all the restrictions and liabilities of a limited partner under the
partnership agreement. If any transferee does not become a substituted limited
partner, that transferee has all the rights of an assignee of a limited
partnership interest under Delaware law, including the right to receive
distributions from the partnership and all allocations of partnership profits
and losses but the transferee will not be treated as a holder of the units for
any other purpose under the partnership agreement. The transferee is not
entitled to vote the transferred units. Instead, those units are voted in the
same proportion as the units held by the limited partners are voted.
14
<PAGE>
In addition, limited partners may dispose of their units by exchanging
their units for common shares.
Issuance of additional units
The partnership may not issue any additional units without the consent of
limited partners who hold a majority of the units held by limited partners at
the time.
Amendments to the partnership agreement
Amendments to the partnership agreement may be proposed by SCA-I or by
limited partners who hold at least 25% of the units held by limited partners at
the time. Amendments must generally be approved by SCA-I and limited partners
who hold a majority of the units held by limited partners at the time. SCA-I, as
general partner, may amend the partnership agreement without the consent of any
limited partners to add to the obligations of SCA-I or surrender a power of SCA-
I to the limited partners, to reflect changes in the partners and to make
changes which are consistent with law or with provisions of the partnership
agreement or which do not adversely affect the limited partners. Amendments
which affect the fundamental rights of a limited partner, such as the limited
liability of a limited partner and the right to receive any distributions or
allocations of profits and losses, must be approved by each limited partner that
would be adversely affected. The provisions governing amendments and
restrictions on the general partner's authority may not be amended without the
consent of all limited partners.
Books and records
The partnership maintains its books and records at the principal office of
the partnership which is located at Six Piedmont Center, Suite 600, Atlanta,
Georgia 30305. The partnership maintains its books for financial purposes on an
accrual basis in accordance with generally accepted accounting principles and
for tax reporting purposes on an accrual basis. The limited partners receive a
copy of SCA-I's annual, quarterly and current reports and proxy statements filed
with the Security and Exchange Commission, the partnership's tax returns, a list
of partners of the partnership and their capital contributions, and a copy of
the partnership agreement and the certificate of limited partnership of the
partnership. SCA-I, as general partner, may keep information confidential from
the limited partners for any period of time which SCA-I determines to be
reasonable if, in SCA-I's good faith judgment, disclosing the information is not
in the partnership's best interests or the partnership is required to keep the
information confidential.
Dissolution, winding up and termination
The partnership will continue until December 31, 2098, unless it is
dissolved earlier pursuant to the partnership agreement. The partnership will be
dissolved, and its affairs will be wound up, if any of the following events
occur:
(1) there is an event of withdrawal of the general partner, as defined in
Delaware law, unless within 90 days thereafter, all the remaining
partners agree in writing to continue the partnership and to appoint a
new general partner;
(2) the partnership sells all or substantially all of its assets;
15
<PAGE>
(3) a court enters a decree of judicial dissolution of the partnership
pursuant to Delaware law;
(4) the last remaining general partner becomes bankrupt or insolvent, as
more fully described in the partnership agreement, unless within 90
days thereafter, all the remaining partners agree in writing to
continue the partnership and to appoint a new general partner; or
(5) any proceeding against the general partner seeking reorganization,
liquidation, dissolution or similar relief under any law is not
dismissed within 120 days after it was commenced or a trustee,
receiver or liquidator of the general partner or all or any
substantial part of its properties is appointed without the general
partner's consent and the appointment is not vacated or stayed within
90 days after it is made or the appointment is not vacated within 90
days after the stay expires.
Also, SCA-I, as general partner, may dissolve the partnership at any time
unless any limited partner objects in writing within 30 days after it receives
notice from SCA-I. When the partnership is dissolved, SCA-I, as general partner,
or the liquidator will proceed to liquidate the partnership's assets and, after
paying the partnership's debts, will distribute the proceeds to the partners
according to their capital account balances.
EXCHANGE OF UNITS
General
Any limited partner, beginning on April 30, 1999, may exchange any or all
of its units at any time for an equal number of common shares by delivering a
notice to the partnership. When the partnership receives the notice, on the date
specified in the notice, the exchanging limited partners will transfer their
units to the partnership. The partnership will further transfer the units to
Archstone in exchange for a number of common shares equal to the number of units
surrendered. Archstone will contribute these common shares to SCA-I, as general
partner, and the partnership will deliver these shares to the exchanging limited
partners.
Instead of issuing common shares to the partnership for transfer to the
limited partners who surrender their units, Archstone may pay those limited
partners an amount in cash per unit equal to the average of the daily market
price of a common share for the ten trading days preceding the proposed exchange
date. At this time, Archstone anticipates that it will issue common shares to
all limited partners who surrender their units.
When Archstone acquires units which are surrendered by limited partners to
the partnership, either by issuing common shares or by paying the cash amount,
the transaction will be treated as a sale of the units to Archstone for Federal
income tax purposes. Beginning on the exchange date, the limited partner's right
to receive distributions with respect to the units exchanged or redeemed will
cease and, if its units were exchanged for common shares, it will have rights as
a shareholder of Archstone.
16
<PAGE>
Tax consequences of exchange
The following discussion summarizes certain Federal income tax
considerations that may be relevant to a limited partner who exercises his right
to require the exchange of his units. Holders of units should carefully review
this prospectus, the registration statement of which this prospectus is a part
and any applicable prospectus supplement for additional important information
about Archstone and the tax consequences of acquiring, holding and disposing of
common shares.
Tax treatment of exchange of units. If a limited partner exercises its
right to exchange its units for common shares, such exchange will be treated by
Archstone, the partnership and the exchanging limited partner for Federal income
tax purposes as a sale of units by such limited partner to Archstone at the time
of such exchange. The exchange will be fully taxable to the exchanging limited
partner. The amount of taxable gain or loss to an exchanging limited partner
will equal the difference between the amount realized for tax purposes and the
tax basis in the units exchanged, including units exchanged for common shares
and cash in lieu of fractional common shares. Such exchanging limited partner
will be treated as realizing an aggregate amount equal to the sum of:
(1) value of the common shares received in the exchange;
(2) the amount of any partnership liabilities allocable to the exchanged
units at the time of the exchange; and
(3) any cash received in lieu of fractional common shares.
It is possible that the amount of gain recognized or even the tax liability
resulting from such gain could exceed the value of any common shares received
upon such an exchange. In addition, the ability of the limited partner to sell a
substantial number of common shares in order to raise cash to pay tax
liabilities associated with the exchange of units may be restricted because, as
a result of fluctuations in the share price, the price the limited partner
receives for such common shares may not equal the value of his units at the time
of exchange.
Except as described below, any gain recognized upon a sale or other
disposition of units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount realized
upon the sale of a unit attributable to a limited partner's share of "unrealized
receivables" of the partnership, as defined in Section 751 of the Internal
Revenue Code, exceeds the basis attributable to those assets, such excess will
be treated as ordinary income. Unrealized receivables include, among other
things, amounts that would be subject to depreciation recapture as ordinary
income if the partnership had sold its assets at their fair market value at the
time of the transfer of a unit, including the recapture of any depreciation on
real property held for one year or less.
Basis of units. In general, a limited partner who contributed a partnership
interest or other property in exchange for its units, or who received or was
deemed to have received its units upon liquidation of a partnership, has an
initial tax basis in its units equal to its basis in the contributed partnership
interest or other property or to its basis in its partnership interest at the
time of such liquidation, as applicable. A limited partner's initial basis in
its units generally is increased by:
(1) such limited partner's share of the partnership's taxable income; and
17
<PAGE>
(2) increases in its share of liabilities of the partnership. Generally,
such limited partner's basis in its units is decreased, but not below
zero, by:
(A) its share of distributions from the partnership;
(B) decreases in its share of liabilities of the partnership;
(C) its share of losses of the partnership; and
(D) its share of nondeductible expenditures of the partnership that
are not chargeable to capital.
Potential application of the disguised sale regulations to an exchange of
units. There is a risk that an exchange of units may cause the original transfer
of property to the partnership in exchange for units to be treated as a
"disguised sale" of property as of the date of such transfer. The disguised sale
regulations generally provide that, unless one of the prescribed exceptions is
applicable, a partner's contribution of property to a partnership and a
simultaneous or subsequent transfer of money or other consideration, including
the assumption of or taking subject to a liability, from the partnership to the
partner, will be presumed to be a sale, in whole or in part, of such property by
the partner to the partnership or to another partner such as Archstone. Further,
the disguised sale regulations provide generally that, in the absence of an
applicable exception, if money or other consideration is transferred by a
partnership to a partner within two years of the partner's contribution of
property, the transactions are presumed to be a sale of the contributed property
unless the facts and circumstances clearly establish that the transfers do not
constitute a sale. Transfers within such two-year period which the partner
treats as other than a sale are required to be disclosed to the IRS. The
disguised sale regulations also provide that if two years have passed between
the transfer of money or other consideration and the contribution of property,
the transactions are presumed not to be a sale unless the facts and
circumstances clearly establish that the transfers constitute a sale.
