<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1997
NO. 333-30747
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
SECURITY CAPITAL ATLANTIC INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS)
SIX PIEDMONT CENTER
ATLANTA, GEORGIA 30305
(404) 237-9292
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
JEFFREY A. KLOPF, SECRETARY
SECURITY CAPITAL ATLANTIC INCORPORATED
SIX PIEDMONT CENTER
ATLANTA, GEORGIA 30305
(404) 237-9292
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
EDWARD J. SCHNEIDMAN STACY J. KANTER
MAYER, BROWN & PLATT SKADDEN, ARPS, SLATE, MEAGHER
190 SOUTH LASALLE STREET & FLOM LLP
CHICAGO, ILLINOIS 60603 919 THIRD AVENUE
(312) 782-0600 NEW YORK, NEW YORK 10022
(212) 735-3000
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APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this registration statement becomes
effective.
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. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES BEING OFFERING PRICE OFFERING REGISTRATION
BEING REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE(2)
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<S> <C> <C> <C> <C>
Notes........................................... $150,000,000 100% $150,000,000 $45,455
</TABLE>
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(1) Estimated solely for purposes of determining the registration fee.
(2) Previously paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED AUGUST 6, 1997
PRELIMINARY PROSPECTUS
LOGO
$100,000,000 % Notes due 2011
$50,000,000 % Notes due 2017
Interest on the % Notes due 2011 (the "2011 Notes") and the % Notes due
2017 (the "2017 Notes" and together with the 2011 Notes, the "Notes") of
Security Capital Atlantic Incorporated ("ATLANTIC") offered hereby is payable
semi-annually on February and August , commencing February , 1998.
Principal installments on the 2011 Notes will commence on August , 2003 and
principal installments on the 2017 Notes will commence on August , 2013, in
the amounts described herein. Each series of Notes will mature on August in
its year of maturity. See "Description of Notes--Principal and Interest". The
Notes may be redeemed at any time at the option of ATLANTIC, in whole or in
part, at a redemption price equal to the sum of (i) the principal amount of the
Notes being redeemed, plus accrued interest thereon to the redemption date and
(ii) the Make-Whole Amount (as defined), if any. See "Description of Notes--
Optional Redemption".
Each series of Notes will be represented by one or more global securities
("Global Securities") registered in the name of The Depository Trust Company
("DTC") or its nominee. Beneficial interests in the Global Securities will be
shown on, and transfers thereof will be effected only through, records
maintained by DTC and its participants. Owners of beneficial interests in the
Global Securities will be entitled to physical delivery of Notes in
certificated form only under the limited circumstances described under
"Description of Notes--Book-Entry Procedures".
On March 24, 1997, ATLANTIC entered into a Merger and Issuance Agreement (the
"Merger Agreement") with Security Capital Group Incorporated ("Security
Capital"), ATLANTIC's principal shareholder, which is subject to customary
conditions, including the approval of ATLANTIC's shareholders. Pursuant to the
Merger Agreement, Security Capital will cause ATLANTIC's REIT manager, Security
Capital (Atlantic) Incorporated (the "REIT Manager" or "REIT Management"), and
its property manager, SCG Realty Services Atlantic Incorporated ("SCG Realty
Services"), to be merged (the "Merger") into a newly formed subsidiary of
ATLANTIC in exchange for shares of ATLANTIC's common stock, par value $.01 per
share (the "Shares"). See "The Merger Transaction". At or about the same time
as the offering of the Notes (the "Offering"), ATLANTIC may conduct an offering
of approximately $50 million (which may be increased or decreased subject to
market conditions) of Series A Cumulative Redeemable Preferred Stock (the
"Preferred Share Offering" and, together with the Offering, the "Offerings").
See "Concurrent Preferred Share Offering".
SEE "RISK FACTORS" BEGINNING ON PAGE 21 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
The risk factors include:
. The Notes are unsecured and will be effectively subordinated to mortgages of
ATLANTIC and its subsidiaries.
. The ability of Security Capital, which owns 51.3% of the outstanding Shares,
to exercise significant influence over the business and policies of ATLANTIC.
. Conflicts of interest between ATLANTIC and other affiliates of Security
Capital, and the ability of Security Capital to influence decisions regarding
agreements with affiliates.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) ATLANTIC(1)(3)
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<S> <C> <C> <C>
Per 2011 Note % % %
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Per 2017 Note % % %
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Total $ $ $
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</TABLE>
(1) Plus accrued interest, if any, from August , 1997.
(2) ATLANTIC has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(3) Before deducting expenses payable by ATLANTIC estimated at $625,000.
The Notes are offered, subject to prior sale, when, as and if accepted by the
Underwriters and subject to approval of certain legal matters by Skadden, Arps,
Slate, Meagher & Flom LLP, counsel for the Underwriters. It is expected that
delivery of the Notes will be made on or about August , 1997 through the
facilities of DTC, against payment therefor in immediately available funds.
J.P. MORGAN & CO.
, 1997 GOLDMAN, SACHS & CO.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE NOTES. SPECIFICALLY,
THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND MAY BID FOR,
AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING".
No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized. This Prospectus does not constitute
an offer to sell or the solicitation of an offer to buy any securities other
than the securities to which they relate or any offer to sell or the
solicitation of any offer to buy such securities in any jurisdictions in which
such offer or solicitation is unlawful. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of ATLANTIC since the
date hereof or that the information contained or incorporated by reference
herein is correct as of any time subsequent to the date of such information.
SECURITY CAPITAL ATLANTIC INCORPORATED DIVERSIFIED TARGET MARKET
[MAP APPEARS HERE]
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PROSPECTUS SUMMARY......................................................... 3
RISK FACTORS............................................................... 21
Ranking of the Notes..................................................... 21
Significant Influence of Principal Shareholder........................... 21
Conflicts of Interest.................................................... 21
Borrowing Risks.......................................................... 22
Concentration of ATLANTIC's Communities in Atlanta....................... 23
Tax Liabilities as a Consequence of the Failure to Qualify as a REIT..... 23
Impact of Merger on ATLANTIC's Financial Position........................ 23
Market for the Notes..................................................... 23
ATLANTIC's Real Estate Investment Risks.................................. 24
Regulatory Compliance Risks.............................................. 25
Restrictions Associated With ATLANTIC's Tax-Exempt Bond Financings....... 26
USE OF PROCEEDS............................................................ 27
CAPITALIZATION............................................................. 27
THE MERGER TRANSACTION..................................................... 28
Description of the Merger................................................ 28
Relationship with Security Capital After the Merger...................... 29
Interests of Certain Persons in the Merger............................... 31
Long-Term Incentive Plan................................................. 33
BUSINESS................................................................... 34
Highly Focused Business Strategy Grounded in Research.................... 34
ATLANTIC's Operating System.............................................. 36
Strategy for Cash Flow and Distribution Growth........................... 39
Competition.............................................................. 42
Employees................................................................ 43
Legal Proceedings........................................................ 43
Americans with Disabilities Act.......................................... 43
Environmental Matters.................................................... 43
Insurance Coverage....................................................... 44
REIT MANAGEMENT............................................................ 44
General.................................................................. 44
Directors and Officers of ATLANTIC and the REIT Manager.................. 46
Classification of Directors.............................................. 50
Committees of the Board.................................................. 50
Compensation of Directors................................................ 51
Outside Directors Plan................................................... 51
Limitation of Liability and Indemnification.............................. 52
ATLANTIC'S COMMUNITIES..................................................... 53
Portfolio Composition.................................................... 53
Geographic Distribution.................................................. 54
Communities.............................................................. 55
</TABLE>
i
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<TABLE>
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PAGE
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SELECTED FINANCIAL INFORMATION............................................ 62
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 64
Overview................................................................ 64
Results of Operations................................................... 67
Environmental Matters................................................... 72
Liquidity and Capital Resources......................................... 72
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES............................... 80
Investment Policies..................................................... 80
Financing Policies...................................................... 81
Policies With Respect to Certain Transactions........................... 81
Policies With Respect to Other Activities............................... 82
CERTAIN RELATIONSHIPS AND TRANSACTIONS.................................... 82
REIT Management Agreement............................................... 82
Security Capital Investor Agreement..................................... 83
Shareholders' Agreement................................................. 83
Property Management Company............................................. 83
Homestead Transaction................................................... 84
Funding Commitment Agreement............................................ 84
Protection of Business Agreement........................................ 85
Homestead Investor Agreement............................................ 86
Development Agreement................................................... 86
Other Transactions With Affiliates...................................... 86
PRINCIPAL SHAREHOLDERS.................................................... 86
DESCRIPTION OF NOTES...................................................... 88
General................................................................. 88
Principal and Interest.................................................. 88
Optional Redemption..................................................... 89
Merger, Consolidation or Sale........................................... 90
Certain Covenants....................................................... 90
Events of Default, Notice and Waiver.................................... 92
Modification of the Indenture........................................... 94
Discharge, Defeasance and Covenant Defeasance........................... 95
Registration and Transfer............................................... 96
Book-Entry Procedures................................................... 97
Same-Day Settlement and Payment......................................... 98
Certain Definitions..................................................... 98
Trustee................................................................. 100
FEDERAL INCOME TAX CONSIDERATIONS......................................... 100
Taxation of ATLANTIC.................................................... 101
Taxation of Note Holders................................................ 104
Tax Effects of the Merger............................................... 108
Other Tax Considerations................................................ 109
</TABLE>
ii
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<TABLE>
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PAGE
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<S> <C>
UNDERWRITING............................................................... 110
CONCURRENT PREFERRED SHARE OFFERING........................................ 111
INDEPENDENT AUDITORS AND EXPERTS........................................... 111
VALIDITY OF NOTES.......................................................... 112
ADDITIONAL INFORMATION..................................................... 112
GLOSSARY................................................................... 113
INDEX TO FINANCIAL STATEMENTS.............................................. F-1
</TABLE>
iii
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed information and
financial statements appearing elsewhere in this Prospectus. All references to
communities under control refer to developments in planning that were under
control at June 30, 1997. The term "in planning" means that construction is
anticipated to commence within 12 months. The term "under control" means that
ATLANTIC has an exclusive right (through contingent contract or letter of
intent) during a contractually agreed-upon time period to acquire land for
future development of multifamily communities, subject to removal of
contingencies during the due diligence process, but does not currently own the
land. The term "total expected investment cost" represents cost plus budgeted
renovations (for operating communities) or cost plus additional budgeted
development expenditures (for communities under construction and in planning).
The term "funds from operations" represents net earnings computed in accordance
with generally accepted accounting principles ("GAAP"), excluding gains (or
losses) from real estate transactions, provisions for possible losses,
extraordinary items and real estate depreciation. Funds from operations should
not be considered as an alternative to net earnings or any other GAAP
measurement of performance as an indicator of ATLANTIC's operating performance
or as an alternative to cash flows from operating, investing or financing
activities as a measure of liquidity. ATLANTIC believes that funds from
operations is helpful to a reader as a measure of the performance of an equity
REIT because, along with cash flow from operating activities, financing
activities and investing activities, it provides a reader with an indication of
the ability of ATLANTIC to incur and service debt, to make capital expenditures
and to fund other cash needs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Funds from Operations". Homestead Village(R) is a registered
trademark of Homestead Village Incorporated ("Homestead") and the term
"Homestead Village" as used herein shall be deemed to include a reference to
such registered trademark. See "Glossary" for the definitions of certain other
terms used in this Prospectus.
SECURITY CAPITAL ATLANTIC INCORPORATED
ATLANTIC's objective is to be the preeminent real estate operating company
focusing on multifamily communities in its southeastern United States target
market. Through the REIT Manager and SCG Realty Services, ATLANTIC has access
to services which provide ATLANTIC with the same resources as a fully
integrated operating company. The REIT Manager and SCG Realty Services have
approximately 100 professionals and 450 property-level and support personnel
dedicated to implementing ATLANTIC's highly focused operating strategy. See
"The Merger Transaction" for a description of an agreement that ATLANTIC has
entered into with Security Capital, which owns the REIT Manager and SCG Realty
Services, to merge the REIT Manager and SCG Realty Services into a newly formed
subsidiary of ATLANTIC in exchange for Shares. ATLANTIC focuses on the
development, acquisition, operation and long-term ownership of multifamily
communities. At June 30, 1997, ATLANTIC's portfolio consisted of 26,232
multifamily units, including 6,967 units under construction or in planning, in
15 metropolitan areas and 50 submarkets in growth areas of the southeastern
United States. The total expected investment cost of ATLANTIC's 69 operating
communities, including budgeted renovations and total budgeted development
expenditures, was approximately $979.1 million at June 30, 1997 and the total
budgeted development cost of ATLANTIC's 24 communities under construction or in
planning was approximately $446.1 million. Additionally, at June 30, 1997,
ATLANTIC had land in planning and under control for the development of 3,406
units with a total budgeted development cost of $222.8 million.
ATLANTIC seeks to achieve long-term, sustainable growth in per Share cash flow
by maximizing the operating performance of its core portfolio through value-
added operating systems and concentrating its experienced team of professionals
on developing and acquiring industry-leading multifamily communities in
targeted submarkets exhibiting strong job growth and favorable demographic
trends. Since its inception in 1993, ATLANTIC has employed a research-driven
investment approach, deploying its capital in markets and submarkets that
exhibit strong market fundamentals. ATLANTIC believes that population and
employment growth are the primary demand generators for multifamily product.
3
<PAGE>
ATLANTIC believes that its future growth will be driven by (i) its research-
based investment strategy which focuses on a primary target market exhibiting
strong demographic trends and job growth prospects; (ii) an experienced
management team which provides ATLANTIC with several senior officers with the
leadership, operational, investment and financial skills and experience to
oversee the operations of ATLANTIC; (iii) ongoing research and development
focused on identifying those submarkets and product types that will offer
continued opportunities for long-term cash flow growth; (iv) a development
strategy targeted at moderate income households which ATLANTIC believes
represent one of the largest and most underserved segments of the renter
population; (v) the acquisition and redevelopment of existing multifamily
communities in markets which are expected to experience favorable growth in
rents and income; (vi) a high-quality portfolio providing an internal source of
long-term cash flow growth; (vii) the substantial resources available to
ATLANTIC through its affiliation with Security Capital; and (viii) a
conservative balance sheet strategy that is expected to provide ATLANTIC with
the ability to raise funds through offerings of debt and equity and allow
ATLANTIC to take advantage of future investment opportunities.
ATLANTIC's executive offices are located at Six Piedmont Center, Atlanta,
Georgia 30305, and its telephone number is (404) 237-9292. ATLANTIC is a
Maryland corporation. Its predecessor was formed in October 1993 as a Delaware
corporation, and ATLANTIC was re-formed as a Maryland corporation in April
1994.
SUMMARY RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
"RISK FACTORS" PRIOR TO MAKING AN INVESTMENT DECISION REGARDING THE NOTES
OFFERED HEREBY. THESE RISKS INCLUDE:
. Although the Notes will be direct, senior obligations of ATLANTIC, the
Notes are unsecured and will be effectively subordinated to mortgages of
ATLANTIC and ATLANTIC's subsidiaries. On a pro forma basis as adjusted to
give effect to the Merger, ATLANTIC's April 1997 public offering of
Shares and the Offerings and the application of the proceeds therefrom,
the total indebtedness of ATLANTIC and its subsidiaries at March 31, 1997
was approximately $326.4 million, of which $155.4 million was secured.
Subject to certain limitations, ATLANTIC may incur additional
indebtedness, including mortgage loans and other secured indebtedness.
. The ability of Security Capital to exercise significant influence over
the business and policies of ATLANTIC due to its ownership of 51.3% of
the outstanding Shares, its contractual right to nominate up to three
Directors and its contractual right to prior approval over certain
matters, including ATLANTIC's operating budget and substantial deviations
therefrom.
. Conflicts of interest between ATLANTIC and other affiliates of Security
Capital, and the ability of Security Capital to influence decisions
regarding agreements with affiliates (which must be reviewed and approved
at least annually by ATLANTIC's independent Directors).
. Risks related to existing and future debt financings of ATLANTIC, such as
the possible inability to make required payments on the Notes and to
refinance revolving credit and mortgage indebtedness and possible
increases in interest rates.
. Concentration of communities representing 32.3% of ATLANTIC's pro forma
revenues for the three-month period ended March 31, 1997 in the Atlanta,
Georgia metropolitan area, which thus may be affected by changes in the
economic conditions of that area.
. Taxation of ATLANTIC as a corporation if it fails to continue to qualify
as a real estate investment trust (a "REIT") for federal income tax
purposes, and ATLANTIC's liability for certain federal, state and local
taxes on its income and property.
. The impact of the Merger on ATLANTIC's financial position, including the
possibility that the cost of providing REIT and property management
services internally will exceed the fees payable to the REIT Manager and
SCG Realty Services under the current agreements.
. Absence of a public market for the Notes.
4
<PAGE>
. Restrictions associated with tax-exempt bonds used to finance certain
communities which require that a certain percentage of units in those
communities be occupied by lower-income households.
. Real estate investment considerations, such as (i) the effect of local
economic and other conditions on real estate values and the ability of
residents to make rental payments, along with the general illiquidity of
equity real estate investments, which may limit the ability of ATLANTIC
to change its asset base; (ii) the risks inherent in development
activities, including the risk that construction may not be completed on
schedule; (iii) competition in seeking residents for communities owned,
communities for acquisition and land for development and (iv) risks
related to ATLANTIC's current investment in convertible mortgages and to
any future investments in mortgages.
. Potential liability of ATLANTIC for unanticipated or future environmental
liabilities and the potential expense of compliance with the Fair Housing
Amendments Act of 1988 (the "FHA") and the Americans with Disabilities
Act of 1990 (the "ADA").
SUMMARY RELATED PARTY TRANSACTIONS
As more fully described under "Certain Relationships and Transactions",
ATLANTIC has entered into the following transactions, in addition to the
transactions with affiliates described elsewhere under that caption and
throughout this Prospectus:
. REIT MANAGEMENT AGREEMENT. Pursuant to the REIT Management Agreement, the
REIT Manager provides various services to ATLANTIC, including strategic
and day-to-day management, research, investment analysis, acquisition and
due diligence, multifamily community development, asset management,
capital markets, asset disposition, legal and accounting services for a
fee, which was $3.0 million for the three-month period ended March 31,
1997 and was $10.4 million for the year ended December 31, 1996. The REIT
Management Agreement will be terminated upon closing of the Merger.
. SECURITY CAPITAL INVESTOR AGREEMENT. ATLANTIC and Security Capital are
parties to an Investor Agreement, which requires ATLANTIC to obtain
Security Capital's approval of certain matters, including ATLANTIC's
operating budget and substantial deviations therefrom, certain contracts
which contemplate annual payments in excess of $100,000 and acquisitions
or sales of assets in excess of $5.0 million. After the Merger, Security
Capital will continue to have contractual rights of prior approval and
consultation regarding certain matters, including ATLANTIC's operating
budget and substantial deviations therefrom, acquisitions or sales of
assets in excess of $25.0 million, issuances of securities for less than
fair market value, adoption of employee benefit plans and certain
incurrences of additional indebtedness. In addition, Security Capital has
the contractual right (and after the Merger will continue to have the
contractual right) to nominate up to three Directors to the Board,
depending upon its level of ownership of Shares.
. PROPERTY MANAGEMENT COMPANY. SCG Realty Services provides property
management services for 93% of ATLANTIC's properties pursuant to
agreements which terminate September 30, 1997, subject to earlier
termination by ATLANTIC on 30 days' notice, for a fee which was $1.3
million for the three-month period ended March 31, 1997 and was $4.2
million for the year ended December 31, 1996. The property management
agreements will be terminated upon closing of the Merger.
. HOMESTEAD TRANSACTION. In May 1996, ATLANTIC, Security Capital Pacific
Trust ("PTR"), Security Capital and Homestead entered into a merger
agreement, pursuant to which each of ATLANTIC, PTR and Security Capital
sold, through a series of merger transactions, all of their respective
assets relating to Homestead Village properties to Homestead. ATLANTIC
made a cash payment of $16.6 million to Homestead on the closing date and
ATLANTIC and PTR entered into funding commitment agreements. The
Homestead transaction resulted in ATLANTIC owning 4,201,220 shares of
Homestead common stock and 2,818,517 warrants to purchase Homestead
common stock (all of which were subsequently distributed to
shareholders). Pursuant to ATLANTIC's funding commitment agreement,
ATLANTIC agreed to fund mortgage loans to Homestead of up to $111.1
million in exchange for convertible mortgage notes of up to $98.0
million, of which $56.0 million had been funded through July 31, 1997.
5
<PAGE>
SUMMARY CONFLICTS OF INTEREST
The Merger transaction was initiated and structured by individuals who are
executive officers of Security Capital. Although no independent representatives
were retained to negotiate the terms of the Merger transaction on behalf of
ATLANTIC, the Board created the Special Committee (as defined below), which
retained a financial advisor and legal counsel. Two of the members of the
Special Committee, Ned S. Holmes and John M. Richman, own securities of
Security Capital. Additionally, certain officers and employees of the REIT
Manager and SCG Realty Services (including Constance B. Moore and James C.
Potts, Co-Chairmen of ATLANTIC) will receive certain benefits if the Merger is
consummated. Also, a conflict of interest may exist in connection with the
retention of J.P. Morgan Securities Inc. to represent both the Special
Committee in connection with the Merger and Security Capital in connection with
Security Capital's proposed initial public offering. See "Risk Factors--
Conflicts of Interest" and "The Merger Transaction--Interests of Certain
Persons in the Merger".
ATLANTIC currently does not have any employees and relies on the REIT Manager
and SCG Realty Services for management services. Two officers of the REIT
Manager and its affiliates may have conflicts of interest in allocating their
time between ATLANTIC and other affiliates of Security Capital, as may
employees of Security Capital Markets Group Incorporated ("Capital Markets
Group") and members of a common senior investment committee for the REIT
Manager and its affiliates. Also, Security Capital could influence decisions
regarding agreements between ATLANTIC and other affiliates of Security Capital
(although all such agreements must be reviewed and approved at least annually
by ATLANTIC's independent Directors). See "Risk Factors--Conflicts of
Interest".
RECENT DEVELOPMENTS
ATLANTIC's developments in 1996 include:
. ATLANTIC generated earnings from operations of $33.0 million in 1996, an
increase of $13.4 million over 1995. In 1996, ATLANTIC's cash flow from
operating activities was $54.4 million as compared to $39.7 million in
1995. ATLANTIC's 34 communities that were fully operational throughout
1996 and 1995 realized an increase in adjusted net operating income of
4.88%. This increase is the result of a 2.76% increase in ATLANTIC's
collections and a 0.97% decrease in ATLANTIC's rental expenses. The
growth in collections of 2.76% was due principally to an increase in
rental rates of 3.17% offset by a decrease in occupancy from 95.6% to
95.3%. In the fourth quarter of 1996, ATLANTIC's collections growth
slowed to 1.00% over the fourth quarter of 1995 (a 2.38% increase in
rental rates offset by a decrease in occupancy from 96.0% to 95.0%).
These fourth quarter decreases are principally due to demand and supply
imbalances in certain of ATLANTIC's primary target market cities. See
"Business--Strategy for Cash Flow and Distribution Growth--"Same Store'
Growth". This strong net operating income growth from the same store
portfolio generated 30% of ATLANTIC's funds from operations growth, and
the positive impact of acquisitions completed in 1996 generated an
additional 29% of funds from operations growth. The remaining 41% of
growth in funds from operations was produced by the stabilization of new
development communities. The contribution to funds from operations growth
from developments occurred even though ATLANTIC had an average of $168.4
million of assets under development or in lease-up during 1996. As these
communities in lease-up begin to reach stabilization in 1997 and
subsequent years, they are expected to add significantly to ATLANTIC's
long-term performance. For a description of how ATLANTIC calculates funds
from operations and certain limitations in the use of funds from
operations as a performance measure, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Funds from Operations".
. The development of moderate income multifamily communities continues to
be a major component of ATLANTIC's investment strategy. During 1996,
ATLANTIC commenced construction of 2,815 units at a total expected
investment cost of $164.4 million. Of that total, 51.8% were moderate
income communities. During 1996, three developed communities (one of
which was a moderate income community) representing a total expected
investment cost of $43.0 million achieved stabilization, adding 804 units
to ATLANTIC's stabilized portfolio.
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. ATLANTIC continues to take advantage of attractive investment
opportunities throughout its southeastern target market. During 1996,
ATLANTIC acquired 13 communities consisting of 3,556 units, representing
a total expected investment cost of $171.7 million. ATLANTIC is currently
in negotiations for the acquisition of approximately $25.2 million of
multifamily communities; however, there can be no assurance that any of
these acquisitions will be completed.
. ATLANTIC is implementing a portfolio and asset optimization strategy
pursuant to which it may from time to time dispose of communities that
are no longer consistent with its long-term investment objectives and
redeploy the proceeds into strategic acquisitions and developments,
preferably through tax-deferred exchanges. During 1996, ATLANTIC
completed the disposition of four communities, realizing an aggregate
gain of $6.7 million on aggregate proceeds of $64.2 million.
. On October 17, 1996, ATLANTIC sold its Homestead Village properties to a
newly formed company, Homestead, and entered into a funding commitment
agreement to fund the development of certain of such properties in
exchange for Homestead common stock and warrants that ATLANTIC
subsequently distributed to its shareholders. On a fully funded and
converted basis, ATLANTIC would own 15.35% of Homestead's common stock
(assuming no further equity offerings by Homestead, conversion of all
convertible mortgage notes and exercise of all outstanding warrants) as a
result of its obligation to fund mortgage loans to Homestead of up to
$111.1 million in exchange for convertible mortgage notes of up to $98.0
million, which are expected to contribute significantly to ATLANTIC's
future growth. Homestead's common stock and warrants trade on the
American Stock Exchange (the "ASE") under the symbols "HSD" and "HSD.W",
respectively. See "Certain Relationships and Transactions--Homestead
Transaction" and "--Funding Commitment Agreement". In order for ATLANTIC
to maintain its qualification as a REIT for Federal income tax purposes,
its ability to hold Homestead common stock or the convertible mortgage
notes, and the time at which it may convert such notes into Homestead
common stock, may be limited. See "Federal Income Tax Considerations--
Taxation of ATLANTIC--Homestead Mortgages".
. ATLANTIC closed its initial public offering on October 18, 1996, raising
net proceeds of $110.0 million from the sale of 4,940,000 Shares at a
price of $24.00 per Share (before adjusting for the Homestead
Distribution described below).
. During 1996, ATLANTIC's Share price increased from $23.00 (based on the
offering price for a private offering conducted from November 1995 to May
1996) to $24.50 (based on the closing price on the New York Stock
Exchange (the "NYSE") on December 31, 1996). In addition, shareholders
received total cash distributions of $1.65 per Share in 1996 and a
special distribution of 0.110875 shares of Homestead common stock and
warrants to purchase 0.074384 shares of Homestead common stock per Share
(the "Homestead Distribution"). The securities distributed in the
Homestead Distribution had a market value of $2.67 per Share based on the
closing prices of such securities on the ASE on November 11, 1996, the
day prior to the distribution date.
ATLANTIC's developments in 1997 include:
. ATLANTIC generated earnings from operations of $10.2 million in the
three-month period ended March 31, 1997, an increase of $3.5 million over
the same period in 1996. For the three-month period ended March 31, 1997,
ATLANTIC's cash flow from operating activities was $16.9 million as
compared to $12.3 million for the same period in 1996. ATLANTIC's 50
communities that were fully operational throughout the first quarter of
1997 and 1996 realized an increase in adjusted net operating income of
5.72%. This increase is the result of a 2.42% increase in ATLANTIC's
collections and a 2.43% decrease in ATLANTIC's rental expenses. The
growth in collections of 2.42% was due principally to an increase in
rental rates of 2.47% offset by a decrease in occupancy from 94.6% to
94.4%. The occupancy decrease is principally due to demand and supply
imbalances in certain of ATLANTIC's primary target market cities. While
ATLANTIC continues to experience increases in collections, demand and
supply imbalances have resulted in collections growth at a slower rate
than the 2.76% growth rate experienced in 1996. See "Business--Strategy
for Cash Flow and Distribution Growth--"Same Store' Growth". This strong
net operating income growth from the same store portfolio generated 32%
of ATLANTIC's funds from operations growth, and the positive impact of
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acquisitions generated an additional 39%. The remaining 29% of growth in
funds from operations was produced by new development communities. The
contribution to funds from operations growth from developments occurred
even though ATLANTIC had an average of $229.6 million of assets under
development or in lease-up during the first quarter of 1997. As these
communities in lease-up begin to reach stabilization in 1997 and
subsequent years, they are expected to add significantly to ATLANTIC's
long-term performance. For a description of how ATLANTIC calculates funds
from operations and certain limitations in the use of funds from
operations as a performance measure, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Funds from Operations".
. The development of moderate income multifamily communities continues to
be a major component of ATLANTIC's investment strategy. During the first
quarter of 1997, ATLANTIC commenced construction of 668 units at a total
expected investment cost of $42.9 million. Of that total, 50.4% were
moderate income communities. Also during the first quarter of 1997,
developed communities representing a total expected investment cost of
$20.8 million achieved stabilization, adding 408 units to ATLANTIC's
stabilized portfolio. During this period, ATLANTIC's moderate income
communities outperformed ATLANTIC's product types as a whole.
. ATLANTIC closed a second public offering on April 16, 1997, raising net
proceeds of $80.5 million from the sale of 4,000,000 Shares at $21.50 per
Share and closed on the overallotment option on May 14, 1997, raising
additional net proceeds of $1.5 million from the sale of 77,200 Shares at
$21.50 per Share. The proceeds from the offering were used to repay
borrowings under ATLANTIC's $350 million unsecured line of credit. At
July 31, 1997, ATLANTIC had 41,968,780 Shares outstanding. ATLANTIC's
long-term debt as a percentage of total long-term undepreciated book
capitalization (the sum of long-term debt and shareholders' equity after
adding back accumulated depreciation) was 16.9% at March 31, 1997 on an
historical basis and 25.5% at March 31, 1997 on a pro forma basis as
adjusted to give effect to the Merger, ATLANTIC's April 1997 public
offering of Shares and the Offerings and the application of the proceeds
therefrom. At July 31, 1997, $254.8 million of borrowings were
outstanding under the line of credit.
OPERATING CHARACTERISTICS
ATLANTIC believes that its future growth will be driven by the following
operating characteristics:
. STRONG PRIMARY TARGET MARKET. ATLANTIC believes the southeastern United
States is geographically and economically diverse and, therefore,
ATLANTIC has a strong primary target market in which to seek future
growth. Although 32.3% of ATLANTIC's pro forma revenues for the three-
month period ended March 31, 1997 were derived from the Atlanta, Georgia
metropolitan area, as ATLANTIC continues to develop and acquire new
communities outside of Atlanta, it expects the percentage of its revenues
derived from communities located in Atlanta to decline. ATLANTIC's
primary target market cities are Atlanta, Georgia; Birmingham, Alabama;
Charlotte, North Carolina; Jacksonville, Florida; Nashville, Tennessee;
Orlando, Florida; Raleigh, North Carolina; Richmond, Virginia; Southeast
Florida (which includes Ft. Lauderdale and West Palm Beach); Tampa,
Florida; and Washington, D.C. Based on forecasts published by Woods &
Poole Economics, Inc., the projected population growth in ATLANTIC's
primary target market cities is 34.5% for the years 1997 through 2016,
whereas the projected population growth of the United States as a whole
for the same period is 16.8%. For the same period, job growth is
projected to be 31.2% in ATLANTIC's primary target market cities,
compared to 20.8% for the United States as a whole. Depending on the
level of new construction starts by other multifamily developers,
ATLANTIC believes that the anticipated population and job growth in its
primary target market cities should contribute to ATLANTIC's objective of
long-term, sustainable growth in cash flow. See "Business--Highly Focused
Business Strategy Grounded in Research" and "--ATLANTIC's Operating
System--Development of Moderate Income Communities".
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. EXPERIENCED MANAGEMENT TEAM. The REIT Manager and SCG Realty Services
provide ATLANTIC with both strategic and day-to-day management, including
research, investment analysis, acquisition and due diligence,
development, property management, capital markets, accounting and legal
services. Through the REIT Management Agreement and the property
management agreements, ATLANTIC has access to services which provide
ATLANTIC with the same resources as a fully integrated operating company.
ATLANTIC's four senior executives have an average of 24 years of industry
experience developing and managing multifamily communities, thus
providing ATLANTIC with several senior officers with the leadership,
operational, investment and financial skills and experience to oversee
the operations of ATLANTIC, although ATLANTIC's future operations will
depend, in part, on ATLANTIC's ability to continue to retain and attract
experienced personnel. See "The Merger Transaction".
. RESEARCH AND DEVELOPMENT. ATLANTIC is dedicated to ongoing research and
development. ATLANTIC utilizes Security Capital Real Estate Research
Group Incorporated ("Security Capital Real Estate Research"), an
affiliate of the REIT Manager, to conduct comprehensive evaluations of
its target market on a submarket-by-submarket basis to identify those
submarkets and product types that present better prospects for long-term
cash flow growth. These evaluations, combined with ATLANTIC's extensive
market experience in the southeastern United States, enable ATLANTIC to
identify submarkets that offer continued opportunities for long-term cash
flow growth. In addition to market research, considerable resources are
devoted to product research. The REIT Manager and SCG Realty Services
continually evaluate and refine ATLANTIC's multifamily communities to
incorporate technologies and designs that will enhance long-term
livability for its residents. ATLANTIC believes that its research-based
investment strategy differs from other multifamily REITs in that the REIT
Manager and SCG Realty Services and their respective affiliates have
dedicated personnel who conduct comprehensive proprietary evaluations of
ATLANTIC's target market on a submarket-by-submarket basis taking into
account 24 key variables that ATLANTIC has identified as having the
greatest impact on multifamily operating performance. A few of these
variables include market demand analysis, detailed supply evaluations of
each submarket and other economic and demographic data.
. DEVELOPMENT OF MODERATE INCOME COMMUNITIES. At June 30, 1997, ATLANTIC's
portfolio consisted of seven upper middle income communities with a total
expected investment cost of $133.0 million, 37 middle income communities
with a total expected investment cost of $577.6 million and 49 moderate
income communities with a total expected investment cost of $714.7
million. ATLANTIC focuses primarily on moderate income communities
(targeted to residents earning 65% to 90% of a submarket's median
household income, who comprise one of the largest segments of the renter
population). In 1997, approximately 71.6% of development starts and
approximately 62.2% of ATLANTIC's total development activities are
expected to constitute moderate income communities, based on total
budgeted development cost. Based on ATLANTIC's review of information
filed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), regarding other REITs in ATLANTIC's primary target
market and other publicly available data, ATLANTIC believes that few
other REITs in its primary target market currently focus on the moderate
income segment. Moreover, based on ATLANTIC's proprietary information
regarding available land parcels and construction starts in its primary
target market, ATLANTIC believes that less than 10% of the 1995 and 1996
multifamily starts in ATLANTIC's primary target market cities constituted
moderate income product. Consequently, ATLANTIC believes that the
moderate income segment is a significantly underserved market with
limited competition. In ATLANTIC's experience, moderate income residents
are typically longer-term residents because they often lack the financial
resources required to purchase single-family homes. As a result, resident
turnover is often lower in ATLANTIC's moderate income communities than in
its upper middle income or middle income communities. The total cost of
refurbishing and re-leasing a unit ranges from $700 to $1,500; therefore,
reducing resident turnover can have a material impact on an asset's
profitability. Due to market fundamentals and the operating
characteristics of moderate income communities, ATLANTIC believes that
this product category offers better prospects for long-term cash flow
growth.
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. OPPORTUNISTIC ACQUISITIONS. It is often advantageous for ATLANTIC to
acquire existing multifamily communities in markets that are expected to
experience favorable growth in rents and income. In many cases,
communities can be acquired and redeveloped at prices well below the cost
to build a comparable community in the same area. The REIT Manager
thoroughly analyzes and evaluates potential community acquisitions
throughout ATLANTIC's target market which, together with ATLANTIC's
access to capital, provides ATLANTIC with a competitive advantage in
acquiring multifamily assets. From its inception on October 26, 1993 to
June 30, 1997, ATLANTIC had completed acquisitions with a total expected
investment cost of $980.6 million.
. HIGH QUALITY PORTFOLIO. At June 30, 1997, ATLANTIC's portfolio of
multifamily communities consisted of 49.9% of stabilized operating
communities, 18.8% of pre-stabilized operating communities and 31.3% of
communities under development, based on total expected investment cost.
See "Business--ATLANTIC's Operating System--Acquired Communities". As the
development communities are completed and the pre-stabilized communities
achieve stabilization, they are expected to contribute significantly to
ATLANTIC's objective of long-term sustainable growth in cash flow.
ATLANTIC's operating communities (excluding communities in lease-up) were
94.8% leased at June 30, 1997. ATLANTIC had 50 communities that were
fully operating throughout the first quarter of 1996 and the first
quarter of 1997. These 50 "same store" communities, representing 52.1% of
ATLANTIC's portfolio, generated an increase in adjusted net operating
income of 5.72% in the first quarter of 1997 as compared to the first
quarter of 1996. This increase is the result of a 2.42% increase in
ATLANTIC's collections and a 2.43% decrease in ATLANTIC's rental
expenses. The growth in collections of 2.42% was due principally to an
increase in rental rates of 2.47% offset by a decrease in occupancy from
94.6% to 94.4%. In the fourth quarter of 1996, ATLANTIC's collections
growth slowed to 1.00% over the fourth quarter of 1995 (a 2.38% increase
in rental rates and a decrease in occupancy from 96.0% to 95.0%). These
fourth quarter decreases are principally due to demand and supply
imbalances in certain of ATLANTIC's primary target market cities.
ATLANTIC believes that the performance of its operating portfolio and its
same store portfolio noted above reflects the quality of its portfolio
and strength of its primary target market.
. PORTFOLIO AND ASSET OPTIMIZATION. ATLANTIC develops and acquires
communities with a view to effective long-term ownership and operation.
REIT Management actively reviews ATLANTIC's asset base. These reviews
generate operating and capital plans and, with guidance from its
affiliate, Security Capital Real Estate Research, help ATLANTIC to
identify submarkets and product types that it believes will generate
above-average long-term growth opportunities. Under its portfolio and
asset optimization program, ATLANTIC may from time to time dispose of
assets that no longer meet its long-term investment objectives and
redeploy the proceeds, preferably through tax-deferred exchanges, into
assets with better prospects for cash flow growth. ATLANTIC's portfolio
and asset optimization strategy is based on the premise that it has a
finite amount of investment capital and that this capital should be
deployed where it can produce maximum long-term, sustainable cash flow
growth. From inception through June 30, 1997, ATLANTIC disposed of eight
operating communities aggregating 2,140 units.
. RESOURCES AND EXPERIENCE OF PRINCIPAL SHAREHOLDER. Security Capital,
ATLANTIC's largest shareholder and the owner of the REIT Manager, owns
51.3% of ATLANTIC's outstanding Shares. ATLANTIC benefits from the
substantial resources available to it through its affiliation with
Security Capital, including capital markets, research, accounting and
legal services. See "The Merger Transaction". To provide for a wider
distribution of ownership and greater liquidity, Security Capital has
advised ATLANTIC that it intends, over time, to allow its ownership
interest in ATLANTIC to fall to between 40% and 50% as ATLANTIC conducts
equity offerings, which is consistent with its ownership interests in the
other operating companies in which Security Capital invests.
. CONSERVATIVE BALANCE SHEET STRATEGY. ATLANTIC has a conservative balance
sheet strategy. Long-term debt as a percentage of total long-term
undepreciated book capitalization was 16.9% at March 31, 1997 on an
historical basis and 25.5% at March 31, 1997 on a pro forma basis as
adjusted to give effect to the Merger, ATLANTIC's April 1997 public
offering of Shares and the Offerings and the application of the proceeds
therefrom. In the future, ATLANTIC intends to access the public equity
and debt markets and to issue long-term, fixed-rate, fully amortizing
unsecured corporate
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debt, such as the Notes, which will limit ATLANTIC's exposure to floating
rate or balloon financing. However, there can be no assurance that
ATLANTIC will be able to complete such offerings. ATLANTIC's $350 million
unsecured line of credit enables ATLANTIC to take advantage of investment
opportunities in its target market without investing significant funds in
short-term investments between securities offerings. At July 31, 1997,
$254.8 million of borrowings were outstanding under the line of credit and
such outstanding borrowings are expected to be approximately $264.0
million at the closing of the Offering without giving effect to the
Offerings. This conservative balance sheet strategy is expected to provide
ATLANTIC with significant incremental debt capacity and allow ATLANTIC to
take advantage of future investment opportunities on a non-dilutive basis,
contributing to ATLANTIC's objective of long-term growth in cash flow.
ATLANTIC's senior unsecured debt has been rated BBB by Standard & Poor's
Rating Services, Baa3 by Moody's Investors Services, Inc. and BBB by Duff
& Phelps Credit Rating Co.
TAX STATUS OF ATLANTIC
ATLANTIC has elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), effective for the taxable year ended December
31, 1994 and ATLANTIC intends to operate in a manner to permit it to continue
to qualify as a REIT. As a REIT, ATLANTIC generally will not be taxed on income
it currently distributes to its shareholders so long as it distributes at least
95% of its taxable income currently. REITs are subject to a number of
organizational and operational requirements. Even if ATLANTIC continues to
qualify for taxation as a REIT, ATLANTIC will be subject to certain federal,
state and local taxes on its income and property. Based upon certain
representations of ATLANTIC with respect to the facts as set forth and
explained in "Federal Income Tax Consideration", in the opinion of Mayer, Brown
& Platt, counsel to ATLANTIC, ATLANTIC has been organized in conformity with
the requirements for qualification as a REIT beginning with its taxable year
ended December 31, 1994, and its actual and proposed method of operation
described in this Prospectus and as represented by management has enabled it
and will continue to enable it to satisfy the requirements for such
qualification. See "Federal Income Tax Considerations" and "Risk Factors--Tax
Liabilities as a Consequence of the Failure to Qualify as a REIT" for a
discussion of all material tax consequences of an investment in the Notes of
ATLANTIC.
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THE OFFERING
SECURITIES OFFERED..........
$100,000,000 aggregate principal amount of %
Notes due 2011 and $50,000,000 aggregate
principal amount of % Notes due 2017.
MATURITY....................
August , 2011 with respect to the 2011 Notes
and August , 2017 with respect to the 2017
Notes.
INTEREST PAYMENT DATES......
February and August commencing February ,
1998.
PRINCIPAL PAYMENT DATES.....
Annual principal installments on the 2011 Notes
will commence on August , 2003 and annual
principal installments on the 2017 Notes will
commence on August , 2013. See "Description of
Notes--Principal and Interest".
RANKING..................... The Notes will be senior unsecured obligations
of ATLANTIC and will rank equally with
ATLANTIC's other unsecured and unsubordinated
indebtedness from time to time outstanding.
OPTIONAL REDEMPTION......... The Notes are redeemable at any time at the
option of ATLANTIC, in whole or in part, at a
redemption price equal to the sum of (i) the
principal amount of the Notes being redeemed
plus accrued interest thereon to the redemption
date and (ii) the Make-Whole Amount, if any. See
"Description of Notes--Optional Redemption".
USE OF PROCEEDS.............
The net proceeds to ATLANTIC from the sale of
the Notes offered hereby will be used to retire
revolving credit debt. See "Use of Proceeds".
LIMITATIONS ON INCURRENCE Neither ATLANTIC nor any Subsidiary (as defined)
OF DEBT..................... may incur any Debt (as defined) if, after giving
effect thereto, the aggregate principal amount
of all outstanding Debt of ATLANTIC and its
Subsidiaries on a consolidated basis is greater
than 60% of the sum of (i) ATLANTIC's Total
Assets (as defined) as of the end of the most
recent calendar quarter and (ii) the purchase
price of any real estate assets or mortgages
receivable acquired, and the amount of any
securities offering proceeds received (to the
extent that such proceeds were not used to
acquire real estate assets or mortgages
receivable or used to reduce Debt), by ATLANTIC
or any Subsidiary since the end of such calendar
quarter, including those proceeds obtained in
connection with the incurrence of such
additional Debt.
Neither ATLANTIC nor any Subsidiary may incur
any Debt secured by any mortgage or other lien
upon any of the property of ATLANTIC or any
Subsidiary if, after giving effect thereto, the
aggregate principal amount of all outstanding
Debt of ATLANTIC and its Subsidiaries on a
consolidated basis which is secured by any
mortgage or other lien on the property of
ATLANTIC or any Subsidiary is greater than 40%
of the sum of (i) ATLANTIC's Total Assets as of
the end of the most recent calendar quarter and
(ii) the purchase price of any real estate
assets or mortgages receivable acquired, and the
amount of any securities offering proceeds
received (to the extent that such proceeds were
not used to acquire real estate assets or
mortgages receivable or used to reduce Debt), by
ATLANTIC or any Subsidiary since the end of such
calendar quarter, including
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those proceeds obtained in connection with the
incurrence of such additional Debt.
No Subsidiary may incur any Unsecured Debt other
than intercompany Debt subordinate to the Notes;
provided, however, that ATLANTIC or a Subsidiary
may acquire an entity that becomes a Subsidiary
that has Unsecured Debt if the incurrence of
such Debt (including any guarantees of such Debt
assumed by ATLANTIC or any Subsidiary) was not
intended to evade the foregoing restrictions and
the incurrence of such Debt (including any
guaranties of such Debt assumed by ATLANTIC or
any Subsidiary) would otherwise be permitted
under the Indenture (as defined).
ATLANTIC and its Subsidiaries may not at any
time own Total Unencumbered Assets (as defined)
equal to less than 150% of the aggregate
outstanding principal amount of the Unsecured
Debt (as defined) of ATLANTIC and its
Subsidiaries on a consolidated basis.
Neither ATLANTIC nor any Subsidiary may incur
any Debt if, after giving effect thereto, the
ratio of Consolidated Income Available for Debt
Service (as defined) to the Annual Service
Charge (as defined) for the four consecutive
fiscal quarters most recently ended prior to the
date on which such additional Debt is to be
incurred shall have been less than 1.5, on a pro
forma basis giving effect to certain
assumptions. For a more complete description of
the terms of and definitions used in the
foregoing limitations, see "Description of
Notes--Certain Covenants" and "--Certain
Definitions".
CONCURRENT PREFERRED SHARE At or about the same time as the Offering,
OFFERING.................... ATLANTIC may offer approximately $50 million
(which may increase or decrease subject to
market conditions) of its shares of Series A
Cumulative Redeemable Preferred Stock, par value
$.01 per share (the "Series A Preferred
Shares"), in the Preferred Share Offering. The
closing of the Offering will not be conditioned
upon the closing of the Preferred Share
Offering, nor will the closing of the Preferred
Share Offering be conditioned upon the closing
of the Offering. See "Concurrent Preferred Share
Offering".
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THE MERGER TRANSACTION
In January 1997, Security Capital made a proposal to ATLANTIC's Board of
Directors (the "Board") that Security Capital exchange the REIT Manager and SCG
Realty Services for Shares, with the result that ATLANTIC would become an
internally managed REIT. On March 18, 1997, a special committee of independent
Directors of the Board (the "Special Committee") recommended that the Board
approve the Merger, subject to definitive documentation. Following the meeting
of the Special Committee, the full Board approved the Merger Agreement and the
Merger. On March 24, 1997, ATLANTIC and Security Capital entered into the
Merger Agreement, which is subject to customary conditions, including the
approval of ATLANTIC's shareholders, pursuant to which Security Capital will
cause the REIT Manager and SCG Realty Services to be merged into a newly formed
subsidiary of ATLANTIC. The employees of the REIT Manager and SCG Realty
Services will become employees of ATLANTIC as a result of the Merger. In
exchange for the transfer of those businesses, ATLANTIC will issue Shares to
Security Capital valued at approximately $54.6 million. See "The Merger
Transaction".
The number of Shares to be issued to Security Capital in the Merger was based
on a price of $23.675 per Share, the average closing price of the Shares on the
NYSE over the five-day period prior to August 6, 1997, the record date for
determining ATLANTIC's shareholders entitled to vote at the meeting in
connection with the Merger. In order to allow ATLANTIC's shareholders (other
than Security Capital) the opportunity to maintain (or to increase) their
relative ownership in ATLANTIC, ATLANTIC is conducting a rights offering which
it expects to close concurrently with the Merger. The rights offering entitles
ATLANTIC's shareholders (other than Security Capital) to purchase up to
approximately $57.1 million of additional Shares at $22 3/8 per Share, which is
below the price at which Shares will be issued to Security Capital in the
Merger. Security Capital has agreed not to exercise any rights it receives in
the rights offering to purchase additional Shares and not to sell its rights.
In addition to the rights offering, as part of the Merger transaction, Security
Capital will issue warrants having an aggregate exercise price of $46,926,322
pro rata to ATLANTIC's shareholders, other than Security Capital (the "Warrant
Issuance"), each to acquire one share of Security Capital's Class B common
stock, par value $.01 per share (the "Class B Stock"), after the closing of the
Merger and the rights offering. See "The Merger Transaction". The Warrant
Issuance is being made in order to induce holders of Shares to vote in favor of
the Merger transaction, to broaden Security Capital's shareholder base, to
enable Security Capital to raise additional equity capital at a relatively low
cost through exercises of warrants and to enable Security Capital to raise
additional equity capital in the long run by preserving and enhancing its
goodwill with the shareholders of ATLANTIC.
The Board believes that the Merger will result in an enhancement to shareholder
value. Currently, ATLANTIC pays a fee to the REIT Manager based on a fixed
percentage of ATLANTIC's cash flow (as defined) which increases proportionately
as ATLANTIC adds assets. The Board believes that ATLANTIC has reached a
sufficient size to realize economies of scale by internalizing the management
function since ATLANTIC will have sufficient depth of management and personnel
such that additional assets can be acquired, developed and managed without a
significant increase in personnel or other costs. These economies of scale
should result in an increase in the level of growth in funds from operations.
The Board believes that the Merger will further benefit ATLANTIC's long-term
performance as follows:
. The Merger will position ATLANTIC to pursue possible acquisitions of
other REITs in a more effective way.
. Investors and analysts will view an internally managed structure more
favorably since ATLANTIC's costs, after capitalization of qualifying
acquisition and development costs in accordance with GAAP, will be more
comparable to other multifamily REITs. These acquisition and development
activities are currently provided by the REIT Manager and paid for as
part of the REIT Management fee, which fee is expensed by ATLANTIC.
Management believes that the increased comparability, in addition to the
opportunity for increased funds from operations growth due to the
economies of scale, as discussed above, will result in a higher multiple
on ATLANTIC's funds from operations and an enhancement to shareholder
value.
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. As a consequence of the REIT Manager's and SCG Realty Services' personnel
becoming full-time employees of ATLANTIC, they will be able to more
closely relate the results of their efforts to ATLANTIC's performance.
. The Merger is expected to be viewed positively by the rating agencies,
which could have a positive impact on ATLANTIC's future debt cost.
The following are certain potential detriments of the Merger:
. Since the number of Shares issuable to Security Capital in the Merger is
fixed, the value of those Shares at the time the Merger is completed may
be greater than the value placed on the operations of the REIT Manager
and SCG Realty Services by the Board.
. The REIT Manager and SCG Realty Services have not been profitable. The
fees paid by ATLANTIC for the REIT Manager's and SCG Realty Services'
services in 1996 were approximately $655,000 less than the direct costs
and indirect costs incurred by Security Capital in providing these
services.
. The Merger transaction would result in ATLANTIC recording higher
administrative expenses related to the internalization of the management
function in lieu of paying a fee to the REIT Manager and SCG Realty
Services. Security Capital has anticipated that ATLANTIC would incur
approximately $15.5 million of additional administrative expenses in 1998
by internalizing the management function. Of these expenses, an amount
which is subject to a maximum limit of $3.7 million for 1998, is expected
to be purchased from Security Capital under an administrative services
agreement. See "The Merger Transaction--Relationship with Security
Capital After the Merger--Administrative Services Agreement". ATLANTIC
would, however, no longer pay estimated REIT Management and property
management fees of $22.2 million in 1998. The increased administrative
costs of internalizing the management function may be greater than
anticipated and no assurance can be given that the cost to ATLANTIC of
providing such services internally will not exceed the fees payable to
the REIT Manager and SCG Realty Services under the current agreements.
. Although the Merger is expected to be immediately accretive to ATLANTIC's
funds from operations, the Merger may not result in a corresponding
increase in the price at which Shares trade on the NYSE.
The Merger transaction was initiated and structured by individuals who are
executive officers of Security Capital. Although no independent representatives
were retained to negotiate the terms of the Merger transaction on behalf of
ATLANTIC, the Board created the Special Committee, which retained a financial
advisor and legal counsel. Two of the members of the Special Committee, Ned S.
Holmes and John M. Richman, own securities of Security Capital. Additionally,
certain officers and employees of the REIT Manager and SCG Realty Services
(including Constance B. Moore and James C. Potts, Co-Chairmen of ATLANTIC) will
receive certain benefits if the Merger is consummated. Also, a conflict of
interest may exist in connection with the retention of J.P. Morgan Securities
Inc. to represent both the Special Committee in connection with the Merger and
Security Capital in connection with Security Capital's proposed initial public
offering. See "Risk Factors--Conflicts of Interests" and "The Merger
Transaction--Interests of Certain Persons in the Merger".
For a more complete description of the Merger, see "The Merger Transaction".
For a discussion of certain tax consequences of the Merger and the related
transactions, see "Federal Income Tax Considerations--Tax Effects of the
Merger".
15
<PAGE>
ATLANTIC'S COMMUNITIES
The information in the following table is as of March 31, 1997, except total
expected investment which is as of June 30, 1997 (dollar amounts in thousands).
Additional information on ATLANTIC's communities is contained in Schedule III,
Real Estate and Depreciation, in ATLANTIC's financial statements.
<TABLE>
<CAPTION>
TOTAL
PERCENTAGE ATLANTIC EXPECTED
LEASED(1) UNITS INVESTMENT(2) INVESTMENT(2)
---------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
COMMUNITIES OWNED AS OF
MARCH 31, 1997:
OPERATING COMMUNITIES:
MID-ATLANTIC:
Charlotte, North
Carolina 91.3% 1,144 $56,890 $ 58,214
Greenville, South
Carolina 96.2 234 11,092 11,126
Memphis, Tennessee 91.5 1,152 41,957 42,784
Nashville, Tennessee 93.3 740 34,378 34,598
Raleigh, North Carolina 92.5 1,348 66,476 68,426
Richmond, Virginia 95.8 560 29,686 29,832
Washington, D.C. 94.9 936 62,767 63,136
---- ------ ------- --------
Subtotals/Average--
Mid-Atlantic 93.0 6,114 303,246 308,116
---- ------ ------- --------
SOUTH ATLANTIC:
Atlanta, Georgia 93.9 6,165 334,013 336,813
Birmingham, Alabama 94.4 998 49,474 50,608
Ft. Lauderdale/W. Palm
Beach, Florida 95.8 2,036 97,823 99,110
Ft. Myers, Florida 95.7 397 13,885 14,063
Jacksonville, Florida 94.6 522 28,464 30,103
Miami, Florida 93.6 264 8,655 8,655
Orlando, Florida 95.0 886 41,285 41,889
Sarasota, Florida 93.5 432 24,206 24,426
Tampa, Florida 97.3 1,427 55,294 56,284
---- ------ ------- --------
Subtotals/Average--
South Atlantic 94.7 13,127 653,099 661,951
---- ------ ------- --------
Subtotals/Average--
Operating
Communities 94.1 19,241 956,345 970,067
---- ------ ------- --------
COMMUNITIES UNDER
CONSTRUCTION:
MID-ATLANTIC:
Charlotte, North
Carolina N/A 286 10,762 17,495
Nashville, Tennessee N/A 452 13,696 23,887
Raleigh, North Carolina N/A 612 32,492 34,758
Richmond, Virginia N/A 592 18,714 38,772
Washington, D.C. N/A 948 67,259 69,240
---- ------ ------- --------
Subtotals--Mid-
Atlantic N/A 2,890 142,923 184,152
---- ------ ------- --------
SOUTH ATLANTIC:
Atlanta, Georgia N/A 628 23,190 42,396
Birmingham, Alabama N/A 372 14,981 21,644
Ft. Lauderdale/W. Palm
Beach, Florida N/A 452 15,329 32,171
Jacksonville, Florida N/A 909 40,349 51,238
---- ------ ------- --------
Subtotals--South
Atlantic N/A 2,361 93,849 147,449
---- ------ ------- --------
Subtotals--
Communities Under
Construction N/A 5,251 236,772 331,601
---- ------ ------- --------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
TOTAL
PERCENTAGE ATLANTIC EXPECTED
LEASED(1) UNITS INVESTMENT(2) INVESTMENT(2)
---------- ------ ------------- -------------
<S> <C> <C> <C> <C>
COMMUNITIES IN PLANNING AND
OWNED:
MID-ATLANTIC:
Charlotte, North Carolina N/A 212 $ 1,652 $ 12,066
Richmond, Virginia N/A 408 3,366 25,030
---- ------ ---------- ----------
Subtotals--Mid-Atlantic N/A 620 5,018 37,096
---- ------ ---------- ----------
SOUTH ATLANTIC:
Atlanta, Georgia N/A 488 6,595 35,903
Jacksonville, Florida N/A 200 1,416 10,500
---- ------ ---------- ----------
Subtotals--South Atlantic N/A 688 8,011 46,403
---- ------ ---------- ----------
Subtotals--Communities In
Planning and Owned N/A 1,308 13,029 83,499
---- ------ ---------- ----------
LAND HELD FOR FUTURE MULTIFAMILY
DEVELOPMENT ................... N/A -- 2,083 --
---- ------ ---------- ----------
Total Communities Owned
at
March 31, 1997 94.1% 25,800 1,208,229 1,385,167
---- ------ ---------- ----------
COMMUNITIES ACQUIRED FROM MARCH
31, 1997 TO JUNE 30, 1997:
COMMUNITIES IN PLANNING AND
OWNED:
MID-ATLANTIC:
Raleigh, North Carolina N/A 332 -- 19,051
---- ------ ---------- ----------
SOUTH ATLANTIC:
Ft. Lauderdale/West Palm Beach,
Florida N/A 340 -- 24,569
Orlando, Florida N/A 120 -- 8,936
---- ------ ---------- ----------
Subtotal--South Atlantic N/A 460 -- 33,505
---- ------ ---------- ----------
Total Communities
Acquired From March 31,
1997 to June 30, 1997 N/A 792 -- 52,556
---- ------ ---------- ----------
COMMUNITIES DISPOSED OF FROM
MARCH 31, 1997 TO JUNE 30,
1997:
OPERATING COMMUNITIES:
SOUTH ATLANTIC:
Miami, Florida N/A (264) (8,655) (8,655)
Tampa, Florida N/A (96) (3,788) (3,805)
---- ------ ---------- ----------
Total Communities
Disposed of from March
31, 1997 to June 30,
1997 N/A (360) (12,443) (12,460)
---- ------ ---------- ----------
Total Communities Owned
at
June 30, 1997 94.1% 26,232 $1,195,786 $1,425,263
==== ====== ========== ==========
</TABLE>
Additionally, at June 30, 1997, ATLANTIC had land in planning and under control
for the development of 3,406 units with a total budgeted development cost of
$222.8 million. The term "in planning" means that construction is anticipated
to commence within 12 months. The term "under control" means that ATLANTIC has
an exclusive right (through contingent contract or letter of intent) during a
contractually agreed-upon time period to acquire land for future development of
multifamily communities, subject to removal of contingencies during the due
diligence process, but does not currently own the land. There can be no
assurance that such land will be acquired. The unit and total budgeted
development cost information for these communities is based on management's
best estimates of the cost upon completion of these communities.
- -------
(1) Represents the percentage leased for fully operating communities.
(2) ATLANTIC investment represents cost through March 31, 1997. For operating
communities, total expected investment represents cost through June 30,
1997 plus budgeted renovations at June 30, 1997. For communities under
construction and in planning, total expected investment represents cost
through June 30, 1997 plus additional budgeted development expenditures at
June 30, 1997, which include the cost of land, fees, permits, payments to
contractors, architectural and engineering fees and interest and property
taxes to be capitalized during the construction period. The term "in
planning" means that construction is anticipated to commence within 12
months.
17
<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information on a pro forma
basis for ATLANTIC (the "Pro Forma Financial Results") as of and for the three-
month period ended March 31, 1997 and the year ended December 31, 1996 and on
an historical basis for ATLANTIC (the "Historical Financial Results") as of and
for the three-month period ended March 31, 1997 and the years ended December
31, 1996, 1995 and 1994 and the period from inception (October 26, 1993)
through December 31, 1993. Such selected financial information is qualified in
its entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto included in this Prospectus. The Pro
Forma Financial Results are not necessarily indicative of what the actual
financial position and results of operations of ATLANTIC would have been as of
and for the periods indicated, nor do they purport to represent the financial
position and results of operations for future periods.
<TABLE>
<CAPTION>
PRO FORMA(1)(2) HISTORICAL PRO FORMA(1)(2) HISTORICAL
--------------- ------------ --------------- ------------------------------------------
THREE-MONTH
THREE-MONTH PERIOD ENDED YEAR ENDED PERIOD ENDED
PERIOD ENDED MARCH 31, DECEMBER 31, DECEMBER 31,
MARCH 31, 1997 1997 1996 1996 1995 1994 1993(3)
--------------- ------------ --------------- ---------- --------- --------- --------
(in thousands, except per Share data)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
Rental income $ 39,715 $ 39,715 $ 148,361 $ 137,729 $ 103,634 $ 55,071 $ 156
Homestead convertible
mortgages interest
income 185 185 -- -- -- -- --
Property management
fees paid to affiliate -- 1,280 -- 4,208 3,475 1,536 --
Property management
fees paid to third
parties 232 232 971 971 591 661 --
Interest expense 2,893 4,761 12,219 16,181 19,042 9,240 --
REIT management fee
paid to affiliate -- 3,029 -- 10,445 6,923 3,671 12
General and
administrative
expenses 1,751 265 5,923 673 646 266 1
Net earnings before
extraordinary item 13,258 10,178 45,306 42,569 19,639 9,926 38
Extraordinary item--
loss on early
extinguishment of debt -- -- -- 3,940 -- -- --
Series A Preferred
Share dividends 1,125 -- 4,500 -- -- -- --
Net earnings
attributable to Shares 12,133 10,178 40,806 38,629 19,639 9,926 38
Net earnings per Share
before extraordinary
item 0.27 0.27 1.01 1.33 0.89 0.81 0.13
Net earnings
attributable to Shares
per Share 0.27 0.27 1.01 1.21 0.89 0.81 $ 0.13
Cash distributions
declared and paid 14,778 14,778 53,064 53,064 35,119 14,648 --
Cash distributions
declared and paid per
Share $ 0.39 $ 0.39 $ 1.65 $ 1.65 $ 1.60 $ 1.20 $ --
Weighted-average Shares
outstanding 44,241 37,892 40,246 32,028 21,944 12,227 286
<CAPTION>
PRO FORMA(4) HISTORICAL
------------ ----------------------------------------------------------
MARCH 31, MARCH 31, DECEMBER 31,
1997 1997 1996 1995 1994 1993
------------ --------------- ---------- --------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Real estate, at cost $1,208,229 $1,208,229 $1,157,235 $ 888,928 $ 631,260 $ 31,005
Total assets 1,210,645 1,204,231 1,135,065 885,824 637,846 31,850
Line of credit(5) 21,020 295,250 228,000 190,000 153,000 --
Long-term debt 150,000 -- -- -- -- --
Mortgages payable 155,418 155,418 155,790 118,524 107,347 --
Total liabilities 367,043 489,511 436,423 328,886 271,216 178
Total shareholders'
equity $ 843,602 $ 714,720 $ 698,642 $ 556,938 $ 366,630 $ 31,672
Number of Shares
outstanding 44,241 37,892 37,892 27,763 18,567 1,582
<CAPTION>
PRO FORMA(1)(2) HISTORICAL PRO FORMA(1)(2) HISTORICAL
--------------- ------------ --------------- ------------------------------------------
THREE-MONTH
THREE-MONTH PERIOD ENDED YEAR ENDED PERIOD ENDED
PERIOD ENDED MARCH 31, DECEMBER 31, DECEMBER 31,
MARCH 31, 1997 1997 1996 1996 1995 1994 1993(3)
--------------- ------------ --------------- ---------- --------- --------- --------
(in thousands, except ratio data)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Net earnings
attributable to Shares $ 12,133 $ 10,178 $ 40,806 $ 38,629 $ 19,639 $ 9,926 $ 38
Add (deduct):
Real estate
depreciation 6,132 6,132 22,534 20,824 15,925 8,770 28
Amortization related to
Homestead convertible
mortgages (20) (20) -- -- -- -- --
Gain on disposition of
real estate -- -- -- (6,732) -- -- --
Gain on sale of
Homestead Assets -- -- -- (2,839) -- -- --
Provision for possible
loss on investments 200 200 2,500 2,500 -- -- --
Extraordinary item--
loss on early
extinguishment of debt -- -- -- 3,940 -- -- --
-------- ---------- ---------- ---------- --------- --------- --------
Funds from
operations(6) $ 18,445 $ 16,490 $ 65,840 $ 56,322 $ 35,564 $ 18,696 $ 66
EBITDA(7) 21,429 21,271 78,272 72,503 54,606 27,936 66
Net cash provided
(used) by operating
activities 19,804 16,913 69,685 54,356 39,732 23,564 (492)
Net cash used by
investing activities (70,486) (69,354) (291,476) (287,418) (235,149) (390,077) (31,005)
Net cash provided by
financing activities $ 50,733 $ 52,055 $ 226,026 $ 230,907 $ 195,649 $ 372,638 $ 31,634
Ratio of earnings to
fixed charges(8) 3.0 2.0 2.6 1.9 1.7 1.9 N/A
</TABLE>
18
<PAGE>
- -------
(1) The pro forma condensed statements of earnings reflect: (i) the Merger,
(ii) the sale of the Homestead Village properties and subsequent
distribution of Homestead securities on November 12, 1996, (iii) the
acquisition and disposition of communities acquired or disposed of
subsequent to January 1, 1996 and related assumptions of mortgage debt and
(iv) the sale of Shares subsequent to January 1, 1996 (including the sale
of Shares on April 10, 1997) and the Offerings and the related repayments
on ATLANTIC's $350 million unsecured line of credit as if all of these
transactions had occurred on January 1, 1996.
(2) Should the Preferred Share Offering not be consummated, the pro forma
financial statements would reflect the following amounts:
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
(in thousands, except per
share and ratio data)
<S> <C> <C>
Interest expense $ 3,745 $15,766
Net earnings attributable to Shares 12,406 41,759
Net earnings attributable to Shares per Share 0.28 1.04
Funds from operations 18,718 66,793
EBITDA $22,554 $82,772
Ratio of earnings to fixed charges 2.6 2.2
</TABLE>
(3) For the period from inception (October 26, 1993) to December 31, 1993.
(4) The pro forma condensed balance sheet reflects: (i) the Merger, (ii) the
sale of Shares on April 10, 1997 and (iii) the Offerings and the related
repayments on ATLANTIC's $350 million unsecured line of credit as if all of
these transactions had occurred as of March 31, 1997.
(5) At July 31, 1997, ATLANTIC had $254.8 million of outstanding borrowings
under its $350 million unsecured line of credit and such outstanding
borrowings are expected to be approximately $264.0 million at the closing
of the Offering without giving effect to the Offerings.
(6) Funds from operations represents net earnings computed in accordance with
GAAP, excluding gains (or losses) from real estate transactions, provisions
for possible losses, extraordinary items and real estate depreciation.
Funds from operations should not be considered as an alternative to net
earnings or any other GAAP measurement of performance as an indicator of
ATLANTIC's operating performance or as an alternative to cash flows from
operating, investing or financing activities as a measure of liquidity.
ATLANTIC believes that funds from operations is helpful to a reader as a
measure of the performance of an equity REIT because, along with cash flow
from operating activities, financing activities and investing activities,
it provides a reader with an indication of the ability of ATLANTIC to incur
and service debt, to make capital expenditures and to fund other cash
needs. On January 1, 1996, ATLANTIC adopted the National Association of
Real Estate Investment Trusts' ("NAREIT") revised definition of funds from
operations. Under this more conservative definition, loan cost amortization
is not added back to net earnings in determining funds from operations. For
comparability, funds from operations for the periods prior to January 1,
1996 give effect to the revised definition. The funds from operations
measure presented by ATLANTIC, while consistent with the NAREIT definition,
will not be comparable to similarly titled measures of other REITs which do
not compute funds from operations in a manner consistent with ATLANTIC.
Funds from operations is not intended to represent cash made available to
shareholders. Cash distributions paid to shareholders is presented in the
table above.
(7) EBITDA represents earnings from operations before deduction of interest,
taxes, depreciation and amortization. EBITDA should not be considered as an
alternative to net earnings or any other GAAP measurement of performance as
an indicator of ATLANTIC's operating performance or as an alternative to
cash flows from operating, investing or financing activities as a measure
of liquidity.
(8) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings from operations plus fixed charges other than
capitalized interest. Fixed charges consist of interest on borrowed funds
(including capitalized interest) and amortization of debt discount and
expense.
19
<PAGE>
RECENT OPERATING RESULTS
The following table sets forth ATLANTIC's preliminary unaudited operating
results for the six months ended June 30, 1997 and 1996. These operating
results are not necessarily indicative of the results to be expected for the
entire year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1996
--------- ---------
(in thousands
except per Share
data)
<S> <C> <C>
Rental income $ 80,822 $ 63,685
Net earnings attributable to Shares 22,008 16,397
Net earnings attributable to Shares per Share 0.56 0.56
Cash distributions declared and paid per Share $ 0.78 $ 0.84
Weighted-average Shares outstanding 39,569 29,085
Reconciliation of net earnings attributable to Shares
to funds from operations:
Net earnings attributable to Shares $ 22,008 $ 16,397
Add (deduct):
Real estate depreciation 12,583 9,597
Amortization related to Homestead convertible
mortgages (101) --
Gain on disposition of real estate (259) (662)
Provision for possible loss on investments 200 --
--------- ---------
Funds from operations(1) $ 34,431 $ 25,332
Net cash provided by operating activities 35,624 26,839
Net cash used by investing activities (138,347) (130,587)
Net cash provided by financing activities $ 101,245 $ 101,779
</TABLE>
- -------
(1) See footnote (6) on page 19.
20
<PAGE>
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below.
RANKING OF THE NOTES
The Notes will be direct, senior unsecured obligations of ATLANTIC and will
rank equally with all other unsecured and unsubordinated indebtedness of
ATLANTIC from time to time outstanding. However, the Notes are effectively
subordinated to mortgages of ATLANTIC and its consolidated subsidiaries, which
encumber certain assets of ATLANTIC and its consolidated subsidiaries
(approximately $258.5 million of assets at March 31, 1997 on a pro forma
basis). As of March 31, 1997, on a pro forma basis as adjusted to give effect
to the Merger, ATLANTIC's April 1997 public offering of Shares and the
Offerings and the application of the proceeds therefrom, the total outstanding
indebtedness of ATLANTIC and its subsidiaries was approximately $326.4 million,
of which $155.4 million was secured. Subject to certain limitations, ATLANTIC
may incur additional indebtedness. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations--Liquidity and Capital
Resources" and "Description of Notes--Certain Covenants--Limitations on
Incurrence of Debt".
SIGNIFICANT INFLUENCE OF PRINCIPAL SHAREHOLDER
At July 31, 1997, Security Capital beneficially owned approximately 51.3% of
the issued and outstanding Shares. As a result, Security Capital currently
controls approximately 51.3% of the vote on matters submitted for ATLANTIC
shareholder action, including the Merger. No other shareholder may hold more
than 9.8% of the shares of ATLANTIC. Security Capital has the contractual right
(and after the Merger will continue to have the contractual right) to nominate
up to three directors to the Board, depending upon its level of ownership of
Shares, as follows: (i) so long as Security Capital owns at least 10% but less
than 25% of the outstanding Shares, it will be entitled to nominate one person;
and (ii) so long as Security Capital owns at least 25% of the outstanding
Shares, it will be entitled to nominate that number of persons as shall bear
approximately the same ratio to the total number of members of the Board as the
number of Shares beneficially owned by Security Capital bears to the total
number of outstanding Shares, provided that Security Capital shall be entitled
to designate no more than three persons so long as the Board consists of no
more than seven members. The directors so elected are in a position to exercise
control or significant influence over the affairs of ATLANTIC if they act
together. Security Capital's ownership could increase from approximately 51.3%
to approximately 53.9% after the Merger and rights offering if no Shares are
purchased in the rights offering, and would decrease to approximately 50.9% if
the rights offering is fully subscribed. Additionally, after the Merger,
Security Capital will continue to have contractual rights of prior approval and
consultation regarding certain important matters, including ATLANTIC's
operating budget and substantial deviations therefrom, acquisitions or sales of
assets in excess of $25.0 million, issuances of securities for less than fair
market value, adoption of employee benefit plans, and certain incurrences of
additional indebtedness. See "The Merger Transaction--Relationship with
Security Capital After the Merger--Investor Agreement". To provide for a wider
distribution of ownership and greater liquidity, Security Capital has advised
ATLANTIC that it intends, over time, to allow its ownership interest in
ATLANTIC to fall to between 40% and 50% as ATLANTIC conducts equity offerings,
which is consistent with its ownership interests in the other operating
companies in which Security Capital invests.
CONFLICTS OF INTEREST
ATLANTIC currently does not have any employees and relies on the REIT Manager
for all strategic and day-to-day management services and SCG Realty Services to
provide property management services for approximately 93% of ATLANTIC's
multifamily communities. Two officers of the REIT Manager and its affiliates
(Jeffrey A. Klopf, Senior Vice President of Security Capital, ATLANTIC and the
REIT Manager (securities offerings, corporate acquisitions and legal) and Ariel
Amir, Vice President of Security Capital (securities offerings, corporate
acquisitions and legal)) may have conflicts of interest in allocating their
time and efforts between activities on behalf of ATLANTIC and other activities
of the REIT Manager's affiliates. Affiliates of the REIT Manager also provide
management services to PTR, a NYSE-listed REIT which focuses on multifamily
communities in the western United States, and Security Capital Industrial Trust
("SCI"), a NYSE-listed REIT which focuses on industrial real estate in the
United States. Capital Markets
21
<PAGE>
Group, Security Capital's registered broker-dealer affiliate, devotes a
substantial portion of its time to these other REITs, Homestead, an ASE-listed
real estate company which focuses on extended-stay facilities in the United
States, and Security Capital. Messrs. Klopf and Amir provide centralized
securities offering, corporate acquisition and legal services to ATLANTIC and
other affiliated real estate companies, including PTR, SCI, Homestead and
Security Capital, and, as a result, do not focus their full efforts and
attention on ATLANTIC. In addition, the REIT Manager and its affiliates share a
common senior investment committee, which approves all acquisition and
development proposals before they are submitted to the respective REIT boards
for approval and therefore members of this senior investment committee do not
focus their full efforts and attention on ATLANTIC. PTR acquires multifamily
communities but operates in a different market than ATLANTIC. See "Policies
With Respect to Certain Activities--Conflict of Interest Policies" and "--
Policies Applicable to the REIT Manager and Officers and Directors of
ATLANTIC".
Ned S. Holmes, a Director of ATLANTIC, is also Chairman and President of
Parkway Investments/Texas Inc., President and Chief Executive Officer of Laing
Properties, Inc. ("Laing") and an executive officer of certain of Laing's
affiliates. Laing and its affiliates engage in the acquisition, development and
management of multifamily communities and Mr. Holmes may therefore have
conflicts of interest in presenting acquisition or development opportunities to
ATLANTIC.
The owner of the REIT Manager, Security Capital, is ATLANTIC's principal
shareholder, and Security Capital could influence decisions regarding the REIT
Management Agreement, property management agreements between ATLANTIC and SCG
Realty Services and fees relating to such agreements. Although all agreements
with the REIT Manager and SCG Realty Services must be reviewed and approved at
least annually by ATLANTIC's independent Directors, no assurance of arm's-
length negotiations can be given. See "The Merger Transaction" for a
description of an agreement that ATLANTIC has entered into with Security
Capital to merge the REIT Manager and SCG Realty Services into a newly formed
subsidiary of ATLANTIC in exchange for Shares. For a description of the Amended
and Restated Investor Agreement which will take effect upon consummation of the
Merger, see "The Merger Transaction--Relationship with Security Capital After
the Merger--Investor Agreement".
BORROWING RISKS
Debt Financing Risks
To the extent it or its subsidiaries incur debt, such as the Notes, ATLANTIC
will be subject to the risks associated with debt financing, including the
risks that ATLANTIC's cash flow from operations will be insufficient to meet
required payments of principal and interest, that ATLANTIC will be unable to
refinance its unsecured revolving line of credit or current or future mortgage
indebtedness on its communities, that the terms of such refinancings will not
be as favorable as the terms of existing indebtedness and that ATLANTIC will be
unable to make necessary capital expenditures for such purposes as renovations
and releasing units due to lack of available funds. If a community is mortgaged
to secure payment of indebtedness and ATLANTIC is unable to meet mortgage
payments, the community could be transferred to the mortgagee with a consequent
loss of income and asset value to ATLANTIC. At March 31, 1997, 21.4% of
ATLANTIC's real estate assets, at cost, were encumbered by debt. Approximately
$121.4 million of ATLANTIC's tax-exempt mortgage debt at March 31, 1997 was
included in a credit enhancement agreement with the Federal National Mortgage
Association ("FNMA"). The credit enhancement agreement is effectively cross-
collateralized with respect to the $207.5 million of communities pledged under
the agreement at March 31, 1997 and ATLANTIC's $350 million unsecured line of
credit agreement contains cross-default provisions with respect to defaults
relating to in excess of $25.0 million of ATLANTIC's outstanding debt. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Investing and Financing
Activities". ATLANTIC's policy will be to generally arrange unsecured, fully
amortizing, fixed rate long-term debt, such as the Notes. See "Policies With
Respect to Certain Activities--Financing Policies".
Variable Interest Rate Risk
ATLANTIC has interest rate swap agreements covering all of its variable
interest rate mortgage debt and $100 million of borrowings under its $350
million unsecured line of credit, effectively mitigating its variable interest
rate exposure. ATLANTIC's variable interest rate exposure is limited to the
line of credit borrowings
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not covered by an interest rate swap agreement ($154.8 million at July 31,
1997). See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources--Investing and Financing
Activities". Increases in interest rates could increase ATLANTIC's interest
expense, which would adversely affect ATLANTIC's funds from operations.
CONCENTRATION OF ATLANTIC'S COMMUNITIES IN ATLANTA
At March 31, 1997, ATLANTIC's portfolio included $363.8 million of communities,
based on cost, that are located in the Atlanta, Georgia metropolitan area,
representing 32.3% of pro forma revenues for the three-month period ended March
31, 1997, and thus may be affected by changes in the economic conditions of
that area. See "ATLANTIC's Communities--Geographic Distribution". Conditions in
the Atlanta market, including the possibility of an economic downturn due to
the completion of the 1996 Summer Olympic Games or otherwise, could adversely
affect cash flows.
TAX LIABILITIES AS A CONSEQUENCE OF THE FAILURE TO QUALIFY AS A REIT
ATLANTIC has elected to be taxed as a REIT under the Code, commencing with its
taxable year ended December 31, 1994 and ATLANTIC intends to continue to
operate in such a manner. A qualified REIT generally is not taxed on income it
distributes to its shareholders as long as it distributes at least 95% of its
taxable income currently and it meets certain other qualification requirements.
No assurance can be given that ATLANTIC will remain qualified as a REIT. No
assurance can be given that new legislation, regulations, administrative
interpretations or court decisions will not significantly change the rules
applicable to ATLANTIC with respect to qualification as a REIT or the federal
income tax consequences of such qualification.
If ATLANTIC fails to continue to qualify as a REIT, it will not be allowed a
deduction for distributions in computing taxable income and will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. In addition, unless entitled to
relief under certain statutory provisions, ATLANTIC will be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. The additional tax could significantly reduce cash
flows. See "Federal Income Tax Considerations".
IMPACT OF MERGER ON ATLANTIC'S FINANCIAL POSITION
To date ATLANTIC has incurred a REIT Management fee and property management fee
for services provided by Security Capital. After completion of the Merger,
ATLANTIC will no longer pay a REIT Management or property management fee;
instead, it will directly incur the operating and related costs for the
professionals (currently 100 professionals) and property-level and support
personnel (currently 450 persons) employed by the REIT Manager and SCG Realty
Services. The REIT Manager and SCG Realty Services have not been profitable.
The fees paid by ATLANTIC for the REIT Manager's and SCG Realty Services'
services in 1996 were approximately $665,000 less than the direct and indirect
costs incurred by Security Capital in providing these services. See "The Merger
Transaction". The Board believes that ATLANTIC has reached a sufficient size to
realize economies of scale by internalizing the management function since
ATLANTIC will have sufficient depth of management and personnel such that
additional assets can be acquired, developed and managed without a significant
increase in personnel or other costs. In addition, as a result of the Merger,
ATLANTIC will capitalize qualifying acquisition and development costs. In doing
so, ATLANTIC will be able to match the incurrence of costs associated with
ATLANTIC's acquisition or development of communities with the revenue generated
by these communities. However, no assurance can be given that the cost to
ATLANTIC of providing such services internally will not exceed the fees that
would be payable to the REIT Manager and SCG Realty Services under the current
agreements.
MARKET FOR THE NOTES
There is currently no public market for the Notes and there can be no assurance
that an active public market for the Notes will develop. If the Notes are
traded after their initial issuance, they may trade at a discount from the
initial public offering price, depending upon prevailing interest rates, the
market for similar securities and other factors. Accordingly, no assurance can
be given that a holder of Notes will be
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able to sell such Notes in the future or that such sale will be at a price
equal to or higher than the initial public offering price of such Notes.
ATLANTIC has been advised by the Underwriters that they presently intend to
make a market in the Notes; however, they are not obligated to do so and any
market making may be discontinued at any time without notice.
ATLANTIC'S REAL ESTATE INVESTMENT RISKS
General
Real property investments are subject to varying degrees of risk. Real estate
cash flows and values are affected by a number of factors, including changes in
the general economic climate, local conditions (such as an oversupply of
multifamily communities or a reduction in rental demand in an area), the
quality and philosophy of management, competition from other available
multifamily communities and the ability of the owner to provide adequate
maintenance and insurance and to control operating costs. Although ATLANTIC
seeks to minimize these risks through the REIT Manager's market research and
management capabilities, these risks cannot be eliminated entirely. Real estate
cash flows and values are also affected by such factors as government
regulations, including zoning and tax laws, interest rate levels, the
availability of financing and potential liability under, and changes in,
environmental and other laws. Since a significant portion of ATLANTIC's income
will be derived from rental income from real property, ATLANTIC's income and
distributable cash flow would be adversely affected if a significant number of
ATLANTIC's residents were unable to meet their obligations to ATLANTIC, or if
ATLANTIC were unable to lease, on economically favorable terms, a significant
number of units in its multifamily communities.
Equity real estate investments are relatively illiquid and therefore may tend
to limit the ability of ATLANTIC to react promptly to changes in economic or
other conditions. In addition, certain significant
expenditures associated with equity investments (such as mortgage payments,
real estate taxes and maintenance costs) are generally not reduced when
circumstances cause a reduction in income from the investments. Like other
REITs, ATLANTIC must comply with safe harbor rules which enable a REIT to avoid
punitive taxation. Thus, ATLANTIC's ability to sell assets to change its asset
base is restricted by tax rules which impose holding periods for assets and
potential disqualification as a REIT upon certain asset sales.
Risks of Real Estate Development
ATLANTIC has developed or commenced development of 8,865 multifamily units and
expects to develop additional multifamily units in the future. See "Business--
ATLANTIC's Operating System--Developed Communities". Real estate development
involves significant risks in addition to those involved in the ownership and
operation of established multifamily communities, including the risks that
financing, if needed, may not be available on favorable terms for development
projects, that construction may not be completed on schedule (resulting in
increased debt service expense and construction costs) and that communities may
not be leased on profitable terms. Timely construction may be adversely
affected by local weather, local or national strikes and by local or national
shortages in materials, insulation, building supplies and energy and fuel for
equipment. ATLANTIC intends to finance future development with cash on hand or
revolving credit borrowings (which ATLANTIC expects to repay with proceeds from
sales of long-term debt or equity securities); however, until such communities
are developed and leased, they will not generate any cash flow to ATLANTIC.
Land Use and Zoning Considerations
Governmental authorities at the federal, state and local levels are actively
involved in the promulgation and enforcement of regulations relating to land
use and zoning restrictions. Regulations may be promulgated which could have
the effect of restricting or curtailing certain uses of existing structures or
requiring that such structures be renovated or altered in some fashion. The
establishment of such regulations could have the effect of increasing the
expenses and lowering the profitability of any of the communities affected
thereby.
Risks of Investments in Mortgages
Although ATLANTIC's current policy is not to invest in mortgages unrelated to
its communities, ATLANTIC may invest in mortgages in connection with the
construction and development of new multifamily
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communities for ATLANTIC by third parties. See "Policies With Respect to
Certain Activities--Investment Policies". Pursuant to a funding commitment
agreement entered into in connection with the Homestead transaction, ATLANTIC
has invested and will invest in convertible mortgage notes issued by Homestead.
See "Certain Relationships and Transactions--Homestead Transaction" and "--
Funding Commitment Agreement". In addition, ATLANTIC from time to time will
invest in mortgage loans to Atlantic Development Services Incorporated
("Atlantic Development Services"), an entity in which ATLANTIC owns
substantially all of the economic interest, to fund the acquisition and
development of certain communities that meet ATLANTIC's investment criteria.
See "Business--ATLANTIC's Operating System--Developed Communities". Mortgage
investments are subject to certain risks, including that borrowers may not be
able to make debt service payments or pay principal when due, that the value of
mortgaged property may be less than the amounts owed, and that interest rates
payable on the mortgages may be lower than ATLANTIC's cost of funds. If
ATLANTIC invested in mortgages and if any of the above occurred, cash flows
could be adversely affected.
Uninsured Loss
ATLANTIC will initially carry comprehensive liability, fire, flood, earthquake,
extended coverage and rental loss insurance with respect to its communities
with policy specifications and insured limits customarily carried for similar
communities. See "Business--Insurance Coverage". There are, however, certain
types of losses that may be either uninsurable or not economically insurable.
Should an uninsured loss occur, ATLANTIC could lose both its capital invested
in and anticipated profits from one or more communities.
Competition
There are numerous commercial developers, real estate companies and other
owners of real estate that compete with ATLANTIC in seeking land for
development, communities for acquisition and disposition and
residents for communities. All of ATLANTIC's multifamily communities are
located in developed areas that include other multifamily communities. The
number of competitive multifamily communities in a particular area could have a
material adverse effect on ATLANTIC's ability to lease apartment units and on
the rents charged. As noted above, ATLANTIC has a concentration of communities
in Atlanta, Georgia. In addition, other forms of single family and multifamily
residential communities provide housing alternatives to residents and potential
residents of ATLANTIC's multifamily communities. See "Business--Competition"
for a discussion of certain economic characteristics and relevant trends in
ATLANTIC's primary target market cities.
