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As filed with the Securities and Exchange Commission on April 29, 1999
Registration No. 333-_________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________________
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)
</TABLE>
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: [_]
________________________
CALCULATION OF REGISTRATION FEE
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================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITY TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------
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common shares of beneficial
interest, par value $1.00 per
share......................... 908,927 shares $22.00 $19,996,394 $5,559
================================================================================================================
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(1) Pursuant to Rule 457(c) under the Securities Act of 1933, the registration
fee has been calculated on the basis of the average of the high and low sales
prices of the common shares on the New York Stock Exchange on April 26, 1999.
________________________
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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********************************************************************************
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 propectus 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.
********************************************************************************
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 29, 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 April 26, 1999, the last reported sale price of our common
shares on the NYSE was $21 15/16 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 _____, 1999
<PAGE>
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 ..................................................... 39
Plan of distribution ..................................................... 40
Experts .................................................................. 41
Legal matters ............................................................ 42
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 is a real estate
operating company focused on the acquisition, development, operation and long-
term ownership of multifamily communities in markets and submarkets with strong
economic fundamentals and high barriers to entry throughout the United States.
Archstone's primary objective is to create long-term sustainable growth in per
share cash flow and Archstone expects to generate significant internal growth
from its well located operating communities and the completion and stabilization
of new communities in its development pipeline. Archstone has a significant
national presence, and as of March 31, 1999, Archstone had 233 operating
communities representing 68,945 units, with other communities under development,
in markets that include 30 of the nation's 50 largest metropolitan markets.
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's
objective is to create a dominant national brand in the multifamily industry by
emphasizing an extremely high level of customer service. Management believes
that this unique, research driven strategy will continue to allow Archstone to
produce attractive long-term returns for its shareholders.
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 April 15, 1999, approximately 139,016,000 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 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.
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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 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
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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 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.
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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 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
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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.
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
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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 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.
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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
(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.
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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 March 31, 1998. 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.
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.
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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.
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.
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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.
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.
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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.
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.
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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;
(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
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(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 it units were exchanged for common shares, it will have rights as
a shareholder of Archstone.
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.
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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
(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
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(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.
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
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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.
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The Partnership Archstone
- --------------------------------------------------------------------------------
FORM OF ORGANIZATION AND ASSETS OWNED
-------------------------------------
The partnership is a Delaware limited partnership and owns interests in various
multifamily communities.
Archstone is a Maryland REIT and is qualified as a REIT under the Internal
Revenue Code. Archstone owns direct and indirect interests in various
multifamily communities.
LENGTH OF INVESTMENT
--------------------
The partnership will dissolve on December 31, 2098, although it may be dissolved
earlier under various circumstances.
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.
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The Partnership Archstone
- --------------------------------------------------------------------------------
PURPOSE AND PERMITTED INVESTMENTS
---------------------------------
The partnership's purpose 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.
Archstone has all of the powers granted to REITs by Maryland law. Archstone's
purpose is to purchase, hold, lease, manage, sell, exchange, develop, subdivide
and improve real property and interests in real property and to invest in notes,
bonds, and other obligations secured by mortgages on real property.
ADDITIONAL EQUITY
-----------------
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. 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.
Archstone's board of trustees has discretion to authorize and issue equity
securities consisting of common shares or other types or classes of securities
provided that the total number of common shares issued does not exceed
250,000,000. However, Archstone's board of trustees may amend Archstone's
declaration of trust without shareholder consent to increase or decrease the
number of shares which Archstone has authority to issue.
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BORROWING POLICIES
------------------
SCA-I may cause the partnership to borrow money and to issue and guarantee debt
as it deems necessary for conducting the activities 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.
Archstone's board of trustees may cause Archstone to borrow money and to issue
and guarantee debt for the purposes of Archstone; and to mortgage or pledge
Archstone's real and personal property to secure that debt.
MANAGEMENT CONTROL
------------------
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. The partnership agreement provides that the limited partners may
not remove SCA-I as general partner of the partnership with or without cause.
Archstone's board of trustees has exclusive control over Archstone's business
and affairs subject to the restrictions in Archstone's declaration of trust and
bylaws. The trustees are divided into three classes. At each annual meeting of
the shareholders, the successors of the class of trustees whose term expires at
that meeting will be elected for a three-year term. Archstone's board of
trustees may alter or eliminate any policies which it adopts without a vote of
the shareholders. Accordingly, except for their vote in the elections of
trustees, shareholders have no control over the ordinary business policies of
Archstone. Archstone and Security Capital Group, Archstone's largest
shareholder, are parties to a Third Amended and Restated Investor Agreement.
The investor agreement gives Security 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 designated in
writing, Archstone may not seek board approval of:
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(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 $2.0 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 the 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 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 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.
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 trustees, 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.
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.
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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 is or was serving at the request of Archstone as a director, trustee,
officer, partner, manager, member, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, limited liability
company, other enterprise or employee benefit plan, from all claims and
liabilities to which that person may become subject by reason of service in that
capacity and shall pay or reimburse reasonable expenses, as such expenses are
incurred, of each trustee in connection with any of those proceedings.
Additionally, Archstone has entered into indemnity agreements with each of its
officers andtrustees which provide for reimbursement of all expenses and
liabilities of an 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 be unlawful, relating to claims under Section 16(b) of
the Securities Exchange Act of 1934 or relating to judicially determined
criminal violations.