Accordingly, if a unit is exchanged, the IRS could contend that the
disguised sale regulations apply because, as a result of the exchange, a limited
partner receives common shares or cash subsequent to the limited partner's
previous contribution of property to the partnership. In that event, the IRS
could contend that the original transfer of property to Archstone was taxable,
in whole or in part, as a disguised sale under the disguised sale regulations.
Any gain recognized thereby may be eligible for installment sale reporting under
Section 453 of the Internal Revenue Code, subject to certain limitations.
REGISTRATION RIGHTS
Archstone and the limited partners entered into a Transfer and Registration
Rights Agreement as part of the transaction in which they formed the
partnership. The Transfer and Registration Rights Agreement requires Archstone
to register the common shares which the limited partners may receive when they
exchange their units. The following description of certain general terms and
provisions of the Transfer and Registration Rights Agreement is not complete and
you should refer to the Transfer and Registration Rights Agreement for more
information.
The Transfer and Registration Rights Agreement requires Archstone to try in
good faith to keep the registration statement for the common shares continuously
effective for as long as is necessary for the limited partners to complete the
distribution of the common shares.
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<PAGE>
The Transfer and Registration Rights Agreement requires Archstone to pay
all expenses incurred in registering the common shares, including fees and
disbursements of Archstone's counsel. However, participating limited partners
must pay their own brokerage discounts and commissions and the costs, fees and
disbursements of their own counsel. The Transfer and Registration Rights
Agreement also requires Archstone to indemnify the limited partners and their
respective directors, officers, employees, agents and partners and any person
who controls any limited partner against certain losses, claims, damages,
liabilities and expenses arising under the securities laws. Each limited partner
must indemnify Archstone and its trustees, officers, employees and agents and
any person who controls Archstone against certain losses, liabilities, claims,
damages, liabilities and expenses arising under the securities laws with respect
to written information furnished to Archstone by that limited partner.
COMPARISON OF OWNERSHIP OF UNITS AND COMMON SHARES
Generally, an investment in common shares is substantially equivalent
economically to an investment in units. A holder of a common share generally
receives the same distribution as a holder of a unit and holders of common
shares and units generally share in the risks and rewards of ownership in
Archstone's business. However, there are some differences between owning units
and owning common shares which may be material to investors.
This section describes some of the significant differences between the
partnership and Archstone and compares certain legal rights associated with
owning units and common shares. Archstone believes that this information may
help limited partners of the partnership understand how their investment will be
changed if they exchange their units for common shares. However, the limited
partners should carefully review this prospectus, the rest of the registration
statement of which this prospectus is a part and any applicable prospectus
supplement for additional important information about Archstone.
- -------------------------------------------------------------------------------
The Partnership Archstone
- -------------------------------------------------------------------------------
Form of Organization and Assets Owned
-------------------------------------
<TABLE>
<CAPTION>
<S> <C>
The partnership is a Delaware limited Archstone is a Maryland REIT and is
partnership and owns interests in qualified as a REIT under the
various multifamily communities. Internal Revenue Code. Archstone owns
direct and indirect interests in
various multifamily communities.
</TABLE>
Length of Investment
--------------------
<TABLE>
<CAPTION>
<S> <C>
The partnership will dissolve on Archstone has a perpetual term and
December 31, 2098, although it may intends to continue its operations
be dissolved earlier under various for an indefinite time period.
circumstances. However, Archstone's declaration of
trust permits Archstone's board of
trustees to
</TABLE>
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<PAGE>
- -------------------------------------------------------------------------------
The Partnership Archstone
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
terminate Archstone, after a majority of
Archstone's board of trustees approves
the termination, if the holders of a
majority of Archstone's outstanding
shares also approve the termination.
</TABLE>
Purpose and Permitted Investments
---------------------------------
<TABLE>
<S> <C>
The partnership's purpose includes Archstone has all of the powers
the conduct of any business that may granted to REITs by Maryland law.
be lawfully conducted by a Delaware Archstone's purpose is to purchase,
limited partnership, except that the hold, lease, manage, sell, exchange,
business of the partnership must be develop, subdivide and improve real
conducted in a manner that will property and interests in real
permit Archstone at all times to be property and to invest in notes,
classified as a REIT, unless bonds, and other obligations secured
Archstone notifies the partnership by mortgages on real property.
that it intends to cease or has
ceased to qualify as a REIT.
Subject to that limitation, the
partnership may enter into
partnerships, joint ventures or
similar arrangements and may own
interests in other entities.
</TABLE>
Additional Equity
-----------------
<TABLE>
<S> <C>
Except for limited circumstances with Archstone's board of trustees has
respect to tax withholdings, the discretion to authorize and issue
partnership may not require the equity securities consisting of
limited partners to make additional common shares or other types or
contributions to the partnership. classes of securities provided that
If a limited partner does not take the total number of common shares
part in the control of the business issued does not exceed 250,000,000.
of the partnership and otherwise However, Archstone's board of
acts in accordance with the trustees may amend Archstone's
provisions of the partnership declaration of trust without
agreement, the liability of the shareholder consent to increase or
limited partner for obligations of decrease the aggregate number of
the partnership under the shares which Archstone has authority
partnership agreement and Delaware to issue.
law is generally limited, subject to
some limited exceptions, to the loss
of the limited partner's investment
in the partnership represented by
his units. SCA-I may contribute any
additional funds which it determines
the partnership requires as
additional capital contributions in
return for additional units,
although SCA-I is not required to
make any additional capital
contributions.
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
The Partnership Archstone
- --------------------------------------------------------------------------------
Borrowing Policies
------------------
SCA-I may cause the partnership to Archstone's board of trustees may
borrow money and to issue and cause Archstone to borrow money and
guarantee debt as it deems necessary to issue and guarantee debt for the
for conducting the activities of purposes of Archstone; and to
the partnership. SCA-I also may mortgage or pledge Archstone's real
cause any debt to be secured by and personal property to secure that
mortgages, deeds of trust or other debt.
liens or encumbrances on the assets
of the partnership. SCA-I also may
cause the partnership to borrow
money to enable the partnership to
make distributions in an amount
sufficient to permit Archstone, so
long as it qualifies as a REIT, to
avoid the payment of any Federal
income tax.
Management Control
------------------
SCA-I, as general partner of the Archstone's board of trustees has
partnership, has the exclusive power exclusive control over Archstone's
and authority to conduct the business and affairs subject to the
business of the partnership. restrictions in Archstone's
However, SCA-I may not, without the declaration of trust and bylaws. The
written consent of all the limited trustees are divided into three
partners, do anything which would classes. At each annual meeting of
make it impossible to carry on the the shareholders, the successors of
partnership's business, possess the class of trustees whose term
partnership property for a expires at that meeting will be
non-partnership purpose, admit a new elected for a three-year term.
partner to the partnership, do Archstone's board of trustees may
anything that would subject a alter or eliminate any policies which
limited partner to unlimited it adopts without a vote of the
liability or do anything to cause shareholders. Accordingly, except for
the partnership to be taxed as a their vote in the elections of
corporation for Federal income tax trustees, shareholders have no
purposes. Except for those matters, control over the ordinary business
no limited partner may participate policies of Archstone.
in or exercise control or
management over the business of the Archstone and Security Capital Group,
partnership. The partnership Archstone's largest shareholder, are
agreement provides that the limited parties to a Third Amended and
partners may not remove SCA-I as Restated Investor Agreement. The
general partner of the partnership investor agreement gives Security
with or without cause. Capital Group a right to nominate up
to four trustees, depending on its
level of ownership of common shares.
The investor agreement provides that,
without first having consulted with
Security Capital Group's nominees to
Archstone's board of trustees
</TABLE>
21
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
The Partnership Archstone
- --------------------------------------------------------------------------------
designated in writing, Archstone may
not seek board approval of:
(1) Archstone's annual budget;
(2) incurring expenses in any year
exceeding specific thresholds;
(3) acquisitions or dispositions in a
single transaction or group of
related transactions where the
purchase price exceeds $50 million;
and
(4) contracts for investment
management, property management or
leasing services which would
reasonably require Archstone to
make yearly payments in excess of
$2 million.
Archstone is not obligated to accept or
follow any advice received from Security
Capital Group in relation to these
matters.