REGULATORY COMPLIANCE RISKS
Possible Liability Relating to Environmental Laws
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner, developer or operator of real estate may be liable
for the costs of removal or remediation of certain hazardous or toxic
substances at, on, under or in its property. The costs of removal or
remediation of such substances could be substantial. Such laws often impose
such liability without regard to whether the owner or operator knew of, or was
responsible for, the release or presence of such hazardous or toxic substances.
The presence of such substances may adversely affect the owner's ability to
sell or rent such real estate or to borrow using such real estate as
collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances also may be liable for the costs of removal or remediation of
such substances at the disposal or treatment facility, whether or not such
facility is owned or operated by such person. Certain environmental laws impose
liability for the release of asbestos-containing materials into the air,
pursuant to which third parties may seek recovery from owners or operators of
real properties for personal injuries associated with such materials, and
prescribe specific methods for the removal and disposal of such materials,
which may result in increased costs in connection with renovations at
ATLANTIC's communities.
ATLANTIC has not been notified by any governmental authority of any non-
compliance, liability or other claim in connection with any of its communities
owned or being acquired at June 30, 1997, and ATLANTIC is not aware of any
environmental condition with respect to any of its communities that is likely
to be material. ATLANTIC has subjected each of its communities to a Phase I
environmental assessment (which does not involve invasive procedures such as
soil sampling or ground water analysis) by independent consultants. While some
of these assessments have led to further investigation and sampling, none of
the
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environmental assessments has revealed, nor is ATLANTIC aware of, any
environmental liability (including asbestos-related liability) that ATLANTIC
believes would have a material adverse effect on its business, financial
condition or results of operations. No assurance can be given, however, that
these assessments and investigations reveal all potential environmental
liabilities, that no prior owner or operator created any material environmental
condition not known to ATLANTIC or the independent consultants or that future
uses and conditions (including, without limitation, resident actions or changes
in applicable environmental laws and regulations) will not result in
unreimbursed costs relating to environmental liabilities. See "Business--
Environmental Matters".
Compliance With the Fair Housing Amendments Act of 1988
FHA requires multifamily communities first occupied after March 13, 1990 to be
accessible to the handicapped. Noncompliance with the FHA could result in the
imposition of fines or an award of damages to private litigants. ATLANTIC
believes that its communities that are subject to the FHA are in compliance
with such law.
Compliance With the Americans with Disabilities Act of 1990
ATLANTIC's communities and any newly developed or acquired multifamily
communities must comply with Title III of the ADA to the extent that such
communities are "public accommodations" and/or "commercial facilities" as
defined by the ADA. Compliance with the ADA requirements requires that public
accommodations "reasonably accommodate" individuals with disabilities, which
includes removal of structural barriers to handicapped access in certain public
areas of ATLANTIC's communities, where such removal is readily achievable, and
that new construction or alterations made to "commercial facilities" conform to
accessibility guidelines, unless "structurally impracticable" for new
construction or in excess of 20% of the cost of the alteration for existing
structures. The ADA does not, however, consider multifamily residential
communities, such as ATLANTIC's communities, to be public accommodations or
commercial facilities except to the extent portions of such communities, such
as a leasing office, are open to the public. ATLANTIC believes that its
communities comply with all present requirements under the ADA and applicable
state laws. Noncompliance with the ADA could result in the imposition of
injunctive relief, fines or an award of damages.
Changes in Laws
Increased costs resulting from increases in real estate, income or transfer
taxes or other governmental requirements generally may not be passed through
directly to residents, inhibiting ATLANTIC's ability to recover such increased
costs. Substantial increases in rents, as a result of such increased costs, may
affect residents' ability to pay rent, causing increased vacancy. In addition,
changes in laws increasing potential liability for environmental conditions or
increasing the restrictions on discharges or other conditions may result in
significant unanticipated expenditures.
RESTRICTIONS ASSOCIATED WITH ATLANTIC'S TAX-EXEMPT BOND FINANCINGS
ATLANTIC's portfolio includes communities which require that 20% of their units
be occupied by households whose income does not exceed 80% of the median
household income of the submarket in which the property is located; over 50% of
the households in such communities met such requirements in December 1996.
There can be no assurance that each community will continue to meet such
requirements in the future, in which case ATLANTIC may be required to refinance
the tax-exempt bonds used to finance such community.
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USE OF PROCEEDS
The net proceeds to ATLANTIC from the sale of the Notes offered hereby are
expected to be approximately $ million. The net proceeds of the Offering
will be used to retire revolving credit debt which was incurred for (i) the
acquisition and development of multifamily communities, (ii) capital
improvements to communities, (iii) fundings under ATLANTIC's funding commitment
agreement with Homestead and (iv) general corporate purposes. As of July 31,
1997, ATLANTIC had $254.8 million of outstanding borrowings under its $350
million unsecured revolving line of credit with Morgan Guaranty Trust Company
of New York ("MGT"), an affiliate of J.P. Morgan Securities Inc., as agent for
a syndicate of banks, and such outstanding borrowings are expected to be
approximately $264.0 million at the closing of the Offering without giving
effect to the Offerings. Borrowings under the line of credit bear interest at
prime (8.5% at July 31, 1997) or, at ATLANTIC's option, LIBOR plus 1.125%
(6.75% at July 31, 1997). See "Underwriting" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Line of Credit".
CAPITALIZATION
The following table sets forth the capitalization of ATLANTIC at March 31, 1997
and as adjusted to give effect to the Merger, ATLANTIC's April 1997 public
offering of Shares and the Offerings and the application of the proceeds
therefrom. The table should be read in conjunction with the financial
statements of ATLANTIC included herein.
<TABLE>
<CAPTION>
MARCH 31, 1997
HISTORICAL AS ADJUSTED(1)
---------- --------------
(dollars in thousands)
<S> <C> <C>
Mortgages payable $155,418 $ 155,418
Long-term unsecured debt -- 150,000
Shareholders' equity:
Series A Preferred Shares (liquidation preference
of $25.00 per share); 2,000,000 shares issued -- 50,000
Shares of common stock, par value $.01 per share;
250,000,000 Shares authorized; 37,891,580 Shares
issued; 44,280,580 Shares issued as adjusted 379 442
Additional paid-in capital 747,640 826,459
Unrealized gains on Homestead convertible
mortgages 5,900 5,900
Distributions in excess of net earnings (39,199) (39,199)
-------- ----------
Total shareholders' equity $714,720 $ 843,602
-------- ----------
Total capitalization(2) $870,138 $1,149,020
======== ==========
</TABLE>
- --------
(1) Should the Preferred Share Offering not be consummated, the total
shareholders' equity, as adjusted, will be $795,602 and total
capitalization, as adjusted, will be $1,101,020.
(2) Does not include borrowings under ATLANTIC's $350 million unsecured line of
credit. At March 31, 1997, $295.3 million of borrowings were outstanding
under the line of credit ($21.0 million on an as-adjusted basis, and $69.0
million on an as-adjusted basis if the Preferred Share Offering is not
consummated).
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THE MERGER TRANSACTION
DESCRIPTION OF THE MERGER
In January 1997, Security Capital made a proposal to the Board that Security
Capital exchange the REIT Manager and SCG Realty Services for Shares, with the
result that ATLANTIC would become an internally managed REIT. On March 18,
1997, the Special Committee recommended that the Board approve the Merger
subject to definitive documentation. Following the meeting of the Special
Committee, the full Board approved the Merger Agreement and the Merger. On
March 24, 1997, ATLANTIC and Security Capital entered into the Merger
Agreement, which is subject to customary conditions, including the approval of
ATLANTIC's shareholders. Pursuant to the Merger Agreement, Security Capital
will cause the REIT Manager and SCG Realty Services to be merged into a newly
formed subsidiary of ATLANTIC. The employees of the REIT Manager and SCG
Realty Services will become employees of ATLANTIC as a result of the Merger,
which will be consummated as follows:
. Security Capital will transfer all of its shares of the REIT Manager and
SCG Realty Services to a newly formed subsidiary of ATLANTIC in exchange
for Shares valued at approximately $54.6 million.
. The number of Shares to be issued to Security Capital was based on a
price of $23.675 per Share, the average closing price of the Shares over
the five-day period prior to August 6, 1997, the record date for
determining ATLANTIC's shareholders entitled to vote at the meeting in
connection with the Merger.
. In order to allow ATLANTIC's shareholders (other than Security Capital)
the opportunity to maintain (or to increase) their relative ownership in
ATLANTIC, ATLANTIC is conducting a rights offering which it expects to
close concurrently with the Merger. The rights offering entitles
ATLANTIC's shareholders (other than Security Capital) to purchase up to
approximately $57.1 million of additional Shares (based on the number of
Shares outstanding on August 6, 1997). The exercise price for Shares in
the rights offering is $22 3/8 per Share, which is below the price at
which Security Capital will receive Shares in the Merger. Security
Capital has agreed not to exercise any rights it receives in the rights
offering to purchase additional Shares and not to sell its rights. Any
Shares issued pursuant to the rights offering will be offered only by
means of a separate prospectus which will be mailed to ATLANTIC's
shareholders.
. In addition to the rights offering, as part of the Merger transaction,
Security Capital will issue warrants pro rata to ATLANTIC's shareholders,
other than Security Capital, to acquire shares of its Class B Stock
having an aggregate subscription price at the time of the Warrant
Issuance of approximately $46.9 million. The Warrant Issuance is being
made in order to induce holders of Shares to vote in favor of the Merger
transaction, to broaden Security Capital's shareholder base, to enable
Security Capital to raise additional equity capital at a relatively low
cost through exercises of warrants and to enable Security Capital to
raise additional equity capital in the long run by preserving and
enhancing its goodwill with the shareholders of ATLANTIC. The Warrant
Issuance will occur subject to and after the closing of the Merger and
after the closing of the rights offering. The number of warrants to be
received by each shareholder in the Warrant Issuance will be determined
after ATLANTIC's shareholders have approved the Merger. The number of
shares of Class B Stock subject to the warrants will be based on the
closing price of the Class B Stock on the date the warrants are issued to
the agent for the Warrant Issuance for subsequent distribution to holders
of Shares, other than Security Capital. The warrants will expire one year
after issuance and will contain customary provisions to protect
shareholders from dilution in certain events, including certain
distributions and sales of shares of Class B Stock at less than market
price. The issuance of the warrants by Security Capital is contingent
upon the closing of the Merger.
The Merger transaction was initiated and structured by individuals who are
executive officers of Security Capital, the largest shareholder of ATLANTIC.
Although no independent representatives were retained to negotiate the terms
of the Merger transaction on behalf of ATLANTIC, the Board created the Special
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Committee consisting of Messrs. Garcia, Holmes and Richman. The Special
Committee engaged Hogan & Hartson L.L.P. as its legal counsel and engaged J.P.
Morgan Securities Inc., one of the Underwriters participating in this Offering,
as its financial advisor to provide a written opinion with respect to the
fairness, from a financial point of view, of the consideration to be received
in the transactions contemplated by the Merger Agreement and the Related
Agreements (as defined in the Merger Agreement) to ATLANTIC and its
shareholders (other than Security Capital). No member of the Special Committee
is an officer of ATLANTIC or a Director or officer of the REIT Manager or SCG
Realty Services, or an officer or Director of Security Capital. However,
Messrs. Garcia, Holmes and Richman beneficially own 12,000, 59,500 and 12,000
Shares, respectively, and Messrs. Holmes and Richman beneficially own 67 and
1,633 shares, respectively, of Security Capital's Class A common stock, par
value $.01 per share (the "Class A Stock"). Additionally, Messrs. Holmes and
Richman beneficially own $50,835 and $856,318 aggregate principal amount of
Security Capital's Convertible Subordinated Debentures due 2014 (the "2014
Convertible Debentures"), respectively (convertible into an aggregate of 48 and
819 shares of Class A Stock, respectively). Directors of ATLANTIC, other than
members of the Special Committee, beneficially own, in the aggregate, 24,649
Shares, 514 shares of Class A Stock and $151,248 aggregate principal amount of
2014 Convertible Debentures (convertible into an aggregate of 144 shares of
Class A Stock). Beginning on January 1, 1998, each share of Class A Stock will
be convertible into 50 shares of Class B Stock. Also, a conflict of interest
may exist in connection with the retention of J.P. Morgan Securities Inc. to
represent both the Special Committee in connection with the Merger and Security
Capital in connection with Security Capital's proposed initial public offering.
Concurrently with signing the Merger Agreement with ATLANTIC, Security Capital
also signed substantially similar agreements with each of SCI and PTR, each of
which are affiliates of Security Capital and ATLANTIC. Consummation of the
Merger transaction is not dependent upon the closing of the SCI and PTR
transactions.
RELATIONSHIP WITH SECURITY CAPITAL AFTER THE MERGER
Investor Agreement
Pursuant to an investor agreement (the "Investor Agreement"), between ATLANTIC
and Security Capital, Security Capital is entitled to designate three persons
to be nominated for election to the Board. So long as Security Capital
beneficially owns at least 10% of the Shares, ATLANTIC is prohibited from
increasing the number of members of the Board to more than seven. Additionally,
the Investor Agreement, among other things, requires ATLANTIC to obtain
Security Capital's approval of (i) the annual operating budget and substantial
deviations therefrom, (ii) contracts for investment management, property
management or leasing services or that contemplate annual payments in excess of
$100,000 and (iii) acquisitions or dispositions in a single transaction or a
group of related transactions where the purchase or sale price exceeds $5.0
million. The Investor Agreement also provides certain registration rights to
Security Capital in respect of Shares beneficially owned by Security Capital.
As part of the Merger transaction, ATLANTIC and Security Capital will amend and
restate the Investor Agreement (as so amended and restated, the "Amended and
Restated Investor Agreement"). See "Certain Relationships and Transactions--
Security Capital Investor Agreement" for a description of the current Investor
Agreement. The Amended and Restated Investor Agreement will provide that,
without first having consulted with the nominees of Security Capital designated
in writing, ATLANTIC may not seek Board approval of (i) ATLANTIC's annual
budget; (ii) incurring expenses in any year exceeding (a) any line item in the
annual budget by the greater of $500,000 or 20% and (b) the total expenses set
forth in the annual budget by 15%; (iii) the acquisition or sale of any assets
in any single transaction or series of related transactions in the ordinary
course of ATLANTIC's business where the aggregate purchase price paid or
received by ATLANTIC exceeds $25.0 million; and (iv) entering into any new
contract with a service provider (a) for investment management, property
management or leasing services or (b) that reasonably contemplates annual
contract payments by ATLANTIC in excess of $1.0 million. ATLANTIC will be under
no obligation to accept or comply with any advice offered by Security Capital
with respect to the foregoing matters.
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Additionally, so long as Security Capital beneficially owns at least 25% of the
Shares, Security Capital will have the right to approve the following matters
proposed by ATLANTIC: (i) the issuance or sale of any Shares (including the
grant of any rights, options or warrants to subscribe for or purchase Shares or
any security convertible into or exchangeable for Shares or the issuance or
sale of any security convertible into or exchangeable for Shares), at a price
per Share less than the fair market value of a Share on the date of such
issuance or sale; (ii) the issuance and sale of any disqualified shares (as
defined) if, as a result thereof, ATLANTIC's Fixed Charge Coverage Ratio (as
defined) would be less than 1.4 to 1.0; (iii) the adoption of any employee
benefit plan pursuant to which shares of ATLANTIC or any securities convertible
into shares of ATLANTIC may be issued and any action with respect to the
compensation of the senior officers of ATLANTIC (including the granting or
award of any bonuses or share-based incentive awards); and (iv) the incurrence
of any additional indebtedness (including guarantees and including
renegotiations and restructurings of existing indebtedness) if, as a result
thereof, ATLANTIC's Interest Expense Coverage Ratio (as defined) would be less
than 2.0 to 1.0. The restriction referred to in clause (i) above will not apply
to (A) the sale or grant of any options to purchase shares of ATLANTIC pursuant
to the provisions of any benefit plan approved by the shareholders of ATLANTIC,
(B) the issuance or sale of shares of ATLANTIC upon the exercise of any rights,
options or warrants granted, or upon the conversion or exchange of any
convertible or exchangeable security issued or sold, prior to the closing date
of the Merger or in accordance with the provisions of the Amended and Restated
Investor Agreement, (C) the issuance and sale of any shares of ATLANTIC
pursuant to any dividend reinvestment and share purchase plan approved by the
Board or (D) the issuance, grant or distribution of rights, options or warrants
to all holders of Shares entitling them to subscribe for or purchase shares of
ATLANTIC or securities convertible into or exercisable for shares of ATLANTIC.
The Amended and Restated Investor Agreement will also provide that, so long as
Security Capital owns at least 10% of the outstanding Shares, ATLANTIC may not
increase the number of persons serving on the Board to more than seven.
Security Capital also will be entitled to designate one or more persons to be
nominated for election to the Board, as follows: (i) so long as Security
Capital owns at least 10% but less than 25% of the outstanding Shares, it will
be entitled to nominate one person; and (ii) so long as Security Capital owns
at least 25% of the outstanding Shares, it will be entitled to nominate that
number of persons as shall bear approximately the same ratio to the total
number of members of the Board as the number of Shares beneficially owned by
Security Capital bears to the total number of outstanding Shares, provided that
Security Capital shall be entitled to designate no more than three persons so
long as the Board consists of no more than seven members.
As part of the Amended and Restated Investor Agreement, Security Capital will
be permitted to make employment opportunities with Security Capital or its
affiliates available to the officers and employees of ATLANTIC. Prior to
commencing discussions with a senior officer of ATLANTIC about any such
opportunity, Security Capital will be required to give the Board 14 days' prior
written notice.
In addition, the Amended and Restated Investor Agreement will provide Security
Capital with registration rights pursuant to which, in certain specified
circumstances, Security Capital will be permitted to request, at any time,
registration of all of Security Capital's Shares pursuant to Rule 415 under the
Securities Act. Security Capital will be permitted to request one such
registration for every $100.0 million (based on market value) of Shares it
owns.
Administrative Services Agreement
Upon consummation of the Merger transaction, ATLANTIC and Security Capital will
enter into an administrative services agreement (the "Administrative Services
Agreement"), pursuant to which Security Capital will provide ATLANTIC with
certain administrative and other services with respect to certain aspects of
ATLANTIC's business, as selected from time to time by ATLANTIC at its option.
These services are expected to include, but are not limited to, payroll and tax
administration services, cash management and accounts payable services, data
processing and other computer services, human resources, research, investor
relations, insurance administration and legal administration. The fees payable
to Security Capital will be equal to Security Capital's cost of providing such
services, plus 20%, subject to a maximum amount of approximately $5.2 million
during the initial term of the agreement, of which approximately $1.5 million
will apply to the period between closing of the Merger and December 31, 1997
and the remainder will apply
30
<PAGE>
to 1998. Cost savings under the Administrative Services Agreement will accrue
to ATLANTIC. The agreement will be for an initial term expiring on December 31,
1998 and will be automatically renewed for consecutive one-year terms, subject
to approval by a majority of the independent members of the Board.
License Agreement
ATLANTIC and Security Capital will enter into a license agreement on the
closing date of the Merger (the "License Agreement") pursuant to which Security
Capital will grant ATLANTIC a non-exclusive license to use Security Capital's
registered logo and the non-exclusive right to use the name "Security Capital".
The term of the license will be for a period of 15 years, subject to ATLANTIC's
right to extend the license for up to two additional five-year periods.
Protection of Business Agreement
ATLANTIC and Security Capital will enter into a protection of business
agreement on the closing date of the Merger (the "Protection of Business
Agreement"), which will prohibit Security Capital and its affiliates from
providing, anywhere within the United States, directly or indirectly,
substantially the same services as those currently provided by the REIT Manager
and SCG Realty Services to any entity that owns or operates multifamily
properties. The Protection of Business Agreement will not prohibit Security
Capital or its affiliates from owning the securities of any class of ATLANTIC
or PTR. The Protection of Business Agreement will terminate in the event of an
acquisition, directly or indirectly (other than by purchase from Security
Capital or any of its affiliates), by any person (or group of persons acting in
concert), other than Security Capital or any of its affiliates, of the greater
of (i) 25% or more of the outstanding shares of voting securities of ATLANTIC
and (ii) the percentage of outstanding voting securities of ATLANTIC owned
directly or indirectly by Security Capital and its affiliates, in either case
without the prior written consent of the Board. Subject to earlier termination
pursuant to the preceding sentence, the Protection of Business Agreement will
terminate on the third anniversary of the closing date of the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
If the Merger is consummated, the current officers and employees of the REIT
Manager and SCG Realty Services (except Jeffrey A. Klopf) will become officers
and employees of ATLANTIC and be compensated for their service by ATLANTIC. The
following table sets forth the compensation for each of the Co-Chairmen and the
three other most highly compensated executive officers of ATLANTIC (the "Named
Executive Officers") and for all executive officers as a group (who will become
employees of ATLANTIC) for 1996. All compensation for 1996 was paid by Security
Capital.
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND TITLE SALARY BONUS COMPENSATION
-------------- -------- -------- ------------
<S> <C> <C> <C>
James C. Potts, Co-Chairman $186,000 $199,000 $ 0
Constance B. Moore, Co-Chairman 190,000 185,000 0
J. Lindsay Freeman, Senior Vice President 160,446 100,000 0
Bradley Miller, Senior Vice President (1) 99,205 50,000 0
William Kell, Vice President and Controller 125,000 28,000 0
Executive Officers as a group (5 persons) 760,651 562,000 0
</TABLE>
- --------
(1) Began on June 1, 1996
For 1997, each Named Executive Officer will remain an employee of the REIT
Manager and be compensated by Security Capital until the closing of the Merger,
at which time he or she will become an employee of ATLANTIC and be compensated
by ATLANTIC. For 1997, each Named Executive Officer will receive a salary and
be eligible for a target bonus. The actual amount of the bonus (which may be
higher or lower than the target bonus) will be determined by the Compensation
Committee at the end of the year and will be based on several factors,
including individual performance, ATLANTIC's performance, ATLANTIC's financial
condition, competitive conditions in the real estate industry and
recommendations of senior management. ATLANTIC will continue the same
compensation arrangements for the portion of 1997 in
31
<PAGE>
which the Named Executive Officers are employees of ATLANTIC. The Named
Executive Officers are expected to be paid the following salaries for 1997 and
will be eligible for the following target bonuses for 1997:
<TABLE>
<CAPTION>
TARGET
NAME AND TITLE SALARY BONUS
-------------- -------- --------
<S> <C> <C>
James C. Potts, Co-Chairman $230,000 $115,000
Constance B. Moore, Co-Chairman 230,000 115,000
J. Lindsay Freeman, Senior Vice President 195,000 65,000
Bradley C. Miller, Senior Vice President 185,000 60,000
William Kell, Vice President and Controller 137,500 25,625
</TABLE>
In addition, subject to shareholder approval, during 1997 officers of ATLANTIC
will be granted options to purchase Shares. Officers and certain employees of
ATLANTIC will also be granted the right to purchase Shares under the Incentive
Plan (as defined below). See "--Long-Term Incentive Plan".
The following table shows the options and share purchase rights that are
expected to be received by (i) the Named Executive Officers, (ii) all executive
officers as a group and (iii) all employees, including all officers who are not
executive officers, as a group.
<TABLE>
<CAPTION>
DOLLAR
VALUE OF
SHARES OPTION AWARDS SHARE AWARDS
SUBJECT TO NUMBER EXERCISE EXPIRATION DOLLAR NUMBER
NAME AND TITLE OPTION(1) OF SHARES PRICE DATE VALUE(2)(4) OF SHARES
- -------------- ---------- --------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
James C. Potts, Co-
Chairman $ 300,000 (2) (2) (3) $ 6,000,000 (2)
Constance B. Moore,
Co-Chairman 300,000 (2) (2) (3) 6,000,000 (2)
J. Lindsay Freeman,
Senior Vice President 175,500 (2) (2) (3) 3,000,000 (2)
Bradley C. Miller,
Senior Vice President 175,500 (2) (2) (3) 3,000,000 (2)
William Kell, Vice
President and
Controller 97,500 (2) (2) (3) 1,350,000 (2)
All executive officers
as a group (5 persons) 1,048,500 (2) (2) (3) 19,350,000 (2)
All employees, including
all officers who are
not executive officers,
as a group (65 persons) $1,056,900 (2) (2) (3) $23,955,000 (2)
</TABLE>
- --------
(1) Non-qualified options with dividend equivalent units and vesting schedule
of 25% exercisable on the second anniversary and an additional 25% on each
of the third, fourth and fifth anniversaries of the date of grant.
(2) The exercise price of the options and the purchase price for the share
awards will be the price of the Shares as of the date the shareholders
approve the Incentive Plan. The number of Shares subject to options and
share awards will be determined by dividing the aggregate exercise price or
aggregate share award covered by the price of the Shares as of the date the
shareholders approve the Incentive Plan.
(3) Ten years from the date on which the shareholders approve the Incentive
Plan.
(4) Includes Shares which may be purchased plus matching options for two Shares
granted with respect to each Share purchased.
In addition to the awards under the Incentive Plan, options will be granted to
25 officers of ATLANTIC to purchase an aggregate of $4,002,000 of shares of
Class A Stock of Security Capital (based on the exercise price).
The Board will also adopt a 401(k) plan which will permit eligible employees to
make pre-tax contributions of up to $9,500 to the plan or such other amount as
may be permitted under Code Section 401(k). ATLANTIC will match 50% of
participants' contributions that do not exceed 6% of their compensation.
ATLANTIC intends to make such matching contributions in the form of Shares.
Participants will become
32
<PAGE>
vested in the matching contributions 20% per each year of service. Employees of
the REIT Manager and SCG Realty Services will be credited for service for the
time they were employees of Security Capital.
LONG-TERM INCENTIVE PLAN
General
The Board has adopted, subject to shareholder approval, the 1997 Incentive Plan
(the "Incentive Plan") which authorizes the establishment of one or more option
programs and share purchase programs and the award of share grants. No more
than 3,000,000 Shares in the aggregate may be awarded under the Incentive Plan
and no individual may be granted awards with respect to more than 500,000
Shares in any one-year period. The Compensation Committee of the Board (the
"Compensation Committee") will administer the Incentive Plan. Subject to the
terms of the Incentive Plan, the Compensation Committee determines which
employees shall be eligible to receive awards under the Incentive Plan, and the
amount, price, timing and other terms and conditions applicable to such awards.
Non-employee Directors are not eligible to participate in the Incentive Plan.
All employees of ATLANTIC or any of its subsidiaries are eligible to
participate in the Incentive Plan.
Options awarded under the Incentive Plan may be either incentive share options
or non-qualified share options. Options become exercisable and expire in
accordance with the terms established by the Compensation Committee. Shares
transferred to a participant pursuant to the exercise of an option may be
subject to such additional restrictions or limitations as the Compensation
Committee may determine. The Incentive Plan provides generally that
participants who are awarded options will also receive dividend equivalent
units with respect to the options. The dividend equivalent units will be
subject to the same vesting schedule as the options and will be payable when
the options are exercised, unless the participant elects to defer receipt, or
expire. Each dividend equivalent unit also accumulates additional dividend
equivalent units on an annual basis. All dividend equivalent units are paid in
the form of Shares at the rate of one Share per dividend equivalent unit.
The Incentive Plan provides that the Compensation Committee may award
participants performance stock, subject to achievement of performance
objectives. The number of Shares and the performance measures and periods shall
be established by the Compensation Committee at the time the award is made,
provided that any performance period shall be at least one year.
Non-Qualified Options
Concurrently with the consummation of the Merger transaction, the Named
Executive Officers and other officers and employees of ATLANTIC will be granted
options to purchase Shares at the closing price of the Shares on the date the
Incentive Plan is approved by shareholders. The participants have no rights as
shareholders with respect to the Shares subject to their options until the
option is exercised. ATLANTIC ordinarily will be entitled to claim a federal
income tax deduction on account of the exercise of a non-qualified option and
payment of dividend equivalent units. The amount of the deduction is equal to
the ordinary income recognized by a participant.
Share Purchase Program
Concurrently with the consummation of the Merger transaction, ATLANTIC will
permit the Named Executive Officers and other officers and employees to
purchase up to a total of $14,435,000 of Shares at the closing price of the
Shares on the date the Incentive Plan is approved by shareholders with two
matching options for each Share purchased. Each matching option shall have a
subscription price equal to the closing price of one Share on the date the
Incentive Plan is approved by the shareholders. No dividend equivalent units
will be issued with respect to such matching options. The Share purchases
provide for a one-year restricted period during which the participants may not,
while employed, sell the Shares. If a participant leaves the employment of
ATLANTIC prior to the end of the restricted period, ATLANTIC has the right to
repurchase the Shares at the fair market value of such Shares at the time the
participant's employment is terminated. At the end of the restricted period,
the participant shall own the Shares without further restriction. However, if
the participant sells the Shares after the end of the restricted period, the
participant's matching options may be adversely affected. ATLANTIC will make
loans for up to 95% of the purchase price available to participants. Each loan
will be full recourse to the participant and be secured by the purchased
Shares.
33
<PAGE>
BUSINESS
HIGHLY FOCUSED BUSINESS STRATEGY GROUNDED IN RESEARCH
Since its inception in 1993, ATLANTIC has employed a research-driven investment
approach, deploying its capital in markets and submarkets which exhibit strong
market fundamentals. ATLANTIC believes the southeastern United States is
geographically and economically diverse and, therefore, ATLANTIC has a strong
primary target market in which to seek future growth. Although 32.3% of
ATLANTIC's pro forma revenues for the three-month period ended March 31, 1997
were derived from the Atlanta, Georgia metropolitan area, as ATLANTIC continues
to develop and acquire new communities outside of Atlanta, it expects the
percentage of its revenues derived from communities located in Atlanta to
decline. ATLANTIC's primary target market cities are Atlanta, Georgia;
Birmingham, Alabama; Charlotte, North Carolina; Jacksonville, Florida;
Nashville, Tennessee; Orlando, Florida; Raleigh, North Carolina; Richmond,
Virginia; Southeast Florida (which includes Ft. Lauderdale and West Palm
Beach); Tampa, Florida; and Washington, D.C. Based on forecasts published by
Woods & Poole Economics, Inc., the projected population growth in ATLANTIC's
primary target market cities is 34.5% for the years 1997 through 2016, whereas
the projected population growth of the United States as a whole for the same
period is 16.8%. For the same period, job growth is projected to be 31.2% in
ATLANTIC's primary target market cities compared to 20.8% for the United States
as a whole. Depending on the level of new construction starts by other
multifamily developers, ATLANTIC believes that the anticipated population and
job growth in its primary target market cities should contribute to ATLANTIC's
objective of long-term sustainable growth in cash flow.
ATLANTIC believes that population and employment growth are the primary demand
generators for multifamily product. The following chart indicates the expected
population and employment growth in ATLANTIC's primary target market cities
versus the United States as a whole from 1997 to 2016. The chart is based on
forecasts published by Woods & Poole Economics, Inc., which bases its
historical information on Bureau of Economic Analysis of the Department of
Commerce data. There can be no assurances that the forecasted population and
job growth shown below will in fact occur.
Expected Population and Employment Growth
in ATLANTIC's Primary Target Market Cities
Versus the United States
[LOGO OF BAR GRAPH APPEARS HERE]
16.8% 34.5% 20.8% 31.2%
U.S. ATLANTIC U.S. ATLANTIC
Total Primary Target Total Primary Target
Market Cities Market Cities
Population Employment
At June 30, 1997, ATLANTIC owned communities in 50 of the 150 submarkets within
its target market. REIT Management is continuously researching additional
submarkets and cities and ATLANTIC may add additional primary target market
cities in the future; however, ATLANTIC intends to remain regionally focused in
the southeastern United States.
34
<PAGE>
ATLANTIC differentiates its multifamily communities by the income levels of
their residents. In descending order, the full multifamily spectrum includes
upper middle income apartments, middle income apartments, moderate income
apartments, mobile home parks and government subsidized housing. ATLANTIC
deploys capital into the first three categories. ATLANTIC's upper middle income
communities appeal to residents whose incomes, which equal 115% to 140% of
submarket median household income, are often sufficient to purchase homes.
These communities typically feature large luxurious units and numerous
amenities, including large exercise facilities and attached garages. ATLANTIC's
middle income communities appeal to residents whose incomes equal 90% to 115%
of submarket median household income. Middle income communities have smaller
units and fewer amenities than upper middle income communities. ATLANTIC's
moderate income communities accommodate residents with incomes ranging from 65%
to 90% of submarket median household income. Residents in this category, which
typically include couples, single parents and families with one or two
children, are value-driven and focus on unit livability and practical amenities
such as washer/dryer hookups, storage space and playgrounds.
ATLANTIC's initial investment strategy focused on two components: the
acquisition of a substantial base of established multifamily communities to
provide operating cash flow and the creation of an internal development process
focused primarily on the development of moderate income multifamily
communities. ATLANTIC expects to continue to selectively acquire upper middle
income communities and acquire and develop middle income communities; however,
the majority of its future investment activities will concentrate on developing
moderate income communities.
The table below illustrates the growth in ATLANTIC's expected investment in
multifamily communities since its inception on October 26, 1993 to June 30,
1997:
<TABLE>
<CAPTION>
TOTAL EXPECTED INVESTMENT(1)
JUNE 30, DECEMBER 31,
1997 1996 1995 1994 1993
---------- ---------- ---------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Operating
communities:
Acquired $ 980,587 $ 968,951 $ 788,920 $600,880 $29,591
Less dispositions (103,382) (90,922) (30,934) - -
---------- ---------- ---------- --------- ---------
Net acquired 877,205 878,029 757,986 600,880 29,591
Developed 101,922 81,832 25,462 - -
---------- ---------- ---------- --------- ---------
Total operating
communities 979,127 959,861 783,448 600,880 29,591
Communities under
construction 347,177 290,486 176,740 63,006 13,588
Communities in
planning and
owned(2) 98,959 53,410 69,788 53,096 -
---------- ---------- ---------- --------- ---------
Total owned
communities $1,425,263 $1,303,757 $1,029,976 $716,982 $43,179
========== ========== ========== ========= =========
Communities in
planning and under
control(2) $ 222,833 $ 139,275 $ 48,261 $ 69,232 -
========== ========== ========== ========= =========
</TABLE>
- --------
(1) For operating communities, represents cost plus budgeted renovations. For
communities under construction and in planning, represents cost plus
additional budgeted development expenditures, which include the cost of
land, fees, permits, payments to contractors, architectural and engineering
fees and interest and property taxes to be capitalized during the
construction period, for communities in development. Does not include land
held for future development, which is less than 1% of assets based on cost.
(2) The term "in planning" means that construction is anticipated to commence
within 12 months. The term "under control" means that ATLANTIC has an
exclusive right (through contingent contract or letter of intent) during a
contractually agreed-upon time period to acquire land for future
development of multifamily communities, subject to removal of contingencies
during the due diligence process, but does not currently own the land.
35
<PAGE>
ATLANTIC'S OPERATING SYSTEM
The REIT Manager and SCG Realty Services have approximately 100 professionals
and 450 property-level and support personnel dedicated to implementing
ATLANTIC's highly focused business strategy. ATLANTIC's "Operating System"
consists of six functional areas: research, acquisitions, development, due
diligence and investment analysis, property management and capital
markets/finance/legal. By focusing on a single discipline, professionals within
each of these areas develop substantial expertise. Interaction and
communication among these functional areas remain fluid; but separation
promotes certain checks and balances. For example, all acquisition and
development investments must be approved by a four-member investment committee
and ultimately by the investment committee of the Board.
Research and Development
ATLANTIC is dedicated to ongoing research and development. ATLANTIC utilizes
Security Capital Real Estate Research, an affiliate of the REIT Manager and SCG
Realty Services, to conduct comprehensive evaluations of its target market on a
submarket-by-submarket basis to identify those submarkets and product types
that present better prospects for long-term cash flow growth. These
evaluations, combined with ATLANTIC's extensive market experience in the
southeastern United States, enable ATLANTIC to identify submarkets that offer
continued opportunities for long-term cash flow growth. In addition to market
research, considerable resources are devoted to product research. The REIT
Manager and SCG Realty Services continually evaluate and refine ATLANTIC's
multifamily communities to incorporate technologies and designs that will
enhance long-term livability for its residents.
Acquired Communities
Since its inception in 1993, ATLANTIC has selectively acquired multifamily
communities where demographic trends and market trends indicate a high
likelihood of achieving superior operating results. At June 30, 1997,
ATLANTIC's portfolio of communities acquired, net of dispositions, aggregated
17,367 operating units, representing a total expected investment cost,
including budgeted renovations, of $877.2 million.
ATLANTIC categorizes operating multifamily communities (which exclude
communities under development) as either "stabilized" or "pre-stabilized". The
term "stabilized" means that renovation, repositioning, new management and new
marketing programs (or development and marketing in the case of newly developed
communities) have been completed and in effect for a sufficient period of time
(but in no event longer than 12 months, except in cases of major
rehabilitation) to achieve 93% occupancy at market rents. Prior to being
"stabilized", a community is considered "pre-stabilized". At June 30, 1997,
18.8% ($267.5 million) of ATLANTIC's multifamily operating portfolio was
classified as pre-stabilized, based on total expected investment cost. At June
30, 1997, ATLANTIC's operating communities (excluding communities in lease-up)
were 94.8% leased. For operating communities acquired by ATLANTIC, stabilized
operations generally have been achieved between six and 12 months after
acquisition. For communities that it is developing, ATLANTIC expects stabilized
operations generally to be achieved 12 to 18 months after construction
commences.
Developed Communities
ATLANTIC has selectively developed multifamily communities where land costs and
demographic and market trends indicate a high likelihood of achieving
attractive, sustainable operating results. At June 30, 1997, ATLANTIC's
completed developed communities and its owned communities under construction
and in planning together comprised 38.5% of its multifamily portfolio, based on
total expected investment cost. At June 30, 1997, the development portion of
ATLANTIC's multifamily portfolio consisted of the following:
<TABLE>
<CAPTION>
TOTAL EXPECTED
NUMBER OF UNITS INVESTMENT(1)
--------------- --------------
(dollars in thousands)
<S> <C> <C>
Communities completed 1,898 $101,922
Communities under construction 5,487 347,177
Communities in planning and owned(2) 1,480 98,959
----- --------
Totals 8,865 $548,058
===== ========
</TABLE>
36
<PAGE>
- --------
(1) Represents cost through June 30, 1997 plus additional budgeted development
expenditures at June 30, 1997, which include the cost of land, fees,
permits, payments to contractors, architectural and engineering fees and
interest and property taxes to be capitalized during the construction
period. Does not include land held for future development, which is less
than 1% of assets, based on cost.
(2) Does not include land in planning and under control for the development of
3,406 units with a total budgeted development cost of $222.8 million.
ATLANTIC carefully manages development risks by obtaining zoning and public
approvals prior to purchasing land. ATLANTIC mitigates construction risk by
using qualified third-party general contractors to build its communities, using
guaranteed maximum price contracts. ATLANTIC targets development for markets
with high occupancy rates and population and job growth trends that indicate
increasing future demand. ATLANTIC cannot eliminate all development risk, but
believes that the opportunities to better control its product and realize
higher returns from development communities compensate for any additional risk.
ATLANTIC traditionally has commenced development immediately after acquiring a
tract of land. However, in cases where land prices are favorable, ATLANTIC has
acquired and will acquire, on an unleveraged basis, prudent amounts of zoned
land for the development of future multifamily communities. In addition, to
provide for growth, ATLANTIC may utilize options and rights of first refusal in
order to control land for the development of future communities.
To enhance its flexibility in developing and acquiring multifamily communities,
ATLANTIC has and will enter into presale agreements to acquire communities
developed by third-party owner/developers where the developments meet
ATLANTIC's investment criteria. ATLANTIC has and will fund such developments
through development loans to these owner/developers. In addition, to provide
greater flexibility for the use of land acquired for development and to dispose
of excess parcels, ATLANTIC plans to make mortgage loans to Atlantic
Development Services to purchase land for development. ATLANTIC owns all of the
preferred stock of Atlantic Development Services, which entitles ATLANTIC to
substantially all of the net operating cash flow (95%) of Atlantic Development
Services. All of the common stock of Atlantic Development Services is owned by
an unaffiliated trust. The common stock is entitled to receive the remaining 5%
of net operating cash flow. At June 30, 1997, there were no outstanding
development or mortgage loans made by ATLANTIC. The activities of Atlantic
Development Services and third-party owner/developers are consolidated with
ATLANTIC's activities and all intercompany transactions have been eliminated in
consolidation.
Due Diligence and Investment Analysis
ATLANTIC believes that a REIT should have experienced personnel dedicated to
performing intelligent and thorough due diligence. The REIT Manager has three
full-time professionals performing due diligence for ATLANTIC. The REIT
Manager's professionals utilize due diligence information in screening
potential acquisitions and developments for ATLANTIC.
Prospective property investments are analyzed pursuant to several underwriting
criteria, including purchase price, competition and other market factors, and
prospects for long-term growth in cash flow. ATLANTIC's investment decisions
are based upon the expected contribution of the community to long-term cash
flow growth on an unleveraged basis. The expected economic contribution is
based on an evaluation of a community's stabilized operations, including an
estimate of all cash revenues from leases and other revenue sources, minus
expenses incurred in operating the community (including real estate taxes,
insurance, maintenance, turnover costs (such as carpet and appliance
replacement), personnel costs and utility charges, but excluding depreciation,
debt service and amortization of loan costs) and a reserve for capital
expenditures.
Property Management
ATLANTIC believes that a successful REIT must actively manage its communities
in order to increase cash flow and enhance the long-term economic performance
of the communities. Approximately 93% of ATLANTIC's operating multifamily units
are managed by SCG Realty Services, which is headquartered in Atlanta, Georgia,
with the balance in various stages of transition to SCG Realty Services'
management.
37
<PAGE>
Security Capital is the sole owner of SCG Realty Services and the REIT Manager.
See "The Merger Transaction" for a description of an agreement that ATLANTIC
has entered into with Security Capital to merge the REIT Manager and SCG Realty
Services into a newly formed subsidiary of ATLANTIC in exchange for Shares. The
property management fee paid to SCG Realty Services for the three-month period
ended March 31, 1997 and for the year ended December 31, 1996 was $1.3 million
and $4.2 million, respectively. See "Certain Relationships and Transactions--
Property Management Company".
SCG Realty Services has approximately 45 professionals and 435 property-level
and support personnel. All such persons are expected to become employees of
ATLANTIC after the Merger. SCG Realty Services emphasizes locally-based
management and has ten local offices to serve ATLANTIC's target market. This
network improves SCG Realty Services' ability to respond to changes in local
market conditions and resident needs. ATLANTIC believes that SCG Realty
Services has developed superior operating procedures, financial controls,
information systems and training programs, which it expects to positively
affect rental returns and occupancy rates. In addition, incentive compensation
programs have been implemented for on-site property managers to further improve
the performance of the communities. The REIT Manager has taken an active role
in overseeing SCG Realty Services' management of ATLANTIC's multifamily
communities.
ATLANTIC recognizes that highly focused day-to-day management attention is
essential to maximize short-term and long-term cash flow from each of its
multifamily communities. As a result, SCG Realty Services has been specifically
dedicated to the pursuit of this single goal. The professionals within SCG
Realty Services focus only on ATLANTIC's communities. Therefore, their
attention is not diluted by competing demands of other customers. SCG Realty
Services and the REIT Manager work closely together to develop innovative new
ideas to maintain high resident satisfaction while maximizing cash flow growth.
During 1996, SCG Realty Services established a Regional Information Management
("RIM") Center. The RIM Center concept is designed to enable property-level
management personnel to focus on community operating performance while moving
certain accounting and administrative functions to the RIM Center. The RIM
Center is designed to carry out these functions for several area communities
and thus benefit from economies of scale, better accounting control and
enhanced cash management capabilities. During 1996, ATLANTIC entered into
revenue sharing agreements with certain cable television and telephone service
providers which provide for ATLANTIC to receive a percentage of the service
providers' revenues generated from subscribing residents in return for access
to the resident base.
Capital Markets/Finance/Legal
ATLANTIC believes that a successful REIT must have the ability to access the
equity and debt markets efficiently, expeditiously and cost-effectively.
ATLANTIC's ability to efficiently access the capital markets permits it to
capitalize on the development and acquisition opportunities that exist in its
target market. In order to maximize this function and enhance relationships
with major institutional sources of capital, Security Capital formed Capital
Markets Group, a registered broker-dealer affiliate. Capital Markets Group's
services are included in the REIT Manager's fee and do not result in a separate
charge to ATLANTIC. After the Merger, shareholders relations services will be
charged in accordance with the terms of the Administrative Services Agreement
while capital raising services will be charged based on the services used.
Capital Markets Group and the REIT Manager have arranged approximately $420
million in private offerings and a $350 million line of credit for ATLANTIC.
ATLANTIC's increased borrowing capacity enables it to acquire communities prior
to equity and long-term debt offerings and to eliminate or minimize the amount
of cash it must invest in low-yielding short-term investments. ATLANTIC
believes its current leverage provides considerable flexibility to prudently
utilize long-term debt as a financing tool in the future. After it has acheived
a substantial equity base, ATLANTIC expects to arrange fully amortizing, fixed-
rate, 15-year to 25-year unsecured debt, such as the Notes, the proceeds of
which will be used primarily for the reduction of line of credit balances
related to multifamily acquisition and development. This long-term financing
strategy is expected to allow ATLANTIC to prudently increase its capital base
with debt and equity.
In July 1995, the REIT Manager negotiated a credit enhancement agreement with
FNMA that covers all of ATLANTIC's tax-exempt bond issues. Under the agreement
with FNMA, ATLANTIC makes monthly principal payments, based on a 30-year
amortization, into a principal reserve account. Of these bond issues,
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$108.2 million have variable interest rates. To mitigate the variable interest
rate exposure, ATLANTIC entered into swap agreements. These swap agreements
effectively result in ATLANTIC paying interest at a fixed rate of 6.63% on
these borrowings.
STRATEGY FOR CASH FLOW AND DISTRIBUTION GROWTH
ATLANTIC seeks to achieve long-term sustainable growth in cash flow by
maximizing the operating performance of its core portfolio through value-added
operating systems and concentrating its experienced team of professionals on
developing and acquiring industry-leading communities in targeted submarkets
exhibiting strong job growth and favorable demographic trends.
In addition to its strong primary target market, ATLANTIC believes that the
following key factors will drive ATLANTIC's future growth: research and
development, moderate income development, opportunistic acquisitions, "same
store" growth, portfolio and asset optimization and a conservative balance
sheet strategy.
Research and Development
ATLANTIC believes that its research-based investment strategy differs from
other multifamily REITs in that the REIT Manager and SCG Realty Services and
their respective affiliates have dedicated personnel who conduct comprehensive
proprietary evaluations of ATLANTIC's target market on a submarket-by-submarket
basis taking into account 24 key variables that ATLANTIC has identified as
having the greatest impact on multifamily operating performance. A few of these
variables include market demand analysis, detailed supply evaluations of each
submarket and other economic and demographic data. See "--ATLANTIC's Operating
System--Research".
Development of Moderate Income Communities
ATLANTIC differentiates its multifamily communities by the income levels of
their residents. In descending order, the full multifamily spectrum includes
upper middle income apartments, middle income apartments, moderate income
apartments, mobile home parks and government subsidized housing. ATLANTIC
deploys capital into the first three categories. ATLANTIC's upper middle income
communities appeal to residents whose incomes, which equal 115% to 140% of
submarket median household income, are often sufficient to purchase homes.
These communities typically feature large luxurious units and numerous
amenities, including large exercise facilities and attached garages. ATLANTIC's
middle income communities appeal to residents whose incomes equal 90% to 115%
of submarket median household income. Middle income communities have smaller
units and fewer amenities than upper middle income communities. ATLANTIC's
moderate income communities accommodate residents with incomes ranging from 65%
to 90% of submarket median household income. Residents in this category, which
typically include couples, single parents and families with one or two
children, are value-driven and focus on unit livability and practical amenities
such as washer/dryer hookups, storage space and playgrounds.
ATLANTIC's initial acquisitions were principally middle income communities
since the existing moderate income inventory in the southeastern United States
consisted primarily of older communities (15-30 years old) which had been
poorly managed, were either dilapidated or approaching obsolescence and would
not compete effectively for residents in ATLANTIC's market. ATLANTIC's
portfolio at June 30, 1997 includes upper middle income communities (9.3%,
based on total expected investment cost), middle income communities (40.5%,
based on total expected investment cost) and moderate income communities
(50.2%, based on total expected investment cost).
At June 30, 1997, ATLANTIC's portfolio consisted of seven upper middle income
communities with a total expected investment cost of $133.0 million, 37 middle
income communities with a total expected investment cost of $577.6 million and
49 moderate income communities with a total expected investment cost of $714.7
million. ATLANTIC focuses primarily on moderate income communities, which
comprise one of the largest segments of the renter population. Moderate income
communities comprised 51.8% of ATLANTIC's 1996 development starts, based on
total budgeted development cost. In 1997, approximately 71.2% of development
starts and approximately 62.2% of ATLANTIC's total development activities are
expected to
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constitute moderate income communities, based on total budgeted development
cost. The balance of development starts are expected to consist of middle
income communities.
Based on ATLANTIC's review of information filed under the Exchange Act
regarding other REITs in ATLANTIC's primary target market and other publicly
available data, ATLANTIC believes that few other REITs in its primary target
market currently focus on the moderate income segment. Moreover, based on
ATLANTIC's proprietary information regarding available land parcels and
construction starts in its primary target market, ATLANTIC believes that less
than 10% of the 1995 and 1996 multifamily starts in ATLANTIC's primary target
market cities constituted moderate income product. Consequently, ATLANTIC
believes that the moderate income segment is a significantly underserved market
with limited competition.
In ATLANTIC's experience, moderate income residents are typically longer-term
residents (as evidenced by the turnover percentages presented in the following
table) because they often lack the financial resources required to purchase
single-family homes. As a result, resident turnover is often lower in
ATLANTIC's moderate income communities than in its upper middle income or
middle income communities particularly during softening market conditions. The
total cost of refurbishing and re-leasing a unit ranges from $700 to $1,500;
therefore, reducing resident turnover can have a material impact on an asset's
profitability.
Certain of ATLANTIC's primary target market cities have recently experienced
demand and supply imbalances. During this period, ATLANTIC's moderate income
communities outperformed ATLANTIC's product types as a whole. The table below
demonstrates the performance of ATLANTIC's moderate income communities in the
"same store" portfolios.
<TABLE>
<CAPTION>
FIRST QUARTER 1997
COMPARED TO FIRST COLLECTIONS CHANGE IN
QUARTER 1996 GROWTH TURNOVER OCCUPANCY
------------------ ----------- --------- ---------
<S> <C> <C> <C>
Moderate income 3.72% 56.5% 0.7%
Middle income 1.62 54.9 -0.4
Upper middle income 1.04 56.7 -2.6
All product types 2.42 55.9 -0.3
<CAPTION>
FOURTH QUARTER 1996
COMPARED TO FOURTH
QUARTER 1995
-------------------
<S> <C> <C> <C>
Moderate income 4.66 60.1 1.0
Middle income -0.44 69.5 -1.6
Upper middle income -0.20 65.6 -2.6
All product types 1.00 65.7 -1.1
<CAPTION>
1996 COMPARED TO
1995
----------------
<S> <C> <C> <C>
Moderate income 4.02 61.0 0.1
Middle income 1.92 66.1 -0.6
Upper middle income 2.98 57.9 -0.3
All product types 2.76 62.6 -0.3
</TABLE>
Due to market fundamentals and the operating characteristics of moderate income
communities, ATLANTIC believes that this category offers better prospects for
long-term sustainable cash flow growth.
ATLANTIC's research-driven development strategy is focused on developing state
of the art communities in attractive submarkets that responds to renter
preferences and demographic trends. ATLANTIC believes that developing
communities designed for long-term appeal to one of the largest segments of the
renter population (moderate income households) will allow ATLANTIC to achieve
more consistent rental increases and higher occupancies over the long term and
thereby realize superior cash flow growth. Development, principally of moderate
income communities, will be a critical factor driving ATLANTIC's long-term
growth. By year-end 1997, ATLANTIC anticipates that approximately 42.5% of its
total portfolio will consist of communities ATLANTIC has developed or is in the
process of developing and approximately 65.6% of these development communities
will be moderate income product, based on total expected investment cost. Over
an extended period, management believes that operating results from ATLANTIC's
development starts will contribute significantly to ATLANTIC's cash flow
growth.
Development opportunities also permit ATLANTIC to incorporate technologies and
designs aimed at enhancing long-term rental growth and reducing ongoing
maintenance costs. ATLANTIC has had the
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opportunity to evaluate and refine its multifamily communities through its
history of development. ATLANTIC, unlike a typical merchant builder, intends to
be a long-term owner of the communities that it develops. Hence, ATLANTIC
emphasizes long-term durability by using materials and designs that minimize
ongoing operation and maintenance costs.
Opportunistic Acquisitions
It is often advantageous for ATLANTIC to acquire existing multifamily
communities in markets that are expected to experience favorable growth in
rents and income. In many cases, communities can be acquired and redeveloped at
prices well below the cost to build a comparable community in the same area.
The REIT Manager thoroughly analyzes and evaluates potential community
acquisitions throughout ATLANTIC's target market which, together with
ATLANTIC's access to capital, provides ATLANTIC with a competitive advantage in
acquiring multifamily assets. From its inception on October 26, 1993 to June
30, 1997, ATLANTIC had completed acquisitions with a total expected investment
cost of $980.6 million.
"Same Store" Growth
Net operating income on a "same store" basis (as adjusted for pre-stabilized
versus stabilized accounting differences) increased 4.88% from 1995 to 1996 for
the 34 communities that were fully operational during both periods and
increased 5.72% from the first quarter of 1996 to the first quarter of 1997 for
the 50 communities that were fully operational during both periods. The
accounting differences result from capitalizing certain costs during the period
after acquisition when a community is being repositioned and is classified as
pre-stabilized and expensing those costs once repositioning is completed and
the community is classified as stabilized.
ATLANTIC believes that the underlying long-term conditions of its primary
target market, including its strong job growth, should continue to support high
occupancy levels and allow for consistent increases in rental income. In
addition, operating efficiencies and lower resident turnover resulting from
ATLANTIC's increasing focus on moderate income product are expected to reduce
operating costs and improve profit margins.
Portfolio and Asset Optimization
ATLANTIC develops and acquires communities with a view to effective long-term
operation and ownership. REIT Management actively reviews ATLANTIC's asset
base. These reviews generate operating and capital plans and, with guidance
from its affiliate, Security Capital Real Estate Research, help ATLANTIC to
identify submarkets and product types that it believes will generate above
average long-term growth opportunities. In evaluating each multifamily
community owned or being considered for acquisition or development, the REIT
Manager focuses on those components that it believes provide the greatest
opportunity for consistent rental increases and high occupancies over the long
term. Submarket locations and demographics, unit mix, density and amenities of
each community are important contributors to long-term cash flow growth. Under
its portfolio and asset optimization program, ATLANTIC may from time to time
dispose of assets that no longer meet its long-term investment objectives and
redeploy the proceeds, preferably through tax-deferred exchanges, into assets
with better prospects for cash flow growth. ATLANTIC's portfolio and asset
optimization strategy is based on the premise that it has a finite amount of
investment capital and that this capital should be deployed where it can
produce maximum long-term cash flow growth. ATLANTIC believes that many of its
existing upper middle income communities will be candidates for exchange or
disposition given the increased competition from this product type being
developed by third parties. Consistent with its current strategy, ATLANTIC
expects to redeploy the proceeds from these dispositions into moderate income
communities with superior growth prospects. From inception through June 30,
1997, ATLANTIC disposed of eight operating communities aggregating 2,140 units,
realizing an aggregate gain, net of provisions for possible losses, of $4.3
million on aggregate proceeds of $107.7 million. Five of these eight
dispositions have been included in tax-deferred exchanges.
Conservative Balance Sheet Strategy
ATLANTIC has a conservative balance sheet strategy. Long-term debt as a
percentage of total long-term undepreciated book capitalization was 16.9% at
March 31, 1997 on a historical basis and 25.5% at March 31, 1997 on a pro forma
basis, as adjusted to give effect to the Merger, ATLANTIC's April 1997 public
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offering of Shares and the Offerings and the application of the proceeds
therefrom. In the future, ATLANTIC intends to access the public equity and debt
markets and to issue long-term, fixed rate, fully amortizing unsecured
corporate debt, such as the Notes, which will limit ATLANTIC's exposure to
floating rate or balloon financing. However, there can be no assurance that
ATLANTIC will be able to complete the Preferred Share Offering or such other
offerings. ATLANTIC's $350 million unsecured line of credit enables ATLANTIC to
take advantage of investment opportunities in its target market without
investing significant funds in short-term investments between securities
offerings. At July 31, 1997, $254.8 million of borrowings were outstanding
under the line of credit and such outstanding borrowings are expected to be
approximately $264.0 million at the closing of the Offering without giving
effect to the Offerings. This conservative balance sheet strategy is expected
to provide ATLANTIC with the ability to raise funds through offerings of debt
and equity and allow ATLANTIC to take advantage of future investment
opportunities, contributing to ATLANTIC's objective of long-term growth in cash
flow.
COMPETITION
There are numerous commercial developers, real estate companies and other
owners of real estate that compete with ATLANTIC in seeking land for
development, communities for acquisition and disposition and residents for
communities. All of ATLANTIC's multifamily communities are located in developed
areas that include other multifamily communities. The number of competitive
multifamily communities in a particular area could have a material adverse
effect on ATLANTIC's ability to lease units and on the rents charged. In
addition, other forms of single family and multifamily residential communities
provide housing alternatives to residents and potential residents of ATLANTIC's
multifamily communities.
At June 30, 1997, only two of ATLANTIC's primary target market cities had more
than 10% of ATLANTIC's communities based on total expected investment. Atlanta,
Georgia, with approximately 29% of ATLANTIC's communities at June 30, 1997
based on total expected investment, benefits from favorable demographic trends
and economic factors. Atlanta's economy is diverse, it has the nation's second
busiest airport and has strong population and job growth. Based on forecasts
published by Woods & Poole Economics, Inc., the projected population growth in
Atlanta is 38.5% for the years 1997 through 2016, whereas the projected
population growth of the United States as a whole for the same period is 16.8%.
For the same period, job growth is projected to be 35.1% in Atlanta compared to
20.8% for the United States as a whole. Based on estimates of the Bureau of
Labor Statistics, the unemployment rate in Atlanta in May 1997 of 3.4% was the
same as that in May 1996. These positive attributes have increased competition
from institutional and REIT investors. As a result, management believes that
the Atlanta market is experiencing a temporary oversupply of multifamily
communities. Additionally, multifamily permits decreased in 1996, indicating a
lower level of additional inventory in 1997 for this market.
Ft. Lauderdale/West Palm Beach, with approximately 11% of ATLANTIC's
communities at June 30, 1997 based on total expected investment, benefits from
favorable demographic trends and economic factors. This market is a growing
center of trade with South and Latin American countries and has strong
population and job growth. Based on forecasts published by Woods & Poole
Economics, Inc., the projected population growth in Ft. Lauderdale/West Palm
Beach is 41.6% for the years 1997 through 2016, whereas the projected
population growth of the United States as a whole for the same period is 16.8%.
For the same period, job growth is projected to be 35.0% in Ft. Lauderdale/West
Palm Beach compared to 20.8% for the United States as a whole. Based on
estimates of Bureau of Labor Statistics, the unemployment rate in Ft.
Lauderdale/West Palm Beach decreased from 5.6% in May 1996 to 5.4% in May 1997.
These positive attributes have increased competition from institutional
investors. As a result, management believes that the Ft. Lauderdale/West Palm
Beach market is experiencing a temporary oversupply of multifamily communities,
which is expected to be absorbed during the next two to four quarters. In
addition, this market has high barriers to entry due to lack of sites, lengthy
entitlement process and geographical limitations caused by the Everglades.
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The following table shows population and employment growth and unemployment
information for each of ATLANTIC's primary target market cities:
<TABLE>
<CAPTION>
NON- NON-
WOODS & POOLE WOODS & POOLE SEASONALLY SEASONALLY
1997-2016 1997-2016 ADJUSTED ADJUSTED
POPULATION EMPLOYMENT UNEMPLOYMENT UNEMPLOYMENT
PRIMARY TARGET MARKET GROWTH GROWTH MAY 1997(1) MAY 1996(1)
--------------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Atlanta, Georgia 38.5% 35.1% 3.4% 3.4%
Birmingham, Alabama 17.6 21.7 2.8 3.0
Charlotte, North
Carolina 32.8 28.2 3.0 3.6
Fort Lauderdale/West
Palm Beach, Florida 41.6 35.0 5.4 5.6
Jacksonville, Florida 29.8 29.4 3.7 3.5
Nashville, Tennessee 30.7 26.6 3.0 3.0
Orlando, Florida 64.6 55.4 3.3 3.7
Raleigh, North Carolina 48.1 38.9 1.9 2.3
Richmond, Virginia 23.9 25.4 3.7 3.8
Tampa, Florida 38.5 37.5 3.5 3.9
Washington, D.C. 20.8 20.6 3.4 3.9
</TABLE>
- --------
(1) Unemployment rate is estimated by the Bureau of Labor Statistics each
month. This estimation uses several data sources, including the Current
Population Survey, Current Employment Statistics, and State Unemployment
Insurance data programs. Survey of unemployed and employed workers occurs
during the week that includes the 12th of the month. Persons working at all
for profit during this week are considered to be employed. Those who did
not work at all, have actively looked for a job (sometime in the 4-week
period ending with the survey reference week) and are currently available
to work are deemed to be unemployed.
EMPLOYEES
ATLANTIC currently has no employees. The REIT Manager, whose sole activity is
advising ATLANTIC, manages the day-to-day operations of ATLANTIC. The REIT
Manager and SCG Realty Services have assembled a team of approximately 100
operating professionals, collectively possessing extensive experience in
multifamily real estate. All such persons are expected to become employees of
ATLANTIC after the Merger.
LEGAL PROCEEDINGS
ATLANTIC is a party to various claims and routine litigation arising in the
ordinary course of its business. ATLANTIC does not believe that the results of
any of such claims and litigation, individually or in the aggregate, will have
a material adverse effect on its business, financial position or results of
operations.
AMERICANS WITH DISABILITIES ACT
ATLANTIC's communities must comply with Title III of the ADA to the extent that
such communities are "public accommodations" and/or "commercial facilities" as
defined by the ADA. The ADA does not consider multifamily communities to be
public accommodations or commercial facilities, except portions of such
facilities open to the public, such as the leasing office. Noncompliance could
result in imposition of fines or an award of damages to private litigants.
ATLANTIC believes that the mandated portions of its communities comply with all
present requirements under the ADA and applicable state laws.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner, developer or operator of real estate may be liable
for the costs of removal or remediation of certain hazardous or toxic
substances at, on, under or in its property. The costs of removal or
remediation of such substances could be substantial. Such laws often impose
such liability without regard to whether the owner or operator knew of, or was
responsible for, the release or presence of such hazardous or toxic substances.
The presence of such substances may adversely affect the owner's ability to
sell or rent such real estate or to borrow using such real estate as
collateral. Persons who arrange for the disposal or treatment of hazardous
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or toxic substances also may be liable for the costs of removal or remediation
of such substances at the disposal or treatment facility, whether or not such
facility is owned or operated by such person. Certain environmental laws
impose liability for the release of asbestos-containing materials into the
air, pursuant to which third parties may seek recovery from owners or
operators of real properties for personal injuries associated with such
materials, and prescribe specific methods for the removal and disposal of such
materials, which may result in increased costs in connection with renovations
at ATLANTIC's communities.
ATLANTIC has not been notified by any governmental authority of any non-
compliance, liability or other claim in connection with any of its communities
owned or being acquired at June 30, 1997, and ATLANTIC is not aware of any
environmental condition with respect to any of its communities that is likely
to be material. ATLANTIC has subjected each of its communities to a Phase I
environmental assessment (which does not involve invasive procedures such as
soil sampling or ground water analysis) by independent consultants. While some
of these assessments have led to further investigation and sampling, none of
the environmental assessments has revealed, nor is ATLANTIC aware of, any
environmental liability (including asbestos-related liability) that the REIT
Manager believes would have a material adverse effect on ATLANTIC's business,
financial condition or results of operations. No assurance can be given,
however, that these assessments and investigations reveal all potential
environmental liabilities, that no prior owner or operator created any
material environmental condition not known to ATLANTIC or the independent
consultants or that future uses and conditions (including, without limitation,
resident actions or changes in applicable environmental laws and regulations)
will not result in unreimbursed costs relating to environmental liabilities.
See "Risk Factors--Regulatory Compliance Risks--Possible Liability Relating to
Environmental Laws".
INSURANCE COVERAGE
ATLANTIC carries comprehensive general liability coverage on its owned
communities, with limits of liability customary within the industry, to insure
against liability claims and related defense costs. Similarly, ATLANTIC is
insured against the risk of direct physical damage in amounts necessary to
reimburse ATLANTIC on a replacement-cost basis for costs incurred to repair or
rebuild each community, including loss of rental income during the
reconstruction period (up to a six-month period).
REIT MANAGEMENT
GENERAL
The REIT Manager and its specialized services affiliates provide ATLANTIC with
strategic and day-to-day management, research, investment analysis,
acquisition, development, marketing, disposition of assets, asset management,
due diligence, capital markets, and legal and accounting services, all of
which are included in the REIT Management fee. ATLANTIC currently has no
employees. Hence, ATLANTIC depends on the quality of the management provided
by the REIT Manager. ATLANTIC believes that its relationship with the REIT
Manager provides ATLANTIC with access to high quality and depth of management
personnel and resources, savings from a dedicated capital markets group, and
access to centralized research, accounting and legal support. At July 31,
1997, approximately 55 operating professionals were employed by the REIT
Manager. The REIT Manager also provides office and other facilities supporting
ATLANTIC's needs. The REIT Manager's address is the same as ATLANTIC's. The
owner of the REIT Manager, Security Capital, currently owns approximately
51.3% of ATLANTIC's outstanding Shares. See "The Merger Transaction" for a
description of an agreement that ATLANTIC has entered into with Security
Capital to merge the REIT Manager and SCG Realty Services into a newly formed
subsidiary of ATLANTIC in exchange for Shares.
The owner of the REIT Manager has a substantial shareholder interest in
ATLANTIC, creating alignment of interest with ATLANTIC's shareholders.
Furthermore, the REIT Manager provides all its services for one fee, and an
affiliate provides property management services at market rates in a
competitive environment. The REIT Manager does not receive additional fees for
investment banking, financing, asset sales or similar services.
The REIT Manager has organized itself such that each operating professional
specializes in a particular discipline (such as research, marketing,
development, acquisition, due diligence, asset management, capital
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<PAGE>
markets or financial operations) rather than being responsible for all
functions on a project-by-project basis. Local investments are approved by the
REIT Manager's investment committee, using uniform criteria, prior to being
submitted to ATLANTIC's investment committee. Regional operating professionals
focus on specific target markets to ensure attention to resident services.
ATLANTIC believes that the quality of management should be assessed in light of
the following factors:
Management Depth/Succession
ATLANTIC believes that management should have several senior executives with
the leadership, operational, investment and financial skills and experience to
oversee the entire operations of the REIT. ATLANTIC believes that several of
its senior officers could serve as the principal executive officer and continue
ATLANTIC's performance. See "--Directors and Officers of ATLANTIC and the REIT
Manager" below.
Strategic Vision
ATLANTIC believes that management should have the strategic vision to determine
an investment focus that provides favorable initial yields and long-term growth
prospects. The REIT Manager has demonstrated its strategic vision by focusing
ATLANTIC on multifamily communities in the southeastern United States, where
demographic and supply factors have permitted high occupancies at increasing
rents.
ATLANTIC focuses primarily on moderate income communities, which comprise one
of the largest segments of the renter population. Based on ATLANTIC's review of
information filed under the Exchange Act regarding other REITs in ATLANTIC's
primary target market and other publicly available data, ATLANTIC believes that
few other REITs in its primary target market currently focus on the moderate
income segment. Consequently, ATLANTIC believes that the moderate income
segment is a significantly underserved market with limited competition.
Research Capability
ATLANTIC believes that management should have the means for researching markets
to determine appropriate investment opportunities. ATLANTIC divides its target
market cities into numerous submarkets for analysis purposes. The REIT Manager
and its affiliates have several persons who devote substantial time to
research, on a submarket-by-submarket basis, and are closely supervised by
senior officers of the REIT Manager.
Investment Committee Process
ATLANTIC believes that investment committees should provide discipline and
guidance to the investment activities of the REIT in order to achieve its
investment goals. The four members of the REIT Manager's investment committee
have a combined 95 years experience in the real estate industry. See "--
Directors and Officers of ATLANTIC and the REIT Manager" below. The investment
committee receives detailed written analyses and research, in a standardized
format, from the REIT Manager's personnel and evaluates all prospective
investments pursuant to uniform underwriting criteria prior to submission of
investment recommendations to the investment committee of the Board. The
quality of the REIT Manager's investment committee process is demonstrated by
ATLANTIC's ability to achieve its investment goals and generally realize its
projected initial returns and growth from multifamily investments.
Development/Redevelopment and Acquisition Capability
ATLANTIC believes that by internally developing projects and redeveloping well-
located operating communities, management can capture for the REIT the value
that normally escapes through sales premiums paid to successful developers. The
REIT Manager's personnel have substantial development and redevelopment
experience, as described in "--Directors and Officers of ATLANTIC, the REIT
Manager and Relevant Affiliates" below. The REIT Manager has 20 full-time
professionals committed to development and acquisition activities. The REIT
Manager has arranged for over $980.6 million of successful acquisitions for
ATLANTIC. At June 30, 1997, the REIT Manager was developing 6,967 multifamily
units for ATLANTIC with a total budgeted development cost of $446.1 million.
Additionally, at June 30, 1997, ATLANTIC had land in planning and under control
for the development of 3,406 units with a total budgeted development cost of
$222.8 million. REIT Management has engaged in substantial development on
behalf of ATLANTIC
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<PAGE>
at attractive yields that have exceeded projections and ATLANTIC believes that
development will contribute to its objective of long-term growth in cash flow.
See "Business--ATLANTIC's Operating System".
Disposition Capability
The ability to identify and effectively complete the cost-effective disposition
of targeted communities is essential to the successful execution of ATLANTIC's
asset optimization strategy. From inception through June 30, 1997, ATLANTIC
disposed of 2,140 units, realizing an aggregate gain, net of provisions for
possible losses, of $4.3 million on aggregate proceeds of $107.7 million, which
were redeployed into strategic acquisitions and developments. Marketing efforts
and related costs and negotiation were conducted primarily by the REIT Manager
and, therefore, broker fees were minimal.
Due Diligence Process
ATLANTIC believes that management should have experienced senior personnel
dedicated to performing intelligent and thorough due diligence. The REIT
Manager has three full-time due diligence professionals and has developed
uniform systems and procedures for due diligence, as described under
"Business--ATLANTIC's Operating System--Due Diligence and Investment Analysis".
The REIT Manager's due diligence personnel have screened and selected a large
volume of investments.
Operating Capability
ATLANTIC believes that management can substantially improve funds from
operations by actively and effectively managing assets. As described under
"Business--ATLANTIC's Operating System", the REIT Manager and its affiliates
have devoted substantial personnel and financial resources to control and
effectively manage ATLANTIC's multifamily portfolio.
Capital Markets Capability
ATLANTIC believes that management must be able effectively to raise equity and
debt capital in order for the REIT to achieve superior growth through
investment. As described under "Business--ATLANTIC's Operating System--Capital
Markets/Finance/Legal", REIT Management has successfully arranged funding for
ATLANTIC's investment program.
Communications/Shareholder Relations Capability
ATLANTIC believes that a REIT's success in capital markets and investment
activities can be enhanced by management's ability to effectively communicate
the REIT's strategy and performance to investors, sellers of property and the
financial media. The REIT Manager provides full-time personnel who prepare
informational materials for and conduct periodic meetings with the investment
community and analysts.
ATLANTIC believes that successfully combining the foregoing attributes
significantly enhances a REIT's ability to increase cash flow and increase the
market valuation of the REIT's portfolio.
DIRECTORS AND OFFICERS OF ATLANTIC AND THE REIT MANAGER
Upon consummation of the Merger, each of the persons discussed below will
become officers or directors of ATLANTIC and be compensated for such services
by ATLANTIC (other than Mr. Klopf who will be compensated by Security Capital).
Directors of ATLANTIC
Members of the REIT Manager's Investment Committee are designated by an
asterisk.
C. RONALD BLANKENSHIP--47--Advisory Director of ATLANTIC since September 1996
and Director from April 1996 to September 1996; Managing Director of Security
Capital since March 1991; Non-Executive Chairman of PTR since June 1997 and
Chairman of PTR from June 1991 to June 1997. Mr. Blankenship is a Director of
Strategic Hotel Capital Incorporated and an advisory Director of Homestead.
From July 1988 to June 1991, Mr. Blankenship was a regional partner with
Trammell Crow Residential in Chicago, a multifamily real estate development and
property management firm. Prior thereto, Mr. Blankenship was an Executive Vice
President and Chief Financial Officer of the Mischer Corporation in Houston, a
multi-business holding company with investments primarily in real estate.
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MANUEL A. GARCIA III--53--Director of ATLANTIC since December 1995; Chief
Executive Officer of Davgar Restaurants, Inc. since May 1969, where he is the
owner/operator of ten Burger King Restaurants in central Florida, five Pebbles
Restaurants, Harvey's Bistro and Manuel's on the 28th Restaurant in Orlando,
Florida; Director of Homestead, a corporation affiliated with Security Capital,
The Foundation for Orange County Public Schools, Florida State University
Seminole Boosters' Association, a Director and Member of the Executive
Committee of the Florida Citrus Sports Association and National Director of
Cities in Schools. Mr. Garcia is also on the Board of the National Conference
of Christians and Jews and an Honorary Director of the Boys' Clubs and Boy
Scouts of Central Florida. In addition, Mr. Garcia is a former member of former
President Bush's Drug Advisory Council.
NED S. HOLMES--52--Director of ATLANTIC since May 1994; President and Chief
Executive Officer of Laing since May 1990; from April 1984 to present, Chairman
and President of Parkway Investment/Texas Inc., a Houston-based real estate
investment and development company, which specializes in residential (apartment
and townhouse), commercial (office and warehouse) and subdivision projects. Mr.
Holmes also serves as a Director of Commercial Bancshares, Inc. and Heritage
Bank, both based in Houston, Texas. Mr. Holmes is a Chairman of the Port
Commission of the Port of Houston Authority and a Director of the Greater
Houston Partnership.
*CONSTANCE B. MOORE--42--Co-Chairman, Chief Operating Officer and Director of
ATLANTIC and the REIT Manager since January 1996, where she has overall
responsibility for operations of ATLANTIC; from May 1994 to December 1995,
Managing Director of PTR, Director and Managing Director of PTR's REIT manager;
Senior Vice President of Security Capital from March 1993 to April 1994; from
January 1990 to December 1992, President and Director of Kingswood Realty
Advisors, Inc., investment advisor to ICM Property Investors, a NYSE-listed
REIT, and from March 1991 to December 1992, President and Director of ICM
Property Investors.
*JAMES C. POTTS--50--Co-Chairman and Chief Investment Officer of ATLANTIC and
the REIT Manager since January 1996 and Director of ATLANTIC and the REIT
Manager since October 1993, where he has overall responsibility for investments
of ATLANTIC; Chairman of ATLANTIC and the REIT Manager from May 1994 to
December 1995; from December 1992 to April 1994, Managing Director of PTR's
REIT manager, where he supervised the asset management of all of PTR's
multifamily communities and oversaw the relationship of PTR's REIT manager with
SCG Realty Services Incorporated, which provides on-site management for these
communities; from April 1984 to December 1992, Chief Executive Officer of four
regional multifamily management companies of Trammell Crow Residential
Services.
JOHN M. RICHMAN--69--Director of ATLANTIC since September 1996; Counsel to the
law firm of Wachtell, Lipton, Rosen & Katz since January 1, 1990; Mr. Richman
is a member of the American, Illinois and New York Bar Associations. He was
Chairman and Chief Executive Officer of Kraft, Inc. from 1979 to 1989, prior to
which he was Senior Vice President--Administration and General Counsel of that
company. He is currently a Director of BankAmerica Corporation and Bank of
America National Trust and Savings Association, USX Corporation, R. R.
Donnelley and Sons Company and the Evanston Hospital Corporation. He is also a
Trustee of the Chicago Symphony Orchestra, Northwestern University and The
Johnson Foundation. In addition, Mr. Richman is a Director of The Chicago
Council on Foreign Relations and Lyric Opera of Chicago and a member of The
Business Council, The Commercial Club of Chicago and the Economic Club of
Chicago.
Senior Officers of ATLANTIC and the REIT Manager
CONSTANCE B. MOORE--See "--Directors of ATLANTIC" above.
JAMES C. POTTS--See "--Directors of ATLANTIC" above.
*J. LINDSAY FREEMAN--52--Senior Vice President of ATLANTIC and the REIT Manager
since May 1994 and Director of the REIT Manager since March 1995, where he is
responsible for operations; from June 1980 to March 1994, Senior Vice President
and Operating Partner of Lincoln Property Company in Atlanta, Georgia, where he
was responsible for acquisitions, financing, construction and management of
multifamily communities within the Atlantic region and oversaw operations of
16,000 multifamily units.
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JEFFREY A. KLOPF--49--Senior Vice President and Secretary of ATLANTIC, the REIT
Manager and Security Capital since January 1996, where he provides securities
offerings and corporate acquisition services and oversees the provisions of
legal services for affiliates of Security Capital; from January 1988 to
December 1995, Mr. Klopf was a partner with Mayer, Brown & Platt where he
practiced corporate and securities law.
*BRADLEY C. MILLER--50--Senior Vice President of ATLANTIC and the REIT Manager
since June 1996 and Director of the REIT Manager since February 1997, where he
is responsible for investments; from October 1979 to May 1996, Mr. Miller was
Senior Vice President and Operating Partner of Lincoln Property Company in
Tampa, Florida, where he was responsible for acquisitions, financing,
construction and management of multifamily communities within the Atlantic
region and oversaw the development of over 6,500 new multifamily units and
operations of 11,000 multifamily units.
WILLIAM KELL--41--Vice President and Controller of ATLANTIC and the REIT
Manager since January 1996, where he supervises accounting and financial
reporting for ATLANTIC; from June 1991 to December 1995, Vice President and
Controller of PTR, where he had overall responsibility for multifamily
accounting and financial reporting; from 1987 to 1991, Vice President and
Treasurer, Bohannon Development Corporation, El Paso, Texas (multifamily
development); prior thereto, Manager with KPMG Peat Marwick in its El Paso,
Texas office.
Other Officers
STEVEN A. ABNEY--42--Vice President of ATLANTIC and the REIT Manager since
March 1997, where he has been responsible for property accounting and reporting
since April 1996; from August 1994 to March 1996, Division Controller for
Lincoln Property Company in Dallas, Texas, where he was responsible for
financial reporting activities for all Dallas/Ft. Worth area commercial
properties; from July 1989 to August 1994, Director of Finance and Accounting
for Bramalea USA Retail Group, a shopping center developer/manager in Dallas,
Texas.
RAYMOND D. BARROWS--35--Vice President of ATLANTIC and the REIT Manager since
May 1994, where he is a member of the development group; prior thereto, he
supervised the due diligence group; from January 1994 to December 1995, a
member of ATLANTIC's asset management group and prior thereto, a member of
PTR's asset management group; from May 1990 to August 1993, Portfolio Manager
with The First National Bank of Chicago, where he was responsible for
underwriting and structuring transactions for both project and corporate
facilities.
LESLIE L. BIVINS--43--Vice President of ATLANTIC and the REIT Manager since
June 1996, where she is responsible for asset and property management for the
States of Georgia and Alabama and with SCG Realty Services since May 1994; from
January 1992 to May 1994, Senior Regional Manager of Laing Management Company
in Atlanta, Georgia, where she was responsible for management of over 2,000
units throughout the southeastern United States; from November 1987 through
December 1991, District Manager of Trammell Crow Residential, Atlanta, Georgia,
where she supervised the management of approximately 2,000 multifamily units in
the Atlanta market.
NEIL T. BROWN--41--Vice President of ATLANTIC and the REIT Manager since April
1996, where he is responsible for directing the development of new multifamily
communities in the mid-Atlantic region; from July 1992 to December 1995,
Regional Vice President/Regional Partner of JPI Development Partners, Inc.,
where he was responsible for all development activity in Florida; prior
thereto, Partner of Trammell Crow Residential where he was responsible for
development of residential projects in Dade and Broward Counties, Florida.
ANDREW W. COLQUITT--30--Vice President of ATLANTIC and the REIT Manager since
December 1996, where he is responsible for land acquisition for all markets
north of Florida; prior thereto, he was a member of the Development Group; from
March 1994 to October 1995, Development Associate for Trammell Crow Residential
in Portland, Oregon, where he was responsible for acquisition and development
management for the Portland development portfolio including 1,800 multifamily
units; from June 1993 to February 1994, Acquisitions Analyst for Prudential
Real Estate Investors in San Francisco, with emphasis on multifamily and office
acquisitions; in May 1994, he obtained his M.B.A. from the University of
California at Berkeley; from June 1987 to June 1992, Cost Engineer and Project
Engineer for Holder Construction Company in Atlanta, Georgia, with emphasis on
project management, estimating and scheduling.
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<PAGE>
JOSEPH J. DOMINGUEZ--37--Vice President of ATLANTIC and the REIT Manager since
April 1996, where he is a member of the development group; prior thereto, he
was an associate in the development group; from November 1984 to August 1995,
Vice President of Operations for The Casden Company, where he had overall
responsibility for the start-up and operations of a general contracting
subsidiary; prior thereto, Project Manager with Pacific Southwest Construction
Company where he oversaw the construction of various residential projects.
RICHARD L. GLEICHAUF--45--Vice President of ATLANTIC and the REIT Manager since
March 1997, where he has been responsible for financial planning and analysis
since April 1996; from 1977 to 1996, manager with various El Paso Energy
Corporation subsidiaries in El Paso, Texas and Paris, France where he was
responsible for financial accounting, budgeting and forecasting, and auditing;
prior thereto with KPMG Peat Marwick in its El Paso, Texas office.
W. SCOTT HARTMAN--32--Vice President of ATLANTIC and the REIT Manager since
September 1996, where he oversees financing activities, coordinates external
financial reporting and supervises acquisition due diligence compliance
activities; prior thereto, he was in the Management Development Program with
Security Capital working in six-month rotational assignments with Managing
Directors of Security Capital and its affiliates; from May 1993 to May 1994,
Research Analyst with AMB Institutional Realty Advisors; in May 1994, Mr.
Hartman obtained his J.D. from The University of California, Hastings College
of the Law and his M.B.A. from The University of California, Haas School of
Business.
GEORGE E. KELLY--44--Vice President of ATLANTIC and the REIT Manager since
December 1996, where he is responsible for planning, coordinating and executing
the production of development of multifamily communities; from May 1995 to
December 1996, Development Manager of ATLANTIC; from February 1995 to April
1995, Real Estate and Construction Management Consultant to property management
companies; from August 1992 to April 1995, Assistant Vice President of The
Travelers Realty Investment Company in Atlanta, Georgia.
MONA D. KING--36--Vice President of ATLANTIC and the REIT Manager since May
1997, where she has overall responsibility for human resources; from September
1994 to May 1997, she was Regional Human Resources Manager for SCG Realty
Services and the REIT Manager; prior thereto, she had a variety of Human
Resources positions for Rich's Department Stores from June 1989 to September
1994.
MARY CAPERTON LESTER--42--Vice President of ATLANTIC and the REIT Manager since
July 1995, where she is responsible for asset and property management in the
Mid-Atlantic region (except Georgia and Alabama) and with SCG Realty Services
since June 1994; prior thereto, she was a member of the asset management group;
from May 1993 to May 1994, she was with Summit Management Company, where she
specialized in new business development; from April 1984 to May 1993, with
Trammell Crow Residential Services, most recently as a Vice President, where
she was responsible for property operations, marketing and new business
development.
JEFFREY G. MEGRUE--35--Vice President of ATLANTIC and the REIT Manager since
July 1995, where he is a member of the development group; prior thereto, he was
an associate in the development group; from March 1993 to May 1994, he was a
member of the acquisition group of PTR; from June 1988 to February 1993, Vice
President of Trammell Crow Residential Services North; prior thereto,
Development Associate for the New Jersey/Pennsylvania division of Trammell Crow
Residential.
GLENN T. RAND--37--Vice President of ATLANTIC and of the REIT Manager since
June 1996, where he is responsible for asset and property management for the
State of Florida, and with SCG Realty Services since May 1995; from August 1987
to April 1995, Vice President of Trammell Crow Residential and Avalon
Properties, where he was responsible for operations and third party management
solicitation in southern Florida and the northeastern United States.
JAMES C. ROOT--42--Vice President of ATLANTIC and the REIT Manager since
December 1996, where he is responsible for major capital expenditures; from
February 1994 to December 1996, Construction Services Manager, where he was
responsible for capital budgeting, major repairs and renovations of over 13,000
units located throughout the Southeast; from February 1993 to February 1994,
Construction Manager and Consultant in Chicago, Illinois, where he evaluated
potential acquisitions for Republic Management, a
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Houston-based, nationwide property management company; from June 1992 to
February 1993, Construction Services Director with Genmar Realty Group, Inc. in
Chicago, where he established the Construction Department responsible for
capital items for a nationwide portfolio of communities.
ANN L. SCHUMACHER--38--Vice President of ATLANTIC and the REIT Manager since
July 1995 and a member of the accounting group since January 1994, where she is
responsible for accounting and financial reporting; from September 1988 to
October 1993, she was with Trammell Crow Company, most recently as Regional
Controller, where she managed the accounting department for the company's 26
million-square-foot industrial portfolio in Southern California and Arizona;
prior thereto, Senior Accountant for Price Waterhouse.
L. DOUGLAS SNIDER--43--Vice President of ATLANTIC and the REIT Manager since
July 1995, where he is responsible for directing the development of new
multifamily communities in the South Atlantic region; prior thereto, he was an
associate in the development group; from July 1993 to March 1995, Vice
President of Operations with American Constructors, where he was responsible
for all design/build activities; from June 1990 to July 1993, Vice President of
Robert L. Mayer Corporation, where he was responsible for residential and
commercial development activities.
C. MELVIN WHITE--58--Vice President of ATLANTIC and the REIT Manager since
April 1996, where he has been a member of the development group since August
1995; from September 1991 to August 1995, Founder/Partner of Sherrill and
Associates, an interior specialty contracting firm; from 1985 to 1991,
Construction Manager of Laing, where he was responsible for construction of
garden apartments, personal care retirement facilities and mid-rise office
space.
TIMOTHY C. YEAGER--33--Vice President for ATLANTIC and the REIT Manager since
May 1997, where he has overall responsibility for acquisitions; from September
1994 to December 1996, he was a member of the asset management group; from
January 1997 to May 1997, he was a member of the acquisitions group; from
December 1991 to May 1992, Vice President and co-founder of SMAC, Inc., a
management consulting firm. Mr. Yeager obtained a Masters in International
Business Studies from the University of South Carolina in May 1994.