ANTI-TAKEOVER PROVISIONS
------------------------
The partnership agreement provides that the limited partners may not remove SCA-
I as general partner of the partnership with or without cause.
In addition to the Maryland statutory anti-takeover provisions, Archstone's
declaration of trust and bylaws contain a number of provisions that 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;
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(3) the adoption of a shareholder rights plan which limits the ownership of
common shares by any person or group of person; 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 shareholder rights plan, see "Description of common shares --
Purchase rights."
VOTING RIGHTS
-------------
The limited partners have voting rights only with respect to the matters
described under "--Management Control," the amendments to the partnership
agreement described under "--Amendments to the Partnership Agreement or
Archstone's Declaration of Trust" and the continuation of the partnership upon
withdrawal of the general partner. Otherwise, SCA-I, as general partner of the
partnership, has the exclusive power and authority to conduct the business of
the partnership.
Subject to the provisions of Archstone's declaration of trust regarding excess
shares, each outstanding share entitles its holder to one vote on all matters
submitted to shareholders for vote, including the election of trustees.
Shareholders of Archstone have the right to vote on, among other things, a
merger of Archstone, certain amendments to Archstone's declaration of trust and
the termination of Archstone. A merger of Archstone, subject to certain
exceptions, and 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.
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AMENDMENTS TO THE PARTNERSHIP AGREEMENT OR ARCHSTONE'S DECLARATION OF TRUST
---------------------------------------------------------------------------
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 theobligations 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.
Maryland law requires the shareholder of a REIT to approve any amendment to its
declaration of trust, with some 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.
COMPENSATION, FEES AND DISTRIBUTIONS
------------------------------------
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.
Archstone's trustees receive an annual retainer and meeting fees for each
meeting of the board of trustees they attend. Members of Archstone's investment,
compensation, audit and special committees receive additional retainers and
fees. Archstone's trustees may also receive options under Archstone's 1997 Long-
Term Incentive Plan. Archstone also grants its non-employee trustees options to
purchase common shares under Archstone's Share Option Plan for Outside Trustees.
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LIABILITY OF INVESTORS
----------------------
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.
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 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.
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REVIEW OF INVESTOR LISTS
------------------------
SCA-I will provide to each limited partner, upon demand, a current list of the
name and last known business, residence or mailing address of each partner of
the partnership.
Under Maryland law, Archstone must provide a list of its shareholders if it
receives a written request from shareholders who have held, for at 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 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. 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.
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. 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. In order to qualify as a REIT,
Archstone must distribute at least 95% of its 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 additional units without the consent of
limited partners who hold a majority of the units held by limited partners at
the time.
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
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<PAGE>
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 April 15,
1999, approximately 139,016,000 common shares were issued and outstanding and
held of record by approximately 3,100 shareholders.
LIQUIDITY
---------
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 itsinterest 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. 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. Persons who are not affiliates
of Archstone will be able to freely transfer their common shares because they
have been registered under the Securities Act of 1933, subject to the
restrictionson transferability and ownership of excess shares in Archstone's
declaration of trust. The common shares are listed on the NYSE.
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<PAGE>
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 Federal income taxes. Instead, each holder of
units includes its allocable share of the partnership's taxable income or loss
in determining its individual Federal income tax liability. The maximum Federal
income tax rate for individuals under current law is 39.6%. Income and loss from
the partnership generally is subject to the "passive activity" limitations.
Under the "passive activity" rules, income and loss from the partnership and
such other partnerships that is considered "passive income" generally can be
offset against income and loss from other investments that constitute "passive
activities" unless the partnership is considered a "publicly traded
partnership," in which case income and loss from the partnership can only be
offset against other income and loss from the partnership or such other
partnerships.
Cash distributions from the partnership are not taxable to a holder of units
except to the extent they exceed such holder's basis in its interest in the
partnership, which will include such holder's allocable share of the
partnership's nonrecourse debt.
Each year, holders of units will receive a Schedule K-1 tax form containing
detailed tax information for inclusion in preparing their Federal income tax
returns.
Holders of the units are required, in some cases, to file state income tax
returns and/or pay state income taxes in the states in which the partnership
owns property, even if they are not residents of those states.
Archstone has elected to be taxed as a REIT for Federal income tax purposes for
its taxable year ended December 31, 1998. So long as it qualifies as a REIT,
Archstone will be permitted to deduct distributions paid to its shareholders,
which effectively will reduce the "double taxation" that typically results when
a corporation earns income and distributes that income to its shareholders in
the form of dividends. A qualified REIT, however, is subject to Federal income
tax on income that is not distributed and also may be subject to Federal income
and excise taxes in some circumstances. The maximum Federal income tax rate for
corporations under current law is 35%. Distributions paid by Archstone will be
treated as "portfolio" income and cannot be offset with losses from "passive
activities." The maximum Federal income tax rate for individuals under current
law is 39.6%.
Except to the extent designated as capital gain dividends, distributions made by
Archstone to its taxable domestic shareholders out of current or accumulated
earnings and profits will be taken into account by them as ordinary income.
Distributions that are designated as capital gain dividends generally will be
taxed as long-term capital gain, subject to some limitations. Distributions in
excess of current or accumulated earnings and profits will be treated as a non-
taxable return of basis to the extent of a shareholder's adjusted basis in its
common shares, with the excess taxed as capital gain.
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<PAGE>
income taxes in the states in which the partnership owns property, even if they
are not residents of those states.