Additionally, so long as Security
Capital Group beneficially owns at least
25% of the common shares, Security
Capital Group has the right to approve
the following matters proposed by
Archstone:
(1) subject to some limited exceptions,
the issuance or sale of any common
shares or any securities
convertible into or exchangeable
for common shares at less than fair
market value;
(2) the issuance and sale of any
disqualified shares resulting in
Archstone's Fixed Charge Coverage
Ratio, as defined in the investor
agreement, being less than 1.4 to
1.0;
(3) the adoption of any employee
benefit plan pursuant to which
common shares or any securities
convertible into common shares
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
The Partnership Archstone
- --------------------------------------------------------------------------------
may be issued and any action with
respect to the compensation of the
senior officers of Archstone; and
(4) the incurrence of any additional
indebtedness, including guarantees
and renegotiations and
restructurings of existing
indebtedness, resulting in
Archstone's Interest Expense
Coverage Ratio, as defined in the
investor agreement, being less
than 2.0 to 1.0.
Management Liability and Indemnification
----------------------------------------
SCA-I, as general partner of the Archstone is required to indemnify
partnership, is liable for all each trustee, officer, employee
general recourse obligations of the and agent to the fullest extent
partnership to the extent they are permitted by Maryland law, as
not paid by the partnership. SCA-I amended from time to time, against
is not liable for the nonrecourse any threatened, pending or completed
obligations of the partnership. action, suit or proceeding, whether
civil, criminal, administrative or
investigative, by reason of the fact
SCA-I, as general partner of the that he or she is or was serving at
partnership, will not be liable to the request of Archstone as a
the partnership or any limited director, trustee, officer, partner,
partner for losses sustained or manager, member, employee or agent of
liabilities incurred as a result another foreign or domestic
of errors in judgment or of any corporation, part company, other
act or omission, unless SCA-I enterprise or employee benefit plan,
actually received an improper from all claims and liabilities to
benefit in money, property or which that person may become subject
services or SCA-I's action or by reason of service in that capacity
failure to act was the result of and shall pay or reimburse reasonable
active and deliberate dishonesty expenses, as such expenses are
and was material to the matter. incurred, of each trustee in
In addition, the partnership is connection with any of those
required to indemnify SCA-I and proceedings.
employees, against all losses and
liabilities relating to the Additionally, Archstone has entered
operations of the partnership, into indemnity agreements with each of
unless the indemnitee's action or its officers and trustees which
omission was committed in bad faith provide for reimbursement of all
or was the result of active and expenses and liabilities of an
deliberate dishonesty and was officer or trustee arising out of any
material to the matter, the lawsuit or claim against the officer
indemnitee actually received an or trustee due to the fact that he
improper personal benefit in money, was or is serving as an officer or
property or services or in the trustee, except for liabilities and
case of any criminal proceeding, expenses the payment of which is
the indemnitee had reasonable cause judicially determined to be unlawful,
to believe that the act or omission relating to claims under Section 16(b)
was unlawful. of the Securities Exchange Act of 1934
or relating to judicially determined
SCA-I, as general partner of the criminal violations.
partnership, is not responsible
for any misconduct or negligence on
the part of any of its agents as
long as it
</TABLE>
23
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<TABLE>
<S> <C>
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The Partnership Archstone
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appointed the agent in good faith.
SCA-I may consult with legal counsel,
accountants, appraisers, management
consultants, investment bankers and
other consultants and advisers
selected by it and may rely on them
as to matters which SCA-I reasonably
believes to be within their professional
or expert competence.
Anti-takeover Provisions
------------------------
The partnership agreement provides In addition to the Maryland statutory
that the limited partners may not anti-takeover provisions, Archstone's
remove SCA-I as general partner of declaration of trust and bylaws
the partnership with or without contain a number of provisions that
cause. may delay or discourage an
unsolicited proposal to acquire
Archstone or remove its management.
These provisions include, among
others:
(1) a staggered board;
(2) authorized shares of beneficial
interest which may be issued, in
the discretion of Archstone's board
of trustees, as preferred shares of
beneficial interest with superior
voting rights to the common shares;
(3) the adoption of a shareholder
rights plan which limits the
ownership of common shares by any
person or group of persons; and
(4) restrictions on transferability and
ownership of Archstone's shares
designed to preserve Archstone's
status as a REIT under the Internal
Revenue Code.
For more information on the Maryland
anti-takeover provisions see
"Description of provisions of Maryland
law and of Archstone's declaration of
trust and bylaws--Business combinations"
and "--Control share acquisitions." For
a description of the
</TABLE>
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<TABLE>
<S> <C>
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The Partnership Archstone
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shareholder rights plan, see
"Description of common shares --Purchase
rights."
Voting Rights
-------------
The limited partners have voting Subject to the provisions of
rights only with respect to the Archstone's declaration of trust
matters described under regarding excess shares, each
"--Management Control," the outstanding share entitles its holder
amendments to the partnership to one vote on all matters submitted
agreement described under to shareholders for vote, including
"--Amendments to the Partnership the election of trustees.
Agreement or Archstone's Declaration Shareholders of Archstone have the
of Trust" and the continuation of right to vote on, among other things,
the partnership upon withdrawal of a merger of Archstone, certain
the general partner. Otherwise, amendments to Archstone's declaration
SCA-I, as general partner of the of trust and the termination of
partnership, has the exclusive power Archstone. A merger of Archstone,
and authority to conduct the subject to certain exceptions, and
business of the partnership. the removal of any trustee require
the affirmative vote of at least
two-thirds of all shares then
outstanding and entitled to vote on
the matter. All other matters,
including the election of trustees,
require the affirmative vote of a
majority of the shares entitled to
vote on the matter. Archstone's
declaration of trust permits
Archstone's board of trustees to
classify and issue shares of
beneficial interest of Archstone with
voting rights different than the
common shares.
Amendments to the Partnership Agreement or Archstone's Declaration of Trust
---------------------------------------------------------------------------
Amendments to the partnership Maryland law requires the shareholder
agreement may be proposed by SCA-I of a REIT to approve any amendment
or by limited partners whohold at to its declaration oftrust, with
least 25% of the units held by limited some exceptions. As permitted by
partners at the time. Amendments Maryland law, Archstone's declaration
must generally be approved by SCA-I of trust permits Archstone's board of
and limited partners who hold a trustees, without any action by the
majority of the units held by limited shareholders, to amend Archstone's
partners at the time. SCA-I, as declaration of trust to increase or
general partner, may amend the decrease the aggregate number of shares
partnership agreement without the or the number of shares of any class
consent of any limited partners to which Archstone may issue. Also, as
add to the obligations of SCA-I or permitted by Maryland law, Archstone's
surrender a power of SCA-I to the declaration of trust permits
limited partners, to reflect changes in Archstone's board of trustees, by a
the partners and to make changes which two-thirds vote, to amend Archstone's
are consistent with law or with declaration of rust to enable
provisions of the partnership agreement Archstone to
or
</TABLE>
25
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<TABLE>
<S> <C>
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The Partnership Archstone
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which do not adversely affect the qualify as a REIT. A majority of the
limited partners. Amendments which votes entitled to be cast by
affect the fundamental rights of a shareholders must approve any other
limited partner such as the limited amendment to Archstone's declaration
liability of a limited partner of trust.
and the right to receive any
distributions or allocations of
profits and losses, must be approved
by each limited partner that would
be adversely affected. The provisions
governing amendments and restrictions
on the general partner's authority
may not be amended without the
consent of all limited partners.
Compensation, Fees and Distributions
------------------------------------
SCA-I does not receive any Archstone's trustees receive an
compensation for its services as annual retainer and meeting fees for
general partner of the partnership. each meeting of the board of trustees
However, as a partner in the they attend. Members of Archstone's
partnership, SCA-I does receive investment, compensation, audit and
distributions from the partnership special committees receive additional
and is allocated items of retainers and fees. Archstone's
partnership profits and losses. In trustees may also receive options
addition, the partnership reimburses under Archstone's 1997 Long-Term
SCA-I for all expenses it incurs Incentive Plan. Archstone also grants
relating to the partnership's its non-employee trustees options to
ownership of its assets and the purchase common shares under
operation of the partnership, Archstone's Share Option Plan for
provided, however, that the amount Outside Trustees.
of the reimbursement is reduced by
any interest earned by SCA-I with
respect to bank accounts for the
partnership's funds.