CLASSIFICATION OF DIRECTORS
Pursuant to the terms of ATLANTIC's Charter, the Directors are divided into
three classes. One class (consisting of Mr. Potts) will hold office for a term
expiring at the annual meeting of shareholders to be held in 2000, a second
class (consisting of Messrs. Garcia and Holmes) will hold office for a term
expiring at the annual meeting of shareholders to be held in 1998 and a third
class (consisting of Ms. Moore and Mr. Richman) will hold office for a term
expiring at the annual meeting of shareholders to be held in 1999. Each
Director will hold office for the term to which he or she is elected and until
his or her successor is duly elected and qualifies. At each annual meeting of
shareholders of ATLANTIC, the successors to the class of Directors whose terms
expire at such meeting will be elected to hold office for a term expiring at
the annual meeting of shareholders held in the third year following the year of
their election. Security Capital has a right to nominate up to three Directors,
depending upon its level of ownership of Shares, as described under "Certain
Relationships and Transactions--Security Capital Investor Agreement". Ms. Moore
and Mr. Potts are deemed to be the nominees of Security Capital.
COMMITTEES OF THE BOARD
The Board has established an Audit Committee consisting of Messrs. Garcia and
Holmes. The Audit Committee is responsible for making recommendations
concerning the engagement of independent public accountants, reviewing the
plans and results of the audit engagement with the independent public
accountants, approving professional services provided by the independent public
accountants, reviewing the independence of the independent public accountants,
considering the range of audit and non-audit fees and reviewing the adequacy of
ATLANTIC's internal accounting controls.
The Board has established an Investment Committee consisting of Messrs. Holmes
and Potts. The Investment Committee is responsible for reviewing and approving
all asset acquisitions and other investment decisions between meetings of the
full Board. Any decisions made by the Investment Committee are reported to the
full Board at its next quarterly meeting. The Investment Committee receives
recommendations from the REIT Manager's investment committee.
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The Board has established a Compensation Committee consisting of Messrs.
Garcia, Holmes and Richman, with Mr. Potts and Ms. Moore serving as non-voting
members, which reviews and approves ATLANTIC's compensation arrangements and
plans.
COMPENSATION OF DIRECTORS
ATLANTIC pays an annual retainer of $14,000 to Directors who are not officers
or employees of ATLANTIC, the REIT Manager or its affiliates. These fees are
currently paid to Directors in cash (quarterly on each meeting date) and will
be paid to the Directors in Shares (quarterly on each dividend payment date)
based on the then-current market price of the Shares following the adoption by
ATLANTIC of a dividend reinvestment and share purchase plan as described below.
Such Directors also receive $1,000 for each meeting attended (other than
telephonic meetings), which is also paid in cash. Non-employee chairpersons of
Board committees (other than the Investment Committee) receive an additional
annual retainer of $1,000 payable in cash and non-employee members of the
Investment Committee receive an additional annual retainer of $4,000 payable in
cash. In the event that ATLANTIC adopts a dividend reinvestment and share
purchase plan, both the retainer and fees will be paid directly into such plan.
Officers of ATLANTIC, the REIT Manager or its affiliates who are Directors are
not paid any Director fees.
In addition, pursuant to the Outside Directors Plan, each Outside Director, as
defined below, will be entitled to receive, on the date of each annual meeting
of shareholders, an option to purchase 1,000 Shares at a price per Share equal
to the closing price of one Share on the NYSE on such annual meeting date. See
"--Outside Directors Plan".
Directors are reimbursed for any out-of-town travel expenses incurred in
connection with attendance at Board meetings. Ms. Moore and Mr. Potts are not
separately compensated for serving as Directors.
OUTSIDE DIRECTORS PLAN
On March 12, 1996, the Board approved the Security Capital Atlantic
Incorporated Share Option Plan for Outside Directors (the "Outside Directors
Plan"). The Outside Directors Plan is incorporated by reference as an exhibit
to the Registration Statement of which this Prospectus forms a part and the
following summary of the material terms of the Outside Directors Plan is
qualified in its entirety by reference to the actual terms thereof.
The purpose of the Outside Directors Plan is to enable the Directors of
ATLANTIC who are not employees or officers of ATLANTIC or Security Capital or
any of its affiliates ("Outside Directors") to increase their ownership of
ATLANTIC and thereby further the identity of their interests with those of
ATLANTIC's other shareholders.
To achieve the foregoing objective, the Outside Directors Plan provides for
grants of options ("Options") to purchase Shares. The Secretary of ATLANTIC
(the "Administrator") administers the Outside Directors Plan with a view to
ATLANTIC's best interests and the Outside Directors Plan's objectives. The
Administrator has authority to adopt administrative guidelines, rules and
regulations relating to the Outside Directors Plan and to make all
determinations necessary or advisable for the implementation and administration
of the Outside Directors Plan.
The number of Shares reserved for issuance upon exercise of Options granted
under the Outside Directors Plan is 100,000. Shares that are forfeited will
again become available for awards under the Outside Directors Plan.
In the event of changes in the outstanding Shares by reason of any increase or
decrease in the number of issued Shares resulting from a subdivision or
consolidation of Shares or the payment of a dividend in Shares, or any other
increase or decrease in the number of Shares, or merger or consolidation, or
other similar event, the Administrator shall make appropriate adjustments to
the aggregate number of Shares available under the Outside Directors Plan.
On the date of each annual meeting of shareholders of ATLANTIC through and
including 2006, each Outside Director serving on such date (after the election
of Directors in the meeting) will be granted an Option to purchase 1,000 Shares
at an exercise price equal to the closing price of the Shares on the NYSE on
such date. Also, each Outside Director serving at the time of ATLANTIC's
initial public offering was
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granted an Option to purchase 1,000 Shares at the initial public offering price
of $21.25 per Share, after adjusting for the Homestead Distribution.
Each Option will be immediately exercisable, but must be exercised before the
earliest of the following events to occur: the date that is three months after
the date that the Option holder's position as a Director terminates, the date
that is twelve months after the date the Director becomes disabled or dies or
the date that is five years after the date the Option is granted.
If fifty percent or more of the outstanding Shares are acquired in a cash
tender offer or exchange offer, each Option holder shall have the right to
exercise his or her Option in full or surrender his or her outstanding Option
in exchange for a cash payment from ATLANTIC in an amount equal to the excess
of the offer price or value over the Option price. If ATLANTIC dissolves, each
Option holder shall have the right to exercise his or her Option in full before
the date of the dissolution.
The Outside Directors Plan may be amended or terminated at any time by the
Board. The provisions relating to the amount, price and timing of grants under
the Outside Directors Plan may not be amended more than once every six months,
other than to comport with changes in the Code or the rules thereunder, unless
such amendment would not affect the exemption provided by Rule 16b-3
promulgated under the Exchange Act.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Maryland law permits a Maryland corporation to include in its charter a
provision limiting the liability of its Directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. ATLANTIC's Charter
contains such a provision which eliminates such liability to the maximum extent
permitted by Maryland law. ATLANTIC's officers and Directors will be
indemnified under ATLANTIC's Charter against certain liabilities. ATLANTIC's
Charter provides that ATLANTIC will, to the maximum extent permitted by
Maryland law in effect from time to time, indemnify and pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
individual who is a present or former Director or officer of ATLANTIC or (b)
any individual who, while a Director of ATLANTIC and at the request of
ATLANTIC, serves or has served another corporation, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a director, officer,
partner or trustee of such corporation, partnership, joint venture, employee
benefit plan or other enterprise from and against any claim or liability to
which such person may become subject or which such person may incur by reason
of his or her stature as a present or former Director or officer of ATLANTIC.
ATLANTIC's Charter authorizes ATLANTIC, with the approval of the Board, to
provide such indemnification and advancement of expenses to a person who served
a predecessor of ATLANTIC in any of the capacities described in (a) or (b)
above and to any employee or agent of ATLANTIC or its predecessors.
Maryland law requires a corporation (unless its charter provides otherwise,
which ATLANTIC's Charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding
to which he or she is made a party by reason of his or her service in that
capacity. Maryland law permits a corporation to indemnify its present and
former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis
that personal benefit was improperly received, unless in either case a court
orders indemnification and then only for expenses. Maryland law permits
ATLANTIC to advance reasonable expenses to a director or officer upon
ATLANTIC's receipt of (a) a written affirmation by the Director or officer of
his or her good faith belief that he or she has met the standard of conduct
necessary for indemnification by ATLANTIC and (b) a written statement by or on
his or her behalf to repay the amount paid or reimbursed by ATLANTIC if it
shall ultimately be determined that the standard of conduct was not met.
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Additionally, ATLANTIC has entered into indemnity agreements with each of its
officers and Directors which provide for reimbursement of all expenses and
liabilities of such officer or Director, arising out of any lawsuit or claim
against such officer or Director due to the fact that he or she was or is
serving as an officer or Director, except for such liabilities and expenses (a)
the payment of which is judicially determined to be unlawful, (b) relating to
claims under Section 16(b) of the Exchange Act or (c) relating to judicially
determined criminal violations.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act") may be permitted to Directors, officers
or persons controlling ATLANTIC pursuant to the foregoing provisions, ATLANTIC
has been informed that, in the opinion of the Commission, such indemnification
is against public policy as expressed in the Securities Act and is therefore
unenforceable.
ATLANTIC'S COMMUNITIES
PORTFOLIO COMPOSITION
ATLANTIC believes that moderate income communities offer better prospects for
long-term growth in cash flow. Based on ATLANTIC's review of information filed
under the Exchange Act regarding other REITs in ATLANTIC's primary target
market and other publicly available data, ATLANTIC believes that few other
REITs in its primary target market currently focus on the moderate income
segment. Moreover, based on ATLANTIC's proprietary information regarding
available land parcels and construction starts in its primary target market,
ATLANTIC believes that less than 10% of the 1995 and 1996 multifamily starts in
ATLANTIC's primary target market cities constituted moderate income
communities. Consequently, ATLANTIC believes that the moderate income segment
is a significantly underserved market with limited competition. In ATLANTIC's
experience moderate income residents are typically longer-term residents
because they often lack the financial resources required to purchase single-
family homes. As a result, resident turnover is often lower in moderate income
communities than in upper middle income or middle income communities. The total
cost of refurbishing and re-leasing a unit ranges from $700 to $1,500;
therefore, reducing resident turnover can have a material impact on an asset's
profitability.
The following table indicates the product-type composition of communities owned
by ATLANTIC at June 30, 1997:
<TABLE>
<CAPTION>
PERCENTAGE OF
ASSETS BASED
ON TOTAL
NUMBER OF EXPECTED
COMMUNITIES INVESTMENT(1)
----------- -------------
<S> <C> <C>
Moderate Income(2) 49 50.2%
Middle Income(3) 37 40.5
Upper Middle Income(4) 7 9.3
--------- ---------
Total 93 100%
========= =========
</TABLE>
- --------
(1) For operating communities, represents cost through June 30, 1997 plus
budgeted renovations at June 30, 1997. For communities under construction
and in planning, represents cost through June 30, 1997 plus additional
budgeted development expenditures at June 30, 1997, which include the cost
of land, fees, permits, payments to contractors, architectural and
engineering fees and interest and property taxes to be capitalized during
the construction period. Does not include land held for future development,
which is less than 1% of assets, based on cost.
(2) These communities appeal to residents with incomes ranging from 65% to 90%
of submarket median household income. Residents in this category, which
typically include couples, single family parents and families with one or
two children, are value-driven and focus on unit livability and practical
amenities such as washer/dryer hookups, storage space and playground.
(3) These communities appeal to residents with incomes ranging from 90% to 115%
of submarket median household income. These communities have smaller units
and fewer amenities than upper middle income communities.
(4) These communities appeal to residents with incomes ranging from 115% to
140% of submarket median household income. These communities typically
feature large luxurious units and numerous amenities, including large
exercise facilities and attached garages.
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GEOGRAPHIC DISTRIBUTION
In order to effectively manage its multifamily communities, ATLANTIC has
organized its operations with a regional focus (Mid-Atlantic and South
Atlantic). ATLANTIC's multifamily communities are located in 15 metropolitan
areas in seven states and the District of Columbia. The table below
demonstrates the geographic distribution of ATLANTIC's portfolio (operating
communities and total communities, which includes operating communities and
owned communities under construction and in planning) at June 30, 1997:
<TABLE>
<CAPTION>
OPERATING COMMUNITIES TOTAL COMMUNITIES
PERCENTAGE OF PERCENTAGE OF
ASSETS BASED ASSETS BASED
ON TOTAL ON TOTAL
NUMBER OF EXPECTED NUMBER OF EXPECTED
COMMUNITIES INVESTMENT(1) COMMUNITIES INVESTMENT(1)
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
MID-ATLANTIC:
Charlotte, North
Carolina 4 6% 6 6%
Greenville, South
Carolina 1 1 1 1
Memphis, Tennessee 4 4 4 3
Nashville, Tennessee 2 4 3 4
Raleigh, North Carolina 6 9 8 8
Richmond, Virginia 2 3 6 7
Washington, D.C. 4 7 6 9
--------- --------- --------- ---------
Total Mid-Atlantic 23 34% 34 38%
--------- --------- --------- ---------
SOUTH ATLANTIC:
Atlanta, Georgia 21 34% 25 29%
Birmingham, Alabama 4 5 5 5
Ft. Lauderdale/West Palm
Beach, Florida 7 10 10 11
Ft. Myers, Florida 1 1 1 1
Jacksonville, Florida 2 3 6 6
Orlando, Florida 5 4 6 4
Sarasota, Florida 1 3 1 2
Tampa, Florida 5 6 5 4
--------- --------- --------- ---------
Total South Atlantic 46 66% 59 62%
--------- --------- --------- ---------
Total 69 100% 93 100%
========= ========= ========= =========
</TABLE>
- --------
(1) For operating communities, represents cost through June 30, 1997 plus
budgeted renovations at June 30, 1997. For communities under construction
and in planning, represents cost through June 30, 1997 plus additional
budgeted development expenditures at June 30, 1997, which include the cost
of land, fees, permits, payments to contractors, architectural and
engineering fees and interest and property taxes to be capitalized during
the construction period. Does not include land held for future development,
which is less than 1% of assets, based on cost.
54
<PAGE>
COMMUNITIES
The information in the following table is as of March 31, 1997, except total
expected investment which is as of June 30, 1997 (dollar amounts in thousands).
Additional information on ATLANTIC's communities is contained in Schedule III,
Real Estate and Depreciation, in ATLANTIC's financial statements. No individual
community, or group of communities operated as a single business unit, amounts
to 10% or more of ATLANTIC's pro forma total assets at December 31, 1996 nor
does the gross revenue from any such communities amount to 10% or more of
ATLANTIC's pro forma gross revenues for the fiscal year ended December 31,
1996.
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT(2) INVESTMENT(2)
------------ ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
COMMUNITIES OWNED AS OF
MARCH 31, 1997:
OPERATING
COMMUNITIES(3):
MID-ATLANTIC:
Charlotte, North
Carolina:
STABILIZED:
Cameron at Hickory
Grove(4) 1996 92.6% 202 $ 8,410 $ 8,458
Cameron Oaks 1994 95.1 264 15,406 15,443
Waterford Hills* 1995 85.6 270 13,499 13,514
Waterford Square I(5)* 1996 91.9 408 19,575 20,799(6)
--------- --------- ---------- ----------
Subtotals/Average 91.3 1,144 56,890 58,214
--------- --------- ---------- ----------
Greenville, South
Carolina:
STABILIZED:
Cameron Court 1996 96.2 234 11,092 11,126
Memphis, Tennessee:
STABILIZED:
Cameron at Kirby
Parkway 1994 91.1 324 10,179 10,259
Stonegate 1994 92.3 208 7,090 7,271
PRE-STABILIZED:
Cameron Century Center 1996 90.7 420 16,131 16,541
Country Oaks(7) 1996 93.0 200 8,557 8,713
--------- --------- ---------- ----------
Subtotals/Average 91.5 1,152 41,957 42,784
--------- --------- ---------- ----------
Nashville, Tennessee:
STABILIZED:
Arbor Creek(8) 1994 95.6 360 18,197 18,306
Enclave at Brentwood 1995 91.1 380 16,181 16,292
--------- --------- ---------- ----------
Subtotals/Average 93.3 740 34,378 34,598
--------- --------- ---------- ----------
Raleigh, North
Carolina:
STABILIZED:
Cameron Square 1994 95.2 268 16,036 16,087
Waterford Point* 1996 90.2 336 15,866 16,880(6)
PRE-STABILIZED:
Cameron Lake 1996 94.4 196 9,536 9,798
Cameron Ridge(9) 1996 96.1 228 10,276 10,502
Emerald Forest 1996 88.8 320 14,762 15,159
--------- --------- ---------- ----------
Subtotals/Average 92.5 1,348 66,476 68,426
--------- --------- ---------- ----------
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT(2) INVESTMENT(2)
------------ ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Richmond, Virginia:
STABILIZED:
Camden at Wellesley 1994 96.5% 340 $ 19,544 $ 19,608
Potomac Hunt(10) 1994 94.6 220 10,142 10,224
--------- --------- ---------- ----------
Subtotals/Average 95.8 560 29,686 29,832
--------- --------- ---------- ----------
Washington, D.C.:
STABILIZED:
Camden at Kendall Ridge 1994 94.6 184 11,737 11,795
Cameron at Saybrooke 1994 96.4 252 18,985 19,064
Sheffield Forest 1995 97.3 256 15,562 15,640
PRE-STABILIZED:
West Springfield
Terrace 1996 91.0 244 16,483 16,637
--------- --------- ---------- ----------
Subtotals/Average 94.9 936 62,767 63,136
--------- --------- ---------- ----------
Subtotals/Average--
Mid-Atlantic 93.0 6,114 303,246 308,116
--------- --------- ---------- ----------
SOUTH ATLANTIC:
Atlanta, Georgia:
STABILIZED:
Azalea Park(11)(12) 1995 87.7 447 25,832 26,081
Cameron Ashford 1994 95.1 365 24,922 25,032
Cameron Briarcliff(10) 1994 98.6 220 14,277 14,315
Cameron Brook(11)(13) 1994 96.8 440 22,448 22,620
Cameron Crest 1994 92.6 377 23,814 23,925
Cameron Dunwoody 1994 87.8 238 16,902 17,007
Cameron Forest 1995 90.8 152 6,259 6,382
Cameron Place 1995 94.3 212 8,094 8,217
Cameron Pointe 1996 93.5 214 14,928 15,001
Cameron Station(11)(14) 1995 89.9 348 16,083 16,349
Clairmont Crest(11)(15) 1994 96.7 213 11,063 11,091
The Greens(11)(16) 1994 95.4 304 13,769 13,833
Lake Ridge 1993 97.0 268 17,385 17,463
Morgan's Landing 1993 96.4 165 8,635 8,688
Old Salem 1994 98.3 172 8,236 8,401
Trolley Square 1994 96.7 270 13,920 13,997
Vinings Landing 1994 94.0 200 9,986 10,062
WintersCreek(11)(17) 1995 98.0 200 7,800 7,914
Woodlands 1995 94.6 644 25,745 26,049
PRE-STABILIZED:
Balmoral Village 1996 99.0 312 19,300 19,509
Cameron Creek I(5) 1994 86.9 404 24,615 24,877
--------- --------- ---------- ----------
Subtotals/Average 93.9 6,165 334,013 336,813
--------- --------- ---------- ----------
Birmingham, Alabama:
STABILIZED:
Cameron on the
Cahaba(18) 1995 95.7 400 18,937 19,036
Colony Woods I(19) 1994 90.3 216 10,687 10,704
Colony Woods II(19)* 1995 95.5 198 10,533 11,423(6)
Morning Sun Villas 1994 95.1 184 9,317 9,445
--------- --------- ---------- ----------
Subtotals/Average 94.4 998 49,474 50,608
--------- --------- ---------- ----------
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT(2) INVESTMENT(2)
------------ ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Ft. Lauderdale/W. Palm Beach, Florida:
STABILIZED:
Cameron at Meadow Lakes 1995 99.5% 189 8,847 8,968
Cameron at the
Villages(10) 1994 96.9 384 19,538 19,801
Cameron Cove(11)(20) 1994 96.4 221 9,391 9,494
Cameron View 1995 96.0 176 8,536 8,780
Parrot's Landing
I(5)(11)(21) 1994 94.1 408 18,659 18,836
PRE-STABILIZED:
Cameron at Bayberry Lake 1996 93.8 308 17,099 17,326
Park Place at Turtle Run 1996 95.7 350 15,753 15,905
--------- --------- ---------- ----------
Subtotals/Average 95.8 2,036 97,823 99,110
--------- --------- ---------- ----------
Ft. Myers, Florida:
STABILIZED:
Forestwood(11)(22) 1994 95.7 397 $ 13,885 $ 14,063
Jacksonville, Florida:
STABILIZED:
Bay Club 1994 94.6 220 12,225 12,317
PRE-STABILIZED:
Cameron Lakes I* 1996 (23) 302 16,239 17,786(6)
--------- --------- ---------- ----------
Subtotals/Average 94.6 522 28,464 30,103
--------- --------- ---------- ----------
Miami, Florida:
STABILIZED:
Park Hill(24) 1994 93.6 264 8,655 8,655
Orlando, Florida:
STABILIZED:
Camden Springs 1994 90.9 340 17,371 17,576
Cameron Villas I(25) 1994 96.4 192 8,036 8,156
Cameron Villas II(10) 1995 97.6 42 1,777 1,850
Kingston Village 1995 98.3 120 6,057 6,226
The Wellington I(10) 1994 98.4 192 8,044 8,081
--------- --------- ---------- ----------
Subtotals/Average 95.0 886 41,285 41,889
--------- --------- ---------- ----------
Sarasota, Florida:
STABILIZED:
Camden at Palmer Ranch 1994 93.5 432 24,206 24,426
Tampa, Florida:
STABILIZED:
Camden Downs 1994 97.2 250 12,617 12,682
Cameron Lakes 1995 98.1 207 8,669 8,715
Country Place Village(26) 1995 94.7 188 8,386 8,587
Foxbridge on the
Bay(11)(27) 1994 99.2 358 10,966 11,010
Summer Chase(10)(28) 1994 95.8 96 3,788 3,805
PRE-STABILIZED:
Cameron Bayshore 1996 96.7 328 10,868 11,485
--------- --------- ---------- ----------
Subtotals/Average 97.3 1,427 55,294 56,284
--------- --------- ---------- ----------
Subtotals/Average--
South Atlantic 94.7 13,127 653,099 661,951
--------- --------- ---------- ----------
Subtotals/Average--
Operating
Communities 94.1 19,241 956,345 970,067
--------- --------- ---------- ----------
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT(2) INVESTMENT(2)
------------ ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
COMMUNITIES UNDER
CONSTRUCTION:
MID-ATLANTIC:
Charlotte, North
Carolina:
Waterford Square II(29)* 1998 N/A 286 $ 10,762 $ 17,495
Nashville, Tennessee:
Cameron Overlook(29)* 1998 N/A 452 13,696 23,887
Raleigh, North Carolina:
Cameron Brooke(29)* 1997 N/A 228 12,132 13,238
Waterford Forest(30) 1997 N/A 384 20,360 21,520
--------- --------- --------- ---------
Subtotals N/A 612 32,492 34,758
--------- --------- --------- ---------
Richmond, Virginia:
Cameron at Wyndham* 1999 N/A 312 5,908 20,405
Cameron Crossing I(29)* 1998 N/A 280 12,806 18,367
--------- --------- --------- ---------
Subtotals N/A 592 18,714 38,772
--------- --------- --------- ---------
Washington, D.C.
Cameron at
Milestone(29)* 1997 N/A 444 30,726 31,404
Woodway at Trinity
Center(29)(31)* 1998 N/A 504 36,533 37,836
--------- --------- --------- ---------
Subtotals N/A 948 67,259 69,240
--------- --------- --------- ---------
Subtotals--Mid-
Atlantic N/A 2,890 142,923 184,152
--------- --------- --------- ---------
SOUTH ATLANTIC:
Atlanta, Georgia:
Cameron Creek II(29) 1997 N/A 260 19,706 20,210
Cameron Landing* 1999 N/A 368 3,484 22,186
--------- --------- --------- ---------
Subtotals N/A 628 23,190 42,396
--------- --------- --------- ---------
Birmingham, Alabama:
Cameron at the Summit
I(29)* 1998 N/A 372 14,981 21,644
Ft. Lauderdale/W. Palm
Beach, Florida:
Cameron Waterways 1999 N/A 300 5,497 21,975
Parrot's Landing II(29)* 1997 N/A 152 9,832 10,196
--------- --------- --------- ---------
Subtotals N/A 452 15,329 32,171
--------- --------- --------- ---------
Jacksonville, Florida:
Cameron Deerwood(29) 1997 N/A 336 16,799 18,040
Cameron Lakes II(29)* 1998 N/A 253 6,674 15,812
Cameron Timberlin Parc
I(29) 1997 N/A 320 16,876 17,386
--------- --------- --------- ---------
Subtotals/Average N/A 909 40,349 51,238
--------- --------- --------- ---------
Subtotals--South
Atlantic N/A 2,361 93,849 147,449
--------- --------- --------- ---------
Subtotals--
Communities
Under Construction N/A 5,251 236,772 331,601
--------- --------- --------- ---------
COMMUNITIES IN PLANNING AND OWNED:
MID-ATLANTIC:
Charlotte, North
Carolina:
Cameron Matthews(32)* 1999 N/A 212 1,652 12,066
Richmond, Virginia:
Cameron at Virginia
Center(32)* 1999 N/A 264 1,962 16,079
Cameron Crossing II(32) 1998 N/A 144 1,404 8,951
--------- --------- --------- ---------
Subtotal N/A 408 3,366 25,030
--------- --------- --------- ---------
Subtotals--Mid-
Atlantic N/A 620 5,018 37,096
--------- --------- --------- ---------
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT(2) INVESTMENT(2)
------------ ---------- ------ ------------- -------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
SOUTH ATLANTIC:
Atlanta, Georgia:
Cameron Bridge* 1999 N/A 224 $ 2,877 $ 16,115
Cameron at North
Point* 1999 N/A 264 3,718 19,788
---- ------ ---------- ----------
Subtotals N/A 488 6,595 35,903
---- ------ ---------- ----------
Jacksonville, Florida:
Cameron Timberlin Parc
II* 2000 N/A 200 1,416 10,500
---- ------ ---------- ----------
Subtotals--South
Atlantic N/A 688 8,011 46,403
---- ------ ---------- ----------
Subtotals--
Communities in
Planning and
Owned N/A 1,308 13,029 83,499
---- ------ ---------- ----------
LAND HELD FOR FUTURE
MULTIFAMILY DEVELOPMENT N/A -- 2,083 --
---- ------ ---------- ----------
Total
Communities
Owned at March
31, 1997 94.1 25,800 1,208,229 1,385,167
---- ------ ---------- ----------
COMMUNITIES ACQUIRED
FROM
MARCH 31, 1997 TO JUNE
30, 1997
COMMUNITIES IN PLANNING
AND OWNED:
MID-ATLANTIC:
Raleigh, North
Carolina:
Cameron Woods* N/A 332 -- 19,051
---- ------ ---------- ----------
SOUTH ATLANTIC:
Ft. Lauderdale/West
Palm Beach, Florida
Cameron Palms N/A 340 -- 24,569
Orlando, Florida:
The Wellington II* N/A 120 -- 8,936
---- ------ ---------- ----------
Subtotals--South
Atlantic N/A 460 -- 33,505
---- ------ ---------- ----------
Total
Communities
Acquired From
March 31, 1997
to June 30,
1997 N/A 792 -- 52,556
---- ------ ---------- ----------
COMMUNITIES DISPOSED OF
FROM MARCH 31, 1997 TO
JUNE 30, 1997:
OPERATING COMMUNITIES:
SOUTH ATLANTIC:
Miami, Florida:
Park Hill(24) N/A (264) (8,655) (8,655)
Tampa, Florida:
Summer Chase(28) N/A (96) (3,788) (3,805)
---- ------ ---------- ----------
Total
Communities
Disposed of
from March 31,
1997 to
June 30, 1997 N/A (360) (12,443) (12,460)
---- ------ ---------- ----------
Total
Communities
Owned at June
30, 1997 94.1% 26,232 $1,195,786 $1,425,263
==== ====== ========== ==========
</TABLE>
59
<PAGE>
Additionally, at June 30, 1997, ATLANTIC had land in planning and under control
for the development of 3,406 units with a total budgeted development cost of
$222.8 million. The term "in planning" means that construction is anticipated
to commence within 12 months. The term "under control" means that ATLANTIC has
an exclusive right (through contingent contract or letter of intent) during a
contractually agreed-upon time period to acquire land for future development of
multifamily communities, subject to removal of contingencies during the due
diligence process, but does not currently own the land. There can be no
assurance that such land will be acquired. The unit and total budgeted
development cost information for these communities is based on management's
best estimates of the cost upon completion of these communities.
- --------
* Community developed by ATLANTIC.
(1) With respect to communities under construction or communities in planning
and owned, represents expected completion date.
(2) ATLANTIC investment represents cost through March 31, 1997. For operating
communities, total expected investment represents cost through June 30,
1997 plus budgeted renovations at June 30, 1997. For communities under
construction and in planning, total expected investment represents cost
through June 30, 1997 plus additional budgeted development expenditures at
June 30, 1997, which include the cost of land, fees, permits, payments to
contractors, architectural and engineering fees and interest and property
taxes to be capitalized during the construction period. The term "in
planning" means that construction is anticipated to commence within 12
months.
(3) The term "stabilized" means that renovation, repositioning, new management
and new marketing programs (or development and marketing in the case of
newly developed communities) have been completed and in effect for a
sufficient period of time (but in no event longer than 12 months, except
in cases of major rehabilitation) to achieve 93% occupancy at market
rents. Prior to being "stabilized", a community is considered "pre-
stabilized". See "Business--ATLANTIC's Operating System--Acquired
Communities".
(4) Cameron at Hickory Grove Apartments are subject to a deed of trust
securing a mortgage note of $6.0 million.
(5) Community was classified as pre-stabilized in 1997 due to the effects of
lease-up activities at Phase II of this community.
(6) The total expected investment cost of these developed communities includes
potential incentive payments to third-party developer/managers that had
not been earned by them at June 30, 1997.
(7) Country Oaks Apartments are subject to a deed of trust securing a mortgage
note of $5.9 million.
(8) The land associated with the Arbor Creek Apartments is leased by ATLANTIC
through the year 2058 under an agreement with the Metropolitan Nashville
Airport Authority.
(9) Cameron Ridge Apartments are subject to a deed of trust securing a
mortgage note of $5.8 million.
(10) Community is pledged as additional security under ATLANTIC's 30-year
credit enhancement agreement with FNMA. For a discussion of the FNMA
credit enhancement agreement, see "Business--ATLANTIC's Operating System--
Capital Markets/Finance/Legal".
(11) The tax-exempt bond issue associated with this community is included in
ATLANTIC's credit enhancement agreement with FNMA.
(12) Azalea Park Apartments are subject to a deed of trust securing a mortgage
note related to $15.5 million of tax-exempt bonds.
(13) Cameron Brook Apartments are subject to a deed of trust securing a
mortgage note related to $19.5 million of tax-exempt bonds.
(14) Cameron Station Apartments are subject to a deed of trust securing a
mortgage note related to $14.5 million of tax-exempt bonds.
(15) Clairmont Crest Apartments are subject to a deed of trust securing a
mortgage note related to $11.6 million of tax-exempt bonds.
60
<PAGE>
(16) The Greens Apartments are subject to a deed of trust securing a mortgage
note related to $10.4 million of tax-exempt bonds.
(17) WintersCreek Apartments are subject to a deed of trust securing a mortgage
note related to $5.0 million of tax-exempt bonds.
(18) Cameron on the Cahaba Phase II Apartments, which consist of 250 units, are
subject to a deed of trust securing a mortgage note of $8.0 million.
(19) Community was classified as pre-stabilized in 1997 due to the transfer of
on-site management from a third party to SCG Realty Services.
(20) Cameron Cove Apartments are subject to a deed of trust securing a mortgage
note related to $8.5 million of tax-exempt bonds.
(21) Parrot's Landing Phase I Apartments are subject to a deed of trust
securing a mortgage note related to $15.8 million of tax-exempt bonds.
(22) Forestwood Apartments are subject to a deed of trust securing a mortgage
note related to $11.5 million of tax-exempt bonds.
(23) Community is in lease-up, therefore, the percentage leased is not given
because it is not representative of a fully operational community.
(24) Park Hill Apartments were being held for sale at March 31, 1997 and were
disposed of in April 1997.
(25) Cameron Villas I Apartments are subject to a deed of trust securing a
mortgage note of $6.3 million.
(26) Country Place Village Phase I Apartments, which consist of 88 units, are
subject to a deed of trust securing a mortgage note of $2.0 million.
(27) Foxbridge on the Bay Apartments are subject to a deed of trust securing a
mortgage note related to $10.4 million of tax-exempt bonds.
(28) Community was disposed of in June 1997.
(29) Community was leasing completed units at June 30, 1997.
(30) Community was completed in April 1997.
(31) Community was disposed of subsequent to June 30, 1997.
(32) Construction on this community commenced in May 1997.
61
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth the Pro Forma Financial Results as of and for
the three-month period ended March 31, 1997 and the year ended December 31,
1996, and the Historical Financial Results as of and for the three-month period
ended March 31, 1997 and the years ended December 31, 1996, 1995 and 1994 and
the period from inception (October 26, 1993) through December 31, 1993. Such
selected financial information is qualified in its entirety by, and should be
read in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
thereto included in this Prospectus. The Pro Forma Financial Results are not
necessarily indicative of what the actual financial position and results of
operations of ATLANTIC would have been as of and for the periods indicated, nor
do they purport to represent the financial position and results of operations
for future periods.
<TABLE>
<CAPTION>
PRO FORMA(1)(2) HISTORICAL PRO FORMA (1)(2) HISTORICAL
--------------- ------------- ---------------- ------------------------------------------
THREE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1997 1997 1996 1996 1995 1994 1993(3)
--------------- ------------- ---------------- ---------- --------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
Rental income $ 39,715 $ 39,715 $ 148,361 $ 137,729 $ 103,634 $ 55,071 $ 156
Homestead convertible
mortgages interest
income 185 185 - - - - -
Property management
fees paid to affiliate - 1,280 - 4,208 3,475 1,536 -
Property management
fees paid to third
parties 232 232 971 971 591 661 -
Interest expense 2,893 4,761 12,219 16,181 19,042 9,240 -
REIT management fee
paid to affiliate - 3,029 - 10,445 6,923 3,671 12
General and
administrative
expenses 1,751 265 5,923 673 646 266 1
Net earnings before
extraordinary item 13,258 10,178 45,306 42,569 19,639 9,926 38
Extraordinary item--
loss on early
extinguishment of debt - - - 3,940 - - -
Series A Preferred
Share dividends 1,125 - 4,500 - - - -
Net earnings
attributable to Shares 12,133 10,178 40,806 38,629 19,639 9,926 38
Net earnings per Share
before extraordinary
item 0.27 0.27 1.01 1.33 0.89 0.81 0.13
Net earnings
attributable to Shares
per Share 0.27 0.27 1.01 1.21 0.89 0.81 0.13
Cash distributions
declared and paid 14,778 14,778 53,064 53,064 35,119 14,648 -
Cash distributions
declared and paid per
Share $ 0.39 $ 0.39 $ 1.65 $ 1.65 $ 1.60 $ 1.20 -
Weighted-average Shares
outstanding 44,241 37,892 40,246 32,028 21,944 12,227 286
<CAPTION>
PRO FORMA (4) HISTORICAL
------------- -----------------------------------------------------------
MARCH 31, DECEMBER 31,
1997 MARCH 31, 1997 1996 1995 1994 1993
------------- ---------------- ---------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Real estate, at cost $1,208,229 $1,208,229 $1,157,235 $ 888,928 $ 631,260 $ 31,005
Total assets 1,210,645 1,204,231 1,135,065 885,824 637,846 31,850
Line of credit(5) 21,020 295,250 228,000 190,000 153,000 -
Long-term debt 150,000 - - - - -
Mortgages payable 155,418 155,418 155,790 118,524 107,347 -
Total liabilities 367,043 489,511 436,423 328,886 271,216 178
Total shareholders'
equity $ 843,602 $ 714,720 $ 698,642 $ 556,938 $ 366,630 $ 31,672
Number of Shares
outstanding 44,241 37,892 37,892 27,763 18,567 1,582
<CAPTION>
PRO FORMA(1)(2) HISTORICAL PRO FORMA(1)(2) HISTORICAL
--------------- ------------- ---------------- ------------------------------------------
THREE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1997 1997 1996 1996 1995 1994 1993(3)
--------------- ------------- ---------------- ---------- --------- --------- --------
(IN THOUSANDS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Net earnings
attributable to Shares $ 12,133 $ 10,178 $ 40,806 $ 38,629 $ 19,639 $ 9,926 $ 38
Add (deduct):
Real estate
depreciation 6,132 6,132 22,534 20,824 15,925 8,770 28
Amortization related to
Homestead convertible
mortgages (20) (20) - - - - -
Gain on disposition of
real estate - - - (6,732) - - -
Gain on sale of
Homestead Assets - - - (2,839) - - -
Provision for possible
loss on investments 200 200 2,500 2,500 - - -
Extraordinary item--
loss on early
extinguishment of debt - - - 3,940 - - -
-------- ---------- ---------- ---------- --------- --------- --------
Funds from
operations(6) $ 18,445 $ 16,490 $ 65,840 $ 56,322 $ 35,564 $ 18,696 $ 66
EBITDA(7) 21,429 21,271 78,272 72,503 54,606 27,936 66
Net cash provided
(used) by operating
activities 19,804 16,913 69,685 54,356 39,732 23,564 (492)
Net cash used by
investing activities (70,486) (69,354) (291,476) (287,418) (235,149) (390,077) (31,005)
Net cash provided by
financing activities $ 50,733 $ 52,055 $ 226,026 $ 230,907 $ 195,649 $ 372,638 $ 31,634
Ratio of earnings to
fixed charges(8) 3.0 2.0 2.6 1.9 1.7 1.9 N/A
</TABLE>
62
<PAGE>
- --------
(1) The pro forma condensed statements of earnings reflect: (i) the Merger,
(ii) the sale of the Homestead Village properties and subsequent
distribution of Homestead securities on November 12, 1996, (iii) the
acquisition and disposition of communities acquired or disposed of
subsequent to January 1, 1996 and related assumptions of mortgage debt and
(iv) the sale of Shares subsequent to January 1, 1996 (including the sale
of Shares on April 10, 1997) and the Offerings and the related repayments
on ATLANTIC's $350 million unsecured line of credit as if all of these
transactions had occurred on January 1, 1996.
(2) Should the Preferred Share Offering not be consummated, the pro forma
financial statements would reflect the following amounts:
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(in thousands, except per share
and ratio data)
<S> <C> <C>
Interest expense $ 3,745 $15,766
Net earnings attributable to Shares 12,406 41,759
Net earnings attributable to Shares per
Share 0.28 1.04
Funds from operations 18,718 66,793
EBITDA $22,554 $82,772
Ratio of earnings to fixed charges 2.6 2.2
</TABLE>
(3) For the period from inception (October 26, 1993) to December 31, 1993.
(4) The pro forma condensed balance sheet reflects: (i) the Merger, (ii) the
sale of Shares on April 10, 1997 and (iii) the Offerings and the related
repayments on ATLANTIC's $350 million unsecured line of credit as if all of
these transactions had occurred as of March 31, 1997.
(5) At July 31, 1997, ATLANTIC had $254.8 million of outstanding borrowings
under its $350 million unsecured line of credit and such outstanding
borrowings are expected to be approximately $264.0 million at the closing
of the Offering without giving effect to the Offerings.
(6) Funds from operations represents net earnings computed in accordance with
GAAP, excluding gains (or losses) from real estate transactions, provisions
for possible losses, extraordinary items and real estate depreciation.
Funds from operations should not be considered as an alternative to net
earnings or any other GAAP measurement of performance as an indicator of
ATLANTIC's operating performance or as an alternative to cash flows from
operating, investing or financing activities as a measure of liquidity.
ATLANTIC believes that funds from operations is helpful to a reader as a
measure of the performance of an equity REIT because, along with cash flow
from operating activities, financing activities and investing activities,
it provides a reader with an indication of the ability of ATLANTIC to incur
and service debt, to make capital expenditures and to fund other cash
needs. On January 1, 1996, ATLANTIC adopted NAREIT's revised definition of
funds from operations. Under this more conservative definition, loan cost
amortization is not added back to net earnings in determining funds from
operations. For comparability, funds from operations for the periods prior
to January 1, 1996 give effect to the revised definition. The funds from
operations measure presented by ATLANTIC, while consistent with the NAREIT
definition, will not be comparable to similarly titled measures of other
REITs which do not compute funds from operations in a manner consistent
with ATLANTIC. Funds from operations is not intended to represent cash made
available to shareholders. Cash distributions paid to shareholders is
presented in the table above.
(7) EBITDA represents earnings from operations before deduction of interest,
taxes, depreciation and amortization. EBITDA should not be considered as an
alternative to net earnings or any other GAAP measurement of performance as
an indication of ATLANTIC's operating performance or as an alternative to
cash flows from operating, investing or financing activities as a measure
of liquidity.
(8) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings from operations plus fixed charges other than
capitalized interest. Fixed charges consist of interest on borrowed funds
(including capitalized interest) and amortization of debt discount and
expense.
63
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with ATLANTIC's
financial statements and the notes thereto included in this Prospectus.
The statements contained in this discussion and elsewhere in this Prospectus
that are not historical facts are forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act. These
forward-looking statements are based on current expectations, estimates and
projections about the industry and markets in which ATLANTIC operates,
management's beliefs and assumptions made by management. Words such as
"expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates",
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions which are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements. ATLANTIC's operating results depend primarily on income from
multifamily communities, which is substantially influenced by (i) the demand
for and supply of multifamily units in ATLANTIC's primary target market and
submarkets, (ii) operating expense levels, (iii) the effectiveness of property-
level operations and (iv) the pace and price at which ATLANTIC can acquire and
develop additional multifamily communities. Capital and credit market
conditions which affect ATLANTIC's cost of capital also influence operating
results.
OVERVIEW
Since its inception on October 26, 1993 and through March 31, 1997, ATLANTIC
has amassed a portfolio of 25,808 multifamily units with a total expected
investment cost of $1.38 billion located in the southeastern United States.
Additionally, at March 31, 1997, ATLANTIC had land in planning and under
control for the development of 2,332 units with a total budgeted development
cost of $137.5 million. ATLANTIC's investment in real estate has been financed
through both debt and equity. From inception through March 31, 1997, ATLANTIC
has raised approximately $806.2 million in net equity, primarily through
private and public sales of Shares. Additionally, ATLANTIC had long-term
mortgage debt at March 31, 1997 of approximately $155.4 million which is
secured by certain of the communities acquired. ATLANTIC's $350 million
unsecured line of credit provided the remaining investment capital.
The following table summarizes ATLANTIC's multifamily investment activity as of
and for the three-month period ended March 31, 1997 and as of and for the years
ended December 31, 1996, 1995 and 1994 (dollar amounts in thousands):
<TABLE>
<CAPTION>
THREE-MONTH YEAR ENDED DECEMBER 31,
PERIOD ENDED --------------------------
MARCH 31, 1997 1996 1995 1994
-------------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING COMMUNITIES AT PERIOD END:
Communities 70 70 58 43
Units 19,241 19,241 15,823 11,990
Total expected investment(1) $968,081 $959,860 $783,448 $600,880
Cost per unit $50.3 $49.9 $49.5 $50.1
DEVELOPMENT COMMUNITIES:
Starts During Period:
Communities 2 9 6 4
Units 668 2,815 2,214 1,212
Total expected investment(1) $42,910 $164,442 $143,822 $64,054
Cost per unit $64.2 $58.4 $65.0 $52.8
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
THREE-MONTH YEAR ENDED DECEMBER 31,
PERIOD ENDED --------------------------
MARCH 31, 1997 1996 1995 1994
-------------- -------- -------- --------
<S> <C> <C> <C> <C>
Completions During Period:
Communities -- 3 2 --
Units -- 1,046 468 --
Total expected investment(1) -- $56,370 $25,462 --
Cost per unit -- $53.9 $54.4 --
Stabilizations During Period:
Communities 1 3 -- --
Units 408 804 -- --
Total expected investment(1) $20,799 $43,004 -- --
Cost per unit $51.0 $53.5 -- --
Under Construction at Period-End:
Communities 16 14 8 4
Units 5,395 4,727 2,958 1,212
Total expected investment(1) $335,591 $290,486 $176,740 $63,006
Cost per unit $62.2 $61.5 $59.7 $52.0
Investment to date $238,176 $194,587 $94,094 $20,741
ACQUISITIONS:
Communities -- 13 15 40
Units -- 3,556 3,961 11,307
Total expected investment(1) -- $171,731 $182,242 $582,077
Cost per unit -- $48.3 $46.0 $51.5
DISPOSITIONS:
Communities -- 4 2 --
Units -- 1,184 596 --
Proceeds -- $64,150 $30,934 --
Gain -- $6,732 -- --
</TABLE>
- --------
(1) For operating communities, represents cost through the period end plus
budgeted renovations, if any, as of the period end. For communities under
construction, represents cost through the period end plus additional
budgeted development expenditures as of the period end, which include the
cost of land, fees, permits, payments to contractors, architectural and
engineering fees and interest and property taxes to be capitalized during
the construction period.
In addition to its multifamily investment activity, ATLANTIC developed
extended-stay lodging facilities known as Homestead Village that were sold to
Homestead, a newly formed company, in 1996, as discussed below in "--Liquidity
and Capital Resources--Investing and Financing Activities--Homestead
Transaction". ATLANTIC's investment, at cost, in Homestead Village properties
was $2.6 million at December 31, 1995. ATLANTIC did not begin developing
Homestead Village properties until 1995.
At March 31, 1997, 95.4% of ATLANTIC's portfolio, based upon total expected
investment, was located in ATLANTIC's primary target market cities. These
primary target market cities and submarkets have benefitted substantially in
recent periods from demographic trends, in particular population and job
growth. For a discussion of ATLANTIC's two primary target market cities with
more than 10% of ATLANTIC's communities based on total expected investment, see
"Business--Competition". From July 1993 to July 1995, the population growth
rate in ATLANTIC's primary target market cities (3.8%) exceeded the population
growth rate in the United States as a whole (2.0%), based upon U. S. Census
Bureau information. From 1993 to 1996, the job growth rate in ATLANTIC's
primary target market cities (10.7%) exceeded the job growth rate in the United
States as a whole (8.0%), based upon U. S. Department of Labor Statistics
information. As a result, the demand for multifamily units in ATLANTIC's
primary target market cities has increased. The strong demand for multifamily
units has resulted in an increase in ATLANTIC's rental rates in each
multifamily product type in ATLANTIC's portfolio, which has had a favorable
impact on ATLANTIC's operating results.
65
<PAGE>
ATLANTIC's operating results are a function of rental collections and rental
expense levels. Rental collections are a function of rental rates and occupancy
levels achieved. ATLANTIC's operating personnel continually monitor rental
rates and occupancy levels in an effort to maximize rental collections. At
times, ATLANTIC finds it advantageous to increase rental rates even though this
may cause occupancy levels to decrease as long as the expected net result is an
increase in rental collections. While ATLANTIC experienced a slight decrease in
same store community occupancy in the fourth quarter of 1996 and the first
quarter of 1997 compared to the same quarter of the preceding year, rental
collections during these periods increased by 1.00% and 2.42%, respectively.
ATLANTIC expects that rental collections will continue to increase at the same
pace as has been experienced over the past two years.
ATLANTIC's rental expenses as a percentage of rental revenues for ATLANTIC's
multifamily communities have generally remained flat (ranging between 39.4% and
40.0%), primarily due to a continual effort by ATLANTIC to reduce resident
turnover, thereby reducing the costs associated with re-leasing vacated units.
ATLANTIC expects rental expenses as a percentage of rental revenues to remain
at a level consistent with the level achieved over the past two years. The
expected trends in rental rates, occupancy and rental expenses are expected to
have a positive impact on ATLANTIC's future operating results. See additional
discussion below in "--Results of Operations--Communities Fully Operating
Throughout Both Periods".
ATLANTIC believes that development of multifamily communities from the ground
up, which are built for long-term ownership and designed to meet broad renter
preferences and demographic trends, will provide a greater source of long-term
cash flow growth in the future than acquisitions. Therefore, while land prices
are favorable, ATLANTIC has acquired and will continue to acquire, on an
unleveraged basis, prudent amounts of land zoned for multifamily development.
ATLANTIC believes its ability to compete is significantly enhanced relative to
other companies because of the REIT Manager's depth of development and
acquisition personnel and presence in local markets combined with ATLANTIC's
access to investment capital.
ATLANTIC's overall results of operations and financial condition for the first
three months of 1997 and for 1996, 1995 and 1994 have been significantly
influenced by this investment activity. Detailed information about this
investment activity, which will significantly influence future operations, is
provided below.
Current Development Activity
At March 31, 1997, ATLANTIC had 5,395 units under construction, representing a
total expected investment cost of $335.6 million. These development communities
are summarized below (dollar amounts in thousands):
<TABLE>
<CAPTION>
TOTAL
NUMBER INVESTMENT EXPECTED AVERAGE
OF UNITS COST TO DATE INVESTMENT(1) % LEASED(2)
-------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Communities under
construction and in lease-
up(3) 2,628 $162,964 $168,355 55.8%
Other communities under
construction 2,767 75,212 167,236 N/A
----- -------- --------
Total communities under
construction 5,395 $238,176 $335,591
===== ======== ========
</TABLE>
- --------
(1) Represents cost through March 31, 1997 plus additional budgeted development
expenditures at March 31, 1997, which include the cost of land, fees,
permits, payments to contractors, architectural and engineering fees and
interest and property taxes to be capitalized during the construction
period.
(2) The percentage leased is based on total units upon completion.
(3) A development community is considered in "lease-up" once ATLANTIC begins
leasing completed units.
There are risks associated with ATLANTIC's development and construction
activities which include: development and acquisition opportunities explored by
ATLANTIC may be abandoned; construction costs of a community may exceed
original estimates due to increased materials, labor or other expenses, which
could make completion of the community uneconomical; occupancy rates and rents
at a newly completed community are dependent on a number of factors, including
market and general economic conditions, and may not be sufficient to make the
community profitable; financing may not be available on favorable terms for the
development of a community; and construction and lease-up may not be completed
on schedule, resulting in increased debt service expense and construction
costs. Development activities are also subject to risks relating to the
inability to obtain, or delays in obtaining, all necessary land-use, building,
occupancy and other required governmental permits and authorizations. The
occurrence of any of the events described above could adversely affect
ATLANTIC's ability to achieve its projected yields on communities under
development or redevelopment.
66
<PAGE>
Acquisition Activity
ATLANTIC completed the acquisition of $171.7 million of operating communities,
representing a total of 3,556 units, during the fifteen-month period ended
March 31, 1997. These acquisitions are summarized below (dollar amounts in
thousands):
<TABLE>
<CAPTION>
TOTAL
EXPECTED ACQUISITION
UNITS INVESTMENT(1) DATE
----- ------------- -----------
<S> <C> <C> <C>
MID-ATLANTIC:
Charlotte, North Carolina:
Cameron at Hickory Grove 202 $ 8,392 04/10/96
Greenville, South Carolina:
Cameron Court 234 11,060 04/22/96
Memphis, Tennessee:
Cameron Century Center 420 15,928 10/18/96
Country Oaks 200 8,484 09/05/96
Raleigh, North Carolina:
Cameron Lake 196 9,293 11/13/96
Cameron Ridge 228 10,131 10/17/96
Emerald Forest 320 14,680 12/19/96
Washington, D.C.:
West Springfield Terrace 244 16,210 09/30/96
----- --------
Total Mid-Atlantic 2,044 $ 94,178
----- --------
SOUTH ATLANTIC:
Atlanta, Georgia:
Balmoral Village 312 $ 19,215 10/22/96
Cameron Pointe 214 14,891 05/30/96
Ft. Lauderdale/West Palm Beach, Florida:
Park Place at Turtle Run 350 15,714 04/22/96
The Pointe at Bayberry Lake 308 17,021 05/29/96
Tampa, Florida:
Cameron Bayshore 328 10,712 12/20/96
----- --------
Total South Atlantic 1,512 $ 77,553
----- --------
Total 3,556 $171,731
===== ========
</TABLE>
- --------
(1) Represents the initial acquisition cost plus budgeted renovations
identified as of the date of acquisition.
Acquisitions entail risks that investments will fail to perform in accordance
with expectations and that judgments with respect to the cost of improvements
to bring an acquired community up to standards established for the market
position intended for that community will prove inaccurate, as well as general
investment risks associated with any new real estate investment. Although
ATLANTIC undertakes an evaluation of the physical condition of each new
community before it is acquired, certain defects or necessary repairs may not
be detected until after the community is acquired, which could significantly
increase ATLANTIC's total acquisition costs.
RESULTS OF OPERATIONS
Net earnings for the three-month periods ended March 31, 1997 and 1996 were
$10.2 million and $6.7 million, respectively. Net earnings increased $3.5
million in the three-month period ended March 31, 1997 over the three-month
period ended March 31, 1996. Net earnings for the years ended December 31,
1996, 1995 and 1994 were $38.6 million, $19.6 million and $9.9 million,
respectively. Net earnings increased $19.0 million in 1996 over 1995 and $9.7
million in 1995 over 1994.
Property Operations--Three-Month Period Ended March 31, 1997
At March 31, 1997, ATLANTIC had 19,241 operating multifamily units as compared
to 16,159 operating multifamily units at March 31, 1996. The increased number
of communities in operation resulted in increases in rental income ($8.9
million in 1997 over 1996), rental expenses ($1.5 million in 1997 over 1996),
real estate taxes ($0.7 million in 1997 over 1996), property management fees
($0.4 million in 1997 over 1996) and depreciation ($1.3 million in 1997 over
1996).
67
<PAGE>
During the period prior to a community being stabilized, the REIT Manager and
the property managers begin implementing expense controls, reconfiguring the
resident mix, supervising renovations and implementing a strategy to increase
rental income. The full benefits of the changes are not reflected until the
communities are stabilized. At March 31, 1997, 19.0% of ATLANTIC's operating
multifamily communities, based on total expected investment cost, were
classified as pre-stabilized as compared to 30.0% at March 31, 1996.
Because ATLANTIC will be completing construction on its current development
portfolio and acquiring additional operating communities in its target market,
ATLANTIC anticipates increases in rental income and property-level expenses in
subsequent periods.
Net cash flow provided by operating activities increased by $4.6 million for
the three-month period ended March 31, 1997 as compared to the same period in
1996 principally due to the increased number of communities in operation.
Property Operations--Years Ended December 31, 1996, 1995 and 1994
At December 31, 1996, ATLANTIC had 19,241 operating multifamily units as
compared to 15,823 operating multifamily units at December 31, 1995 and 11,990
operating multifamily units at December 31, 1994. The increased number of
communities in operation resulted in increases in rental income ($34.1 million
in 1996 over 1995 and $48.6 million in 1995 over 1994), rental expenses ($9.0
million in 1996 over 1995 and $12.6 million in 1995 over 1994), real estate
taxes ($2.7 million in 1996 over 1995 and $4.0 million in 1995 over 1994),
property management fees ($1.1 million in 1996 over 1995 and $1.9 million in
1995 over 1994) and depreciation ($4.9 million in 1996 over 1995 and $7.2
million in 1995 over 1994).
As a result of high levels of acquisitions of operating communities since
inception, 26.7% of ATLANTIC's operating multifamily communities, based on
total expected investment cost, were classified as pre-stabilized at December
31, 1996 as compared to 25.7% at December 31, 1995 and 94.7% at December 31,
1994.
Cash provided by operating activities was $54.4 million in 1996, an increase of
$14.6 million from the 1995 level of $39.7 million. Cash provided by operating
activities in 1995 increased by $16.2 million from the 1994 level. These
increases are primarily the result of the increased number of communities in
operation.
Communities Fully Operating Throughout Both Periods
The following table presents the operating performance of ATLANTIC's 50 "same
store" communities that were fully operational throughout the first three
months of 1997 and 1996 and the 34 "same store" communities that were fully
operational throughout 1996 and 1995. Operating expenses and net operating
income have been adjusted for pre-stabilized versus stabilized accounting
differences that result from capitalizing certain costs during the period after
acquisition when a community is being repositioned and is classified as pre-
stabilized and expensing those costs once repositioning is completed and the
community is classified as stabilized. A summary of the same store communities
is as follows:
<TABLE>
<CAPTION>
FIRST QUARTER
1997 1996
------------- -------------
<S> <C> <C>
SAME STORE COMMUNITIES:
Number of communities 50 34
Number of units 13,503 9,458
Total expected investment cost (in millions) $679.1 $496.5
Percentage of ATLANTIC's total portfolio 70.2% 38.1%
<CAPTION>
FIRST QUARTER
1997 COMPARED
TO FIRST
QUARTER 1996 COMPARED
1996 (1) TO 1995
------------- -------------
<S> <C> <C>
Collections growth 2.42% 2.76%
Operating expense decrease, as adjusted -2.43% -0.97%
Net operating income growth, as adjusted 5.72% 4.88%
<CAPTION>
FIRST QUARTER
1997 1996
------------- -------------
<S> <C> <C>
Average physical occupancy 94.36% 95.32%
Property operating expense ratio 40.05% 39.68%
Average rental rate per unit $711(2) $719(2)
Recurring capital expenditures per unit $38 $209
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
FIRST QUARTER 1997 COMPARED TO FIRST QUARTER 1996
AVERAGE AVERAGE COLLECTIONS TOTAL
PHYSICAL PHYSICAL GROWTH SAME STORE ATLANTIC
OCCUPANCY OCCUPANCY (1997 COMPARED COMMUNITIES PORTFOLIO
1997 1996 TO 1996)(1) % BY MARKET % BY MARKET
--------- --------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
MID-ATLANTIC:
Charlotte, North Caro-
lina 92.69% 96.36% -2.85% 2.27% 5.72%
Greenville, South Caro-
lina(3) -- -- -- -- 0.85
Memphis, Tennessee 91.84 93.40 -4.27 2.58 3.28
Nashville, Tennessee 94.42 94.70 0.31 5.09 4.48
Raleigh, North Carolina 95.32 94.40 2.46 2.37 7.88
Richmond, Virginia 95.12 97.28 2.53 4.39 5.86
Washington, D.C. 95.51 92.84 4.90 6.83 10.13
----- ----- ----- ------ ------
Total Mid-Atlantic 94.27% 94.69% 1.29% 23.53% 38.20%
----- ----- ----- ------ ------
SOUTH ATLANTIC:
Atlanta, Georgia 93.20% 93.91% 2.87% 40.78% 28.99%
Birmingham, Alabama 93.22 92.31 -1.28 5.77 5.54
Ft. Lauderdale/West Palm
Beach, Florida 95.86 95.35 2.49 9.70 10.66
Jacksonville, Florida 92.20 98.44 -3.96 1.81 6.14
Orlando, Florida 95.91 95.65 4.64 6.16 3.21
Tampa/Ft.
Myers/Sarasota, Florida 96.55 95.86 4.25 12.25 7.26
----- ----- ----- ------ ------
Total South Atlantic 94.38% 94.62% 2.75% 76.47% 61.80%
----- ----- ----- ------ ------
Totals 94.36% 94.63% 2.42% 100.00% 100.00%
===== ===== ===== ====== ======
</TABLE>
- --------
(1) Compares the three-month period ended March 31, 1997 to the same period in
1996.
(2) ATLANTIC experienced rental rate increases in each multifamily product type
in its portfolio during the first quarter of 1997. However, ATLANTIC's 50
same store communities during this period had a higher percentage of
moderate income communities than the 34 same store communities in 1996.
Since moderate income communities have lower rental rates than middle
income communities, the overall same store portfolio average rental rate
per unit declined from $719 to $711.
(3) ATLANTIC entered this market subsequent to January 1, 1996; therefore,
there are no communities for the same store comparison.
<TABLE>
<CAPTION>
1996 COMPARED TO 1995
AVERAGE AVERAGE ANNUAL
ANNUAL ANNUAL COLLECTIONS TOTAL
PHYSICAL PHYSICAL GROWTH SAME STORE ATLANTIC
OCCUPANCY OCCUPANCY (1996 OVER COMMUNITIES PORTFOLIO
1996 1995 1995)(1) % BY MARKET % BY MARKET
--------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
MID-ATLANTIC:
Charlotte, North Caro-
lina 95.92% 95.96% 4.54% 3.09% 6.08%
Greenville, South Caro-
lina(2) -- -- -- -- 0.88
Memphis, Tennessee(2) -- -- -- -- 3.33
Nashville, Tennessee 94.62 95.68 1.10 3.66 4.65
Raleigh, North Carolina 95.72 94.64 -0.94 3.22 8.16
Richmond, Virginia 94.71 96.17 2.90 3.93 6.10
Washington, D.C. 94.62 94.38 0.37 6.18 10.46
----- ----- ----- ------ ------
Total Mid-Atlantic 95.02% 95.32% 1.42% 20.08% 39.66%
----- ----- ----- ------ ------
SOUTH ATLANTIC:
Atlanta, Georgia 95.77% 96.31% 4.36% 42.21% 28.22%
Birmingham, Alabama 92.25 95.40 -3.06 4.03 5.75
Ft. Lauderdale/West Palm
Beach, Florida 94.72 95.00 0.15 11.35 9.29
Jacksonville, Florida 97.04 96.25 5.12 2.46 6.35
Orlando, Florida 95.06 95.05 3.64 6.72 3.29
Tampa/Ft.
Myers/Sarasota, Florida 95.78 95.24 3.21 13.15 7.44
----- ----- ----- ------ ------
Total South Atlantic 95.39% 95.72% 3.06% 79.92% 60.34%
----- ----- ----- ------ ------
Totals 95.32% 95.65% 2.76% 100.00% 100.00%
===== ===== ===== ====== ======
</TABLE>
- --------
(1) Compares the year ended December 31, 1996 to the year ended December 31,
1995.
(2) ATLANTIC entered this market subsequent to January 1, 1995; therefore,
there are no communities for the same store comparison.
69
<PAGE>
At January 1, 1994, ATLANTIC's portfolio consisted of only three pre-
stabilized operating communities and, consequently, comparisons for fully
operational communities between 1995 and 1994 are not meaningful.
Development Dilution
ATLANTIC's development activity is dilutive to net earnings and funds from
operations in the short term, but is expected to add significantly to
ATLANTIC's long-term performance as the developments reach stabilization in
1997 and subsequent years.
During the construction period, the reduction to interest expense resulting
from the capitalization of interest on units under construction is less than
the operating income which could be earned on those expenditures if the
community were complete and earning a stabilized return, thus resulting in
dilution. Essentially, the return on investment during the construction period
is equivalent to ATLANTIC's cost of funds.
The lease-up phase commences when units are placed in service. During the
lease-up phase, ATLANTIC's policy is to expense operating expenses (including
pre-opening marketing expenses) and interest expense which during the
construction period is capitalized. The operating expenses and the interest
expense on such completed units will typically exceed rental revenues, due to
less than break-even occupancy, thus resulting in dilution in the form of a
"lease-up" deficit. These deficits are typically experienced for a period of
two to four months after "first units" are placed in service.
Development dilution begins to decline once occupancy increases and revenues
from completed units exceed the operating expenses and interest expense
associated with such completed units. However, the net operating income
generated during this pre-stabilized period is less than the net operating
income which would be earned if the community were stabilized. The time
required to achieve stabilization generally ranges from six to twelve months
after completion of construction.
Homestead Convertible Mortgages Interest Income
ATLANTIC began funding the Homestead convertible mortgages in 1997. At March
31, 1997 ATLANTIC had funded $20.0 million of its total funding commitment to
Homestead of $111.1 million. For the three-month period ended March 31, 1997
ATLANTIC recognized interest income related to these mortgages of $185,000.
The interest income will increase as ATLANTIC funds the remaining Homestead
convertible mortgages in 1997 and early 1998.
The aggregate income recognized on the Homestead convertible mortgages
consists of (i) the interest income recognized at 9% per annum, (ii) the
amortization of the original issue premium which reduces income, (iii) the
amortization of the discount on the conversion feature which increases income,
and (iv) the amortization of the deferred commitment fee which increases
income. ATLANTIC uses the effective interest method to calculate the
amortization of all items associated with the Homestead convertible mortgages.
The effective interest rate on the funded amount is 8.46% per annum for
purposes of calculating net earnings. The amortization of the discount on the
conversion feature and the amortization of the deferred commitment fee are
deducted from net earnings in calculating funds from operations. The effective
interest rate on the funded amount is 7.09% per annum for purposes of
calculating funds from operations.
Interest Expense
The following summarizes ATLANTIC's interest expense (in thousands):
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
1997 1996 1996 1995 1994
------- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
Mortgage $ 2,650 $ 2,041 $ 9,484 $ 7,662 $3,363
Line of credit 4,664 4,337 16,947 15,784 6,670
Capitalized interest (2,553) (2,036) (10,250) (4,404) (793)
------- ------- -------- ------- ------
Total interest expense $ 4,761 $ 4,342 $ 16,181 $19,042 $9,240
======= ======= ======== ======= ======
</TABLE>
Mortgage interest expense increased $0.6 million in the three-month period
ended March 31, 1997 as compared to the same period in 1996. Mortgage interest
expense increased $1.8 million in 1996 as
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<PAGE>
compared to 1995 and $4.3 million in 1995 as compared to 1994. These increases
are the result of additional weighted-average mortgage debt outstanding.
Line of credit interest expense increased $0.3 million in the three-month
period ended March 31, 1997 over the same period in 1996. This increase is
primarily a function of an increase in the average outstanding balance ($260.9
million in 1997 as compared to $203.3 million in 1996), partially offset by a
lower weighted-average daily interest rate (7.10% in 1997 as compared to 7.61%
in 1996). The increase is further offset by a decrease in amortization of debt
issuance costs and other loan-related costs as a result of the write-off of
loan-related costs in the fourth quarter of 1996. Line of credit interest
expense increased $1.2 million in 1996 over 1995 and $9.1 million in 1995 over
1994. The increase in 1996 is primarily a function of an increase in the
average outstanding balance ($204.3 million in 1996 as compared to $178.3
million in 1995) partially offset by a lower weighted-average daily interest
rate (7.39% in 1996 as compared to 7.92% in 1995). The increase in 1995 is
primarily a function of an increase in the average outstanding balance ($178.3
million in 1995 as compared to $65.6 million in 1994) and a higher weighted-
average daily interest rate (7.92% in 1995 as compared to 7.34% in 1994). The
increases were also affected by amortization of issuance costs and other loan-
related costs.
The increase in interest expense in the three-month period ended March 31, 1997
over the same period in 1996 was offset by increases in capitalized interest of
$0.5 million. The increases in interest expense in 1996 and 1995 were offset by
increases in capitalized interest of $5.8 million in 1996 over 1995 and $3.6
million in 1995 over 1994. These increases in capitalized interest are the
result of ATLANTIC's increased development activity.
REIT Management Fee Paid to Affiliate
The REIT management fee paid by ATLANTIC increased by $0.9 million in the
three-month period ended March 31, 1997 as compared to the same period in 1996.
The REIT Management fee paid by ATLANTIC increased by $3.5 million in 1996 over
1995 and $3.2 million in 1995 over 1994. Because the REIT Management fee
fluctuates with the level of ATLANTIC's cash flow calculated before the REIT
Management fee, these increases are expected based upon the larger increases in
revenues than expenses experienced by ATLANTIC. In the future, interest income
recognized on the convertible mortgage notes received by ATLANTIC pursuant to
the funding commitment agreement entered into as part of the Homestead
transaction will not be included in the calculation of the REIT Management fee
to be paid by ATLANTIC. Because this interest income is not included in cash
flow for purposes of calculating the REIT Management fee, the REIT Management
fee calculated as a percentage of ATLANTIC's funds from operations will decline
as the convertible mortgage notes are funded and the related interest income
increases. See "--Liquidity and Capital Resources--REIT Management Agreement".
See "The Merger Transaction" for information regarding a proposed merger
transaction which would result in ATLANTIC becoming an internally managed REIT
with Security Capital remaining as ATLANTIC's largest shareholder.
Gains on Dispositions and Valuation of Long-Lived Investments
ATLANTIC's strategy is to build its asset base through the development and
acquisition of multifamily communities that will provide long-term growth in
cash flow. ATLANTIC's real estate investments have been made with a view to
effective long-term operation and ownership. ATLANTIC's "asset optimization
strategy" is based on market research and is aimed at optimizing its portfolio
composition. Under this strategy, ATLANTIC may from time to time dispose of
assets that no longer meet its long-term investment objectives and redeploy the
proceeds therefrom, preferably through tax-deferred exchanges, into assets with
better prospects for growth. As a result of this asset optimization strategy,
ATLANTIC disposed of four operating communities aggregating 1,184 units in
1996. A gain was recognized on each disposition with the total gain aggregating
$6.7 million on total proceeds of $67.2 million. ATLANTIC did not dispose of
any communities in the three-month period ended March 31, 1997.
The four communities that were disposed of in 1996 accounted for $3.6 million
and $5.2 million of net operating income during 1996 and 1995, respectively.
Each disposition was included in a tax-deferred exchange. At December 31, 1996,
ATLANTIC held a portion of the proceeds from one of these dispositions
aggregating $1.7 million in an interest-bearing escrow account. These funds
were used in the acquisition of a land parcel in January 1997, completing the
tax-deferred exchange. Two communities that ATLANTIC disposed of in 1995
accounted for $2.4 million of net operating income during 1995.
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Statement of Financial Accounting Standards No. 121, Accounting For The
Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of
("SFAS No. 121"), adopted by ATLANTIC effective January 1, 1996, establishes
accounting standards for the review of long-lived assets to be held and used
for impairment whenever the carrying amount of an asset may not be
recoverable. SFAS No. 121 also requires that certain long-lived assets to be
disposed of be reported at the lower of carrying amount or fair value less
cost to sell. ATLANTIC did not recognize any losses on the date it adopted
SFAS No. 121.
Long-lived investments held and used are periodically evaluated for impairment
and provisions for possible losses are made if required. At March 31, 1997,
such investments are carried at cost, which is not in excess of fair market
value and no provisions for possible losses have been made. ATLANTIC
recognized a provision for possible loss of $0.2 million in the three-month
period ended March 31, 1997 and $2.5 million in 1996 associated with a
community that was being held for sale. ATLANTIC disposed of this community in
April 1997. The sales price approximated ATLANTIC's carrying value at March
31, 1997. This community accounted for $0.2 million of net operating income
for each of the three-month periods ended March 31, 1997 and 1996. This
community accounted for $1.0 million, $1.0 million and $0.5 million of net
operating income for 1996, 1995 and 1994, respectively. This income is
included in ATLANTIC's earnings from operations in those years.
Homestead Transaction
As more fully described under "--Liquidity and Capital Resources--Homestead
Transaction" and "Certain Relationships and Transactions--Homestead
Transaction", ATLANTIC sold its Homestead Village properties (one operating
property and 25 properties under construction or in planning (or the rights to
acquire such properties)) and paid $16.6 million in cash to Homestead on
October 17, 1996 in exchange for 4,201,220 shares of Homestead common stock
that were thereafter distributed to ATLANTIC's shareholders. ATLANTIC
recognized a gain on the transaction of $2.8 million, net of expenses of $1.3
million. The Homestead transaction was treated as a sale for financial
accounting purposes, but was treated as a contribution for tax purposes.
Extraordinary Item--Loss on Early Extinguishment of Debt
In December 1996, ATLANTIC replaced its existing secured line of credit with
an unsecured line of credit. Such early extinguishment of debt resulted in the
write-off of unamortized loan costs of $3.9 million and is reflected as an
extraordinary item in the statement of earnings for the year ended December
31, 1996.
ENVIRONMENTAL MATTERS
ATLANTIC is subject to environmental regulations related to the ownership,
operation, development and acquisition of real estate. As part of its due
diligence procedures, ATLANTIC has conducted Phase I environmental assessments
on each community prior to acquisition. The cost of complying with
environmental regulations was not material to ATLANTIC's results of
operations. ATLANTIC is not aware of any environmental condition on any of its
communities that is likely to have a material adverse effect on ATLANTIC's
financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
ATLANTIC considers its liquidity and ability to generate cash from operations
and financings to be adequate and expects it to continue to be adequate to
meet ATLANTIC's development, acquisition, operating, debt service, Homestead
commitment and shareholder distribution requirements.
Investing and Financing Activities
Overview. ATLANTIC's investment activities, which consisted primarily of
acquiring and developing multifamily communities, used approximately $69.4
million and $41.5 million of cash during the first three months of 1997 and
1996, respectively. ATLANTIC's investment activities used approximately $287.4
million, $235.1 million and $390.1 million of cash for 1996, 1995 and 1994,
respectively.
ATLANTIC's financing activities provided net cash flow of $52.1 million and
$29.2 million for the first three months of 1997 and 1996, respectively.
ATLANTIC's financing activities provided net cash flow of $230.9 million,
$195.6 million and $372.6 million for 1996, 1995 and 1994, respectively. No
equity offerings were conducted in the three-month period ended March 31,
1997. Proceeds of $0.4 million were received in the
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<PAGE>
three-month period ended March 31, 1996. Combined proceeds from equity
offerings of $229.1 million in 1996, $205.8 million in 1995 (net of Share
repurchases) and $239.7 million in 1994 were the primary source of financing
funds. Proceeds from line of credit borrowings, net of repayments, were $67.3
million and $36.0 million for the first three months of 1997 and 1996,
respectively, and such proceeds were $38.0 million in 1996, $37.0 million in
1995 and $153.0 million in 1994.
1994 Investing and Financing Activities. ATLANTIC's investment strategy in 1994
focused on two components: the acquisition of a substantial base of existing
operating communities to provide operating cash flow and the creation of an
internal development process. During 1994, ATLANTIC acquired 40 operating
communities, 31 of which were obtained in two large portfolio acquisitions.
These 40 communities, located in 14 metropolitan areas, added 11,307 units to
the portfolio for a total of 11,990 operating units. See the table of
investment activity under "--Overview" above.
ATLANTIC's investment in real estate during 1994 of approximately $600.3
million was financed through a combination of debt and equity. As partial
payment for one of the portfolio acquisitions, ATLANTIC issued $100.0 million
in Shares to the seller of the portfolio and subsequently repurchased certain
of these Shares with proceeds from later equity offerings. Sales of Shares
through a private placement raised an additional $239.7 million. Existing debt
of $107.5 million associated with certain of the communities acquired was
assumed by ATLANTIC. Additionally, ATLANTIC had net borrowings on its line of
credit during 1994 of $153.0 million.
1995 Investing and Financing Activities. In 1995, ATLANTIC acquired existing
communities aggregating 3,961 units and disposed of two communities aggregating
596 units. Also in 1995, ATLANTIC began construction on 2,214 multifamily
units. In the fourth quarter ATLANTIC completed construction on its first two
internally developed multifamily communities, a 270-unit property in Charlotte,
North Carolina and a 198-unit property in Birmingham, Alabama. See the table of
investment activity under "--Overview" above.
During 1995, ATLANTIC's net additional investment in real estate was $257.7
million bringing its total real estate investment at December 31, 1995 to
$888.9 million. Sales of Shares generated the largest source of capital in
1995. ATLANTIC sold $205.8 million of Shares, net of Share repurchases, through
two private placements. In connection with the acquisition of certain
communities in 1995, ATLANTIC assumed $24.7 million in existing debt.
Additional borrowings on its line of credit during 1995 aggregated $37.0
million.
1996 Investing and Financing Activities. In 1996, ATLANTIC acquired operating
communities aggregating 3,556 units and disposed of four communities
aggregating 1,184 units. Also in 1996, ATLANTIC began construction on 2,815
multifamily units. In 1996, ATLANTIC completed construction on three internally
developed multifamily communities (1,046 units), bringing the total of
completed internally developed multifamily communities to five (1,514 units).
See the table of investment activity under "--Overview" above.
During 1996, ATLANTIC's net additional investment in real estate was $268.3
million bringing its total real estate investment at December 31, 1996 to $1.16
billion. Sales of Shares generated the largest source of capital in 1996.
In 1996, ATLANTIC raised net proceeds of $119.1 million from a private
placement of Shares. The private placement, which began in 1995, raised a total
of $249.3 million, net of commissions and other expenses.
ATLANTIC's initial public offering of Shares was completed on October 18, 1996.
The proceeds from the sale, net of the underwriters' commissions and other
expenses, were $110.0 million.
In connection with the acquisition of certain communities in 1996, ATLANTIC
assumed $17.9 million in existing debt. Additional borrowings on the line of
credit during 1996 aggregated $38.0 million.
First Quarter 1997 Investing and Financing Activities
ATLANTIC's investment activities during the three-month period ended March 31,
1997, which consisted primarily of acquiring and developing multifamily
communities, used $69.4 million of cash, an increase of $27.8 million over the
three-month period ended March 31, 1996.
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<PAGE>
ATLANTIC began construction on 668 multifamily units during the three-month
period ended March 31, 1997. ATLANTIC's net additional investment in real
estate at March 31, 1997 was $51.0 million bringing its total real estate
investment at cost to $1.21 billion. During the three-month period ended March
31, 1997, ATLANTIC funded $20.0 million under its funding commitment agreement
with Homestead.
ATLANTIC's financing activities provided net cash flow of $52.1 million for the
three-month period ended March 31, 1997 and $29.2 million for the three-month
period ended March 31, 1996. In 1997, ATLANTIC's financing activities consisted
primarily of borrowings on its line of credit of $67.3 million, net of
repayments. In 1996, borrowings on the line of credit of $36.0 million net of
repayments were the primary source of financing funds.
ATLANTIC completed an underwritten public offering of 4,000,000 Shares on April
10, 1997 which generated $80.5 million of proceeds, net of commissions and
offering expenses and closed on the overallotment option on May 14, 1997,
raising additional net proceeds of $1.5 million from the sale of 77,200 Shares.
Homestead Transaction. On October 17, 1996, ATLANTIC sold its moderate-priced,
purpose-built, extended-stay lodging facilities known as Homestead Village
properties to Homestead. In the transaction, ATLANTIC sold one operating
property and 25 properties under construction or in planning (or the rights to
acquire such properties) and paid $16.6 million in cash (the "Homestead
Assets"). In addition, ATLANTIC entered into a funding commitment agreement to
provide secured financing of up to $111.1 million to Homestead for purposes of
completing the development and construction of the properties sold in the
transaction. The Homestead transaction was treated as a sale for financial
accounting purposes, but was treated as a contribution for tax purposes.
The transaction resulted in ATLANTIC receiving 4,201,220 shares of common stock
of Homestead in exchange for the Homestead Assets and 2,818,517 warrants, each
to purchase one share of Homestead common stock at $10.00 per share, in
exchange for entering into the funding commitment agreement. On November 12,
1996, ATLANTIC distributed the Homestead common stock and warrants to its
shareholders of record on October 29, 1996. ATLANTIC shareholders received
0.110875 shares of Homestead common stock and 0.074384 Homestead warrants per
Share. ATLANTIC will receive up to $98.0 million of convertible mortgage notes
from Homestead in exchange for funding up to $111.1 million under the funding
commitment agreement. The difference between the amounts funded and the
convertible mortgage notes received of $13.1 million (assuming full funding of
the funding commitment) represents a mortgage note premium that will be
amortized as a reduction to interest income over the term of the convertible
mortgage notes.
ATLANTIC realized a gain of $2.8 million, after deducting expenses associated
with the transaction, representing the excess of the value of the Homestead
common stock received over the recorded basis of the Homestead Assets. The
Homestead warrants received represent a funding commitment fee which has been
valued at $6.5 million. The conversion feature of the convertible mortgage
notes has been valued at $6.9 million (assuming full funding of the funding
commitment). These deferred credits will be amortized as an increase to
interest income over the term of the convertible mortgage notes. ATLANTIC
intends to fund this commitment through cash on hand, borrowings on its line of
credit and sales of securities.
The convertible mortgage notes received from Homestead will bear interest at
9.0% per annum, will be due October 2006, will not be callable until 2001 and
will be convertible commencing March 31, 1997 at the option of the holder into
one share of Homestead common stock for every $11.50 of principal amount
outstanding. Upon full funding of ATLANTIC's convertible mortgage notes, its
conversion rights would represent a 15.35% ownership in Homestead (assuming no
further equity offerings by Homestead, conversion of all convertible mortgage
notes and exercise of all outstanding warrants). In order for ATLANTIC to
maintain its qualification as a REIT for Federal income tax purposes, its
ability to hold Homestead common stock or the convertible mortgage notes, and
the time at which it may convert such notes into Homestead common stock, may be
limited. See "Federal Income Tax Considerations--Taxation of ATLANTIC--
Homestead Mortgages". The effective yield on the convertible mortgage notes,
assuming conversion of all convertible mortgage notes and exercise of all
outstanding warrants, is estimated to be approximately 8.46%, after giving
effect to the mortgage note premium, the funding commitment fee and the
conversion value of the convertible mortgage notes. At December 31, 1996, no
funds had been advanced
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pursuant to the funding commitment agreement and there were no convertible
mortgage notes outstanding. ATLANTIC advanced $52.0 million under the funding
commitment agreement through June 30, 1997 and $45.9 million of mortgage notes
was outstanding on such date.
ATLANTIC will deduct from net earnings the accretion of both the funding
commitment fee and the conversion value of the convertible mortgage notes in
calculating funds from operations. Therefore, the effective yield on the
convertible mortgage notes for purposes of calculating funds from operations
will be approximately 7.09% as compared to 8.46% for purposes of calculating
net earnings.
Line of Credit. ATLANTIC obtained a $200 million secured line of credit from
MGT, an affiliate of J.P. Morgan Securities Inc., as agent for a group of
lenders, in June 1994. In June 1996, the line of credit was increased to $350
million. On December 18, 1996, ATLANTIC obtained a $350 million unsecured line
of credit agreement from MGT that replaced the previous secured line of credit.
Borrowings on the unsecured line of credit bear interest at prime or, at
ATLANTIC's option, LIBOR plus a margin ranging from 1.0% to 1.375% (1.375%
through July 2, 1997 and 1.125% thereafter as compared to 1.5% under the
previous agreement) depending on ATLANTIC's debt rating. ATLANTIC pays a
commitment fee on the average unfunded line of credit balance ranging from
0.125% to 0.25% per annum, depending on the amount of undrawn commitments. The
line of credit matures December 1998 and may be extended for one year with the
approval of MGT and the other participating lenders. The line of credit
agreement contains cross-default provisions with respect to defaults relating
to in excess of $25.0 million of ATLANTIC's outstanding debt.
In August 1995, ATLANTIC entered into a swap agreement with Goldman Sachs
Capital Markets, L.P. covering $100 million of borrowings under the line of
credit, effectively mitigating a portion of its variable interest rate
exposure. Under this one-year agreement which became effective on February 5,
1996, ATLANTIC paid a fixed interest rate of 7.46% on the $100 million of
borrowings through December 17, 1996 and 7.335% thereafter. A swap agreement
with MGT took effect upon the expiration of the prior swap agreement on
February 5, 1997 and provides for an interest rate on $100 million of
borrowings of 7.325% through July 2, 1997 and 7.075% thereafter through
February 5, 1998. ATLANTIC paid $0.1 million and $0.3 million more in interest
than it received under the swap agreement during the three-month period ended
March 31, 1997 and the year ended December 31, 1996, respectively. ATLANTIC is
exposed to credit loss in the event of non-performance by the swap
counterparty; however, ATLANTIC believes the risk of loss is minimal.
All debt incurrences under the line of credit are subject to certain covenants
as more fully described in the loan agreement. Specifically, distributions for
the preceding four quarters, excluding the Homestead Distribution, may not
exceed 95% (97% for distributions made before December 31, 1996) of ATLANTIC's
funds from operations (as defined in the credit agreement) for the preceding
four quarters. ATLANTIC is in compliance with all such covenants.
At June 30, 1997, $278.8 million of borrowings were outstanding under the line
of credit.
Mortgage Debt. At March 31, 1997, ATLANTIC had approximately $155.4 million of
mortgages payable consisting of approximately $34.0 million of fixed rate
conventional mortgage debt and approximately $121.4 million of mortgages that
secure ten tax-exempt bond issues. This long-term mortgage debt, which is
substantially fully amortizing, has a weighted-average interest rate of 6.97%
and maturity dates ranging from September 1998 to March 2029, with an average
maturity of 24.2 years. This long-term mortgage debt provides ATLANTIC with
favorable and conservative financial leverage on its investment in communities
associated with such debt.
Nine of ATLANTIC's ten tax-exempt bond issues have variable interest rates. All
of the tax-exempt bond issues are included in a credit enhancement agreement
with FNMA. Under the agreement with FNMA, ATLANTIC makes monthly principal
payments, based upon a 30-year amortization, into a principal reserve account.
To mitigate the variable interest rate exposure associated with these bond
issues, ATLANTIC has entered into swap agreements. Under these swap agreements,
ATLANTIC pays and receives interest on the aggregate principal amount of the
underlying bonds outstanding, net of the amount held in the principal reserve
account. These swap agreements effectively result in ATLANTIC paying interest
at a fixed rate of 6.63% on these nine tax-exempt bond issues.
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ATLANTIC's swap agreements related to its tax-exempt variable rate mortgages
are summarized as follows:
<TABLE>
<CAPTION>
AMOUNTS OF FIXED
BONDS TERM INTEREST RATE(1) ISSUER
---------- ---- ---------------- ------
<S> <C> <C> <C>
$23.1 million June 1995 to June 2002 6.48% General Re Financial Products Corporation
64.6 million June 1995 to June 2005 6.74 Morgan Guaranty Trust Company of New York
5.0 million March 1996 to March 2006 6.21 Morgan Guaranty Trust Company of New York
15.5 million August 1996 to August 2006 6.50 Morgan Stanley Derivative Products Inc.
----
Weighted-average interest rate 6.63%
====
</TABLE>
- --------
(1) Includes the fixed interest rate provided by the swap agreements, annual
fees associated with the swap agreements and credit enhancement agreement
and amortization of capitalized costs associated with the credit
enhancement agreement.
To the extent the deposits in the principal reserve account with FNMA have not
been used to redeem any of the outstanding bonds, ATLANTIC pays interest at the
variable rates as provided by the mortgage agreements on that portion of bonds
outstanding which is equivalent to the balance in the principal reserve fund
($1.4 million at March 31, 1997).
The credit enhancement agreement with FNMA is effectively cross-collateralized
with respect to the $207.5 million of communities pledged under the agreement
at March 31, 1997.
ATLANTIC's mortgages payable generally contain covenants common to this type of
borrowing. ATLANTIC was in compliance with all such covenants at March 31,
1997.
Scheduled Debt Maturities
At March 31, 1997, approximate principal payments due during each of the years
in the five-year period ending December 31, 2001 and thereafter are as follows
(in thousands):
<TABLE>
<CAPTION>
MORTGAGES LINE OF
PAYABLE CREDIT TOTAL
--------- -------- --------
<S> <C> <C> <C>
1997 $ 1,165 $ -- $ 1,165
1998 7,136 295,250 302,386
1999 1,577 -- 1,577
2000 3,554 -- 3,554
2001 1,812 -- 1,812
Thereafter 140,174 -- 140,174
-------- -------- --------
$155,418 $295,250 $450,668
======== ======== ========
</TABLE>
ATLANTIC has balloon payments of $5,539,000 and $5,556,000 due in 2002 and
2003, respectively.