Each year, shareholders of Archstone will receive Form 1099 used by corporations
to report distributions 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.
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<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, trust 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.
40
<PAGE>
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 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.
41
<PAGE>
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.
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.
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;
. 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.
42
<PAGE>
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
43
<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>
<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;
(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>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Archstone Communities Trust, a
Maryland real estate investment trust, and each of the undersigned trustees and
officers of Archstone Communities Trust, hereby constitutes and appoints R. Scot
Sellers, Patrick R. Whelan, Charles E. Mueller, Jr., William Kell, Ash K. Atwood
and Jeffrey A. Klopf, its, his or her true and lawful attorneys-in-fact and
agents, for it, him or her and in its, his or her name, place and stead, in any
and all capacities, with full power to act alone, to sign any and all amendments
to this registration statement, and to file each such amendment to this
registration statement with all exhibits thereto, and any and all documents in
connection therewith, with the Securities and Exchange Commission, hereby
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform any and all acts and things requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as it, he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
II-4
<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 registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Englewood, State of Colorado on April 27, 1999.
ARCHSTONE COMMUNITIES TRUST
By: /s/ R. Scot Sellers
----------------------------
R. Scot Sellers
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ R. Scot Sellers
- --------------------------- Chairman and Chief Executive April 27, 1999
R. Scot Sellers Officer
(Principal Executive Officer)
/s/ Charles E. Mueller, Jr.
- --------------------------- Chief Financial Officer and April 27, 1999
Charles E. Mueller, Jr. Senior Vice President
(Principal Financial Officer)
/s/ William Kell
- --------------------------- Controller and Senior Vice April 27, 1999
William Kell President
/s/ James A. Cardwell
- --------------------------- Trustee April 27, 1999
James A. Cardwell
/s/ Ned S. Holmes
- --------------------------- Trustee April 27, 1999
Ned S. Holmes
/s/ John T. Kelley III
- --------------------------- Trustee April 27, 1999
John T. Kelley III
/s/ Calvin K. Kessler
- --------------------------- Trustee April 27, 1999
Calvin K. Kessler
/s/ Constance B. Moore
- --------------------------- Trustee April 27, 1999
Constance B. Moore
/s/ James H. Polk III
- --------------------------- Trustee April 27, 1999
James H. Polk III
/s/ John M. Richman
- --------------------------- Trustee April 27, 1999
John M. Richman
/s/ John C. Schweitzer
- --------------------------- Trustee April 27, 1999
John C. Schweitzer
II-5
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------ --------------------
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.
23.1 Consent of KPMG LLP.
23.2 Consent of Mayer, Brown & Platt (included in opinions filed as
Exhibits 5 and 8).
24 Power of Attorney (included at page II-4).
II-6
<PAGE>
Exhibit 4.2
TRANSFER AND REGISTRATION RIGHTS AGREEMENT
THIS TRANSFER AND REGISTRATION RIGHTS AGREEMENT (this "Agreement"), made as
of the 30th day of April 1998, among Security Capital Atlantic Incorporated, a
Maryland corporation (the "Company"), and the investors listed on the signature
pages hereto (referred to collectively as the "Investors" and individually as an
"Investor");
W I T N E S S E T H:
WHEREAS, the Company, the Investors and other persons are parties to
certain Contribution Agreements of even date herewith (the "Contribution
Agreements"), pursuant to the terms of which Investors agreed to contribute
their respective ownership interests in certain entities to the Partnership (as
hereinafter defined) in exchange for Units (as hereinafter defined); and
WHEREAS, the Units held by the Investors will be exchangeable for Shares
(as hereinafter defined) of the Company in accordance with the Partnership
Agreement (as hereinafter defined); and
WHEREAS, the Company and Investors agreed to execute and deliver this
Agreement at the Closing pursuant to the Contribution Agreements.
NOW, THEREFORE, in consideration of the premises and other good and
valuable considerations, the receipt, adequacy and sufficiency of which are
hereby acknowledged by the parties, the parties intending to be legally bound,
hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have
the following respective meanings:
"Affiliate" means, with regard to a Person, a Person that controls, is
controlled by, or is under common control with, such Person. For purposes of
this definition, "control" when used with respect to any Person means the power
to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "affiliated," "controlling" and "controlled" having meanings
correlative to the foregoing.
"Commission" means the Securities and Exchange Commission or any other
applicable federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
<PAGE>
"Investor" has the meaning set forth in the introduction to this Agreement;
provided that a Person shall cease to be an Investor under this Agreement once
such Person no longer holds any Registrable Securities; and provided, further,
that each Person who after the date hereof is issued Units and executes a
counterpart to this Agreement shall be included in the definition of "Investor"
and shall have the rights and obligations of an Investor under this Agreement.
"Partnership" means Atlantic Multifamily Limited Partnership-I, a Delaware
limited partnership.
"Partnership Agreement" means the Agreement of Limited Partnership of the
Partnership, as the same may be hereafter further amended.
"Permitted Transferee" means any Person to whom the Investors may assign
their Units in accordance with Section 2.2 of this Agreement.
"Person" means an individual, partnership, corporation, limited liability
company, estate, trust or unincorporated organization, or a government or agency
or political subdivision thereof.