Liability of Investors
----------------------
If a limited partner does not Both the Maryland statutory law
take part in the control of governing REITs and Archstone's
the business of the partnership declaration of trust provide that
and otherwise acts in accordance shareholders shall not be personally or
with the provisions of the individually liable for any debt, act,
partnership agreement, the omission orobligation of Archstone
liability of thelimited partner or Archstone's board of trustees.
for obligations of the partnership Archstone's declaration of trust further
under the partnership agreement provides that Archstone shall indemnify
and Delaware law is generally and hold each shareholder harmless
limited, subject to some limited from all claims and liabilities to
exceptions, to the loss of the which the shareholder may become
limited partner's investment in subject by reason of his or her being
the partnership represented by his or having been a shareholder and that
units. Archstone shall reimburse each
shareholder for all legal and other
expenses reasonably incurred by the
shareholder in connection with any such
</TABLE>
26
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<TABLE>
<S> <C>
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The Partnership Archstone
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claim or liability, provided that the
shareholder gives Archstone prompt
notice of any such claim or liability
and permits Archstone to conduct the
defense of the claim or liability. In
addition, Archstone is required to, and
as a matter or 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
Archstone. 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 those claims are not
satisfied by Archstone. Inasmuch as
Archstone carries public liability
insurance which it considers adequate,
any risk of personal liability to
shareholders is limited to situations in
which Archstone's assets plus its
insurance coverage would be insufficient
to satisfy the claims against Archstone
and its shareholders.
Review of Investor Lists
------------------------
SCA-I will provide to each limited Under Maryland law, Archstone must
partner, upon demand, a current list provide a list of its shareholders if
of the name and last known business, it receives a written request from
residence or mailing address of each shareholders who have held, for at
partner of the partnership. least six months, at least 5% of the
outstanding shares of beneficial
interest of any class of Archstone's
shares.
Distributions
-------------
The partnership agreement requires Holders of common shares are entitled
the partnership to make fully to such distributions as Archstone's
cumulative quarterly distributions board of trustees may declare from
of the Partnership's available cash time to time out of funds legally
to the limited partners generally in available for the payment of
an amount equal to the distribution distributions. If there is a
per common share paid by Archstone liquidation, dissolution or winding
for the same calendar quarter. Upon up of Archstone's affairs, the
any exchange of units for common holders of the common shares are
shares, the partnership will pay the entitled to share equally in
limited partners all cumulated and Archstone's assets remaining after
unpaid distributions, together Archstone pays or sets aside assets
to pay
</TABLE>
27
<PAGE>
<TABLE>
<S> <C>
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The Partnership Archstone
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with interest thereon. The partnership all liabilities to its creditors and
will distribute any available cash subject to the rights of the holders of
remaining after the payment of Archstone's preferred shares. In order
distributions to the limited to qualify as a REIT, Archstone must
partners to SCA-I, as general distribute at least 95% of its
partner. taxable income, excluding capital
gains, and any taxable income,
including capital gains, not
distributed will be subject to
corporate Federal income tax and may
be subject to Federal excise tax. In
addition, Archstone is entitled to
receive its proportionate share of
distributions made by the partnership
with respect to the units it holds.
Potential Dilution of Rights
----------------------------
The partnership may not issue any Archstone's declaration of trust
additional units without the consent authorizes Archstone to issue up to
of limited partners who hold a 250,000,000 shares of beneficial
majority of the units held by interest, par value $1.00 per share,
limited partners at the time. consisting of common shares,
preferred shares and such other types
or classes of shares of beneficial
interest as Archstone's board of
trustees may create and authorize
from time to time. Archstone's board
of trustees may amend Archstone's
declaration of trust without
shareholder consent to increase or
decrease the aggregate number of
shares or the shares of any class which
Archstone has authority to issue. At
June 7, 1999, 138,987,757 common shares
were issued and outstanding and held of
record by approximately 3,100
shareholders.
Liquidity
---------
A limited partner may not transfer Persons who are not affiliates of
its interest in the partnership Archstone will be able to freely
without the prior written consent transfer their common shares
of SCA-I, which SCA-I may withhold because they have been registered
in its sole and absolute discretion. under the Securities Act of 1933,
In order to transfer its interest subject to the restrictionson
in the partnership, the limited transferability and ownership of
partner must deliver to SCA-I a excess shares in Archstone's
duly executed copy of the transfer declaration of trust. The common
document. The transfer document must shares are listed on the NYSE.
include the written acceptance by the
transferee of all of the terms and
conditions of the partnership
agreement and must represent
</TABLE>
28
<PAGE>
<TABLE>
<S> <C>
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The Partnership Archstone
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that the transfer was made in accordance
with all applicable laws and regulations.
A limited partner may substitute any
transferee as a limited partner in his
place. Because no trading market exists
for the units, the units are illiquid.
Any limited partner, beginning on
April 30, 1999, may exchange any or all
of its units at any time for an equal
number of common shares by delivering
a notice to the partnership. When the
partnership receives the notice, on the
date specified in the notice, the exchanging
limited partners will transfer their units
to the partnership. The partnership will
further transfer the units to Archstone
in exchange for a number of common shares
equal to the number of units surrendered.
Archstone will contribute these common
shares to SCA-I, as general partner, and
the partnership will deliver these shares
to the exchanging limited partners.
Instead of issuing common shares to
the partnership for transfer to the
limited partners who surrender their
units, Archstone may pay those
limited partners an amount in cash per
unit equal to the average of the daily
market price of a common share for the
ten trading days preceding the
proposed exchange date. At this time,
Archstone anticipates that it will
issue common shares to all limited
partners who surrender their units.
Federal Income Taxation
-----------------------
The partnership is not subject to Archstone has elected to be taxed
Federal income taxes. Instead, each as a REIT for Federal income tax
holder of units includes its allocable purposes for its taxable year
share of the partnership's taxable ended December 31, 1998. So long
income or loss in determining its as it qualifies as a REIT, Archstone
individual Federal income tax will be permitted to deduct
liability. The maximum Federal income distributions paid to its shareholders
tax rate for individuals under current which effectively will reduce the
law is 39.6%. Income and loss from the "double taxation" that typically
partnership generally is subject to results when a corporation earns
the "passive activity" limitations. income and distributes that income
Under the "passive activity" rules, to its shareholders in the form of
income and loss from the dividends. A qualified REIT,
however, is
</TABLE>
29
<PAGE>
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The Partnership Archstone
- --------------------------------------------------------------------------------
partnership and such other subject to Federal income tax on income
partnerships that is considered that is not distributed and also may be
"passive income" generally can be subject to Federal income and excise
offset against income and loss from taxes in some circumstances. The
other investments that constitute maximum Federal income tax rate for
"passive activities" unless the corporations under current law is 35%.
partnership is considered a "publicly Distributions paid by Archstone will be
traded partnership," in which case treated as "portfolio" income and
income and loss from the partnership cannot be offset with losses from
can only be offset against other "passive activities." The maximum
income and loss from the partnership Federal income tax rate for individuals
or such other partnerships. under current law is 39.6%.
Cash distributions from the Except to the extent designated as
partnership are not taxable to a capital gain dividends, distributions
holder of units except to the extent made by Archstone to its taxable
they exceed such holder's basis in domestic shareholders out of current or
its interest in the partnership, accumulated earnings and profits
which will include such holder's will be taken into account by them as
allocable share of the partnership's ordinary income. Distributions that are
nonrecourse debt. designated as capital gain dividends
generally will be taxed as long-term
Each year, holders of units will capital gain, subject to some
receive a Schedule K-1 tax form limitations. Distributions in excess of
containing detailed tax information current or accumulated earnings and
for inclusion in preparing their profits will be treated as a
Federal income tax returns. non-taxable return of basis to the
extent of a shareholder's adjusted
Holders of the units are required, basis in its common shares, with the
in some cases, to file state income excess taxed as capital gain.
tax returns and/or pay state
income taxes in the states in which Each year, shareholders of Archstone
the partnership owns property, even will receive Form 1099 used by
if they are not residents of those corporations to report distributions
states. paid to their stockholders.
Shareholders who are individuals
generally will not be required to file
state income tax returns and/or pay
state income taxes outside of their
states of residence with respect to
Archstone's operations and
distributions. Archstone may be
required to pay state income taxes in
certain states.
30
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
The following is a description of the Federal income tax consequences to
Archstone and its shareholders of the treatment of Archstone as a REIT. Since
these provisions are highly technical and complex, each prospective purchaser of
the common shares is urged to consult his or her own tax advisor with respect to
the Federal, state, local, foreign and other tax consequences of the purchase,
ownership and disposition of the common shares.
Based upon certain representations of Archstone with respect to the facts
as set forth and explained in the discussion below, in the opinion of Mayer,
Brown & Platt, counsel to Archstone, Archstone has been organized in conformity
with the requirements for qualification as a REIT, and its proposed method of
operation described in this prospectus and as represented by management will
enable it to satisfy the requirements for such qualification.
This opinion is conditioned upon representations made by Archstone as to
factual matters relating to Archstone's organization and intended or expected
manner of operation. In addition, this opinion is based on the law existing and
in effect on the date hereof. Archstone's qualification and taxation as a REIT
will depend on Archstone's ability to meet on a continuing basis, through actual
operating results, asset composition, distribution levels and diversity of stock
ownership, the various qualification tests imposed under the Internal Revenue
Code discussed below. Mayer, Brown & Platt will not review compliance with these
tests on a continuing basis. No assurance can be given that Archstone will
satisfy such tests on a continuing basis.