Commitments
At June 30, 1997, ATLANTIC had 5,487 units under construction with a total
budgeted development cost of $347.2 million of which $96.7 million was
unfunded. In addition, ATLANTIC owned multifamily developments in planning at
June 30, 1997 aggregating 1,480 units located in various target market cities
with a total budgeted development cost of $99.0 million. ATLANTIC's multifamily
developments under control at June 30, 1997 aggregated 3,406 units with a total
budgeted development cost of $222.8 million. The foregoing developments are
subject to a number of conditions and ATLANTIC cannot predict with certainty
that any of them will be consummated.
At June 30, 1997, ATLANTIC had $5.4 million of budgeted capital expenditures
(major renovations, replacements or improvements with a substantial expected
economic life) for the remainder of 1997. At June 30, 1997, ATLANTIC had $59.1
million remaining to be funded under its funding commitment agreement with
Homestead.
ATLANTIC expects to finance construction, development and acquisition of
multifamily communities primarily with cash on hand, borrowings under its line
of credit and cash from future securities offerings. At
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June 30 , 1997, ATLANTIC had $278.8 million of borrowings outstanding on its
$350 million unsecured line of credit. After it has achieved a substantial
equity base, ATLANTIC intends to arrange fully amortizing, fixed rate, 15-year
to 25-year unsecured debt, such as the Notes, to finance additional
acquisitions and developments. ATLANTIC believes that its current conservative
ratio of long-term debt to total long-term undepreciated book capitalization
(which was 16.9% at March 31, 1997 on an historical basis and 25.5% on a pro
forma basis) provides considerable flexibility to prudently increase its
capital base by utilizing long-term debt as a financing tool in the future.
Long-term undepreciated book capitalization is defined as the sum of long-term
debt and shareholders' equity after adding back accumulated depreciation.
Distributions
ATLANTIC's current distribution policy is to pay quarterly cash distributions
to shareholders based upon what it considers to be a reasonable percentage of
cash flow and in a manner consistent with the distribution requirements
applicable to REITs. See "Federal Income Tax Considerations--Taxation of
ATLANTIC--Annual Distribution Requirements". Because depreciation is a non-cash
expense, cash flow typically will be greater than earnings from operations and
net earnings. Therefore, quarterly cash distributions will be higher than
quarterly earnings, resulting in a reduction to shareholders' equity.
Cash distributions paid on Shares in the three-month period ended March 31,
1997 and the years ended December 31, 1996, 1995 and 1994 were $0.39 per Share,
$1.65 per Share, $1.60 per Share and $1.20 per Share, respectively.
Additionally in 1996, ATLANTIC made the Homestead Distribution, which was
valued at $58.2 million.
ATLANTIC paid a quarterly cash distribution of $0.42 per Share in each of the
first three quarters of 1996. On November 12, 1996, the Homestead Distribution
was made to shareholders of record on October 29, 1996. On December 16, 1996,
in light of the Homestead transaction and ATLANTIC's initial public offering,
ATLANTIC paid a reduced fourth quarter cash distribution of $0.39 per Share to
shareholders of record on December 2, 1996.
ATLANTIC announces the following year's projected annual distribution level
after the Board's annual budget review and approval in December of each year.
At its December 19, 1996 meeting, the Board announced a projected annual
distribution level of $1.56 per Share for 1997 and declared a distribution of
$0.39 per Share for the first quarter of 1997, which was paid on February 19,
1997. On April 22, 1997, the Board declared a distribution of $0.39 per Share
which was paid on May 27, 1997. On July 21, 1997, the Board declared a
distribution of $0.39 per Share which is payable on August 26, 1997 to the
holders of record of Shares on August 12, 1997. The payment of distributions is
subject to the discretion of the Board and is dependent upon the financial
condition and operating results of ATLANTIC.
Funds from Operations
Funds from operations represents ATLANTIC's net earnings computed in accordance
with GAAP, excluding gains (or losses) from real estate transactions,
provisions for possible losses, extraordinary items and real estate
depreciation. On January 1, 1996, ATLANTIC adopted NAREIT's revised definition
of funds from operations. Under this more conservative definition, loan cost
amortization is not added back to net earnings in determining funds from
operations. For comparability, funds from operations for the periods prior to
January 1, 1996 give effect to the revised definition.
In 1996, ATLANTIC sold its Homestead Assets to Homestead, as more fully
described above under "--Homestead Transaction". Management believes that funds
from operations for 1996 and 1995 should be adjusted to reflect the effects of
the Homestead transaction on results of operations in order to be comparable.
Accordingly, the table below also presents pro forma funds from operations,
which have been calculated as if the Homestead transaction had occurred on
January 1, 1995. ATLANTIC did not own any Homestead properties in 1994 and,
therefore, 1994 funds from operations have not been adjusted. Management
believes that the pro forma funds from operations information presented below
provides a more meaningful comparison of 1996 and 1995; however, the pro forma
funds from operations information is unaudited, does not give effect to or
adjust for any other events (such as subsequent acquisitions and dispositions
of communities or subsequent sales of Shares), and is not necessarily
indicative of what actual funds from operations would have been if the
Homestead transaction had occurred on January 1, 1995.
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Funds from operations and pro forma funds from operations were as follows
(amounts in thousands):
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED MARCH
31, YEARS ENDED DECEMBER 31,
1997 1996 1996 1995 1994
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net earnings $ 10,178 $ 6,650 $ 38,629 $ 19,639 $ 9,926
Add (Deduct):
Depreciation 6,132 4,804 20,824 15,925 8,770
Gain on disposition of
real estate -- -- (6,732) -- --
Gain on sale of
Homestead Assets -- -- (2,839) -- --
Provision for possible
loss on investments 200 -- 2,500 -- --
Amortization of discount
on conversion feature
and deferred commitment
fee related to the
Homestead convertible
mortgages (20) -- -- -- --
Extraordinary item-loss
on early extinguishment
of debt -- -- 3,940 -- --
--------- --------- -------- -------- --------
Funds from operations 16,490 11,454 56,322 35,564 18,696
--------- --------- -------- -------- --------
Add (deduct) pro forma
adjustments relating to
the sale of Homestead:
Reduction in rental
income(1) -- -- (424) -- --
Reduction in rental
expenses(1) -- -- 173 -- --
Increase in interest
expense(2) -- (850) (2,739) (3,448) --
Other, net -- 12 34 59 --
REIT Management fee
effect(3) -- 134 475 542 --
--------- --------- -------- -------- --------
Total pro forma
adjustments -- (704) (2,481) (2,847) --
--------- --------- -------- -------- --------
Pro forma funds from
operations 16,490 10,750 53,841 32,717 18,696
Cash distributions paid (14,778) (11,667) (53,064) (35,119) (14,648)
--------- --------- -------- -------- --------
Excess (deficit) of pro
forma funds from
operations over cash
distributions $ 1,712 $ (917) $ 777 $ (2,402) $ 4,048
========= ========= ======== ======== ========
Weighted-average Shares
outstanding (as adjusted
for reverse Share split) 37,892 27,777 32,028 21,944 12,227
========= ========= ======== ======== ========
</TABLE>
- --------
(1) Represents the reduction in rental income and rental expenses that would
have occurred had the Homestead property that commenced operations in 1996
been sold as of January 1, 1995.
(2) Represents the increase in interest expense due to (i) the reduction in
capitalized interest that would have resulted from the sale of the
Homestead Village properties under development and (ii) the increased
borrowings necessary to fund the cash payment to Homestead upon closing of
the Homestead transaction, as if these two items had occurred on January 1,
1995.
(3) Represents the decrease in REIT Management fee that would have resulted
from the pro forma adjustments.
Funds from operations represents net earnings computed in accordance with GAAP,
excluding gains (or losses) from real estate transactions, provisions for
possible losses, extraordinary items and real estate depreciation. Funds from
operations should not be considered as an alternative to net earnings or any
other GAAP measurement of performance as an indicator of ATLANTIC's operating
performance or as an alternative to cash flows from operating, investing or
financing activities as a measure of liquidity. ATLANTIC believes that funds
from operations is helpful to a reader as a measure of the performance of an
equity REIT because, along with cash flow from operating activities, financing
activities and investing activities, it provides a reader with an indication of
the ability of ATLANTIC to incur and service debt, to make capital expenditures
and to fund other cash needs. On January 1, 1996, ATLANTIC adopted NAREIT's
revised definition of funds from operations. Under this more conservative
definition, loan cost amortization is not added back to net earnings in
determining funds from operations. For comparability, funds from operations for
the periods prior to January 1, 1996 give effect to the revised definition. The
funds from operations measure presented by ATLANTIC, while consistent with the
NAREIT definition, will not be comparable to similarly titled measures of other
REITs which do not compute funds from operations in a manner consistent with
ATLANTIC. Funds from operations is not intended to represent cash made
available to shareholders. Cash distributions paid to shareholders is presented
in the table above.
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REIT Management Agreement
ATLANTIC has a REIT management agreement (the "REIT Management Agreement")
pursuant to which the REIT Manager provides management services to ATLANTIC.
All officers of ATLANTIC are employees of the REIT Manager and ATLANTIC
currently has no employees. The REIT Manager provides both strategic and day-
to-day management of ATLANTIC, including research, investment analysis,
acquisition, development, marketing, disposition of assets, asset management,
due diligence, capital markets, legal and accounting services.
The REIT Management Agreement requires ATLANTIC to pay an annual fee of 16% of
cash flow as defined in the REIT Management Agreement, payable monthly. Cash
flow is calculated by reference to ATLANTIC's cash flow from operations plus
(i) fees paid to the REIT Manager, (ii) extraordinary expenses incurred at the
request of the independent Directors of ATLANTIC (of which there were none in
the periods reported), and (iii) 33% of any interest paid by ATLANTIC on
convertible subordinated debentures (of which there were none in the periods
reported); and after deducting (i) regularly scheduled principal payments
(excluding prepayments or balloon payments) for debt with commercially
reasonable amortization schedules, (ii) assumed principal and interest
payments on senior unsecured debt, such as the Notes, treated as having
regularly scheduled principal and interest payments like a 20-year level-
payment, fully amortizing mortgage (of which there were none in the periods
reported) and (iii) distributions actually paid with respect to any non-
convertible preferred stock (of which there were none in the periods
reported). Cash flow does not include (i) realized gains or losses from
dispositions of investments, (ii) interest income from cash equivalent
investments and the Homestead convertible mortgage notes and dividend and
interest income from Atlantic Development Services, (iii) provisions for
possible losses on investments and (iv) extraordinary items.
The REIT Manager also receives a fee of 0.20% per year on the average daily
balance of cash equivalent investments. The REIT Management fee aggregated
$3.0 million for the three-month period ended March 31, 1997 and $10.4
million, $6.9 million and $3.7 million for the years ended December 31, 1996,
1995 and 1994, respectively.
Total real estate operating, interest, general and administrative costs will
increase due to ATLANTIC's larger asset size, as well as unforeseen changes
that may occur. REIT Management fees paid by ATLANTIC will increase if cash
flow of ATLANTIC, as defined in the REIT Management Agreement, increases,
including such increases that may relate to increases in ATLANTIC's assets.
ATLANTIC does not expect its other operating costs and expenses to increase
except as a result of inflation, market conditions or other factors over which
the REIT Manager has no control. Operating costs for particular items,
however, may be increased if they are expected to result in greater decreases
in other expenses or increases in revenues from ATLANTIC's assets.
ATLANTIC must reimburse the REIT Manager for third-party and out-of-pocket
expenses relating to travel, transaction costs and similar costs relating to
the acquisition, development or disposition of assets or the obtaining of
financing for ATLANTIC and its operations. The REIT Manager will pay all of
its own salary and other overhead expenses. ATLANTIC will not have any
employee expense; however, it will pay all of the third-party costs related to
its normal operations, including legal, accounting, travel, architectural,
engineering, shareholder relations, independent Director fees and similar
expenses, property management and similar fees paid on behalf of ATLANTIC, and
travel expenses incurred in seeking financing, community acquisitions,
community sales and similar activities on behalf of ATLANTIC and in attending
ATLANTIC Board, committee and shareholder meetings. Under the REIT Management
Agreement, the REIT Manager or any of its affiliates are not precluded from
rendering services to other investors, including REITs, even if such investors
compete with ATLANTIC. The REIT Manager is owned by ATLANTIC's largest
shareholder and, consequently, the REIT Manager has no intention of rendering
services to investors who compete with ATLANTIC.
The REIT Management Agreement is renewable by ATLANTIC annually, subject to a
determination by the independent Directors that the REIT Manager's performance
has been satisfactory and that the compensation payable to the REIT Manager is
fair. Each of ATLANTIC and the REIT Manager may terminate the REIT Management
Agreement on 60 days' notice. Because of the year-to-year nature of the
agreement, its maximum effect on ATLANTIC's results of operations cannot be
predicted, other than that REIT Management fees will generally increase or
decrease in proportion to cash flow increases or decreases.
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On March 24, 1997, Security Capital and ATLANTIC entered into the Merger
Agreement. Pursuant to the Merger Agreement, Security Capital will cause the
REIT Manager and SCG Realty Services to be merged into a newly formed
subsidiary of ATLANTIC. The REIT Management Agreement will be terminated upon
closing of the Merger. As a result of the Merger, the employees of the REIT
Manager and SCG Realty Services will become employees of ATLANTIC. Because
ATLANTIC, the REIT Manager and SCG Realty Services are under common control,
the difference between the market value of the Shares issued to Security
Capital on the date the Merger is consummated and the approximately $1.1
million of net tangible assets of the REIT Manager and SCG Realty Services
being acquired by ATLANTIC will be accounted for as a distribution to Security
Capital. See "The Merger Transaction" for a more complete description of the
Merger.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following policies are in effect for ATLANTIC and the REIT Manager. These
policies will continue in effect after the consummation of the Merger. To the
extent these policies refer to the REIT Manager, they will be changed to
include ATLANTIC or eliminated, as appropriate.
The Board reserves the right to make exceptions to ATLANTIC's policies
described below for transactions when it believes that the transaction is in
the best long-term interests of ATLANTIC and its shareholders. The Board may
amend or revise ATLANTIC's policies from time to time without a vote of the
shareholders of ATLANTIC.
INVESTMENT POLICIES
Prospective community investments are analyzed pursuant to several underwriting
criteria, including purchase price, competition and other market factors, and
prospects for long-term growth in cash flow. ATLANTIC's investment decisions
are based upon the expected contribution of the community to long-term cash
flow growth on an unleveraged basis. The expected economic contribution is
based on an evaluation of a community's stabilized operations, including an
estimate of all cash revenues from leases and other revenue sources, minus
expenses incurred in operating the community (including real estate taxes,
insurance, maintenance, turnover costs (such as carpet and appliance
replacement), personnel costs and utility charges, but excluding depreciation,
debt service and amortization of loan costs) and a reserve for capital
expenditures.
It is ATLANTIC's policy to generally limit its investments such that (i) no
more than 10% of its assets are invested in land held for development other
than land under development or where development is in planning, (ii) ATLANTIC
will not be treated as an investment company under the Investment Company Act
of 1940 and (iii) ATLANTIC will not invest in mortgage loans, other than
mortgage loans to third-party owner/developers in connection with the
development of multifamily communities that are contractually required to be
sold to ATLANTIC upon completion or convertible mortgage loans to Homestead or
mortgage loans to entities in which ATLANTIC owns a substantial majority of the
economic interest and other than convertible mortgage loans where the Board
believes that such loans are in the best long-term interests of ATLANTIC and
its shareholders.
ATLANTIC's strategy includes the development of industry-leading, moderate
income multifamily communities designed for the largest renter groups. Over the
long term, ATLANTIC believes that development will contribute as much, or more,
to its earnings growth than acquisitions.
While the current policy of ATLANTIC is to make equity investments in
multifamily communities exclusively, ATLANTIC may invest in other real estate
interests consistent with its qualification as a REIT. A change in this policy
could occur, for example, if ATLANTIC concludes that it may benefit from the
cash flow or any appreciation in the value of the community arising through
convertible mortgage investment.
Subject to the gross income and asset tests necessary for REIT qualification,
ATLANTIC may also invest in securities of other entities engaged in real estate
activities or securities of other issuers. See "Federal Income Tax
Considerations--Taxation of ATLANTIC". ATLANTIC does not currently intend to
invest in the
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securities of other issuers except in connection with acquisitions of indirect
interests in communities (normally, general or limited partnership interests in
special purpose partnerships controlled by ATLANTIC and owning multifamily
communities and except for preferred stock of entities in which ATLANTIC has a
substantial majority of the economic interest).
FINANCING POLICIES
ATLANTIC does not intend to incur long-term, floating rate debt other than in
connection with property acquisitions in which the debt assumed is
impracticable to prepay or is tax-exempt debt. Because its assets are largely
long-term, ATLANTIC's debt is expected to be unsecured long-term, fixed rate,
fully amortizing debt, such as the Notes. ATLANTIC has an unsecured line of
credit for the purpose of facilitating investment in developments and
acquisitions as well as for working capital. ATLANTIC may also determine to
issue securities senior to the Shares, including preferred stock and debt
securities (either of which may be convertible into Shares or be accompanied by
warrants to purchase Shares), such as the Notes and the Series A Preferred
Shares. ATLANTIC's financing policies are to replace line of credit borrowings
with the proceeds of equity offerings or unsecured long-term, fixed rate, fully
amortizing debt, such as the Notes.
The proceeds of any borrowings by ATLANTIC may be used to pay distributions, to
provide working capital, to pay existing indebtedness or to finance
acquisitions, expansions or development of new multifamily communities.
POLICIES WITH RESPECT TO CERTAIN TRANSACTIONS
There are no provisions in ATLANTIC's Charter or Bylaws which either limit
transactions between ATLANTIC and its Directors, the REIT Manager, or
affiliates thereof, or limit Directors, the REIT Manager or affiliates thereof
from engaging for their own account in business activities of the type
conducted by ATLANTIC. However, ATLANTIC has adopted certain policies which
limit such transactions with or by such affiliated persons, as described below.
ATLANTIC does not intend to engage in principal transactions with officers and
Directors or to engage independent Directors to provide services to ATLANTIC.
In addition, transactions with the REIT Manager and its affiliates are
significantly restricted and must be reviewed and approved by a majority of
independent Directors. Transactions with the REIT manager and SCG Realty
Services present a potential conflict of interest due to Security Capital's
ownership of 51.3% of ATLANTIC's outstanding Shares. In addition, future
services provided pursuant to the Administrative Services Agreement present a
similar potential conflict of interest. See "The Merger Transaction--
Relationship with Security Capital After the Merger--Administrative Services
Agreement". ATLANTIC will not borrow from or make loans to affiliates, other
than mortgage loans to entities in which ATLANTIC owns a substantial majority
of the economic interest, convertible mortgage loans to Homestead or
convertible mortgage loans where the Board believes that such loans are in the
best long-term interests of ATLANTIC and its shareholders. With a view to
resolving potential conflicts of interest and protecting the interests of
ATLANTIC's shareholders against such possible conflicts, ATLANTIC's Charter
requires that a majority of the Board be independent Directors.
The REIT Manager has agreed in writing that it and Security Capital will not
engage in any principal transaction with ATLANTIC, including but not limited to
purchases, sales or leases of communities or borrowing or lending of funds,
except for transactions approved by a majority of the independent Directors not
otherwise interested in such transaction as being fair and reasonable to
ATLANTIC and on terms and conditions not less favorable to ATLANTIC than those
available from unaffiliated third parties. The REIT Manager and ATLANTIC have
agreed to waive this prohibition as it relates to the Merger. In addition to
the requirements described above, ATLANTIC will not engage in such transactions
unless the independent Directors believe that any such transaction is in the
long-term best interests of ATLANTIC and its shareholders. The sole activity of
the REIT Manager is advising ATLANTIC.
Upon consummation of the Merger, Security Capital will be restricted from
providing substantially the same services as those currently provided by the
REIT Manager and SCG Realty Services. See "The Merger Transaction--Relationship
with Security Capital After the Merger--Protection of Business Agreement".
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The REIT Management Agreement permits affiliates of the REIT Manager to provide
property management and other services to ATLANTIC for compensation. The fees
charged for such services must be comparable to fees that would be charged by
unaffiliated, qualified third parties. Any property management fees are
reviewed annually by the Board and must be approved by a majority of the
independent Directors.
ATLANTIC does not intend to issue options or warrants to the REIT Manager or
its employees; however, in the event that the Merger is approved, ATLANTIC
intends to adopt an employee incentive plan under which options may be granted
to employees, subject to Board and shareholder approval. See "The Merger
Transaction--Long-Term Incentive Plan".
Under Maryland law (where ATLANTIC is incorporated), each Director is obligated
to offer to ATLANTIC any opportunity (with certain limited exceptions) which
comes to him or her and which ATLANTIC could reasonably be expected to have an
interest in developing. In addition, under Maryland law, a contract or other
transaction between ATLANTIC and a Director or between ATLANTIC and another
corporation or entity in which a Director of ATLANTIC is a director or has a
material financial interest is not void or voidable solely because of such
interest or the presence of the Director at the meeting at which the contract
or transaction is approved or the Director's vote in favor thereof, if (a) the
contract or transaction is approved or ratified, after disclosure of the common
directorship or interest, by the affirmative vote of a majority of
disinterested Directors, even if the disinterested Directors constitute less
than a quorum, or by a majority of the votes cast by disinterested
stockholders, or (b) the contract or transaction is fair and reasonable to
ATLANTIC.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
ATLANTIC may, but does not presently intend to, make investments other than as
previously described. All investments will be primarily related to multifamily
communities and the management and development thereof. The Board has authority
to reclassify unissued Shares into senior securities, to offer Shares or other
securities and, subject to certain restrictions, to repurchase or otherwise
reacquire Shares or any other securities and may engage in such activities in
the future. ATLANTIC's policy is not to make loans to its officers or directors
or to the REIT Manager; however, in the event that the Merger is approved,
ATLANTIC may (i) adopt an employee incentive plan, under which loans may be
made to employees to purchase Shares, subject to Board and shareholder
approval, and (ii) make relocation and other loans to employees, subject to
Board approval. See "The Merger Transaction--Long-Term Incentive Plan".
ATLANTIC may in the future make loans to partnerships and joint ventures in
which it participates in order to meet working capital needs. ATLANTIC has not
engaged in trading, underwriting or agency distribution or sale of securities
of other issuers and does not intend to do so. ATLANTIC does not intend to
engage in the purchase or sale of investments (other than acquisition or
disposition of communities in accordance with the REIT rules and ATLANTIC's
investment policies) and may on a selected basis in the future offer securities
in exchange for communities. ATLANTIC intends to make annual and quarterly
reports to shareholders. The annual reports will contain audited financial
statements.
At all times, ATLANTIC intends to make investments in such a manner as to be
consistent with the requirements of the Code for ATLANTIC to qualify as a REIT
unless, because of changing circumstances or changes in the Code (or in
Treasury Regulations), the Board determines that it is no longer in the best
interests of ATLANTIC to qualify as a REIT.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
In addition to the transactions with affiliates described elsewhere in this
Prospectus, ATLANTIC has entered into the following transactions:
REIT MANAGEMENT AGREEMENT
Pursuant to the REIT Management Agreement, the REIT Manager assumed the day-to-
day management of ATLANTIC. The REIT Manager is owned by Security Capital,
which currently beneficially owns 51.3% of the outstanding Shares. The REIT
Manager's sole business and principal occupation since its formation in
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October 1993 is advising ATLANTIC. The services provided or coordinated by the
REIT Manager include strategic and day-to-day management, research, investment
analysis, acquisition and due diligence, multifamily community development,
asset management, capital markets, asset disposition, legal and accounting
services. All such services are included in the REIT Management fee, including
capital markets and development services, which most REITs capitalize (or, in
the case of capital markets, deduct from proceeds). The REIT Management fee is
paid monthly and was $3.0 million for the three-month period ended March 31,
1997 and $10.4 million for the year ended December 31, 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--REIT
Management Agreement". See "The Merger Transaction" for a description of an
agreement that ATLANTIC has entered into with Security Capital to merge the
REIT Manager and SCG Realty Services into a newly formed subsidiary of ATLANTIC
in exchange for Shares. The REIT Management Agreement will be terminated upon
closing of the Merger. Management believes that the terms of the REIT
Management Agreement are at least as favorable as could be obtained from
unaffiliated third parties.
SECURITY CAPITAL INVESTOR AGREEMENT
ATLANTIC and Security Capital are parties to an Investor Agreement, which
required Security Capital to purchase $21.5 million of Shares, subject to
certain conditions. The Investor Agreement, among other things, requires
ATLANTIC to obtain Security Capital's approval of (i) the annual operating
budget and substantial deviations therefrom, (ii) contracts for investment
management, property management or leasing services or that contemplate annual
payments in excess of $100,000 and (iii) acquisitions or dispositions in a
single transaction or a group of related transactions where the purchase or
sale price exceeds $5.0 million. The Investor Agreement also provides that, so
long as Security Capital beneficially owns at least 10% of the outstanding
Shares, ATLANTIC is prohibited from increasing the number of members of the
Board to more than seven. Security Capital is entitled to designate one or more
persons to be nominated for election to the Board, and ATLANTIC is obligated to
use its best efforts to cause the election of such persons, as follows: (i) so
long as Security Capital Group owns at least 10%, but less than 20%, of the
outstanding Shares, it is entitled to nominate two persons; and (ii) so long as
Security Capital owns at least 20% of the outstanding Shares, it is entitled to
nominate three persons. See "The Merger Transaction--Relationship with Security
Capital After the Merger" for a description of the Amended and Restated
Investor Agreement which will replace the current Investor Agreement upon
closing of the Merger.
SHAREHOLDERS' AGREEMENT
To facilitate ATLANTIC's acquisition of certain communities from Laing,
Security Capital granted Laing certain rights to require Security Capital to
purchase Laing's Shares at pre-agreed prices which were negotiated when Laing
was not affiliated with ATLANTIC. ATLANTIC assumed Security Capital's first put
obligation for 2,500,000 Shares and on March 31, 1995 purchased such Shares
from Laing at $22.00 per Share. In exchange for ATLANTIC's assumption of the
first put obligation, Security Capital purchased $94.8 million of Shares at
$22.00 per Share from ATLANTIC in a private offering. In November 1995,
ATLANTIC assumed Security Capital's second put obligation for 1,250,000 Shares
at $23.136 per Share. In exchange for ATLANTIC's assumption of the second put
obligation, Security Capital purchased 1,250,000 Shares at a price of $23.136
per Share and purchased an additional $21.1 million of Shares at $23.00 per
Share in a private offering. Security Capital's purchase under the third put
obligation of 1,250,000 Shares (representing all Shares owned by Laing) at
$24.53 per Share occurred on July 1, 1996.
PROPERTY MANAGEMENT COMPANY
Commencing May 12, 1994, SCG Realty Services, an affiliate of the REIT Manager,
began providing property management services for certain of ATLANTIC's
communities. The agreements terminate September 30, 1997, subject to earlier
termination by ATLANTIC on 30 days' notice, is renewable annually upon approval
of ATLANTIC's independent Directors and contemplates a fee to SCG Realty
Services of 3.5% of community revenues for communities located in Atlanta and
Washington, D.C. markets and 3.75% of community revenues for all other
communities, paid monthly, which was $1.3 million for the three-month period
ended March 31, 1997 and $4.2 million for the year ended December 31, 1996. The
REIT Manager anticipates that SCG Realty Services will manage additional
ATLANTIC properties in the future. ATLANTIC believes that these agreements are
at market rates and any future management contracts
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executed with SCG Realty Services are also expected to be at market rates. See
"Business--ATLANTIC's Operating System--Property Management". See "The Merger
Transaction" for a description of an agreement that ATLANTIC has entered into
with Security Capital to merge the REIT Manager and SCG Realty Services into a
newly formed subsidiary of ATLANTIC in exchange for Shares. The management
agreements between ATLANTIC and SCG Realty Services will be terminated upon
closing of the Merger.
HOMESTEAD TRANSACTION
In March 1996, the Board began considering ways for ATLANTIC to maximize
shareholder value with respect to its Homestead Village properties. In May
1996, ATLANTIC, PTR, Security Capital and Homestead entered into a merger
agreement, pursuant to which each of ATLANTIC, PTR and Security Capital agreed
to sell, through a series of merger transactions, all of their respective
assets relating to Homestead Village properties to Homestead, and ATLANTIC and
PTR agreed to enter into funding commitment agreements (see "--Funding
Commitment Agreement"). ATLANTIC's and PTR's respective shareholders approved
the Homestead transaction on September 13, 1996 and September 12, 1996,
respectively, and the closing of the Homestead transaction occurred on October
17, 1996, which resulted in ATLANTIC (a) owning 4,201,220 shares of Homestead
common stock, (b) owning 2,818,517 warrants to purchase one share of Homestead
common stock at $10.00 per share, (c) owning up to $98.0 million in convertible
mortgage notes as described below (see "--Funding Commitment Agreement") and
(d) providing a cash payment of $16.6 million to Homestead on the closing date.
The $16.6 million payment was required because ATLANTIC's Homestead Village
properties, only one of which was operating, were in earlier stages of
development than PTR's Homestead Village properties, therefore, ATLANTIC had
not funded the same percentage of total costs as PTR. The payment also assured
that ATLANTIC received all of its shares of Homestead common stock at the
closing of the transaction rather than in smaller increments over time as funds
are expended to complete the properties contributed by ATLANTIC. ATLANTIC
distributed the Homestead common stock and warrants which it received to its
shareholders pro rata in the Homestead Distribution on November 12, 1996. Each
holder of record of a Share on October 29, 1996 received 0.110875 shares of
Homestead common stock and warrants to purchase 0.074384 shares of Homestead
common stock.
FUNDING COMMITMENT AGREEMENT
Pursuant to a funding commitment agreement entered into at the closing of the
Homestead transaction, ATLANTIC agreed to make mortgage loans to Homestead of
up to $111.1 million, which amount was anticipated to be sufficient to complete
the development of the Homestead Village facilities contributed by ATLANTIC.
ATLANTIC received 2,818,517 warrants, each to purchase one share of Homestead
common stock, in exchange for its entering into the funding commitment
agreement, which ATLANTIC subsequently distributed pro rata to its shareholders
in the Homestead Distribution. Each Homestead warrant is exercisable at $10.00
per share and expires October 27, 1997. The exercise price was determined based
on the overall structure of the Homestead transaction and, in particular,
consideration of Homestead's future capital needs and a desire to provide
liquidity to ATLANTIC's shareholders with respect to their warrants. ATLANTIC
will receive convertible mortgage notes in respect of fundings under the
funding commitment agreement in stated amounts of up to $98.0 million. The
effect of these provisions of the funding commitment agreement is that ATLANTIC
will fund $1,133,535 for each $1,000,000 principal amount of convertible
mortgage loans. The convertible mortgage loans will be recorded for financial
reporting purposes at a premium of approximately $13.1 million which will be
amortized and recorded as an adjustment to interest income over the ten-year
term of the mortgage loans using the effective interest method. The relative
ownership percentages of ATLANTIC, PTR and Security Capital in Homestead were
determined based upon the relative value of the contributed assets assuming
that all of the properties to be contributed had been developed and were fully
operational. ATLANTIC agreed to fund convertible mortgages to provide for the
development of the Homestead Village properties and to achieve its ownership
allocations. The funded amount of ATLANTIC under the convertible mortgages
therefore was in an amount that was anticipated, pursuant to development
budgets, to be sufficient to complete the development of the Homestead Village
properties contributed by ATLANTIC. The difference between the funded amount
and the stated amount of the convertible mortgage loans arose because the rate
of return on the existing Homestead Village facilities
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contributed by PTR was projected to exceed the rate of return on the Homestead
Village facilities contributed by ATLANTIC and PTR to Homestead which were
under construction or in pre-development planning. This expected difference in
the rates of return arose because, as of July 1, 1996, PTR was expected to have
28 Homestead Village facilities in operation and generating income, while
ATLANTIC was expected to have none and the average property development costs
for the existing PTR Homestead Village properties, on balance, were expected to
be less than those for the ATLANTIC and PTR Homestead Village properties
projected to be built in the future because a large portion of the existing PTR
Homestead Village properties were in planning or under development during 1992
and 1993 when land prices and construction costs were less than they were when
the transaction was negotiated and were anticipated to be over the next 18
months. Because of the foregoing factors, and as a result of Homestead's desire
to issue a single class of convertible mortgage notes bearing a 9% per annum
interest rate, the stated amounts of the convertible mortgage notes were
adjusted to provide an effective yield (after giving effect to the premium due
to the issuance of the Homestead warrants and the convertibility of the
mortgage notes) to each of ATLANTIC (8.46% on a fully funded basis) and PTR
(12.42% on a fully funded basis) that was reflective of the relative rates of
return anticipated to be realized on all of the facilities contributed by
ATLANTIC and PTR, respectively. The obligation of ATLANTIC is limited to a
specific dollar amount for each property identified in the funding commitment
agreement. Upon any determination by Homestead to commence development of a
property identified in the funding commitment agreement, Homestead is required
to notify ATLANTIC and ATLANTIC is required to fund up to the full amount of
its obligation with respect to such property. Homestead is required to endeavor
in good faith to complete the development of such property consistent with the
development plans for such property. Each mortgage note issued by Homestead
pursuant to the funding commitment agreement is convertible into shares of
Homestead common stock on the basis of one share of Homestead common stock for
every $11.50 of principal outstanding on the mortgage loan. The obligation of
Homestead to call for funding of, and the obligation of ATLANTIC to provide
funding for, the mortgage loans expire on March 31, 1998, except with respect
to properties for which Homestead has given notice that it intends to develop.
Interest on the mortgage notes accrues at the rate of 9% per annum on the
unpaid principal balance, payable every six months. The mortgage notes are
scheduled to mature on October 31, 2006, and are not callable until October 27,
2001. Homestead has pledged the assets contributed by ATLANTIC as collateral
for the mortgage loans being made by ATLANTIC. At December 31, 1996, no funds
had been advanced pursuant to the funding commitment agreement and there were
no convertible mortgage notes outstanding. ATLANTIC advanced $56.0 million
under the funding commitment agreement through July 31, 1997 and $49.4 million
of mortgage notes was outstanding on such date.
PROTECTION OF BUSINESS AGREEMENT
ATLANTIC entered into a protection of business agreement with Homestead at the
closing of the Homestead transaction which prohibits ATLANTIC and its
affiliates from engaging, directly or indirectly, in the extended-stay lodging
business except through Homestead and its subsidiaries. The agreement also
prohibits Homestead from, directly or indirectly, engaging in the ownership,
operation, development, management or leasing of multifamily properties. The
agreement does not prohibit ATLANTIC from: (i) owning securities of Homestead;
(ii) owning up to 5% of the outstanding securities of another person engaged in
owning, operating, developing, managing or leasing extended-stay lodging
properties, so long as it does not actively participate in the business of such
person; (iii) owning the outstanding securities of another person, a majority-
owned subsidiary, division, group, franchise or segment of which is engaged in
owning, operating, developing, managing or leasing extended-stay lodging
properties, so long as not more than 5% of such person's consolidated revenues
are derived from such properties; and (iv) owning securities of another person
primarily engaged in a business other than owning, operating, developing,
managing or leasing extended-stay lodging properties, including a person
primarily engaged in business as an owner, operator or developer of hotel
properties, whether or not such person owns, operates, develops, manages or
leases extended-stay lodging properties. The agreement does not prohibit
Homestead from: (i) owning securities of ATLANTIC, PTR or Security Capital;
(ii) owning up to 5% of the outstanding securities of another person engaged in
owning, operating, developing, managing or leasing garden-style multifamily
properties; and (iii) owning the outstanding securities of another person, a
majority-owned subsidiary, division, group, franchise or segment of which is
engaged in owning, operating, developing, managing or leasing garden-style
multifamily properties, so long as not more than 5% of such person's
consolidated revenues are derived from
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such properties. The agreement will terminate in the event of an acquisition,
directly or indirectly (other than by purchase from ATLANTIC, PTR or Security
Capital or any of their respective affiliates), by any person (or group of
associated persons acting in concert), other than ATLANTIC, PTR or Security
Capital or their respective affiliates, of 25% or more of the outstanding
voting stock of Homestead, without the prior written consent of Homestead's
board of directors. Subject to earlier termination pursuant to the preceding
sentence, the protection of business agreement will terminate on October 17,
2006.
HOMESTEAD INVESTOR AGREEMENT
ATLANTIC entered into an investor and registration rights agreement with
Homestead at the closing of the Homestead transaction pursuant to which
ATLANTIC is entitled to designate one person for nomination to the Homestead
board of directors, and Homestead will use its best efforts to cause the
election of such nominee (subject in each case to approval by a vote of
Homestead's shareholders), until March 31, 1998 and for so long thereafter as
ATLANTIC has the right to convert in excess of $20.0 million in principal
amount of loans made pursuant to its funding commitment agreement. Such nominee
may, but need not, include the same person(s) nominated by Security Capital
pursuant to Security Capital's investor agreement with Homestead. In addition,
Homestead has granted to ATLANTIC registration rights with respect to the
distribution of all of the shares of Homestead common stock issuable upon
conversion of the convertible mortgage notes. Prior to October 22, 1997,
ATLANTIC may request one registration of those shares of Homestead common stock
which are issued upon conversion of any or all of the convertible mortgage
notes during such one-year period and which it intends to distribute to its
stockholders. After such one-year anniversary, ATLANTIC may request three
additional registrations pursuant to Rule 415 promulgated under the Securities
Act of all shares of Homestead common stock issued or issuable upon conversion
of the convertible mortgage notes. Such registration, except for the fees and
disbursements of counsel to ATLANTIC, shall be at the expense of Homestead.
DEVELOPMENT AGREEMENT
ATLANTIC is a party to several development agreements with unaffiliated third-
party developer/managers which provide that ATLANTIC will make certain earnout
payments to the developer/managers either in the form of cash, Shares or shares
of Security Capital's common stock, as determined in the sole discretion of the
developer/managers. The amount of such payments shall be determined on a per
site basis and shall be a percentage of the amount by which annualized net
operating income, capitalized at a rate as provided by the agreement, exceeds
the total actual project costs. In February 1997, ATLANTIC paid $0.8 million to
one such developer/manager with respect to one community. The aggregate amount
of such earnout amounts for the seven remaining communities cannot exceed $7.3
million. The developer/managers were not entitled to receive any earnout
payments at June 30, 1997 on the seven remaining communities.
OTHER TRANSACTIONS WITH AFFILIATES
In ATLANTIC's March through June 1995 private offering, Security Capital
purchased $94.8 million of Shares at $22.00 per Share. In ATLANTIC's December
1995 through May 1996 private offering, Security Capital purchased an aggregate
of $50.0 million of Shares, $21.1 million of which were purchased at $23.00 per
Share (which was the price per Share paid by other investors in the offering)
and $28.9 million of which were purchased at $23.136 per Share. See "--
Shareholders' Agreement". In ATLANTIC's October 1996 initial public offering,
Security Capital purchased $10.0 million of Shares at $24.00 per Share. Except
as described above, all subscriptions were made on the same terms and at the
same times as made available to other unaffiliated investors.
PRINCIPAL SHAREHOLDERS
The following table sets forth, at July 31, 1997, the beneficial ownership of
Shares for (i) each person known to ATLANTIC to be the beneficial owner of more
than 5% of ATLANTIC's Shares, (ii) each Director of ATLANTIC and (iii) all
Directors and executive officers of ATLANTIC as a group. Unless otherwise
indicated in the footnotes, all of such interests are owned directly, and the
indicated person or entity has sole voting and investment power.
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<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED ALL SHARES
- ------------------- ------------------ ----------
<S> <C> <C>
Security Capital Group Incorporated 21,546,620(1) 51.3%
125 Lincoln Avenue
Santa Fe, NM 87501
Ameritech Pension Trust 2,223,320(2) 5.3
Ameritech Corporation
225 West Randolph Street
HQ-13A
Chicago, IL 60606
General Motors Investment Management
Corporation 2,173,913(3) 5.2
767 Fifth Avenue
New York, NY 10153
Manuel A. Garcia III 12,000(4) *
P.O. Box 2066
Davgar Restaurants, Inc.
Winter Park, FL 32790
Ned S. Holmes 59,500(4)(5) *
Parkway Investments/Texas, Inc.
55 Waugh Drive
Houston, TX 77007
Constance B. Moore 11,600 *
Six Piedmont Center
Atlanta, GA 30305
James C. Potts 13,050 *
Six Piedmont Center
Atlanta, GA 30305
John M. Richman 12,000(4) *
Wachtell, Lipton, Rosen & Katz
227 West Monroe Street, Suite 4825
Chicago, IL 60606
All Directors and executive officers as a
group
(9 persons) 108,150 *
</TABLE>
- --------
* Less than 1%
(1) These Shares are owned of record by SC Realty Incorporated, a wholly owned
subsidiary of Security Capital, and are pledged to secure Security
Capital's $400 million revolving line of credit facility with a syndicate
of banks. At July 31, 1997, there were $188.5 million of outstanding
borrowings under the line of credit. The line of credit is also secured by
securities owned by Security Capital of PTR, SCI, Homestead and Security
Capital U.S. Realty, a publicly traded entity based in Luxembourg which
invests in real estate operating companies in the United States. Security
Capital estimates that the aggregate market value of the pledged securities
exceeded $3.2 billion at July 31, 1997. Security Capital was in compliance
with all covenants under the line of credit at March 31, 1997.
(2) This information is based on a Schedule 13G dated February 14, 1997.
According to the Schedule 13G, the Shares were not acquired for the purpose
of changing or influencing the control of ATLANTIC.
(3) 1,956,522 of these Shares are owned by the General Motors Hourly-Rate
Employees Pension Trust and 217,391 of these Shares are owned by the
General Motors Salaried Employees Pension Trust.
(4) Includes 2,000 Shares each for Messrs. Garcia, Holmes and Richman which are
issuable upon exercise of Options granted under the Outside Directors Plan.
See "REIT Management--Outside Directors Plan".
(5) Mr. Holmes directly owns 2,500 of these Shares. Mr. Holmes may be deemed to
beneficially own 55,000 of these Shares which are owned by Mr. Holmes' wife
and children and by Holmes Family Venture Ltd., a family entity with
respect to which Mr. Holmes shares voting and dispositive power.
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DESCRIPTION OF NOTES
The 2011 Notes and the 2017 Notes each constitute a separate series of debt
securities ("Debt Securities") to be issued under an Indenture, dated as of
August , 1997 (the "Indenture"), between ATLANTIC and State Street Bank and
Trust Company, as trustee (the "Trustee"). The form of the Indenture has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part and is available for inspection at the corporate trust office of the
Trustee at 225 Franklin Street, Boston, Massachusetts 02110 or as described
below under "Available Information". The 2011 Notes will be limited to an
aggregate principal amount of $100,000,000. The 2017 Notes will be limited to
an aggregate principal amount of $50,000,000. The terms of the Notes include
those provisions contained in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The statements made hereunder relating to the Indenture
and the Notes to be issued thereunder are summaries of certain provisions
thereof, do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all the provisions of the Indenture and such
Notes. All section references appearing herein are to sections of the
Indenture, and capitalized terms used but not defined herein shall have the
respective meanings set forth in the Indenture. ATLANTIC currently has no
indebtedness outstanding pursuant to the Indenture.
GENERAL
The Notes will be direct, senior unsecured obligations of ATLANTIC and will
rank equally with all other unsecured and unsubordinated indebtedness of
ATLANTIC from time to time outstanding. However, the Notes are effectively
subordinated to mortgages of ATLANTIC and ATLANTIC's subsidiaries, which
encumbered certain assets of ATLANTIC and ATLANTIC's subsidiaries
(approximately $155.4 million of secured debt was outstanding at March 31, 1997
on a pro forma basis giving effect to the Merger, ATLANTIC's April 1997 public
offering of Shares and the Offerings and the application of the proceeds
therefrom).
As of March 31, 1997, on a pro forma basis giving effect to the Merger,
ATLANTIC's April 1997 public offering of Shares and the Offerings and the
application of the proceeds therefrom, the total outstanding indebtedness of
ATLANTIC and its subsidiaries was approximately $326.4 million. ATLANTIC may
incur additional indebtedness, subject to the provisions described under "--
Certain Covenants--Limitations on Incurrence of Debt".
The Notes will only be issued in fully registered form in denominations of
$1,000 and integral multiples thereof.
The Indenture provides that the Debt Securities may be issued without limit as
to aggregate principal amount, in one or more series, in each case as
established from time to time in or pursuant to authority granted by a
resolution of the Board or as established in one or more indentures
supplemental to the Indenture. All Debt Securities of one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series (Section
301).
Except as set forth under "--Certain Covenants--Limitations on Incurrence of
Debt", the Indenture does not contain any other provisions that would limit the
ability of ATLANTIC to incur indebtedness or that would afford holders of the
Notes protection in the event of a highly leveraged or similar transaction
involving ATLANTIC or in the event of a change of control. However, ATLANTIC's
Charter restricts beneficial ownership of outstanding shares of ATLANTIC's
stock, by a single person or persons acting as a group (other than Security
Capital), to 9.8% of such Shares, with certain exceptions. These restrictions
are designed to preserve ATLANTIC's status as a REIT and, therefore, may act to
prevent or hinder a change of control.
PRINCIPAL AND INTEREST
The 2011 Notes will bear interest at % per annum and will mature on August
, 2011. The 2017 Notes will bear interest at % per annum and will mature on
August , 2017. The Notes will bear interest from August , 1997 or from the
immediately preceding Interest Payment Date (as defined below) to which
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interest has been paid, payable semi-annually in arrears on February and
August of each year, commencing on February , 1998 (each, an "Interest
Payment Date"), to the persons in whose name the applicable Notes are
registered in the security register (the "Security Register") on the preceding
or (whether or not a Business Day, as defined below), as the case may be (each,
a "Regular Record Date"). Interest on the Notes will be computed on the basis
of a 360-day year of twelve 30-day months.
Installments of principal on each $1,000 original principal amount of the 2011
Notes will be paid annually on each August (a "Principal Payment Date"),
commencing on August , 2003, in the following amounts: $125 in 2003 through
2009, and $62.50 in 2010 and 2011. Installments of principal of $200 will be
paid on each $1,000 original principal amount of the 2017 Notes annually on
each August , commencing on August , 2013. In each case, principal on the
Notes will be payable to the persons in whose names the applicable Notes are
registered in the Security Register on the preceding (whether or not a Business
Day).
The weighted-average life of the 2011 Notes (as to all distributions of
principal) will be 9.56 years. The weighted-average life of the 2017 Notes (as
to all distributions of principal) will be 18.0 years. In each case, the
weighted-average life of the Notes, for this purpose, equals the number of
years obtained by (i) multiplying the amount of each payment of principal of
the Notes by the number of years which will elapse between the date of issuance
and such payments, (ii) adding the products obtained under clause (i) and (iii)
dividing such sum by $100,000,000 in the case of the 2011 Notes and $50,000,000
in the case of the 2017 Notes.
If any Interest Payment Date, Principal Payment Date or the Maturity Date falls
on a day that is not a Business Day, the required payment shall be made on the
next Business Day as if it were made on the date such payment was due and no
interest shall accrue on the amount so payable for the period from and after
such Interest Payment Date, Principal Payment Date or the Maturity Date, as the
case may be. "Business Day" means any day, other than a Saturday or Sunday, on
which banks in Boston, Massachusetts are not required or authorized by law or
executive order to close. Any interest not punctually paid or duly provided for
on any Interest Payment Date with respect to any Notes ("Defaulted Interest")
will forthwith cease to be payable to the holder on the applicable Regular
Record Date and may either be paid to the person in whose name such Notes are
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice of which shall be given to the holder of such Notes not less
than 10 days prior to such Special Record Date, or may be paid at any time in
any other lawful manner, all as more completely described in the Indenture
(Section 307).
OPTIONAL REDEMPTION
The Notes may be redeemed at any time at the option of ATLANTIC, in whole or in
part, at a redemption price equal to the sum of (i) the principal amount of the
Notes being redeemed plus accrued interest thereon to the redemption date and
(ii) the Make-Whole Amount, if any, with respect to such Notes (the "Redemption
Price").
From and after the date notice has been given as provided in the Indenture, if
funds for the redemption of any Notes called for redemption shall have been
available on such redemption date, such Notes will cease to bear interest on
the date fixed for such redemption specified in such notice and the only right
of the holders of the Notes will be to receive payment of the Redemption Price.
Notice of any optional redemption of any Notes will be given to holders at
their addresses, as shown in the Security Register, not more than 60 nor less
than 30 days prior to the date fixed for redemption. The notice of redemption
will specify, among other items, the Redemption Price and the principal amount
of the Notes held by such holder to be redeemed.
If less than all the Notes are to be redeemed at the option of ATLANTIC,
ATLANTIC will notify the Trustee at least 45 days prior to the redemption date
(or such shorter period as is satisfactory to the Trustee) of the aggregate
principal amount of the Notes to be redeemed and the redemption date. The
Trustee shall select, in such manner as it shall deem fair and appropriate,
Notes to be redeemed in whole or in part. Notes may be redeemed in part in the
minimum authorized denomination for Notes or in any integral multiple thereof.
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"Make-Whole Amount" means, in connection with any optional redemption or
accelerated payment of any Notes, the excess, if any of (i) the aggregate
present value as of the date of such redemption or accelerated payment of each
dollar of principal being redeemed or paid and the amount of interest
(exclusive of interest accrued to the date of redemption or accelerated
payment) that would have been payable in respect of such dollar if such
redemption or accelerated payment had not been made, determined by discounting,
on a semiannual basis, such principal and interest at the Reinvestment Rate
(determined on the third Business Day preceding the date such notice of
redemption is given or declaration of acceleration is made) from the respective
dates on which such principal and interest would have been payable if such
redemption or accelerated payment had not been made, over (ii) the aggregate
amount of the Notes being redeemed or paid.
"Reinvestment Rate" means 0.25% (one-fourth of one percent) plus the arithmetic
mean of the yields under the respective headings "This Week" and "Last Week"
published in the Statistical Release under the caption "Treasury Constant
Maturities" for the maturity (rounded to the nearest month) corresponding to
the remaining life to maturity, as of the payment date of the principal being
redeemed or paid. If no maturity exactly corresponds to such maturity, yields
for the two published maturities most closely corresponding to such maturity
shall be calculated pursuant to the immediately preceding sentence and the
Reinvestment Rate shall be interpolated or extrapolated from such yields on a
straight-line basis, rounding in each of such relevant periods to the nearest
month. For the purposes of calculating the Reinvestment Rate, the most recent
Statistical Release published prior to the date of determination of the Make-
Whole Amount shall be used.
"Statistical Release" means the statistical release designated "H.15(519)" or
any successor publication which is published weekly by the Federal Reserve
System and which establishes yields on actively traded United States government
securities adjusted to constant maturities, or if such statistical release is
not published at the time of any determination under the Indenture, then such
other reasonably comparable index which shall be designated by ATLANTIC.
MERGER, CONSOLIDATION OR SALE
ATLANTIC may consolidate with, or sell, lease or convey all or substantially
all of its assets to, or merge with or into, any other entity, provided that
(i) either ATLANTIC shall be the continuing entity, or the successor entity (if
other than ATLANTIC) formed by or resulting from any such consolidation or
merger or which shall have received the transfer of such assets is a person
organized and existing under the laws of the United States or any State thereof
and shall expressly assume payment of the principal of (and premium or Make-
Whole Amount, if any) and any interest on all of the Debt Securities
outstanding, including the Notes, and the due and punctual performance and
observance of all of the covenants and conditions contained in the Indenture;
(ii) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of ATLANTIC or any Subsidiary or such
successor entity as a result thereof as having been incurred by ATLANTIC or
such Subsidiary or such successor entity at the time of such transaction, no
Event of Default under the Indenture, and no event which, after notice or the
lapse of time, or both, would become such an Event of Default, shall have
occurred and be continuing; and (iii) an officer's certificate and legal
opinion covering such conditions shall be delivered to the Trustee (Sections
801 and 803).
CERTAIN COVENANTS
Limitations on Incurrence of Debt. ATLANTIC will not, and will not permit any
Subsidiary to, incur any Debt (as defined below) if, immediately after giving
effect to the incurrence of such additional Debt and the application of the
proceeds thereof, the aggregate principal amount of all outstanding Debt of
ATLANTIC and its Subsidiaries on a consolidated basis determined in accordance
with GAAP is greater than 60% of the sum of (without duplication) (i)
ATLANTIC's Total Assets (as defined below) as of the end of the calendar
quarter covered in ATLANTIC's Annual Report on Form 10-K or Quarterly Report on
Form 10-Q, as the case may be, most recently filed with the Securities and
Exchange Commission (the "Commission") (or, if such filing is not permitted
under the Exchange Act, with the Trustee) prior to the incurrence of such
additional Debt and (ii) the purchase price of any real estate assets or
mortgages receivable acquired, and the amount of any securities offering
proceeds received (to the extent that such proceeds were not used to acquire
real estate assets or mortgages receivable or used to reduce Debt), by ATLANTIC
or any Subsidiary
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since the end of such calendar quarter, including those proceeds obtained in
connection with the incurrence of such additional Debt (Section 1004).
In addition to the foregoing limitation on the incurrence of Debt, ATLANTIC
will not, and will not permit any Subsidiary to, incur any Debt secured by any
mortgage, lien, charge, pledge, encumbrance or security interest of any kind
upon any of the property of ATLANTIC or any Subsidiary if, immediately after
giving effect to the incurrence of such additional Debt and the application of
the proceeds thereof, the aggregate principal amount of all outstanding Debt of
ATLANTIC and its Subsidiaries on a consolidated basis which is secured by any
mortgage, lien, charge, pledge, encumbrance or security interest on property of
ATLANTIC or any Subsidiary is greater than 40% of the sum of (without
duplication) (i) ATLANTIC's Total Assets as of the end of the calendar quarter
covered in ATLANTIC's Annual Report on Form 10-K or Quarterly Report on Form
10-Q, as the case may be, most recently filed with the Commission (or, if such
filing is not permitted under the Exchange Act, with the Trustee) prior to the
incurrence of such additional Debt and (ii) the purchase price of any real
estate assets or mortgages receivable acquired, and the amount of any
securities offering proceeds received (to the extent that such proceeds were
not used to acquire real estate assets or mortgages receivable or used to
reduce Debt), by ATLANTIC or any Subsidiary since the end of such calendar
quarter, including those proceeds obtained in connection with the incurrence of
such additional Debt (Section 1004).
In addition to the foregoing limitations on the incurrence of Debt, no
Subsidiary may incur any Unsecured Debt other than intercompany Debt
subordinate to the Notes; provided, however, that ATLANTIC or a Subsidiary may
acquire an entity that becomes a Subsidiary that has Unsecured Debt if the
incurrence of such Debt (including any guarantees of such Debt assumed by
ATLANTIC or any Subsidiary) was not intended to evade the foregoing
restrictions and the incurrence of such Debt (including any guarantees of such
Debt assumed by ATLANTIC or any Subsidiary) would otherwise be permitted under
the Indenture (Section 1004).
ATLANTIC and its Subsidiaries may not at any time own Total Unencumbered Assets
equal to less than 150% of the aggregate outstanding principal amount of the
Unsecured Debt of ATLANTIC and its Subsidiaries on a consolidated basis
(Section 1004).
In addition to the foregoing limitations on the incurrence of Debt, ATLANTIC
will not, and will not permit any Subsidiary to, incur any Debt if the ratio of
Consolidated Income Available for Debt Service (as defined below) to the Annual
Service Charge (as defined below) for the four consecutive fiscal quarters most
recently ended prior to the date on which such additional Debt is to be
incurred shall have been less than 1.5 to 1.0, on a pro forma basis after
giving effect thereto and to the application of the proceeds therefrom, and
calculated on the assumption that (i) such Debt and any other Debt incurred by
ATLANTIC and its Subsidiaries since the first day of such four-quarter period
and the application of the proceeds therefrom, including to refinance other
Debt, had occurred at the beginning of such period; (ii) the repayment or
retirement of any other Debt by ATLANTIC and its Subsidiaries since the first
day of such four-quarter period had been incurred, repaid or retired at the
beginning of such period (except that, in making such computation, the amount
of Debt under any revolving credit facility shall be computed based upon the
average daily balance of such Debt during such period); (iii) in the case of
Acquired Debt (as defined below) or Debt incurred in connection with any
acquisition since the first day of such four-quarter period, the related
acquisition had occurred as of the first day of such period with the
appropriate adjustments with respect to such acquisition being included in such
pro forma calculation; and (iv) in the case of any acquisition or disposition
by ATLANTIC or its Subsidiaries of any asset or group of assets since the first
day of such four-quarter period, whether by merger, stock purchase or sale, or
asset purchase or sale, such acquisition or disposition or any related
repayment of Debt had occurred as of the first day of such period with the
appropriate adjustments with respect to such acquisition or disposition being
included in such pro forma calculation (Section 1004).
Existence. Except as permitted under "--Merger, Consolidation or Sale",
ATLANTIC will do or cause to be done all things necessary to preserve and keep
in full force and effect its existence, rights (Charter and statutory) and
franchises; provided, however, that ATLANTIC shall not be required to preserve
any right or franchise if it determines that the preservation thereof is no
longer desirable in the conduct of its business and that the loss thereof is
not disadvantageous in any material respect to the holders of the Debt
Securities, including the Notes (Section 1005).
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Maintenance of Properties. ATLANTIC will cause all of its properties used or
useful in the conduct of its business or the business of any Subsidiary to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of ATLANTIC may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that ATLANTIC and its Subsidiaries shall not be prevented
from selling or otherwise disposing for value its properties in the ordinary
course of business (Section 1006).
Insurance. ATLANTIC will, and will cause each of its Subsidiaries to, keep all
of its insurable properties insured against loss or damage at least equal to
their then full insurable value with financially sound and reputable insurance
companies (Section 1007).
Payment of Taxes and Other Claims. ATLANTIC will pay or discharge or cause to
be paid or discharged, before the same shall become delinquent, (i) all taxes,
assessments and governmental charges levied or imposed on it or any Subsidiary
or on the income, profits or property of ATLANTIC or any Subsidiary and (ii)
all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a lien upon the property of ATLANTIC or any Subsidiary; provided,
however, that ATLANTIC shall not be required to pay or discharge or cause to be
paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings (Section 1008).
Provision of Financial Information. Whether or not ATLANTIC is subject to
Section 13 or 15(d) of the Exchange Act, ATLANTIC will, to the extent permitted
under the Exchange Act, file with the Commission the annual reports, quarterly
reports and other documents which ATLANTIC would have been required to file
with the Commission pursuant to such Section 13 and 15(d) (the "Financial
Statements") if ATLANTIC were so subject, such documents to be filed with the
Commission on or prior to the respective dates (the
"Required Filing Dates") by which ATLANTIC would have been required so to file
such documents if ATLANTIC were so subject. ATLANTIC will also in any event (i)
within 15 days of each Required Filing Date (a) transmit by mail to all holders
of Debt Securities, including the Notes, as their names and addresses appear in
the Security Register, without cost to such holders, copies of the annual
reports and quarterly reports which ATLANTIC would have been required to file
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if
ATLANTIC were subject to such Sections and (b) file with the Trustee copies of
the annual reports, quarterly reports and other documents which ATLANTIC would
have been required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act if ATLANTIC were subject to such Sections and (ii) if
filing such documents by ATLANTIC with the Commission is not permitted under
the Exchange Act, promptly on written request and payment of the reasonable
cost of duplication and delivery, supply copies of such documents to any
prospective holder (Section 1009).
EVENTS OF DEFAULT, NOTICE AND WAIVER
The following events are "Events of Default" with respect to the 2011 Notes or
the 2017 Notes, as the case may be: (i) default in the payment of any
installment of interest payable on such Notes which continues for 30 days; (ii)
default in the payment of the principal of (or premium or Make-Whole Amount, if
any, on) such Notes at their Maturity; (iii) default in the performance of any
other covenant of ATLANTIC contained in the Indenture (other than a covenant
added to the Indenture solely for the benefit of a series of Debt Securities
issued thereunder other than such Notes), continued for 60 days after written
notice as provided in the Indenture; (iv) default in the payment of an
aggregate principal amount exceeding $25,000,000 of any evidence of
indebtedness of ATLANTIC or any mortgage, indenture or other instrument under
which such indebtedness is issued or by which such indebtedness is secured,
such default having occurred after the expiration of any applicable grace
period and having resulted in the acceleration of the maturity of such
indebtedness, but only if such indebtedness is not discharged or such
acceleration is not rescinded or annulled; (v) the entry by a court of
competent jurisdiction of one or more judgments, orders or decrees against
ATLANTIC or any of its Subsidiaries in an aggregate amount (excluding amounts
fully covered by insurance) in excess of $25,000,000 and such judgments, orders
or decrees remain undischarged, unstayed and unsatisfied in an aggregate amount
(excluding amounts fully covered by insurance) in excess of $25,000,000 for a
period of 30 consecutive days; and (vi) certain events of bankruptcy,
insolvency or reorganization, or court appointment of a receiver, liquidator or
trustee of ATLANTIC or any Significant Subsidiary or for all or substantially
all of either of its property (Section 501). The term "Significant
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Subsidiary" means each significant subsidiary (as defined in Regulation S-X
promulgated under the Securities Act) of ATLANTIC.
If an Event of Default under the Indenture with respect to the 2011 Notes or
the 2017 Notes occurs and is continuing, then in every such case, unless the
principal of all of the 2011 Notes or the 2017 Notes, as the case may be, shall
already have become due and payable, the Trustee or the holders of not less
than 25% in principal amount of such Notes then outstanding (or all Debt
Securities then outstanding under the Indenture, as the case may be) may
declare the principal amount of, and the Make-Whole Amount, if any, on, all of
such Notes to be due and payable immediately by written notice thereof to
ATLANTIC (and to the Trustee, if given by the holders), provided, that in the
case of an Event of Default described under clause (vi) of the preceding
paragraph, acceleration is automatic. However, at any time after such a
declaration of acceleration with respect to such Notes (or all Debt Securities
then outstanding under the Indenture, as the case may be) has been made, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the holders of at least a majority in principal amount of such
Notes then outstanding (or all Debt Securities then outstanding under the
Indenture, as the case may be) may rescind and annul such declaration and its
consequences if (i) ATLANTIC has paid or deposited with the Trustee all
required payments of the principal of (and premium or Make-Whole Amount, if
any, on) and interest on such Notes (or all Debt Securities then outstanding
under the Indenture, as the case may be), plus reasonable compensation,
expenses, disbursements and advances of the Trustee and (ii) all Events of
Default, other than the nonpayment of accelerated principal (or premium or
Make-Whole Amount, if any) or interest or Additional Amounts, if any, with
respect to such Notes (or all Debt Securities then outstanding under the
Indenture, as the case may be) have been cured or waived as provided in the
Indenture (Section 502). The Indenture also provides that the holders of not
less than a majority in principal amount of the 2011 Notes or the 2017 Notes
then outstanding (or all Debt Securities then outstanding under the Indenture,
as the case may be) may waive any past default with respect to such Notes (or
all such Debt Securities, as the case may be) and its consequences, except a
default (a) in the payment of the principal of (or premium or Make-Whole
Amount, if any, on) or interest on such Notes or (b) in respect of a covenant
or provision contained in the Indenture that cannot be modified or amended
without the consent of the holder of each Note affected thereby (Section 513).
The Trustee is required to give notice to the holders of Notes within 90 days
of a default under the Indenture; provided, however, that the Trustee may
withhold notice to the holders of any series of the Notes of any default with
respect to such Notes (except a default in the payment of the principal of (or
premium or Make-Whole Amount, if any, on) or interest on such Notes) if the
Responsible Officers of the Trustee consider such withholding to be in the
interest of such holders (Section 601).
The Indenture provides that no holders of 2011 Notes or 2017 Notes may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the Trustee, for
60 days, to act after it has received a written request to institute
proceedings in respect of an Event of Default from the holders of not less than
25% in principal amount of such Notes then outstanding, as well as an offer of
reasonable indemnity (Section 507). This provision will not prevent, however,
any holder of Notes from instituting suit for the enforcement of payment of the
principal of (and premium or Make-Whole Amount, if any, on) and interest on
such Notes on or after the respective due dates thereof (Section 508).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any holders of Notes,
unless such holders shall have offered to the Trustee reasonable security or
indemnity (Section 602). The holders of not less than a majority in principal
amount of the outstanding Notes then outstanding shall have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or of exercising any trust or power conferred on the
Trustee. However, the Trustee may refuse to follow any direction which is in
conflict with any law or the Indenture, which may involve the Trustee in
personal liability or which may be unduly prejudicial to the holders of such
Notes not joining therein (Section 512).
Within 120 days after the end of each fiscal year, ATLANTIC must deliver to the
Trustee a certificate, signed by one of several specified officers, stating
whether or not such officer has knowledge of any default under the Indenture
and, if so, specifying each such default and the nature and status thereof
(Section 1010).
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MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture may be made with the consent of
the holders of not less than a majority in principal amount of all outstanding
Debt Securities which are affected by such modification or amendment; provided,
however, that no such modification or amendment may, without the consent of the
holder of each such Debt Security affected thereby, (i) change the Stated
Maturity of the principal of (or premium or Make-Whole Amount, if any, on), or
any installment of principal of or interest on, any such Debt Security; (ii)
reduce the principal amount of, or the rate or amount of interest on, or any
premium or Make-Whole Amount payable on redemption of, any such Debt Security,
or reduce the amount of principal of an Original Issue Discount Security or
Make-Whole Amount, if any, that would be due and payable upon declaration of
acceleration of the maturity thereof or would be provable in bankruptcy, or
adversely affect any right of repayment of the holder of any such Debt
Security; (iii) change the Place of Payment, or the coin or currency, for
payment of principal of (or premium or Make-Whole Amount, if any, on) or
interest on any such Debt Security; (iv) impair the right to institute suit for
the enforcement of any payment on or with respect to any such Debt Security;
(v) reduce the above-stated percentage of outstanding Debt Securities of any
series necessary to modify or amend the Indenture, to waive compliance with
certain provisions thereof or certain defaults and consequences thereunder or
to reduce the quorum or voting requirements set forth in the Indenture; or (vi)
modify any of the foregoing provisions or any of the provisions relating to the
waiver of certain past defaults or certain covenants, except to increase the
required percentage to effect such action or to provide that certain other
provisions may not be modified or waived without the consent of the holder of
such Debt Security (Section 902).
The holders of not less than a majority in principal amount of outstanding Debt
Securities of the affected series have the right to waive compliance by
ATLANTIC with certain covenants in the Indenture (Section 1012).
Modifications and amendments of the Indenture may be made by ATLANTIC and the
Trustee without the consent of any holder of Debt Securities, including the
Notes, for any of the following purposes: (i) to evidence the succession of
another person to ATLANTIC as obligor under the Indenture; (ii) to add to the
covenants of ATLANTIC for the benefit of the holders of all or any series of
Debt Securities or to surrender any right or power conferred on ATLANTIC in the
Indenture; (iii) to add Events of Default for the benefit of the holders of all
or any series of Debt Securities; (iv) to add or change any provisions of the
Indenture to facilitate the issuance of, or to liberalize certain terms of,
Debt Securities in bearer form, or to permit or facilitate the issuance of Debt
Securities in uncertificated form, provided that such action shall not
adversely affect the interests of the holders of the Debt Securities of any
series in any material respect; (v) to change or eliminate any provisions of
the Indenture, provided that any such change or elimination shall become
effective only when there are no outstanding Debt Securities of any series
created prior thereto which are entitled to the benefit of such provision; (vi)
to secure the Debt Securities; (vii) to establish the form or terms of Debt
Securities of any series; (viii) to provide for the acceptance of appointment
by a successor Trustee or facilitate the administration of the trusts under the
Indenture by more than one Trustee; (ix) to cure any ambiguity, defect or
inconsistency in the Indenture or to make any other changes, provided that in
each case, such action shall not adversely affect the interests of holders of
Debt Securities of any series in any material respect; (x) to close the
Indenture with respect to the authentication and delivery of additional series
of Debt Securities or to qualify, or maintain qualification of, the Indenture
under the Trust Indenture Act; or (xi) to supplement any of the provisions of
the Indenture to the extent necessary to permit or facilitate defeasance and
discharge of any series of such Debt Securities, provided that such action
shall not adversely affect the interests of the holders of the Debt Securities
of any series in any material respect (Section 901).
The Indenture provides that in determining whether the holders of the requisite
principal amount of outstanding Debt Securities of a series have concurred in
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security
that shall be deemed to be outstanding shall be the amount of the principal
thereof that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a Foreign Currency that shall be deemed
outstanding shall be the United States dollar equivalent, determined on the
issue date for such Debt Security, of the principal amount (or, in
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the case of an Original Issue Discount Security, the United States dollar
equivalent on the issue date of such Debt Security of the amount determined as
provided in clause (i) above), (iii) the principal amount of an Indexed
Security that shall be deemed outstanding shall be the principal face amount of
such Indexed Security at original issuance, unless otherwise provided with
respect to such Indexed Security pursuant to Section 301 of the Indenture, and
(iv) Debt Securities owned by ATLANTIC or any other obligor upon the Debt
Securities or any Affiliate of ATLANTIC or of such other obligor shall be
disregarded (Section 101).
The Indenture contains provisions for convening meetings of the holders of Debt
Securities of a series (Section 1501). A meeting may be called at any time by
the Trustee, and also, upon request, by ATLANTIC or the holders of at least 10%
in principal amount of the outstanding Debt Securities of such series, in any
such case upon notice given as provided in the Indenture (Section 1502). Except
for any consent that must be given by the holder of each Debt Security affected
by certain modifications and amendments of the Indenture, any resolution
presented at a meeting or adjourned meeting duly reconvened at which a quorum
is present may be adopted by the affirmative vote of the holders of a majority
in principal amount of the outstanding Debt Securities of that series;
provided, however, that, except as referred to above, any resolution with
respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that may be made, given or taken by the holders of a
specified percentage, which is less than a majority, in principal amount of the
outstanding Debt Securities of a series may be adopted at a meeting or
adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the holders of such specified percentage in principal
amount of the outstanding Debt Securities of such series. Any resolution passed
or decision taken at any meeting of holders of Debt Securities of any series
duly held in accordance with the Indenture will be binding on all holders of
Debt Securities of such series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the holders
of not less than a specified percentage in principal amount of the outstanding
Debt Securities of a series, the persons holding or representing such specified
percentage in principal amount of the outstanding Debt Securities of such
series will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of holders of Debt Securities of any series with respect to any
request, demand, authorization, direction, notice, consent, waiver
or other action that the Indenture expressly provides may be made, given or
taken by the holders of a specified percentage in principal amount of all
outstanding Debt Securities affected thereby, or of the holders of such series
and one or more additional series, (i) there shall be no minimum quorum
requirement for such meeting and (ii) the principal amount of the outstanding
Debt Securities of such series that vote in favor of such request, demand,
authorization, direction, notice, consent, waiver or other action shall be
taken into account in determining whether such request, demand, authorization,
direction, notice, consent, waiver or other action has been made, given or
taken under the Indenture (Section 1504).
Any request, demand, authorization, direction, notice, consent, waiver or other
action provided by the Indenture to be given or taken by a specified percentage
in principal amount of the holders of any or all series of Debt Securities may
be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such specified percentage of holders in person or by an
agent duly appointed in writing; and, except as otherwise expressly provided in
the Indenture, such action shall become effective when such instrument or
instruments are delivered to the Trustee. Proof of execution of any instrument
or of a writing appointing any such agent shall be sufficient for any purpose
of the Indenture and (subject to Article Six of the Indenture) conclusive in
favor of the Trustee and ATLANTIC, if made in the manner specified above
(Section 1507).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
ATLANTIC may discharge certain obligations to holders of any series of the
Notes that either have become due and payable or will become due and payable
within one year (or scheduled for redemption within one year) by irrevocably
depositing with the Trustee, in trust, funds in cash in an amount sufficient to
pay the entire indebtedness on such Notes in respect of principal (and premium
or Make-Whole Amount, if any) and interest and Additional Amounts, if any,
payable to the date of such deposit (if such Notes have become due and payable)
or to the Stated Maturity or Redemption Date, as the case may be (Section 401).
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ATLANTIC may elect either (i) to defease and be discharged from any and all
obligations with respect to any series of the Notes (except for the obligations
to register the transfer or exchange of such Notes, to replace temporary or
mutilated, destroyed, lost or stolen Notes, to maintain an office or agency in
respect of such Notes and to hold moneys for payment in trust) ("defeasance")
(Section 1402) or (ii) to be released from its obligations with respect to such
Notes under Sections 1004 to 1009, inclusive, of the Indenture (being the
restrictions described under "--Certain Covenants") and any omission to comply
with such obligations shall not constitute a default or an Event of Default
with respect to such Notes ("covenant defeasance") (Section 1403), in either
case upon the irrevocable deposit by ATLANTIC with the Trustee, in trust, of an
amount of cash or Government Obligations (as defined below), or both,
applicable to such Notes which through the scheduled payment of principal and
interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium or Make-Whole Amount, if any,
on) and interest and Additional Amounts, if any, on such Notes on the scheduled
due dates therefor.
Such a trust may only be established if, among other things, ATLANTIC has
delivered to the Trustee an Opinion of Counsel (as specified in the Indenture)
to the effect that the holders of such Notes will not recognize income, gain or
loss for United States federal income tax purposes as a result of such
defeasance or covenant defeasance and will be subject to United States Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance or covenant defeasance had not
occurred, and such Opinion of Counsel, in the case of defeasance, must refer to
and be based on a ruling of the Internal Revenue Service (the "IRS") or a
change in applicable United States Federal income tax law occurring after the
date of the Indenture (Section 1404).
In the event ATLANTIC effects covenant defeasance with respect to any Notes and
such Notes are declared due and payable because of the occurrence of any Event
of Default other than the Event of Default described in clause (iii) under "--
Events of Default, Notice and Waiver" with respect to Sections 1004 to 1009,
inclusive, of the Indenture (which Sections would no longer be applicable to
such Notes) as to which there has been covenant defeasance, the amount of cash
plus Government Obligations on deposit with the Trustee will be sufficient to
pay amounts due on such Notes at the time of their Stated Maturity but may not
be sufficient to pay amounts due on such Notes at the time of the acceleration
resulting from such Event of Default. However, ATLANTIC would remain liable to
make payment of such amounts due at the time of acceleration.
REGISTRATION AND TRANSFER
Subject to certain limitations imposed upon Debt Securities issued in book-
entry form, the Notes will be exchangeable for other Notes of a like aggregate
principal amount and tenor of different authorized denominations upon surrender
of such Notes at the corporate trust office of the Trustee referred to above.
In addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Notes may be surrendered for conversion or registration
of transfer thereof at the corporate trust office of the Trustee referred to
above. Every Note surrendered for registration of transfer or exchange shall be
duly endorsed or accompanied by a written instrument of transfer. No service
charge will be made for any registration of transfer or exchange of any Notes,
but ATLANTIC may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith (Section 305). ATLANTIC may
at any time designate one or more offices or agencies where Notes of any series
may be presented or surrendered for payment or surrendered for registration of
transfer or exchange. If ATLANTIC has designated such an office or agency,
ATLANTIC may at any time rescind the designation or approve a change in the
location of such office or agency, except that ATLANTIC will be required to
maintain such an office or agency in each Place of Payment for such Notes
(Section 1002).
Neither ATLANTIC nor the Trustee shall be required to (i) issue, register the
transfer of or exchange any series of the Notes during a period beginning at
the opening of business 15 days before any selection of such Notes to be
redeemed and ending at the close of business on the day of mailing of the
relevant notice of redemption; (ii) register the transfer of or exchange any
Note, or portion thereof, called for redemption, except the unredeemed portion
of any Note being redeemed in part; or (iii) issue, register the transfer of or
exchange any Note which has been surrendered for repayment at the option of the
holder, except the portion, if any, of such Note not to be so repaid (Section
305).
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BOOK-ENTRY PROCEDURES
Each series of the Notes will be issued in the form of one or more Global
Securities that will be deposited with, or on behalf of DTC, as depository (the
"Depository"), and registered in the name of DTC's nominee. The Global
Securities will be issued in fully registered form and may be issued in either
temporary or permanent form. Unless and until it is exchanged in whole or in
part for the individual Notes represented thereby, a Global Security may not be
transferred except as a whole by the Depository for such Global Security to a
nominee of such Depository or by a nominee of such Depository to such
Depository or another nominee of such Depository or by the Depository or any
nominee of such Depository to a successor Depository or any nominee of such
successor. Except as described below, the Notes will not be issuable in
definitive form.
Upon the issuance of a Global Security, the Depository for such Global Security
or its nominee will credit on its book-entry registration and transfer system
the respective principal amounts of the individual Notes represented by such
Global Security to the accounts of persons that have accounts with such
Depository ("Participants"). Such accounts shall be designated by the
Underwriters. Ownership of beneficial interests in a Global Security will be
limited to Participants or persons that may hold interests through
Participants. Ownership of beneficial interests in such Global Security will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by the applicable Depository or its nominee (with respect to
beneficial interests of Participants) and records of Participants (with respect
to beneficial interests of persons who hold through Participants). The laws of
some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and laws may impair
the ability to own, pledge or transfer beneficial interests in a Global
Security.
So long as the Depository for a Global Security or its nominee is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Notes
represented by such Global Security for all purposes under the Indenture.
Except as provided below, owners of beneficial interests in a Global Security
will not be entitled to have any of the individual Notes of the series
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of any such Notes in definitive
form and will not be considered the owners or holders thereof under the
Indenture.
Payments of principal of, any premium or Make-Whole Amount on and any interest
on individual Notes represented by a Global Security registered in the name of
a Depository or its nominee will be made to the Depository or its nominee, as
the case may be, as the registered owner of the Global Security representing
such Notes. None of ATLANTIC, the Trustee, any Paying Agent or the Security
Registrar for such Notes will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Security for such Notes or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
ATLANTIC expects that the Depository for a series of the Notes or its nominee,
upon receipt of any payment of principal, premium, Make-Whole Amount or
interest payable in respect of a permanent Global Security representing any of
such Notes, immediately will credit Participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such Global Security for such Notes as shown on the records of such
Depository or its nominee. ATLANTIC also expects that payments by Participants
to owners of beneficial interests in such Global Security held through such
Participants will be governed by standing instructions and customary practices,
as is the case with securities held for the account of customers in bearer form
or registered in "street name". Such payments will be the responsibility of
such Participants.
If a Depository for a series of the Notes is at any time unwilling, unable or
ineligible to continue as depository and a successor depository is not
appointed by ATLANTIC within 90 days, ATLANTIC will issue individual Notes of
such series in exchange for the Global Security representing such Notes. In
addition, ATLANTIC may, at any time and in its sole discretion, determine not
to have any Notes of any series represented by one or more Global Securities
and, in such event, will issue individual Notes of such series in exchange for
the Global Security or Securities representing such Notes. Individual Notes so
issued will be issued in denominations, unless otherwise specified by ATLANTIC,
of $1,000 and integral multiples thereof.
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The following is based on information furnished by DTC:
DTC will act as Depository for the Notes. The Notes will be issued as fully
registered securities registered in the name of Cede & Co. (DTC's partnership
nominee). One fully registered Note certificate will be issued with respect to
each series of the Notes.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provision of Section 17A of the Exchange Act. DTC
holds securities that its Participants deposit with DTC. DTC also facilitates
the settlement among Participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for the
physical movement of securities certificates. Direct Participants include
securities brokers and dealers (including the Underwriters), banks, trust
companies, clearing corporations and certain other organizations ("Direct
Participants"). DTC is owned by a number of its Direct Participants and by the
NYSE, the ASE, and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly. The
rules applicable to DTC and its Participants are on file with the Commission.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. All payments of principal and interest will be made by
ATLANTIC in immediately available funds.
The Notes will trade in DTC's Same-Day Funds Settlement System until maturity,
and secondary market trading activity in the Notes will settle in immediately
available funds. No assurance can be given as to the effect, if any, of
settlement in immediately available funds on trading activity in the Notes.
CERTAIN DEFINITIONS
"Acquired Debt" means Debt of a person (i) existing at the time such person
becomes a Subsidiary or (ii) assumed in connection with the acquisition of
assets from such person, in each case, other than Debt incurred in connection
with, or in contemplation of, such person becoming a Subsidiary or such
acquisition. Acquired Debt shall be deemed to be incurred on the date of the
related acquisition of assets from any person or the date the acquired person
becomes a Subsidiary.
"Annual Service Charge" as of any date means the maximum amount which is
payable in any period for interest on, and original issue discount of, Debt of
ATLANTIC and its Subsidiaries and the amount of dividends which are payable in
respect of any Disqualified Stock.
"Capital Stock" means, with respect to any person, any capital stock (including
preferred stock), shares, interests, participations or other ownership
interests (however designated) of such person and any rights (other than debt
securities convertible into or exchangeable for capital stock), warrants or
options to purchase any thereof.
"Consolidated Income Available for Debt Service" for any period means Earnings
from Operations (as defined below) of ATLANTIC and its Subsidiaries plus
amounts which have been deducted, and minus amounts which have been added, for
the following (without duplication): (i) interest on Debt of ATLANTIC and its
Subsidiaries, (ii) provision for taxes of ATLANTIC and its Subsidiaries based
on income, (iii) amortization of debt discount, (iv) provision for gains and
losses on properties and property depreciation and amortization, (v) the effect
of any noncash charge resulting from a change in accounting principles in
determining Earnings from Operations for such period and (vi) amortization of
deferred charges.
"Debt" of ATLANTIC or any Subsidiary means any indebtedness of ATLANTIC or any
Subsidiary, whether or not contingent, in respect of (i) borrowed money or
evidenced by bonds, notes, debentures or similar instruments, (ii) indebtedness
secured by any mortgage, pledge, lien, charge, encumbrance or any security
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interest existing on property owned by ATLANTIC or any Subsidiary, (iii) the
reimbursement obligations, contingent or otherwise, in connection with any
letters of credit actually issued or amounts representing the balance deferred
and unpaid of the purchase price of any property or services, except any such
balance that constitutes an accrued expense or trade payable, or all
conditional sale obligations or obligations under any title retention
agreement, (iv) the principal amount of all obligations of ATLANTIC or any
Subsidiary with respect to redemption, repayment or other repurchase of any
Disqualified Stock or (v) any lease of property by ATLANTIC or any Subsidiary
as lessee which is reflected on ATLANTIC's Consolidated Balance Sheet as a
capitalized lease in accordance with GAAP to the extent, in the case of items
of indebtedness under clauses (i) through (iii) above, that any such items
(other than letters of credit) would appear as a liability on ATLANTIC's
Consolidated Balance Sheet in accordance with GAAP, and also includes, to the
extent not otherwise included, any obligation by ATLANTIC or any Subsidiary to
be liable for, or to pay, as obligor, guarantor or otherwise (other than for
purposes of collection in the ordinary course of business), Debt of
another person (other than ATLANTIC or any Subsidiary) (it being understood
that Debt shall be deemed to be incurred by ATLANTIC or any Subsidiary whenever
ATLANTIC or such Subsidiary shall create, assume, guarantee or otherwise become
liable in respect thereof).
"Disqualified Stock" means, with respect to any person, any Capital Stock of
such person which by the terms of such Capital Stock (or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable), upon the happening of any event or otherwise (i) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
(ii) is convertible into or exchangeable or exercisable for Debt or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the Stated Maturity of the
Notes.
"Earnings from Operations" for any period means net earnings excluding gains
and losses on sales of investments, net, as reflected in the financial
statements of ATLANTIC and its Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP.
"Encumbrance" means any mortgage, pledge, lien, charge, encumbrance or any
security interest existing on property owned by ATLANTIC or any Subsidiary
securing indebtedness for borrowed money, other than a Permitted Encumbrance.
"Government Obligations" means securities which are (i) direct obligations of
the United States of America, for the payment of which its full faith and
credit is pledged, or (ii) obligations of a person controlled or supervised by
and acting as an agency or instrumentality of the United States of America, the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian
with respect to any such Government Obligation or a specific payment of
interest on or principal of any such Government Obligation held by such
custodian for the account of the holder of a depository receipt, provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the Government Obligation or
the specific payment of interest on or principal of the Government Obligation
evidenced by such depository receipt (Section 101).
"Permitted Encumbrances" means leases, Encumbrances securing taxes, assessments
and similar charges, mechanics' liens and other similar Encumbrances.
"Subsidiary" means, with respect to any person, any corporation or other entity
of which a majority of (i) the voting power of the voting equity securities or
(ii) in the case of a partnership or any other entity other than a corporation,
the outstanding equity interests of which is owned, directly or indirectly, by
such person. For the purposes of this definition, "voting equity securities"
means equity securities having voting power for the election of directors,
whether at all times or only so long as no senior class of security has such
voting power by reason of any contingency.
"Total Assets" as of any date means the sum of (i) Undepreciated Real Estate
Assets and (ii) all other assets of ATLANTIC and its Subsidiaries determined in
accordance with GAAP (but excluding accounts receivable and intangibles).
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"Total Unencumbered Assets" means the sum of (i) those Undepreciated Real
Estate Assets not subject to an Encumbrance for borrowed money and (ii) the
value (determined in accordance with GAAP) of all other assets (other than
accounts receivable and intangibles) of ATLANTIC and its Subsidiaries not
subject to an Encumbrance.
"Undepreciated Real Estate Assets" as of any date means the cost (original cost
plus capital improvements) of real estate assets of ATLANTIC and its
Subsidiaries on such date, before depreciation and amortization determined on a
consolidated basis in accordance with GAAP.
"Unsecured Debt" means Debt of the types described in clauses (i), (iii) and
(iv) of the definition thereof which is not secured by any mortgage, lien,
charge, pledge or security interest of any kind upon any of the properties of
ATLANTIC or any Subsidiary.
TRUSTEE
The Indenture provides that there may be more than one Trustee thereunder, each
with respect to one or more series of Debt Securities. Any Trustee under the
Indenture may resign or be removed with respect to one or more series of Debt
Securities, and a successor Trustee may be appointed to act with respect to
such series (Section 608). In the event that two or more persons are acting as
Trustee with respect to different series of Debt Securities, each such Trustee
shall be a Trustee of a trust under the Indenture separate and apart from the
trust administered by any other Trustee (Sections 101 and 609), and, except as
otherwise indicated therein, any action described herein to be taken by the
Trustee may be taken by each such Trustee with respect to, and only with
respect to, the one or more series of Debt Securities for which it is Trustee
under the Indenture.
FEDERAL INCOME TAX CONSIDERATIONS
ATLANTIC intends to operate in a manner that permits it to satisfy the
requirements for taxation as a REIT under the applicable provisions of the
Code. No assurance can be given, however, that such requirements will be met.
The following is a description of all material federal income tax consequences
to ATLANTIC of the treatment of ATLANTIC as a REIT.
Based upon certain representations of ATLANTIC with respect to the facts as set
forth and explained in the discussion below, in the opinion of Mayer, Brown &
Platt, counsel to ATLANTIC, ATLANTIC has been organized in conformity with the
requirements for qualification as a REIT beginning with its taxable year ended
December 31, 1994, and its actual and proposed method of operation described in
this Prospectus and as represented by management has enabled it and will
continue to enable it to satisfy the requirements for such qualification.