"Registrable Security" means (i) any Shares issuable to an Investor upon
exchange of Units pursuant to the Partnership Agreement, (ii) any other
securities issued by the Company in exchange for any such Shares and (iii) any
securities issued by the Company as a dividend or distribution on account of
Registrable Securities or resulting from a subdivision of the outstanding
Registrable Securities into a greater number of Shares (by reclassification,
stock split or otherwise). As to any particular Registrable Securities, such
securities will cease to be Registrable Securities when (a) they have been
distributed to the public pursuant to an offering registered under the
Securities Act or (b) they have been sold to the public through a broker, dealer
or market-maker in compliance with Rule 144 under the Securities Act or (c) they
have been transferred pursuant to Section 3 to any Person who is not a Permitted
Transferee or (d) the Company has delivered a new certificate or other evidence
of ownership not bearing the legend set forth on the Shares upon the initial
issuance thereof, and, in the opinion of counsel to the Company, the subsequent
public disposition of such security shall not require the registration or
qualification under the Securities Act, or (e) such security has ceased to be
outstanding.
"Resale Rules" means Rule 144 promulgated by the Commission or any
successor to such rule or any other rule or regulation of the Commission that
may at any time permit the Investor to sell its Shares to the public without
registration.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Shares" mean the Company's Shares of Common Stock, $0.01 par value per
share, issuable to the Investors upon the conversion of Units, and any
securities that may be issued as a result of any
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stock split or dividend and any securities into which such shares may be changed
as a result of merger, consolidation, recapitalization or other similar
transaction.
"Units" shall have the meaning given to such term in the Partnership
Agreement issued to the Investors pursuant to the Contribution Agreements.
2. TRANSFER RESTRICTIONS.
2.1 Lock-Up Period. Each of the Investors hereby agrees that, except as set
forth in Section 2.2, without the prior written consent of the Company, it will
not offer, pledge, sell, contract to sell, grant any options for the sale of or
otherwise dispose of, directly or indirectly (collectively, "Dispose of"), any
Units or Shares (the "Lock-Up").
2.2 Exceptions. The following transfers of Units or Shares shall not be
subject to the Lock-Up set forth in Section 2.1.
(a) An Investor who is a natural person may Dispose of Units or Shares
to his or her spouse, siblings, parents, grandparents, any natural, adopted
or step children, nephews, nieces or other descendants or to any personal
trust in which such persons or such Investor or a combination thereof
retain the entire beneficial interest;
(b) An Investor who is a natural person may Dispose of Units or Shares
on his or her death to such Investor's estate, executor, administrator or
personal representative or to such Investor's beneficiaries pursuant to a
devise or bequest or by the laws of descent and distribution;
(c) An Investor that is a corporation, partnership or other business
entity may (i) Dispose of Units or Shares to one or more other entities
that are wholly owned or controlled, legally and beneficially, by such
Investor or by a Person or Persons that, directly or indirectly, wholly
owns and controls such Investor, (ii) Dispose of Units or Shares to an
Affiliate of the Investor or (iii) Dispose of Units or Shares by
distributing such Units or Shares in a merger, liquidation, winding up or
otherwise without consideration to the equity owners (or in partial or full
redemption of the interests held by one or more of such equity owners) of
such corporation, partnership or business entity or to any other
corporation, partnership or business entity that is wholly owned by such
equity owners;
(d) An Investor may Dispose of Units or Shares as a bona fide gift;
and
(e) An Investor may Dispose of Units or Shares pursuant to a pledge,
grant of security interest or other encumbrance effected in a bona fide
transaction with an unrelated and unaffiliated financial institution (and
to the extent such financial institution succeeds to the Investor's
interest in the Units or Shares, such financial institution shall be
admitted as a substituted limited partner in accordance with the terms of
the Partnership Agreement
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<PAGE>
provided such financial institution acknowledges in writing and agrees to
be bound by the terms of this Agreement and the Partnership Agreement);
provided, however, that in the case of any transfer of Units or Shares
pursuant clauses (a), (c), (d) and (e), the transfer shall be effected
pursuant to an exemption from registration under the Securities Act; and
provided, further, an Investor may dispose of Shares (but not Units) at any
time and for any reason or purpose and to any Person after the first
anniversary of the date of this Agreement (provided such Shares have been
or are exempted from registration under the Securities Act, or are sold in
a transaction which is exempt from the registration requirements of the
Securities Act).
In the event any Investor Disposes of Units or Shares described in this Section
2.2, such Units shall remain subject to this Agreement and, as a condition of
the validity of such disposition, the transferee (and any pledgee who acquires
Units or Shares upon foreclosure or any transferee thereof) shall be required to
execute and deliver a counterpart of this Agreement.
3. SHELF REGISTRATION RIGHTS.
3.1 Shelf Registration.
(a) Demand. Unless previously registered, the Company shall cause to
be filed at the end of the eleventh month following the date of this
Agreement or as soon thereafter as practicable (but in no event later than
the end of the thirteenth month following the date of this Agreement), a
registration statement providing for the sale by the Investors of all of
the Registrable Securities pursuant to Rule 415 under the Securities Act in
accordance with the terms of this Agreement and the Company will use its
diligent good faith efforts to cause such registration statement to be
declared effective by the Commission as soon thereafter as is practicable.