In brief, if certain detailed conditions imposed by the REIT provisions of
the Internal Revenue Code are met, entities such as Archstone that invest
primarily in real estate and that otherwise would be treated for Federal income
tax purposes as corporations, are generally not taxed at the corporate level on
their "REIT taxable income" that is currently distributed to shareholders. This
treatment substantially eliminates the "double taxation" (at both the corporate
and shareholder levels) that generally results from the use of corporations.
However, as discussed in greater detail below, such an entity remains subject to
tax in certain circumstances even if it qualifies as a REIT.
If Archstone fails to qualify as a REIT in any year, however, it will be
subject to Federal income taxation as if it were a domestic corporation, and its
shareholders will be taxed in the same manner as shareholders of ordinary
corporations. In this event, Archstone could be subject to potentially
significant tax liabilities, and therefore the amount of cash available for
distribution to its shareholders would be reduced or eliminated.
Archstone's board of trustees believes that Archstone has been organized
and operated and currently intends that Archstone will continue to operate in a
manner that permits it to qualify as a REIT. There can be no assurance, however,
that this expectation will be fulfilled, since qualification as a REIT depends
on Archstone continuing to satisfy numerous asset, income and distribution tests
described below, which in turn will be dependent in part on Archstone's
operating results.
The following summary is based on the Internal Revenue Code, its
legislative history, administrative pronouncements, judicial decisions and
Treasury regulations, subsequent changes to any of which may affect the tax
consequences described herein, possibly on a retroactive basis. The following
summary is not exhaustive of all possible tax considerations and does not give a
detailed discussion of
31
<PAGE>
any state, local, or foreign tax considerations, nor does it discuss all of the
aspects of Federal income taxation that may be relevant to a prospective
shareholder in light of his or her particular circumstances or to various types
of shareholders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) subject to special treatment under
the Federal income tax laws.
Taxation of Archstone
General
In any year in which Archstone qualifies as a REIT, in general it will not
be subject to Federal income tax on that portion of its REIT taxable income or
capital gain which is distributed to shareholders. Archstone may, however, be
subject to tax at normal corporate rates upon any taxable income or capital gain
not distributed. Under recently enacted legislation, to the extent that
Archstone elects to retain and pay income tax on its net long-term capital gain,
shareholders are required to include their proportionate share of Archstone's
undistributed long-term capital gain in income but receive a credit for their
share of any taxes paid on such gain by Archstone.
Notwithstanding its qualification as a REIT, Archstone may also be subject
to taxation in other circumstances. If Archstone should fail to satisfy either
the 75% or the 95% gross income test (as discussed below), and nonetheless
maintains its qualification as a REIT because other requirements are met, it
will be subject to a 100% tax on the greater of the amount by which Archstone
fails to satisfy either the 75% test or the 95% test, multiplied by a fraction
intended to reflect Archstone's profitability. Archstone will also be subject to
a tax of 100% on net income from any "prohibited transaction," as described
below, and if Archstone has net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in the
ordinary course of business or other non-qualifying income from foreclosure
property, it will be subject to tax on such income from foreclosure property at
the highest corporate rate. In addition, if Archstone should fail to distribute
during each calendar year at least the sum of:
(1) 85% of its REIT ordinary income for such year;
(2) 95% of its REIT capital gain net income for such year, other than
capital gains Archstone elects to retain and pay tax on as described
below; and
(3) any undistributed taxable income from prior years, Archstone would be
subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed.
To the extent that Archstone elects to retain and pay income tax on its
long-term capital gain, such retained amounts will be treated as having been
distributed for purposes of the 4% excise tax. Archstone may also be subject to
the corporate "alternate minimum tax", as well as tax in various situations and
on some types of transactions not presently contemplated. Archstone will use the
calendar year both for Federal income tax purposes and for financial reporting
purposes.
32
<PAGE>
In order to qualify as a REIT, Archstone must meet, among others, the
following requirements:
Share ownership test
Archstone's shares must be held by a minimum of 100 persons for at least
335 days in each taxable year, or a proportional number of days in any short
taxable year. In addition, at all times during the second half of each taxable
year, no more than 50% in value of the shares of Archstone may be owned,
directly or indirectly and by applying constructive ownership rules, by five or
fewer individuals, which for this purpose includes some tax-exempt entities. Any
shares held by a qualified domestic pension or other retirement trust will be
treated as held directly by its beneficiaries in proportion to their actuarial
interest in such trust rather than by such trust. Pursuant to the constructive
ownership rules, Security Capital Group's ownership of shares is attributed to
its shareholders for purposes of the 50% test. If Archstone complies with the
Treasury regulations for ascertaining its actual ownership and did not know, or
exercising reasonable diligence would not have reason to know, that more than
50% in value of its outstanding shares were held, actually or constructively, by
five or fewer individuals, then Archstone will be treated as meeting such
requirement.
In order to ensure compliance with the 50% test, Archstone has placed
restrictions on the transfer of the shares to prevent additional concentration
of ownership. Moreover, to evidence compliance with these requirements under
Treasury regulations, Archstone must maintain records which disclose the actual
ownership of its outstanding shares and such regulations impose penalties
against Archstone for failing to do so. In fulfilling its obligations to
maintain records, Archstone must and will demand written statements each year
from the record holders of designated percentages of shares disclosing the
actual owners of such shares as prescribed by Treasury regulations. A list of
those persons failing or refusing to comply with such demand must be maintained
as a part of Archstone's records. A shareholder failing or refusing to comply
with Archstone's written demand must submit with his or her tax returns a
similar statement disclosing the actual ownership of Archstone's shares and
other information. In addition, Archstone's declaration of trust provides
restrictions on the transfer of shares that are intended to assist Archstone in
continuing to satisfy the share ownership requirements. For more information,
see "Description of common shares--Restriction on size of holdings of shares."
Archstone intends to enforce the 9.8% limitation on ownership of its shares to
assure that its qualification as a REIT will not be compromised.
Asset tests
At the close of each quarter of Archstone's taxable year, Archstone must
satisfy tests relating to the nature of its assets determined in accordance with
generally accepted accounting principles. First, at least 75% of the value of
Archstone's total assets must be represented by interests in real property,
interests in mortgages on real property, shares in other REITs, cash, cash
items, and government securities, and qualified temporary investments. Second,
although the remaining 25% of Archstone's assets generally may be invested
without restriction, securities in this class may not exceed either, in the case
of securities of any non-government issuer, 5% of the value of Archstone's total
assets, or 10% of the outstanding voting securities of any one issuer. Where
Archstone invests in a partnership, it will be deemed to own a proportionate
share of the partnership's assets.
33
<PAGE>
Gross income tests
There are two separate percentage tests relating to the sources of
Archstone's gross income which must be satisfied for each taxable year. For
purposes of these tests, where Archstone invests in a partnership, Archstone
will be treated as receiving its share of the income and loss of the
partnership, and the gross income of the partnership will retain the same
character in the hands of Archstone as it has in the hands of the partnership.
1. The 75% test. At least 75% of Archstone's gross income for the taxable
year must be "qualifying income." Qualifying income generally includes:
(1) rents from real property, except as modified below;
(2) interest on obligations collateralized by mortgages on, or interests
in, real property;
(3) gains from the sale or other disposition of "dealer property," which
means interests in real property and real estate mortgages, other than
gain from property held primarily for sale to customers in the
ordinary course of Archstone's trade or business;
(4) dividends or other distributions on shares in other REITs, as well as
gain from the sale of such shares;
(5) abatements and refunds of real property taxes;
(6) income from the operation, and gain from the sale, of "foreclosure
property," which means property acquired at or in lieu of a
foreclosure of the mortgage collateralized by such property;
(7) commitment fees received for agreeing to make loans collateralized by
mortgages on real property or to purchase or lease real property; and
(8) certain qualified temporary investment income attributable to the
investment of new capital received by Archstone in exchange for its
shares during the one-year period following the receipt of such
capital.