This opinion is conditioned upon certain representations made by ATLANTIC as to
certain factual matters relating to ATLANTIC'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. ATLANTIC's qualification and
taxation as a REIT will depend upon ATLANTIC'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 Code discussed below. Mayer, Brown & Platt will not review compliance with
these tests on a continuing basis. No assurance can be given that ATLANTIC will
satisfy such tests on a continuing basis.
In brief, if certain detailed conditions imposed by the REIT provisions of the
Code are met, entities, such as ATLANTIC, 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.
If ATLANTIC 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. In this event,
ATLANTIC could be subject to potentially significant tax liabilities, and
therefore the amount of cash available for payments on the Notes would be
reduced.
ATLANTIC elected REIT status effective for the taxable year ended December 31,
1994 and the Board currently intends that ATLANTIC will operate in a manner
that permits it to qualify as a REIT in each taxable year thereafter. There can
be no assurance, however, that this expectation will be fulfilled, since
qualification as a REIT depends on ATLANTIC continuing to satisfy numerous
asset, income and distribution tests described below, which in turn will be
dependent in part on ATLANTIC's operating results.
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The following summary is based on the 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 any state, local or foreign tax considerations.
TAXATION OF ATLANTIC
General
In any year in which ATLANTIC 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. ATLANTIC may, however, be
subject to tax at normal corporate rates upon any taxable income or capital
gain not distributed.
Notwithstanding its qualification as a REIT, ATLANTIC may also be subject to
taxation in certain other circumstances. If ATLANTIC 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 certain other
requirements are met, it will be subject to a 100% tax on the greater of the
amount by which ATLANTIC fails to satisfy either the 75% test or the 95% test,
multiplied by a fraction intended to reflect ATLANTIC's profitability. ATLANTIC
will also be subject to a tax of 100% on net income from any "prohibited
transaction", as described below, and if ATLANTIC has (i) 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 (ii) 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
ATLANTIC should fail to distribute during each calendar year at least the sum
of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain net income for such year and (iii) any undistributed taxable
income from prior years, ATLANTIC would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
ATLANTIC may also be subject to the corporate "alternative minimum tax", as
well as tax in certain situations and on certain transactions not presently
contemplated. ATLANTIC will use the calendar year both for federal income tax
purposes and for financial reporting purposes.
In order to qualify as a REIT, ATLANTIC must meet, among others, the following
requirements:
Share Ownership Test
ATLANTIC's shares of stock 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 stock of ATLANTIC may be owned,
directly or indirectly and by applying certain constructive ownership rules, by
five or fewer individuals, which for this purpose includes certain tax-exempt
entities. Any stock held by a qualified domestic pension or other retirement
trust will be treated, for purposes of this latter test, 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's ownership of shares is attributed to its shareholders for
purposes of the 50% test.
In order to ensure compliance with the 50% test, ATLANTIC has placed certain
restrictions on the transfer of the shares of its stock to prevent additional
concentration of ownership. Moreover, to evidence compliance with these
requirements under United States Treasury Department ("Treasury") regulations,
ATLANTIC must maintain records which disclose the actual ownership of its
outstanding shares of stock. In fulfilling its obligations to maintain records,
ATLANTIC must and will demand written statements each year from the record
holders of designated percentages of shares of its stock disclosing the actual
owners of such shares (as prescribed by Treasury regulations). In addition,
ATLANTIC's Charter provides restrictions regarding the transfer of shares of
its stock that are intended to assist ATLANTIC in continuing to satisfy the
share ownership requirements. ATLANTIC intends to enforce the 9.8% limitation
on ownership of shares of its stock and the 25% limitation on ownership of
Series A Preferred Shares to assure that its qualification as a REIT will not
be compromised.
Asset Tests
At the close of each quarter of ATLANTIC's taxable year, ATLANTIC must satisfy
certain tests relating to the nature of its assets (determined in accordance
with GAAP). First, at least 75% of the value of
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ATLANTIC'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 U.S. government securities (including certain government guaranteed
securities) and qualified temporary investments. Second, although the remaining
25% of ATLANTIC's assets generally may be invested without restriction,
securities in this class may not exceed either (i) in the case of securities of
any one non-government issuer, 5% of the value of ATLANTIC's total assets or
(ii) 10% of the outstanding voting securities of any one such issuer. Where
ATLANTIC invests in an entity that is taxed as a partnership, it will be deemed
to own a proportionate share of the partnership's assets.
Wholly owned corporate subsidiaries of ATLANTIC that are "qualified REIT
subsidiaries" within the meaning of the Code are not treated as separate
entities from their parent REIT for Federal income tax purposes. Instead all
assets and items of income, deduction and credit of each qualified REIT
subsidiary are treated as assets and items of ATLANTIC for purposes of the REIT
asset tests and income tests as described below. Each qualified REIT
subsidiary, therefore, will not be subject to Federal corporate income
taxation, although it may be subject to state or local taxation.
Gross Income Tests
There are three separate percentage tests relating to the sources of ATLANTIC's
gross income which must be satisfied for each taxable year. For purposes of
these tests, gross income received by ATLANTIC from partnerships or qualified
REIT subsidiaries will retain the same character in the hands of ATLANTIC as it
has in the hands of the partnership or qualified REIT subsidiary. The three
tests are as follows:
1. THE 75% TEST. At least 75% of ATLANTIC's gross income for the taxable year
must be "qualifying income". Qualifying income generally includes: (i) rents
from real property (except as modified below); (ii) interest on obligations
collateralized by mortgages on, or interests in, real property; (iii) gains
from the sale or other disposition of interests in real property and real
estate mortgages, other than gain from property held primarily for sale to
customers in the ordinary course of ATLANTIC's trade or business ("dealer
property"); (iv) dividends or other distributions on shares in other REITs, as
well as gain from the sale of such shares; (v) abatements and refunds of real
property taxes; (vi) income from the operation, and gain from the sale, of
property acquired at or in lieu of a foreclosure of the mortgage collateralized
by such property ("foreclosure property"); and (vii) commitment fees received
for agreeing to make loans collateralized by mortgages on real property or to
purchase or lease real property.
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 ATLANTIC, or an owner of 10% or more of ATLANTIC, 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 rents from real property, ATLANTIC generally must not
operate or manage the property or furnish or render services to residents,
other than through an "independent contractor" from whom ATLANTIC derives no
income, except that the "independent contractor" requirement does not apply to
the extent that the services provided by ATLANTIC 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".
2. THE 95% TEST. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of ATLANTIC'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 stock 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.
For purposes of determining whether ATLANTIC 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 ATLANTIC 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. See "--Taxation of ATLANTIC--General".
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Even if ATLANTIC 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 certain provisions of the Code. These relief
provisions will generally be available if: (i) ATLANTIC's failure to comply was
due to reasonable cause and not to willful neglect; (ii) ATLANTIC reports the
nature and amount of each item of its income included in the tests on a
schedule attached to its tax return; and (iii) any incorrect information on
this schedule is not due to fraud with intent to evade tax. If these relief
provisions apply, however, ATLANTIC 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.
3. THE 30% TEST. ATLANTIC must derive less than 30% of its gross income for
each taxable year from the sale or other disposition of: (i) real property held
for less than four years (other than foreclosure property and involuntary
conversions); (ii) stock or securities held for less than one year; and (iii)
property in a prohibited transaction. ATLANTIC does not anticipate that it will
have any substantial difficulty in complying with this test.
Annual Distribution Requirements
In order to qualify as a REIT, ATLANTIC is required to make distributions
(other than capital gain dividends) to its shareholders each year in an amount
at least equal to (i) the sum of (a) 95% of ATLANTIC'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 (ii) 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 ATLANTIC 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 ATLANTIC 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.
ATLANTIC intends to make timely distributions sufficient to satisfy the annual
distribution requirements. It is possible that ATLANTIC 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 ATLANTIC's REIT taxable income on the other hand. To
avoid any problem with the 95% distribution requirement, ATLANTIC 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 ATLANTIC fails to meet the 95% distribution requirement as a result of an
adjustment to ATLANTIC's tax return by the IRS, ATLANTIC may retroactively cure
the failure by paying a "deficiency dividend" (plus applicable penalties and
interest) within a specified period.
Absence of Earnings and Profits
The Code provides that in the case of a corporation such as ATLANTIC that was
formed as a taxable C corporation, it may qualify as a REIT for a taxable year
only if, as of the close of such year, it has no "earnings and profits"
accumulated in any non-REIT year. This requirement applies to ATLANTIC as well
as to C corporations, such as the REIT Manager and SCG Realty Services that are
acquired by a REIT in a tax free transaction. ATLANTIC believes that it has
satisfied this requirement. However, any adjustment to ATLANTIC's taxable
income for taxable years ending on or before the effective date of its REIT
election, including as a result of an examination of its returns by the IRS,
could affect the calculation of its earnings and profits as of the appropriate
measurement date.
Failure to Qualify
If ATLANTIC fails to qualify for taxation as a REIT in any taxable year and the
relief provisions do not apply, ATLANTIC will be subject to applicable federal
and state tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which ATLANTIC fails to qualify will not be deductible by ATLANTIC, nor
generally will they be required to be made under the Code. In such event, to
the extent of current and accumulated earnings and profits, all distributions
to shareholders will be taxable as ordinary income and, subject to certain
limitations in the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific
statutory provisions, ATLANTIC also will be disqualified from re-electing
taxation as a REIT for the four taxable years following the year during which
qualification was lost.
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Homestead Mortgages
ATLANTIC holds mortgage notes of Homestead which are convertible into shares of
Homestead common stock. See "Certain Relationships and Transactions--Funding
Commitment Agreement". Pursuant to the terms of the funding commitment
agreement, ATLANTIC has agreed to fund $1,133,535 for each $1,000,000 of
convertible mortgage loans. Accordingly, ATLANTIC is treated as having acquired
the convertible mortgage loans at a premium which ATLANTIC is entitled to
amortize as an offset to interest income (with a corresponding reduction in
ATLANTIC's tax basis) under a constant yield method over the terms of the
convertible mortgage notes if (as ATLANTIC intends) an election under Section
171 of the Code is made. Interest paid by Homestead to ATLANTIC on the mortgage
notes constitutes qualified income for purposes of determining whether ATLANTIC
meets the gross income requirements for REIT qualification.
The terms of the mortgages provide for adjustment of the price for conversion
of the mortgages into the Homestead common stock if Homestead makes certain
distributions of stock, cash or other property to its shareholders. If
Homestead makes a distribution of cash or property resulting in an adjustment
to the conversion price, ATLANTIC, as a holder of such convertible mortgages,
may be viewed as receiving a "deemed distribution" under Section 305 of the
Code, even if ATLANTIC does not hold any Homestead common stock at such time.
The deemed distribution would constitute a taxable dividend, taxable as
ordinary income, to the extent that the earnings and profits of Homestead were
allocable to the deemed distribution. The amount of the deemed distribution
which exceeded the allocated earnings and profits of Homestead would be
considered a return of capital and would reduce ATLANTIC's tax basis in the
convertible mortgages (but not below zero) by the value of the deemed
distribution. To the extent that the value of the deemed distribution exceeds
ATLANTIC's tax basis in the convertible mortgages, the deemed distribution
would result in gain to ATLANTIC. ATLANTIC's tax basis in the convertible
mortgages would then immediately be increased by the value of the property
deemed to have been distributed.
Except as discussed below with respect to cash received in lieu of fractional
shares of Homestead common stock, ATLANTIC will not recognize gain or loss upon
the exercise of the conversion right. ATLANTIC's tax basis in the Homestead
common stock received upon the conversion will be equal to ATLANTIC's tax basis
in the mortgages converted. Upon conversion of the mortgages, ATLANTIC will
receive cash in lieu of any fractional shares of Homestead common stock and
will recognize gain to the extent that the cash received exceeds ATLANTIC's tax
basis in the portion of the mortgages converted for cash in lieu of fractional
shares. In the event that ATLANTIC exercises its conversion right, it is
expected that ATLANTIC, consistent with its status as a REIT, will shortly
thereafter distribute to its shareholders or sell in the open market the
Homestead common stock received. ATLANTIC will recognize gain upon such
distribution or sale of the Homestead common stock received upon conversion in
an amount equal to the excess of the fair market value of the Homestead common
stock over ATLANTIC's tax basis therein, and the earnings and profits of
ATLANTIC will be increased by the amount of any such gain recognized. In
computing its taxable income for the year in which any Homestead common stock
is distributed, ATLANTIC will be allowed a dividends-paid deduction in an
amount equal to the fair market value at the time of distribution of the
Homestead common stock distributed, but in no event in excess of the earnings
and profits of ATLANTIC.
The various income and asset tests described above may limit ATLANTIC's
ability, consistent with its qualification as a REIT, to hold and/or convert
the convertible mortgage notes, or the Homestead common stock into which such
notes may be converted, and may force a sale or disposition at a time that is
not otherwise economically advantageous to ATLANTIC. For example, depending
upon the relative values of the Homestead common stock, the convertible
mortgage notes, and ATLANTIC's other assets, it may be necessary for ATLANTIC
to (i) delay or accelerate the conversion of convertible mortgage notes into
Homestead common stock, (ii) convert mortgage notes into Homestead common stock
and promptly sell or distribute that stock at a less than optimal point in time
or (iii) convert mortgage notes into Homestead common stock and sell such
Homestead common stock in separate transactions extending over a period of time
rather than in a single transaction or in a single calendar quarter or tax
year.
TAXATION OF NOTE HOLDERS
General
The following discussion is a summary of certain U.S. federal income tax
considerations relevant to the purchase, ownership and disposition of the Notes
by the holders thereof. This summary does not purport to
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be a complete analysis of all the potential federal income tax effects relating
to the purchase, ownership and disposition of the Notes. The following
discussion is not exhaustive of all possible tax considerations and does not
give a detailed discussion of any state, local or foreign tax considerations,
nor does it address all aspects of taxation that may be relevant to particular
purchasers in light of their individual circumstances (including dealers in
securities, insurance companies, financial institutions, tax-exempt entities
and other taxpayers who are subject to special treatment under U.S. federal
income tax laws). The discussion below assumes that the Notes are held as
capital assets and only addresses holders who are initial purchasers of the
Notes. Because individual circumstances may differ, each prospective purchaser
of the Notes is strongly urged to consult its own tax advisor with respect to
its particular tax situation and the particular tax effects of any state,
local, non-U.S., or other tax laws and possible changes in the tax law.
As used herein, the term, "U.S. Holder" means a beneficial owner of a Note who
or which is for U.S. federal income tax purposes (i) a citizen or resident of
the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate the income of which is subject to U.S.
federal income taxation regardless of its source, or (iv) a "U.S. Trust." A
U.S. Trust is (a) for taxable years beginning after December 31, 1996, or if
the trustee of a trust elects to apply the following definition to an earlier
taxable year ending after August 20, 1996, any trust if, and only if, (i) a
court within the United States is able to exercise primary supervision over the
administration of the trust and (ii) one or more U.S. trustees have the
authority to control all substantial decisions of the trust and (b) for all
other taxable years, any trust whose income is includible in gross income for
U.S. federal income tax purposes regardless of its source. The term U.S. Holder
also includes certain former U.S. citizens whose income and gain on the Notes
will be subject to U.S. taxation. As used herein, the term "Non-U.S. Holder"
means a beneficial owner of a Note that is not a U.S. Holder.
U.S. Holders
Interest paid on a Note will generally be taxable to a U.S. Holder as ordinary
interest income at the time it accrues or is received in accordance with the
U.S. Holder's method of accounting for federal income tax purposes. Upon the
sale, exchange or retirement of a Note, a U.S. Holder will recognize taxable
gain or loss equal to the difference between the amount realized on the sale,
exchange or retirement (not including any amount attributable to accrued but
unpaid interest) and such holder's adjusted tax basis in the Note. A U.S.
Holder's adjusted tax basis in a Note will equal the cost of the Note to such
holder increased by the amount of any accrued but unpaid interest previously
included in income by the U.S. Holder with respect to such Note. Gain or loss
realized on the sale, exchange or retirement of a Note by a U.S. Holder will be
capital gain or loss, and will be long-term capital gain or loss if at the time
of the sale, exchange or retirement the Note has been held for more than one
year. Net capital gain is taxed at a lower rate than ordinary income for
certain non-corporate taxpayers, but not for corporate taxpayers. The
distinction between capital gain or loss and ordinary income or loss is also
relevant for purposes of, among other things, limitations on the deductibility
of capital losses.
Non-U.S. Holders
On April 15, 1996, proposed Treasury Regulations (the "1996 Proposed
Regulations") were issued which, if adopted in final form, could affect the
U.S. taxation of Non-U.S. Holders. The 1996 Proposed Regulations are generally
proposed to be effective for payments after December 31, 1997, regardless of
the issue date of the Note with respect to which such payments are made,
subject to certain transition rules. It cannot be predicted at this time
whether the 1996 Proposed Regulations will become effective as proposed or
what, if any, modifications may be made to them. The discussion under this
heading and under "--Backup Withholding and Information Reporting" below, is
not intended to be a complete discussion of the provisions of the 1996 Proposed
Regulations, and prospective Non-U.S. Holders of Notes are urged to consult
their tax advisors with respect to the effect the 1996 Proposed Regulations may
have if adopted.
Payments of interest on the Notes by ATLANTIC or any paying agent to a
beneficial owner of a Note that is a Non-U.S. Holder will not be subject to
U.S. federal withholding tax, provided that, (i) such holder does not own,
actually or constructively, 10 percent or more of the total combined voting
power of all classes of stock of ATLANTIC entitled to vote, (ii) such holder is
not, for U.S. federal income tax purposes, a controlled foreign corporation
related, directly or indirectly, to ATLANTIC through stock ownership, (iii)
such holder is not a bank receiving interest described in Section 881(c)(3)(A)
of the Code, and (iv) certain certification requirements (summarized below) are
met. If a Non-U.S. Holder of a Note is engaged in a trade or business in the
United States, and if interest on the Note is effectively connected with the
conduct of such trade or business (and, if certain tax treaties apply, is
attributable to a U.S. permanent establishment
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maintained by the Non-U.S. Holder), the Non-U.S. Holder, although exempt from
U.S. withholding tax, will generally be subject to regular U.S. income tax on
such interest in the same manner as if it were a U.S. Holder. In addition, if
such Non-U.S. Holder is a foreign corporation, it may be subject to a branch
profits tax equal to 30% (or such lower rate provided by an applicable treaty)
of its effectively connected earnings and profits for the taxable year, subject
to certain adjustments. For purposes of the branch profits tax, interest on a
Note will be included in the earnings and profits of such Non-U.S. Holder if
such interest is effectively connected with the conduct by the Non-U.S. Holder
of a trade or business in the United States.
Under current Treasury Regulations, in order to obtain the exemption from
withholding tax described in the first sentence of the preceding paragraph,
either (i) the beneficial owner of a Note must certify on IRS Form W-8 or a
substitute form that is substantially similar to Form W-8, under penalties of
perjury, to ATLANTIC or paying agent, as the case may be, that such owner is a
Non-U.S. Holder and must provide such owner's name and address or (ii) a
securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business (a
"Financial Institution") and holds the Note on behalf of the beneficial owner
thereof must certify, under penalties of perjury, to ATLANTIC or paying agent,
as the case may be, that such certificate has been received from the beneficial
owner by it or by a Financial Institution between it and the beneficial owner
and must furnish the payor with a copy thereof. A certificate described in this
paragraph is effective only with respect to payments of interest made to the
certifying Non-U.S. Holder after delivery of the certificate in the calendar
year of its delivery and the two immediately succeeding calendar years. In lieu
of the certificate described in this paragraph, a Non-U.S. Holder engaged in a
trade or business in the United States (with which interest payments on the
Note are effectively connected) must provide to ATLANTIC a properly executed
IRS Form 4224 in order to claim an exemption from withholding tax.
The 1996 Proposed Regulations provide optional documentation procedures
designed to simplify compliance by withholding agents. The 1996 Proposed
Regulations also add "intermediary certification" options for certain
qualifying withholding agents. Under one such option, a withholding agent would
be allowed to rely on IRS Form W-8 furnished by a financial institution or
other intermediary on behalf of one or more beneficial owners (or other
intermediaries) without having to obtain the beneficial owner certificate
described in the preceding paragraph, provided that the financial institution
or intermediary has entered into a withholding agreement with the IRS and thus
is a "qualified intermediary." Under another option, an authorized foreign
agent of a U.S. withholding agent would be permitted to act on behalf of the
U.S. withholding agent, provided certain conditions are met.
The 1996 Proposed Regulations, if adopted, would also provide certain
presumptions with respect to withholding for holders not providing the required
certifications to qualify for the withholding exemption described above. In
addition, the 1996 Proposed Regulations would replace a number of current tax
certification forms (including IRS Form W-8 and IRS Form 4224) with a single,
restated form (IRS Form W-8) and standardize the period of time for which
withholding agents could rely on such certifications.
Under current law, a Non-U.S. Holder of a Note generally will not be subject to
U.S. federal income tax on any gain recognized on the sale, exchange or other
disposition of such Note, unless (i) the gain is effectively connected with the
conduct of a trade or business in the United States of the non-U.S. holder
(and, if certain tax treaties apply, is attributable to a U.S. permanent
establishment maintained by the Non-U.S. Holder) or (ii) the Non-U.S. Holder is
an individual who holds the Note as a capital asset, is present in the United
States for 183 days or more in the taxable year of the disposition and either
(a) such individual has a U.S. "tax home" (as defined for U.S. federal income
tax purposes) or (b) the gain is attributable to an office or other fixed place
of business maintained in the United States by such individual. In the case of
a Non-U.S. Holder that is described under clause (i) above, its gain will be
subject to the U.S. federal income tax on net income that applies to U.S.
persons and, in addition, if such Non-U.S. Holder is a foreign corporation, it
may be subject to the branch profits tax. An individual Non-U.S. Holder that is
described under clause (ii) above will be subject to a flat 30% on any tax gain
derived from the sale, which may be offset by U.S. capital losses
(notwithstanding the fact that he or she is not considered a U.S. resident).
Thus, individual Non-U.S. Holders who have spent 183 days or more in the United
States in the taxable year in which they contemplate a sale of a Note are urged
to consult their tax advisers as to the tax consequences of such sale.
A Note held by an individual who is not a citizen or resident (as specially
defined for U.S. federal estate tax purposes) of the United States at the date
of his or her death will not be subject to U.S. federal estate tax as a result
of such individual's death, provided that, at the time of such individual's
death, the individual does
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not own, actually or constructively, 10 percent or more of the total combined
voting power of all classes of stock of ATLANTIC entitled to vote and payments
with respect to such Note would not have been effectively connected with the
conduct by such individual of a trade or business in the United States.
Backup Withholding and Information Reporting
Under current U.S. federal income tax law, information reporting requirements
apply to interest and principal payments made to, and to the proceeds of sales
before maturity by, certain non-corporate U.S. Holders. In addition, a 31%
backup withholding tax requirement applies to certain payments of interest on,
and the proceeds of a sale, exchange or redemption of, the Notes.
Backup withholding will generally not apply with respect to payments made to
certain exempt recipients such as corporations or other tax-exempt entities. In
the case of a non-corporate U.S. Holder, backup withholding will apply only if
such holder (i) fails to furnish its taxpayer identification number ("TIN")
which for an individual would be his Social Security number, (ii) furnishes an
incorrect TIN, (iii) is notified by the IRS that it has failed to properly
report payments of interest and dividends or (iv) under certain circumstances,
fails to certify, under penalties of perjury, that it has furnished a correct
TIN and has not been notified by the IRS that it is subject to backup
withholding for failure to report interest and dividend payments.
In the case of a Non-U.S. Holder, under current Treasury Regulations, backup
withholding and information reporting will not apply to payments made by
ATLANTIC or any paying agent thereof on a Note if such holder has provided the
required certification under penalties of perjury that it is not a U.S. Holder
or has otherwise established an exemption, provided in each case that ATLANTIC
or such paying agent, as the case may be, does not have actual knowledge that
the payee is a U.S. Holder.
Under current Treasury Regulations, if payments on a Note are made to or
through a foreign office of a custodian, nominee or other agent acting on
behalf of a beneficial owner of a Note, such custodian, nominee or other agent
will not be required to apply backup withholding to such payments made to such
beneficial owner. However, under the 1996 Proposed Regulations, backup
withholding may apply if such custodian, nominee or other agent has actual
knowledge that the payee is a U.S. Holder. In the case of payments made to or
through the foreign office of a custodian, nominee or other agent that is (i) a
U.S. Person, (ii) a controlled foreign corporation for U.S. tax purposes or
(iii) a foreign person 50% or more of the gross income of which for the three-
year period ending with the close of its taxable year preceding the year of
payment is effectively connected with the conduct of a trade or business within
the United States, information reporting (but not backup withholding) is
required unless the custodian, nominee or other agent has documentary evidence
in its files that the payee is not a U.S. person and certain other conditions
are met, or the payee otherwise establishes an exemption.
Under current Treasury Regulations, payments on the sale, exchange or other
disposition of a Note made to or through a foreign office of a broker generally
will not be subject to backup withholding. However, under the 1996 Proposed
Regulations, backup withholding may apply if such broker has actual knowledge
that the payee is a U.S. Holder. In the case of proceeds from a sale of a Note
by a Non-U.S. Holder paid to or through the foreign office of a U.S. broker or
a foreign office of a foreign broker that is (i) a controlled foreign
corporation for U.S. tax purposes or (ii) a person 50% or more of whose gross
income for the three-year period ending with the close of the taxable year
preceding the year of payment (or for the part of that period that the broker
has been in existence) is effectively connected with the conduct of a trade or
business within the United States, information reporting (but not backup
withholding) is required unless the broker has documentary evidence in its
files that the payee is not a U.S. person and certain other conditions are met,
or the payee otherwise establishes an exemption. Payments to or through the
U.S. office of a broker will be subject to backup withholding and information
reporting unless the holder certifies, under penalties of perjury, that it is
not a U.S. Holder and that certain other conditions are met or otherwise
establishes an exemption.
The 1996 Proposed Regulations would, if adopted, alter the foregoing rules as
described above and in other certain respects. In particular, the 1996 Proposed
Regulations would provide certain presumptions under which Non-U.S. Holders may
be subject to backup withholding in the absence of required certifications.
Holders of Notes should consult their tax advisors regarding the application of
backup withholding in their particular situations, the availability of an
exemption therefrom, and the procedure for obtaining such an exemption, if
available. Any amounts withheld from payment under the backup withholding rules
will be
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allowed as a credit against a holder's U.S. federal income tax liability and
may entitle such holder to a refund, provided that the required information is
furnished to the IRS.
TAX EFFECTS OF THE MERGER
General
The following discussion summarizes the material U.S. federal income tax
considerations of the Merger to ATLANTIC. The following discussion is based
upon the current provisions of the Code, its legislative history,
administrative pronouncements, judicial decisions and Treasury regulations,
all of which are subject to change, possibly with retroactive effect. The
following discussion does not purport to be a complete discussion of all U.S.
federal income tax considerations. The following discussion does not address
the tax consequences of the Merger under state, local or non-U.S. tax laws.
The Merger
In the opinion of Mayer, Brown & Platt, based on certain representations of
Security Capital and ATLANTIC, the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code. Accordingly, ATLANTIC will not recognize income, gain or loss upon the
consummation of the Merger (assuming that ATLANTIC makes the election
described under "--Built-in Gain Rules" below). In addition, the Merger will
not result in a taxable event to the ATLANTIC shareholders. Nonetheless, such
opinion is not binding on the IRS nor will it preclude the IRS from adopting a
contrary position. Moreover, since no ruling from the IRS will be sought with
respect to the federal income tax consequences of the Merger, there can be no
complete assurance that the IRS will agree with the conclusions set forth
herein. The discussion below assumes that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code.
Basis and Holding Period. Immediately following the closing date of the
Merger, the assets of the REIT Manager and SCG Realty Services in the hands of
ATLANTIC will have the same adjusted tax basis as they had in the hands of the
REIT Manager and SCG Realty Services immediately prior to the closing date of
the Merger. The holding period for each of the assets of the REIT Manager and
SCG Realty Services in the hands of ATLANTIC following the closing date of the
Merger will include the period each asset was held by the REIT Manager and SCG
Realty Services immediately prior to the closing date of the Merger.
Built-in Gain Rules. Under the "Built-in Gain Rules" of IRS Notice 88-19,
1988-1 C.B. 486, ATLANTIC will be subject to a corporate level tax if it
disposes of any of the appreciated assets acquired from Security Capital in
the Merger at any time during the 10-year period beginning on the closing date
of the Merger (the "Restriction Period"). This tax would be imposed on
ATLANTIC at the top regular corporate rate (currently 35%) in effect at the
time of the disposition on the excess of (i) the lesser of (a) the fair market
value on the closing date of the assets disposed of or (b) the selling price
of such assets over (ii) ATLANTIC's adjusted basis on the closing date in such
assets (such excess being referred to as the "Built-in Gain"). ATLANTIC
currently does not intend to dispose of any of the assets acquired in the
Merger during the Restriction Period, but there can be no assurance that one
or more of such dispositions will not occur. The results described above with
respect to the recognition of Built-in Gain assume that ATLANTIC will make the
appropriate election pursuant to the Built-in Gain Rules or applicable future
administrative rules or Treasury regulations. Under the Merger Agreement,
ATLANTIC has covenanted to make this election.
Liability for Other Taxes. Pursuant to the Merger Agreement, Security Capital
will be responsible for income tax liabilities attributable to the operations
of the REIT Manager and SCG Realty Services through the consummation of the
Merger. However, ATLANTIC, as successor to the REIT Manager and SCG Realty
Services in the Merger, will be severally liable (together with Security
Capital and the members of its "affiliated group" within the meaning of
Section 1502 of the Code) for income tax liabilities of Security Capital and
the members of its "affiliated group" for periods prior to and including the
year in which the consummation of the Merger occurs. Security Capital,
however, has agreed to indemnify and hold harmless ATLANTIC from and against
any income tax liabilities of the REIT Manager and SCG Realty Services for all
periods prior to the closing date of the Merger and any income tax liabilities
of Security Capital and the members of its "affiliated group".
Consequences of the Merger on ATLANTIC's Qualification as a REIT. In light of
the unique federal income tax requirements applicable to REITs, the Merger
could have adverse consequences on ATLANTIC's continued qualification as a
REIT. In the opinion of Mayer, Brown & Platt, based upon certain
representations of Security Capital and ATLANTIC, the consummation of the
Merger and related transactions will not jeopardize the status of ATLANTIC as
a REIT under the Code.
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OTHER TAX CONSIDERATIONS
Tax on Built-in Gain
Pursuant to I.R.S. Notice 88-19, 1988-1 C.B. 486, a "C" corporation that elects
to be taxed as a REIT has to recognize any gain that would have been realized
if the "C" corporation had sold all of its assets for their respective fair
market values at the end of its last taxable year before the taxable year in
which it qualifies to be taxed as a REIT and immediately liquidated unless the
REIT elects to be taxed under rules similar to the rules of Section 1374 of the
Code.
Since ATLANTIC has made this election, if during the 10-year period beginning
on the first day of the first taxable year for which ATLANTIC qualifies as a
REIT (the "Recognition Period"), ATLANTIC recognizes gain on the disposition of
any asset held by ATLANTIC as of the beginning of such Recognition Period,
then, to the extent of the excess of (a) the fair market value of such asset as
of the beginning of such Recognition Period over (b) ATLANTIC's adjusted basis
in such asset as of the beginning of such Recognition Period, such gain will be
subject to tax at the highest regular corporate rate. Because ATLANTIC acquired
many of its communities in fully taxable transactions and presently expects to
hold each community beyond the Recognition Period, it is not anticipated that
ATLANTIC will pay a substantial corporate level tax on its built-in gain.
Possible Legislative or Other Actions Affecting Tax Consequences
Prospective investors should recognize that the present federal income tax
treatment of an investment in the Notes 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 the Notes.
In particular, the Taxpayer Relief Act of 1997 (H.R. 2014)(the "Revenue Act")
was recently passed by both the United States House of Representatives (the
"House") and the United States Senate (the "Senate"). Among other things, the
Revenue Act would modify a number of the provisions relating to REIT taxation.
In particular, the Revenue Act would (i) replace the rule that disqualifies a
REIT for any year in which the REIT failed to comply with Treasury regulations
to ascertain its ownership with an intermediate penalty for failing to do so;
(ii) permit a REIT 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 rents from real property;
(iii) permit a REIT to elect to retain and pay income tax on net long-term
capital gains; (iv) repeal the rule that requires that less than 30% of a
REIT's gross income be derived from gain from the sale or other disposition of
stock or securities held for less than one year, certain real property held
less than four years, and property that is sold or disposed of in a prohibited
transaction; (v) lengthen the original grace period for foreclosure property
from two years after the REIT acquired the property to a period ending on the
last day of the third full taxable year following the foreclosure property
election; (vi) treat income from all hedges, not just interest rate swaps and
caps, that reduce the interest rate risk of REIT liabilities as qualifying
income under the 95% gross income test; (vii) permit any corporation wholly-
owned by a REIT to be treated as a qualified subsidiary, regardless of whether
the corporation has always been owned by the REIT; and (viii) modify various
other REIT limitations and provisions. It is not possible at this time to
predict whether such tax legislation will be enacted in its current form, or
the effective date of any such tax legislation.
State and Local Taxes
ATLANTIC 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 ATLANTIC may not conform to the federal income tax
consequences discussed above. Consequently, prospective investors should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in the Notes.
EACH PROSPECTIVE PURCHASER OR HOLDER OF NOTES IS ADVISED TO CONSULT WITH HIS OR
HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF
THE PURCHASE, OWNERSHIP AND SALE OF NOTES OF 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.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated the
date hereof (the "Underwriting Agreement"), the underwriters (the
"Underwriters") named below have severally agreed to purchase, and ATLANTIC has
agreed to sell to them, severally, the respective principal amounts of Notes
set forth opposite their names below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF NOTES
---------------------
UNDERWRITERS 2011 NOTES 2017 NOTES
------------ ---------- ----------
<S> <C> <C>
J.P. Morgan Securities Inc..........................
Goldman, Sachs & Co.................................
-------- --------
Total........................................... $ $
======== ========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the Underwriters
are obligated to take and pay for all of the Notes if any are taken.
The Underwriters have advised ATLANTIC that they propose initially to offer the
Notes directly to the public at the public offering prices set forth on the
cover page hereof and to certain dealers at such prices
less a concession not in excess of % of the principal amount at maturity of
the 2011 Notes and % of the principal amount at maturity of the 2017 Notes.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of % of the principal amount at maturity of the Notes to certain
other dealers. After the initial public offering of the Notes, the offering
prices and such concessions may be changed.
The Notes are a new issues of securities with no established trading market.
ATLANTIC has been advised by the Underwriters that the Underwriters intend to
make a market in the Notes but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading markets for the Notes.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the prices of the Notes.
Specifically, the Underwriters may overallot the Offering, creating a syndicate
short position. In addition, the Underwriters may bid for, and purchase, in the
open market to cover syndicate shorts or to stabilize the prices of the Notes.
Finally, the underwriting syndicate may reclaim selling concessions allowed for
distributing the Notes in the Offering, if the syndicate repurchases previously
distributed Notes in syndicate covering transactions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain
the prices of the Notes above independent market levels. The Underwriters are
not required to engage in these activities, and may end any of these activities
at any time.
ATLANTIC has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act.
In the ordinary course of their respective businesses, affiliates of J.P.
Morgan Securities Inc. have engaged, and may in the future engage, in
investment banking and/or commercial banking transactions with ATLANTIC and its
affiliates. It is expected that approximately 100% of the net proceeds of the
Offering will be applied to repay borrowings under ATLANTIC's $350 million
unsecured line of credit with MGT, an affiliate of J.P. Morgan Securities Inc.,
as agent for a syndicate of banks. See "Use of Proceeds".
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CONCURRENT PREFERRED SHARE OFFERING
At or about the same time as the Offering, ATLANTIC may offer approximately $50
million (which may increase or decrease subject to market conditions) of its
Series A Preferred Shares in the Preferred Share Offering. The closing of the
Offering will not be conditioned upon the closing of the Preferred Share
Offering, nor will the closing of the Preferred Share Offering be conditioned
upon the closing of the Offering.
Holders of the Series A Preferred Shares will be entitled to receive cumulative
preferential cash distributions at the rate specified in the Articles
Supplementary relating thereto. Such distributions will accrue whether or not
ATLANTIC has earnings, whether or not there are funds legally available for the
payment of such distributions and whether or not such distributions are
declared. ATLANTIC will be restricted from declaring or paying distributions
on, or redeeming, any securities ranking junior to or on a parity with the
Series A Preferred Shares unless full cumulative distributions have been or are
declared and paid or declared and set apart for payment on the Series A
Preferred Shares for all past and then current distribution periods. Holders of
Series A Preferred Shares will also be entitled to receive preferential
liquidating distributions in the amount of the liquidation preference specified
in the Articles Supplementary relating thereto, plus an amount equal to all
distributions accrued and unpaid thereon.
The Series A Preferred Shares will be redeemable after a specified date by
ATLANTIC for cash at the redemption price specified in the Articles
Supplementary relating thereto, plus all accrued and unpaid distributions. In
addition, the Series A Preferred Shares will be redeemable by ATLANTIC in order
to preserve ATLANTIC's status as a REIT.
The Holders of Series A Preferred Shares will have no voting rights, unless
distributions required to be paid on the Series A Preferred Shares have not
been paid for a specified time, in which case such holders will be entitled to
elect additional Directors to the Board. In addition, the holders of the Series
A Preferred Shares will be entitled to vote on proposals to (i) amend the
Charter, (ii) enter into a share exchange, consolidate with or merge into
another entity or permit another entity to consolidate with or merge into
ATLANTIC or (iii) authorize, reclassify, create or increase the authorized
amount of any senior class of securities.
The Series A Preferred Shares will not be convertible into or exchangeable for
any other property or securities of ATLANTIC.
INDEPENDENT AUDITORS AND EXPERTS
The financial statements of ATLANTIC at December 31, 1996 and 1995 and for each
of the three years in the period ended December 31, 1996 and related schedule
as of December 31, 1996, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included herein. Such financial
statements are included herein in reliance on their report given on their
authority as experts in accounting and auditing.
With respect to the unaudited condensed interim financial information for the
three-month periods ended March 31, 1997 and March 31, 1996, included herein,
Ernst & Young LLP have reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate report states that they did not audit and they do not
express an opinion on that interim financial information. Accordingly, the
degree of reliance on their report on such information should be restricted
considering the limited nature of the review procedures applied. The
independent auditors are not subject to the liability provisions of Section 11
of the Act for their report on the unaudited interim financial information
because that report is not a "report" or a "part" of the Registration Statement
prepared or certified by the auditors within the meaning of Sections 7 and 11
of the Act.
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VALIDITY OF NOTES
The validity of the issuance of the Notes offered pursuant to this Prospectus
will be passed upon for ATLANTIC by Mayer, Brown & Platt, Chicago, Illinois.
Certain legal matters will be passed upon for the Underwriters by Skadden,
Arps, Slate, Meagher & Flom LLP, New York, New York. Mayer, Brown & Platt has
in the past represented, and is currently representing, ATLANTIC, Security
Capital and certain of their affiliates. As to certain matters of Maryland law,
Mayer, Brown & Platt will rely upon the opinion of Ballard Spahr Andrews &
Ingersoll, Baltimore, Maryland.
ADDITIONAL INFORMATION
ATLANTIC is subject to the informational requirements of the Exchange Act and,
in accordance therewith, files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission: Seven
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
reports, proxy statements and other information can also be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005. In addition,
such reports, proxy statements and other information can also be obtained from
the Commission's Web site at http://www.sec.gov.
This Prospectus constitutes a part of a Registration Statement filed by
ATLANTIC with the Commission under the Securities Act. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations
of the Commission. Statements contained in this Prospectus as to the content of
any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document
incorporated by reference in, or filed as an exhibit to, the Registration
Statement, each such statement being qualified in all respects by such
reference and the exhibits and schedules hereto. For further information
regarding ATLANTIC and the Notes offered hereby, reference is hereby made to
the Registration Statement and such exhibits and schedules.
112
<PAGE>
GLOSSARY
"1996 Proposed Regulations" means the proposed Treasury Regulations which were
issued on April 15, 1996.
"ADA" means the Americans with Disabilities Act of 1990.
"Administrative Services Agreement" means the administrative services agreement
to be entered into between ATLANTIC and Security Capital upon the closing of
the Merger.
"Administrator" means the Secretary of ATLANTIC as administrator of the Outside
Directors Plan.
"Amended and Restated Investor Agreement" means the Amended and Restated
Investor Agreement to be entered into between Security Capital and ATLANTIC
upon the closing of the Merger.
"ASE" means the American Stock Exchange.
"ATLANTIC" means, as the context may require, Security Capital Atlantic
Incorporated, a Maryland corporation formed in April 1994, and/or its
predecessor and its subsidiaries.
"Atlantic Development Services" means Atlantic Development Services
Incorporated, an entity in which ATLANTIC owns substantially all of the
economic interest.
"Board" means ATLANTIC's Board of Directors.
"Capital Markets Group" means Security Capital Markets Group Incorporated, an
affiliate of the REIT Manager and a registered broker-dealer.
"Charter" means the charter of ATLANTIC.
"Class A Stock" means shares of Security Capital's Class A common stock, par
value $.01 per share.
"Class B Stock" means shares of Security Capital's Class B common stock, par
value $.01 per share.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Compensation Committee" means the Compensation Committee of the Board.
"Debt Securities" means the debt securities issued by ATLANTIC pursuant to the
Indenture.
"DTC" means the Depository Trust Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FHA" means the Fair Housing Amendments Act of 1988.
"Financial Statements" means the annual reports, quarterly reports and other
documents which ATLANTIC is required to file pursuant to Section 13 and 15(d)
of the Exchange Act.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980.
"FNMA" means the Federal National Mortgage Association.
"Funds from operations" means net earnings (computed in accordance with GAAP),
excluding gains (or losses) from real estate transactions, provisions for
losses, extraordinary items and depreciation, and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures are calculated to reflect funds from operations
on the same basis.
113
<PAGE>
"GAAP" means generally accepted accounting principles.
"Global Securities" means the global securities registered in the name of DTC
or its nominee.
"Historical Financial Results" means selected financial information on an
historical basis for ATLANTIC as of and for the years ended December 31, 1996,
1995 and 1994 and the period from inception (October 26, 1993) through December
31, 1993.
"Homestead" means Homestead Village Incorporated, a Maryland corporation.
"Homestead Assets" means the assets ATLANTIC sold to Homestead on October 17,
1996.
"Homestead Distribution" means the distribution on November 12, 1996 by
ATLANTIC of 0.110875 shares of Homestead common stock and warrants to purchase
0.074384 shares of Homestead common stock to each holder of a Share on October
29, 1996.
"Incentive Plan" means the 1997 Incentive Plan adopted by the Board, subject to
shareholder approval.
"Indenture" means the Indenture, dated as of August , 1997, between ATLANTIC
and State Street Bank and Trust Company.
"In planning" means communities owned or under control by ATLANTIC (land which
is under control through contingent contract or letter of intent) with
construction anticipated to commence within 12 months.
"Investor Agreement" means the Investor Agreement dated October 28, 1993
between Security Capital and ATLANTIC.
"IRS" means the Internal Revenue Service.
"Laing" means Laing Properties, Inc.
"License Agreement" means the license agreement to be entered into between
ATLANTIC and Security Capital upon the closing of the Merger.
"Merger" means the merger of the REIT Manager and SCG Realty Services into a
newly formed subsidiary of ATLANTIC.
"Merger Agreement" means the Merger and Issuance Agreement dated March 24, 1997
between Security Capital and ATLANTIC relating to the Merger.
"Named Executive Officers" means the Co-Chairmen and the three other most
highly compensated executive officers of ATLANTIC.
"Non-U.S. Holder" means a beneficial owner of a Note that is not a U.S. Holder.
"NAREIT" means the National Association of Real Estate Investment Trusts.
"Notes" means unsecured senior debt securities of ATLANTIC which are offered by
this Prospectus.
"NYSE" means the New York Stock Exchange, Inc.
"Offering" means the offering of Notes to the public by the Underwriters
pursuant to this Prospectus.
"Offerings" means the Offering together with the Preferred Share Offering.
"Options" means options to acquire Shares granted pursuant to the Outside
Directors Plan.
"Outside Directors" means the Directors of ATLANTIC who are not employees or
officers of ATLANTIC or Security Capital or any of its affiliates.
"Outside Directors Plan" means the Security Capital Atlantic Incorporated Share
Option Plan for Outside Directors.
114
<PAGE>
"Preferred Share Offering" means the offering of Series A Cumulative Redeemable
Shares of Preferred Stock.
"Pro Forma Financial Results" means selected financial information on a pro
forma basis for ATLANTIC as of and for the three months ended March 31, 1997
and the year ended December 31, 1996.
"Protection of Business Agreement" means the protection of business agreement
to be entered into between ATLANTIC and Security Capital upon the closing of
the Merger.
"PTR" means Security Capital Pacific Trust, a publicly traded REIT managed by
an affiliate of Security Capital.
"Recognition Period" means the 10-year period beginning on the first day of the
first taxable year for which ATLANTIC qualifies as a REIT.
"REIT" means a real estate investment trust as defined under the Code.
"REIT Management Agreement" means the REIT management agreement pursuant to
which the REIT Manager assumed the day-to-day management of ATLANTIC.
"REIT Manager" or "REIT Management" means Security Capital (Atlantic)
Incorporated, a wholly owned subsidiary of Security Capital.
"Required Filing Dates" means the dates on which ATLANTIC is required to file
its Financial Statements pursuant to Section 13 and 15(d) of the Exchange Act.
"Restriction Period" means the 10-year period beginning on the closing date of
the Merger.
"RIM" means the Regional Information Management Center.
"SCG Realty Services" means SCG Realty Services Atlantic Incorporated, an
affiliate of the REIT Manager.
"SCI" means Security Capital Industrial Trust, a publicly traded REIT managed
by an affiliate of Security Capital.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Capital" means Security Capital Group Incorporated, ATLANTIC's
principal shareholder and the owner of the REIT Manager.
"Security Capital Real Estate Research" means Security Capital Real Estate
Research Group Incorporated, an affiliate of the REIT Manager.
"Series A Preferred Shares" means shares of Series A Cumulative Redeemable
Preferred Stock, par value, $.01 per share, of ATLANTIC which are proposed to
be offered in the Preferred Share Offering.
"Shares" means the shares of common stock, par value $.01 per share, of
ATLANTIC.
"Stabilized" means that renovation, repositioning, new management and new
marketing programs (or development and marketing in the case of newly developed
communities) have been completed and in effect for a sufficient period of time
(but in no event longer than 12 months, except in cases of major
rehabilitation) to achieve 93% occupancy at market rents. Prior to being
"stabilized", a community is considered "pre-stabilized".
"TIN" means taxpayer identification number.
"Total expected investment cost" represents cost plus budgeted renovations (for
operating communities) or cost plus additional budgeted development
expenditures (for communities under construction and in planning).
115
<PAGE>
"Treasury" means the United States Treasury Department.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Trustee" means State Street Bank and Trust Company.
"UBTI" means unrelated business taxable income as defined under the Code.
"Under control" means that ATLANTIC has an exclusive right (through contingent
contract or letter of intent), during a contractually agreed-upon time period,
to acquire land for future development of multifamily communities, subject to
removal of contingencies during the due diligence process, but does not
currently own the land.
"Underwriters" means the Underwriters participating in the Offering.
"U.S. Holder" means a beneficial owner of a Note who or which is for U.S.
federal income tax purposes (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity created or organized in or
under the laws of the United States or of any political subdivision thereof,
(iii) an estate the income of which is subject to U.S. federal income taxation
regardless of its source, or (iv) a U.S. Trust.
"U.S. Trust" means (a) for taxable years beginning after December 31, 1996 or
an earlier taxable year ending after August 20, 1996, any trust if, and only
if, (i) a court within the United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more U.S.
trustees have the authority to control all substantial decisions of the trust
and (b) for all other taxable years, any trust whose income is includible in
gross income for U.S. federal income tax purposes regardless of its source.
"Warrant Issuance" means the issuance of warrants by Security Capital to
ATLANTIC's shareholders in connection with the Merger Agreement.
116
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HISTORICAL:
Independent Accountants' Review Report.................................. F-2
Condensed Balance Sheets as of March 31, 1997 and December 31, 1996..... F-3
Condensed Statements of Earnings for the three-month periods ended March
31, 1997 and 1996...................................................... F-4
Condensed Statements of Cash Flows for the three-month periods ended
March 31, 1997 and 1996................................................ F-5
Notes to Condensed Financial Statements................................. F-6
Report of Independent Auditors.......................................... F-13
Balance Sheets as of December 31, 1996 and 1995......................... F-14
Statements of Earnings for the years ended December 31, 1996, 1995 and
1994................................................................... F-15
Statements of Shareholders' Equity for the years ended December 31,
1994, 1995 and 1996.................................................... F-16
Statements of Cash Flows for the years ended December 31, 1996, 1995 and
1994................................................................... F-17
Notes to Financial Statements........................................... F-18
Schedule III--Real Estate and Accumulated Depreciation.................. F-32
Note to Schedule III.................................................... F-37
PRO FORMA (UNAUDITED):
Summary of Pro Forma adjustments........................................ F-38
Pro Forma Condensed Balance Sheet as of March 31, 1997.................. F-40
Pro Forma Condensed Statement of Earnings for the three-month period
ended March 31, 1997................................................... F-41
Pro Forma Condensed Statement of Earnings for the year ended December
31, 1996............................................................... F-42
Notes to Pro Forma Financial Statements................................. F-43
COMBINED HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
PURSUANT TO RULE 3-14:
Report of Independent Auditors.......................................... F-50
Group C Communities Combined Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1995......... F-51
Notes to Group C Communities Combined Historical Summary of Gross Income
and Direct Operating Expenses.......................................... F-52
Report of Independent Auditors.......................................... F-53
Group D Communities Combined Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1995......... F-54
Notes to Group D Communities Combined Historical Summary of Gross Income
and Direct Operating Expenses.......................................... F-55
Report of Independent Auditors.......................................... F-57
Group E Communities Combined Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1995......... F-58
Notes to Group E Communities Combined Historical Summary of Gross Income
and Direct Operating Expenses.......................................... F-59
</TABLE>
F-1
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Shareholders
Security Capital Atlantic Incorporated
We have reviewed the accompanying condensed balance sheet of Security
Capital Atlantic Incorporated as of March 31, 1997 and the related condensed
statements of earnings and statements of cash flows for the three-month
periods ended March 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial statements consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year, with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed financial statements for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Security Capital Atlantic Incorporated as of
December 31, 1996 and the related statements of earnings, shareholders'
equity, and cash flows for the year then ended (not presented herein) and in
our report dated February 3, 1997, we expressed an unqualified opinion on
those financial statements. In our opinion, the information set forth in the
accompanying condensed balance sheet as of December 31, 1996, is fairly
stated, in all material respects, in relation to the balance sheet from which
it has been derived.
Ernst & Young LLP
Dallas, Texas
April 24, 1997, except for Note 6,
as to which the date is May 1, 1997.
F-2
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
Real estate........................................... $1,208,229 $1,157,235
Less accumulated depreciation......................... 47,297 41,166
---------- ----------
1,160,932 1,116,069
Homestead Convertible Mortgages....................... 25,891 --
---------- ----------
Net investments................................... 1,186,823 1,116,069
Cash and cash equivalents--unrestricted............... 3,953 4,339
Cash and cash equivalents--restricted tax-deferred
exchange proceeds.................................... -- 1,672
Other assets.......................................... 13,455 12,985
---------- ----------
Total assets...................................... $1,204,231 $1,135,065
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Line of credit...................................... $ 295,250 $ 228,000
Mortgages payable................................... 155,418 155,790
Distributions payable............................... -- 14,778
Accounts payable.................................... 18,189 20,076
Accrued expenses and other liabilities.............. 20,654 17,779
---------- ----------
Total liabilities................................. 489,511 436,423
---------- ----------
Shareholders' equity:
Common shares (250,000,000 authorized, 37,891,580
issued and outstanding at March 31, 1997 and
December 31, 1996)................................. 379 379
Additional paid-in capital.......................... 747,640 747,640
Unrealized gains on Homestead Convertible Mortgages. 5,900 --
Distributions in excess of net earnings............. (39,199) (49,377)
---------- ----------
Total shareholders' equity........................ 714,720 698,642
---------- ----------
Total liabilities and shareholders' equity ....... $1,204,231 $1,135,065
========== ==========
</TABLE>
See accompanying notes to the condensed financial statements.
F-3
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE-MONTH
PERIODS
ENDED MARCH 31,
---------------
1997 1996
------- -------
<S> <C> <C>
Revenues:
Rental income................................................ $39,715 $30,809
Homestead Convertible Mortgages interest income.............. 185 --
Other interest income........................................ 57 72
------- -------
39,957 30,881
------- -------
Expenses:
Rental expenses.............................................. 9,974 8,495
Real estate taxes............................................ 3,849 3,104
Property management fees:
Paid to affiliate.......................................... 1,280 920
Paid to third parties...................................... 232 217
Depreciation................................................. 6,132 4,804
Interest..................................................... 4,761 4,342
REIT management fee paid to affiliate........................ 3,029 2,123
General and administrative................................... 265 187
Provision for possible loss on investments................... 200 --
Other........................................................ 57 39
------- -------
29,779 24,231
------- -------
Net earnings................................................... $10,178 $ 6,650
======= =======
Weighted-average shares outstanding............................ 37,892 27,777
======= =======
Net earnings per share......................................... $ 0.27 $ 0.24
======= =======
Distributions paid per share................................... $ 0.39 $ 0.42
======= =======
</TABLE>
See accompanying notes to the condensed financial statements.
F-4
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE-MONTH PERIODS
ENDED MARCH 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Operating activities:
Net earnings........................................... $ 10,178 $ 6,650
Adjustments to reconcile net earnings to net cash flow
provided by operating activities:
Depreciation and amortization........................ 6,205 5,236
Provision for possible loss on investments........... 200 --
Decrease in accounts payable......................... (2,056) (444)
Increase in accrued expenses and other liabilities... 2,884 2,076
Increase in other assets............................. (498) (1,188)
--------- ---------
Net cash flow provided by operating activities..... 16,913 12,330
--------- ---------
Investing activities:
Real estate investments................................ (51,026) (41,520)
Tax-deferred exchange proceeds held in escrow.......... 1,672 --
Fundings on Homestead Convertible Mortgages............ (20,000) --
--------- ---------
Net cash flow used by investing activities......... (69,354) (41,520)
--------- ---------
Financing activities:
Proceeds from sale of shares........................... -- 430
Proceeds from line of credit........................... 75,000 42,000
Payments on line of credit............................. (7,750) (6,000)
Proceeds from mortgage debt............................ -- 5,000
Distributions paid..................................... (14,778) (11,667)
Debt issuance costs incurred........................... (45) (281)
Regularly scheduled mortgage principal payments........ (372) (233)
--------- ---------
Net cash flow provided by financing activities..... 52,055 29,249
--------- ---------
Net increase (decrease) in cash and cash equivalents..... (386) 59
Cash and cash equivalents, beginning of period........... 4,339 6,494
--------- ---------
Cash and cash equivalents, end of period................. $ 3,953 $ 6,553
========= =========
Non-cash investing activities:
Unrealized gains on Homestead convertible mortgages.... $ 5,900 $ --
</TABLE>
See accompanying notes to the condensed financial statements.
F-5
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
NOTE 1 GENERAL
The financial statements of Security Capital Atlantic Incorporated
("ATLANTIC") as of March 31, 1997 and for the three-month periods ended March
31, 1997 and 1996 are unaudited and certain information and footnote
disclosures normally included in financial statements have been omitted. While
management of ATLANTIC believes that the disclosures presented are adequate,
these interim financial statements should be read in conjunction with the
financial statements and notes included in ATLANTIC's 1996 Annual Report on
Form 10-K.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of ATLANTIC's financial
statements for the interim periods presented. The results of operations for
the three-month periods ended March 31, 1997 and 1996 are not necessarily
indicative of the results to be expected for the entire year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2 REAL ESTATE
Real Estate
ATLANTIC's real estate, which consists entirely of multifamily communities,
at cost, was as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
----------------- --------------------
INVESTMENT UNITS INVESTMENT UNITS
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Operating communities:
Acquired........................ $ 880,634 17,727 $ 878,029 17,727
Developed....................... 75,711 1,514 74,741 1,514
---------- ------ ---------- ------
956,345 19,241 952,770 19,241
Communities under construction(1). 238,176 5,395 194,587 4,727
Communities in planning(1):
Owned........................... 11,625 1,172(2) 7,795 868(2)
Under control(3)................ -- 2,332(2) -- 2,228(2)
---------- ------ ---------- ------
11,625 3,504 7,795 3,096
Land held for future development.. 2,083 -- 2,083 --
---------- ------ ---------- ------
Total......................... $1,208,229 28,140(4) $1,157,235(4) 27,064
========== ====== ========== ======
</TABLE>
- --------
(1) At March 31, 1997, ATLANTIC had unfunded commitments for communities under
construction of $97.4 million, for a total completed construction cost of
$335.6 million. Costs for communities in planning shown above are
primarily for land acquisitions.
(2) Unit information is based on management's estimates and is unaudited and
unreviewed.
(3) ATLANTIC's investment at March 31, 1997 and December 31, 1996 in land in
planning and under control for future development was $1.2 million and
$1.4 million, respectively, and is reflected in the "Other assets" caption
of ATLANTIC's balance sheets.
(4) Of ATLANTIC's real estate, at cost, communities located in Atlanta,
Georgia aggregated 30.1% and 30.7% at March 31, 1997 and December 31,
1996, respectively.
F-6
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
The change in real estate, at cost, for the three-month period ended March
31, 1997 consisted of the following (in thousands):
<TABLE>
<S> <C>
Balance at January 1, 1997.................................... $1,157,235
Acquisition and renovation expenditures....................... 2,397
Development expenditures, including land acquisitions......... 48,279
Recurring capital expenditures................................ 518
Provision for possible loss on investments.................... (200)
----------
Balance at March 31, 1997..................................... $1,208,229
==========
</TABLE>
Gains and Losses from Dispositions or Impairments of Real Estate
ATLANTIC's real estate investments have been made with a view to effective
long-term operation and ownership. Based upon ATLANTIC's market research and
in an effort to optimize its portfolio composition, ATLANTIC may from time to
time seek to dispose of assets that no longer meet ATLANTIC's investment
criteria and redeploy the proceeds therefrom, primarily through tax-deferred
exchanges, into assets with better prospects for growth. ATLANTIC did not
dispose of any communities in the three-month period ended March 31, 1997. As
discussed below, one community was disposed of subsequent to March 31, 1997.
Long-lived investments held and used are periodically evaluated for
impairment and provisions for possible losses are made if required. At March
31, 1997, such investments are carried at cost, which is not in excess of fair
market value. ATLANTIC recognized a provision for possible loss of $200,000
during the three-month period ended March 31, 1997 and $2,500,000 during 1996
associated with a community that was being held for sale. ATLANTIC disposed of
this community in April 1997. The sales price approximated ATLANTIC's carrying
value at March 31, 1997. This community accounted for $224,000 and $236,000 of
net operating income for the three-month periods ended March 31, 1997 and
1996, respectively.
NOTE 3 HOMESTEAD CONVERTIBLE MORTGAGES
General
To provide funds for the completion of construction of the Homestead Village
assets sold by ATLANTIC in October 1996, ATLANTIC entered into a funding
commitment agreement ("Funding Agreement") which provides for aggregate
fundings of $111.1 million in exchange for convertible mortgages ("Homestead
Convertible Mortgages"). During the three-month period ended March 31, 1997
ATLANTIC funded $20.0 million.
The Homestead Convertible Mortgages (i) bear interest at 9% per annum which
is due in interest only payments on a semi-annual basis, (ii) are due October
2006, (iii) are not callable until 2001, and (iv) beginning March 31, 1997,
are convertible at ATLANTIC's option into one share of common stock of
Homestead Village Incorporated ("Homestead") for every $11.50 of principal
outstanding (approximately 8,522,000 shares upon full funding). The individual
Homestead Village development projects serve as collateral individually and in
the aggregate under cross-collateral provisions. The Homestead Convertible
Mortgages represent approximately 70% of the estimated value of the projects
upon completion.
Carrying Value
ATLANTIC will receive $98.0 million of Homestead Convertible Mortgages
assuming full funding under the Funding Agreement of $111.1 million, resulting
in the recognition of an original issue premium which will be amortized over
the term of the Homestead Convertible Mortgages. The value attributed to the
conversion
F-7
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
feature of the Homestead Convertible Mortgages issued ($6,900,000 assuming
full funding) has been recognized along with an offsetting discount in the
Homestead Convertible Mortgages balance. This discount will be amortized over
the term of the Homestead Convertible Mortgages. The carrying value of the
Homestead Convertible Mortgages has been further adjusted to fair value. The
fair value adjustment of $5,900,000 is recognized as an unrealized gain in
shareholders' equity. The amount of the adjustment is based upon the
conversion value of the Homestead Convertible Mortgages and is calculated
using the trading price of Homestead common stock at March 31, 1997 of
$16.875.
At March 31, 1997 the carrying value of the Homestead Convertible Mortgages
consisted of the following components (in thousands):
<TABLE>
<S> <C>
Face amount...................................................... $17,644
Original issue premium........................................... 2,356
-------
Amount funded.................................................... 20,000
Amortization of original issue premium........................... (20)
Initial value of conversion feature.............................. 1,243
Unamortized discount on conversion feature....................... (1,232)
Fair value adjustment............................................ 5,900
-------
Carrying value................................................. $25,891
=======
</TABLE>
Deferred Revenue
ATLANTIC received a commitment fee in the form of warrants to purchase
shares of Homestead common stock in return for entering into the Funding
Agreement. The warrants, which were distributed to ATLANTIC's shareholders,
were valued at $6,500,000. The commitment fee has been recognized as deferred
revenue in the liability section of ATLANTIC's balance sheet and is being
amortized over the term of the Homestead Convertible Mortgages.
Income Recognized
The aggregate income recognized on the Homestead Convertible Mortgages
consists of (i) the interest income recognized at 9.0% per annum, (ii) the
amortization of the original issue premium which reduces income, (iii) the
amortization of the discount on the conversion feature which increases income,
and, (iv) the amortization of the deferred commitment fee which increases
income. ATLANTIC uses the effective interest method to calculate the
amortization of all items associated with the Homestead Convertible Mortgages.
The effective interest rate on the funded amount is approximately 8.46% per
annum.
NOTE 4 LINE OF CREDIT AND MORTGAGES PAYABLE
Variable Interest Rate Swap Agreements
ATLANTIC has effectively eliminated its variable interest rate debt exposure
on all of its variable interest rate mortgages and $100 million of borrowings
on its line of credit by entering into swap agreements. Under the swap
agreements ATLANTIC pays a fixed rate of interest to a swap counterparty
pursuant to one agreement and receives a variable rate of interest from a swap
counterparty pursuant to another agreement. The amounts received from the
variable rate agreement are structured such that these amounts will closely
approximate the amount of variable interest due on the underlying line of
credit or mortgage note borrowings. The difference
F-8
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
between the variable amount received and the fixed amount paid represents
either the cost or the benefit of the interest rate swap agreement and is
recorded as an increase or decrease to the variable interest paid on the
underlying debt instrument.
Line of Credit
On December 18, 1996, ATLANTIC entered into a $350 million unsecured
revolving line of credit agreement with Morgan Guaranty Trust Company of New
York, as agent for a group of lenders ("MGT"). Borrowings on the unsecured
line of credit bear interest at prime, or at ATLANTIC's option, LIBOR plus a
margin ranging from 1.0% to 1.375% (currently 1.375%) depending on ATLANTIC's
credit rating. ATLANTIC's objective is to achieve an investment-grade debt
rating in 1997. ATLANTIC currently pays a commitment fee on the average
unfunded line of credit balance of 0.1875%. If ATLANTIC achieves an
investment-grade debt rating, the commitment fee on the average unfunded line
of credit balance will range from 0.125% to 0.25% per annum, depending on the
amount of undrawn commitments. The line of credit matures December 1998 and
may be extended for one year with the approval of MGT and the other
participating lenders.
All debt incurrences under the unsecured line of credit are subject to
certain covenants. Specifically, distributions for the preceding four
quarters, excluding the non-cash distribution related to the transaction with
Homestead in October 1996, may not exceed 95% of ATLANTIC's funds from
operations (as defined in the credit agreement) for the preceding four
quarters. ATLANTIC is in compliance with all such covenants.
ATLANTIC has a swap agreement with MGT covering $100 million of borrowings
under the line of credit, effectively eliminating a portion of its variable
interest rate exposure associated with the line of credit. Under this one-year
agreement which became effective on February 5, 1997, ATLANTIC pays a fixed
rate of interest of 7.325% on the $100 million of borrowings. The interest
rate ATLANTIC will pay will be reduced if ATLANTIC achieves an investment-
grade debt rating and will range from 6.95% to 7.2% depending on the rating
achieved. ATLANTIC had a similar swap agreement in place from February 5, 1996
through February 4, 1997. Under that agreement, ATLANTIC paid a fixed rate of
interest on the $100 million of borrowings of 7.46% through December 17, 1996
and 7.335% thereafter. ATLANTIC paid $77,000 and $110,000 more in interest
than it received under the swap agreement during the three-month periods ended
March 31, 1997 and 1996, respectively. ATLANTIC is exposed to credit loss in
the event of non-performance by the swap counterparty; however, ATLANTIC
believes the risk of loss is minimal.
F-9
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
Mortgages Payable
Mortgages payable consisted of the following at March 31, 1997 (dollar
amounts in thousands):
<TABLE>
<CAPTION>
INTEREST MATURITY PERIODIC PRINCIPAL
COMMUNITY RATE DATE PAYMENT TERMS BALANCE
- --------- -------- -------- ---------------- ---------
<S> <C> <C> <C> <C>
Conventional fixed rate:
Cameron Ridge............... 7.000% 09/10/98(1) fully amortizing $ 5,839
Country Place Village I..... 7.750% 11/01/00 (2) 1,995
Country Oaks................ 7.655% 07/01/02 (3) 5,918
Cameron at Hickory Grove.... 8.000% 07/10/03 (4) 5,967
Cameron Villas I............ 8.750% 04/01/24 fully amortizing 6,327
Cameron on the Cahaba II.... 7.125% 03/01/29 fully amortizing 8,005
--------
34,051
--------
Tax-exempt fixed rate or
variable rate subject to swap
agreements(5):
Cameron Station............. 6.000% 05/01/07 interest only 14,500
Azalea Park................. (6) 06/01/25 interest only 15,500
Cameron Brook............... (6) 06/01/25 interest only 19,500
Cameron Cove................ (6) 06/01/25 interest only 8,500
Clairmont Crest............. (6) 06/01/25 interest only 11,600
Forestwood.................. (6) 06/01/25 interest only 11,485
Foxbridge on the Bay........ (6) 06/01/25 interest only 10,400
The Greens.................. (6) 06/01/25 interest only 10,400
Parrot's Landing I.......... (6) 06/01/25 interest only 15,835
WintersCreek................ (6) 06/01/25 interest only 5,000
Less amounts held in
principal reserve fund(7).. (1,353)
--------
121,367
--------
$155,418
--------
Total annual weighted-
average interest rate.... 6.97%
========
</TABLE>
- --------
(1) This loan is callable at the option of the mortgage lender on September
10, 1998 and at subsequent five-year intervals through September 10, 2013.
(2) Interest and principal payments due monthly; balloon payment of $1,849,000
due at maturity.
(3) Interest and financial payments due monthly; balloon payment of $5,539,000
due at maturity.
(4) Interest and principal payments due monthly; balloon payment of $5,556,000
due at maturity.
(5) These communities, in addition to others, are held by Security Capital
Atlantic Multifamily Incorporated, a wholly owned subsidiary of ATLANTIC.
Security Capital Atlantic Multifamily Incorporated is a legal entity that
is separate and distinct from ATLANTIC with separate assets, liabilities
and business operations.
(6) Interest rate is fixed through swap agreements executed in conjunction
with the credit enhancement agreement with the Federal National Mortgage
Association ("FNMA") discussed below. Through these swap agreements,
ATLANTIC has effectively eliminated its variable interest rate exposure
associated with its tax-exempt bond issues.
(7) ATLANTIC has a 30-year credit enhancement agreement with FNMA related to
the tax-exempt bond issues. This credit enhancement agreement requires
ATLANTIC to make monthly payments on each mortgage into a principle
reserve account based on a 30-year amortization.
F-10
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
ATLANTIC's swap agreements related to its tax-exempt variable rate mortgages
are summarized as follows:
<TABLE>
<CAPTION>
AMOUNT OF FIXED
MORTGAGES TERM INTEREST RATE(1) ISSUER
--------- ---- ---------------- ------
<S> <C> <C> <C>
$23.1 million June 1995 to June 2002 6.48% General Re Financial Products Corporation
64.6 million June 1995 to June 2005 6.74% Morgan Guaranty Trust Company of New York
5.0 million March 1996 to March 2006 6.21% Morgan Guaranty Trust Company of New York
15.5 million August 1996 to August 2006 6.50% Morgan Stanley Derivative Products Inc.
-----
Weighted-average interest rate 6.63%
=====
</TABLE>
- --------
(1) Includes the fixed interest rate provided by the swap agreements, annual
fees associated with the swap agreements and credit enhancement agreement
and amortization of capitalized costs associated with the credit
enhancement agreement.
ATLANTIC paid $493,000 and $428,000 more in interest during the three-month
periods ended March 31, 1997 and 1996, respectively than it received under the
swap agreements. The swap agreements cover the principal amount of the bonds,
net of amounts deposited in the principal reserve fund. ATLANTIC pays interest
on that portion of bonds not covered by the swap agreements (an amount equal
to the amount of the principal reserve fund) at the variable rates as provided
by the mortgage agreements. ATLANTIC is exposed to credit loss in the event of
non-performance by the swap counterparties, however, ATLANTIC believes the
risk of loss is minimal.
Real estate with an aggregate undepreciated cost at March 31, 1997 of
$51,019,000 and $207,462,000 serves as collateral for the conventional
mortgages payable and the tax-exempt mortgages payable, respectively.
The change in mortgages payable for the three-month period ended March 31,
1997 is as follows (in thousands):
<TABLE>
<S> <C>
Balance at January 1, 1997...................................... $155,790
Regularly scheduled principal payments.......................... (372)
--------
Balance at March 31, 1997....................................... $155,418
========
</TABLE>
ATLANTIC is in compliance with all debt covenants required by the mortgage
agreements.
Interest Expense
Interest paid in cash on all outstanding debt for the three-month period
ended March 31, 1997 was $7,516,000, including $2,553,000 of interest
capitalized during construction. Interest paid in cash on all outstanding debt
for the three-month period ended March 31, 1996 was $5,948,000, including
$2,036,000 of interest capitalized during construction.
Amortization of loan costs included in interest expense for the three-month
periods ended March 31, 1997 and 1996 was $72,000 and $432,000, respectively.
NOTE 5 SHAREHOLDERS' EQUITY
Capital Offerings
On April 10, 1997 ATLANTIC completed an underwritten public offering of
4,000,000 common shares, par value $.01, ("Shares") at a price of $21.50 per
Share. The proceeds from the sale of these Shares, net of
F-11
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONCLUDED)
underwriters' commissions and other expenses, were approximately $80.5
million. The proceeds were used to repay borrowings under ATLANTIC's $350
million line of credit.
Distributions
ATLANTIC paid a quarterly distribution of $0.39 per Share on February 19,
1997. On April 22, 1997 the Board declared a distribution of $0.39 per Share
for the second quarter of 1997. The distribution is payable on May 27, 1997 to
shareholders of record on May 12, 1997.
Earnings Per Share
In the fourth quarter of 1997, ATLANTIC will adopt Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings per Share, which changes the
method used to compute earnings per share. The impact of SFAS No. 128 on the
calculation of ATLANTIC's earnings per share is not expected to be material.
NOTE 6 REIT MANAGER AND PROPERTY MANAGER ACQUISITION PROPOSAL
ATLANTIC has a REIT management agreement with Security Capital (Atlantic)
Incorporated (the "REIT Manager"), to provide REIT management services to
ATLANTIC. The REIT Manager is a wholly-owned subsidiary of Security Capital
Group Incorporated ("Security Capital"), which owned 56.9% of ATLANTIC's
Shares at March 31, 1997 (51.4% after the completion of ATLANTIC's public
offering in April 1997). The REIT management agreement is renewable annually,
subject to a determination by ATLANTIC's independent directors that the REIT
Manager's performance has been satisfactory and that the compensation payable
to the REIT Manager is fair.
SCG Realty Services Atlantic Incorporated ("SCG Realty Services") currently
manages approximately 88% of ATLANTIC's multifamily properties. Security
Capital owns 100% of SCG Realty Services' voting shares. Rates for services
performed by SCG Realty Services are reviewed annually by a third party and
are subject to approval by ATLANTIC's independent Directors and are at rates
prevailing in the markets in which ATLANTIC operates.
On May 1, 1997, Security Capital filed a registration statement with the
Securities and Exchange Commission, containing ATLANTIC's preliminary proxy
statement and Security Capital's preliminary prospectus (relating to warrants
to purchase Class B common stock of Security Capital), relating to a proposed
merger transaction whereby ATLANTIC would acquire the operations and
businesses of its REIT Manager and SCG Realty Services in exchange for Shares
valued at approximately $54.6 million. The $54.6 million value was based on a
three-year discounted analysis of net operating income prepared by Security
Capital and revised after negotiation with a special committee comprised of
the independent members of ATLANTIC's Board (the "Special Committee"). The
number of Shares issuable to Security Capital will depend on the average
market price of the Shares over the five-day period prior to the record date,
subject to such average not being more than $25.8633 or less than $20.6367.
Because ATLANTIC, the REIT Manager and SCG Realty Services are under common
control, the difference between the market value of the Shares issued to
Security Capital on the date the merger transaction is consummated and the
approximately $1.1 million of the net tangible assets of the REIT Manager and
SCG Realty Services being acquired by ATLANTIC will be accounted for as a
distribution to Security Capital. As a result of the transaction, ATLANTIC
would become an internally managed REIT and Security Capital would remain
ATLANTIC's largest shareholder. ATLANTIC's Board recently approved the
proposed merger transaction based on the recommendation of the Special
Committee. The proposed merger transaction requires the approval of a majority
of the holders of the outstanding Shares. ATLANTIC's proxy statement, after
review and clearance by the Securities and Exchange Commission will be mailed
to ATLANTIC's shareholders prior to the shareholder vote.
F-12
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
SECURITY CAPITAL ATLANTIC INCORPORATED
We have audited the accompanying balance sheets of Security Capital Atlantic
Incorporated as of December 31, 1996 and 1995, and the related statements of
earnings, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Security Capital Atlantic
Incorporated at December 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Supplemental Schedule of Real
Estate and Accumulated Depreciation is presented for purposes of additional
analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, is fairly stated
in all material respects in relation to the basic financial statements taken
as a whole.
Ernst & Young LLP
Dallas, Texas
February 3, 1997
F-13
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
---------- --------
<S> <C> <C>
ASSETS
------
Real estate.............................................. $1,157,235 $888,928
Less accumulated depreciation............................ 41,166 23,561
---------- --------
Net investments in real estate......................... 1,116,069 865,367
Cash and cash equivalents--unrestricted.................. 4,339 6,494
Cash and cash equivalents--restricted tax-deferred
exchange proceeds....................................... 1,672 --
Other assets............................................. 12,985 13,963
---------- --------
Total assets........................................... $1,135,065 $885,824
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Line of credit......................................... $ 228,000 $190,000
Mortgages payable...................................... 155,790 118,524
Distributions payable.................................. 14,778 --
Accounts payable....................................... 20,076 11,030
Accrued expenses and other liabilities................. 17,779 9,332
---------- --------
Total liabilities.................................... 436,423 328,886
---------- --------
Shareholders' equity:
Common shares (250,000,000 authorized, 37,891,580
issued and outstanding at December 31, 1996 and
27,762,817 issued and outstanding at December 31,
1995)................................................. 379 278
Additional paid-in capital............................. 747,640 576,824
Distributions in excess of net earnings................ (49,377) (20,164)
---------- --------
Total shareholders' equity........................... 698,642 556,938
---------- --------
Total liabilities and shareholders' equity........... $1,135,065 $885,824
========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Revenues:
Rental income...................................... $137,729 $103,634 $55,071
Interest income.................................... 427 245 149
-------- -------- -------
138,156 103,879 55,220
-------- -------- -------
Expenses:
Rental expenses.................................... 36,808 27,814 15,260
Real estate taxes.................................. 12,293 9,570 5,595
Property management fees:
Paid to affiliate................................ 4,208 3,475 1,536
Paid to third parties............................ 971 591 661
Depreciation....................................... 20,824 15,925 8,770
Interest........................................... 16,181 19,042 9,240
REIT management fee paid to affiliate.............. 10,445 6,923 3,671
General and administrative......................... 673 646 266
Provision for possible loss on investments......... 2,500 -- --
Other.............................................. 255 254 295
-------- -------- -------
105,158 84,240 45,294
-------- -------- -------
Earnings from operations............................. 32,998 19,639 9,926
Gain on disposition of real estate................. 6,732 -- --
Gain on sale of Homestead Assets................... 2,839 -- --
-------- -------- -------
Earnings before extraordinary item................... 42,569 19,639 9,926
Extraordinary item--loss on early extinguishment of
debt.............................................. 3,940 -- --
-------- -------- -------
Net earnings......................................... $ 38,629 $ 19,639 $ 9,926
======== ======== =======
Weighted-average shares outstanding.................. 32,028 21,944 12,227
======== ======== =======
Per share amounts:
Earnings per share before extraordinary item....... $ 1.33 $ 0.89 $ 0.81
======== ======== =======
Net earnings per share............................. $ 1.21 $ 0.89 $ 0.81
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON DISTRIBUTIONS
SHARES ADDITIONAL IN EXCESS
AT PAR PAID-IN OF NET
VALUE CAPITAL EARNINGS TOTAL
------ ---------- ------------- --------
<S> <C> <C> <C> <C>
Balances at December 31, 1993........ $ 16 $ 31,618 $ 38 $ 31,672
Net earnings....................... -- -- 9,926 9,926
Distributions paid................. -- -- (14,648) (14,648)
Shares issued--private offerings... 170 339,510 -- 339,680
---- -------- -------- --------
Balances at December 31, 1994........ 186 371,128 (4,684) 366,630
Net earnings....................... -- -- 19,639 19,639
Distributions paid................. -- -- (35,119) (35,119)
Shares issued--private offerings... 130 289,578 -- 289,708
Shares repurchased................. (38) (83,882) -- (83,920)
---- -------- -------- --------
Balances at December 31, 1995........ 278 576,824 (20,164) 556,938
Net earnings....................... -- -- 38,629 38,629
Distributions paid................. -- -- (53,064) (53,064)
Distributions--Homestead........... -- (58,228) -- (58,228)
Distributions accrued.............. -- -- (14,778) (14,778)
Shares issued--private offerings... 52 119,125 -- 119,177
Shares issued--initial public
offering.......................... 49 109,919 -- 109,968
---- -------- -------- --------
Balances at December 31, 1996........ $379 $747,640 $(49,377) $698,642
==== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net earnings................................ $ 38,629 $ 19,639 $ 9,926
Adjustments to reconcile net earnings to net
cash flow provided by operating activities:
Depreciation and amortization............. 22,492 17,496 9,480
Provision for possible loss on
investments.............................. 2,500 -- --
Gain on disposition of real estate........ (6,732) -- --
Gain on sale of Homestead Assets.......... (2,839) -- --
Extraordinary item-loss on early
extinguishment of debt................... 3,940 -- --
Increase (decrease) in accounts payable... (374) 937 1,909
Increase in accrued expenses and other
liabilities.............................. 1,993 3,053 6,141
Increase in other assets.................. (5,253) (1,393) (3,892)
--------- --------- ---------
Net cash flow provided by operating
activities................................ 54,356 39,732 23,564
--------- --------- ---------
Investing activities:
Real estate investments..................... (331,440) (259,008) (390,077)
Proceeds from disposition of real estate.... 63,544 23,859 --
Cash payment to Homestead................... (16,595) -- --
Tax-deferred exchange proceeds held in es-
crow....................................... (1,672) -- --
Other....................................... (1,255) -- --
--------- --------- ---------
Net cash flow used by investing activities.. (287,418) (235,149) (390,077)
--------- --------- ---------
Financing activities:
Proceeds from sale of shares................ 229,145 289,708 239,680
Repurchase of shares........................ -- (83,920) --
Proceeds from line of credit................ 246,000 270,000 166,000
Payments on line of credit.................. (208,000) (233,000) (13,000)
Proceeds from mortgage debt................. 20,500 -- --
Distributions paid.......................... (53,064) (35,119) (14,648)
Debt issuance costs incurred................ (2,573) (5,019) (5,204)
Regularly scheduled mortgage principal
payments................................... (1,101) (623) (190)
Mortgage principal payments at maturity..... -- (6,378) --
--------- --------- ---------
Net cash flow provided by financing
activities................................. 230,907 195,649 372,638
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................ (2,155) 232 6,125
Cash and cash equivalents, beginning of
year....................................... 6,494 6,262 137
--------- --------- ---------
Cash and cash equivalents, end of year...... $ 4,339 $ 6,494 $ 6,262
========= ========= =========
</TABLE>
See Note 9 for information on non-cash investing and financing activities.
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Security Capital Atlantic Incorporated ("ATLANTIC") is an equity real estate
investment trust organized as a corporation under the laws of the State of
Maryland, which owns, acquires, develops and operates income-producing
multifamily communities in the southeastern United States.
Principles of Financial Presentation
The accounts of ATLANTIC and its wholly owned subsidiaries are consolidated
in the accompanying financial statements. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
ATLANTIC considers all cash on hand, demand deposits with financial
institutions and short-term, highly liquid investments with original
maturities of three months or less to be cash equivalents.
Real Estate and Depreciation
Real estate is carried at cost, which is not in excess of net realizable
value. Costs directly related to the acquisition, renovation or development of
real estate are capitalized. Costs incurred in connection with the pursuit of
unsuccessful acquisitions are expensed at the time the pursuit is abandoned.
Repairs and maintenance, including carpet and appliance replacements, are
expensed as incurred. Renovations and improvements are capitalized and
depreciated over their estimated useful lives.
Depreciation is computed over the economic useful lives of depreciable
property on a straight-line basis. Communities are depreciated principally
over the following periods:
<TABLE>
<S> <C>
Buildings and improvements...................... 20-40 years
Furnishings and other........................... 2-10 years
</TABLE>
Make-Ready and Repairs and Maintenance
Make-ready expenses (expenses incurred in preparing a vacant multifamily
unit for the next resident) and repairs and maintenance, other than
acquisition-related renovation costs identified during ATLANTIC's pre-
acquisition due diligence, are expensed as incurred. ATLANTIC expenses carpet
and appliance repairs and replacements once all planned acquisition-related
renovation expenses for such items have been incurred.
F-18
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Interest
Periodically, ATLANTIC enters into swap agreements to manage its variable
interest rate exposure. Swap agreements are used to exchange interest rate
payment streams based on a notional principal amount. Under the swap
agreements, ATLANTIC pays a fixed rate of interest to a swap counterparty
pursuant to one agreement and receives a variable rate of interest from a swap
counterparty pursuant to another agreement. The amounts received from the
variable rate agreement are structured such that the amount received will
closely approximate the amount of variable interest due on a portion of the
underlying line of credit or mortgage note borrowings. The difference between
the variable amount received and the fixed amount paid represents either the
cost or the benefit of the interest rate swap agreement and is recorded as an
increase or decrease to the variable interest paid on the underlying debt
instrument.
During 1996, 1995 and 1994, the total interest paid in cash on all
outstanding debt was $24,677,000, $20,609,000 and $8,412,000, respectively.
ATLANTIC capitalizes interest as part of the cost of real estate projects
under development. Interest capitalized during 1996, 1995 and 1994 aggregated
$10,250,000, $4,404,000 and $793,000, respectively.
Cost of Raising Capital
Costs incurred in connection with the issuance of shares of common stock,
par value $.01 per share (the "Shares"), are deducted from shareholders'
equity. Costs incurred in connection with the incurrence or renewal of debt
are capitalized, included with other assets and amortized over the term of the
related loan or renewal term. Amortization of deferred financing costs
included in interest expense for 1996, 1995 and 1994 totaled $1,663,000,
$1,568,000 and $707,000, respectively.
Revenue Recognition
Rental and interest income are recorded on the accrual method of accounting.
Gains on sales of real estate are recorded when criteria required by Statement
of Financial Accounting Standards No. 66, Accounting for Sales of Real Estate,
have been met. A provision for possible loss is made when collection of
receivables is considered doubtful.
Rental Expenses
Rental expenses include utilities, repairs and maintenance, make-ready costs
(including carpet and appliance replacement), property insurance, marketing,
landscaping, on-site personnel and other administrative costs.
Federal Income Taxes
ATLANTIC has made an election to be taxed as a real estate investment trust
under the Internal Revenue Code of 1986, as amended. ATLANTIC believes it
qualifies as a real estate investment trust. Accordingly, no provisions have
been made for federal income taxes in the accompanying financial statements.
Per Share Data
Per share data is computed based on the weighted average number of Shares
outstanding during the period. The Share and per Share amounts included in the
financial statements have been restated to reflect the reverse Share split
discussed in Note 6.
F-19
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Reclassifications
Certain of the 1995 and 1994 amounts have been reclassified to conform to
the 1996 presentation.
NOTE 2 HOMESTEAD TRANSACTION
On October 17, 1996, ATLANTIC sold its moderate-priced, purpose-built,
extended-stay lodging facilities known as Homestead Village(R) properties to
Homestead Village Incorporated ("Homestead"). In the transaction, ATLANTIC
sold one operating property and 25 properties under construction or in
planning (or the rights to acquire such properties) and paid $16.6 million in
cash (the "Homestead Assets"). In addition, ATLANTIC entered into a funding
commitment agreement to provide secured financing of up to $111.1 million to
Homestead for purposes of completing the development and construction of the
properties sold in the transaction. The Homestead transaction was treated as a
sale for financial accounting purposes, but was treated as a contribution for
tax purposes.
The transaction resulted in ATLANTIC receiving 4,201,220 shares of common
stock of Homestead in exchange for the Homestead Assets and 2,818,517 warrants
to purchase one share of Homestead common stock at $10 per share in exchange
for entering into the funding commitment agreement. On November 12, 1996,
ATLANTIC distributed the Homestead common stock and warrants to its
shareholders of record on October 29, 1996 (the "Homestead Distribution").
ATLANTIC shareholders received 0.110875 shares of Homestead common stock and
0.074384 Homestead warrants per Share. ATLANTIC will receive up to $98.0
million of convertible mortgage notes from Homestead in exchange for funding
up to $111.1 million under the funding commitment agreement. The difference
between the amounts funded and the convertible mortgage notes received of
$13.1 million (assuming full funding of the funding commitment) represents a
mortgage note premium that will be amortized as a reduction to interest income
over the term of the convertible mortgage notes.