(b) Company's Ability to Postpone. The Company shall have the
privilege to postpone, on one occasion only, the filing of a registration
statement under this Section 3.1 for a reasonable period of time (not
exceeding 60 days) if the Company furnishes the Investors with a
certificate signed by the chief executive officer of the Company stating
that, in its good faith judgment, the Company's board of directors has
determined that effecting the registration at such time would adversely
affect a material financing, acquisition, disposition of assets or stock,
merger or other comparable transaction or would require the Company to make
public disclosure of information the public disclosure of which would have
a material adverse effect upon the Company. The Company may also postpone,
on one occasion only, for up to 60 days the filing of a registration
statement under this Section 3.1 if registration rights granted to any
other holders of securities of the Company have been exercised and the
distribution pursuant thereto not yet completed.
(c) Inclusion in Shelf Registration. Any Investor who does not provide
the information reasonably requested by the Company in connection with such
registration
4
<PAGE>
statement as promptly as practicable after the receipt of a request for
information, but in no event later than twenty (20) days thereafter, shall
not be entitled to have its Registrable Securities included in such
registration statement.
3.2 Registration Procedures. If and whenever the Company is required by any
of the provisions of this Article 3 to use its diligent good faith efforts to
effect the registration of the Registrable Securities pursuant to Rule 415 under
the Securities Act, the Company shall:
(a) prepare and file with the Commission a registration statement with
respect to such securities and use its diligent good faith efforts to cause
such registration statement to become effective within ninety (90) days of
the date of filing and remain effective for as long as shall be necessary
to complete the distribution of the Registrable Securities so registered;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for so long as shall be necessary to complete the
distribution of the Registrable Securities and to comply with the
provisions of the Securities Act with respect to the sale or other
disposition of all securities covered by such registration statement
whenever the holders of such Registrable Securities shall desire to sell or
otherwise dispose of the same;
(c) furnish to each seller of Registrable Securities such numbers of
copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement, including
any preliminary prospectus, and any amendments or supplements thereto, and
such other documents, as such seller of Registrable Securities may
reasonably request in order to facilitate the sale or other disposition of
the Registrable Securities owned by such seller;
(d) use its diligent good faith efforts to register and qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller of
Registrable Securities shall reasonably request, and do any and all other
acts and things reasonably requested by such seller of Registrable
Securities to assist the Investors to consummate the sale or other
disposition in such jurisdictions of the Registrable Securities owned by
such seller, except that the Company shall not for any such purpose be
required to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified or to file therein any general consent to
service of process;
(e) otherwise use its diligent good faith efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an earning
statement covering the period of at least twelve months, beginning with the
first fiscal quarter beginning after the effective date of the registration
statement, which earning statement shall satisfy the provisions of Section
11(a) of the Securities Act;
5
<PAGE>
(f) use its diligent good faith efforts to list such securities on any
securities exchange on which any securities of the Company are then listed,
if the listing of such securities is then permitted under the rules of such
exchange; and
(g) notify each seller of Registrable Securities, at any time when a
prospectus relating to such registration statement is required to be
delivered under the Securities Act, of the happening of any event of which
it has knowledge as a result of which the prospectus included in such
registration statement, as then in effect, contains an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing; and promptly update the
registration statement and prospectus as necessary to correct such
statement or omission.
3.3 Expenses. Except as set forth in the following sentence, all expenses
incurred in the registration of Registrable Securities in accordance with
Section 3.2 of this Agreement (including fees and disbursements of counsel for
the Company) shall be borne by the Company. Notwithstanding the foregoing
sentence, all brokerage discounts and commissions and the costs fees and
disbursements of counsel for the Investors shall be paid solely by the
Investors.
3.4 Indemnification. In the event any Registrable Securities are included
in a Registration Statement under this Section 3:
(a) Indemnity by Company. Without limitation of any other indemnity
provided to any Investor, to the extent permitted by law, the Company will
indemnify and hold harmless each Investor and its directors, officers,
employees, agents and partners and each Person, if any, who controls such
Investor (within the meaning of the Securities Act or the Exchange Act),
against any losses, claims, damages, liabilities and expenses (joint or
several) to which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages, liabilities and expenses (or actions in respect thereof) arise out
of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement (including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto), (ii) the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or (iii) any
violation or alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state
securities law, and the Company will reimburse such Investor and its
directors, officers, employees, agents and partners, and any controlling
person thereof, for any reasonable legal or other expenses incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability, expense or action; provided, however, that the Company shall not
be liable in any such case for any such loss, claim, damage, liability,
expense or action to the extent that it arises out of or is based upon a
Violation that occurs in reliance upon and
6
<PAGE>
in conformity with written information furnished expressly for use in connection
with such registration by any such Investor or controlling person thereof.
(b) Indemnity by Investors. In connection with any registration statement
in which an Investor is participating, each such Investor will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will indemnify the Company, its
directors, officers, employees and agents and each Person who controls the
Company (within the meaning of the Securities Act or Exchange Act) against any
losses, claims, damages, liabilities and expenses resulting from any Violation
which occurs solely in reliance upon and in conformity with any information or
affidavit so furnished in writing by such Investor expressly for use in
connection with such registration; provided, that the obligation to indemnify
will be several and not joint and several with any other Person and will be
limited to the net amount received by such Investor from the sale of Registrable
Securities pursuant to such registration statement.
(c) Notice; Right to Defend. Promptly after receipt by an indemnified party
under this Section 3.4 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 3.4,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, if the
indemnifying party agrees in writing that it will be responsible for any costs,
expenses, judgments, damages and losses incurred by the indemnified party with
respect to such claim, jointly with any other indemnifying party similarly
noticed, to assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if the indemnified party reasonably believes that
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall relieve such indemnifying party of any liability to the indemnified
party under this Section 3.4 only if and to the extent that such failure is
prejudicial to its ability to defend such action, and the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party other than under this Section 3.4.