Rents received from a resident will not, however, qualify as rents from
real property in satisfying the 75% test, or the 95% gross income test described
below, if Archstone, or an owner of 10% or more of Archstone, directly or
constructively owns 10% or more of such resident. In addition, if rent
attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
rents from real property. Moreover, an amount received or accrued will not
qualify as rents from real property or as interest income for purposes of the
75% and 95% gross income tests if it is based in whole or in part on the income
or profits of any person, although an amount received or accrued generally will
not be excluded from "rents from real property" solely by reason of being based
on a fixed percentage or percentages of receipts or sales. Finally, for rents
received to qualify as rent
34
<PAGE>
from real property, Archstone generally must not operate or manage the property
or furnish or render services to residents, other than through an "independent
contractor" from whom Archstone derives no income, except that the "independent
contractor" requirement does not apply to the extent that the services provided
by Archstone are "usually or customarily rendered" in connection with the rental
of multifamily units for occupancy only, or are not otherwise considered
"rendered to the occupant for his convenience." However, a REIT is permitted to
render a de minimis amount of impermissible services to tenants, or in
connection with the management of property, and still treat amounts received
with respect to that property as rent from real property. The amount received or
accrued by the REIT during the taxable year for the impermissible services with
respect to a property may not exceed one percent of all amounts received or
accrued by the REIT directly or indirectly from the property. The amount
received for any service or management operation for this purpose shall be
deemed to be not less than 150% of the direct cost of the REIT in furnishing or
rendering the service or providing the management or operation.
2. The 95% test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of Archstone's gross income for the taxable
year must be derived from the above-described qualifying income, or from
dividends, interest or gains from the sale or disposition of shares or other
securities that are not dealer property. Dividends, other than on REIT shares,
and interest on any obligations not collateralized by an interest in real
property are included for purposes of the 95% test, but not for purposes of the
75% test. In addition, payments to Archstone under an interest rate swap, cap
agreement, option, futures contract, forward rate agreement or any similar
financial instrument entered into by Archstone to hedge indebtedness incurred or
to be incurred (and any gain from the sale or other disposition of these
instruments) are treated as qualifying income for purposes of the 95% test, but
not for purposes of the 75% test.
For purposes of determining whether Archstone complies with the 75% and 95%
income tests, gross income does not include income from prohibited transactions.
A "prohibited transaction" is a sale of dealer property, excluding foreclosure
property, unless such property is held by Archstone for at least four years and
certain other requirements relating to the number of properties sold in a year,
their tax bases, and the cost of improvements made thereto are satisfied. For
more information, see "--Taxation of Archstone --General."
Even if Archstone fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such year
if it is entitled to relief under provisions of the Internal Revenue Code. These
relief provisions will generally be available if: (1) Archstone's failure to
comply was due to reasonable cause and not to willful neglect; (2) Archstone
reports the nature and amount of each item of its income included in the tests
on a schedule attached to its tax return; and (3) any incorrect information on
this schedule is not due to fraud with intent to evade tax. If these relief
provisions apply, however, Archstone will nonetheless be subject to a special
tax upon the greater of the amount by which it fails either the 75% or 95% gross
income test for that year.
Annual distribution requirements
In order to qualify as a REIT, Archstone is required to make distributions,
other than capital gain dividends, to its shareholders each year in an amount at
least equal to:
(1) the sum of
35
<PAGE>
(a) 95% of Archstone's REIT taxable income, computed without regard
to the dividends paid deduction and the REIT's net capital gain,
and
(b) 95% of the net income after tax, if any, from foreclosure
property, minus
(2) the sum of certain items of non-cash income. Such distributions must
be paid in the taxable year to which they relate, or in the following
taxable year if declared before Archstone timely files its tax return
for such year and if paid on or before the first regular dividend
payment after such declaration. To the extent that Archstone does not
distribute all of its net capital gain or distributes at least 95%,
but less than 100%, of its REIT taxable income, as adjusted, it will
be subject to tax on the undistributed amount at regular capital gains
or ordinary corporate tax rates, as the case may be. Archstone may,
with respect to undistributed net long-term capital gains it received
during the taxable year, designate in a notice mailed to shareholders
within 60 days of the end of the taxable year, or in a notice mailed
with its annual report for the taxable year, such amount of such gains
which its shareholders are to include in their taxable income as long-
term capital gains. Thus, if Archstone made this designation, the
shareholders of Archstone would include in their income as long-term
capital gains their proportionate share of the undistributed net
capital gains as designated by Archstone and Archstone would have to
pay the tax on such gains within 30 days of the close of its taxable
year. Each shareholder of Archstone would be deemed to have paid such
shareholder's share of the tax paid by Archstone on such gains, which
tax would be credited or refunded to the shareholder. A shareholder
would increase his tax basis in his Archstone shares by the difference
between the amount of income to the holder resulting from the
designation less the holder's credit or refund for the tax paid by
Archstone.
Archstone intends to make timely distributions sufficient to satisfy the
annual distribution requirements. It is possible that Archstone may not have
sufficient cash or other liquid assets to meet the 95% distribution requirement,
due to timing differences between the actual receipt of income and actual
payment of expenses on the one hand, and the inclusion of such income and
deduction of such expenses in computing Archstone's REIT taxable income on the
other hand. To avoid any problem with the 95% distribution requirement,
Archstone will closely monitor the relationship between its REIT taxable income
and cash flow and, if necessary, intends to borrow funds in order to satisfy the
distribution requirement. However, there can be no assurance that such
borrowing would be available at such time.
If Archstone fails to meet the 95% distribution requirement as a result of
an adjustment to Archstone's tax return by the IRS, Archstone may retroactively
cure the failure by paying a "deficiency dividend," plus applicable penalties
and interest, within a specified period.
Failure to qualify
If Archstone fails to qualify for taxation as a REIT in any taxable year
and relief provisions do not apply, Archstone will be subject to tax, including
applicable alternative minimum tax, on its taxable income at regular corporate
rates. Distributions to shareholders in any year in which Archstone fails to
qualify as a REIT will not be deductible by Archstone, nor generally will they
be required to be made under the Internal Revenue Code. In such event, to the
extent of current and accumulated earnings and
36
<PAGE>
profits, all distributions to shareholders will be taxable as ordinary income,
and subject to limitations in the Internal Revenue Code, corporate distributees
may be eligible for the dividends-received deduction. Unless entitled to relief
under specific statutory provisions, Archstone also will be disqualified from
reelecting taxation as a REIT for the four taxable years following the year
during which qualification was lost.
Taxation of Archstone's shareholders
Taxation of taxable domestic shareholders
As long as Archstone qualifies as a REIT, distributions made to Archstone's
taxable domestic shareholders out of current or accumulated earnings and
profits, and not designated as capital gain dividends, will be taken into
account by them as ordinary income and will not be eligible for the dividends-
received deduction for corporations. Distributions and undistributed amounts
that are designated as capital gain dividends will be taxed as long-term capital
gains, to the extent they do not exceed Archstone's actual net capital gain for
the taxable year, without regard to the period for which the shareholder has
held its shares. However, corporate shareholders may be required to treat up to
20% of some capital gain dividends as ordinary income. To the extent that
Archstone makes distributions in excess of current and accumulated earnings and
profits, these distributions are treated first as a tax-free return of capital
to the shareholder, reducing the tax basis of a shareholder's shares by the
amount of such distribution, but not below zero, with distributions in excess of
the shareholder's tax basis taxable as capital gains, if the shares are held as
a capital asset. In addition, any dividend declared by Archstone in October,
November or December of any year and payable to a shareholder of record on a
specific date in any such month shall be treated as both paid by Archstone and
received by the shareholder on December 31 of such year, provided that the
dividend is actually paid by Archstone during January of the following calendar
year. Shareholders may not include in their individual income tax returns any
net operating losses or capital losses of Archstone. Federal income tax rules
may also require that minimum tax adjustments and preferences be apportioned to
Archstone shareholders.
In general, any loss upon a sale or exchange of shares by a shareholder who
has held such shares for six months or less, after applying holding period
rules, will be treated as a long-term capital loss, to the extent of
distributions from Archstone required to be treated by such shareholder as long-
term capital gains.
The Internal Revenue Service Restructuring and Reform Act of 1998 provides
that gain from the sale or exchange of shares held for more than one year is
taxed at a maximum capital gain rate of 20%. Pursuant to IRS guidance,
Archstone may classify portions of its capital gain dividends as gains eligible
for the 20% capital gains rate discussed above or as unrecaptured Internal
Revenue Code Section 1250 gain taxable at a maximum rate of 25%.
Shareholders of Archstone should consult their tax advisor with regard to
the application of the changes made by the Internal Revenue Service
Restructuring and Reform Act with respect to taxation of capital gains and
capital gain dividends and with regard to state, local and foreign taxes on
capital gains.
37
<PAGE>
Backup withholding
Archstone will report to its domestic shareholders and to the IRS the
amount of distributions paid during each calendar year, and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
shareholder may be subject to backup withholding at applicable rates with
respect to distributions paid unless such shareholder is a corporation or comes
within other exempt categories and, when required, demonstrates this fact or
provides a taxpayer identification number, certifies as to no loss of exemption
from backup withholding, and otherwise complies with applicable requirements of
the backup withholding rules. A shareholder that does not provide Archstone
with its correct taxpayer identification number may also be subject to penalties
imposed by the IRS. Any amount paid as backup withholding will be credited
against the shareholder's income tax liability. In addition, Archstone may be
required to withhold a portion of capital gain distributions made to any
shareholders who fail to certify their non-foreign status to Archstone.