ATLANTIC realized a gain of $2.8 million, after deducting expenses
associated with the transaction, representing the excess value of the
Homestead common stock received over the recorded basis of the Homestead
Assets. The Homestead warrants received represent a funding commitment fee
which has been valued at $6.5 million. The conversion feature of the
convertible mortgage notes has been valued at $6.9 million (assuming full
funding of the funding commitment). These deferred credits will be amortized
as an increase to interest income over the term of the convertible mortgage
notes.
The convertible mortgage notes received from Homestead will bear interest at
9% per annum, will be due October 2006, will not be callable until 2001 and
will be convertible commencing March 31, 1997 at the option of the holder into
one share of Homestead common stock for every $11.50 of principal amount
outstanding. Upon full funding of ATLANTIC's convertible mortgage notes, its
conversion rights would represent a 15.35% ownership in Homestead (assuming no
further equity offerings by Homestead, conversion of all convertible mortgage
notes and exercise of all outstanding warrants). The effective yield on the
convertible mortgage notes, assuming conversion of all convertible mortgage
notes and exercise of all outstanding warrants, is estimated to be 8.46%,
after giving effect to the mortgage note premium, the funding commitment fee
and the conversion value of the convertible mortgage notes. At December 31,
1996, no funds had been advanced pursuant to the funding commitment agreement
and there were no convertible mortgage notes outstanding. ATLANTIC advanced
$6.0 million under the funding commitment agreement in January 1997.
F-20
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3 REAL ESTATE
Investment in Real Estate
Investments in real estate, at cost, were as follows (dollar amounts in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1996 1995
-------------------- -------------------
INVESTMENT UNITS INVESTMENT UNITS
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Multifamily:
Operating communities:
Acquired.................... $ 878,029 17,727 $757,986 15,355
Developed................... 74,741 1,514 23,097 468
---------- ------ -------- ------
952,770 19,241 781,083 15,823
Developments under
construction................. 194,587 4,727 94,094 2,958
Developments in planning:
Owned....................... 7,795 868(1) 9,830 1,258(1)
Under control(2)............ -- 2,228(1) -- 922(1)
---------- ------ -------- ------
7,795 3,096 9,830 2,180
Land held for future
development.................. 2,083 -- 1,294 --
---------- ------ -------- ------
Total multifamily(3)...... 1,157,235 27,064 886,301 20,961
---------- ------ -------- ------
Homestead Village(R)
properties(4).................. -- -- 2,627 2,515
---------- ------ -------- ------
Total..................... $1,157,235(5) 27,064 $888,928(5) 23,476
========== ====== ======== ======
</TABLE>
- --------
(1) Unit information is based on management's estimates and is unaudited.
(2) ATLANTIC's investment at December 31, 1996 and 1995 for multifamily
developments under control was $1.4 million and $0.6 million,
respectively, and is reflected in the "Other assets" caption of ATLANTIC's
balance sheets.
(3) At December 31, 1996, ATLANTIC had unfunded commitments for multifamily
developments under construction of $95.9 million, for a total completed
construction cost of $290.5 million. Cost for multifamily developments in
planning shown above are primarily for land acquisitions.
(4) ATLANTIC sold all of its Homestead Village(R) properties to Homestead on
October 17, 1996. The Homestead transaction is discussed in Note 2.
(5) Of ATLANTIC's investment in real estate, at cost, communities located in
Atlanta, Georgia aggregated 30.7% and 36.4% at December 31, 1996 and 1995,
respectively.
F-21
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The change in investments in real estate, at cost, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Beginning balances.............................. $ 888,928 $631,260 $ 31,005
Acquisitions and renovation expenditures........ 179,752 187,267 571,288
Development expenditures, including land
acquisitions................................... 179,783 101,335 28,967
Recurring capital expenditures.................. 2,783 -- --
Provision for possible loss..................... (2,500) -- --
Dispositions.................................... (59,988) (30,934) --
Sale of Homestead Assets........................ (31,523) -- --
---------- -------- --------
Ending balances................................. $1,157,235 $888,928 $631,260
========== ======== ========
</TABLE>
Third Party Owner/Developers
To enhance its flexibility in developing and acquiring multifamily
communities, ATLANTIC has and will enter into presale agreements to acquire
communities developed by third-party owner/developers where the developments
meet ATLANTIC's investment criteria. ATLANTIC has and will fund such
developments through development loans to these owner/developers. In addition,
to provide greater flexibility for the use of land acquired for development
and to dispose of excess parcels, ATLANTIC plans to make mortgage loans to
Atlantic Development Services Incorporated ("Atlantic Development Services")
to purchase land for development. ATLANTIC owns all of the preferred stock of
Atlantic Development Services, which entitles ATLANTIC to substantially all of
the net operating cash flow (95%) of Atlantic Development Services. All of the
common stock of Atlantic Development Services is owned by an unaffiliated
trust. The common stock is entitled to receive the remaining 5% of net
operating cash flow. As of December 31, 1996, the outstanding balance of
development and mortgage loans made by ATLANTIC to third-party
owner/developers and Atlantic Development Services aggregated $15,413,000 and
none, respectively. The activities of Atlantic Development Services and third-
party owner/developers are consolidated with ATLANTIC's activities and all
intercompany transactions have been eliminated in consolidation.
Gains and Losses from Dispositions or Impairments of Real Estate
ATLANTIC acquires and develops communities with a view to effective long-
term operation and ownership. Each year, REIT Management generates operating
and capital plans based on an ongoing active review of ATLANTIC's portfolio.
Based upon ATLANTIC's market research and in an effort to optimize its
portfolio composition, ATLANTIC may from time to time dispose of assets that
no longer meet its long-term investment objectives and redeploy the proceeds,
preferably through tax-deferred exchanges, into assets with better prospects
for growth.
As a result of this asset optimization strategy, ATLANTIC disposed of four
operating communities aggregating 1,184 units in 1996. A gain was recognized
on each disposition with the total gain aggregating $6,732,000. These four
communities accounted for $3,648,000 and $5,174,000 of net operating income
during 1996 and 1995, respectively. Each disposition has been included in a
tax-deferred exchange. At December 31, 1996, ATLANTIC held a portion of the
proceeds from one of these dispositions aggregating $1,672,000 in an interest-
bearing escrow account. These funds were used in the acquisition of a land
parcel in January 1997, completing the tax-deferred exchange.
ATLANTIC disposed of two communities in 1995. The proceeds from these
dispositions were not materially different from the book value of the assets
on the date of disposition. These two communities accounted for $2,409,000 of
net operating income during 1995.
F-22
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Statement of Financial Accounting Standards No. 121, Accounting For The
Impairment of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of
("SFAS No. 121"), adopted by ATLANTIC effective January 1, 1996, establishes
accounting standards for the review of long-lived assets to be held and used
for impairment whenever the carrying amount of an asset may not be
recoverable. SFAS No. 121 also requires that certain long-lived assets to be
disposed of be reported at the lower of carrying amount or fair value less
cost to sell. ATLANTIC did not recognize any losses on the date it adopted
SFAS No. 121.
Long-lived investments held and used are periodically evaluated for
impairment and provisions for possible losses are made if required. As of
December 31, 1996, such investments are carried at cost, which is not in
excess of fair market value and no provisions for possible losses have been
made. ATLANTIC recognized a provision for possible loss of $2,500,000 in 1996
associated with a community that is being held for sale. The carrying value of
this community at December 31, 1996 was $8,842,000. This community is not
being depreciated during the period in which it is being held for sale.
ATLANTIC expects the disposition of this community to occur in 1997. This
community accounted for $959,000, $1,023,000 and $501,000 of net operating
income for 1996, 1995 and 1994, respectively. This income is included in
ATLANTIC's earnings from operations in these years.
NOTE 4 LINE OF CREDIT AND MORTGAGES PAYABLE
Line of Credit
On December 18, 1996, ATLANTIC obtained a $350 million unsecured line of
credit from Morgan Guaranty Trust Company of New York ("MGT"), as agent for a
group of lenders, that replaced the previous $350 million secured line of
credit. Borrowings on the unsecured line of credit bear interest at prime or,
at ATLANTIC's option, LIBOR plus a margin ranging from 1.0% to 1.375%
(currently 1.375% as compared to 1.5% under the previous agreement) depending
on ATLANTIC's debt rating. ATLANTIC's objective is to achieve an investment-
grade debt rating in 1997. ATLANTIC currently pays a commitment fee on the
average unfunded line of credit balance of 0.1875%. If ATLANTIC achieves an
investment-grade debt rating, the commitment fee on the average unfunded line
of credit balance will range from 0.125% to 0.25% per annum, depending on the
amount of undrawn commitments. The line of credit matures December 1998 and
may be extended for one year with the approval of MGT and the other
participating lenders.
In 1996, ATLANTIC expensed all previously unamortized costs associated with
the secured line of credit that was extinguished in 1996. These costs
aggregated $3,940,000 and are reflected as an extraordinary item in ATLANTIC's
1996 statement of earnings.
All debt incurrences under the unsecured line of credit are subject to
certain covenants. Specifically, distributions for the preceding four
quarters, excluding the Homestead Distribution, may not exceed 95% (97% for
distributions made before December 31, 1996) of ATLANTIC's funds from
operations (as defined in the loan agreement) for the preceding four quarters.
ATLANTIC is in compliance with all such covenants.
A summary of ATLANTIC's line of credit borrowings is as follows (dollar
amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Total line of credit.... $350,000 $300,000 $225,000
Borrowings outstanding
at December 31......... 228,000 190,000 153,000
Weighted-average daily
borrowings............. 204,265 178,318 65,556
Maximum borrowings
outstanding at any
month end.............. 234,000 252,000 153,000
Weighted-average daily
interest rate.......... 7.39% 7.92% 7.34%
Weighted-average
interest rate at
December 31............ 7.24% 7.73% 8.17%
</TABLE>
F-23
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In August 1995, ATLANTIC entered into a swap agreement with Goldman Sachs
Capital Markets, L.P. covering $100 million of borrowings under the line of
credit, effectively mitigating a portion of its variable interest rate
exposure. Under this one-year agreement which became effective on February 5,
1996, ATLANTIC paid a fixed rate of interest of 7.46% on the $100 million of
borrowings through December 17, 1996 and 7.335% thereafter. Upon expiration of
the existing swap agreement on February 5, 1997, a swap agreement with MGT
will take effect. The new agreement will provide for a fixed rate of 7.325% on
$100 million of borrowings through February 5, 1998. The interest rate
ATLANTIC will pay under the new agreement will be reduced if ATLANTIC achieves
an investment-grade debt rating and will range from 6.95% to 7.2%, depending
on the rating achieved. ATLANTIC paid $332,000 more in interest than it
received under the swap agreement during 1996. ATLANTIC is exposed to credit
loss in the event of non-performance by the swap counterparty; however,
ATLANTIC believes the risk of loss is minimal.
Mortgages Payable
Mortgages payable consisted of the following at December 31, 1996 (dollar
amounts in thousands):
<TABLE>
<CAPTION>
PERIODIC
INTEREST MATURITY PAYMENT PRINCIPAL
COMMUNITY RATE DATE TERMS BALANCE
--------- -------- -------- ---------------- ---------
<S> <C> <C> <C> <C>
Conventional fixed rate:
Cameron Ridge.............. 7.000% 09/18/98(1) fully amortizing $ 5,888
Country Place Village I.... 7.750 11/01/00 (2) 2,004
Country Oaks............... 7.655 07/01/02 (3) 5,933
Cameron at Hickory Grove... 8.000 07/10/03 (4) 5,979
Cameron Villas I........... 8.750 04/01/24 fully amortizing 6,343
Cameron on the Cahaba II... 7.125 03/01/29 fully amortizing 8,021
--------
34,168
--------
Tax exempt fixed rate or
variable rate subject to
swap agreements(5):
Cameron Station............ 6.000% 05/01/07 interest only 14,500
Azalea Park................ (6) 06/01/25 interest only 15,500
Cameron Brook.............. (6) 06/01/25 interest only 19,500
Clairmont Crest............ (6) 06/01/25 interest only 11,600
Forestwood................. (6) 06/01/25 interest only 11,485
Foxbridge on the Bay....... (6) 06/01/25 interest only 10,400
The Greens................. (6) 06/01/25 interest only 10,400
Parrot's Landing I......... (6) 06/01/25 interest only 15,835
Sun Pointe Cove............ (6) 06/01/25 interest only 8,500
WintersCreek............... (6) 06/01/25 interest only 5,000
Less amounts held in
principal reserve
fund(7)................... (1,098)
--------
121,622
--------
$155,790
========
Total annual weighted-
average interest rate..... 6.95%
========
</TABLE>
- --------
(1) This loan is callable at the option of the mortgage lender on September
10, 1998 and at subsequent five-year intervals through September 10, 2013.
(2) Interest and principal payments due monthly; balloon payment of $1,849,000
due at maturity.
F-24
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) Interest and principal payments due monthly; balloon payment of $5,539,000
due at maturity.
(4) Interest and principal payments due monthly; balloon payment of $5,556,000
due at maturity.
(5) These communities, in addition to others, are held by Security Capital
Atlantic Multifamily Incorporated, a wholly owned subsidiary of ATLANTIC.
Security Capital Atlantic Multifamily Incorporated is a legal entity that
is separate and distinct from ATLANTIC with separate assets and
liabilities and business operations.
(6) Interest rate is fixed through swap agreements executed in conjunction
with the credit enhancement agreement with the Federal National Mortgage
Association ("FNMA") discussed below. Through these swap agreements,
ATLANTIC has effectively mitigated its variable interest rate exposure.
(7) ATLANTIC has a 30-year credit enhancement agreement with FNMA related to
the tax-exempt bond issues. This credit enhancement agreement requires
ATLANTIC to make monthly payments on each mortgage, based on a 30-year
amortization, into a principal reserve account.
ATLANTIC's swap agreements related to its tax-exempt variable rate mortgages
are summarized as follows:
<TABLE>
<CAPTION>
AMOUNTS FIXED
OF INTEREST
BONDS TERM RATE(1) ISSUER
- ------- ---- -------- ------
<S> <C> <C> <C>
$23.1
million June 1995 to June 2002 6.48% General Re Financial Products Corporation
64.6
million June 1995 to June 2005 6.74 Morgan Guaranty Trust Company of New York
5.0
million March 1996 to March 2006 6.18 Morgan Guaranty Trust Company of New York
15.5
million August 1996 to August 2006 6.51 Morgan Stanley Derivative Products Inc.
----
Weighted-average interest rate.... 6.64%
====
</TABLE>
- --------
(1) Includes the fixed interest rate provided by the swap agreements, annual
fees associated with the swap agreements and credit enhancement agreement
and amortization of capitalized costs associated with the credit
enhancement agreement.
ATLANTIC paid $1,832,000 more in interest during 1996 and $575,000 more in
interest during 1995 than it received under the swap agreements. The swap
agreements cover the principal amount of the bonds, net of amounts deposited
in the principal reserve fund. ATLANTIC pays interest on that portion of bonds
not covered by the swap agreements at the variable rates as provided by the
mortgage agreements. ATLANTIC is exposed to credit loss in the event of non-
performance by the swap counterparties; however, ATLANTIC believes the risk of
loss is minimal.
Real estate with an aggregate undepreciated cost at December 31, 1996 of
$50,714,000 and $206,963,000 serves as collateral for the conventional
mortgages payable and the tax-exempt mortgages payable, respectively.
The change in mortgages payable is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Balances at January 1............................ $118,524 $107,347 $ --
Mortgages assumed................................ 17,867 24,678 107,537
Mortgage proceeds................................ 20,500 -- --
Regularly scheduled principal payments........... (1,101) (623) (190)
Reduction upon disposition of multifamily
community....................................... -- (6,500) --
Principal payments at maturity................... -- (6,378) --
-------- -------- --------
Balances at December 31.......................... $155,790 $118,524 $107,347
======== ======== ========
</TABLE>
F-25
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Approximate principal payments due on mortgages payable during each of the
years in the five-year period ending December 31, 2001 and thereafter are as
follows (in thousands):
<TABLE>
<S> <C>
1997................................................................... $ 1,537
1998................................................................... 7,136
1999................................................................... 1,577
2000................................................................... 3,554
2001................................................................... 1,812
Thereafter............................................................. 140,174
--------
$155,790
========
</TABLE>
NOTE 5 DISTRIBUTIONS
ATLANTIC made total cash distributions of $1.65 per Share in 1996, $1.60 per
Share in 1995 and $1.20 per Share in 1994. On December 19, 1996, ATLANTIC's
Board of Directors (the "Board") declared a distribution of $0.39 per Share
for the first quarter of 1997. The distribution is payable on February 19,
1997.
In addition, on November 12, 1996, ATLANTIC distributed 0.110875 shares of
Homestead common stock and warrants to purchase 0.074384 shares of Homestead
common stock per Share in the Homestead Distribution to each shareholder of
record on October 29, 1996. The Homestead Distribution was valued at $58.2
million based on the estimated fair value of the net assets sold to Homestead.
For federal income tax purposes, the following summarizes the taxability of
cash distributions paid for 1994 and 1995 and the estimated taxability for
1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Per Share:
Ordinary income....................................... $ 0.78 $ 0.92 $ 0.92
Return of capital..................................... 0.87 0.68 0.28
------- ------- -------
Total............................................... $ 1.65 $ 1.60 $ 1.20
======= ======= =======
</TABLE>
The securities distributed to each ATLANTIC shareholder in the Homestead
Distribution were valued at $1.91 per Share for federal income tax purposes,
of which $0.90 was taxable as ordinary income and $1.01 was treated as a
return of capital. ATLANTIC's tax return for the year ended December 31, 1996
has not been filed, and the taxability information for 1996 is based on the
best available data. ATLANTIC's tax returns for prior years have not been
examined by the Internal Revenue Service and, therefore, the taxability of
distributions and dividends is subject to change.
NOTE 6 SHAREHOLDERS' EQUITY
Shares Authorized
At December 31, 1996, 250,000,000 Shares were authorized. The Board may
classify or reclassify any unissued shares of ATLANTIC's stock from time to
time by setting or changing the preferences, conversion or other rights,
voting powers, restrictions, limitations as to distributions, qualifications
and terms or conditions of redemption of such shares. No such shares have been
reclassified, except as described under "Purchase Rights" below, and no
reclassified shares are issued or outstanding.
F-26
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Reverse Share Split
On September 10, 1996, the shareholders of ATLANTIC authorized a one-for-two
reverse split of ATLANTIC's Shares. A transfer from the common shares account
to additional paid-in capital was made to reflect the reduced number of Shares
outstanding after the split. All references in the accompanying financial
statements to the number of Shares and per Share amounts have been restated to
reflect the reverse Share split.
Ownership Restrictions and Significant Shareholder
ATLANTIC's Charter restricts beneficial ownership (or ownership generally
attributed to a person under the REIT tax rules) of ATLANTIC's outstanding
shares of stock by a single person, or persons acting as a group, to 9.8% of
ATLANTIC's outstanding shares of stock. The purpose of this provision is to
assist in protecting and preserving ATLANTIC's REIT status and to protect the
interest of shareholders in takeover transactions by preventing the
acquisition of a substantial block of shares unless the acquiror makes a cash
tender offer for all outstanding shares. For ATLANTIC to qualify as a REIT
under the Internal Revenue Code of 1986, as amended, not more than 50% in
value of its outstanding shares of stock may be owned by five or fewer
individuals at any time during the last half of ATLANTIC's taxable year. The
provision permits five persons to individually acquire up to a maximum of 9.8%
each of the outstanding shares of stock, or an aggregate of 49% of the
outstanding shares and, thus, assists the Board in protecting and preserving
ATLANTIC's REIT status for tax purposes.
Shares of stock owned by a person or group of persons in excess of these
limits are subject to redemption by ATLANTIC. The provision does not apply
where a majority of the Board, in its sole absolute discretion, waives such
limit after determining that the status of ATLANTIC as a REIT for federal
income tax purposes will not be jeopardized or the disqualification of
ATLANTIC as a REIT is advantageous to the shareholders.
The Board has exempted Security Capital Group Incorporated ("Security
Capital"), an affiliate of the REIT Manager (see Note 7), from the ownership
restrictions described above. Security Capital owned 56.9% of the outstanding
Shares at December 31, 1996. For tax purposes, Security Capital's ownership is
attributed to its shareholders.
Capital Offerings
On October 18, 1996, ATLANTIC completed an initial public offering of
4,940,000 Shares at a price of $24.00 per Share (before adjusting for the
Homestead Distribution described in Notes 2 and 5). The Shares, excluding the
416,666 Shares sold to Security Capital, were sold through an underwritten
offering. The proceeds from the sale of these 4,940,000 Shares, net of
underwriters' commission and other expenses, were approximately $110.0
million. The proceeds were used to repay borrowings under ATLANTIC's $350
million line of credit.
From inception through May 1996, ATLANTIC raised capital through various
private offerings. ATLANTIC sold a total of 31,701,580 Shares during this
period at prices ranging from $20 to $23.136 per Share. In addition, ATLANTIC
exchanged 5,000,000 Shares at a price of $20 per Share as partial
consideration for the acquisition of a pool of communities in May 1994. The
acquisition price was negotiated prior to the seller becoming a related party.
To facilitate ATLANTIC's transactions with the seller, Security Capital
granted the seller certain rights to require Security Capital to purchase the
5,000,000 Shares owned by the seller at pre-agreed prices. In consideration
for Security Capital purchasing Shares through its private offerings, ATLANTIC
assumed Security Capital's obligation with respect to 3,750,000 Shares.
ATLANTIC repurchased these Shares directly from the seller. The remaining
1,250,000 Shares were acquired directly from the seller by Security Capital.
F-27
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Option Plan
On March 12, 1996, ATLANTIC adopted the Security Capital Atlantic
Incorporated Share Option Plan for Outside Directors (the "Outside Directors
Plan"). There are 100,000 Shares reserved for issuance upon exercise of
options granted under the Outside Directors Plan. The Outside Directors Plan
provides that each member of the Board who is not an employee of ATLANTIC or
the REIT Manager on the date of each annual meeting of ATLANTIC's shareholders
will receive an option to purchase 1,000 Shares at an exercise price equal to
the fair market value of the Shares on such date. The options will be granted
on the date of the annual meeting of shareholders for the years 1997 through
and including 2006. The options granted are for a term of five years and are
exercisable in whole or in part. At December 31, 1996, 3,000 options had been
granted at an exercise price of $24.00 per Share, none of which have been
exercised.
Purchase Rights
On March 12, 1996, the Board declared and paid a dividend of one preferred
share purchase right ("Purchase Right") for each Share outstanding at the
close of business on March 12, 1996 to the holders of ATLANTIC's Shares on
that date. Holders of additional Shares issued after March 12, 1996 and prior
to the expiration of the rights on March 12, 2006 will be entitled to one
Purchase Right for each additional Share.
Each Purchase Right entitles the holder, under certain circumstances, to
purchase from ATLANTIC two one-hundredths of a share of non-redeemable Series
A Junior Participating Preferred Stock of ATLANTIC, par value $0.01 per share
(the "Participating Preferred Shares"), at a price of $40 per one one-
hundredth of a Participating Preferred Share, subject to adjustment. ATLANTIC
has designated two one-hundredths of the total Shares outstanding at any point
in time as Participating Preferred Shares. Purchase Rights are exercisable
when a person or group of persons (other than certain affiliates of ATLANTIC)
acquire beneficial ownership of 20% or more of the outstanding Shares,
commence or announce a tender offer or exchange offer which would result in
the beneficial ownership by a person or group of persons (other than certain
affiliates of ATLANTIC) of 25% or more of the outstanding Shares or file or
announce their intention to file with any regulatory authority an application
seeking approval of any transaction which would result in the beneficial
ownership by a person or group of persons (other than certain affiliates of
ATLANTIC) of 25% or more of the outstanding Shares. Under certain
circumstances, each Purchase Right entitles the holder to purchase at the
Purchase Right's then current exercise price, a number of Shares having a
market value of twice the Purchase Right's exercise price. The acquisition of
ATLANTIC pursuant to certain mergers or other business transactions would
entitle each holder to purchase, at the Purchase Right's then current exercise
price, a number of the acquiring company's common shares having a market value
at that time equal to twice the Purchase Right's exercise price. The Purchase
Rights held by certain 20% shareholders (other than certain affiliates of
ATLANTIC) would not be exercisable. As of December 31, 1996, ATLANTIC had no
Participating Preferred Shares outstanding and the events required to exercise
the Purchase Rights had not occurred. Therefore, the Purchase Rights dividend
had no value and was not recorded in the financial statements.
NOTE 7 REIT MANAGEMENT AND PROPERTY MANAGEMENT AGREEMENTS
REIT Management Agreement
ATLANTIC has a REIT management agreement (the "REIT Management Agreement")
with Security Capital (Atlantic) Incorporated (the "REIT Manager") to provide
management services to ATLANTIC. The REIT Manager is a subsidiary of Security
Capital (see Note 6). All officers of ATLANTIC are employees
F-28
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of the REIT Manager and ATLANTIC currently has no employees. The REIT Manager
provides both strategic and day-to-day management of ATLANTIC, including
research, investment analysis, acquisition, development, marketing,
disposition of assets, asset management, due diligence, capital markets, legal
and accounting services.
The REIT Management Agreement requires ATLANTIC to pay an annual fee of 16%
of cash flow, as defined in the REIT Management Agreement, payable monthly.
Cash flow is calculated by reference to ATLANTIC's cash flow from operations
plus (i) fees paid to the REIT Manager, (ii) extraordinary expenses incurred
at the request of the independent Directors of ATLANTIC (of which there were
none in the periods reported) and (iii) 33% of any interest paid by ATLANTIC
on convertible subordinated debentures (of which there were none in the
periods reported); and after deducting (i) regularly scheduled principal
payments (excluding prepayments or balloon payments) for debt with
commercially reasonable amortization schedules, (ii) assumed principal and
interest payments on senior unsecured debt treated as having regularly
scheduled principal and interest payments like a 20-year level-payment, fully
amortizing mortgage (of which there were none in the periods reported) and
(iii) distributions actually paid with respect to any non-convertible
preferred stock (of which there were none in the periods reported). Cash flow
does not include: (i) realized gains or losses from dispositions of
investments, (ii) interest income from cash equivalent investments and the
Homestead convertible mortgage notes and dividend and interest income from
Atlantic Development Services, (iii) provisions for possible losses on
investments and (iv) extraordinary items.
The REIT Manager also receives a fee of 0.20% per year on the average daily
balance of cash equivalent investments. ATLANTIC must also reimburse the REIT
Manager for third-party and out-of-pocket expenses relating to travel,
transaction costs and similar costs relating to the acquisition, development
or disposition of assets or the obtaining of financing for ATLANTIC and its
operations. The REIT Manager will pay all of its own salary and other overhead
expenses. ATLANTIC will not have any employee expense; however, it will pay
all of the third-party costs related to its normal operations, including
legal, accounting, travel, architectural, engineering, shareholder relations,
independent Director fees and similar expenses, property management and
similar fees paid on behalf of ATLANTIC, and travel expenses incurred in
seeking financing, community acquisitions, community dispositions and similar
activities on behalf of ATLANTIC and in attending ATLANTIC Board, committee
and shareholder meetings.
The REIT Management Agreement is renewable by ATLANTIC annually, subject to
a determination by the independent Directors that the REIT Manager's
performance has been satisfactory and that the compensation payable to the
REIT Manager is fair. Each of ATLANTIC and the REIT Manager may terminate the
REIT Management Agreement on 60 days' notice. Because of the year-to-year
nature of the agreement, its maximum effect on ATLANTIC's results of
operations cannot be predicted, other than that REIT management fees will
generally increase or decrease in proportion to cash flow increases or
decreases.
Property Management Agreement
SCG Realty Services Atlantic Incorporated ("SCG Realty Services") provides
property management services to ATLANTIC. At January 31, 1997, SCG Realty
Services managed approximately 87% of ATLANTIC's multifamily communities.
Security Capital owns 100% of SCG Realty Services' voting shares.
The property management agreement, like the REIT Management Agreement, is
renewable annually and subject to a determination by the independent Directors
that SCG Realty Services' performance has been satisfactory and that the
compensation payable to SCG Realty Services is at rates prevailing in the
markets in which ATLANTIC operates. ATLANTIC may terminate the property
management agreement on 30 days' notice.
F-29
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data (in thousands except per Share amounts)
for 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
-------- ------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
1996:
Rental income.............. $30,809 $32,876 $35,959 $38,085 $137,729
======= ======= ======= ======= ========
Earnings before
extraordinary item........ $ 6,650 $ 9,747 $11,131 $15,041 $ 42,569
======= ======= ======= ======= ========
Net earnings............... $ 6,650 $ 9,747 $11,131 $11,101 $ 38,629
======= ======= ======= ======= ========
Earnings per Share before
extraordinary item........ $ 0.24 $ 0.32 $ 0.34 $ 0.41 $ 1.33
======= ======= ======= ======= ========
Net earnings per Share..... $ 0.24 $ 0.32 $ 0.34 $ 0.30 $ 1.21
======= ======= ======= ======= ========
Weighted-average Shares.... 27,777 30,393 32,952 36,925 32,028
======= ======= ======= ======= ========
1995:
Rental income.............. $22,952 $24,330 $26,969 $29,383 $103,634
======= ======= ======= ======= ========
Net earnings............... $ 4,175 $ 4,956 $ 5,333 $ 5,175 $ 19,639
======= ======= ======= ======= ========
Net earnings per Share..... $ 0.22 $ 0.23 $ 0.23 $ 0.21 $ 0.89
======= ======= ======= ======= ========
Weighted-average Shares.... 18,567 21,642 23,340 24,153 21,944
======= ======= ======= ======= ========
</TABLE>
The total of the four quarterly amounts for net earnings per Share may not
equal the total for the year. These differences result from the use of a
weighted average to compute the average number of Shares outstanding.
NOTE 9 SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the years ended December 31,
1996, 1995 and 1994 are as follows:
(a) As discussed in Note 2, in 1996, ATLANTIC received Homestead common
stock valued at $51,717,000 upon the sale of the Homestead Assets (assets
with a net book value of $31,028,000 and cash of $16,595,000). A gain of
$2,839,000, net of expenses of $1,255,000, was recognized on the
transaction.
(b) As discussed in Note 2, in 1996, ATLANTIC received warrants to
purchase Homestead common stock valued at $6,511,000 in exchange for
entering into a funding commitment agreement. The value of the warrants has
been recognized as deferred revenue.
(c) ATLANTIC made a $58,228,000 non-cash distribution to its shareholders
in November 1996 consisting of the Homestead common stock and warrants.
(d) In December 1996, ATLANTIC declared a distribution for the first
quarter of 1997 in the amount of $14,778,000.
(e) In connection with the acquisition of communities, ATLANTIC assumed
mortgage debt in the amount of $17,867,000, $24,678,000 and $107,537,000 in
1996, 1995 and 1994, respectively.
(f) In 1994, ATLANTIC issued $100,000,000 of Shares in partial
consideration for the purchase of a pool of communities.
(g) ATLANTIC sold a community in 1995 that secured $6,500,000 of mortgage
debt.
F-30
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10 COMMITMENTS AND CONTINGENCIES
ATLANTIC is a party to various claims and routine litigation arising in the
ordinary course of business. ATLANTIC does not believe that the claims and
litigation, individually or in the aggregate, will have a material adverse
effect on its business, financial position or results of operations.
ATLANTIC is subject to environmental regulations related to the ownership,
operation, development and acquisition of real estate. As part of its due
diligence procedures, ATLANTIC has conducted Phase I environmental assessments
on each community prior to acquisition. The cost of complying with
environmental regulations was not material to ATLANTIC's results of
operations. ATLANTIC is not aware of any environmental condition on any of its
communities that is likely to have a material adverse effect on its business,
financial position or results of operations.
NOTE 11 FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, other assets, accrued
expenses and other liabilities approximates fair value as of December 31, 1996
and 1995 because of the short maturity of these instruments. Similarly, the
carrying value of line of credit borrowings approximates fair value as of
those dates because the interest rate fluctuates based on published market
rates. In the opinion of management, the interest rates associated with the
mortgages payable approximates the market interest rates for this type of
instrument, and as such, the carrying values approximate fair value at
December 31, 1996 and 1995, in all material respects.
NOTE 12 PROPOSED TRANSACTION
On January 22, 1997, ATLANTIC received a proposal from Security Capital to
exchange the REIT Manager and SCG Realty Services for Shares. As a result of
the proposed transaction, ATLANTIC would become an internally managed REIT,
and Security Capital would remain ATLANTIC's largest shareholder. The Board
has formed a special committee comprised of independent Directors to review
the proposed transaction. The proposed transaction is subject to approval by
the special committee, the Board and ATLANTIC's shareholders.
F-31
<PAGE>
SCHEDULE III
SECURITY CAPITAL ATLANTIC
INCORPORATED
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH CARRIED AT
TO ATLANTIC COSTS DECEMBER 31, 1996
-------------------- CAPITALIZED --------------------------------------
ENCUM- BUILDINGS AND SUBSEQUENT TO BUILDINGS AND TOTALS ACCUMULATED
MUTIFAMILY COMMUNITIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (C) DEPRECIATION
- ----------------------- ------- ------ ------------- ------------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMMUNITIES
ACQUIRED:
Atlanta, Georgia:
Azalea Park..... $15,500 $3,717 $21,076 $ 975 $3,717 $22,051 $ 25,768 $ 715
Balmoral
Village......... -- 2,871 16,270 74 2,871 16,344 19,215 73
Cameron
Ashford......... -- 3,672 20,841 399 3,672 21,240 24,912 1,551
Cameron
Briarcliff...... (b) 2,105 11,953 191 2,105 12,144 14,249 897
Cameron Brook... 19,500 3,318 18,784 326 3,318 19,110 22,428 1,279
Cameron Creek
I............... -- 3,627 20,589 328 3,627 20,917 24,544 1,473
Cameron Crest... -- 3,525 20,009 290 3,525 20,299 23,824 1,426
Cameron
Dunwoody........ -- 2,486 14,114 252 2,486 14,366 16,852 1,050
Cameron Forest.. -- 884 5,008 352 884 5,360 6,244 145
Cameron Place... -- 1,124 6,372 579 1,124 6,951 8,075 185
Cameron Pointe.. -- 2,172 12,306 413 2,172 12,719 14,891 192
Cameron
Station......... 14,500 2,338 13,246 496 2,338 13,742 16,080 354
Clairmont
Crest........... 11,600 1,603 9,102 315 1,603 9,417 11,020 626
The Greens...... 10,400 2,004 11,354 382 2,004 11,736 13,740 794
Lake Ridge...... -- 2,001 11,359 4,012 2,001 15,371 17,372 1,200
Morgan's
Landing......... -- 1,168 6,646 857 1,168 7,503 8,671 608
Old Salem....... -- 1,053 6,144 919 1,053 7,063 8,116 485
Trolley Square.. -- 2,031 11,528 347 2,031 11,875 13,906 911
Vinings
Landing......... -- 1,363 7,902 714 1,363 8,616 9,979 613
WintersCreek.... 5,000 1,133 6,434 220 1,133 6,654 7,787 233
Woodlands....... -- 3,785 21,471 485 3,785 21,956 25,741 761
Birmingham,
Alabama:
Cameron on the
Cahaba I........ -- 1,020 5,784 352 1,020 6,136 7,156 281
Cameron on the
Cahaba II....... 8,021 1,688 9,580 501 1,688 10,081 11,769 463
Colony Woods I.. -- 1,560 8,845 281 1,560 9,126 10,686 676
Morning Sun
Villas.......... -- 1,260 7,309 732 1,260 8,041 9,301 554
Charlotte, North
Carolina:........
Cameron at
Hickory Grove... 5,979 1,203 6,808 381 1,203 7,189 8,392 137
Cameron Oaks.... -- 2,255 12,800 306 2,255 13,106 15,361 974
<CAPTION>
CONSTRUCTION YEAR
MUTIFAMILY COMMUNITIES YEAR ACQUIRED
- ----------------------- ------------ --------
<S> <C> <C>
COMMUNITIES
ACQUIRED:
Atlanta, Georgia:
Azalea Park..... 1987 1995
Balmoral
Village......... 1990 1996
Cameron
Ashford......... 1990 1994
Cameron
Briarcliff...... 1989 1994
Cameron Brook... 1988 1994
Cameron Creek
I............... 1988 1994
Cameron Crest... 1988 1994
Cameron
Dunwoody........ 1989 1994
Cameron Forest.. 1981 1995
Cameron Place... 1979 1995
Cameron Pointe.. 1987 1996
Cameron
Station......... (c) 1995
Clairmont
Crest........... 1987 1994
The Greens...... 1986 1994
Lake Ridge...... 1979 1993
Morgan's
Landing......... 1983 1993
Old Salem....... 1968 1994
Trolley Square.. 1989 1994
Vinings
Landing......... 1978 1994
WintersCreek.... 1984 1995
Woodlands....... (d) 1995
Birmingham,
Alabama:
Cameron on the
Cahaba I........ 1987 1995
Cameron on the
Cahaba II....... 1990 1995
Colony Woods I.. 1991 1994
Morning Sun
Villas.......... 1985 1994
Charlotte, North
Carolina:........
Cameron at
Hickory Grove... 1988 1996
Cameron Oaks.... 1989 1994
</TABLE>
(see notes following table)
F-32
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH CARRIED AT
TO ATLANTIC COSTS DECEMBER 31, 1996
----------------------- CAPITALIZED --------------------------------------
ENCUM- BUILDINGS AND SUBSEQUENT TO BUILDINGS AND TOTALS ACCUMULATED
MUTIFAMILY COMMUNITIES BRANCES LAND IMPROVEMENTS ACQUISITIONS LAND IMPROVEMENTS (C) DEPRECIATION
- ----------------------- ------- ------ ------------- ------------- ---------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ft.
Lauderdale/West
Palm Beach,
Florida:
Cypress Lakes... $ -- $1,225 $ 6,961 $ 324 $ 1,225 $ 7,285 $ 8,510 $ 271
Park Place at
Turtle Run...... -- 2,208 12,223 1,283 2,208 13,506 15,714 223
Parrot's Landing
I............... 15,835 2,691 15,276 684 2,691 15,960 18,651 1,072
The Pointe at
Bayberry Lake... -- 2,508 14,210 303 2,508 14,513 17,021 222
Spencer Run..... (b) 2,852 16,194 425 2,852 16,619 19,471 1,133
Sun Pointe
Cove............ 8,500 1,367 7,773 229 1,367 8,002 9,369 550
Trails at Meadow
Lakes........... -- 1,285 7,293 262 1,285 7,555 8,840 282
Ft. Myers,
Florida:
Forestwood...... 11,485 2,031 11,540 210 2,031 11,750 13,781 815
Greenville, South
Carolina:
Cameron Court... -- 1,602 9,369 89 1,602 9,458 11,060 163
Jacksonville,
Florida:
Bay Club........ -- 1,789 10,160 273 1,789 10,433 12,222 773
Memphis,
Tennessee:
Cameron Century
Center.......... -- 2,382 13,496 50 2,382 13,546 15,928 60
Cameron at Kirby
Parkway......... -- 1,386 7,959 829 1,386 8,788 10,174 686
Country Oaks.... 5,933 1,246 7,061 177 1,246 7,238 8,484 63
Stonegate....... -- 985 5,608 483 985 6,091 7,076 360
Miami, Florida:
Park Hill....... -- 1,650 9,377 (2,185)(e) 1,650 7,192 8,842 606
Nashville,
Tennessee:
Arbor Creek..... -- -- (f) 17,671 512 -- 18,183 18,183 1,267
Enclave at
Brentwood....... -- 2,263 12,847 1,016 2,263 13,863 16,126 605
Orlando, Florida:
Camden Springs.. -- 2,477 14,072 808 2,477 14,880 17,357 1,056
Cameron Villas
I............... 6,343 1,087 6,317 609 1,087 6,926 8,013 473
Cameron Villas
II.............. (b) 255 1,454 64 255 1,518 1,773 56
Kingston
Village......... -- 876 4,973 164 876 5,137 6,013 192
The Wellington.. (b) 1,155 6,565 282 1,155 6,847 8,002 466
Raleigh, North
Carolina:
Cameron Lake.... -- 1,385 7,848 60 1,385 7,908 9,293 35
Cameron Ridge... 5,888 1,503 8,519 109 1,503 8,628 10,131 38
Cameron Square.. -- 2,314 13,143 525 2,314 13,668 15,982 959
Emerald Forest.. -- 2,202 12,478 -- 2,202 12,478 14,680 --
Richmond,
Virginia:
Camden at
Wellesley....... -- 2,878 16,339 293 2,878 16,632 19,510 1,240
Potomac Hunt.... (b) 1,486 8,452 181 1,486 8,633 10,119 464
<CAPTION>
CONSTRUCTION YEAR
MUTIFAMILY COMMUNITIES YEAR ACQUIRED
- ----------------------- ------------ --------
<S> <C> <C>
Ft.
Lauderdale/West
Palm Beach,
Florida:
Cypress Lakes... 1987 1995
Park Place at
Turtle Run...... 1989 1996
Parrot's Landing
I............... 1986 1994
The Pointe at
Bayberry Lake... 1988 1996
Spencer Run..... 1987 1994
Sun Pointe
Cove............ 1986 1994
Trails at Meadow
Lakes........... 1983 1995
Ft. Myers,
Florida:
Forestwood...... 1986 1994
Greenville, South
Carolina:
Cameron Court... 1991 1996
Jacksonville,
Florida:
Bay Club........ 1990 1994
Memphis,
Tennessee:
Cameron Century
Center.......... 1988 1996
Cameron at Kirby
Parkway......... 1985 1994
Country Oaks.... 1985 1996
Stonegate....... 1986 1994
Miami, Florida:
Park Hill....... 1968 1994
Nashville,
Tennessee:
Arbor Creek..... 1986 1994
Enclave at
Brentwood....... 1988 1995
Orlando, Florida:
Camden Springs.. 1986 1994
Cameron Villas
I............... 1982 1994
Cameron Villas
II.............. 1981 1995
Kingston
Village......... 1982 1995
The Wellington.. 1988 1994
Raleigh, North
Carolina:
Cameron Lake.... 1985 1996
Cameron Ridge... 1985 1996
Cameron Square.. 1987 1994
Emerald Forest.. 1986 1996
Richmond,
Virginia:
Camden at
Wellesley....... 1989 1994
Potomac Hunt.... 1987 1994
</TABLE>
(see notes following table)
F-33
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH CARRIED AT
TO ATLANTIC COSTS DECEMBER 31, 1996
---------------------- CAPITALIZED ------------------------------------
ENCUM- BUILDINGS AND SUBSEQUENT TO BUILDINGS AND TOTALS ACCUMULATED
MUTIFAMILY COMMUNITIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (C) DEPRECIATION
- ----------------------- -------- -------- ------------- ------------- ---------- ------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sarasota,
Florida:
Camden at Palmer
Ranch........... $ -- $ 3,534 $ 20,057 $ 607 $ 3,534 $ 20,664 $ 24,198 $ 1,469
Tampa, Florida:
Camden Downs.... -- 1,840 10,447 305 1,840 10,752 12,592 780
Cameron
Bayshore........ -- 1,607 9,105 -- 1,607 9,105 10,712 --
Cameron Lakes... -- 1,126 6,418 1,107 1,126 7,525 8,651 365
Country Place
Village I....... 2,004 567 3,219 140 567 3,359 3,926 125
Country Place
Village II...... -- 644 3,658 94 644 3,752 4,396 141
Foxbridge on the
Bay............. 10,400 1,591 9,036 328 1,591 9,364 10,955 652
Summer Chase.... (b) 542 3,094 136 542 3,230 3,772 219
Washington, D.C.:
Camden at
Kendall Ridge... -- 1,708 9,698 295 1,708 9,993 11,701 755
Cameron at
Saybrooke....... -- 2,802 15,906 258 2,802 16,164 18,966 1,190
Sheffield
Forest.......... -- 2,269 12,859 418 2,269 13,277 15,546 374
West Springfield
Terrace......... -- 2,417 13,695 98 2,417 13,793 16,210 92
Less amounts
held in
principal
reserve
fund(g)......... (1,098) -- -- -- -- -- -- --
-------- -------- -------- ------- ---------- ---------- ---------- -------
Total Operating
Communities
Acquired........ $155,790 $124,701 $726,004 $27,324 $ 124,701 $ 753,328 $ 878,029 $38,948
-------- -------- -------- ------- ---------- ---------- ---------- -------
COMMUNITIES
DEVELOPED:
Birmingham,
Alabama:
Colony Woods
II.............. $ -- $ 1,254 $ -- $ 9,261 $ 1,551 $ 8,964 $ 10,515 $ 365
Charlotte, North
Carolina:
Waterford
Hills........... -- 1,508 -- 11,109 1,943 10,674 12,617 476
Waterford Square
I............... -- 1,890 -- 17,763 2,053 17,600 19,653 436
Jacksonville,
Florida:
Cameron Lakes
I............... -- 1,759 -- 14,358 1,959 14,158 16,117 216
Raleigh, North
Carolina:
Waterford
Point........... -- 985 -- 14,854 1,493 14,346 15,839 519
-------- -------- -------- ------- ---------- ---------- ---------- -------
Total Operating
Communities
Developed....... $ -- $ 7,396 $ -- $67,345 $ 8,999 $ 65,742 $ 74,741 $ 2,012
-------- -------- -------- ------- ---------- ---------- ---------- -------
TOTAL OPERATING
COMMUNITIES..... $155,790 $132,097 $726,004 $94,669 $ 133,700 $ 819,070 $ 952,770 $40,960
-------- -------- -------- ------- ---------- ---------- ---------- -------
<CAPTION>
CONSTRUCTION YEAR
MUTIFAMILY COMMUNITIES YEAR ACQUIRED
- ----------------------- ------------ --------
<S> <C> <C>
Sarasota,
Florida:
Camden at Palmer
Ranch........... 1988 1994
Tampa, Florida:
Camden Downs.... 1988 1994
Cameron
Bayshore........ 1984 1996
Cameron Lakes... 1986 1995
Country Place
Village I....... 1982 1995
Country Place
Village II...... 1983 1995
Foxbridge on the
Bay............. 1986 1994
Summer Chase.... 1988 1994
Washington, D.C.:
Camden at
Kendall Ridge... 1990 1994
Cameron at
Saybrooke....... 1990 1994
Sheffield
Forest.......... 1987 1995
West Springfield
Terrace......... 1978 1996
Less amounts
held in
principal
reserve
fund(g).........
Total Operating
Communities
Acquired........
COMMUNITIES
DEVELOPED:
Birmingham,
Alabama:
Colony Woods
II.............. 1995 1994
Charlotte, North
Carolina:
Waterford
Hills........... 1995 1993
Waterford Square
I............... 1996 1994
Jacksonville,
Florida:
Cameron Lakes
I............... 1996 1995
Raleigh, North
Carolina:
Waterford
Point........... 1996 1994
Total Operating
Communities
Developed.......
TOTAL OPERATING
COMMUNITIES.....
</TABLE>
(see notes following table)
F-34
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH CARRIED AT
TO ATLANTIC COSTS DECEMBER 31, 1996
--------------------- CAPITALIZED -------------------------------------
ENCUM- BUILDINGS AND SUBSEQUENT TO BUILDINGS AND TOTALS ACCUMULATED
MUTIFAMILY COMMUNITIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (C) DEPRECIATION
- ----------------------- ------- ------- ------------- ------------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMMUNITIES UNDER
CONSTRUCTION:
Atlanta, Georgia:
Cameron Creek
II.............. $ -- $ 2,730 $ -- $ 16,602 $ 2,897 $ 16,435 $ 19,332 $ 39
Birmingham,
Alabama:
Cameron at the
Summit I........ -- 2,774 -- 5,709 2,778 5,705 8,483 --
Charlotte, North
Carolina:
Waterford Square
II.............. -- 2,014 -- 4,578 2,065 4,527 6,592 --
Ft.
Lauderdale/West
Palm Beach,
Florida:
Parrot's Landing
II.............. -- 1,328 -- 6,742 1,367 6,703 8,070 --
Jacksonville,
Florida:
Cameron
Deerwood........ -- 2,331 -- 12,173 2,332 12,172 14,504 --
Cameron Lakes
II.............. -- 1,340 -- 1,529 1,340 1,529 2,869 --
Cameron
Timberlin Parc
I............... -- 2,167 -- 13,280 2,282 13,165 15,447 16
Nashville,
Tennessee:
Cameron
Overlook........ -- 2,659 -- 4,679 2,659 4,679 7,338 --
Raleigh, North
Carolina:
Cameron Brooke.. -- 1,353 -- 8,717 1,382 8,688 10,070 --
Waterford
Forest.......... -- 2,371 -- 17,978 2,480 17,869 20,349 52
Richmond,
Virginia:
Cameron at
Wyndham......... -- 2,038 -- 2,366 2,052 2,352 4,404 --
Cameron Crossing
I & II.......... -- 2,752 -- 8,450 2,768 8,434 11,202 --
Washington, D.C.:
Cameron at
Milestone....... -- 5,477 -- 24,867 5,607 24,737 30,344 43
Woodway at
Trinity Center.. -- 5,342 -- 30,241 5,584 29,999 35,583 56
------ ------- ------ -------- ---------- ----------- ----------- ----
TOTAL
COMMUNITIES
UNDER
CONSTRUCTION.... $ -- $36,676 $ -- $157,911 $ 37,593 $ 156,994 $ 194,587 $206
------ ------- ------ -------- ---------- ----------- ----------- ----
<CAPTION>
CONSTRUCTION YEAR
MUTIFAMILY COMMUNITIES YEAR ACQUIRED
- ----------------------- ------------ ---------
<S> <C> <C>
COMMUNITIES UNDER
CONSTRUCTION:
Atlanta, Georgia:
Cameron Creek
II.............. -- (h) 1994
Birmingham,
Alabama:
Cameron at the
Summit I........ -- 1996
Charlotte, North
Carolina:
Waterford Square
II.............. -- 1995
Ft.
Lauderdale/West
Palm Beach,
Florida:
Parrot's Landing
II.............. -- 1994
Jacksonville,
Florida:
Cameron
Deerwood........ -- (h) 1996
Cameron Lakes
II.............. -- 1996
Cameron
Timberlin Parc
I............... -- (h) 1995
Nashville,
Tennessee:
Cameron
Overlook........ -- 1996
Raleigh, North
Carolina:
Cameron Brooke.. -- 1995
Waterford
Forest.......... -- (h) 1995
Richmond,
Virginia:
Cameron at
Wyndham......... -- 1993
Cameron Crossing
I & II.......... -- 1995(i)
Washington, D.C.:
Cameron at
Milestone....... -- (h) 1995
Woodway at
Trinity Center.. -- (h) 1994
TOTAL
COMMUNITIES
UNDER
CONSTRUCTION....
</TABLE>
(see notes following table)
F-35
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION-(Concluded)
December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Gross Amount at
Initial Cost Which Carried at
to ATLANTIC Costs December 31, 1996
-------------------- Capitalized ----------------------------
Encum- Buildings and Subsequent to Buildings and Totals Accumulated Construction Year
Multifamily Communities brances Land Improvements Acquisition Land Improvements (c) Depreciation Year Acquired
----------------------- ------- ------ ------------- ------------- ------ ------------- ------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Communities in
Planning:
Atlanta, Georgia:
Cameron Landing....... $ - $ 1,508 $ - $ 512 $ 1,508 $ 512 $ 2,020 $ - - 1996
Ft. Lauderdale/West
Palm Beach, Florida:
Cameron Waterway...... - 4,025 - 361 4,029 357 4,386 - - 1996
Jacksonville, Florida:
Cameron Timberlin
Parc II............... - 1,294 - 95 1,294 95 1,389 - - 1995
-------- -------- --------- -------- -------- -------- ---------- -------
Total Communities in
Planning............ $ - $ 6,827 $ - $ 968 $ 6,831 $ 964 $ 7,795 $ -
-------- -------- --------- -------- -------- -------- ---------- -------
Land Held for
Future Development:
Birmingham, Alabama:
Cameron at the
Summit II............. - 2,008 - 75 2,083 - 2,083 - - 1996
-------- -------- --------- -------- -------- -------- ---------- -------
Total Land Held for
Future Development.. $ - $ 2,008 $ - $ 75 $ 2,083 $ - $ 2,083 $ -
-------- -------- --------- -------- -------- -------- ---------- -------
Total............... $155,790 $177,608 $726,004 $253,623 $180,207 $977,028 $1,157,235 $41,166
======== ======== ========= ======== ======== ======== ========== =======
</TABLE>
- -----
(a) For federal income tax purposes, ATLANTIC's aggregate cost of real estate
at December 31, 1996 was $1,133,431,000.
(b) Pledged as additional collateral under credit enhancement agreement with
the Federal National Mortgage Association.
(c) Phase I (108 units) was constructed in 1981 and Phase II (240 units) was
constructed in 1983.
(d) Phase I (332 units) was constructed in 1983 and Phase II (312 units) was
constructed in 1985.
(e) A provision for possible loss of $2,500,000 was recognized in December
1996 to more properly reflect the fair value of this community.
(f) The land associated with this community is leased by ATLANTIC through the
year 2058 under an agreement with the Metropolitan Nashville Airport
Authority.
(g) The FNMA credit enhancement agreement requires payments to be made to a
principal reserve fund.
(h) This community is leasing completed units.
(i) 19.24 acres purchased in 1995; 9.86 acres purchased in 1996.
F-36
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTE TO SCHEDULE III
AS OF DECEMBER 31, 1996
The following is a reconciliation of the carrying amount and related
accumulated depreciation of ATLANTIC's investment in real estate, at cost (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
CARRYING AMOUNT 1996 1995 1994
--------------- ---------- -------- --------
<S> <C> <C> <C>
Beginning balances........................ $ 888,928 $631,260 $ 31,005
Acquisitions and renovation expenditures.. 179,752 187,267 571,288
Development expenditures, including land
acquisitions............................. 179,783 101,335 28,967
Recurring capital expenditures............ 2,783 -- --
Provision for possible loss............... (2,500) -- --
Dispositions.............................. (59,988) (30,934) --
Sale of Homestead Assets.................. (31,523) -- --
---------- -------- --------
Ending balances........................... $1,157,235 $888,928 $631,260
========== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
ACCUMULATED DEPRECIATION 1996 1995 1994
------------------------ ---------- -------- --------
<S> <C> <C> <C>
Beginning balances........................ $ 23,561 $ 8,798 $ 28
Depreciation for the period............... 20,824 15,925 8,770
Accumulated depreciation of real estate
disposed of.............................. (3,219) (1,162) --
---------- -------- --------
Ending balances........................... $ 41,166 $ 23,561 $ 8,798
========== ======== ========
</TABLE>
F-37
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying pro forma condensed financial statements for ATLANTIC
reflect the Merger pursuant to which ATLANTIC will acquire its REIT Manager
and SCG Realty Services currently owned by Security Capital, in exchange for
ATLANTIC Shares. The Merger, if approved by a majority of ATLANTIC's
shareholders, will result in ATLANTIC becoming an internally managed REIT. The
Merger does not meet the significance tests of the Securities and Exchange
Commission that require pro forma financial statements and financial
statements of the acquired companies. However, pro forma condensed financial
statements have been included because management believes that presenting the
pro forma effects of the Merger will help shareholders evaluate and understand
the Merger.
The pro forma condensed financial statements have been prepared based on
certain pro forma adjustments to the historical financial statements of
ATLANTIC. The pro forma financial statements do not reflect the Offering as
ATLANTIC is not able to estimate what portion, if any, of the rights
distributed to shareholders in the Offering will ultimately be exercised.
The accompanying pro forma condensed balance sheet as of March 31, 1997 has
been prepared as if the Merger had been completed as of the balance sheet date
and also reflects: (i) the sale of $86.0 million of Shares on April 10, 1997
(4,000,000 Shares at $21.50 per Share), net of estimated costs of issuance of
$5.5 million, as if the Shares had been sold as of March 31, 1997; (ii) the
proposed Note Offering with aggregate gross proceeds of $150.0 million, net of
estimated costs of issuance of $4.3 million, as if the Notes had been issued
as of March 31, 1997; and (iii) the proposed Preferred Share Offering with
gross proceeds of $50.0 million, net of estimated costs of issuance of $2.0
million, as if the Series A Preferred Shares had been issued as of March 31,
1997. For pro forma purposes, the proceeds from the sale of Shares, the Note
Offering and the Preferred Share Offering have been assumed to be used to
repay borrowings on ATLANTIC's $350 million line of credit.
The accompanying pro forma condensed statements of earnings for the three-
month period ended March 31, 1997 and the year ended December 31, 1996 have
been prepared as if the Merger had occurred on January 1, 1996 and also
reflects: (i) the sale of ATLANTIC's Homestead Village(R) properties to
Homestead and subsequent distribution of the Homestead common stock and
warrants to ATLANTIC's shareholders as if the transaction had been consummated
on January 1, 1996; (ii) the acquisition and disposition by ATLANTIC of all
communities acquired or disposed of from December 31, 1995 through March 31,
1997 as if these communities had been acquired or disposed of as of January 1,
1996; (iii) the assumption of mortgage debt associated with the acquisition of
the communities acquired from December 31, 1995 through March 31, 1997 as if
this mortgage debt had been assumed as of January 1, 1996; (iv) the sale of
Shares through private placement subsequent to December 31, 1995, necessary to
fund pro forma acquisitions as if the Shares had been sold as of January 1,
1996; (v) the sale of Shares in ATLANTIC's initial public offering in October
1996, net of costs of issuance, necessary to fund pro forma acquisitions as if
the Shares had been sold as of January 1, 1996; (vi) the sale of $86.0 million
of Shares on April 10, 1997 (4,000,000 Shares at $21.50 per Share), net of
estimated costs of issuance of $5.5 million as if the Shares had been sold as
of January 1, 1996; (vii) the proposed Note Offering with aggregate gross
proceeds of $150.0 million, net of estimated costs of issuance of $4.3
million, as if the Notes had been issued as of January 1, 1996; and (viii) the
proposed Preferred Share Offering with gross proceeds of $50.0 million, net of
estimated costs of issuance of $2.0 million, as if the Series A Preferred
Shares had been issued as of January 1, 1996. For pro forma purposes, the
proceeds from the sale of Shares on April 10, 1997, the Note Offering and the
Preferred Share Offering have been assumed to be used to repay pro forma
borrowings on ATLANTIC's $350 million line of credit.
The accompanying pro forma condensed statements of earnings for the three-
month period ended March 31, 1997 and the year ended December 31, 1996 do not
give effect to the fully stabilized results of operations
F-38
<PAGE>
related to ATLANTIC communities under construction or in planning and owned at
March 31, 1997 with a total budgeted completion cost of $410.2 million or the
1996 and first quarter 1997 development completions with a total budgeted cost
of $56.4 million. Management believes there will be sufficient depth of
management and personnel such that additional assets can be acquired,
developed and managed without a significant increase in personnel or other
costs. As a result, management of ATLANTIC believes that the accretion in net
earnings and funds from operations from the Merger reflected in the pro forma
condensed statements of earnings is not indicative of the full accretion that
is expected to occur under an internally managed structure.
The pro forma condensed financial statements do not reflect the funding of
ATLANTIC's unfunded obligation of approximately $91.1 million at March 31,
1997 under a funding commitment agreement with Homestead or receipt of the
related convertible mortgage notes, as this funding is related to future
development costs of the properties sold to Homestead.
The pro forma condensed financial statements do not purport to be indicative
the financial position or results of operations which would actually have been
obtained had the transactions described above been completed on the dates
indicated or which may be obtained in the future. The pro forma condensed
financial statements should be read in conjunction with the historical
financial statements of ATLANTIC included elsewhere herein. In management's
opinion all material adjustments necessary to reflect the effects of these
transactions have been made.
F-39
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PROPOSED
SERIES A
PROPOSED PREFERRED
ATLANTIC SHARE THE NOTES SHARES
HISTORICAL ISSUANCE(A) SUBTOTAL MERGER SUBTOTAL ISSUANCE(B) ISSUANCE(C) PRO FORMA
---------- ----------- ---------- ------ ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
------
Real estate............. $1,208,229 $ -- $1,208,229 $ -- $1,208,229 $ -- $ -- $1,208,229
Less accumulated
depreciation.......... 47,297 -- 47,297 -- 47,297 -- -- 47,297
---------- -------- ---------- ------ ---------- --------- -------- ----------
1,160,932 -- 1,160,932 -- 1,160,932 -- -- 1,160,932
Homestead Convertible
Mortgages.............. 25,891 -- 25,891 -- 25,891 -- -- 25,891
---------- -------- ---------- ------ ---------- --------- -------- ----------
Net investments........ 1,186,823 -- 1,186,823 -- 1,186,823 -- -- 1,186,823
Cash and cash
equivalents............ 3,953 -- 3,953 24 (d) 3,977 -- -- 3,977
Due from Security
Capital................ -- -- -- 625 (e) 625 -- -- 625
Other fixed assets...... -- -- -- 1,102 (f) 1,102 -- -- 1,102
Accounts receivable and
other assets........... 13,455 -- 13,455 413 (d) 13,868 4,250 -- 18,118
---------- -------- ---------- ------ ---------- --------- -------- ----------
Total assets......... $1,204,231 $ -- $1,204,231 $2,164 $1,206,395 $ 4,250 $ -- $1,210,645
========== ======== ========== ====== ========== ========= ======== ==========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities:
Line of credit......... $ 295,250 $(80,480) $ 214,770 $ -- $ 214,770 $(145,750) $(48,000) $ 21,020
Long-term debt......... -- -- -- -- -- 150,000 -- 150,000
Mortgages payable...... 155,418 -- 155,418 -- 155,418 -- -- 155,418
Accounts payable....... 18,189 -- 18,189 1,062 (d) 19,251 -- -- 19,251
Accrued expenses and
other liabilities..... 20,654 -- 20,654 700 (g) 21,354 -- -- 21,354
---------- -------- ---------- ------ ---------- --------- -------- ----------
Total liabilities.... 489,511 (80,480) 409,031 1,762 410,793 4,250 (48,000) 367,043
---------- -------- ---------- ------ ---------- --------- -------- ----------
Shareholders' equity:
Series A Preferred
Shares (2,000,000
shares at a stated
liquidation
preference of $25.00
per share)............ -- -- -- -- -- -- 50,000 50,000
Common shares
(250,000,000
authorized,
37,891,580 issued
historical and
44,240,580 pro
forma)................ 379 40 419 23 (h) 442 -- -- 442
Additional paid-in
capital............... 747,640 80,440 828,080 379 (i) 828,459 -- (2,000) 826,459
Unrealized gains on
Homestead Convertible
Mortgages............. 5,900 -- 5,900 -- 5,900 -- -- 5,900
Distributions in
excess of net
earnings.............. (39,199) -- (39,199) -- (39,199) -- -- (39,199)
---------- -------- ---------- ------ ---------- --------- -------- ----------
Total shareholders'
equity.............. 714,720 80,480 795,200 402 795,602 -- 48,000 843,602
---------- -------- ---------- ------ ---------- --------- -------- ----------
Total liabilities and
shareholders'
equity.............. $1,204,231 $ -- $1,204,231 $2,164 $1,206,395 $ 4,250 $ -- $1,210,645
========== ======== ========== ====== ========== ========= ======== ==========
</TABLE>
See accompanying notes to pro forma condensed financial statements.
F-40
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
PRO FORMA CONDENSED STATEMENT OF EARNINGS
THREE-MONTH PERIOD ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PROPOSED
SERIES A
PROPOSED PREFERRED
ATLANTIC SHARE THE NOTES SHARES PRO
HISTORICAL ISSUANCE(A) SUBTOTAL MERGER SUBTOTAL ISSUANCE(B) ISSUANCE(C) FORMA
---------- ----------- -------- ------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental income.......... $ 39,715 $ -- $ 39,715 $ -- $ 39,715 $ -- $ -- $ 39,715
Homestead Convertible
Mortgages interest
income................ 185 -- 185 -- 185 -- -- 185
Other interest income.. 57 -- 57 -- 57 -- -- 57
-------- ------- -------- ------- -------- ------- ------- --------
39,957 -- 39,957 -- 39,957 -- -- 39,957
-------- ------- -------- ------- -------- ------- ------- --------
Expenses:
Rental expenses........ 13,823 -- 13,823 1,540 (j) 15,363 -- -- 15,363
Property management
fees:
Paid to affiliate...... 1,280 -- 1,280 (1,280)(k) -- -- -- --
Paid to third parties.. 232 -- 232 232 -- -- 232
Depreciation........... 6,132 -- 6,132 71 (l) 6,203 -- -- 6,203
Interest:
Mortgage............... 2,650 -- 2,650 -- 2,650 -- -- 2,650
Line of credit and
long-term debt........ 2,111 (1,429)(m) 682 -- 682 413 (n) (852)(o) 243
REIT management fee
paid to affiliate..... 3,029 229 (m) 3,258 (3,258)(k) -- -- -- --
General and
administrative........ 265 -- 265 1,486 (p) 1,751 -- -- 1,751
Provision for possible
loss on investments... 200 -- 200 -- 200 -- -- 200
Other.................. 57 -- 57 -- 57 -- -- 57
-------- ------- -------- ------- -------- ------- ------- --------
29,779 (1,200) 28,579 (1,441) 27,138 413 (852) 26,699
-------- ------- -------- ------- -------- ------- ------- --------
Net earnings from
operations............. $10,178 $ 1,200 $ 11,378 $ 1,441 (q) $ 12,819 $ (413) $ 852 $ 13,258
Less Series A Preferred
Share dividends....... -- -- -- -- -- -- 1,125 (r) 1,125
-------- ------- -------- ------- -------- ------- ------- --------
Net earnings
attributable to
Shares................ $ 10,178 $ 1,200 $ 11,378 $ 1,441 $ 12,819 $ (413) $ (273) $ 12,133
======== ======= ======== ======= ======== ======= ======= ========
Weighted average Shares
outstanding............ 37,892 4,000 (s) 41,892 2,349 (t) 44,241 -- -- 44,241
======== ======= ======== ======= ======== ======= ======= ========
Net earnings
attributable to Shares
per Share.............. $ 0.27 $ -- $ 0.27 $ 0.02 $ 0.29 $ (0.01) $ (0.01) $ 0.27
======== ======= ======== ======= ======== ======= ======= ========
Reconciliation of net
earnings attributable
to Shares to funds from
operations:
Net earnings
attributable to
Shares................ $ 10,178 $ 1,200 $ 11,378 $ 1,441 $ 12,819 $ (413) $ (273) $ 12,133
Add (Deduct):
Real estate
depreciation ......... 6,132 -- 6,132 -- 6,132 -- -- 6,132
Provision for possible
loss on investments... 200 -- 200 -- 200 -- -- 200
Amortization of
discount on conversion
feature and deferred
commitment fee related
to Homestead
Convertible Mortgages. (20) -- (20) -- (20) -- -- (20)
-------- ------- -------- ------- -------- ------- ------- --------
Funds from
operations(u)......... $ 16,490 $ 1,200 $ 17,690 $ 1,441 $ 19,131 $ (413) $ (273) $ 18,445
======== ======= ======== ======= ======== ======= ======= ========
Weighted average Shares
outstanding............ 37,892 4,000 41,892 2,349 44,241 -- -- 44,241
======== ======= ======== ======= ======== ======= ======= ========
Cash Flow Summary:
Net cash provided
(used) by operating
activities............ $ 16,913 $ 1,200 $ 18,113 $ 1,252 $ 19,365 $ (413) $ 852 $ 19,804
Net cash used by
investing activities.. (69,354) -- (69,354) (1,132) (70,486) -- -- (70,486)
Net cash provided
(used) by financing
activities............ $ 52,055 $ -- $ 52,055 $ (197) $ 51,858 $ -- $(1,125) $ 50,733
</TABLE>
See accompanying notes to pro forma condensed financial statements.
F-41
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
PRO FORMA CONDENSED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACQUISITIONS PROPOSED
ATLANTIC HOMESTEAD DISPOSITIONS & THE NOTES
HISTORICAL TRANSACTION(V) SUBTOTAL SHARE ISSUANCE SUBTOTAL MERGER SUBTOTAL ISSUANCE
---------- -------------- -------- -------------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental income... $137,729 $ (424) $137,305 $11,056 (w) $148,361 $ -- $ 148,361 $ --
Interest income. 427 (21) 406 -- 406 -- 406 --
-------- ------- -------- ------- -------- ------- --------- -------
138,156 (445) 137,711 11,056 148,767 -- 148,767 --
-------- ------- -------- ------- -------- ------- --------- -------
Expenses:
Rental expenses. 49,101 (173) 48,928 4,279 (w) 53,207 5,662 (x) 58,869 --
Property
management fees:
Paid to affiliate. 4,208 -- 4,208 404 (w) 4,612 (4,612)(k) -- --
Paid to third
parties......... 971 -- 971 -- 971 -- 971 --
Depreciation.... 20,824 (43) 20,781 1,753 (y) 22,534 213 (z) 22,747 --
Interest:
Mortgage........ 9,484 -- 9,484 785 (aa) 10,269 -- 10,269 --
Line of credit
and long-term
debt............ 6,697 2,739 9,436 (5,168)(bb) 4,268 -- 4,268 1,229 (cc)
REIT management
fee paid to
affiliate....... 10,445 (475) 9,970 1,682 (ee) 11,652 (11,652)(k) -- --
General and
administrative.. 673 (32) 641 -- 641 5,282 (ff) 5,923 --
Provision for
possible loss on
investments..... 2,500 -- 2,500 -- 2,500 -- 2,500 --
Other........... 255 (23) 232 -- 232 -- 232 --
-------- ------- -------- ------- -------- ------- --------- -------
105,158 1,993 107,151 3,735 110,886 (5,107) 105,779 1,229
-------- ------- -------- ------- -------- ------- --------- -------
Net earnings from
operations
excluding gains
on dispositions
and extraordinary
item............. $ 32,998 $(2,438) $ 30,560 $ 7,321 $ 37,881 $ 5,107 (q) $ 42,988 $(1,229)
Less Series A
Preferred Share
dividends........ -- -- -- -- -- -- -- --
-------- ------- -------- ------- -------- ------- --------- -------
Net earnings
attributable to
Shares.......... $ 32,998 $(2,438) $ 30,560 $ 7,321 $ 37,881 $ 5,107 $ 42,988 $(1,229)
======== ======= ======== ======= ======== ======= ========= =======
Weighted average
Shares
outstanding...... 32,028 -- 32,028 5,869 (hh) 37,897 2,349 (t) 40,246 --
======== ======= ======== ======= ======== ======= ========= =======
Net earnings
attributable to
Shares per Share
excluding gains
on dispositions
and extraordinary
item............. $ 1.03 $ (0.08) $ 0.95 $ 0.05 $ 1.00 $ 0.07 $ 1.07 $ (0.03)
Reconciliation of
net earnings
attributable to
Shares excluding
gains on
dispositions and
extraordinary
item to funds
from operations:
Net earnings
attributable to
Shares excluding
gains on
dispositions and
extraordinary
item............ $ 32,998 $(2,438) $ 30,560 $ 7,321 $ 37,881 $ 5,107 $ 42,988 $(1,229)
Add (Deduct):
Real estate
depreciation.... 20,824 (43) 20,781 1,753 22,534 -- 22,534 --
Provision for
possible loss on
investments..... 2,500 -- 2,500 -- 2,500 -- 2,500 --
-------- ------- -------- ------- -------- ------- --------- -------
Funds from
operations (u).. $ 56,322 $(2,481) $ 53,841 $ 9,074 $ 62,915 $ 5,107 $ 68,022 $(1,229)
======== ======= ======== ======= ======== ======= ========= =======
Weighted average
Shares
outstanding...... 32,028 -- 32,028 5,869 37,897 2,349 40,246 --
======== ======= ======== ======= ======== ======= ========= =======
Cash Flow
Summary:
Net cash
provided (used)
by operating
activities...... $ 54,356 $(2,481) $ 51,875 $ 9,074 $ 60,949 $ 6,418 $ 67,367 $(1,229)
Net cash used by
investing
activities...... (287,418) -- (287,418) -- (287,418) (4,058) (291,476) --
Net cash
provided (used)
by financing
activities...... $230,907 $ -- $230,907 $ -- $230,907 $ (381) $ 230,526 $ --
<CAPTION>
PROPOSED
SERIES A
PREFERRED
SHARES PRO
ISSUANCE FORMA
------------- ---------
<S> <C> <C>
Revenues:
Rental income... $ -- $148,361
Interest income. -- 406
------------- ---------
-- 148,767
------------- ---------
Expenses:
Rental expenses. -- 58,869
Property
management fees:
Paid to affiliate. -- --
Paid to third
parties......... -- 971
Depreciation.... -- 22,747
Interest:
Mortgage........ -- 10,269
Line of credit
and long-term
debt............ (3,547)(dd) 1,950
REIT management
fee paid to
affiliate....... -- --
General and
administrative.. -- 5,923
Provision for
possible loss on
investments..... -- 2,500
Other........... -- 232
------------- ---------
(3,547) 103,461
------------- ---------
Net earnings from
operations
excluding gains
on dispositions
and extraordinary
item............. $ 3,547 $ 45,306
Less Series A
Preferred Share
dividends........ 4,500 (gg) 4,500
------------- ---------
Net earnings
attributable to
Shares.......... $ (953) $ 40,806
============= =========
Weighted average
Shares
outstanding...... -- 40,246
============= =========
Net earnings
attributable to
Shares per Share
excluding gains
on dispositions
and extraordinary
item............. $ (0.03) $ 1.01
Reconciliation of
net earnings
attributable to
Shares excluding
gains on
dispositions and
extraordinary
item to funds
from operations:
Net earnings
attributable to
Shares excluding
gains on
dispositions and
extraordinary
item............ $ (953) $ 40,806
Add (Deduct):
Real estate
depreciation.... -- 22,534
Provision for
possible loss on
investments..... -- 2,500
------------- ---------
Funds from
operations (u).. $ (953) $ 65,840
============= =========
Weighted average
Shares
outstanding...... -- 40,246
============= =========
Cash Flow
Summary:
Net cash
provided (used)
by operating
activities...... $ 3,547 $ 69,685
Net cash used by
investing
activities...... -- (291,476)
Net cash
provided (used)
by financing
activities...... $(4,500) $226,026
</TABLE>
See accompanying notes to pro forma condensed financial statements.
F-42
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
(a) Reflects the sale of 4,000,000 Shares at a price of $21.50 per Share
which occurred on April 10, 1997. The total proceeds of $86.0 million, net of
estimated costs of issuance of $5.5 million, results in $80.5 million of cash
available which, for pro forma purposes, has been assumed to be used to repay
borrowings on ATLANTIC's $350 million unsecured line of credit.
(b) Reflects the proposed sale of $100.0 million of % Notes and $50.0
million of % Notes, net of estimated costs of issuance of $4.3 million,
resulting in $145.7 million of cash available which, for pro forma purposes,
has been assumed to be used to repay borrowings on ATLANTIC's $350 million
unsecured line of credit.
(c) Reflects the proposed sale of 2,000,000 shares of Series A Preferred
Shares at a price of $25.00 per share. The total proceeds of $50.0 million,
net of estimated costs of issuance of $2.0 million, results in $48.0 million
of cash available which, for pro forma purposes, has been assumed to be used
to repay borrowings on ATLANTIC's $350 million unsecured line of credit. For
pro forma purposes, the issuance price and the redemption price are assumed to
be the same.
(d) Reflects the historical operating assets and liabilities of the REIT
Manager and SCG Realty Services for which Security Capital will reimburse
ATLANTIC as more fully discussed in note (e).
(e) In accordance with the terms of the Merger Agreement, reflects the
amount due to ATLANTIC from Security Capital as reimbursement for the net
historical operating liabilities (as discussed in note (d)) acquired from the
REIT Manager and SCG Realty Services as of March 31, 1997.
(f) Reflects the historical cost of the fixed assets (primarily computer
equipment and software) of the REIT Manager and SCG Realty Services that are
being acquired by ATLANTIC. Assets and liabilities, consisting primarily of
intercompany and related accounts, which are not being acquired in the Merger
have not been reflected as they will have no impact on the financial position
of ATLANTIC.
(g) Reflects estimated costs of completing the Merger which are reflected in
shareholders' equity. See note (i).
(h) Reflects the par value of the Shares issued as consideration for the
purchase of the net tangible assets of the REIT Manager and SCG Realty
Services. For pro forma purposes, 2,349,000 Shares were calculated using the
market value of the Shares issued on the date of the Merger, which for pro
forma purposes is assumed to be $54.6 million, and an assumed market value per
Share price of $23.25.
(i) Reflects: (i) the additional paid-in capital related to the Shares
issued to Security Capital and (ii) the distribution to Security Capital which
is calculated as the difference between the market value of the Shares issued
on the date of the Merger plus the costs associated with the Merger and the
approximately $1.1 million of net tangible assets of the REIT Manager and SCG
Realty Services being acquired by ATLANTIC. Because the management companies
being acquired do not qualify as "businesses" for purposes of applying APB
Opinion No. 16, "Business Combinations" and because the transaction is
occurring between entities under common control this difference has been
accounted for as a distribution to Security Capital.
<TABLE>
<S> <C> <C>
Additional paid-in capital
associated with Shares issued
($54,609,000 less par value
of $23,000).................. $54,586,000
Assumed market value of Shares
issued....................... 54,609,000
Costs associated with the
Merger....................... 700,000
Net tangible assets acquired.. (1,102,000)
----------
54,207,000
-----------
Net adjustment to additional
paid-in capital.............. $ 379,000
===========
</TABLE>
F-43
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(j) Reflects the historical operating expenses of SCG Realty Services,
including charges for administrative services provided by Security Capital,
which were directly related to providing services to ATLANTIC for the three-
month period ended March 31, 1997. See note (p) for further discussion.
(k) Reflects the elimination of ATLANTIC's expenses related to REIT
management fees and property management fees. The corresponding fee revenue
recognized by the REIT Manager and SCG Realty Services have not been reflected
as they would be eliminated.
(l) Reflects the historical depreciation expense of the REIT Manager and SCG
Realty Services ($60,000) directly related to fixed assets being acquired in
the Merger for the three-month period ended March 31, 1997, as adjusted for
the estimated increase that would result from the capitalization of
acquisition and development costs ($11,000) discussed in note (p). These
capitalized costs will be depreciated utilizing the same lives and methods
currently utilized by ATLANTIC.
(m) Reflects the reduction to interest expense and related increase in the
REIT management fee resulting from the pro forma repayments on the line of
credit due to the Share issuance on April 10, 1997. The interest reduction is
calculated using the weighted average daily interest rate of 7.1% for the
three-month period ended March 31, 1997.
(n) Reflects the net change in interest expense as a result of the Note
Offering for the three-month period ended March 31, 1997 as follows:
<TABLE>
<S> <C>
Increase in interest expense related to the Notes............... $ 3,000
Decrease in interest expense associated with the pro forma
repayments on the line of credit............................... (2,587)
-------
Net change.................................................... $ 413
=======
</TABLE>
The interest expense on the Notes is calculated at an assumed effective rate
of 8.0% (including the amortization of associated deferred loan costs). The
reduction in interest expense associated with the line of credit is calculated
using the line of credit weighted average interest rate of 7.1%.
<TABLE>
<S> <C>
===
</TABLE>
(o) Reflects the reduction in interest expense resulting from the pro forma
repayments on the line of credit due to the proposed Preferred Share Offering
calculated using the line of credit weighted average interest rate of 7.1% for
the three-month period ended March 31, 1997.
(p) Reflects the historical general and administrative costs of the REIT
Manager ($2,488,000) which were associated with providing services to ATLANTIC
for the three-month period ended March 31, 1997, reduced for the pro forma
adjustment to capitalize qualifying direct and incremental costs relating
primarily to the acquisition and development of real estate investments
($1,002,000) that would have been capitalized by ATLANTIC under GAAP, had the
Merger occurred on January 1, 1996. Under the current management structure,
ATLANTIC pays a REIT management fee which is based on 16% of cash flow, as
defined. The entire fee is expensed in accordance with GAAP since the
underlying costs of service are not directly incurred by ATLANTIC and the fees
do not represent a reimbursement of such costs. Upon consummation of the
Merger, all such costs will be incurred directly by ATLANTIC and to the extent
that they are qualifying, incremental costs, they will be capitalized in
accordance with GAAP.
In connection with the Merger, it is expected that ATLANTIC will enter into
a proposed Administrative Services Agreement (ASA) with Security Capital.
Under the ASA, Security Capital will provide ATLANTIC with administrative
services such as payroll, accounts payable, cash management, risk management,
internal audit, tax and legal administration, systems development and systems
support. Such services are currently
F-44
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
provided by Security Capital to ATLANTIC through the REIT Manager and SCG
Realty Services. The fees payable to Security Capital will be equal to
Security Capital's cost of providing such services, plus 20%. Based upon a
review of the terms of the ASA, it was determined that the costs that would
have been incurred under the ASA for the three-month period ended March 31,
1997 and the year ended December 31, 1996 would not differ materially from the
actual costs charged to the REIT Manager and SCG Realty Services by Security
Capital during these periods and therefore no pro forma adjustments are
required.
(q) No income tax adjustment is reflected in the accompanying pro forma
condensed statements of earnings as the operations of the REIT Manager and SCG
Realty Services will be merged into a qualified REIT subsidiary which, under
federal income tax laws, would not be subject to income taxes.
(r) Reflects the dividend related to the Series A Preferred Shares
calculated at an assumed dividend rate of 9.0% for the three-month period
ended March 31, 1997.
(s) Reflects the issuance of 4,000,000 Shares on April 10, 1997 as if the
Shares had been issued as of March 31, 1997.
(t) Reflects the increase in weighted average Shares outstanding that would
result from the issuance of Shares as consideration for the purchase of the
net tangible assets of the REIT Manager and SCG Realty Services as if the
purchase had occurred on January 1, 1996. The number of Shares shown is based
on the market value of Shares issued on the date of the Merger, which for pro
forma purposes is assumed to be $54.6 million, and an assumed market value per
Share price of $23.25.
(u) Funds from operations represents ATLANTIC's net earnings computed in
accordance with GAAP, excluding gains (or losses) from real estate
transactions, provisions for possible losses, extraordinary items and real
estate depreciation. Funds from operations should not be considered as an
alternative to net earnings or any other GAAP measurement of performance as an
indicator of ATLANTIC's operating performance or as an alternative to cash
flows from operating, investing or financing activities as a measure of
liquidity. ATLANTIC believes that funds from operations is helpful to a reader
as a measure of the performance of an equity REIT because, along with cash
flow from operating activities, financing activities and investing activities,
it provides a reader with an indication of the ability of ATLANTIC to incur
and service debt, to make capital expenditures and to fund other cash needs.
Furthermore, management believes that an understanding of funds from
operations will enhance the reader's comprehension of the impact of the Merger
to ATLANTIC which was a specific consideration of ATLANTIC's Special Committee
which is comprised of the independent members of ATLANTIC's Board of Directors
(the "Board") and was formed for purposes of making a recommendation to the
Board. Furthermore, the funds from operations measure presented by ATLANTIC
may not be comparable to similarly titled measures of other REITs. Funds from
operations is not intended to represent cash made available to shareholders.
(v) Reflects the sale of ATLANTIC's Homestead Village(R) properties to
Homestead as if the transaction had taken place on January 1, 1996 as follows:
(i) the elimination of the historical results of operations of ATLANTIC's
Homestead Village(R) properties from January 1, 1996 to the date of sale
(October 17, 1996), (ii) the recognition of additional interest expense and a
corresponding reduction in the REIT management fee resulting from the
additional borrowings that would have been necessary in 1996 to complete the
Homestead transaction and (iii) the recognition of the historical interest
expense that was capitalized on the properties sold to Homestead and the
corresponding reduction in the REIT management fee.
F-45
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(w) All of ATLANTIC's acquisitions subsequent to December 31, 1995 were
acquired from unaffiliated third parties. These acquisitions are described
below:
<TABLE>
<CAPTION>
OCCUPANCY
ACQUISITION ACQUISITION AT DATE OF
COMMUNITY DATE LOCATION COST (IN 000'S) UNITS PRODUCT TYPE ACQUISITION
--------- ----------- -------- --------------- ----- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Cameron at Hickory Grove
(formerly Esprit)...... 4/10/96 Charlotte, NC $ 8,000 202 Moderate 93.6%
Cameron Court (formerly
Paces Court)........... 4/22/96 Greenville, SC 11,007 234 Middle 91.0
Park Place at Turtle Run
(formerly Park Place).. 4/22/96 Ft. Lauderdale, FL 14,355 350 Moderate 91.7
The Pointe at Bayberry
Lake................... 5/29/96 Ft. Lauderdale, FL 16,650 308 Moderate 90.9
Cameron Pointe.......... 5/30/96 Atlanta, GA 14,450 214 Middle 96.3
Country Oaks............ 9/5/96 Memphis, TN 8,250 200 Moderate 98.0
West Springfield
Terrace................ 9/30/96 Washington, DC 16,100 244 Moderate 94.7
Cameron Ridge (formerly
Lincoln Ridge)......... 10/17/96 Raleigh, NC 10,000 228 Middle 99.6
Cameron Century Center
(formerly Arbors of
Century Center)........ 10/18/96 Memphis, TN 15,800 420 Moderate 90.7
Balmoral Village........ 10/22/96 Atlanta, GA 19,125 312 Middle 95.5
Cameron Lake (formerly
Summer Lake)........... 11/12/96 Raleigh, NC 9,225 196 Moderate 84.1
Emerald Forest.......... 12/19/96 Raleigh, NC 14,625 320 Moderate 85.6
Cameron Bayshore (for-
merly Chesapeake)...... 12/20/96 Tampa, FL 10,700 328 Moderate 97.0
</TABLE>
This adjustment reflects historical gross income and rental expenses for all
communities acquired subsequent to December 31, 1995 for the period from
January 1, 1996 to the respective dates of acquisition (results of operations
after the date of acquisition are included in ATLANTIC's historical operating
results). It also reflects the removal from ATLANTIC's historical balances of
gross income and rental expenses for all communities disposed of subsequent to
December 31, 1995 for the period from January 1, 1996 to the respective dates
of disposition. The historical gross income and rental expenses relating to
the period prior to ATLANTIC's acquisition of the communities exclude amounts
which would not be comparable to the proposed future operations of the
communities such as certain interest income and income taxes.
F-46
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
The following tables summarize the historical income and expense amounts
shown on the pro forma statement of earnings for the year ended December 31,
1996 (in thousands). There were no community acquisitions or dispositions in
the three-month period ended March 31, 1997.
<TABLE>
<CAPTION>
RENTAL RENTAL
INCOME EXPENSES(1)
------- -----------
<S> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1996:
Group C Communities................................ $ 5,805 $ 2,481
Group D Communities................................ 6,180 2,505
Group E Communities................................ 11,645 4,753
Other communities acquired in 1996................. 3,683 1,534
------- -------
Totals for the year.............................. 27,313 11,273
Less: Post acquisition amounts already included in
ATLANTIC's historical balances................ (9,690) (3,616)
Less: Dispositions................................. (6,567) (2,920)
------- -------
Net adjustment to ATLANTIC's historical balances. $11,056 $ 4,737 (2)
======= =======
</TABLE>
- --------
(1) Includes property management fees and real estate taxes.
(2) Rental expenses are further adjusted by ($54) to reflect the difference
for the year ended December 31, 1996 between historical property
management fee expense and ATLANTIC's pro forma property management fee
expense.