(d) Contribution. If the indemnification provided for in this Section 3.4
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party thereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other
hand in
7
<PAGE>
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relevant fault of the indemnifying party and the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. Notwithstanding the foregoing, the
amount any Investor shall be obligated to contribute pursuant to this
Section 3.4(d) shall be limited to an amount equal to the proceeds to such
Investor of the Registrable Securities sold pursuant to the registration
statement which gives rise to such obligation to contribute (less the
aggregate amount of any damages which the Investor has otherwise been
required to pay in respect of such loss, claim, damage, liability or action
or any substantially similar loss, claim, damage, liability or action
arising from the sale of such Registrable Securities).
(e) Survival of Indemnity. The indemnification provided by this
Section 3.4 shall be a continuing right to indemnification and shall
survive the registration and sale of any securities by any Person entitled
to indemnification hereunder and the expiration or termination of this
Agreement.
3.5 Rule 144. In order to permit the Investors to sell the Registrable
Securities they hold, if they so desire, from time to time pursuant to Rule 144
under the Securities Act, or any successor to such rule, the Company shall make
available adequate current public information and file with the Commission in a
timely manner all reports and other documents required of the Company under the
Exchange Act, and perform any other act which is required of the issuer of
securities as a condition to a seller being permitted to sell securities under
Rule 144 or any successor to such Rule.
3.6 Limitations. The Investors shall not, without prior written consent of
the Company, effect any public sale or distribution (including sales pursuant to
the Resale Rules under the Securities Act) of securities of the Company during
any period commencing 30 days prior to and ending 60 days after the offering of
any securities by the Company for its benefit, other than pursuant a
registration statement on Form S-8 or any successor form; provided that the
Company gives written notice to the Investors prior to such period.
4. MISCELLANEOUS.
4.1 Notices.
(a) All communications under this Agreement shall be in writing and
shall be delivered by reputable overnight courier or shall be mailed by
registered or certified mail, postage prepaid,
8
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(i) if to the Company, at:
Security Capital Atlantic Incorporated
Six Piedmont Center, Suite 600
Atlanta, Georgia 30305
Attn: Secretary
or at such other address as it may have furnished in writing to the
holders of Registrable Securities at the time outstanding, or
(ii) if to any Person who is the registered holder of Registrable
Securities, to the address of such Investor as it appears in the stock
ledger of the Company or in the records of the Partnership.
(b) Any notice so addressed shall be deemed given when received.
4.2 Successors and Assigns. Except as otherwise expressly provided herein,
this Agreement shall inure to the benefit of and be binding upon the successors
and assigns of the Company and each of the Investors. Without the prior written
consent of the Company, which consent shall not be unreasonably withheld, the
rights of the Investors to cause the Company to effect a registration of
Registrable Securities may not be transferred other than to a Permitted
Transferee.
4.3 Amendment and Waiver. This Agreement may be amended, and the observance
of any term of this Agreement may be waived, but only with the written consent
of the Company and the Investors holding a majority of the Registrable
Securities; provided, however, that no such amendment or waiver shall take away
any registration right of any Investor or reduce the amount of reimbursable
costs to any Investor in connection with any registration hereunder or waive or
amend any Investor's rights to indemnification without the consent of such
Investor; further provided, however, that without the consent of any other
Investor, any Investor may from time to time enter into one or more agreements
amending, modifying or waiving the provisions of this Agreement if such action
does not adversely affect the rights or interest of any other Investor. No delay
on the part of any party is in the exercise of any right, power or remedy shall
operate as a waiver thereof, nor shall any single or partial exercise by any
party of any right, power or remedy preclude other or further exercise thereof,
or the exercise of any other right, power or remedy.
4.4 Counterparts. One or more counterparts of this Agreement may be
signed by the parties, each of which shall be an original but all of which
together shall constitute one and the same instrument.
4.5 Governing Law. This Agreement shall be construed in accordance with
and governed by the internal laws of the State of Maryland, which shall prevail
in all matters arising under or in connection with this Agreement.
9
<PAGE>
4.6 Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not be
affected thereby.
4.7 Headings. The headings in this Agreement are for convenience of
reference only and shall not be deemed to alter or affect the meaning or
interpretation of any provisions hereof.
10
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SIGNATURE PAGE TO
TRANSFER AND REGISTRATION RIGHTS AGREEMENT
DATED AS OF APRIL 30, 1998
BY AND AMONG
SECURITY CAPITAL ATLANTIC INCORPORATED
AND CERTAIN INDIVIDUALS AND ENTITIES
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date and year first above written.
COMPANY:
SECURITY CAPITAL ATLANTIC
INCORPORATED
By: /s/ J. Lindsay Freeman
-------------------------------
J. Lindsay Freeman
Managing Director
11
<PAGE>
SIGNATURE PAGE TO
TRANSFER AND REGISTRATION RIGHTS AGREEMENT
DATED AS OF APRIL 30, 1998
BY AND AMONG
SECURITY CAPITAL ATLANTIC INCORPORATED
AND CERTAIN INDIVIDUALS AND ENTITIES
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date and year first above written.
INVESTORS:
E.C. GRIFFITH CO.