Taxation of tax-exempt shareholders
The IRS has issued a revenue ruling in which it held that amounts
distributed by a REIT to a tax-exempt employees' pension trust do not constitute
unrelated business taxable income ("UBTI"). Subject to the discussion below
regarding a "pension-held REIT", based upon the ruling, the analysis therein and
the statutory framework of the Internal Revenue Code, distributions by Archstone
to a shareholder that is a tax-exempt entity should also not constitute UBTI,
provided that the tax-exempt entity has not financed the acquisition of its
shares with "acquisition indebtedness" within the meaning of the Internal
Revenue Code, and that the shares are not otherwise used in an unrelated trade
or business of the tax-exempt entity, and that Archstone, consistent with its
present intent, does not hold a residual interest in a real estate mortgage
investment conduit.
However, if any pension or other retirement trust that qualifies under
Section 401(a) of the Internal Revenue Code holds more than 10% by value of the
interests in a "pension-held REIT" at any time during a taxable year, a portion
of the dividends paid to the qualified pension trust by such REIT may constitute
UBTI. For these purposes, a "pension-held REIT" is defined as a REIT if such
REIT would not have qualified as a REIT but for the provisions of the Internal
Revenue Code which look through such a qualified pension trust in determining
ownership of shares of the REIT and at least one qualified pension trust holds
more than 25% by value of the interests of such REIT or one or more qualified
pension trusts, each owning more than a 10% interest by value in the REIT, hold
in the aggregate more than 50% by value of the interests in such REIT.
Taxation of foreign shareholders
Archstone will qualify as a "domestically-controlled REIT" so long as less
than 50% in value of its shares is held by foreign persons, nonresident aliens
and foreign corporations, partnerships, trusts and estates. It is currently
anticipated that Archstone will qualify as a domestically controlled REIT.
Under these circumstances, gain from the sale of the shares by a foreign person
should not be subject to U.S. taxation, unless such gain is effectively
connected with such person's U.S. business or, in the case of an individual
foreign person, such person is present within the U.S. for more than 182 days in
such taxable year.
38
<PAGE>
Distributions of cash generated by Archstone's real estate operations, but
not by its sale or exchange of such communities, that are paid to foreign
persons generally will be subject to U.S. withholding tax at a rate of 30%,
unless an applicable tax treaty reduces that tax and the foreign shareholder
files with Archstone the required form evidencing such lower rate or unless the
foreign shareholder files an Internal Revenue Service Form 4224 with Archstone
claiming that the distribution is "effectively connected" income. Recently
promulgated Treasury Regulations revise in some respects the rules applicable to
foreign shareholders with respect to payments made after December 31, 1999.
Distributions of proceeds attributable to the sale or exchange by Archstone
of U.S. real property interests are subject to income and withholding taxes
pursuant to the Foreign Investment in Real Property Tax Act of 1980, and may be
subject to branch profits tax in the hands of a shareholder which is a foreign
corporation if it is not entitled to treaty relief or exemption. Archstone is
required by applicable Treasury Regulations to withhold 35% of any distribution
to a foreign person that could be designated by Archstone as a capital gain
dividend; this amount is creditable against the foreign shareholder's Foreign
Investment in Real Property Tax Act tax liability.
The Federal income taxation of foreign persons is a highly complex matter
that may be affected by many other considerations. Accordingly, foreign
investors in Archstone should consult their own tax advisors regarding the
income and withholding tax considerations with respect to their investment in
Archstone.
Other tax considerations
Possible legislative or other actions affecting tax consequences
Prospective shareholders should recognize that the present Federal income
tax treatment of an investment in Archstone may be modified by legislative,
judicial or administrative action at any time and that any such action may
affect investments and commitments previously made. The rules dealing with
Federal income taxation are constantly under review by persons involved in the
legislative process and by the IRS and the Treasury, resulting in revisions of
regulations and revised interpretations of established concepts as well as
statutory changes. Revisions in Federal tax laws and interpretations thereof
could adversely affect the tax consequences of an investment in Archstone.
State and local taxes
Archstone and its shareholders may be subject to state or local taxation in
various jurisdictions, including those in which it or they transact business or
reside. The state and local tax treatment of Archstone and its shareholders may
not conform to the Federal income tax consequences discussed above.
Consequently, prospective shareholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in the Offered
Securities of Archstone.
Each prospective purchaser is advised to consult with his or her tax
advisor regarding the specific tax consequences to him or her of the purchase,
ownership, and sales of Archstone common shares in an entity electing to be
taxed as a real estate investment trust, including the Federal, state, local,
foreign, and other tax consequences of such purchase, ownership, sale and
election and of potential changes in applicable tax laws.
39
<PAGE>
SELLING SHAREHOLDERS
Persons who receive common shares when they exchange their units and who
are not, now or at the time of exchange, affiliates of Archstone may resell
those common shares without having to register them under the Securities Act of
1933. However, those persons who receive common shares when they exchange their
units and who may be affiliates of Archstone may need to register the resale of
those common shares under the Securities Act of 1933. They may use this
prospectus and the registration statement of which this prospectus is a part to
offer and sell those common shares.
The table below lists each person who may receive common shares in exchange
for units and shows the number of common shares which each person may receive in
exchange for their units as well as the total number of common shares which each
person owned before this offering which includes common shares they could
receive by exchanging their units. Since the holders of units may exchange all,
some or none of their units for common shares and may then sell all, some or
none of their common shares, Archstone cannot determine the number of common
shares which each person will own after this offering. If, however, any person
listed below sold all of their common shares, none of them would hold one
percent or more of Archstone's outstanding shares.
<TABLE>
<CAPTION>
Number of Common Total Number of
Shares Which May Common Shares
Be Received in Owned Prior
Name Exchange for Units to this Offering
- ---- ------------------ ----------------
<S> <C> <C>
E.C. Griffith Co. 108,786 108,786
White-Cavu Limited Partnership 17,335 17,335
Thomas A. Hunter, III 87,152 87,152
G. Dan Page, Jr. 73,696 73,696
Joseph E. Kaylor 12,764 12,764
Dean R. Devillers 22,573 22,573
Elm Land Co. 183,229 183,229
The Springs Company 121,561 121,561
Close Family Partnership 193,148 193,148
Zeb Rea 20,358 20,358
William A. White, Jr. 68,325 68,325
</TABLE>
PLAN OF DISTRIBUTION
This prospectus relates to the possible issuance by Archstone of up to
908,927 common shares if, and to the extent that, holders of units exchange
their units for common shares. This prospectus also relates to the offer and
sale by persons who may be affiliates of Archstone of those common shares from
time to time. Archstone has registered the common shares to enable the holders
of units who may be affiliates of Archstone to resell the common shares from
time to time, but the registration of the common shares does not necessarily
mean that those shareholders will offer or sell any of the common shares.
Archstone will not receive any additional consideration when it issues
common shares to the holders of units upon exchange of their units. Also,
Archstone will not receive any of the proceeds when the shareholders sell any of
those common shares. The selling shareholders and any agents or broker-dealers
that participate in the distribution of those common shares may be deemed to be
underwriters under the Securities Act of 1933, and any commissions they receive
and any profits they
40
<PAGE>
earn from selling the common shares may be deemed to be underwriting commissions
or discounts under the Securities Act of 1933.
Each time the selling shareholders offer any of the common shares, they
will distribute a prospectus supplement with the names of any agents or broker-
dealers, any commissions or discounts and other compensation from the selling
shareholders and any other required information. The selling shareholders may
sell the common shares from time to time at varying prices determined at the
time of sale or at negotiated prices.
In order to comply with the securities laws of certain states, if
applicable, the selling shareholders may sell the common shares only through
registered or licensed agents or broker-dealers. In addition, in certain
states, the selling shareholders may not sell the common shares unless they
register or qualify those common shares for sale in that state or comply with an
available exemption from registration or qualification.
Archstone has agreed to pay all expenses incurred in registering the common
shares, including fees and disbursements of Archstone's counsel. However, the
selling shareholders must pay their own brokerage discounts and commissions and
the costs, fees and disbursements of their own counsel. Archstone estimates
that the expenses in connection with the registration and sale of the shares
registered hereby will be approximately $32,500, all of which Archstone will
pay.
The Transfer and Registration Rights Agreement also requires Archstone to
indemnify the holders of units and their respective directors, officers,
employees, agents and partners and any person who controls any limited partner
against certain losses, claims, damages, liabilities and expenses arising under
the securities laws. Each holder of units must indemnify Archstone and its
trustees, officers, employees and agents and any person who controls Archstone
against certain losses, liabilities, claims, damages, liabilities and expenses
arising under the securities laws with respect to written information furnished
to Archstone by that holder of units.