The following analysis reconciles the audited information for the Group C
Communities, the Group D Communities and the Group E Communities to the
amounts contained in the pro forma statement of earnings (in thousands):
<TABLE>
<CAPTION>
RENTAL RENTAL
INCOME EXPENSES(1)
------- -----------
<S> <C> <C>
Group C Communities: Audited results of operations
for the year ended December 31, 1995............. $ 5,876 $3,043
Adjustment to reflect the results of operations
of Group C Communities for 1996................ (71)(2) (562)(2)
------- ------
Total 1996 Group C............................ $ 5,805 $2,481
======= ======
Group D Communities: Audited results of operations
for the year ended December 31, 1995............. $ 6,173 $2,576
Adjustment to reflect the results of operations
of Group D Communities for 1996................ 7(2) (71)(2)
------- ------
Total 1996 Group D............................ $ 6,180 $2,505
======= ======
Group E Communities: Audited results of operations
for the year ended December 31, 1995............. $11,347 $4,990
Adjustment to reflect the results of operations
of Group E Communities for 1996................ 298(2) (237)(2)
------- ------
Total 1996 Group E............................ $11,645 $4,753
======= ======
</TABLE>
- --------
(1) Includes property management fees and real estate taxes.
(2) Represents incremental income and expense adjustments necessary to
reconcile the 1995 audited results with the 1996 actual results.
F-47
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(x) Reflects the historical operating expenses of the Property Manager
($5,257,000), including charges for administrative services provided by
Security Capital (see note (p)) which were directly related to providing
services to ATLANTIC for the year ended December 31, 1996, as adjusted for the
estimated increase to historical operating expenses of SCG Realty Services
($405,000) resulting from the pro forma acquisitions, net of dispositions,
discussed in note (w).
(y) Reflects (i) the removal of depreciation expense recognized on
communities disposed of subsequent to December 31, 1995 which is included in
ATLANTIC's historical balances ($735,000) and (ii) the addition of
depreciation expense from January 1, 1996 through the acquisition date for all
communities acquired subsequent to December 31, 1995 ($2,488,000)
(depreciation expense after the date of acquisition is included in ATLANTIC's
historical operating results). This depreciation adjustment is based on
ATLANTIC's purchase cost assuming asset lives of ten to 40 years. Depreciation
is computed using a straight-line method.
(z) Reflects the historical depreciation expense of the REIT Manager and the
Property Manager ($193,000) directly related to fixed assets being acquired in
the Merger for the year ended December 31, 1996, as adjusted for the estimated
increase that would result from the capitalization of acquisition and
development costs ($20,000) discussed in note (ff). These capitalized costs
will be depreciated utilizing the same lives and methods currently utilized by
ATLANTIC.
(aa) Reflects pro forma interest expense for the year ended December 31,
1996 on the three mortgage notes assumed in connection with acquisitions in
1996. The interest rates on the mortgage notes vary from 7.0% to 8.0%.
(bb) Represents the reduction to interest expense resulting from the pro
forma repayments on the line of credit due to the Share issuance on April 10,
1997. The interest reduction is calculated using the weighted-average daily
interest rate of 7.39% for 1996.
(cc) Reflects the net change in interest expense as a result of the Note
Offering for the year ended December 31, 1996 as follows:
<TABLE>
<S> <C>
Increase in interest expense related to the Notes............... $12,000
Decrease in interest expense associated with the pro forma
repayments on the line of credit............................... (10,771)
-------
Net change.................................................... $ 1,229
=======
</TABLE>
The interest expense on the Notes is calculated at an assumed effective rate
of 8.0% (including the amortization of associated deferred loan costs). The
reduction in interest expense associated with the line of credit is calculated
using the line of credit weighted average interest rate of 7.39%.
(dd) Reflects the reduction in interest expense resulting from the pro forma
repayments on the line of credit due to the proposed Preferred Share Offering
calculated using the line of credit weighted average interest rate of 7.39%
for the year ended December 31, 1996.
(ee) Reflects the additional REIT management fee that would have been
incurred for the year ended December 31, 1996, had the pro forma acquisitions
and dispositions and the pro forma repayments on the line of credit all
occurred as of January 1, 1996.
(ff) Reflects the historical general and administrative costs of the REIT
Manager ($9,383,000), including charges for administrative services provided
by Security Capital which were associated with providing services to ATLANTIC
for the year ended December 31, 1996, reduced for the pro forma adjustment to
capitalize
F-48
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
qualifying direct and incremental costs relating primarily to the acquisition
and development of real estate investments ($4,101,000) that would have been
capitalized by ATLANTIC under GAAP, had the Merger occurred on January 1,
1996. See note (p) for further discussion.
Historical general and administrative costs of the REIT Manager relating to
the operations of Homestead Village properties which were contributed to
Homestead (as discussed in note (v)), have not been reflected as they would
not impact the ongoing operations of ATLANTIC.
(gg) Reflects the dividends related to the Series A Preferred Shares
calculated at an assumed dividend rate of 9.0% for the year ended December 31,
1996.
(hh) The number of Shares used in the calculation of the pro forma per Share
data was based on the weighted-average number of Shares outstanding during the
period, adjusted to give effect to Shares assumed to have been issued on
January 1, 1996 as necessary to complete the pro forma acquisitions and to
make the pro forma repayments on the line of credit.
F-49
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Security Capital Atlantic Incorporated
We have audited the accompanying combined Historical Summary of Gross Income
and Direct Operating Expenses (the Historical Summary) of the Group C
Communities described in Note 1 for the year ended December 31, 1995. This
combined Historical Summary is the responsibility of the Group C Communities'
management. Our responsibility is to express an opinion on this combined
Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined Historical Summary is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined Historical
Summary. An audit also includes assessing the accounting principles used and
the significant estimates made by management, as well as evaluating the
overall presentation of the combined Historical Summary. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11
of Security Capital Atlantic Incorporated as described in the accompanying
Note 1 of the combined Group C Communities and is not intended to be a
complete presentation of the income and expenses of the combined Group C
Communities.
In our opinion, the combined Historical Summary of Gross Income and Direct
Operating Expenses referred to above presents fairly, in all material
respects, the combined gross income and direct operating expenses as described
in Note 1 of the combined Group C Communities for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
West Palm Beach, Florida
April 26, 1996
F-50
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP C COMMUNITIES
COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Gross income:
Rental...................................................... $5,760,923
Other....................................................... 114,949
----------
Total gross income........................................ 5,875,872
----------
Direct operating expenses:
Utilities and other operating expenses...................... 1,279,237
Real estate taxes........................................... 615,907
Repairs and maintenance..................................... 783,851
Management fees............................................. 228,903
Advertising................................................. 88,289
Insurance................................................... 47,163
----------
Total direct operating expenses........................... 3,043,350
----------
Excess of gross income over direct operating expenses......... $2,832,522
==========
</TABLE>
See accompanying notes.
F-51
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP C COMMUNITIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
DECEMBER 31, 1995
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined Historical Summary of Gross Income and Direct Operating
Expenses (the "Historical Summary") for the year ended December 31, 1995,
relates to the operations of the following Group C Communities which were
acquired from unaffiliated parties by Security Capital Atlantic Incorporated
("ATLANTIC") between January 1, 1996 and April 29, 1996:
<TABLE>
<CAPTION>
ACQUISITION DATE COMMUNITY NAME LOCATION ACQUISITION COST
---------------- -------------- -------------------------- ----------------
(IN 000S)
<C> <S> <C> <C>
April 10, 1996 Cameron at Charlotte, North Carolina $ 8,000
Hickory
Grove
(formerly
Esprit)
April 22, 1996 Park Place Ft. Lauderdale, Florida 14,355
at Turtle
Run
(formerly
Park
Place)
April 22, 1996 Cameron Greenville, South Carolina 11,007
Court
(formerly
Paces
Court)
</TABLE>
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Registration Statement on Form S-11
of ATLANTIC. The combined Historical Summary is not intended to be a complete
presentation of combined income and expenses of the Group C Communities for
the year ended December 31, 1995, as certain costs such as depreciation,
amortization, certain mortgage interest, professional fees and other costs not
considered comparable to the future operations of the Group C Communities have
been excluded.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Rental income from leasing activities consist of lease payments earned from
tenants under lease agreements with terms of one year or less.
Capitalization Policy
Ordinary repairs and maintenance are expensed as incurred; major
replacements and betterments are capitalized.
Advertising Expense
The cost of advertising is expensed as incurred.
Use of Estimates
The preparation of the combined Historical Summary in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined Historical
Summary and accompanying notes. Actual results could differ from those
estimates.
3. RELATED PARTY TRANSACTIONS
Management fees of $228,903 were paid to affiliates of the prior owners
under property management contracts.
4. DEBT ASSUMPTION
During 1995, the Cameron at Hickory Grove Apartments secured an 8.75%,
interest-only mortgage note with a balance of $6,660,000. ATLANTIC assumed
this mortgage note on April 10, 1996 in connection with the acquisition of the
community. Substantial modifications in the terms of the note were made prior
to the assumption by ATLANTIC. Therefore, on a continuing basis, the interest
expense incurred will differ from the amounts incurred prior to ATLANTIC's
assumption of the debt. Accordingly, no interest expense is recognized in the
accompanying combined Historical Summary.
F-52
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Security Capital Atlantic Incorporated
We have audited the accompanying combined Historical Summary of Gross Income
and Direct Operating Expenses (the Historical Summary) of the Group D
Communities described in Note 1 for the year ended December 31, 1995. This
combined Historical Summary is the responsibility of the Group D Communities'
management. Our responsibility is to express an opinion on this combined
Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined Historical Summary is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined Historical
Summary. An audit also includes assessing the accounting principles used and
the significant estimates made by management, as well as evaluating the
overall presentation of the combined Historical Summary. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11
of Security Capital Atlantic Incorporated as described in the accompanying
Note 1 of the combined Group D Communities and is not intended to be a
complete presentation of the income and expenses of the combined Group D
Communities.
In our opinion, the combined Historical Summary of Gross Income and Direct
Operating Expenses referred to above presents fairly, in all material
respects, the combined gross income and direct operating expenses as described
in Note 1 of the combined Group D Communities for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
West Palm Beach, Florida
August 13, 1996
F-53
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP D COMMUNITIES
COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM JANUARY 1, 1996 THROUGH THE
EARLIER OF JUNE 30, 1996 OR DATE OF ACQUISITION
<TABLE>
<CAPTION>
1995 1996
---------- -----------
(UNAUDITED)
<S> <C> <C>
Gross income:
Rental................................................. $5,927,498 $2,530,039
Other.................................................. 245,113 95,154
---------- ----------
Total gross income................................... 6,172,611 2,625,193
---------- ----------
Direct operating expenses:
Utilities and other operating expenses................. 1,252,442 595,707
Real estate taxes...................................... 557,446 278,615
Repairs and maintenance................................ 336,297 78,735
Management fees........................................ 266,917 106,175
Advertising............................................ 65,935 35,320
Insurance.............................................. 97,417 58,141
---------- ----------
Total direct operating expenses...................... 2,576,454 1,152,693
---------- ----------
Excess of gross income over direct operating expenses.... $3,596,157 $1,472,500
========== ==========
</TABLE>
See accompanying notes.
F-54
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP D COMMUNITIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM JANUARY 1, 1996 THROUGH THE
EARLIER OF JUNE 30, 1996 OR DATE OF ACQUISITION (UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined Historical Summary of Gross Income and Direct Operating
Expenses (the "Historical Summary") for the year ended December 31, 1995 and
the period from January 1, 1996 through the earlier of June 30, 1996 or the
date Security Capital Atlantic Incorporated (" ATLANTIC") acquired the
community (the "Date of Acquisition") relates to the operations of the
following Group D Communities which have been or are likely to be acquired
from unaffiliated parties by ATLANTIC between May 29, 1996 and September 30,
1996:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
DATE COMMUNITY NAME LOCATION COST
----------- -------------- -------- -----------
<S> <C> <C> <C>
(IN 000'S)
May 29, 1996 The Pointe at Bayberry Lake Ft. Lauderdale, Florida $ 16,650
May 30, 1996 Cameron Pointe (formerly Calibre Pointe) Atlanta, Georgia 14,450
-- (1) Country Oaks Memphis, Tennessee -- (1)
</TABLE>
- --------
(1) Community is under contract
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Registration Statement on Form S-11
of ATLANTIC. The combined Historical Summary is not intended to be a complete
presentation of combined income and expenses of the Group D Communities for
the year ended December 31, 1995 and the period from January 1, 1996 through
the earlier of June 30, 1996 or the Date of Acquisition, as certain costs such
as depreciation, amortization, certain mortgage interest, professional fees
and other costs not considered comparable to the future operations of the
Group D Communities have been excluded.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Rental income from leasing activities consist of lease payments earned from
tenants under lease agreements with terms of one year or less.
Capitalization Policy
Ordinary repairs and maintenance are expensed as incurred; major
replacements and betterments are capitalized.
Advertising Expense
The cost of advertising is expensed as incurred.
Use of Estimates
The preparation of the combined Historical Summary in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined Historical
Summary and accompanying notes. Actual results could differ from those
estimates.
F-55
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP D COMMUNITIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES--(CONCLUDED)
Unaudited Interim Historical Summary
The combined Historical Summary for the period from January 1, 1996 through
the earlier of June 30, 1996 or the Date of Acquisition is unaudited. In the
opinion of management, all adjustments necessary for a fair presentation of
such combined Historical Summary have been included. The results of operations
for the period are not necessarily indicative of the Group D Communities'
future results of operations.
3. RELATED PARTY TRANSACTIONS
Management fees of $266,917 and $106,175 were paid to affiliates of the
prior owners under property management contracts in 1995 and 1996,
respectively.
4. DEBT ASSUMPTION
In June 1995, the Country Oaks Apartments secured a mortgage note in the
amount of $6,010,000. The note provides for monthly payments of $42,663,
including principal and interest at 7.655% through July 2002, at which time
all outstanding principal and interest will be due. ATLANTIC will assume this
note in connection with the acquisition of the community.
F-56
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Security Capital Atlantic Incorporated
We have audited the accompanying combined Historical Summary of Gross Income
and Direct Operating Expenses (the Historical Summary) of the Group E
Communities described in Note 1 for the year ended December 31, 1995. This
combined Historical Summary is the responsibility of the Group E Communities'
management. Our responsibility is to express an opinion on this combined
Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined Historical Summary is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined Historical
Summary. An audit also includes assessing the basis of accounting used and
significant estimates made by management, as well as evaluating the overall
presentation of the combined Historical Summary. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11
of Security Capital Atlantic Incorporated as described in the accompanying
Note 1 of the combined Group E Communities and is not intended to be a
complete presentation of the income and expenses of the combined Group E
Communities.
In our opinion, the combined Historical Summary of Gross Income and Direct
Operating Expenses referred to above presents fairly, in all material
respects, the combined gross income and direct operating expenses as described
in Note 1 of the combined Group E Communities for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
January 31, 1997
F-57
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP E COMMUNITIES
COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1995 AND
THE PERIOD FROM JANUARY 1, 1996 THROUGH THE DATE OF ACQUISITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------- -----------
(UNAUDITED)
<S> <C> <C>
Gross income:
Rental.................................................... $10,774 $9,022
Other..................................................... 573 554
------- ------
Total gross income...................................... 11,347 9,576
------- ------
Direct operating expenses:
Utilities and other operating expenses.................... 1,674 1,351
Real estate taxes......................................... 956 848
Repairs and maintenance................................... 1,470 1,198
Management fees........................................... 468 378
Interest on certain obligations assumed................... 437 341
Advertising............................................... 207 148
Insurance................................................. 215 176
------- ------
Total direct operating expenses......................... 5,427 4,440
------- ------
Excess of gross income over direct operating expenses....... $ 5,920 $5,136
======= ======
</TABLE>
See accompanying notes.
F-58
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP E COMMUNITIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1995 AND
THE PERIOD FROM JANUARY 1, 1996 THROUGH THE DATE OF ACQUISITION (UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined Historical Summary of Gross Income and Direct Operating
Expenses (the "Historical Summary") for the year ended December 31, 1995 and
the period from January 1, 1996 through the date Security Capital Atlantic
Incorporated ("ATLANTIC") acquired the community (the "Date of Acquisition"),
relates to the operations of the following Group E Communities which were
acquired from unaffiliated parties by ATLANTIC between September 30, 1996 and
December 20, 1996:
<TABLE>
<CAPTION>
ACQUISITION
PRICE
DATE COMMUNITY NAME LOCATION (IN 000'S)
---- -------------- -------- -----------
<C> <S> <C> <C>
September 30, 1996 West Springfield Terrace Washington, D.C. $16,100
October 17, 1996 Cameron Ridge (formerly Lin- Raleigh, NC 10,000
coln Ridge)
October 18, 1996 Cameron Century Center Memphis, TN 15,800
(formerly Arbors at Century
Center)
October 22, 1996 Balmoral Village Atlanta, GA 19,125
December 20, 1996 Cameron Bayshore Tampa, FL 10,700
(formerly Chesapeake)
</TABLE>
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Registration Statement of Form S-11
of ATLANTIC. The combined Historical Summary is not intended to be a complete
presentation of combined income and expenses of the Group E Communities for
the year ended December 31, 1995 and the period from January 1, 1996 through
the Date of Acquisition, as certain costs such as depreciation, amortization,
certain mortgage interest, professional fees and other costs not considered
comparable to the future operations of the Group E Communities have been
excluded.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Rental income from leasing activities consists of lease payments earned from
tenants under lease agreements with terms of one year or less.
Capitalization Policy
Ordinary repairs and maintenance are expensed as incurred; major
replacements and betterments are capitalized.
Advertising Expense
The cost of advertising is expensed as incurred.
F-59
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP E COMMUNITIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES--(CONTINUED)
Use of Estimates
The preparation of the combined Historical Summary in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined Historical
Summary and accompanying notes. Actual results could differ from those
estimates.
Unaudited Interim Historical Summary
The combined Historical Summary for the period from January 1, 1996 through
the Date of Acquisition is unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of such combined Historical
Summary have been included. The results of operations for the period are not
necessarily indicative of the Group E Communities' future results of
operations.
3. RELATED PARTY TRANSACTIONS
Management fees of $73,000 and $73,000 in 1995 and 1996, respectively, and
allocated accounting costs of $53,000 and $49,000 in 1995 and 1996,
respectively, were paid to affiliates of the prior owners under property
management contracts.
4. DEBT ASSUMPTION
ATLANTIC assumed outstanding debt in connection with the acquisition of the
Lincoln Ridge Apartments. A 7% mortgage note with an outstanding balance of
$5,920,186 at October 17, 1996 (the date of acquisition) was assumed by
ATLANTIC. The note, which is collateralized by the community, matures on
September 10, 2013, subject to the lender's call options in 1998, 2003 or
2008. The mortgage note requires monthly principal and interest payments of
$50,660 until September 1998, at which time the interest rate will be based on
the prime rate or, at ATLANTIC's option, may be fixed at a rate based on the
current Treasury rate. Beginning in September, 1998, the note requires monthly
payments of interest and monthly principal payments beginning at $15,206,
increasing by approximately 9% annually.
The mortgage note had an outstanding balance of $6,071,000 at December 31,
1995. ATLANTIC's assumption of this mortgage note did not provide for any
modification to the original terms of the note through September 1998;
therefore, interest expense incurred prior to ATLANTIC's assumption is
representative of future interest expense. Accordingly, interest expense of
$437,000 and $341,000 for 1995 and 1996, respectively, is recognized in the
combined Historical Summary.
F-60
<PAGE>
The inside front cover page contains a map of the Southeastern United States,
including the location of Registrants target market cities, operating
communities and communities under construction or in planning.
Page thirty-four contains a chart which indicates the expected population and
employment growth in the Registrants primary target market cities versus the
United States as a whole from 1997 to 2016.
1
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses incurred by the Registrant in
connection with the offering of the shares being registered. All the amounts
shown are estimates (other than the SEC registration fee and the NASD fee).
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
SEC registration fee........................................... $ 45,455
NASD fee....................................................... 15,500
Rating agency fees............................................. 200,000
Trustee fees................................................... 25,000
Printing fees.................................................. 200,000
Legal fees and expenses (other than Blue Sky).................. 50,000
Accounting fees and expenses................................... 37,500
Blue Sky fees and expenses (including fees of counsel)......... 2,000
Miscellaneous expenses......................................... 49,545
--------
Total...................................................... $625,000
========
</TABLE>
ITEM 31. SALES TO SPECIAL PARTIES.
See Item 32. In addition, on October 18, 1996, Security Capital Group
Incorporated ("Security Capital") purchased 416,666 shares of common stock in
the Registrant's initial public offering of 4,940,000 shares of common stock.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
From October 26, 1993 (the date of the Registrant's inception) through June 28,
1994, Security Capital purchased an aggregate of 13,066,575 shares of the
Registrant's common stock at a price of $20.00 per share. Such purchases were
exempt from registration pursuant to Section 4(2) of the Securities Act. On May
12, 1994, Laing Properties, Inc. received 5,000,000 shares of the Registrant's
common stock in partial consideration for ATLANTIC's acquisition of a portfolio
of properties. Of the 5,000,000 shares issued to Laing Properties, Inc.,
3,750,000 shares have been repurchased by the Registrant under a put
obligation. In August 1994, the Registrant sold 500,000 shares of common stock
in a private offering at a price of $20.00 per share (including 331,713 shares
which were sold to Security Capital). From March 1995 through June 1995, the
Registrant sold 7,272,728 shares of common stock in a private offering at a
price of $22.00 per share (including 4,310,705 shares which were sold to
Security Capital). From November 1995 through May 1996, the Registrant sold
10,862,278 shares of common stock in a private offering at a price of $23.00
per share (including 919,712 shares which were sold to Security Capital at a
price of $23.00 per share and 1,250,000 shares which were sold to Security
Capital at a price of $23.136 per share). All such transactions were effected
pursuant to the exemption from registration contained in Section 4(2) of the
Securities Act and Rule 506 thereunder.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Maryland law permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit of profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Registrant's
Charter contains such a provision which eliminates such liability to the
maximum extent permitted by Maryland law.
The Registrant's officers and Directors will be indemnified under the
Registrant's charter against certain liabilities. The Registrant's charter
provides that the Registrant will, to the maximum extent permitted by Maryland
law in effect from time to time, indemnify and pay or reimburse reasonable
expenses in advance
II-1
<PAGE>
of final disposition of a proceeding to (a) any individual who is a present or
former Director or officer of the Registrant or (b) any individual who, while a
Director or officer of the Registrant and at the request of the Registrant,
serves or has served another corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner
or trustee of such corporation, partnership, joint venture, employee benefit
plan or other enterprise. The Registrant has the power, with the approval of
the Registrant's Board of Directors, to provide such indemnification and
advancement of expenses to a person who served a predecessor of the Registrant
in any of the capacities described in (a) or (b) above and to any employee or
agent of the Registrant or its predecessors.
Maryland law requires a corporation (unless its charter provides otherwise,
which the Registrant's charter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he or she is made a party by reason of his or her service
in that capacity. Maryland law permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. Maryland law permits the Registrant to advance
reasonable expenses to a Director or officer upon the Registrant's receipt of
(a) a written affirmation by the Director or officer of his or her good faith
belief that he or she has met the standard of conduct necessary for
indemnification by the Registrant as authorized by the Registrant's Bylaws and
(b) a written statement by or on his or her behalf to repay the amount paid or
reimbursed by the Registrant if it shall ultimately be determined that the
standard of conduct was not met.
The Registrant has entered into indemnity agreements with each of its officers
and Directors which provide for reimbursement of all expenses and liabilities
of such officer or Director, arising out of any lawsuit or claim against such
officer or Director due to the fact that he or she was or is serving as an
officer or Director, except for such liabilities and expenses (a) the payment
of which is judicially determined to be unlawful, (b) relating to claims under
Section 16(b) of the Securities Exchange Act of 1934 or (c) relating to
judicially determined criminal violations.
The form of Underwriting Agreement filed as an exhibit to this registration
statement provides for the reciprocal indemnifications by the Underwriters of
the Registrant, and its Directors, officers and controlling persons, and by the
Registrant of the Underwriters, and their respective directors, officers and
controlling persons, against certain liabilities under the Securities Act.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
See Index to Financial Statements and Index to Exhibits.
ITEM 36. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
II-2
<PAGE>
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the questions of whether such indemnification is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes that: (1) for purposes of determining any
liability under the Securities Act of 1933, the information omitted from the
form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was declared
effective; and (2) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-11 AND HAS DULY CAUSED THIS AMENDMENT TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF ATLANTA, STATE OF GEORGIA, ON THE 5TH DAY OF
AUGUST, 1997.
SECURITY CAPITAL ATLANTIC INCORPORATED
/s/ Constance B. Moore
By: ___________________________________
Constance B. Moore
Co-Chairman and Chief Operating
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ James C. Potts* Co-Chairman, Chief August 5, 1997
____________________________________ Investment Officer and
James C. Potts Director
/s/ Constance B. Moore Co-Chairman, Chief Operating August 5, 1997
____________________________________ Officer and Director
Constance B. Moore
/s/ William Kell* Vice President and August 5, 1997
____________________________________ Controller (Principal
William Kell Financial and Accounting
Officer)
/s/ M. A. Garcia III* Director August 5, 1997
____________________________________
M. A. Garcia III
/s/ Ned S. Holmes* Director August 5, 1997
____________________________________
Ned S. Holmes
/s/ John M. Richman* Director August 5, 1997
____________________________________
John M. Richman
</TABLE>
/s/ Constance B. Moore
*By: ____________________
Constance B. Moore
Attorney-in-fact
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT DESCRIPTION
----------- --------------------
<C> <S>
1 Form of Underwriting Agreement, dated as of August , 1997, among
Security Capital Atlantic Incorporated ("ATLANTIC") and J.P.
Morgan Securities Inc. and Goldman, Sachs & Co., as
representatives of the underwriters named therein
2.1 Merger and Distribution Agreement, dated as of May 21, 1996, among
Security Capital Pacific Trust ("PTR"), ATLANTIC, Security Capital
Group Incorporated ("Security Capital") and Homestead Village
Properties Incorporated ("Homestead") (incorporated by reference
to Exhibit 2 to Homestead's Form S-4 Registration Statement (File
No. 333-4455; the "Homestead S-4"))
2.2 Form of Articles of Merger (incorporated by reference to Exhibit
2.1 to the Homestead S-4)
2.3 Merger and Issuance Agreement, dated as of March 24, 1997, between
Security Capital and ATLANTIC (incorporated by reference to
Exhibit 2.1 to ATLANTIC's Form 8-K dated March 24, 1997 (File No.
1-12303, the "ATLANTIC 8-K"))
2.4 First Amendment to Merger and Issuance Agreement (incorporated by
reference to Exhibit 2.7 to Security Capital's Form S-11
Registration Statement (File No. 333-26263, the "Security Capital
S-11")
2.5 Second Amendment to Merger and Issuance Agreement (incorporated by
reference to Exhibit 2.8 to the Security Capital S-11)
2.6 Third Amendment to Merger and Issuance Agreement (incorporated by
reference to Exhibit 2.13 to the Security Capital S-11)
2.7 Form of Agreement and Plan of Merger (incorporated by reference to
Exhibit 2.4 to the Security Capital S-11)
4.1 Second Amended and Restated Articles of Incorporation of ATLANTIC
(incorporated by reference to Exhibit 4.1 to ATLANTIC's Form S-11
Registration Statement (File No. 333-07071; the "ATLANTIC S-11"))
4.2 Articles of Amendment to Second Amended and Restated Articles of
Incorporation of ATLANTIC (incorporated by reference to Exhibit
4.2 to the ATLANTIC S-11)
4.3 Articles of Amendment to Second Amended and Restated Articles of
Incorporation of ATLANTIC (incorporated by reference to Exhibit
4.3 to the ATLANTIC S-11)
4.4 Articles Supplementary to Second Amended and Restated Articles of
Incorporation relating to ATLANTIC's Series A Junior Participating
Preferred Stock (incorporated by reference to Exhibit 4.4 to
ATLANTIC's Form 10-K for the year ended December 31, 1996 (File
No. 1-12303, the "ATLANTIC 10-K"))
4.5 Form of Articles Supplementary to Second Amended and Restated
Articles of Incorporation relating to ATLANTIC's Series A
Cumulative Redeemable Preferred Stock (incorporated by reference
to Exhibit 4.5 to ATLANTIC's Form S-11 Registration Statement
(File No. 333-30749)).
4.6 Second Amended and Restated Bylaws of ATLANTIC (incorporated by
reference to Exhibit 4.4 to the ATLANTIC S-11)
4.7 Rights Agreement, dated as of March 12, 1996, between ATLANTIC and
The First National Bank of Boston, as Rights Agent, including form
of Rights Certificate (incorporated by reference to Exhibit 4.5 to
the ATLANTIC S-11)
4.8 Form of Indenture, dated as of August , 1997, from ATLANTIC to
State Street Bank and Trust Company, as Trustee
*4.9 Form of % Note Due 2011
*4.10 Form of % Note Due 2017
*5 Opinion of Mayer, Brown & Platt as to the legality of the Notes
being registered
+8 Opinion of Mayer, Brown & Platt as to certain tax matters
10.1 Transfer and Registration Rights Agreement, dated as of December
15, 1995, among ATLANTIC and the investors listed on the signature
pages thereto (incorporated by reference to Exhibit 10.1 to the
ATLANTIC S-11)
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT DESCRIPTION
----------- --------------------
<C> <S>
10.2 Supplemental Registration Rights Agreement, dated as of December
15, 1995, among ATLANTIC and the investors listed on the signature
pages thereto (incorporated by reference to Exhibit 10.2 to the
ATLANTIC S-11)
10.3 Second Amended and Restated REIT Management Agreement, dated as of
June 30, 1996, between ATLANTIC and the REIT Manager (incorporated
by reference to Exhibit 10.3 to the ATLANTIC S-11)
10.4 Investor Agreement, dated as of October 28, 1993, between ATLANTIC
and Security Capital (incorporated by reference to Exhibit 10.4 to
the ATLANTIC S-11)
10.5 Revolving Credit Agreement, dated as of December 18, 1996, between
ATLANTIC and Morgan Guaranty Trust Company of New York, as agent
bank, including form of Revolving Credit Note (incorporated by
reference to Exhibit 10.5 to the ATLANTIC 10-K)
10.6 Form of Indemnification Agreement entered into between ATLANTIC
and each of its Directors (incorporated by reference to Exhibit
10.6 to the ATLANTIC S-11)
10.7 Security Capital Atlantic Incorporated Share Option Plan for
Outside Directors (incorporated by reference to Exhibit 10.7 to
the ATLANTIC S-11)
10.8 First Amendment to Security Capital Atlantic Incorporated Share
Option Plan for Outside Directors (incorporated by reference to
Exhibit 10.8 to the ATLANTIC S-11)
10.9 Consolidated Amended and Restated Promissory Note by Atlantic
Homestead Village Incorporated in favor of ATLANTIC (incorporated
by reference to Exhibit 4.6 to the Homestead S-4)
10.10 Amended and Restated Promissory Note by Atlantic Homestead Village
Limited Partnership in favor of ATLANTIC (incorporated by
reference to Exhibit 4.7 to the Homestead S-4)
10.11 Protection of Business Agreement among ATLANTIC, PTR, Security
Capital and Homestead (incorporated by reference to Exhibit 10.11
to the ATLANTIC 10-K)
10.12 Investor and Registration Rights Agreement between Homestead and
ATLANTIC (incorporated by reference to Exhibit 10.12 to the
ATLANTIC 10-K)
10.13 Funding Commitment Agreement between Homestead and ATLANTIC
(incorporated by reference to Exhibit 10.13 to the ATLANTIC 10-K)
10.14 Form of Property Management Agreement for ATLANTIC's communities
(incorporated by reference to Exhibit 10.13 to the ATLANTIC S-11)
10.15 Form of Amended and Restated Investor Agreement between ATLANTIC
and Security Capital (incorporated by reference to Exhibit 10.1 to
the ATLANTIC 8-K)
10.16 Form of Administrative Services Agreement between ATLANTIC and SC
Group Incorporated (incorporated by reference to Exhibit 10.2 to
the ATLANTIC 8-K)
10.17 Form of Protection of Business Agreement between ATLANTIC and
Security Capital (incorporated by reference to Exhibit 10.3 to the
ATLANTIC 8-K)
+12 Computation of Ratio of Earnings to Fixed Charges
15 Letter re unaudited interim financial information
21 Subsidiaries of ATLANTIC (incorporated by reference to Exhibit 21
to the ATLANTIC 10-K)
*23.1 Consent of Mayer, Brown & Platt (included in the opinions filed as
Exhibits 5 and 8)
23.2 Consent of Ernst & Young LLP, Dallas, Texas
+24 Power of Attorney pursuant to which amendments to this
Registration Statement may be filed
25 Statement of Eligibility on Form T-1 of State Street Bank and
Trust Company
</TABLE>
- --------
*To be filed by amendment
+Previously filed
E-2
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
$100,000,000 ___% Notes Due 2011
$50,000,000 ___% Notes Due 2017
Underwriting Agreement
August __, 1997
J.P. Morgan Securities Inc.
Goldman, Sachs & Co.
As Representatives of the
several underwriters listed
in Schedule I hereto
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260-0060
Ladies and Gentlemen:
Security Capital Atlantic Incorporated, a Maryland corporation (the
"Company"), proposes to issue and sell to the several Underwriters listed in
Schedule I hereto (the "Underwriters"), for whom you are acting as
representatives (the "Representatives"), $100,000,000 aggregate principal amount
of its ___% Notes Due 2011 (the "2011 Notes") and $50,000,000 aggregate
principal amount of its ___% Notes Due 2017 (the "2017 Notes" and, together with
the 2011 Notes, the "Securities"). The Securities will be issued pursuant to the
provisions of an Indenture to be dated as of August __, 1997 between the Company
and State Street Bank and Trust Company, as Trustee (the "Trustee").
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"), a registration
statement, including a prospectus, relating to the Securities. The registration
statement as amended at the time when it shall become effective, or, if a
post-effective amendment is filed with respect thereto, as amended by such
post-effective amendment at the time of its effectiveness, including in each
case information (if any) deemed to be part of the registration statement at the
time of effectiveness pursuant to Rule 430A under the Securities Act, is
referred to in this Agreement as the "Registration Statement", any preliminary
prospectus filed as part
<PAGE>
of the Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act, is referred to
in this Agreement as a "Preliminary Prospectus", and the prospectus in the form
first used to confirm sales of Securities is referred to in this Agreement as
the "Prospectus". If the Company has filed an abbreviated registration
statement pursuant to Rule 462(b) under the Securities Act (the "Rule 462
Registration Statement"), then any reference herein to the term "Registration
Statement" shall be deemed to include such Rule 462 Registration Statement.
The Company hereby agrees with the Underwriters as follows:
1. The Company agrees to issue and sell the Securities to the several
Underwriters as hereinafter provided, and each Underwriter, upon the basis of
the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees to purchase, severally and not jointly,
from the Company the respective principal amount of Securities set forth
opposite such Underwriter's name in Schedule I hereto at a price equal to ___%
of the principal amount thereof, in the case of the 2011 Notes, and ___% of the
principal amount thereof, in the case of the 2017 Notes, in each case plus
accrued interest, if any, from August __, 1997 to the date of payment and
delivery.
2. The Company understands that the Underwriters intend (i) to make a
public offering of their respective portions of the Securities as soon after (A)
the Registration Statement has become effective and (B) the parties hereto have
executed and delivered this Agreement, as in the judgment of the Representatives
is advisable and (ii) initially to offer the Securities upon the terms set forth
in the Prospectus.
3. Payment for the Securities shall be made by wire transfer in
immediately available funds to the account specified by the Company to the
Representatives, no later than noon the Business Day (as defined below) prior to
the Closing Date (as defined below), on August __, 1997, or at such other time
on the same or such other date, not later than the fifth Business Day
thereafter, as the Representatives and the Company may agree upon in writing.
The date and time of such payment are referred to herein as the "Closing Date".
As used herein, the term "Business Day" means any day other than a day on which
banks are permitted or required to be closed in New York City.
Payment for the Securities shall be made against delivery to the nominee of
The Depository Trust Company ("DTC") for the respective accounts of the several
Underwriters of the Securities of two or more global notes (the "Global Notes")
representing the Securities, with any transfer taxes payable in connection with
the transfer to the Underwriters of the Securities duly paid by the Company.
The Global Notes will be made available for inspection by the Representatives no
later than 1:00 P.M., New York City time, on the Business Day prior to the
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Closing Date at such place in New York City as the Representatives, DTC and the
Company shall agree.
4. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) no order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Securities Act and the Trust Indenture Act of 1939, as
amended, and the rules and regulations of the Commission thereunder
(collectively, the "Trust Indenture Act"), and did not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that this representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information furnished in
writing to the Company by an Underwriter through the Representatives expressly
for use therein;
(b) the Registration Statement and any post-effective amendments thereto
have been declared effective by the Commission under the Securities Act; no stop
order suspending the effectiveness of the Registration Statement has been issued
and no proceeding for that purpose has been initiated or threatened by the
Commission; and the Registration Statement conforms and the Prospectus and any
further amendments or supplements to the Registration Statement and the
Prospectus will conform, in all material respects with the requirements of the
Securities Act and the Trust Indenture Act and do not and will not, as of the
applicable effective date as to the Registration Statement and any amendment
thereto, and as of the applicable filing date as to the Prospectus and any
amendment or supplement thereto, contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that this
representation and warranty shall not apply to (i) that part of the Registration
Statement that constitutes the statement of Eligibility and Qualification (Form
T-1) of the Trustee under the Trust Indenture Act, and (ii) any statements or
omissions made in reliance upon and in conformity with information furnished in
writing to the Company by an Underwriter through the Representatives expressly
for use therein;
(c) neither the Company nor any of its subsidiaries has sustained since
the date of the latest audited financial statements included in the Prospectus
any material loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the Prospectus,
there has not been any change in the capital stock or long-term debt of the
Company or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change,
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in or affecting the general affairs, management, financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries taken as a whole, otherwise than as set forth or contemplated in
the Prospectus (as used herein, "subsidiaries" shall include any entities in
which the Company owns, directly or indirectly, any controlling or general
partnership interest or a majority of the economic interest);
(d) the Company and its subsidiaries have good and marketable title in fee
simple to all real property described in the Prospectus as owned by them, and
good and marketable title to all personal property (including interests in
partnerships or other entities) owned by them, in each case free and clear of
all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held under
lease by the Company and its subsidiaries and described in the Prospectus are
held by them under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its subsidiaries;
(e) the Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Maryland, with power
and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified for the
transaction of business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties, or conducts any business, so
as to require such qualification, or is subject to no material liability or
disability by reason of the failure to be so qualified in any such jurisdiction;
and each subsidiary of the Company has been duly organized and is validly
existing, with respect to subsidiaries that are corporations or limited
partnerships, in good standing under the laws of its jurisdiction of
organization;
(f) the Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and nonassessable;
and all of the issued shares of capital stock of each subsidiary of the Company
have been duly and validly authorized and issued, are fully paid and, with
respect to subsidiaries that are corporations, nonassessable and (except as
otherwise set forth in the Prospectus) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims;
(g) this Agreement has been duly authorized, executed and delivered by the
Company;
(h) the Securities have been duly authorized by the Company, and, when
executed and authenticated in accordance with the terms of the Indenture and
delivered to and paid for by the Underwriters in accordance with the terms of
this Agreement, will constitute valid and binding
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obligations of the Company, entitled to the benefits provided by the Indenture
and enforceable against the Company in accordance with their terms, subject as
to enforcement to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and the effect of general principles of equity, whether
enforcement is considered in a proceeding in equity or at law; the Indenture has
been duly authorized and, when executed and delivered by the Company and the
Trustee, the Indenture will constitute a valid and binding agreement,
enforceable against the Company in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and the effect of general principles of equity, whether
enforcement is considered in a proceeding in equity or at law; and the
Securities and the Indenture will conform to the descriptions thereof in the
Prospectus;
(i) the issue and sale of the Securities by the Company and the
performance by the Company of all of its obligations under this Agreement, the
Securities and the Indenture and the consummation of the transactions herein and
therein contemplated will not (i) conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement, lease or other agreement
or instrument to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which any of the
property or assets of the Company or any of its subsidiaries is subject, other
than such breaches or violations which, if determined adversely to the Company
or any of its subsidiaries, would not individually or in the aggregate have a
material adverse effect on the current or future consolidated financial
position, shareholders' equity or results of operations of the Company and its
subsidiaries taken as a whole, (ii) result in any violation of the provisions
of the Charter of the Company (the "Charter") or the Bylaws of the Company (the
"Bylaws"), or (iii) result in any violation of any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their properties, other than
violations which, if determined adversely to the Company or any of its
subsidiaries would not individually or in the aggregate have a material adverse
effect on the current or future consolidated financial position, shareholders'
equity or results of operations of the Company and its subsidiaries taken as a
whole; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Securities or the consummation by the
Company of the transactions contemplated by this Agreement or the Indenture,
except (A) the registration under the Securities Act of the Securities, (B) such
consents, approvals, authorizations, orders, registrations or qualifications as
may be required under the Securities Act, the Trust Indenture Act, state
securities or Blue Sky laws in connection with the purchase and distribution of
the Securities by the Underwriters and (C) such additional steps as may be
required by the National Association of Securities Dealers, Inc. (the "NASD");
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(j) neither the Company nor any of its subsidiaries is in violation of its
declaration of trust, charter, certificate or articles of incorporation,
partnership agreement or bylaws, as applicable, or in default in the performance
or observance of any material obligation, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or any other agreement
or instrument to which it is a party or by which it is bound or to which any of
its property or assets is subject;
(k) the statements set forth in the Prospectus (A) under the caption
"Description of Notes", insofar as they purport to constitute a summary of the
terms of the Securities, and (B) under the caption "Federal Income Tax
Considerations", to the extent such statements purport to describe factual
matters or relate to matters of law or regulation or constitute summaries of
documents described therein, are accurate and complete in all material respects;
(l) other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material adverse
effect on the current or future consolidated financial position, shareholders'
equity or results of operations of the Company and its subsidiaries taken as a
whole; and, to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by others;
and there are no statutes, regulations, contracts or other documents that are
required to be filed as an exhibit to the Registration Statement or required to
be described in the Registration Statement or the Prospectus, which are not
filed or described as required;
(m) Ernst & Young LLP, who have certified the financial statements filed
with the Commission as part of the Registration Statement and the Prospectus,
are independent public accountants with respect to the Company and its
subsidiaries as required by the Securities Act;
(n) the financial statements, and the related notes thereto, included in
the Registration Statement and the Prospectus present fairly the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates indicated and the results of their operations and the changes in their
consolidated cash flows for the periods specified; such financial statements
have been prepared in conformity with generally accepted accounting principles
applied on a consistent basis, and the supporting schedules included in the
Registration Statement present fairly the information required to be stated
therein; and the pro forma financial information, and the related notes thereto,
included in the Registration Statement and the Prospectus has been prepared in
accordance with the applicable requirements of the Securities Act and is based
upon good faith estimates and assumptions believed by the Company to be
reasonable;
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(o) the Company has qualified to be taxed as a real estate investment
trust pursuant to Sections 856 through 860 of the Internal Revenue Code of 1986,
as amended (the "Code"), for its fiscal year ended December 31, 1996 and the
Company's present and contemplated organization, ownership, method of operation,
assets and income are such that the Company is in a position under present law
to so qualify for the fiscal year ending December 31, 1997 and in the future;
and the Company is not an open-end investment company, unit investment trust,
closed-end investment company or face-amount certificate company that is or is
required to be registered under Section 8 of the Investment Company Act of 1940,
as amended (the "Investment Company Act");
(p) the Company has no knowledge of (a) the presence of any hazardous
substances, hazardous materials, toxic substances or waste materials
(collectively, "Hazardous Materials") on any of the properties owned by it in
violation of law or in excess of regulatory action levels or (b) any unlawful
spills, releases, discharges or disposal of Hazardous Materials that have
occurred or are presently occurring on or off such properties as a result of any
construction on or operation and use of such properties, which presence or
occurrence would materially adversely affect the condition, financial or
otherwise, or the earnings, business affairs or business prospects of the
Company; and in connection with the construction on or operation and use of the
properties owned by the Company, it has no knowledge of any material failure to
comply with all applicable local, state and federal environmental laws,
regulations, agency requirements, ordinances and administrative and judicial
orders;
(q) each of the Company and its subsidiaries owns, possesses or has
obtained all licenses, permits, certificates, consents, orders, approvals and
other authorizations from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals necessary to own or lease, as
the case may be, and to operate its properties and to carry on its business as
conducted as of the date hereof, and neither the Company nor any such subsidiary
has received any actual notice of any proceeding relating to revocation or
modification of any such license, permit, certificate, consent, order, approval
or other authorization, except as described in the Registration Statement and
the Prospectus and except, in each case, where such revocation or modification
would not have a material adverse effect on the current or future consolidated
financial position, shareholders' equity or results of operations of the Company
and its subsidiaries taken as a whole; and each of the Company and its
subsidiaries is in material compliance with all laws and regulations relating to
the conduct of its business as conducted as of the date hereof;
(r) the REIT management agreement (the "REIT Management Agreement")
described in the Prospectus has been duly authorized, executed and delivered by
the Company and Security Capital (Atlantic) Incorporated (the "REIT Manager")
and constitutes a legal, valid and binding agreement, enforceable in accordance
with its terms, subject as to enforcement to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
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applicability relating to or affecting creditors' rights and the effect of
general principles of equity, whether enforcement is considered in a proceeding
in equity or at law, and the discretion of the court before which any proceeding
therefrom may be brought and, with respect to indemnification obligations
thereunder, to federal and state securities laws; and the execution and delivery
of such agreement and the performance thereof by the Company and the REIT
Manager are within the power and authority of the Company and the REIT Manager,
do not violate any provision of or constitute a default under any agreement or
instrument to which the Company or the REIT Manager is a party or by which the
Company or the REIT Manager is bound, and do not require the consent, approval,
authorization or order of any court or governmental agency or body; and
(s) the Company has and will maintain, property and casualty insurance in
favor of the Company and its subsidiaries, as the case may be, with respect to
each of its properties, in an amount and on such terms as is reasonable and
customary for businesses of the type proposed to be conducted by the Company and
the subsidiaries; the Company has not received from any insurance company
written notice of any material defects or deficiencies affecting the
insurability of any such properties.
5. The Company covenants and agrees with each of the several Underwriters
as follows:
(a) to file the final Prospectus with the Commission within the time
periods specified by Rule 424(b) and Rule 430A under the Securities Act; and to
furnish copies of the Prospectus to the Underwriters in New York City as
promptly as practicable on the Business Day next succeeding the date of this
Agreement in such quantities as the Representatives may reasonably request;
(b) to deliver, at the expense of the Company, to each of the
Representatives, conformed copies of the Registration Statement (as originally
filed) and each amendment thereto, in each case including exhibits, and to each
other Underwriter a conformed copy of the Registration Statement (as originally
filed) and each amendment thereto, in each case without exhibits and, during the
period mentioned in paragraph (e) below, to each of the Underwriters as many
copies of the Prospectus (including all amendments and supplements thereto) as
the Representatives may reasonably request;
(c) before filing any amendment or supplement to the Registration
Statement or the Prospectus, whether before or after the time the Registration
Statement becomes effective, to furnish to the Representatives a copy of the
proposed amendment or supplement for review and not to file any such proposed
amendment or supplement to which the Representatives reasonably object;
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<PAGE>
(d) to advise the Representatives promptly, and to confirm such advice in
writing, (i) when any amendment to the Registration Statement has been filed or
becomes effective, (ii) when any supplement to the Prospectus or any amendment
to the Prospectus has been filed and to furnish the Representatives with copies
thereof, (iii) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
any additional information, (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or the Prospectus
or the initiation or threatening of any proceeding for that purpose, (v) of the
occurrence of any event, within the period referenced in paragraph (e) below, as
a result of which the Prospectus as then amended or supplemented would include
an untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
and (vi) of the receipt by the Company of any notification with respect to any
suspension of the qualification of the Securities for offer and sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; and to use its best efforts to prevent the issuance of any such stop
order, or of any order preventing or suspending the use of any preliminary
prospectus or the Prospectus, or of any order suspending any such qualification
of the Securities, or notification of any such order thereof and, if issued, to
obtain as soon as possible the withdrawal thereof;
(e) if, during such period of time after the first date of the public
offering of the Securities as in the opinion of counsel for the Underwriters a
prospectus relating to the Securities is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event shall occur as a
result of which it is necessary to amend or supplement the Prospectus in order
to make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if it is necessary to
amend or supplement the Prospectus to comply with law, forthwith to prepare and
furnish, at the expense of the Company, to the Underwriters and to the dealers
(whose names and addresses the Representatives will furnish to the Company) to
which Securities may have been sold by the Representatives on behalf of the
Underwriters and to any other dealers upon request, such amendments or
supplements to the Prospectus as may be necessary so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be misleading or
so that the Prospectus will comply with law;
(f) to endeavor to qualify the Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions as the Representatives shall
reasonably request and to continue such qualification in effect so long as
reasonably required for distribution of the Securities; provided that the
Company shall not be required to file a general consent to service of process in
any jurisdiction;
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(g) to make generally available to its security holders and to the
Representatives as soon as practicable an earning statement covering a period of
at least twelve months beginning with the first fiscal quarter of the Company
occurring after the effective date of the Registration Statement, which shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 of
the Commission promulgated thereunder;
(h) so long as the Securities are outstanding, to furnish to the
Representatives copies of all reports or other communications (financial or
other) furnished to holders of the Securities, and copies of any reports and
financial statements furnished to or filed with the Commission or any national
securities exchange;
(i) during the period beginning on the date hereof and continuing to and
including the Business Day following the Closing Date, not to offer, sell,
contract to sell, or otherwise dispose of any debt securities of or guaranteed
by the Company which are substantially similar to the Securities;
(j) to use the net proceeds received by the Company from the sale of the
Securities pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds"; and
(k) whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
costs and expenses incident to the performance of its obligations hereunder,
including without limiting the generality of the foregoing, all costs and
expenses (i) incident to the preparation, issuance, execution, authentication
and delivery of the Securities, including any expenses of the Trustee, (ii)
incident to the preparation, printing and filing under the Securities Act of the
Registration Statement, the Prospectus and any Preliminary Prospectus (including
in each case all exhibits, amendments and supplements thereto), (iii) incurred
in connection with the registration or qualification and determination of
eligibility for investment of the Securities under the laws of such
jurisdictions as the Underwriters may designate (including fees of counsel for
the Underwriters and their disbursements), (iv) related to any filing with the
NASD, (v) in connection with the printing (including word processing and
duplication costs) and delivery of this Agreement, the Indenture, the Blue Sky
Memoranda and any Legal Investment Survey and the furnishing to Underwriters and
dealers of copies of the Registration Statement and the Prospectus, including
mailing and shipping, as herein provided, (vi) payable to rating agencies in
connection with the rating of the Securities, (vii) any expenses incurred by the
Company in connection with a "road show" presentation to potential investors and
(viii) the cost and charges of any registrar.
6. The several obligations of the Underwriters hereunder to purchase the
Securities on the Closing Date are subject to the performance by the Company of
its obligations hereunder and to the following additional conditions:
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(a) the Registration Statement (excluding the Rule 462 Registration
Statement) shall have become effective (or if a post-effective amendment is
required to be filed under the Securities Act, such post-effective amendment
shall have become effective) not later than 5:00 p.m., New York City time, on
the date hereof; if the Company has elected to rely on Rule 462(b), the Rule 462
Registration Statement shall have become effective not later than 10:00 p.m.,
New York City time, on the date hereof; and no stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
shall be in effect, and no proceedings for such purpose shall be pending before
or threatened by the Commission; the Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) within the applicable time period prescribed
for such filing by the rules and regulations under the Securities Act and in
accordance with Section 5(a) hereof; and all requests by the Commission for
additional information shall have been complied with to the satisfaction of the
Representatives;
(b) the representations and warranties of the Company contained herein are
true and correct on and as of the Closing Date as if made on and as of the
Closing Date and the Company shall have complied with all agreements and all
conditions on its part to be performed or satisfied hereunder at or prior to the
Closing Date;
(c) subsequent to the execution and delivery of this Agreement and prior
to the Closing Date, there shall not have occurred any downgrading, nor shall
any notice have been given of (i) any downgrading, (ii) any intended or
potential downgrading or (iii) any review or possible change that does not
indicate an improvement, in the rating accorded any securities of or guaranteed
by the Company by any "nationally recognized statistical rating organization",
as such term is defined for purposes of Rule 436(g)(2) under the Securities Act;
(d) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or long-
term debt of the Company or any of its subsidiaries or any material adverse
change, or any development involving a prospective material adverse change, in
or affecting the general affairs, business, prospects, management, financial
position, shareholders' equity or results of operations of the Company and its
subsidiaries, taken as a whole, otherwise than as set forth or contemplated in
the Prospectus, the effect of which in the judgment of the Representatives makes
it impracticable or inadvisable to proceed with the public offering or the
delivery of the Securities on the Closing Date on the terms and in the manner
contemplated in the Prospectus; and neither the Company nor any of its
subsidiaries has sustained since the date of the latest audited financial
statements included in the Prospectus any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus;
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(e) the Representatives shall have received on and as of the Closing Date
a certificate of an executive officer of the Company, with specific knowledge
about the Company's financial matters, satisfactory to the Representatives to
the effect set forth in subsections (a) through (c) (with respect to the
respective representations, warranties, agreements and conditions of the
Company) of this Section and to the further effect that there has not occurred
any material adverse change, or any development involving a prospective material
adverse change, in or affecting the general affairs, business, prospects,
management, financial position, shareholders' equity or results of operations of
the Company and its subsidiaries taken as a whole from that set forth or
contemplated in the Registration Statement;
(f) Mayer, Brown & Platt, counsel for the Company, shall have furnished to
the Representatives their written opinion, dated the Closing Date, in form and
substance satisfactory to the Representatives, to the effect that:
(i) the Company has an authorized capitalization as set forth in the
Prospectus;
(ii) the Company has been duly qualified for the transaction of
business and is in good standing under the laws of each jurisdiction other
than the State of Maryland in which it owns or leases properties, or
conducts any business, so as to require such qualification, or is subject
to no material liability or disability by reason of the failure to be so
qualified in any such jurisdiction (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of local counsel and in
respect of matters of fact upon certificates of public officials or
officers of the Company, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such opinions
and certificates);
(iii) each subsidiary of the Company set forth on Exhibit A hereto
has been duly organized and is validly existing, with respect to
subsidiaries that are corporations or limited partnerships, in good
standing under the laws of its jurisdiction of organization; and all of the
issued shares of capital stock of each such subsidiary have been duly and
validly authorized and issued, are fully paid and, with respect to
subsidiaries that are corporations, nonassessable, and (except as otherwise
set forth in the Prospectus) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims
(such counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect of matters of fact
upon certificates of public officials or officers of the Company of any of
its subsidiaries, provided that such counsel shall state that they believe
that both you and they are justified in relying upon such opinions and
certificates);
(iv) to the best of such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental proceedings
pending to which the
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Company or any of its subsidiaries is a party or of which any property of
the Company or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would individually or
in the aggregate have a material adverse effect on the current or future
consolidated financial position, shareholders' equity or results of
operations of the Company and its subsidiaries taken as a whole; and, to
the best of such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(v) the REIT Manager has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation and has corporate power to conduct its
business as described in the Prospectus;
(vi) the REIT Management Agreement has been duly authorized, executed
and delivered by the parties thereto and constitutes a legal, valid and
binding agreement, enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and the effect of general principles of equity,
whether enforcement is considered in a proceeding in equity or at law, and
the discretion of the court before which any proceeding therefrom may be
brought and, with respect to indemnification obligations thereunder, to
federal and state securities laws;
(vii) this Agreement has been duly authorized, executed and delivered
by the Company;
(viii) the Securities have been duly authorized, executed and
delivered by the Company and, when duly authenticated in accordance with
the terms of the Indenture and delivered to and paid for by the
Underwriters in accordance with the terms of this Agreement, will
constitute valid and binding obligations of the Company, entitled to the
benefits provided by the Indenture and enforceable against the Company in
accordance with their terms, subject as to enforcement to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and the effect of general principles of equity, whether enforcement is
considered in a proceeding in equity or at law; and the Securities conform
to the description thereof contained in the Prospectus;
(ix) the Indenture has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms,
subject as to enforcement to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and the effect of general
13
<PAGE>
principles of equity, whether enforcement is considered in a proceeding in
equity or at law; and the Indenture has been duly qualified under the Trust
Indenture Act;
(x) the issue and sale of the Securities by the Company and the
performance by the Company of all of its obligations under this Agreement,
the Securities and the Indenture and the consummation of the transactions
herein and therein contemplated will not (i) conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement,
lease or other material agreement or instrument known to such counsel to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of the property
or assets of the Company or any of its subsidiaries is subject, other then
such breaches or violations which, if determined adversely to the Company
or any of its subsidiaries, would not individually or in the aggregate have
a material adverse effect on the current or future consolidated financial
position, shareholders' equity or results of operations of the Company and
its subsidiaries taken as a whole, (ii) result in any violation of the
provisions of the Charter or Bylaws, (iii) result in any violation of any
statute or any order, rule or regulation known to such counsel of any court
or governmental agency or body having jurisdiction over the Company or any
of its subsidiaries or any of their properties, other than violations
which, if determined adversely to the Company or any of its subsidiaries
would not individually or in the aggregate have a material adverse effect
on the current or future consolidated financial position, shareholders'
equity or results of operations of the Company and its subsidiaries taken
as a whole;
(xi) no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Securities or the consummation by
the Company of the transactions contemplated by this Agreement or the
Indenture, except the registration under the Securities Act of the
Securities, such consents, approvals, authorizations, orders, registrations
or qualifications as may be required under the Securities Act, the Trust
Indenture Act, state securities or Blue Sky laws in connection with the
purchase and distribution of the Securities by the Underwriters and such
additional steps as may be required by the NASD;
(xii) neither the Company nor any of its subsidiaries is in violation
of its declaration of trust, charter, certificate or articles of
incorporation, partnership agreement or bylaws, as applicable, or in
default in the performance or observance of any material obligation,
covenant or condition contained in any indenture, mortgage, deed of trust,
loan agreement, lease or any other agreement or instrument known to such
counsel to which it is a party or by which it is bound or to which any of
its property or assets is subject;
14
<PAGE>
(xiii) the statements set forth in the Prospectus (A) under the
caption "Description of Notes", insofar as they purport to constitute a
summary of the terms of the Securities, and (B) under the caption "Federal
Income Tax Considerations", to the extent such statements purport to
describe factual matters or relate to matters of law or regulation or
constitute summaries of documents described therein, are accurate and
complete in all material respects;
(xiv) the Company has qualified to be taxed as a real estate
investment trust pursuant to Sections 856 through 860 of the Code for its
fiscal year ended December 31, 1996, and the Company's present and
contemplated organization, ownership, method of operation, assets and
income are such that the Company is in a position under present law to so
qualify for the fiscal year ending December 31, 1997 and in the future; and
the consummation of the Merger (as defined in the Prospectus) and related
transactions as described in the Prospectus, including the rights offering,
will not jeopardize the status of the Company as a real estate investment
trust;
(xv) the Company is not an open-end investment company, unit
investment trust, closed-end investment company or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act; and
(xvi) the Registration Statement and the Prospectus and any further
amendments and supplements thereto made by the Company prior to the
Closing Date (other than the financial statements and related schedules
therein and other than that part of the Registration Statement which
constitutes the Form T-1 of the Trustee under the Trust Indenture Act, as
to which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act and the Trust
Indenture Act; they have no reason to believe that, as of its effective
date, any Registration Statement or any further amendments thereto (other
than the financial statements and related schedules therein and other than
that part of the Registration Statement which constitutes the Form T-1 of
the Trustee under the Trust Indenture Act, as to which such counsel need
express no opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that, as of its date, the
Prospectus or any amendments or supplements thereto (other than the
financial statements and related schedules therein, as to which such
counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that, as of the
Closing Date, any Registration Statement or the Prospectus or any further
amendments or supplements thereto (other than the financial statements and
related schedules therein and other than that part of the Registration
Statement which constitutes the Form T-1 of the Trustee under the
15
<PAGE>
Trust Indenture Act, as to which such counsel need express no opinion)
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, in the case of the Prospectus, in the light of the
circumstances under which they were made, not misleading; and they do not
know of any amendment to any Registration Statement required to be filed or
of any contracts or other documents of a character required to be filed as
an exhibit to any Registration Statement or required to be described in any
Registration Statement or the Prospectus which are not filed or described
as required.
In rendering such opinion, Mayer, Brown & Platt may rely as to matters
governed by the laws of the State of Maryland on Ballard Spahr Andrews &
Ingersoll and as to matters governed by the laws of states other than Illinois,
Maryland, New York or Federal laws on local counsel in such jurisdictions,
provided that in each case Mayer, Brown & Platt shall state that they believe
that they and the Underwriters are reasonably justified in relying on such other
counsel. In rendering the opinions contained in paragraphs (xiii) (insofar as
such opinion refers to information in the Prospectus under the caption "Federal
Income Tax Considerations") and (xiv), such opinions may be based upon (a) the
Code and the rules and 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 time of this
opinion, (b) Maryland and Delaware law existing and applicable to the Company,
(c) facts and other matters set forth in the Prospectus, (d) the provisions of
the Charter, the agreements relating to the properties owned by the Company and
the REIT Management Agreement, and (e) certain statements and representations as
to factual matters made by the Company to Mayer, Brown & Platt as set forth in
an attachment thereto;
(g) Ballard Spahr Andrews & Ingersoll, special Maryland counsel for the
Company, shall have furnished to the Representatives their written opinion,
dated the Closing Date, in form and substance satisfactory to the
Representatives, to the effect that:
(i) the Company is a corporation duly organized and existing under
and by virtue of the laws of the State of Maryland, and is in good standing
with the Maryland State Department of Assessments and Taxation with
corporate power and authority to own its current properties and conduct its
current business as described in the Prospectus;
(ii) the Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable; and
(iii) each subsidiary of the Company identified on Exhibit A hereto
as a Maryland corporation or partnership is a corporation or partnership
duly organized and existing under and by virtue of the laws of the State of
Maryland, and is in good standing
16
<PAGE>
with the Maryland State Department of Assessments and Taxation; and all of
the issued shares of capital stock of each such subsidiary have been duly
and validly authorized and issued, are fully paid and, with respect to
subsidiaries that are corporations, nonassessable;
(h) On the effective date of the Registration Statement and the effective
date of the most recently filed post-effective amendment to the Registration
Statement and also on the Closing Date, Ernst & Young LLP shall have furnished
to you a letter or letters, dated the respective dates of delivery thereof, in
form and substance satisfactory to you, containing statements and information of
the type customarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial information
contained in the Registration Statement and the Prospectus;
(i) The Representatives shall have received on and as of the Closing Date
an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the
Underwriters, with respect to the validity of the Indenture and the Securities,
the Registration Statement, the Prospectus and other related matters as the
Representatives may reasonably request, and such counsel shall have received
such papers and information as they may reasonably request to enable them to
pass upon such matters; and
(j) On or prior to the Closing Date the Company shall have furnished to
the Representatives such further certificates and documents as the
Representatives shall reasonably request.
7. The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages and liabilities (including, without limitation,
the legal fees and other expenses reasonably incurred in connection with any
suit, action or proceeding or any claim asserted) caused by any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through the Representatives expressly for use therein; provided,
that the foregoing indemnity with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter (or to the benefit of the person
controlling such Underwriter) from whom the person asserting any such losses,
claims, damages or liabilities purchased Securities if such untrue statement or
omission or alleged untrue statement or omission
17
<PAGE>
made in such preliminary prospectus is eliminated or remedied in the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto) and, if required by law, a copy of the Prospectus (as so
amended or supplemented) shall not have been furnished to such person at or
prior to the written confirmation of the sale of such Securities to such person.
Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, its officers who sign the Registration
Statement and each person who controls the Company within the meaning of Section
15 of the Act and Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only with
reference to information relating to such Underwriter furnished to the Company
in writing by such Underwriter through the Representatives expressly for use in
the Registration Statement, the Prospectus, any amendment or supplement thereto,
or any preliminary prospectus.
If any suit, action, proceeding (including any governmental or regulatory
investigation), claim or demand shall be brought or asserted against any person
in respect of which indemnity may be sought pursuant to either of the two
preceding paragraphs, such person (the "Indemnified Person") shall promptly
notify the person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the fees and
expenses of such counsel related to such proceeding. In any such proceeding,
any Indemnified Person shall have the right to retain its own counsel, but the
fees and expenses of such counsel shall be at the expense of such Indemnified
Person unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed to the contrary, (ii) the Indemnifying Person has failed within
a reasonable time to retain counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties in any such proceeding (including any
impleaded parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that the Indemnifying Person shall not, in connection with any
proceeding or related proceeding in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all Indemnified Persons, and that all such fees and expenses shall
be reimbursed as they are incurred. Any such separate firm for the Underwriters
and such control persons of Underwriters shall be designated in writing by J.P.
Morgan Securities Inc. and any such separate firm for the Company, its
directors, its officers who sign the Registration Statement and such control
persons of the Company shall be designated in writing by the Company. The
Indemnifying Person shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the Indemnifying Person agrees to
indemnify any Indemnified Person
18
<PAGE>
from and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an Indemnified Person
shall have requested an Indemnifying Person to reimburse the Indemnified Person
for fees and expenses of counsel as contemplated by the third sentence of this
paragraph, the Indemnifying Person agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such Indemnifying
Person of the aforesaid request and (ii) such Indemnifying Person shall not have
reimbursed the Indemnified Person in accordance with such request prior to the
date of such settlement. No Indemnifying Person shall, without the prior written
consent of the Indemnified Person, effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Person, unless such settlement includes an unconditional release of
such Indemnified Person from all liability on claims that are the subject matter
of such proceeding.
If the indemnification provided for in the first and second paragraphs of
this Section 7 is unavailable to an Indemnified Person in respect of any losses,
claims, damages or liabilities referred to therein, then each Indemnifying
Person under such paragraph, in lieu of indemnifying such Indemnified Person
thereunder, shall contribute to the amount paid or payable by such Indemnified
Person as a result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same respective
proportions as the net proceeds from the offering (before deducting expenses)
received by the Company and the total underwriting discounts and the commissions
received by the Underwriters, in each case as set forth in the table on the
cover of the Prospectus, bear to the aggregate public offering price of the
Securities. The relative fault of the Company on the one hand and the
Underwriters on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately
19
<PAGE>
preceding paragraph. The amount paid or payable by an Indemnified Person as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Person in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7, in no event
shall an Underwriter be required to contribute any amount in excess of the
amount by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective principal amount of Securities set forth opposite their names in
Schedule I hereto, and not joint.
The remedies provided for in this Section 7 are not exclusive and shall not
limit any rights or remedies which may otherwise be available to any indemnified
party at law of in equity.
The indemnity and contribution agreements contained in this Section 7 and
the representations and warranties of the Company set forth in this Agreement
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
any Underwriter or any person controlling any Underwriter or by or on behalf of
the Company, its officers or directors or any other person controlling the
Company and (iii) acceptance of and payment for any of the Securities.
8. Notwithstanding anything herein contained, this Agreement may be
terminated in the absolute discretion of the Representatives, by notice given to
the Company, if after the execution and delivery of this Agreement and prior to
the Closing Date (i) trading generally shall have been suspended or materially
limited on or by, as the case may be, any of the New York Stock Exchange, the
American Stock Exchange, the NASD, the Chicago Board Options Exchange, the
Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of or guaranteed by the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Federal or New York State authorities, or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in the judgment of the Representatives, is material and
adverse and which, in the judgment of the Representatives, makes it
impracticable to market the Securities on the terms and in the manner
contemplated in the Prospectus.
20
<PAGE>
9. This Agreement shall become effective upon the later of (x) execution
and delivery hereof by the parties hereto and (y) release of notification of the
effectiveness of the Registration Statement (or, if applicable, any post-
effective amendment) by the Commission.
If on the Closing Date any one or more of the Underwriters shall fail or
refuse to purchase Securities which it or they have agreed to purchase hereunder
on such date, and the aggregate principal amount of Securities which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
is not more than one-tenth of the aggregate principal amount of the Securities
to be purchased on such date, the other Underwriters shall be obligated
severally in the proportions that the principal amount of Securities set forth
opposite their respective names in Schedule I bears to the aggregate principal
amount of Securities set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as the Representatives may specify,
to purchase the Securities which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase on such date; provided that in no event
shall the principal amount of Securities that any Underwriter has agreed to
purchase pursuant to Section 1 be increased pursuant to this Section 9 by an
amount in excess of one-ninth of such principal amount of Securities without the
written consent of such Underwriter. If on the Closing Date any Underwriter or
Underwriters shall fail or refuse to purchase Securities which it or they have
agreed to purchase hereunder on such date, and the aggregate principal amount of
Securities with respect to which such default occurs is more than one-tenth of
the aggregate principal amount of Securities to be purchased on such date, and
arrangements satisfactory to the Representatives and the Company for the
purchase of such Securities are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of any non-
defaulting Underwriter or the Company. In any such case either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
10. If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement or any condition of the Underwriters' obligations cannot be fulfilled,
the Company agrees to reimburse the Underwriters or such Underwriters as have so
terminated this Agreement with respect to themselves, severally, for all out-of-
pocket expenses (including the fees and expenses of their counsel) reasonably
incurred by such Underwriters in connection with this Agreement or the offering
contemplated hereunder.
11. This Agreement shall inure to the benefit of and be binding upon the
Company, the Underwriters, any controlling persons referred to herein and their
respective successors and
21
<PAGE>
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any other person, firm or corporation any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained. No purchaser of Securities from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
12. Any action by the Underwriters hereunder may be taken by the
Representatives jointly or by J.P. Morgan Securities Inc. alone on behalf of the
Underwriters, and any such action taken by the Representatives jointly or by
J.P. Morgan Securities Inc. alone shall be binding upon the Underwriters. All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be given to the
Representatives c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New
York 10260-0060 (telefax:______); Attention: Syndicate Department. Notices to
the Company shall be given to it at Security Capital Atlantic Incorporated, Six
Piedmont Center, Atlanta, Georgia 30305 (telefax: (505) 988-8920); Attention:
Jeffrey A. Klopf.
13. This Agreement may be signed in counterparts, each of which shall be
an original and all of which together shall constitute one and the same
instrument.
14. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to the conflicts of
laws provisions thereof.
22
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return four counterparts hereof.
Very truly yours,
SECURITY CAPITAL ATLANTIC
INCORPORATED
By:
--------------------------
Title:
Accepted: __________, 1997
J.P. Morgan Securities Inc.
Goldman, Sachs & Co.
Acting severally on behalf
of themselves and the
several Underwriters listed
in Schedule I hereto.
By: J.P. Morgan Securities Inc.
Acting on behalf of itself and the
several Underwriters listed in
Schedule I hereto.
By:
--------------------------
Title:
23
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Principal Amount Principal Amount
of 2011 Notes of 2017 Notes
Underwriter to be Purchased to be Purchased
----------- ---------------- ----------------
<S> <C> <C>
J.P. Morgan Securities, Inc... $ $
Goldman, Sachs & Co...........
------------ -----------
Total $100,000,000 $50,000,000
============ ===========
</TABLE>
24
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Jurisdiction
Name of Subsidiary of Organization
------------------ ---------------
<S> <C>
SCA Florida Holdings (1) Incorporated Florida
Atlantic - Alabama (1) Incorporated Maryland
Atlantic - Alabama (2) Incorporated Maryland
Atlantic - Alabama (3) Incorporated Delaware
Atlantic - Alabama (4) Incorporated Delaware
Atlantic - Alabama (5) Incorporated Maryland
Atlantic - Alabama (6) Incorporated Maryland
Security Capital Alabama Multifamily Trust Alabama
Atlantic Alabama Multifamily Trust Alabama
SCA - Alabama Multifamily Trust Alabama
SCA- Indiana Limited Partnership Delaware
SCA - North Carolina (1) Incorporated Maryland
SCA - North Carolina (2) Incorporated Maryland
SCA North Carolina Limited Partnership Delaware
SCA North Carolina Limited Partnership 2 Delaware
SCA - South Carolina (1) Incorporated Maryland
SCA - Tennessee Limited Partnership Delaware
SCA - Tennessee (1) Incorporated Maryland
SCA - Tennessee (2) Incorporated Maryland
SCA - Tennessee (3) Incorporated Maryland
SCA - Tennessee (4) Incorporated Maryland
Atlantic - Tennessee Limited Partnership Delaware
Security Capital Atlantic Multifamily Incorporated Delaware
Security Capital Atlantic Management Incorporated Delaware
</TABLE>
25
<PAGE>
Exhibit 4.8
================================================================================
SECURITY CAPITAL ATLANTIC INCORPORATED
TO
STATE STREET BANK AND TRUST COMPANY
Trustee
----------------------
Indenture
Dated as of __________ ___, 1997
----------------------
Senior Debt Securities
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
RECITALS
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
<TABLE>
<CAPTION>
<S> <C>
SECTION 101. Definitions..................................................... 1
Acquired Debt........................................................... 2
Act..................................................................... 2
Additional Amounts...................................................... 2
Affiliate............................................................... 2
Annual Service Charge................................................... 2
Authenticating Agent.................................................... 2
Authorized Newspaper.................................................... 2
Bankruptcy Law.......................................................... 2
Bearer Security......................................................... 3
Board of Directors...................................................... 3
Board Resolution........................................................ 3
Business Day............................................................ 3
Capital Stock........................................................... 3
CEDEL................................................................... 3
Commission.............................................................. 3
Common Depositary....................................................... 3
Common Shares........................................................... 3
Company................................................................. 3
Company Certificate..................................................... 3
Company Request and Company Order....................................... 3
Consolidated Income Available for Debt Service.......................... 4
Conversion Event........................................................ 4
Corporate Trust Office.................................................. 4
corporation............................................................. 4
coupon.................................................................. 4
covenant defeasance..................................................... 4
Custodian............................................................... 4
Debt.................................................................... 4
Defaulted Interest...................................................... 5
Disqualified Stock...................................................... 5
defeasance.............................................................. 5
Dollar or $............................................................. 5
DTC..................................................................... 5
Earnings from Operations................................................ 5
</TABLE>
i
<PAGE>
Page
----
<TABLE>
<CAPTION>
<S> <C>
ECU................................................................... 5
Encumbrance........................................................... 5
Euroclear............................................................. 5
European Communities.................................................. 6
European Monetary System.............................................. 6
Event of Default...................................................... 6
Exchange Act.......................................................... 6
Exchange Date......................................................... 6
Financial Statements.................................................. 6
Foreign Currency...................................................... 6
GAAP.................................................................. 6
Government Obligations................................................ 6
Holder................................................................ 7
Indenture............................................................. 7
Indexed Security...................................................... 7
interest.............................................................. 7
Interest Payment Date................................................. 7
Make-Whole Amount..................................................... 7
mandatory sinking fund payment........................................ 7
Maturity.............................................................. 7
Notice of Default..................................................... 8
Opinion of Counsel.................................................... 8
optional sinking fund payment......................................... 8
Original Issue Discount Security...................................... 8
Outstanding........................................................... 8
Paying Agent.......................................................... 9
Permitted Encumbrances................................................ 9
Person................................................................ 9
Place of Payment...................................................... 9
Predecessor Security.................................................. 9
Redemption Date....................................................... 10
Redemption Price...................................................... 10
Registered Security................................................... 10
Regular Record Date................................................... 10
Repayment Date........................................................ 10
Repayment Price....................................................... 10
Required Filing Dates................................................. 10
Responsible Officer................................................... 10
Securities Act........................................................ 10
Security.............................................................. 10
Security Register and Security Registrar.............................. 11
</TABLE>
ii
<PAGE>
Page
----
<TABLE>
<CAPTION>
<S> <C>
Significant Subsidiary................................................ 11
Special Record Date................................................... 11
Stated Maturity....................................................... 11
Subsidiary............................................................ 11
Total Assets.......................................................... 11
Total Unencumbered Assets............................................. 11
Trust Indenture Act................................................... 11
Trustee............................................................... 11
Undepreciated Real Estate Assets...................................... 12
United States......................................................... 12
United States person.................................................. 12
Unsecured Debt........................................................ 12
Yield to Maturity..................................................... 12
SECTION 102. Compliance Certificates and Opinions.......................... 12
SECTION 103. Form of Documents Delivered to Trustee........................ 13
SECTION 104. Acts of Holders............................................... 13
SECTION 105. Notices to Trustee and Company................................ 15
SECTION 106. Notice to Holders; Waiver..................................... 16
SECTION 107. Effect of Headings and Table of Contents...................... 17
SECTION 108. Successors and Assigns........................................ 17
SECTION 109. Separability Clause........................................... 17
SECTION 110. Benefits of Indenture......................................... 17
SECTION 111. No Personal Liability......................................... 17
SECTION 112. Governing Law................................................. 17
SECTION 113. Legal Holidays................................................ 17
SECTION 114. Counterparts.................................................. 18
ARTICLE TWO
SECURITIES FORMS
SECTION 201. Forms of Securities........................................... 18
SECTION 202. Form of Trustee's Certificate of Authentication............... 18
SECTION 203. Securities Issuable in Global Form............................ 19
ARTICLE THREE
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series.......................... 20
SECTION 302. Denominations................................................. 24
SECTION 303. Execution, Authentication, Delivery and Dating................ 24
SECTION 304. Temporary Securities.......................................... 26
</TABLE>
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SECTION 305. Registration, Registration of Transfer and Exchange....... 29
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.......... 32
SECTION 307. Payment of Interest; Interest Rights Preserved............ 33
SECTION 308. Persons Deemed Owners..................................... 36
SECTION 309. Cancellation.............................................. 36
SECTION 310. Computation of Interest................................... 37
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture................... 37
SECTION 402. Application of Trust Funds................................ 38
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default......................................... 39
SECTION 502. Acceleration of Maturity; Rescission and Annulment........ 41
SECTION 503. Collection of Indebtedness and Suits for Enforcement
by Trustee......................................... 42
SECTION 504. Trustee May File Proofs of Claim.......................... 43
SECTION 505. Trustee May Enforce Claims Without Possession
of Securities or Coupons........................... 43
SECTION 506. Application of Money Collected............................ 44
SECTION 507. Limitation on Suits....................................... 44
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium or Make-Whole Amount, Interest and
Additional Amounts................................. 45
SECTION 509. Restoration of Rights and Remedies........................ 45
SECTION 510. Rights and Remedies Cumulative............................ 45
SECTION 511. Delay or Omission Not Waiver.............................. 45
SECTION 512. Control by Holders of Securities.......................... 46
SECTION 513. Waiver of Past Defaults................................... 46
SECTION 514. Waiver of Usury, Stay or Extension Laws................... 46
SECTION 515. Undertaking for Costs..................................... 47
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults........................................ 47
SECTION 602. Certain Rights of Trustee................................. 47
SECTION 603. Not Responsible for Recitals or Issuance of Securities.... 49
SECTION 604. May Hold Securities....................................... 49
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SECTION 605. Money Held in Trust........................................... 49
SECTION 606. Compensation and Reimbursement................................ 49
SECTION 607. Trustee Eligibility; Conflicting Interests.................... 50
SECTION 608. Resignation and Removal; Appointment of Successor............. 50
SECTION 609. Acceptance of Appointment by Successor........................ 52
SECTION 610. Merger, Conversion, Consolidation or Succession to Business... 53
SECTION 611. Appointment of Authenticating Agent........................... 53
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.................. 55
SECTION 702. Reports by Trustee............................................ 55
SECTION 703. Reports by Company............................................ 55
SECTION 704. Company to Furnish Trustee Names and Addresses of Holders..... 56
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE
SECTION 801. Consolidations and Mergers of Company and Sales,
Leases and Conveyances................................. 56
SECTION 802. Rights and Duties of Successor Entity......................... 57
SECTION 803. Company Certificate and Opinion of Counsel.................... 57
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders............ 57
SECTION 902. Supplemental Indentures with Consent of Holders............... 59
SECTION 903. Execution of Supplemental Indentures.......................... 60
SECTION 904. Effect of Supplemental Indentures............................. 61
SECTION 905. Conformity with Trust Indenture Act........................... 61
SECTION 906. Reference in Securities to Supplemental Indentures............ 61
SECTION 907. Notice of Supplemental Indentures............................. 61
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium or Make-Whole Amount,
Interest and Additional Amounts........................ 61
SECTION 1002. Maintenance of Office or Agency.............................. 62
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SECTION 1003. Money for Securities Payments to Be Held in Trust....... 63
SECTION 1004. Limitations on Incurrence of Debt....................... 65
SECTION 1005. Existence............................................... 66
SECTION 1006. Maintenance of Properties............................... 67
SECTION 1007. Insurance............................................... 67
SECTION 1008. Payment of Taxes and Other Claims....................... 67
SECTION 1009. Provision of Financial Information...................... 67
SECTION 1010. Statement as to Compliance.............................. 68
SECTION 1011. Additional Amounts...................................... 68
SECTION 1012. Waiver of Certain Covenants............................. 69
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Applicability of Article................................ 69
SECTION 1102. Election to Redeem; Notice to Trustee................... 69
SECTION 1103. Selection by Trustee of Securities to Be Redeemed....... 70
SECTION 1104. Notice of Redemption.................................... 70
SECTION 1105. Deposit of Redemption Price............................. 71
SECTION 1106. Securities Payable on Redemption Date................... 72
SECTION 1107. Securities Redeemed in Part............................. 73
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. Applicability of Article................................ 73
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities... 73
SECTION 1203. Redemption of Securities for Sinking Fund............... 73
ARTICLE THIRTEEN
REPAYMENT AT THE OPTION OF HOLDERS
SECTION 1301. Applicability of Article................................ 74
SECTION 1302. Repayment of Securities................................. 74
SECTION 1303. Exercise of Option...................................... 74
SECTION 1304. When Securities Presented for Repayment Become
Due and Payable................................ 75
SECTION 1305. Securities Repaid in Part............................... 76
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ARTICLE FOURTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1401. Applicability of Article; Company's Option to
Effect Defeasance or Covenant Defeasance............ 76
SECTION 1402. Defeasance and Discharge................................ 77
SECTION 1403. Covenant Defeasance..................................... 77
SECTION 1404. Conditions to Defeasance or Covenant Defeasance......... 78
SECTION 1405. Deposited Money and Government Obligations to
Be Held in Trust; Other Miscellaneous Provisions.... 80
ARTICLE FIFTEEN
MEETINGS OF HOLDERS OF SECURITIES
SECTION 1501. Purposes for Which Meetings May Be Called............... 81
SECTION 1502. Call, Notice and Place of Meetings...................... 81
SECTION 1503. Persons Entitled to Vote at Meetings.................... 81
SECTION 1504. Quorum; Action.......................................... 82
SECTION 1505. Determination of Voting Rights; Conduct and
Adjournment of Meetings............................. 83
SECTION 1506. Counting Votes and Recording Action of Meetings......... 84
SECTION 1507. Evidence of Action Taken by Holders..................... 84
SECTION 1508. Proof of Execution of Instruments....................... 84
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TESTIMONIUM
SIGNATURES AND SEALS
ACKNOWLEDGMENTS
EXHIBIT A - FORMS OF CERTIFICATION
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Reconciliation and tie between
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"),
and Indenture
Trust Indenture Act Section Indenture Section
--------------------------- -----------------
310(a)(1), (2) and (5) 607(a)
310(a)(3) and (4) Not applicable
310(b) 608(d)
310(c) Not applicable
311 Not applicable
312(a) 704
312(b) Not applicable
312(c) 701
313(a) and (c) 702
313(b) Not applicable
314(a)(1), (2) and (3) 703
314(a)(4) 1009
314(b) Not applicable
314(c) and (e) 102
314(d) Not applicable
315(a), (c), (d) and (e) Not applicable
315(b) 601
316(a) (last sentence) 101 ("Outstanding")
316(a)(1)(A) 512
316(a)(1)(B) 513
316(a)(2) and (c) Not applicable
316(b) 508
317(a)(1) 503
317(a)(2) 504
317(b) Not applicable
318(a) 112
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
Attention should also be directed to Section 318(c) of the Trust
Indenture Act, which provides that the provisions of Sections 310 to and
including 317 of the Trust Indenture Act are a part of and govern every
qualified indenture, whether or not physically contained therein.
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INDENTURE, dated as of __________ ___, 1997, from SECURITY CAPITAL ATLANTIC
INCORPORATED, a Maryland corporation (hereinafter called the "Company"), having
its principal office at Six Piedmont Center, Atlanta, Georgia 30305 to STATE
STREET BANK AND TRUST COMPANY, a Massachusetts banking corporation, as Trustee
hereunder (hereinafter called the "Trustee"), having its Corporate Trust Office
at 225 Franklin Street, Boston, Massachusetts 02110.
RECITALS
The Company deems it necessary to issue from time to time for its lawful
purposes senior debt securities (hereinafter called the "Securities") evidencing
its unsecured and unsubordinated indebtedness, and has duly authorized the
execution and delivery of this Indenture to provide for the issuance from time
to time of the Securities, unlimited as to aggregate principal amount, to bear
interest at the rates or formulas, to mature at such times and to have such
other provisions as shall be fixed therefor as hereinafter provided.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
This Indenture is subject to the provisions of the Trust Indenture Act (as
herein defined) and the rules and regulations of the Commission (as herein
defined) promulgated thereunder which are required to be part of this Indenture
and, to the extent applicable, shall be governed by such provisions.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders (as herein defined) thereof, it is mutually covenanted and
agreed, for the equal and proportionate benefit of all Holders of the
Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions. For all purposes of this Indenture, except as
otherwise expressly provided or the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and "self-
liquidating paper," as used in Section 311 of the Trust Indenture Act,
shall have the meanings assigned to them in the rules of the Commission
adopted under the Trust Indenture Act;
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(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP (as herein defined); and
(4) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Acquired Debt" means Debt of a Person (i) existing at the time such
Person becomes a Subsidiary or (ii) assumed in connection with the acquisition
of assets from such Person, in each case other than Debt incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary or such
acquisition. Acquired Debt shall be deemed to be incurred on the date of the
related acquisition of assets from any Person or the date the acquired Person
becomes a Subsidiary.
"Act" has the meaning specified in Section 104(a).
"Additional Amounts" means any additional amounts which are required by a
Security, under circumstances specified therein, to be paid by the Company in
respect of certain taxes imposed on certain Holders and which are owing to such
Holders.
"Affiliate" when used with respect to any Person, means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such Person. For the purposes of this definition, "control"
when used with respect to any specified 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
"controlling" and "controlled" have meanings correlative to the foregoing.
"Annual Service Charge" as of any date means the maximum amount which is
payable in any period for interest on, and original issue discount of, Debt of
the Company and its Subsidiaries and the amount of dividends which are payable
in respect of any Disqualified Stock.
"Authenticating Agent" means any authenticating agent appointed by the
Trustee pursuant to Section 611.
"Authorized Newspaper" means a newspaper, printed in the English language
or in an official language of the country of publication, customarily published
on each Business Day, whether or not published on Saturdays, Sundays or
holidays, and of general circulation in each place in connection with which the
term is used or in the financial community of each such place. Whenever
successive publications are required to be made in Authorized Newspapers, the
successive publications may be made in the same or in different Authorized
Newspapers in the same city meeting the foregoing requirements and in each case
on any Business Day.