By: /s/ James R. Griffith
-------------------------------
Name: James R. Griffith
-----------------------------
Title: President
----------------------------
12
<PAGE>
SIGNATURE PAGE TO
TRANSFER AND REGISTRATION RIGHTS AGREEMENT
DATED AS OF APRIL 30, 1998
BY AND AMONG
SECURITY CAPITAL ATLANTIC INCORPORATED
AND CERTAIN INDIVIDUALS AND ENTITIES
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date and year first above written.
INVESTORS:
/s/ William A. White, Jr.
---------------------------------------
WILLIAM A. WHITE, JR.
WHITE-CAVU LIMITED PARTNERSHIP
By: William A. White, Jr.
------------------------------------
Name: William A. White, Jr.
----------------------------------
Title: General Partner
---------------------------------
13
<PAGE>
SIGNATURE PAGE TO
TRANSFER AND REGISTRATION RIGHTS AGREEMENT
DATED AS OF APRIL 30, 1998
BY AND AMONG
SECURITY CAPITAL ATLANTIC INCORPORATED
AND CERTAIN INDIVIDUALS AND ENTITIES
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date and year first above written.
INVESTORS:
/s/ Thomas Hunter III
----------------------------------------
<PAGE>
SIGNATURE PAGE TO
TRANSFER AND REGISTRATION RIGHTS AGREEMENT
DATED AS OF APRIL 30, 1998
BY AND AMONG
SECURITY CAPITAL ATLANTIC INCORPORATED
AND CERTAIN INDIVIDUALS AND ENTITIES
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date and year first above written.
INVESTORS:
/s/ G. Dan Page, Jr.
_________________________________
G. DAN PAGE, JR.
15
<PAGE>
SIGNATURE PAGE TO
TRANSFER AND REGISTRATION RIGHTS AGREEMENT
DATED AS OF APRIL 30, 1998
BY AND AMONG
SECURITY CAPITAL ATLANTIC INCORPORATED
AND CERTAIN INDIVIDUALS AND ENTITIES
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date and year first above written.
INVESTORS:
/s/ Joseph E. Kaylor
______________________________
JOSEPH E. KAYLOR
16
<PAGE>
SIGNATURE PAGE TO
TRANSFER AND REGISTRATION RIGHTS AGREEMENT
DATED AS OF APRIL 30, 1998
BY AND AMONG
SECURITY CAPITAL ATLANTIC INCORPORATED
AND CERTAIN INDIVIDUALS AND ENTITIES
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date and year first above written.
INVESTORS:
/s/ Dean R. Devillers
---------------------------------------
DEAN R. DEVILLERS
17
<PAGE>
SIGNATURE PAGE TO
TRANSFER AND REGISTRATION RIGHTS AGREEMENT
DATED AS OF APRIL 30, 1998
BY AND AMONG
SECURITY CAPITAL ATLANTIC INCORPORATED
AND CERTAIN INDIVIDUALS AND ENTITIES
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date and year first above written.
INVESTORS:
ELM LAND CO.
By: /s/ Willie L. Rea
----------------------------------
Name: Willie L. Rea
--------------------------------
Title: General Partner
-------------------------------
18
<PAGE>
SIGNATURE PAGE TO
TRANSFER AND REGISTRATION RIGHTS AGREEMENT
DATED AS OF APRIL 30, 1998
BY AND AMONG
SECURITY CAPITAL ATLANTIC INCORPORATED
AND CERTAIN INDIVIDUALS AND ENTITIES
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date and year first above written.
INVESTORS:
THE SPRINGS COMPANY
By: /s/ William G. Taylor
--------------------------------
Name: William G. Taylor
Title: President
19
<PAGE>
SIGNATURE PAGE TO
TRANSFER AND REGISTRATION RIGHTS AGREEMENT
DATED AS OF APRIL 30, 1998
BY AND AMONG
SECURITY CAPITAL ATLANTIC INCORPORATED
AND CERTAIN INDIVIDUALS AND ENTITIES
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date and year first above written.
INVESTORS:
CLOSE FAMILY PARTNERSHIP
By: /s/ William G. Taylor
--------------------------------
Name: William G. Taylor
Title: President
The Springs Company under
Power of Attorney for
Crandall Close Boules,
Managing General Partner,
Close Family Partnership
20
<PAGE>
SIGNATURE PAGE TO
TRANSFER AND REGISTRATION RIGHTS AGREEMENT
DATED AS OF APRIL 30, 1998
BY AND AMONG
SECURITY CAPITAL ATLANTIC INCORPORATED
AND CERTAIN INDIVIDUALS AND ENTITIES
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date and year first above written.
INVESTORS:
/S/ ZEB REA
-------------------------
ZEB REA
21
<PAGE>
Exhibit 5
MAYER, BROWN & PLATT
190 SOUTH LA SALLE STREET
CHICAGO, ILLINOIS 60603-3441
MAIN TELEPHONE
312-782-0600
MAIN FAX
312-701-7711
April 29, 1999
The Board of Trustees
Archstone Communities Trust
7670 South Chester Street
Englewood, Colorado 80112
Ladies and Gentlemen:
We have acted as special counsel to Archstone Communities Trust, a Maryland
real estate investment trust ("Archstone"), in connection with the registration
of up to 908,927 common shares of beneficial interest in Archstone Communities
Trust (the "Common Shares") which may be issued in exchange for units of
partnership interest ("Units") in Atlantic Multifamily Limited Partnership - I
(the "Partnership") pursuant to the Agreement of Limited Partnership dated as of
April 30, 1998 among Archstone and the limited partners in the Partnership (the
"Partnership Agreement") and as set forth in the Form S-3 Registration Statement
filed with the Securities and Exchange Commission on the date hereof (the
"Registration Statement").