Archstone may from time to time issue up to 908,927 common shares upon the
exchange of units. Archstone will acquire one unit in the partnership in
exchange for each common share which Archstone issues to holders of units
pursuant to this prospectus. As a result, with each exchange, Archstone's
interest in the partnership will increase.
EXPERTS
The financial statements and schedule of Archstone as of December 31, 1998
and 1997, and for each of the years in the three-year period ended December 31,
1998, have been incorporated by reference herein and in the registration
statement in reliance upon the reports of KPMG LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing. With respect to the unaudited
interim financial information for the periods ended March 31, 1999 and 1998,
incorporated by reference herein, the independent certified public accountants
have reported that they applied limited procedures in accordance with
professional standards for a review of such information. However, their separate
report included in the Company's quarterly report on Form 10-Q for the quarter
ended March 31, 1999, and incorporated by reference herein, states that they did
not audit and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. The accountants are not subject to the liability provisions
of Section 11 of the Securities Act for their report on the unaudited interim
financial information because that report is not a "report" or a "part" of the
registration statement prepared or certified by the accountants within the
meaning of Sections 7 and 11 of the Securities Act.
LEGAL MATTERS
Mayer, Brown & Platt will issue an opinion for Archstone on the validity of
the common shares offered. Mayer, Brown & Platt has in the past represented and
is currently representing Archstone and some of its affiliates, including
Security Capital Group.
41
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Archstone files annual, quarterly and current reports, proxy statements and
other information with the SEC. Archstone's SEC filings are available to the
public over the Internet at the SEC's web site at http://www.sec.gov. You may
also read and copy any document Archstone files at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. You may also read any document Archstone files with the SEC at the
offices of the NYSE.
We filed a registration statement on Form S-3 with the SEC. This
prospectus does not contain all of the information in the registration
statement. Please refer to the registration statement for more information
about us and our common stock. Statements in this prospectus about any contract
or any other document are not necessarily complete and you should refer to the
copy of that contract or other document which we filed as an exhibit to the
registration statement. You may read a copy of the registration statement at
any of the sources described above.
The SEC allows Archstone to "incorporate by reference" the information it
files with them, which means that Archstone can disclose important information
to you by referring you to those documents. The information incorporated by
reference is an important part of this prospectus, and information that
Archstone files later with the SEC will automatically update and supersede this
information. Archstone incorporates by reference the documents listed below and
any future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 until this offering is terminated.
. Archstone's Annual Report on Form 10-K for the year ended December 31,
1998;
. Archstone's Current Report on Form 8-K dated February 11, 1999;
. Archstone's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999;
. The description of Archstone's common shares contained in Archstone's
registration statement on Form 8-A, as amended; and
. The description of Archstone's preferred share purchase rights
contained in Archstone's registration statement on Form 8-A, as
amended.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Secretary
Archstone Communities Trust
7670 South Chester Street
Englewood, Colorado 80112
(303) 708-5959
42
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other expenses of issuance and distribution.
-------------------------------------------
The following table sets forth the estimated expenses in connection with
the registration and sale of the shares registered hereby, all of which will be
paid by the registrant:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee................................... $ 5,559
Transfer agent's fees.................................. $ 2,500
Legal fees and expenses................................ $20,000
Accounting fees and expenses........................... $ 2,500
Miscellaneous expenses................................. $ 1,941
-------
Total.................................................. $32,500
=======
</TABLE>
Item 15. Indemnification of directors and officers.
-----------------------------------------
The Maryland statutory law governing real estate investment trusts permits
a real estate investment trust to indemnify or advance expenses to trustees,
officers, employees and agents of the real estate investment trust to the same
extent as is permitted for directors, officers, employees and agents of a
Maryland corporation under Maryland statutory law. Under the registrant's
declaration of trust, the registrant is required to indemnify each trustee,
officer, employee and agent to the fullest extent permitted by Maryland law, as
amended from time to time, against 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, officer, employee or agent of
the registrant or is or was serving at the request of the registrant 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.
Additionally, the registrant has entered into indemnity agreements with
each of its officers and trustees which provide for reimbursement of all
expenses and liabilities of the officer or trustee, arising out of any lawsuit
or claim against the 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 Securities Exchange Act of 1934 or (iii)
relating to judicially determined criminal violations.
Item 16. Exhibits and financial statement schedules.
------------------------------------------
See the exhibit index which is incorporated by reference.
II-1
<PAGE>
Item 17. Undertakings.
------------
The undersigned registrant hereby undertakes:
(a) 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 thereof) 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 the
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 Securities and Exchange Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in
the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(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;
Provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration
statement.
(b) 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 bona fide offering thereof.
(c) 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 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall
II-2
<PAGE>
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 provisions set forth or described in Item 15 of this
registration statement, 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 Securities Act of 1933 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 whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Englewood, State of Colorado on June 7, 1999.
ARCHSTONE COMMUNITIES TRUST
/s/ Jeffrey A. Klopf
By:_______________________________________________
Jeffrey A. Klopf
Senior Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ R. Scot Sellers* Chairman and Chief Executive June 7, 1999
- ------------------------------ Officer (Principal Executive
R. Scot Sellers Officer)
/s/ Charles E.Mueller, Jr.* Chief Financial Officer and June 7, 1999
- ------------------------------ Senior Vice President
Charles E. Mueller, Jr. (Principal Financial Officer)
/s/ Williams Kell* Controller and Senior Vice June 7, 1999
- ------------------------------ President
William Kell
/s/ James A. Cardwell* Trustee June 7, 1999
- ------------------------------
James A. Cardwell
/s/ Ned S. Holmes* Trustee June 7, 1999
- ------------------------------
Ned S. Holmes
/s/ John T. Kelley III* Trustee June 7, 1999
- ------------------------------
John T. Kelley III
/s/ Calvin K. Kessler* Trustee June 7, 1999
- ------------------------------
Calvin K. Kessler
/s/ Constance B. Moore* Trustee June 7, 1999
- -----------------------------
Constance B. Moore
/s/ James H. Polk III* Trustee June 7, 1999
- -----------------------------
James H. Polk III
/s/ John M. Richman* Trustee June 7, 1999
- -----------------------------
John M. Richman
/s/ John C. Schweitzer* Trustee June 7, 1999
- -----------------------------
John C. Schweitzer
*By /s/ Jeffrey A. Klopf
-------------------------
Jeffrey A. Klopf
Attorney in Fact
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Document Description
- ------- --------------------
<C> <S>
3.1 Amended and Restated Declaration of Trust of the Registrant
(incorporated by reference to exhibit 4.1 to the Registrant's Current
Report on Form 8-K dated July 7, 1998).
3.2 Amended and Restated Bylaws of the Registrant (incorporated by
reference to exhibit 4.2 to the Registrant's Current Report on
Form 8-K dated July 7, 1998).
4.1 Agreement of Limited Partnership of Atlantic Multifamily Limited
Partnership-I, dated as of April 30, 1998 among SCA-I Incorporated
and various individuals and entities (incorporated by reference to
exhibit 10.1 to the Form 8-K of Security Capital Atlantic
Incorporated dated June 20, 1998).
4.2 Transfer and Registration Rights Agreement dated as of April 30, 1998
among Security Capital Atlantic Incorporated and certain individuals
and entities.*
5 Opinion of Mayer, Brown & Platt as to the legality of the securities
offered.*
8 Opinion of Mayer, Brown & Platt as to certain tax matters.*
15 Acknowledgment Letter of KPMG LLP.
23.1 Consent of KPMG LLP.
23.2 Consent of Mayer, Brown & Platt.*
24 Power of Attorney.*
</TABLE>
*Previously filed.
II-5
<PAGE>
Exhibit 15
The Board of Trustees
Archstone Communities Trust
Re: Registration Statement No. 333-77387
With respect to the subject registration statement, we acknowledge our awareness
of the use therein of our report dated April 16, 1999 related to our review of
interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Securities Act of 1933.
KPMG LLP
Chicago, Illinois
June 4, 1999
<PAGE>
Exhibit 23.1
The Board of Directors
Archstone Communities Trust:
We consent to the incorporation by reference in the registration statement on
Form S-3 (No. 333-77387) of Archstone Communities Trust, of our report dated
January 22, 1999, except as to note 15 which is as of March 5, 1999, relating to
the balance sheets of Archstone Communities Trust as of December 31, 1998 and
1997, and the related statements of earnings, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998 and
our report dated January 22, 1999 relating to the Schedule of Real Estate and
Accumulated Depreciation as of December 31, 1998 which reports appear in the
December 31, 1998 annual report on Form 10-K of Archstone Communities Trust, and
to the reference to our firm under the heading "Experts" in the registration
statement.
KPMG LLP
Chicago, Illinois
June 4, 1999