As special counsel to Archstone, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of Archstone's
declaration of trust and bylaws, the Partnership Agreement, resolutions of
Archstone's Board of Trustees and such of Archstone's records, certificates and
other documents and such questions of law as we considered necessary or
appropriate for the purpose of this opinion. As to certain facts material to our
opinion, we have relied, to the extent we deem such reliance proper, upon
certificates of public officials and officers of Archstone. In rendering this
opinion, we have assumed the genuineness of all signatures, the authenticity of
all documents submitted to us as originals and the conformity to authentic
original documents of all documents submitted to us as copies.
Based upon and subject to the foregoing and to the assumptions, conditions
and limitations set forth herein, we are of the opinion that the Common Shares
have been duly authorized and, when the Common Shares are issued upon conversion
of Units in accordance with the terms of the Partnership Agreement, the Common
Shares will be legally issued, fully paid and, except as described in the
Registration Statement under the caption "Comparison of Ownership of Units and
Common Shares - Liability of Investors," nonassessable.
CHICAGO BERLIN CHARLOTTE COLOGNE HOUSTON LONDON LOS ANGELES NEW YORK WASHINGTON
INDEPENDENT MEXICO CITY CORRESPONDENT: JAUREGUI, NAVARRETE, NADER Y ROJAS
INDEPENDENT PARIS CORRESPONDENT: LAMBERT ARMENIADES & LEE
<PAGE>
The Board of Trustees
Archstone Communities Trust
April 29, 1999
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to our firm in the Registration
Statement.
The opinions contained herein are limited to Federal laws of the United
States, the laws of the State of Illinois and the laws of the State of Maryland
governing real estate investment trusts. We are not purporting to opine on any
matter to the extent that it involves the laws of any other jurisdiction.
These opinions are furnished to you solely for your benefit in connection
with the transactions described herein and are not to be used for any other
purpose without our prior written consent.
Very truly yours,
MAYER, BROWN & PLATT
<PAGE>
MAYER, BROWN & PLATT
190 SOUTH LA SALLE STREET
CHICAGO, ILLINOIS 60603-3441
MAIN TELEPHONE
312-782-0600
MAIN FAX
312-701-7711
Exhibit 8
April 29, 1999
Board of Trustees
Archstone Communities Trust
7670 South Chester Street
Englewood, Colorado 80112
Re: Archstone Communities Trust
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
In connection with the possible issuance of common shares of beneficial
interest in Archstone Communities Trust, a Maryland real estate investment trust
("ACT"), pursuant to the Form S-3 Registration Statement filed with the
Securities and Exchange Commission on the date hereof (the "Registration
Statement"), you have requested our opinions concerning (i) the qualification
and taxation of ACT as a REIT and (ii) the information in the Registration
Statement under the heading "Federal Income Tax Considerations."
In formulating our opinions, we have reviewed and relied upon the
Registration Statement, such other documents and information provided by you,
and such applicable provisions of law as we have considered necessary or
desirable for purposes of the opinions expressed herein.
In addition, we have relied upon certain representations made by ACT
relating to the organization and actual and proposed operation of ACT and its
relevant subsidiaries. For purposes of our opinions, we have not made an
independent investigation of the facts set forth in such documents,
representations from ACT or the Registration Statement. We have, consequently,
relied upon your representations that the information presented in such
documents, or otherwise furnished to us, accurately and completely describes all
material facts.
CHICAGO BERLIN CHARLOTTE COLOGNE HOUSTON LONDON LOS ANGELES NEW YORK WASHINGTON
INDEPENDENT MEXICO CITY CORRESPONDENT: JAUREGUI, NAVARRETE, NADER Y ROJAS
INDEPENDENT PARIS CORRESPONDENT: LAMBERT ARMENIADES & LEE
<PAGE>
Board of Trustees
April 29, 1999
Page 2
Our opinions expressed herein are based on the Internal Revenue Code of
1986, as amended (the "Code"), the Treasury regulations promulgated thereunder,
and the interpretations of the Code and such regulations by the courts and the
Internal Revenue Service, all as they are in effect and exist at the date of
this letter. It should be noted that statutes, regulations, judicial decisions,
and administrative interpretations are subject to change at any time and, in
some circumstances, with retroactive effect. A material change that is made
after the date hereof in any of the foregoing bases for our opinions, could
adversely affect our conclusions.
Based upon and subject to the foregoing, it is our opinion that:
1. Beginning with ACT's taxable year ended December 31, 1988, ACT has been
organized in conformity with the requirements for qualification as a REIT under
the Code, and ACT's actual and proposed method of operation, as described in the
Registration Statement and as represented by ACT has enabled it and will
continue to enable it to satisfy the requirements for qualification as a REIT.
2. The information in the Registration Statement under the heading "Federal
Income Tax Considerations," "Exchange of Units - Tax Consequences of Exchange,"
and "Comparison of Ownership of Units and Common Shares - Federal Income
Taxation," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by us and is correct in all material respects.
Other than as expressly stated above, we express no opinion on any issue
relating to ACT or to any investment therein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein and under
the caption "Federal Income Tax Considerations" in the Registration Statement.
Very truly yours,
MAYER, BROWN & PLATT
<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 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
April 29, 1999