"Bankruptcy Law" has the meaning specified in Section 501.
2
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"Bearer Security" means a Security which is payable to bearer.
"Board of Directors" means the board of directors of the Company, the
executive committee or any other committee of such board duly authorized to act
for it in respect hereof.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors, and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" when used with respect to any Place of Payment or any other
particular location referred to in this Indenture or in the Securities, means,
unless otherwise specified with respect to any Securities pursuant to Section
301, any day, other than a Saturday or Sunday, which is neither a legal holiday
nor a day on which banking institutions in such Place of Payment or particular
location are authorized or required by law, regulation or executive order to
close.
"Capital Stock" when used with respect to any Person, means any capital
stock (including preferred stock), shares, interests, participations or other
ownership interests (however designated) of such Person and any rights (other
than debt securities convertible into or exchangeable for capital stock),
warrants or options to purchase any thereof.
"CEDEL" means Centrale de Livraison de Valeurs Mobilieres, S.A., or its
successor.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties on such date.
"Common Depositary" has the meaning specified in Section 304(b).
"Common Shares" means the shares of common stock, par value $.01 per share,
of the Company.
"Company" means the Person named as the "Company" in the first paragraph of
this Indenture until a successor corporation has become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor corporation, and any other obligor on the Securities.
"Company Certificate" means a certificate signed by the Chairman or a Co-
Chairman, Managing Director, Senior Vice President or Vice President of the
Company and by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary of the Company, and delivered to the Trustee.
3
<PAGE>
"Company Request" and "Company Order" mean, respectively, a written request
or order signed in the name of the Company by the Chairman or a Co-Chairman,
Managing Director, Senior Vice President or Vice President of the Company and by
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary
of the Company, and delivered to the Trustee.
"Consolidated Income Available for Debt Service" when used with respect to
any period, means Earnings from Operations of the Company and its Subsidiaries
plus amounts which have been deducted, and minus amounts which have been added,
for the following (without duplication): (i) interest on Debt of the Company and
its Subsidiaries, (ii) provision for taxes of the Company and its Subsidiaries
based on income, (iii) amortization of debt discount, (iv) provisions for gains
and losses on properties and property depreciation and amortization, (v) the
effect of any noncash charge resulting from a change in accounting principles in
determining Earnings from Operations for such period and (vi) amortization of
deferred charges.
"Conversion Event" means the cessation of use of (i) a Foreign Currency
(other than the ECU or other currency unit) both by the government of the
country which issued such currency and for the settlement of transactions by a
central bank or other public institutions of or within the international banking
community, (ii) the ECU both within the European Monetary System and for the
settlement of transactions by public institutions of or within the European
Communities or (iii) any currency unit (or composite currency) other than the
ECU for the purposes for which it was established.
"Corporate Trust Office" means the office of the Trustee at which, at any
particular time, its corporate trust business is principally administered, which
office at the date hereof is located at 225 Franklin Street, Boston,
Massachusetts 02110.
"corporation" includes corporations, associations, companies, real estate
investment trusts and business trusts.
"coupon" means any interest coupon appertaining to a Bearer Security.
"covenant defeasance" has the meaning specified in Section 1403.
"Custodian" has the meaning specified in Section 501.
"Debt" of the Company or any Subsidiary means any indebtedness of the
Company or any Subsidiary, whether or not contingent, in respect of (i) borrowed
money or evidenced by bonds, notes, debentures or similar instruments, (ii)
indebtedness secured by any mortgage, pledge, lien, charge, encumbrance or any
security interest existing on property owned by the Company or any Subsidiary,
(iii) the reimbursement obligations, contingent or otherwise, in connection with
any letters of credit actually issued or amounts representing the balance
deferred and unpaid of the purchase price of any property or services, except
any such balance which constitutes an accrued expense or trade payable, or all
conditional sale obligations or obligations under any title retention agreement,
(iv) the principal amount of all obligations of the Company
4
<PAGE>
or any Subsidiary with respect to redemption, repayment or other repurchase of
any Disqualified Stock or (v) any lease of property by the Company or any
Subsidiary as lessee which is reflected on the Company's consolidated balance
sheet as a capitalized lease in accordance with GAAP to the extent, in the case
of items of indebtedness under clauses (i) through (iii) above, that any such
items (other than letters of credit) would appear as a liability on the
Company's consolidated balance sheet in accordance with GAAP, and also includes,
to the extent not otherwise included, any obligation by the Company or any
Subsidiary to be liable for, or to pay, as obligor, guarantor or otherwise
(other than for purposes of collection in the ordinary course of business), Debt
of another Person (other than the Company or any Subsidiary) (it being
understood that Debt shall be deemed to be incurred by the Company or any
Subsidiary whenever the Company or such Subsidiary shall create, assume,
guarantee or otherwise become liable in respect thereof).
"Defaulted Interest" has the meaning specified in Section 307.
"Disqualified Stock" when used with respect to any Person, means any
Capital Stock of such Person which by the terms of such Capital Stock (or by the
terms of any security into which it is convertible or for which it is
exchangeable or exercisable), upon the happening of any event or otherwise (i)
matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, (ii) is convertible into or exchangeable or exercisable for Debt or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the Stated Maturity of the
series of Debt Securities.
"defeasance" has the meaning specified in Section 1402.
"Dollar" or "$" means a dollar or other equivalent unit in such coin or
currency of the United States of America as at the time is legal tender for the
payment of public and private debts.
"DTC" means The Depository Trust Company.
"Earnings from Operations" when used with respect to any period, means net
earnings excluding gains and losses on sales of investments, as reflected in the
financial statements of the Company and its Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP.
"ECU" means the European Currency Unit as defined and revised from time to
time by the Council of the European Communities.
"Encumbrance" means any mortgage, pledge, lien, charge, encumbrance or any
security interest existing on property owned by the Company or any Subsidiary
securing indebtedness for borrowed money, other than a Permitted Encumbrance.
5
<PAGE>
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
Office, or its successor as operator of the Euroclear System.
"European Communities" means the European Economic Community, the European
Coal and Steel Community and the European Atomic Energy Community.
"European Monetary System" means the European Monetary System established
by the Resolution of December 5, 1978 of the Council of the European
Communities.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder by the Commission.
"Exchange Date" has the meaning specified in Section 304(b).
"Financial Statements" has the meaning specified in Section 1009.
"Foreign Currency" means any currency, currency unit or composite currency,
including, without limitation, the ECU issued by the government of one or more
countries other than the United States of America or by any recognized
confederation or association of such governments.
"GAAP" means generally accepted accounting principles as used in the United
States applied on a consistent basis as in effect from time to time, provided
that, solely for purposes of calculating the financial covenants contained
herein, "GAAP" shall mean generally accepted accounting principles as used in
the United States on the date hereof, applied on a consistent basis.
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the Foreign
Currency in which the Securities of a particular series are payable, for the
payment of which its full faith and credit is pledged or (ii) obligations of a
Person controlled or supervised by and acting as an agency or instrumentality of
the United States of America or such government which issued the Foreign
Currency in which the Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and also
includes a depository receipt issued by a bank or trust company as custodian
with respect to any such Government Obligation or a specific payment of interest
on or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or
6
<PAGE>
the specific payment of interest on or principal of the Government Obligation
evidenced by such depository receipt.
"Holder" when used with respect to a Registered Security, means the Person
in whose name such Registered Security is registered in the Security Register
and, when used with respect to a Bearer Security or any coupon, means the bearer
thereof.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, and includes
the terms of particular series of Securities established as contemplated by
Section 301; provided, however, that, if at any time more than one Person is
acting as Trustee under this instrument, "Indenture" when used with respect to
any one or more series of Securities with respect to which such Person is acting
as Trustee, shall mean this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof and shall
include the terms of the or those particular series of Securities with respect
to which such Person is acting as Trustee established as contemplated by Section
301, exclusive, however, of any provisions or terms which relate solely to other
series of Securities with respect to which such Person is not acting as Trustee,
regardless of when such terms or provisions were adopted, and exclusive of any
provisions or terms adopted by means of one or more indentures supplemental
hereto executed and delivered after such Person had become such Trustee but to
which such Person, as such Trustee, was not a party.
"Indexed Security" means a Security the terms of which provide that the
principal amount thereof payable at Stated Maturity may be more or less than the
principal face amount thereof at original issuance.
"interest" when used with respect to an Original Issue Discount Security
which by its terms bears interest only after Maturity, means interest payable
after Maturity, and, when used with respect to a Security which provides for the
payment of Additional Amounts pursuant to Section 1010, includes such Additional
Amounts.
"Interest Payment Date" when used with respect to any Security, means the
Stated Maturity of an installment of interest on such Security.
"Make-Whole Amount" means the amount, if any, in addition to principal
which is required by a Security, under the terms and conditions specified
therein or as otherwise specified as contemplated by Section 301, to be paid by
the Company to the Holder thereof in connection with any optional redemption or
accelerated payment of such Security.
"mandatory sinking fund payment" has the meaning specified in Section 1201.
"Maturity" when used with respect to any Security, means the date on which
the principal of such Security or an installment of principal become due and
payable as therein or herein
7
<PAGE>
provided, whether at the Stated Maturity or by declaration of acceleration,
notice of redemption, notice of option to elect repayment, repurchase or
otherwise.
"Notice of Default" has the meaning specified in Section 501.
"Opinion of Counsel" means a written opinion of counsel, who may be an
employee of or counsel for the Company or other counsel satisfactory to the
Trustee.
"optional sinking fund payment" has the meaning specified in Section 1201.
"Original Issue Discount Security" means any Security which provides for
an amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502.
"Outstanding" when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, exclusive of:
(1) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(2) Securities, or portions thereof, for whose payment or redemption
or repayment at the option of the Holder money in the necessary amount has
been theretofore deposited with the Trustee or any Paying Agent (other than
the Company) in trust or set aside and segregated in trust by the Company
(if the Company is acting as its own Paying Agent) for the holders of such
Securities and any coupons appertaining thereto, provided that, if such
Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or other provision therefor satisfactory
to the Trustee has been made;
(3) Securities, except solely to the extent provided in Section 401,
1402 or 1403, as applicable, with respect to which the Company has effected
defeasance and/or covenant defeasance as provided in Article Four or
Fourteen; and
(4) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there has been presented to the Trustee proof satisfactory
to it that such Securities are held by a bona fide purchaser in whose hands
such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the required
principal amount of the Outstanding Securities have concurred in any request,
demand, authorization, direction, notice, consent or waiver hereunder or are
present at a meeting of Holders for quorum purposes, and for the purpose of
making the calculations required by Section 313 of the Trust Indenture
8
<PAGE>
Act, (i) the principal amount of an Original Issue Discount Security which may
be counted in making such determination or calculation and which shall be deemed
Outstanding for such purpose shall be equal to the amount of principal thereof
which would be (or has been declared to be) due and payable, at the time of such
determination, upon a declaration of acceleration of the maturity thereof
pursuant to Section 502, (ii) the principal amount of any Security denominated
in a Foreign Currency which may be counted in making such determination or
calculation and which shall be deemed Outstanding for such purpose shall be
equal to the Dollar equivalent, determined pursuant to Section 301 as of the
date such Security is originally issued by the Company, of the principal amount
(or, in the case of an Original Issue Discount Security, the Dollar equivalent
as of such date of original issuance of the amount determined as provided in
clause (i) above) of such Security, (iii) the principal amount of any Indexed
Security which may be counted in making such determination or calculation and
which shall be deemed Outstanding for such purpose shall be equal to the
principal face amount of such Indexed Security at original issuance, unless
otherwise provided with respect to such Indexed Security pursuant to Section
301, and (iv) Securities owned by the Company or any other obligor on the
Securities or any Affiliate of the Company or of such other obligor shall be
disregarded and deemed not Outstanding, except that, for the purposes of
determining whether the Trustee is protected in making such calculation or in
relying on any such request, demand, authorization, direction, notice, consent
or waiver, only Securities which the Trustee knows are so owned shall be so
disregarded. Securities so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor on the Securities or any
Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium or Make-Whole Amount, if any, on) and interest and
Additional Amounts, if any, on any Securities or coupons on behalf of the
Company, or if no such Person is authorized, the Company.
"Permitted Encumbrances" means leases, Encumbrances securing taxes,
assessments and similar charges, mechanics' liens and other similar
Encumbrances.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, real estate investment
trust, business trust, unincorporated organization or government or any agency
or political subdivision thereof.
"Place of Payment" when used with respect to the Securities of or within
any series, means the Corporate Trust Office of the Trustee and any place or
places which the Company may from time to time designate as the place or places
where the principal of (and premium or Make-Whole Amount, if any, on) and
interest and Additional Amounts, if any, on such Securities are payable as
specified as contemplated by Sections 301 and 1002 and presentations,
surrenders, notices and demands with respect to such Securities and this
Indenture may be made.
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"Predecessor Security" when used with respect to any particular Security,
means every previous Security evidencing all or a portion of the same debt as
evidenced by such Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security or a Security to which a
mutilated, destroyed, lost or stolen coupon appertains shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security or
the Security to which the mutilated, destroyed, lost or stolen coupon
appertains.
"Redemption Date" when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price" when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Registered Security" means any Security which is registered in the
Security Register.
"Regular Record Date" when used with respect to an installment of interest
payable on any Interest Payment Date on the Registered Securities of or within
any series, means the date specified for that purpose as contemplated by Section
301, whether or not a Business Day.
"Repayment Date" when used with respect to any Security to be repaid or
repurchased at the option of the Holder, means the date fixed for such repayment
or repurchase by or pursuant to this Indenture.
"Repayment Price" when used with respect to any Security to be repaid or
repurchased at the option of the Holder, means the price at which it is to be
repaid or repurchased by or pursuant to this Indenture.
"Required Filing Dates" has the meaning specified in Section 1009.
"Responsible Officer" when used with respect to the Trustee, means any
officer of the Trustee in the corporate trust department or similar group of the
Trustee or, with respect to any particular matter arising hereunder, any officer
of the Trustee to whom such matter has been assigned.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder by the Commission.
"Security" has the meaning specified in the first recital of this Indenture
and, more particularly, means any Security or Securities authenticated and
delivered under this Indenture; provided, however, that, if at any time there is
more than one Person acting as Trustee under this Indenture, "Securities" when
used with respect to the Indenture with respect to which such Person is acting
as Trustee, shall have the meaning stated in the first recital of this Indenture
and shall more particularly mean Securities authenticated and delivered under
this Indenture,
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exclusive, however, of Securities of or within any series with respect to which
such Person is not acting as Trustee.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
"Significant Subsidiary" means any Subsidiary which is a "significant
subsidiary" (within the meaning of Regulation S-X promulgated under the
Securities Act) of the Company.
"Special Record Date" when used with respect to the payment of any
Defaulted Interest on the Registered Securities of or within any series, means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity" when used with respect to any Security or any
installment of principal thereof or interest thereon or any Additional Amounts
with respect thereto, means the date specified in such Security or a coupon
representing such installment of interest as the fixed date on which the
principal of such Security or such installment of principal or interest is, or
such Additional Amounts are, due and payable.
"Subsidiary" when used with respect to any Person, means any corporation
or other entity of which a majority of (a) the voting power of the voting equity
securities or (b) in the case of a partnership or any other entity other than a
corporation, the outstanding equity interests of which are owned, directly or
indirectly, by such Person. For the purposes of this definition, "voting equity
securities" means equity securities having voting power for the election of
directors, whether at all times or only so long as no senior class of securities
has such voting power by reason of any contingency.
"Total Assets" as of any date means the sum of (i) Undepreciated Real
Estate Assets and (ii) all other assets of the Company and its Subsidiaries
determined in accordance with GAAP (but excluding accounts receivable and
intangibles).
"Total Unencumbered Assets" means the sum of (i) those Undepreciated Real
Estate Assets not subject to an Encumbrance for borrowed money and (ii) the
value (determined in accordance with GAAP) of all other assets (other than
accounts receivable and intangibles) of the Company and its Subsidiaries not
subject to an Encumbrance.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended
and as in force at the date as of which this Indenture was executed, except as
provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this Indenture until a successor Trustee has become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then acting as a Trustee hereunder; provided,
however, that, if at any time there is more than one such Person,
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"Trustee" when used with respect to the Securities of or within any series,
shall mean only the Trustee with respect to the Securities of such series.
"Undepreciated Real Estate Assets" as of any date, means the cost
(original cost plus capital improvements) of real estate assets of the Company
and its Subsidiaries on such date, before depreciation and amortization
determined on a consolidated basis in accordance with GAAP.
"United States" means, unless otherwise specified with respect to any
Securities pursuant to Section 301, the United States of America (including the
states and the District of Columbia), its territories, its possessions and other
areas subject to its jurisdiction.
"United States person" means, unless otherwise specified with respect to
any Securities pursuant to Section 301, an individual who is a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or an estate or
trust the income of which is subject to United States federal income taxation
regardless of its source.
"Unsecured Debt" means Debt of the types described in clauses (i), (iii)
and (iv) of the definition thereof which is not secured by any mortgage, lien,
charge, pledge or security interest of any kind on any of the properties of the
Company or any Subsidiary.
"Yield to Maturity" means the yield to maturity, computed at the time of
issuance of a Security (or, if applicable, at the most recent redetermination of
interest on such Security) and as set forth in such Security in accordance with
generally accepted United States bond yield computation principles.
SECTION 102. Compliance Certificates and Opinions. Upon any application or
request by the Company to the Trustee to take any action under any provision of
this Indenture, the Company shall furnish to the Trustee a Company Certificate
stating that all conditions precedent, if any, provided for in this Indenture
(including any covenants, compliance with which constitute conditions precedent)
relating to the proposed action have been complied with and an Opinion of
Counsel stating that, in the opinion of such counsel, all such conditions
precedent, if any, have been complied with, except that, in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than certificates provided
pursuant to Section 1010) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such condition or covenant and the definitions herein
relating thereto;
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(2) a brief statement as to the nature and scope of the examination or
investigation on which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he or
she has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such
condition or covenant has been complied with; and
(4) a statement as to whether or not, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee. In any case in which
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion as to some matters and one or more other such Persons as to other
matters, and any such Person may certify or give an opinion as to such matters
in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, on an Opinion of Counsel, or a
certificate or representations by counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the opinion, certificate or
representations with respect to the matters on which his or her certificate or
opinion is based are erroneous. Any such Opinion of Counsel or certificate or
representations may be based, insofar as it relates to factual matters, on a
certificate or opinion of, or representations by, an officer or officers of the
Company stating that the information as to such factual matters is in the
possession of the Company, unless such counsel knows that the certificate or
opinion or representations as to such matters are erroneous.
If any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders of the Outstanding Securities of all series or one or more series,
as the case may be, may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person
or by agents duly appointed in writing. If Securities of a series are
issuable as Bearer Securities, any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this
Indenture to be given or taken by Holders of the Outstanding Securities of
such series may, alternatively, be
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embodied in and evidenced by the record of such Holders voting in favor
thereof, either in person or by proxies duly appointed in writing, at any
meeting of such Holders duly called and held in accordance with the
provisions of Article Fifteen, or a combination of such instruments and any
such record. Except as herein otherwise expressly provided, such action
shall become effective when such instrument or instruments or record or
both are delivered to the Trustee and, if expressly required herein, to the
Company. Such instrument or instrument and any such record (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as
the "Act" of the Holders signing such instrument or instruments or so
voting at any such meeting. Proof of execution of any such instrument or of
a writing appointing any such agent, or of the holding by any Person of a
Security, shall be sufficient for any purpose of this Indenture and
conclusive in favor of the Trustee and the Company and any agent of the
Trustee or the Company, if made in the manner provided in this Section. The
record of any meeting of Holders of Securities shall be proved in the
manner provided in Section 1506.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by a certificate of a notary public or
other officer authorized by law to take acknowledgments of deeds,
certifying that the individual signing such instrument or writing
acknowledged to him or her the execution thereof or by any other means
acceptable to the Trustee. If such execution is by a signer acting in a
capacity other than his individual capacity, such certificate or affidavit
shall also constitute sufficient proof of his authority. The fact and date
of the execution of any such instrument or writing, or the authority of the
Person executing the same, may also be proved in any other reasonable
manner which the Trustee deems sufficient.
(c) The ownership of Registered Securities shall be proved by the
Security Register.
(d) The ownership of Bearer Securities may be proved by the production
of such Bearer Securities or by a certificate executed, as depositary, by
any trust company, bank, banker or other depositary, wherever situated, if
such certificate is deemed by the Trustee to be satisfactory, showing that
at the date therein mentioned such Person had on deposit with such
depositary, or exhibited to it, the Bearer Securities therein described; or
such facts may be proved by the certificate or affidavit of the Person
holding such Bearer Securities, if such certificate or affidavit is deemed
by the Trustee to be satisfactory. The Trustee and the Company may assume
that such ownership of any Bearer Security continues until (i) another
certificate or affidavit bearing a later date issued in respect of the same
Bearer Security is produced, (ii) such Bearer Security is produced to the
Trustee by some other Person, (iii) such Bearer Security is surrendered in
exchange for a Registered Security or (iv) such Bearer Security is no
longer Outstanding. The ownership of Bearer Securities may also be proved
in any other manner which the Trustee deems sufficient.
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(e) If the Company shall solicit from the Holders of Registered
Securities any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may, at its option, in or pursuant to a
Board Resolution, fix in advance a record date for the determination of
Holders entitled to give such request, demand, authorization, direction,
notice, consent, waiver or other Act, but the Company shall not be
obligated to do so. Notwithstanding Section 316(c) of the Trust Indenture
Act, such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30
days prior to the first solicitation of Holders generally in connection
therewith and not later than the date such solicitation is completed. If
such a record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other Act may be given before or
after such record date, but only the Holders of record at the close of
business on such record date shall be deemed to be Holders for the purpose
of determining whether Holders of the requisite proportion of Outstanding
Securities have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Securities shall be computed as of such record
date; provided that no such authorization, agreement or consent by the
Holders on such record date shall be deemed effective unless it shall
become effective pursuant to the provisions of this Indenture not later
than eleven months after the record date.
(f) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future
Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu
thereof in respect of anything done, omitted or suffered to be done by the
Trustee, any Security Registrar, any Paying Agent, any Authenticating Agent
or the Company in reliance thereon, whether or not notation of such action
is made on such Security.
SECTION 105. Notices to Trustee and Company. Any request, demand,
authorization, direction, notice, consent, waiver or Act of Holders or other
document provided or permitted by this Indenture to be made on, given or
furnished to, or filed with:
(1) the Trustee by any Holder or the Company shall be sufficient for
every purpose hereunder if in writing and mailed, first class postage
prepaid, to the Trustee addressed to it at the address of its Corporate
Trust Office specified in the first paragraph of this Indenture, Attention:
Corporate Trust Administration; or
(2) the Company by the Trustee or any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first class postage prepaid, to the Company addressed
to it at the address of its principal office specified in the first
paragraph of this Indenture or at any other address previously furnished in
writing to the Trustee by the Company.
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SECTION 106. Notice to Holders; Waiver. When this Indenture provides for
notice of any event to Holders of Registered Securities by the Company or the
Trustee, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each such Holder affected by such event, at such Holder's address as it appears
in the Security Register, not later than the latest date, and not earlier than
the earliest date, prescribed for the giving of such notice. In any case in
which notice to Holders of Registered Securities is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders of Registered Securities or the sufficiency of any notice to
Holders of Bearer Securities given as provided herein. Any notice mailed to a
Holder in the manner herein prescribed shall be conclusively deemed to have been
received by such Holder, whether or not such Holder actually receives such
notice.
If, by reason of the suspension of or irregularities in regular mail
service or by reason of any other cause, it is impracticable to give such notice
by mail, then such notification to Holders of Registered Securities as is made
with the approval of the Trustee shall constitute a sufficient notification to
such Holders for every purpose hereunder.
Except as otherwise expressly provided herein or otherwise specified with
respect to any Securities pursuant to Section 301, when this Indenture provides
for notice to Holders of Bearer Securities of any event, such notices shall be
sufficiently given if published in an Authorized Newspaper in The City of New
York and in such other city or cities as may be specified in such Securities
and, if the Securities of such series are listed on any securities exchange
outside the United States, in any place at which such Securities are listed on a
securities exchange to the extent that such securities exchange so requires, on
a Business Day, such publication to be not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. Any
such notice shall be deemed to have been given on the date of such publication
or, if published more than once, on the date of the first such publication.
If, by reason of the suspension of publication of any Authorized Newspaper
or Authorized Newspapers or by reason of any other cause, it is impracticable to
publish any notice to Holders of Bearer Securities as provided above, then such
notification to Holders of Bearer Securities as is given with the approval of
the Trustee shall constitute sufficient notice to such Holders for every purpose
hereunder. Neither the failure to give notice by publication to any particular
Holder of Bearer Securities as provided above, nor any defect in any notice so
published, shall affect the sufficiency of such notice with respect to other
Holders of Bearer Securities or the sufficiency of any notice to Holders of
Registered Securities given as provided herein.
Any request, demand, authorization, direction, notice, consent or waiver
required or permitted under this Indenture shall be in the English language,
except that any published notice may be in an official language of the country
of publication.
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When this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance on such waiver.
SECTION 107. Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 108. Successors and Assigns. All covenants and agreements in this
Indenture by the Company shall bind its successors and assigns, whether so
expressed or not.
SECTION 109. Separability Clause. In case any provision in this Indenture
or in any Security or any coupon shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture. Nothing in this Indenture or in any
Security or any coupon, express or implied, shall give to any Person, other than
the parties hereto, any Security Registrar, any Paying Agent, any Authenticating
Agent and their successors hereunder and the Holders any benefit or any legal or
equitable right, remedy or claim under this Indenture.
SECTION 111. No Personal Liability. No recourse under or on any
obligation, covenant or agreement contained in this Indenture or in any Security
or any coupon, or because of any indebtedness evidenced thereby, shall be had
against any promoter, as such or, against any past, present or future director,
officer, employee or shareholder, as such, of the Company or of any successor,
either directly or through the Company or any successor, under any rule of law,
statute or constitutional provision or by the enforcement of any assessment or
by any legal or equitable proceeding or otherwise, all such liability being
expressly waived and released by the acceptance of the Securities by the Holders
thereof and as part of the consideration for the issue of the Securities.
SECTION 112. Governing Law. This Indenture and the Securities and any
coupons shall be governed by and construed in accordance with the law of the
State of New York. This Indenture is subject to the provisions of the Trust
Indenture Act which, by the provisions thereof, are deemed or required to be
part of this Indenture and shall, to the extent applicable, be governed by such
provisions. If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by operation of Section 318(c) of the Trust Indenture
Act, the imposed duties shall control.
SECTION 113. Legal Holidays. In any case in which any Interest Payment
Date, Redemption Date, Repayment Date, sinking fund payment date, Stated
Maturity or Maturity of any Security is not a Business Day at any Place of
Payment, then (notwithstanding any other provision of this Indenture or any
Security or any coupon other than a provision in the Securities
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of any series which specifically states that such provision shall apply in lieu
hereof), payment of the principal of (and premium or Make-Whole Amount, if any,
on) or interest or Additional Amounts, if any, on such Security need not be made
at such Place of Payment on such date, but may be made on the next succeeding
Business Day at such Place of Payment with the same force and effect as if made
on the Interest Payment Date, Redemption Date, Repayment Date or sinking fund
payment date, or at the Stated Maturity or Maturity; provided, however, that no
interest shall accrue on the amount so payable for the period from and after
such Interest Payment Date, Redemption Date, Repayment Date, sinking fund
payment date, Stated Maturity or Maturity, as the case may be.
SECTION 114. Counterparts. This Indenture may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
ARTICLE TWO
SECURITIES FORMS
SECTION 201. Forms of Securities. The Registered Securities, if any, of
each series and the Bearer Securities, if any, and any coupons of each series,
shall be in substantially the forms as are established in or pursuant to one or
more indentures supplemental hereto or Board Resolutions, shall have such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture or any indenture supplemental hereto,
and may have such letters, numbers or other marks of identification or
designation and such legends or endorsements placed thereon as the Company may
deem appropriate and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Securities may be listed, or to conform to usage.
Unless otherwise specified as contemplated by Section 301, Bearer
Securities shall have interest coupons attached.
The definitive Securities and coupons shall be printed, lithographed or
engraved or produced by any combination of these methods on a steel engraved
border or steel engraved borders or may be produced in any other manner, all as
determined by the officers executing such Securities or coupons, as evidenced by
their execution of such Securities or coupons.
SECTION 202. Form of Trustee's Certificate of Authentication. Subject to
Section 611, the Trustee's certificate of authentication shall be in
substantially the following form:
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
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STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:
---------------------------------
Authorized Officer
SECTION 203. Securities Issuable in Global Form. If Securities of or within
a series are issuable in global form, as specified as contemplated by Section
301, then, notwithstanding clause (8) of Section 301 and the provisions of
Section 302, any such Security shall represent such of the Outstanding
Securities of such series as are specified therein and may provide that it shall
represent the aggregate amount of Outstanding Securities of such series from
time to time endorsed thereon and that the aggregate amount of Outstanding
Securities of such series represented thereby may from time to time be increased
or decreased to reflect exchanges. Any endorsement of a Security in global form
to reflect the amount, or any increase or decrease in the amount, of Outstanding
Securities represented thereby shall be made by the Trustee in the manner and in
accordance with instructions given by such Person or Persons specified therein
or in the Company Order to be delivered to the Trustee pursuant to Section 303
or 304. Subject to the provisions of Section 303 and, if applicable, Section
304, the Trustee shall deliver and redeliver any Security in permanent global
form in the manner and in accordance with instructions given by the Person or
Persons specified therein or in the applicable Company Order. If a Company Order
pursuant to Section 303 or 304 has been, or simultaneously is, delivered, any
instructions by the Company with respect to endorsement or delivery or
redelivery of a Security in global form shall be in writing but need not comply
with Section 102 and need not be accompanied by an Opinion of Counsel.
The provisions of the last sentence of Section 303 shall apply to any
Security represented by a Security in global form if such Security was never
issued and sold by the Company and the Company delivers to the Trustee the
Security in global form together with written instructions (which need not
comply with Section 102 and need not be accompanied by an Opinion of Counsel)
with regard to the reduction in the principal amount of Securities represented
thereby, together with the written statement contemplated by the last sentence
of Section 303.
Notwithstanding the provisions of Section 307, unless otherwise specified
as contemplated by Section 301, payment of principal of (and premium or Make-
Whole Amount, if any, on) and interest and Additional Amounts, if any, on any
Security in permanent global form shall be made to the Person or Persons
specified therein.
Notwithstanding the provisions of Section 308 and except as provided in the
preceding paragraph, the Company, the Trustee and any agent of the Company or
the Trustee shall treat as the Holder of such principal amount of Outstanding
Securities represented by a permanent global Security (i) in the case of a
permanent global Security in registered form, the Holder of such permanent
global Security in registered form, or (ii) in the case of a permanent global
Security in bearer form, Euroclear or CEDEL.
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ARTICLE THREE
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series. The aggregate principal
amount of Securities which may be authenticated and delivered under this
Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to one or more Board Resolutions, or indentures
supplemental hereto, prior to the issuance of Securities of any series, any or
all of the following, as applicable (each of which (except for the matters set
forth in clauses (1), (2) and (15) below), if so provided, may be determined
from time to time by the Company with respect to unissued Securities of or
within the series when issued from time to time):
(1) the title of the Securities of or within the series (which shall
distinguish the Securities of such series from all other series of
Securities);
(2) any limit on the aggregate principal amount of the Securities of
or within the series which may be authenticated and delivered under this
Indenture (except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Securities of or within the series pursuant to Section 304, 305, 306, 906,
1107 or 1305);
(3) the date or dates, or the method by which such date or dates will
be determined, on which the principal of the Securities of or within the
series shall be payable and the amount of principal payable thereon;
(4) the rate or rates at which the Securities of or within the series
shall bear interest, if any, or the method by which such rate or rates
shall be determined, the date or dates from which such interest shall
accrue or the method by which such date or dates shall be determined, the
Interest Payment Dates on which such interest will be payable and the
Regular Record Date, if any, for the interest payable on any Registered
Security on any Interest Payment Date, or the method by which such date
shall be determined, and the basis on which interest shall be calculated if
other than a 360-day year comprised of twelve 30-day months;
(5) the place or places, if any, other than or in addition to the
Corporate Trust Office where the principal of (and premium or Make-Whole
Amount, if any, on) and interest and Additional Amounts, if any, on
Securities of or within the series shall be payable, any Registered
Securities of or within the series may be surrendered for registration of
transfer, exchange or conversion and notices or demands to or on the
Company in respect of the Securities of or within the series and this
Indenture may be served;
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(6) the period or periods within which, the price or prices
(including the premium or Make-Whole Amount, if any) at which, the currency
or currencies, currency unit or units or composite currency or currencies
in which, and other terms and conditions upon which Securities of or within
the series may be redeemed, in whole or in part, at the option of the
Company, if the Company is to have the option;
(7) the obligation, if any, of the Company to redeem, repay or
purchase Securities of or within the series pursuant to any sinking fund or
analogous provision or at the option of a Holder thereof, and the period or
periods within which or the date or dates on which, the price or prices at
which, the currency or currencies, currency unit or units or composite
currency or currencies in which, and other terms and conditions upon which
Securities of or within the series shall be redeemed, repaid or purchased,
in whole or in part, pursuant to such obligation;
(8) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which any Registered Securities of or within
the series shall be issuable and, if other than the denomination of $5,000,
the denomination or denominations in which any Bearer Securities of or
within the series shall be issuable;
(9) if other than the Trustee, the identity of each Security
Registrar and/or Paying Agent;
(10) the percentage of the principal amount at which Securities will
be issued and, if other than the principal amount thereof, the portion of
the principal amount of Securities of or within the series which shall be
payable upon declaration of acceleration of the Maturity thereof pursuant
to Section 502, or, if applicable, the portion of the principal amount of
Securities which is convertible in accordance with the provisions of this
Indenture, or the method by which such portion shall be determined;
(11) if other than Dollars, the Foreign Currency or Currencies in
which payment of the principal of (and premium or Make-Whole Amount, if
any, on) or interest or Additional Amounts, if any, on the Securities of or
within the series shall be payable or in which the Securities of or within
the series shall be denominated;
(12) whether the amount of payments of the principal of (and premium
or Make-Whole Amount, if any, on) or interest or Additional Amounts, if
any, on the Securities of or within the series may be determined with
reference to an index, formula or other method (which index, formula or
method may be based, without limitation, on one or more currencies,
currency units, composite currencies, commodities, equity indices or other
indices), and the manner in which such amounts shall be determined;
(13) whether the principal of (and premium or Make-Whole Amount, if
any, on) or interest or Additional Amounts, if any, on the Securities of or
within the series are to be payable, at the election of the Company or a
Holder thereof, in a currency or
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currencies, currency unit or units or composite currency or currencies
other than that in which such Securities are denominated or stated to be
payable, the period or periods within which (including the Election Date),
and the terms and conditions upon which, such election may be made, and the
time and manner of, and identity of the exchange rate agent with
responsibility for, determining the exchange rate between the currency or
currencies, currency unit or units or composite currency or currencies in
which such Securities are denominated or stated to be payable and the
currency or currencies, currency unit or units or composite currency or
currencies in which such Securities are to be so payable;
(14) provisions, if any, granting special rights to the Holders of
Securities of or within the series on the occurrence of such events as may
be specified;
(15) any deletions from, modifications of or additions to the Events
of Default or covenants of the Company with respect to Securities of or
within the series, whether or not such Events of Default or covenants are
consistent with the Events of Default or covenants set forth herein;
(16) whether Securities of or within the series are to be issuable as
Registered Securities, Bearer Securities (with or without coupons) or both,
any restrictions applicable to the offer, sale or delivery of Bearer
Securities and the terms upon which Bearer Securities of or within the
series may be exchanged for Registered Securities of or within the series
and vice versa (if permitted by applicable laws and regulations), whether
any Securities of or within the series are to be issuable initially in
temporary global form and whether any Securities of or within the series
are to be issuable in permanent global form (with or without coupons) and,
if so, whether beneficial owners of interests in any such permanent global
Security may exchange such interests for Securities of such series and of
like tenor of any authorized form and denomination and the circumstances
under which any such exchanges may occur, if other than in the manner
provided in Section 305, and, if Registered Securities of or within the
series are to be issuable as a global Security, the identity of the
depositary for such series, and the date as of which any Bearer Securities
of or within the series and any temporary global Security representing
Outstanding Securities of or within the series shall be dated if other than
the date of original issuance of the first Security of the series to be
issued;
(17) the Person to whom any interest on any Registered Security of the
series shall be payable, if other than the Person in whose name such
Security (or one or more Predecessor Securities) is registered at the close
of business on the Regular Record Date for such interest, the manner in
which, or the Person to whom, any interest on any Bearer Security of the
series shall be payable, if otherwise than upon presentation and surrender
of the coupons appertaining thereto as they severally mature, and the
extent to which, or the manner in which, any interest payable on a
temporary global Security on an Interest Payment Date will be paid if other
than in the manner provided in Section 304;
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(18) the applicability, if any, of Sections 1402 and/or 1403 to the
Securities of or within the series and any provisions in modification of,
in addition to or in lieu of any of the provisions of Article Fourteen;
(19) if the Securities of such series are to be issuable in definitive
form (whether upon original issue or upon exchange of a temporary Security
of such series) only upon receipt of certain certificates or other
documents or satisfaction of other conditions, then the form and/or terms
of such certificates, documents or conditions;
(20) if the Securities of or within the series are to be issued upon
the exercise of debt warrants, the time, manner and place for such
Securities to be authenticated and delivered;
(21) whether and under what circumstances the Company will pay
Additional Amounts as contemplated by Section 1011 on the Securities of or
within the series to any Holder who is not a United States person
(including any modification to the definition of such term) in respect of
any tax, assessment or governmental charge and, if so, whether the Company
will have the option to redeem such Securities rather than pay such
Additional Amounts (and the terms of any such option);
(22) the obligation, if any, of the Company to permit the conversion
of the Securities of such series into Common Shares or other securities of
the Company, and the terms and conditions on which such conversion shall be
effected (including, without limitation, the initial conversion price or
rate, the conversion period, any adjustment of the applicable conversion
price and any requirements relative to the reservation of such shares for
purposes of conversion; and
(23) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture).
All Securities of any one series and the coupons appertaining to any Bearer
Securities of such series, if any, shall be substantially identical except, in
the case of Registered or Bearer Securities issued in global form, as to
denomination and except as may otherwise be provided in or pursuant to such
Board Resolution or in any such indenture supplemental hereto. All Securities of
any one series need not be issued at the same time and, unless otherwise
provided, a series may be reopened, without the consent of the Holders, for
issuances of additional Securities of such series.
If any of the terms of the Securities of any series are established by
action taken pursuant to one or more Board Resolutions or supplemental
indentures, a copy of an appropriate record of such action(s) shall be certified
by the Secretary or an Assistant Secretary of the Company and delivered to the
Trustee at or prior to the delivery of the Company Order for authentication and
delivery of such Securities.
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SECTION 302. Denominations. The Securities of each series shall be issuable
as Bearer Securities, as Registered Securities or in any combination thereof,
and in such denominations and amounts as are specified as contemplated by
Section 301. With respect to any series denominated in Dollars, in the absence
of any such provisions with respect to the Securities of any series, the
Registered Securities of such series, other than Registered Securities issued in
global form (which may be of any denomination), shall be issuable in
denominations of $1,000 and any integral multiple thereof and the Bearer
Securities of such series, other than Bearer Securities issued in global form
(which may be of any denomination), shall be issuable in denominations of
$5,000.
SECTION 303. Execution, Authentication, Delivery and Dating. The Securities
and any coupons shall be executed on behalf of the Company by the Chairman or a
Co-Chairman, Managing Director, Senior Vice President, Vice President or the
Treasurer of the Company, under the Company's corporate seal reproduced thereon,
and attested by the Company's Secretary or one of its Assistant Secretaries. The
signature of any of these officers on the Securities and any coupons may be
manual or facsimile signatures of the present or any future such authorized
officer and may be imprinted or otherwise reproduced on the Securities and such
coupons.
Any Securities or any coupons bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities or any coupons.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities of any series, together with any
coupons, executed by the Company, to the Trustee for authentication, together
with a Company Order for the authentication and delivery of such Securities, and
the Trustee shall authenticate and deliver such Securities in accordance with
the Company Order; provided, however, that, in connection with its original
issuance, no Bearer Security shall be mailed or otherwise delivered to any
location in the United States; and provided, further, that, unless otherwise
specified with respect to any series of Securities pursuant to Section 301, a
Bearer Security may be delivered in connection with its original issuance only
if the Person entitled to received such Bearer Security has furnished a
certificate to Euroclear or CEDEL, as the case may be, in the form set forth in
Exhibit A-1 to this Indenture or such other certificate as may be specified with
respect to any series of Securities pursuant to Section 301, dated no earlier
than 15 days prior to the earlier of the date on which such Bearer Security is
delivered and the date on which any temporary Security first becomes
exchangeable for such Bearer Security in accordance with the terms of such
temporary Security and this Indenture.
Except as permitted by Section 306, the Trustee shall not authenticate and
deliver any Bearer Security unless all appurtenant coupons for interest then
matured have been detached and canceled. If all of the Securities of any series
are not to be issued at one time and if the Board
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Resolution or supplemental indenture establishing such series so permits, such
Company Order may set forth procedures acceptable to the Trustee for the
issuance of such Securities and determining the terms of particular Securities
of such series, such as the interest rate or formula, maturity date, date of
issuance and date from which interest shall accrue.
In authenticating such Securities, and accepting the additional
responsibilities under this Indenture in relation to such Securities and any
coupons appertaining thereto, the Trustee shall be entitled to receive, and
(subject to Section 315(a) through 315(d) of the Trust Indenture Act) shall be
fully protected in relying on:
(1) an Opinion of Counsel complying with Section 102 and stating
that:
(A) the form or forms of such Securities and any coupons
appertaining thereto have been, or will have been upon compliance with
such procedures as may be specified therein, established in conformity
with the provisions of this Indenture;
(B) the terms of such Securities and any coupons appertaining
thereto have been, or will have been upon compliance with such
procedures as may be specified therein, established in conformity with
the provisions of this Indenture; and
(C) such Securities, together with any coupons appertaining
thereto, when executed by the Company, completed pursuant to such
procedures as may be specified therein and delivered by the Company to
the Trustee for authentication in accordance with this Indenture,
authenticated and delivered by the Trustee in accordance with this
Indenture and issued by the Company in the manner and subject to any
conditions specified in such Opinion of Counsel, will constitute
legal, valid and binding obligations of the Company, enforceable in
accordance with their terms, subject to applicable bankruptcy,
insolvency, reorganization and other similar laws of general
applicability relating to or affecting the enforcement of creditors'
rights generally and to general equitable principles and to such other
matters as may be specified therein; and
(2) a Company Certificate complying with Section 102 and stating that
all conditions precedent provided for in this Indenture relating to the
issuance of such Securities have been, or will have been upon compliance
with such procedures as may be specified therein, complied with and that,
to the best of the knowledge of the signers of such certificate, no Event
of Default with respect to such Securities has occurred and is continuing.
The Trustee shall not be required to authenticate such Securities if the issue
of such Securities pursuant to this Indenture will affect the Trustee's own
rights, duties, obligations or immunities
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under the Securities and this Indenture or otherwise in a manner which is not
reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 301 and of the preceding
paragraph, if all the Securities of any series are not to be issued at one time,
it shall not be necessary to deliver a Company Order, an Opinion of Counsel or a
Company Certificate otherwise required pursuant to the preceding paragraph at
the time of issuance of each Security of such series, but such order, opinion
and certificate with appropriate modifications to cover such future issuances,
shall be delivered at or before the time of issuance of the first Security of
such series.
Each Registered Security shall be dated the date of its authentication and
each Bearer Security shall be dated as of the date specified as contemplated by
Section 301.
No Security or coupon shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose unless there appears on such Security
or the Security to which such coupon appertains a certificate of authentication
substantially in the form provided for herein duly executed by the Trustee by
manual signature of an authorized officer, and such certificate on any Security
shall be conclusive evidence, and the only evidence, that such Security has been
duly authenticated and delivered hereunder and is entitled to the benefits of
this Indenture. Notwithstanding the foregoing, if any Security has been
authenticated and delivered hereunder but never issued and sold by the Company,
and the Company delivers such Security to the Trustee for cancellation as
provided in Section 309 together with a written statement (which need not comply
with Section 102 and need not be accompanied by an Opinion of Counsel) stating
that such Security has never been issued or sold by the Company, for all
purposes of this Indenture such Security shall be deemed never to have been
authenticated and delivered hereunder and shall never be entitled to the
benefits of this Indenture.
SECTION 304. Temporary Securities.
(a) Pending the preparation of definitive Securities of any series,
the Company may execute, and upon a Company Order the Trustee shall
authenticate and deliver, temporary Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any
authorized denomination, substantially of the tenor of the definitive
Securities in lieu of which they are issued, in registered form, or, if
authorized, in bearer form (with or without coupons), and with such
appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as conclusively
evidenced by their execution of such Securities. In the case of Securities
of any series, such temporary Securities may be in global form.
Except in the case of temporary Securities in global form (which shall
be exchanged in accordance with Section 304(b) or as otherwise provided in
or pursuant to a Board Resolution), if temporary Securities of any series
are issued, the Company shall cause definitive Securities of such series to
be prepared without unreasonable delay. After
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the preparation of definitive Securities of such series, the temporary
Securities of such series shall be exchangeable for definitive Securities
of such series upon surrender of the temporary Securities of such series at
the office or agency of the Company in a Place of Payment for such series,
without charge to the Holder. Upon surrender for cancellation of any one or
more temporary Securities of any series, together with any non-matured
coupons appertaining thereto, the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor a like principal amount
of definitive Securities of the same series of authorized denominations;
provided, however, that no definitive Bearer Security shall be delivered in
exchange for a temporary Registered Security; and provided, further, that a
definitive Bearer Security shall be delivered in exchange for a temporary
Bearer Security only in compliance with the conditions set forth in Section
303. Until so exchanged, the temporary Securities or coupons appertaining
thereto of any series shall in all respects be entitled to the same
benefits under this Indenture as definitive Securities or coupons
appertaining thereto of such series.
(b) Unless otherwise provided as contemplated in Section 301, this
Section 304(b) shall govern the exchange of temporary Securities issued in
global form other than through the facilities of DTC. If any such temporary
Security is issued in global form, then such temporary global Security
shall, unless otherwise provided therein, be delivered to the London office
of a depositary or common depositary (the "Common Depositary"), for the
benefit of Euroclear and CEDEL.
Without unnecessary delay but in any event not later than the date
specified in, or determined pursuant to the terms of, any such temporary
global Security (the "Exchange Date"), the Company shall deliver to the
Trustee definitive Securities, in an aggregate principal amount equal to
the principal amount of such temporary global Security, executed by the
Company. On or after the Exchange Date, such temporary global Security
shall be surrendered by the Common Depositary to the Trustee, as the
Company's agent for such purpose, to be exchanged, in whole or from time to
time in part, for definitive Securities without charge, and the Trustee
shall authenticate and deliver, in the name of Euroclear or CEDEL, as the
case may be, in exchange for each portion of such temporary global
Security, an equal aggregate principal amount of definitive Securities of
or within the same series of authorized denominations and of like tenor as
the portion of such temporary global Security to be exchanged. The
definitive Securities to be delivered in exchange for any such temporary
global Security shall be in bearer form, registered form, permanent global
bearer form or permanent global registered form, or any combination
thereof, as specified as contemplated by Section 301, and, if any
combination thereof is so specified, as requested by the Common Depository;
provided, however, that, unless otherwise specified in such temporary
global Security, upon such presentation by the Common Depositary, such
temporary global Security shall be accompanied by a certificate dated the
Exchange Date or a subsequent date and signed by Euroclear as to the
portion of such temporary global Security held for its account then to be
exchanged and a certificate dated the Exchange Date or a
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subsequent date and signed by CEDEL as to the portion of such temporary
global Security held for its account then to be exchanged, each in the form
set forth in Exhibit A-2 to this Indenture or in such other form as may be
established pursuant to Section 301; and provided, further, that definitive
Bearer Securities shall be delivered in exchange for a portion of a
temporary global Security only in compliance with the requirements of
Section 303.
Unless otherwise specified in such temporary global Security, the
interest of a beneficial owner of Securities of a series in a temporary
global Security shall be exchanged for definitive Securities of the same
series and of like tenor following the Exchange Date when the account
holder instructs Euroclear or CEDEL, as the case may be, to request such
exchange on his behalf and delivers to Euroclear or CEDEL, as the case may
be, a certificate in the form set forth in Exhibit A-1 to this Indenture
(or in such other form as may be established pursuant to Section 301),
dated no earlier than 15 days prior to the Exchange Date, copies of which
certificate shall be available from the offices of Euroclear and CEDEL, the
Trustee, any Authenticating Agent appointed for such series of Securities
and each Paying Agent. Unless otherwise specified in such temporary global
Security, any such exchange shall be made free of charge to the beneficial
owners of such temporary global Security, except that a Person receiving
definitive Securities must bear the cost of insurance, postage,
transportation and the like unless such Person takes delivery of such
definitive Securities in person at the offices of Euroclear or CEDEL.
Definitive Securities in bearer form to be delivered in exchange for any
portion of a temporary global Security shall be delivered only outside the
United States.
Until exchanged in full as hereinabove provided, the temporary
Securities of any series shall in all respects be entitled to the same
benefits under this Indenture as definitive Securities of the same series
and of like tenor authenticated and delivered hereunder, except that,
unless otherwise specified as contemplated by Section 301, interest payable
on a temporary global Security on an Interest Payment Date for Securities
of such series occurring prior to the applicable Exchange Date shall be
payable to Euroclear and CEDEL on such Interest Payment Date upon delivery
by Euroclear and CEDEL to the Trustee of a certificate or certificates in
the form set forth in Exhibit A-2 to this Indenture (or in such other forms
as may be established pursuant to Section 301), for credit without further
interest on or after such Interest Payment Date to the respective accounts
of Persons who are the beneficial owners of such temporary global Security
on such Interest Payment Date and who have each delivered to Euroclear or
CEDEL, as the case may be, a certificate dated no earlier than 15 days
prior to the Interest Payment Date occurring prior to such Exchange Date in
the form set forth in Exhibit A-1 to this Indenture (or in such other forms
as may be established pursuant to Section 301). Notwithstanding anything to
the contrary herein contained, the certifications made pursuant to this
paragraph shall satisfy the certification requirements of the preceding two
paragraphs of this Section 304(b) and of the third paragraph of Section 303
of this Indenture and the interests of the Persons who are the beneficial
owners of the temporary
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global Security with respect to which such certification was made will be
exchanged for definitive Securities of the same series and of like tenor on
the Exchange Date or the date of certification if such date occurs after
the Exchange Date, without further act or deed by such beneficial owners.
Except as otherwise provided in this paragraph, no payments of principal or
interest owing with respect to a beneficial interest in a temporary global
Security will be made unless and until such interest in such temporary
global Security has been exchanged for an interest in a definitive
Security. Any interest so received by Euroclear and CEDEL and not paid as
herein provided shall be returned to the Trustee prior to the expiration of
two years after such Interest Payment Date in order to be repaid to the
Company.
SECTION 305. Registration, Registration of Transfer and Exchange. The
Company shall cause to be kept at the Corporate Trust Office of the Trustee or
in any office or agency of the Company in a Place of Payment a register for each
series of Securities (the registers maintained in such office or in any such
office or agency of the Company in a Place of Payment being herein sometimes
referred to collectively as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Registered Securities and of transfers of Registered Securities.
The Security Register shall be in written form or any other form capable of
being converted into written form within a reasonable time. The Trustee, at its
Corporate Trust Office, is hereby initially appointed "Security Registrar" for
the purpose of registering Registered Securities and transfers of Registered
Securities on such Security Register as herein provided. In the event that the
Trustee ceases to be Security Registrar, it shall have the right to examine the
Security Register at all reasonable times.
Subject to the provisions of this Section 305, upon surrender for
registration of transfer of any Registered Security of any series at any office
or agency of the Company in a Place of Payment for such series, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Registered Securities
of the same series, of any authorized denominations and of a like aggregate
principal amount, being a number not contemporaneously outstanding, and
containing identical terms and provisions.
Subject to the provisions of this Section 305, at the option of the Holder,
Registered Securities of any series may be exchanged for other Registered
Securities of the same series, of any authorized denomination or denominations
and of a like aggregate principal amount, containing identical terms and
provisions, upon surrender of the Registered Securities to be exchanged at any
such office or agency. Whenever any such Registered Securities are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Registered Securities which the Holder making the
exchange is entitled to receive. Unless otherwise specified with respect to any
series of Securities as contemplated by Section 301, Bearer Securities may not
be issued in exchange for Registered Securities.
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If (but only if) permitted as contemplated by Section 301, at the option of
the Holder, Bearer Securities of any series may be exchanged for Registered
Securities of the same series of any authorized denominations and of a like
aggregate principal amount and tenor, upon surrender of the Bearer Securities to
be exchanged at any such office or agency, with all unmatured coupons and all
matured coupons in default appertaining thereto. If the Holder of a Bearer
Security is unable to produce any such unmatured coupon or coupons or matured
coupon or coupons in default, any such permitted exchange may be effected if the
Bearer Securities are accompanied by payment in funds acceptable to the Company
in an amount equal to the face amount of such missing coupon or coupons, or the
surrender of such missing coupon or coupons may be waived by the Company and the
Trustee if there is furnished to them such security or indemnity as they may
require to save each of them and any Paying Agent harmless. If thereafter the
Holder of such Bearer Security surrenders to any Paying Agent any such missing
coupon in respect of which such a payment has been made, such Holder shall be
entitled to receive the amount of payment; provided, however, that, except as
otherwise provided in Section 1002, interest represented by a coupon shall be
payable only upon presentation and surrender of such coupons at an office or
agency located outside the United States. Notwithstanding the foregoing, in case
a Bearer Security of any series is surrendered at any such office or agency in a
permitted exchange for a Registered Security of the same series and like tenor
after the close of business at such office or agency on (i) any Regular Record
Date and before the opening of business at such office or agency on the relevant
Interest Payment Date or (ii) any Special Record Date and before the opening of
business at such office or agency on the related proposed date for payment of
Defaulted Interest, such Bearer Security shall be surrendered without the coupon
relating to such Interest Payment Date or proposed date for payment, as the case
may be, and interest or Defaulted Interest, as the case may be, will not be
payable on such Interest Payment Date or proposed date for payment, as the case
may be, in respect of the Registered Security issued in exchange for such Bearer
Security, but will be payable only to the Holder of such coupon when due in
accordance with the provisions of this Indenture. Whenever any Securities are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Securities which the Holder making the exchange is
entitled to receive.
Notwithstanding the foregoing, except as otherwise specified as
contemplated by Section 301, any permanent global Security shall be exchangeable
only as provided in this paragraph. If the depositary for any permanent global
Security is DTC, then, unless the terms of such global Security expressly permit
such global Security to be exchanged in whole or in part for definitive
Securities, a global Security may be transferred, in whole but not in part, only
to a nominee of DTC, or by a nominee of DTC to DTC, or to a successor to DTC for
such global Security selected and approved by the Company or to a nominee of
such successor to DTC. If at any time DTC notifies the Company that it is
unwilling or unable to continue as depositary for the applicable global Security
or Securities or if at any time DTC ceases to be a clearing agency registered
under the Exchange Act if so required by applicable law or regulation, the
Company shall appoint a successor depositary with respect to such global
Security or Securities. If (i) a successor depositary for such global Security
or Securities is not appointed by the Company within 90 days after the Company
receives such notice or becomes aware of such unwillingness, inability or
ineligibility, (ii) an Event of Default has occurred and is continuing
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and the beneficial owners representing a majority in principal amount of the
applicable series of Securities represented by such global Security or
Securities advise DTC to cease acting as depositary for such global Security or
Securities or (iii) the Company, in its sole discretion, determines at any time
that all Outstanding Securities (but not less than all) Securities of any series
issued or issuable in the form of one or more global Securities shall no longer
be represented by such global Security or Securities (provided, however, that
the Company may not make such determination during the 40-day restricted period
provided by Regulation S under the Securities Act or during any other similar
period during which the Securities must be held in global form as may be
required by the Securities Act), then, upon surrender of the global Security or
Securities appropriately endorsed, the Company shall execute, and the Trustee
shall authenticate and deliver definitive Securities of like series, rank, tenor
and terms in definitive form in an aggregate principal amount equal to the
principal amount of such global Security or Securities. If any beneficial owner
of an interest in a permanent global Security is otherwise entitled to exchange
such interest for Securities of such series and of like tenor and principal
amount of another authorized form and denomination, as specified as contemplated
by Section 301 and provided that any applicable notice provided in the permanent
global Security has been given, then without unnecessary delay but in any event
not earlier than the earliest date on which such interest may be so exchanged,
upon surrender of the global Security or Securities appropriately endorsed, the
Company shall execute, and the Trustee shall authenticate and deliver definitive
Securities in aggregate principal amount equal to the principal amount of such
beneficial owner's interest in such permanent global Security. On or after the
earliest date on which such interests may be so exchanged, such permanent global
Security shall be surrendered for exchange by DTC or such other depositary as is
specified in the Company Order with respect thereto to the Trustee, as the
Company's agent for such purpose; provided, however, that no such exchanges may
occur during a period beginning at the opening of business 15 days before any
selection of Securities to be redeemed and ending on the relevant Redemption
Date if the Security for which exchange is requested may be among those selected
for redemption; and provided, further, that no Bearer Security delivered in
exchange for a portion of a permanent global Security shall be mailed or
otherwise delivered to any location in the United States. If a Registered
Security is issued in exchange for any portion of a permanent global Security
after the close of business at the office or agency where such exchange occurs
on (i) any Regular Record Date and before the opening of business at such office
or agency on the relevant Interest Payment Date or (ii) any Special Record Date
and before the opening of business at such office or agency on the related
proposed date for payment of Defaulted Interest, interest or Defaulted Interest,
as the case may be, will not be payable on such Interest Payment Date or
proposed date for payment, as the case may be, in respect of such Registered
Security, but will be payable on such Interest Payment Date or proposed date for
payment, as the case may be, only to the Person to whom interest in respect of
such portion of such permanent global Security is payable in accordance with the
provisions of this Indenture.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
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Every Registered Security presented or surrendered for registration of
transfer or for exchange or redemption shall be duly endorsed, or be accompanied
by a written instrument of transfer in form satisfactory to the Company and the
Security Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge which may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906, 1107 or 1305 not involving any transfer.
The Company or the Trustee, as applicable, shall not be required (i) to
issue, register the transfer of or exchange any Security if such Security may be
among those selected for redemption during a period beginning at the opening of
business 15 days before selection of the Securities to be redeemed under Section
1103 and ending at the close of business on (A) if such Securities are issuable
only as Registered Securities, the day of the mailing of the relevant notice of
redemption and (B) if such Securities are issuable as Bearer Securities, the day
of the first publication of the relevant notice of redemption or, if such
Securities are also issuable as Registered Securities and there is no
publication, the day of the mailing of the relevant notice of redemption, or
(ii) to register the transfer of or exchange any Registered Security so selected
for redemption in whole or in part, except, in the case of any Registered
Security to be redeemed in part, the portion thereof not to be redeemed, or
(iii) to exchange any Bearer Security so selected for redemption except that
such a Bearer Security may be exchanged for a Registered Security of such series
and like tenor, provided that such Registered Security is simultaneously
surrendered for redemption, or (iv) to issue, register the transfer of or
exchange any Security which has been surrendered for repayment at the option of
the Holder, except the portion, if any, of such Security not to be so repaid.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities. If any
mutilated Security or a Security with a mutilated coupon appertaining thereto is
surrendered to the Trustee or the Company, together with, in proper cases, such
security or indemnity as may be required by the Company or the Trustee to save
each of them or any of their agents harmless, the Company shall execute and the
Trustee shall authenticate and deliver in exchange therefor a new Security of
the same series and principal amount, containing identical terms and provisions
and bearing a number not contemporaneously outstanding, with coupons
corresponding to the coupons, if any, appertaining to the surrendered Security.
If there is delivered to the Company and the Trustee (i) evidence to their
satisfaction of the destruction, loss or theft of any Security or coupon, and
(ii) such security or indemnity as may be required by them to save each of them
and any of their agents harmless, then, in the absence of notice to the Company
or the Trustee that such Security or coupon has been acquired by a bona fide
purchaser, the Company shall execute, and upon Company Request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen Security
or in exchange for the Security to which a destroyed, lost or stolen coupon
appertains (with all
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appurtenant coupons not destroyed, lost or stolen), a new Security of the same
series and principal amount, containing identical terms and provisions and
bearing a number not contemporaneously outstanding, with coupons corresponding
to the coupons, if any, appertaining to such destroyed, lost or stolen Security
or to the Security to which such destroyed, lost or stolen coupon appertains.
Notwithstanding the provisions of the previous two paragraphs, in case any
such mutilated, destroyed, lost or stolen Security or coupon has become or is
about to become due and payable, the Company in its discretion may, instead of
issuing a new Security, with coupons corresponding to the coupons, if any,
appertaining to such destroyed, lost or stolen Security or to the Security to
which such destroyed, lost or stolen coupon appertains, pay such Security or
coupon; provided, however, that payment of principal of (and premium or Make-
Whole Amount, if any, on) and interest and Additional Amounts, if any, on any
Bearer Securities shall, except as otherwise provided in Section 1002, be
payable only at an office or agency located outside the United States and,
unless otherwise specified as contemplated by Section 301, any interest on
Bearer Securities shall be payable only upon presentation and surrender of the
coupons appertaining thereto.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge which may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee) connected therewith.
Every new Security of any series and any coupons appertaining thereto
issued pursuant to this Section in lieu of any destroyed, lost or stolen
Security, or in exchange for a Security to which a destroyed, lost or stolen
coupon appertains, shall constitute an original additional contractual
obligation of the Company, whether or not the destroyed, lost or stolen Security
and any coupons appertaining thereto or the destroyed, lost or stolen coupon are
at any time enforceable by anyone, and shall be entitled to all the benefits of
this Indenture equally and proportionately with any and all other Securities of
such series and any coupons appertaining thereto duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities or coupons.
SECTION 307. Payment of Interest; Interest Rights Preserved. Except as
otherwise specified with respect to a series of Securities in accordance with
the provisions of Section 301, interest on any Registered Security which is
payable, and is punctually paid or duly provided for, on any Interest Payment
Date shall be paid to the Person in whose name such Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest at the office or agency of the Company maintained
for such purpose pursuant to Section 1002; provided, however, that each
installment of interest on any Registered Security may at the Company's option
be paid by (i) mailing a check for such interest, payable
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to or upon the written order of the Person entitled thereto pursuant to Section
308, to the address of such Person as it appears on the Security Register or
(ii) transfer to an account maintained by the payee located inside the United
States.
Unless otherwise provided as contemplated by Section 301 with respect to
the Securities of any series, payment of interest may be made, in the case of a
Bearer Security, by transfer to an account maintained by the payee with a bank
located outside the United States.
Unless otherwise provided as contemplated by Section 301, every permanent
global Security will provide that interest, if any, payable on any Interest
Payment Date will be paid to DTC, Euroclear and/or CEDEL, as the case may be,
with respect to that portion of such permanent global Security held for its
account by Cede & Co. or the Common Depositary, as the case may be, for the
purpose of permitting such party to credit the interest received by it in
respect of such permanent global Security to the accounts of the beneficial
owners thereof.
In case a Bearer Security of any series is surrendered in exchange for a
Registered Security of such series after the close of business (at an office or
agency in a Place of Payment for such series) on any Regular Record Date and
before the opening of business (at such office or agency) on the next succeeding
Interest Payment Date, such Bearer Security shall be surrendered without the
coupon relating to such Interest Payment Date and interest will not be payable
on such Interest Payment Date in respect of the Registered Security issued in
exchange for such Bearer Security, but will be payable only to the Holder of
such coupon when due in accordance with the provisions of this Indenture.
Except as otherwise specified with respect to a series of Securities in
accordance with the provisions of Section 301, any interest on any Registered
Security of any series which is payable, but is not punctually paid or duly
provided for, on any Interest Payment Date ("Defaulted Interest") shall
forthwith cease to be payable to the registered Holder thereof upon the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election, as provided in paragraph
(1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Registered Securities of such series (or
their respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company shall
notify the Trustee in writing of the amount of Defaulted Interest proposed
to be paid on each Registered Security of such series and the date of the
proposed payment (which shall not be less than 20 days after such notice is
received by the Trustee), and at the same time the Company shall deposit
with the Trustee an amount of money in the currency or currencies, currency
unit or units or composite currency or currencies in which the Securities
of such series are payable (except as otherwise specified pursuant to
Section 301 for the Securities of such series) equal to the aggregate
amount proposed to be paid in respect of such Defaulted Interest or shall
make arrangements satisfactory to the Trustee for such deposit on or prior
to the date of the
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proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as provided in
this paragraph. Thereupon, the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be mailed, first-class postage prepaid,
to each Holder of Registered Securities of such series at such Holder's
address as it appears in the Security Register not less than 10 days prior
to such Special Record Date. The Trustee may, in its discretion, in the
name and at the expense of the Company cause a similar notice to be
published at least once in an Authorized Newspaper in each place of
payment, but such publications shall not be a condition precedent to the
establishment of such Special Record Date. Notice of the proposed payment
of such Defaulted Interest and the Special Record Date therefor having been
mailed as aforesaid, such Defaulted Interest shall be paid to the Persons
in whose names the Registered Securities of such series (or their
respective Predecessor Securities) are registered at the close of business
on such Special Record Date and shall no longer be payable pursuant to
paragraph (2) below. In case a Bearer Security of any series is surrendered
at the office or agency in a Place of Payment for such series in exchange
for a Registered Security of such series after the close of business at
such office or agency on any Special Record Date and before the opening of
business at such office or agency on the related proposed date for payment
of Defaulted Interest, such Bearer Security shall be surrendered without
the coupon relating to such proposed date of payment and Defaulted Interest
will not be payable on such proposed date of payment in respect of the
Registered Security issued in exchange for such Bearer Security, but will
be payable only to the Holder of such coupon when due in accordance with
the provisions of this Indenture.
(2) The Company may make payment of any Defaulted Interest on the
Registered Securities of any series in any other lawful manner not
inconsistent with the requirements of any securities exchange on which such
Securities may be listed, and on such notice as may be required by such
exchange, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this paragraph, such manner of payment is
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section and Section 305, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners. Prior to due presentment of a
Registered Security for registration of transfer, the Company, the Trustee and
any agent of the Company or the Trustee may treat the Person in whose name such
Registered Security is registered as the
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owner of such Security for the purpose of receiving payment of principal of (and
premium or Make-Whole Amount, if any, on) and (subject to Sections 305 and 307)
interest and Additional Amounts, if any, on such Registered Security and for all
other purposes whatsoever, whether or not such Registered Security be overdue,
and neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.
Title to any Bearer Security and any coupons shall pass by delivery. The
Company, the Trustee and any agent of the Company or the Trustee may treat the
Holder of any Bearer Security and the Holder of any coupon as the absolute owner
of such Security or coupon for the purpose of receiving payment thereof or on
account thereof and for all other purposes whatsoever, whether or not such
Security or coupon be overdue, and neither the Company, the Trustee nor any
agent of the Company or the Trustee shall be affected by notice to the contrary.
None of the Company, the Trustee, any Paying Agent or the Security
Registrar shall have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a Security in global form or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Notwithstanding the foregoing, with respect to any global Security, nothing
herein shall prevent the Company, the Trustee, or any agent of the Company or
the Trustee, from giving effect to any written certification, proxy or other
authorization furnished by any depositary, as a Holder, with respect to such
global Security or impair, as between such depositary and owners of beneficial
interests in such global Security, the operation of customary practices
governing the exercise of the rights of such depositary (or its nominee) as
Holder of such global Security.
SECTION 309. Cancellation. All Securities and coupons surrendered for
payment, redemption, repayment at the option of the Holder, registration of
transfer or exchange or for credit against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee,
and any such Securities and coupons and any Securities and coupons surrendered
directly to the Trustee for any such purpose shall be promptly canceled by it.
The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and may deliver to the Trustee (or
to any other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly canceled by the Trustee. If
the Company so acquires any of the Securities, however, such acquisition shall
not operate as a redemption or satisfaction of the indebtedness represented by
such Securities unless and until the same are surrendered to the Trustee for
cancellation. No Securities shall be authenticated in lieu of or in exchange for
any Securities canceled as provided in this Section, except as expressly
permitted by this Indenture. Canceled Securities and coupons held by the Trustee
shall be destroyed by the Trustee and the Trustee shall deliver a certificate of
such destruction to the Company unless the Company delivers a Company Order
which directs their return to it.
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SECTION 310. Computation of Interest. Except as otherwise specified as
contemplated by Section 301 with respect to Securities of any series, interest
on the Securities of each series shall be computed on the basis of a 360-day
year consisting of twelve 30-day months.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture. This Indenture shall
upon Company Request cease to be of further effect with respect to any series of
Securities specified in such Company Request (except as to any surviving rights
of registration of transfer or exchange of Securities of such series herein
expressly provided for and any right to receive Additional Amounts, as provided
in Section 1011), and the Trustee, upon receipt of a Company Order and at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture as to such series when:
(1) either:
(A) all Securities of such series theretofore authenticated and
delivered and any coupons appertaining thereto (other than (i) coupons
appertaining to Bearer Securities surrendered for exchange for
Registered Securities and maturing after such exchange, whose
surrender is not required or has been waived as provided in Section
305, (ii) Securities of such series and coupons appertaining thereto
which have been destroyed, lost or stolen and which have been replaced
or paid as provided in Section 306, (iii) coupons appertaining to
Securities called for redemption and maturing after the relevant
Redemption Date, whose surrender has been waived as provided in
Section 1106, and (iv) Securities of such series and coupons
appertaining thereto for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust, as
provided in Section 1003) have been delivered to the Trustee for
cancellation; or
(B) all Securities of such series and, in the case of clauses
(i) and (ii) below, any coupons appertaining thereto not theretofore
delivered to the Trustee for cancellation:
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) if redeemable at the option of the Company, are to be
called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
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and the Company, in the case of clause (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee funds
in trust for the purpose, in the currency or currencies, currency unit
or units or composite currency or currencies in which the Securities
of such series are payable, and in an amount sufficient to pay and
discharge the entire indebtedness on such Securities and such coupons
not theretofore delivered to the Trustee for cancellation, for the
principal (and premium or Make-Whole Amount, if any) and interest and
Additional Amounts, if any, to the date of such deposit (in the case
of Securities which have become due and payable) or the Stated
Maturity or Redemption Date, as the case may be;
(2) The Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) The Company has delivered to the Trustee a Company Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture as to such series have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee and any predecessor Trustee under
Section 606, the obligations of the Company to any Authenticating Agent under
Section 611 and, if money has been deposited with and held by the Trustee
pursuant to subparagraph (B) of paragraph (1) of this Section, the obligations
of the Trustee under Section 402 and the last paragraph of Section 1003, shall
survive.
SECTION 402. Application of Trust Funds. Subject to the provisions of the
last paragraph of Section 1003, all money deposited with the Trustee pursuant to
Section 401 shall be held in trust and applied by it, in accordance with the
provisions of the Securities, the coupons and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Persons entitled thereto,
of the principal (and premium or Make-Whole Amount, if any) and interest and
Additional Amounts, if any, for the payment of which such money has been
deposited with or received by the Trustee, but such money need not be segregated
from other funds except to the extent required by law.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default. Subject to any modifications, additions or
deletions relating to any series of Securities as contemplated pursuant to
Section 301, "Event of Default," whenever used herein with respect to any
particular series of Securities, means any one of the following events (whatever
the reason for such Event of Default and whether or not it is voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court or any order, rule or regulation of any administrative or
governmental body):
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(1) default in the payment of any interest on or any Additional
Amounts payable in respect of any Security of or within such series or of
any coupon appertaining thereto, when such interest, Additional Amounts or
coupon becomes due and payable, and continuance of such default for a
period of 30 days; or
(2) default in the payment of the principal of (or premium or Make-
Whole Amount, if any, on) any Security of such series when due and payable
at its Maturity; or
(3) default in the deposit of any sinking fund payment, when and as
due by the terms of any Security of such series; or
(4) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture with respect to any Security of
such series (other than a covenant or warranty a default in the performance
of which or the breach of which is elsewhere specifically provided for in
this Section), and continuance of such default or breach for a period of 60
days after there has been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the Holders of
at least 25% in principal amount of the Outstanding Securities of such
series, a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default"
hereunder; or
(5) default under any bond, debenture, note or other evidence of
indebtedness of the Company or under any mortgage, indenture or other
instrument of the Company (including a default with respect to Securities
of any series other than such series) under which there may be issued or by
which there may be secured any indebtedness of the Company (or by any
Subsidiary, the repayment of which the Company has guaranteed or for which
the Company is directly responsible or liable as obligor or guarantor),
whether such indebtedness now exists or is hereafter created, which default
constitutes a failure to pay an aggregate principal amount exceeding
$25,000,000 of such indebtedness when due and payable after the expiration
of any applicable grace period with respect thereto and has resulted in
such indebtedness in an aggregate principal amount exceeding $25,000,000
becoming or being declared due and payable prior to the date on which it
would otherwise have become due and payable, without such indebtedness
having been discharged, or such acceleration having been rescinded or
annulled, within a period of 10 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 10% in principal amount
of the Outstanding Securities of such series a written notice specifying
such default and requiring the Company to cause such indebtedness to be
discharged or cause such acceleration to be rescinded or annulled and
stating that such notice is a "Notice of Default" hereunder; or
(6) the entry by a court of competent jurisdiction of one or more
judgments, orders or decrees against the Company or any Subsidiary of the
Company in an aggregate
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amount (excluding amounts covered by insurance) in excess of $25,000,000
and such judgments, orders or decrees remain undischarged, unstayed and
unsatisfied in an aggregate amount (excluding amounts covered by insurance)
in excess of $25,000,000 for a period of 30 consecutive days; or
(7) the Company or any Significant Subsidiary of the Company pursuant
to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in
an involuntary case,
(C) consents to the appointment of a Custodian of it or for all
or substantially all of its property, or
(D) makes a general assignment for the benefit of its creditors;
or
(8) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary of the Company in an involuntary case,
(B) appoints a Custodian of the Company or any Significant
Subsidiary of the Company or for all or substantially all of its
property, or
(C) orders the liquidation of the Company or any Significant
Subsidiary of the Company,
and the order or decree remains unstayed and in effect for 90 days; or
(9) any other Event of Default provided with respect to Securities of
such series.
As used in this Section 501, the term "Bankruptcy Law" means Title 11, U.S. Code
or any similar Federal or state law for the relief of debtors and the term
"Custodian" means any receiver, trustee, assignee, liquidator or other similar
official under any Bankruptcy Law.
SECTION 502. Acceleration of Maturity; Rescission and Annulment. If an
Event of Default (other than an Event of Default set forth in Section 501(7) or
(8)) with respect to Securities of any series at the time Outstanding occurs and
is continuing, then and in every such case, unless the principal of all of the
Outstanding Securities of such series already has become due and payable, the
Trustee or the Holders of not less than 25% in principal amount of the
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Outstanding Securities of such series may declare the principal (or, if any
Securities are Original Issue Discount Securities or Indexed Securities, such
portion of the principal as may be specified in the terms thereof) of, and the
Make-Whole Amount, if any, on, all the Securities of such series to be due and
payable immediately, by a notice in writing to the Company (and to the Trustee
if given by the Holders), and upon any such declaration such principal or
specified portion thereof shall become immediately due and payable. If an Event
of Default set forth in Section 501(7) or (8) occurs and is continuing with
respect to the Securities of any series, then in each such case, the principal
of, and the Make-Whole Amount, if any, on, all the Securities of such series
shall be due and payable immediately, without notice to the Company.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter
provided in this Article, the Holders of a majority in principal amount of the
Outstanding Securities of such series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if:
(1) The Company has paid or deposited with the Trustee a sum
sufficient to pay, in the currency, currency unit or composite currency in
which the Securities of such series are payable (except as otherwise
specified pursuant to Section 301 for the Securities of such series):
(A) all overdue installments of interest on and any Additional
Amounts payable in respect of all Outstanding Securities of such
series and any coupons appertaining thereto;
(B) the principal of (and premium or Make-Whole Amount, if any,
on) any Outstanding Securities of such series which have become due
otherwise than by such declaration of acceleration and interest
thereon at the rate or rates borne by or provided for in such
Securities;
(C) to the extent that payment of such interest is lawful,
interest on overdue installments of interest and any Additional
Amounts at the rate or rates borne by or provided for in such
Securities; and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default with respect to Securities of such series,
other than the nonpayment of the principal of (or premium or Make-Whole
Amount, if any, on) or interest or Additional Amounts, if any, on
Securities of such series which have become due solely by such declaration
of acceleration, have been cured or waived as provided in Section 513.
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No such rescission shall affect any subsequent default or impair any right
resulting therefrom.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee. The Company covenants that if:
(1) default is made in the payment of any installment of interest or
Additional Amounts, if any, on any Security of any series or any coupon
appertaining thereto when such interest or Additional Amount becomes due
and payable and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or premium or
Make-Whole Amount, if any, on) any Security of any series at its Maturity,
then the Company shall, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of the Securities of such series and any such coupons,
the whole amount then due and payable on such Securities and any such coupons
for principal (and premium or Make-Whole Amount, if any) and interest and
Additional Amounts, if any, with interest on any overdue principal (and premium
or Make-Whole Amount, if any) and, to the extent that payment of such interest
is legally enforceable, on any overdue installments of interest or Additional
Amounts, if any, at the rate or rates borne by or provided for in such
Securities, and, in addition thereto, such further amount as is sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor on the Securities of such series and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor on the Securities of
such series, wherever situated.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series and any
coupons appertaining thereto by such appropriate judicial proceedings as the
Trustee deems most effectual to protect and enforce any such rights, whether for
the specific enforcement of any covenant or agreement in this Indenture or in
aid of the exercise of any power granted herein, or to enforce any other proper
remedy.
SECTION 504. Trustee May File Proofs of Claim. In case of the pendency of
any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
the Company or any other obligor on the Securities of such series or the
property of the Company or of such other obligor or their creditors, the Trustee
(irrespective of whether the principal of the Securities of any series is then
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due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee has made any demand on the Company for the
payment of overdue principal, premium or Make-Whole Amount, if any, or interest
or Additional Amounts, if any) shall be entitled and empowered, by intervention
in such proceeding or otherwise:
(1) to file and prove a claim for the whole amount, or such lesser
amount as may be provided for in the Securities of such series, of
principal (and premium or Make-Whole Amount, if any) and interest and
Additional Amounts, if any, owing and unpaid in respect of the Securities
of such series and to file such other papers or documents and take such
other action, including participating as a member of any official creditors
committee appointed in the matter, as it may deem necessary or advisable in
order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator (or
other similar official) in any such judicial proceeding is hereby authorized by
each Holder of Securities of such series and any coupons appertaining thereto to
make such payments to the Trustee, and in the event that the Trustee consents to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee and any predecessor Trustee, their agents and counsel,
and any other amounts due the Trustee or any predecessor Trustee under Section
606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a Security
or coupon any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or coupons or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder of a
Security or coupon in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities or
Coupons. All rights of action and claims under this Indenture or any of the
Securities or any coupons may be prosecuted and enforced by the Trustee without
the possession of any of the Securities or coupons or the production thereof in
any proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders of the Securities and
coupons in respect of which such judgment has been recovered.
SECTION 506. Application of Money Collected. Any money collected by the
Trustee pursuant to this Article shall be applied in the following order, at the
date or dates fixed by the
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Trustee and, in case of the distribution of such money on account of principal
(or premium or Make-Whole Amount, if any) or interest or Additional Amounts, if
any, on presentation of the Securities or coupons, or both, as the case may be,
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
(1) to the payment of all amounts due the Trustee and any predecessor
Trustee under Section 606;
(2) to the payment of the amounts then due and unpaid on the
Securities and coupons for principal (and premium or Make-Whole Amount, if
any) and interest and Additional Amounts, if any, payable, in respect of
which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the aggregate
amounts due and payable on such Securities and coupons for principal (and
premium or Make-Whole Amount, if any) and interest and Additional Amounts,
if any, respectively; and
(3) to the payment of the remainder, if any, to the Company.
SECTION 507. Limitation on Suits. No Holder of any Security of any series
or any coupon appertaining thereto shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default with respect to the Securities of such
series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of such series have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
in principal amount of the Outstanding Securities of such series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this
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Indenture, except in the manner herein provided and for the equal and ratable
benefit of all such Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium
or Make-Whole Amount, Interest and Additional Amounts. Notwithstanding any other
provision in this Indenture, the Holder of any Security or coupon shall have the
right which is absolute and unconditional to receive payment of the principal of
(and premium or Make-Whole Amount, if any, on ) and (subject to Sections 305 and
307) interest and Additional Amounts, if any, on such Security or payment of
such coupon on or after the respective due dates expressed in such Security or
coupon (or, in the case of redemption, on the Redemption Date) and to institute
suit for the enforcement of any such payment, and such rights shall not be
impaired or affected without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies. If the Trustee or any
Holder of a Security or coupon has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case the Company, the Trustee and the
Holders of Securities and coupons shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative. Except as otherwise provided
with respect to the replacement or payment of mutilated, destroyed, lost or
stolen Securities or coupons in the last paragraph of Section 306, no right or
remedy herein conferred on or reserved to the Trustee or to the Holders of
Securities or coupons is intended to be exclusive of any other right or remedy,
and every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver. No delay or omission of the
Trustee or of any Holder of any Security or coupon to exercise any right or
remedy accruing upon any Event of Default shall impair any such right or remedy
or constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders of Securities or coupons, as the
case may be.
SECTION 512. Control by Holders of Securities. The Holders of not less than
a majority in principal amount of the Outstanding Securities of any series shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee,
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or exercising any trust or power conferred on the Trustee with respect to the
Securities of such series, provided that:
(1) such direction is not in conflict with any rule of law or with
this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or be unduly prejudicial to the Holders of Securities of
such series not joining therein (but the Trustee shall have no obligation
as to the determination of such undue prejudice).
SECTION 513. Waiver of Past Defaults. The Holders of at least a majority
in principal amount of the Outstanding Securities of any series may on behalf of
the Holders of all the Securities of such series and any coupons appertaining
thereto waive any past default hereunder with respect to such series and its
consequences, except a default:
(1) in the payment of the principal of (or premium or Make-Whole
Amount, if any, on) or interest or Additional Amounts, if any, on any
Security of such series or any coupons appertaining thereto, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security of such series affected thereby.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right resulting therefrom.
SECTION 514. Waiver of Usury, Stay or Extension Laws. The Company covenants
(to the extent which it may lawfully do so) that it shall not at any time insist
on, or plead, or in any manner whatsoever claim or take the benefit or advantage
of, any usury, stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of this
Indenture; and the Company (to the extent which it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not hinder, delay or impede the execution of any power herein granted to
the Trustee, but shall suffer and permit the execution of every such power as
though no such law had been enacted.
SECTION 515. Undertaking for Costs. All parties to this Indenture agree,
and each Holder of any Security by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken or omitted by it as
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Trustee, the filing by any party litigant in such suit of any undertaking to pay
the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in such suit having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to any suit instituted by the Trustee, to any suit
instituted by any Holder, or group of Holders, holding in the aggregate more
than 10% in principal amount of the Outstanding Securities, or to any suit
instituted by any Holder for the enforcement of the payment of the principal of
(or premium or Make-Whole Amount, if any, on) or interest or Additional Amounts,
if any, on any Security on or after the respective Stated Maturities expressed
in such Security (or, in the case of redemption, on or after the Redemption
Date).
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults. Within 90 days after the occurrence of any
default hereunder with respect to the Securities of any series, the Trustee
shall give to the Holders of the Securities of such series, in the manner and to
the extent provided in Section 313(c) of the Trust Indenture Act, notice of such
default hereunder known to the Trustee, unless such default has been cured or
waived; provided, however, that, except in the case of a default in the payment
of the principal of (or premium or Make-Whole Amount, if any, on) or interest or
Additional Amounts, if any, on any Security of such series, or in the payment of
any sinking fund installment with respect to the Securities of such series, the
Trustee shall be protected in withholding such notice if and so long as
Responsible Officers of the Trustee in good faith determine that the withholding
of such notice is in the interests of the Holders of the Securities and coupons
of such series; and provided, further, that in the case of any default or breach
of the character specified in clause (4) of Section 501 with respect to the
Securities of such series and any coupons appertaining thereto, no such notice
to Holders shall be given until at least 60 days after the occurrence thereof.
For the purposes of this Section, the term "default" means any event which is,
or after notice or lapse of time or both would become, an Event of Default with
respect to the Securities of such series.
SECTION 602. Certain Rights of Trustee. Subject to the provisions of
Section 315(a) through 315(d) of the Trust Indenture Act:
(1) the Trustee shall perform only such duties as are expressly
undertaken by it to perform under this Indenture;
(2) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, coupon or other paper or document believed by it to
be genuine and to have been signed or presented by the proper party or
parties;
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(3) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order (other than
delivery of any Security, together with any coupons appertaining thereto,
to the Trustee for authentication and delivery pursuant to Section 303,
which shall be sufficiently evidenced as provided therein) and any
resolution of the Board of Directors shall be sufficiently evidenced by a
Board Resolution;
(4) whenever, in the administration of this Indenture, the Trustee
deems it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence is specifically prescribed herein) may, in the absence of bad
faith on its part, rely on a Company Certificate;
(5) the Trustee may consult with counsel and the advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(6) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders of Securities of any series or any coupons
appertaining thereto pursuant to this Indenture, unless such Holders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with
such request or direction;
(7) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, coupon or other paper or document, but the Trustee,
in its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee determines to make
such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney;
(8) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(9) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and reasonably believed by it to be authorized
or within the discretion or rights or powers conferred on it by this
Indenture;
(10) The Trustee shall not be deemed to have knowledge of any event or
fact upon the occurrence of which it may be required to take action
hereunder unless it has actual knowledge of the occurrence of such event or
fact;
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(11) The Trustee shall not be required to expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers, if it
has reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
to it; and
(12) The Trustee shall not be required to examine the reports filed
with it by the Company pursuant to Section 1009 to determine whether the
Company was in compliance with the limitations set forth in Section 1004.
SECTION 603. Not Responsible for Recitals or Issuance of Securities. The
recitals contained herein and in the Securities, except the Trustee's
certificate of authentication, and in any coupons shall be taken as the
statements of the Company and neither the Trustee nor any Authenticating Agent
assumes any responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Securities or any coupons, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Securities
and perform its obligations hereunder. Neither the Trustee nor any
Authenticating Agent shall be accountable for the use or application by the
Company of Securities or the proceeds thereof.
SECTION 604. May Hold Securities. The Trustee, any Paying Agent, Security
Registrar, Authenticating Agent or any other agent of the Company, in its
individual or any other capacity, may become the owner or pledgee of Securities
and coupons and, subject to Sections 310(b) and 311 of the Trust Indenture Act,
may otherwise deal with the Company with the same rights it would have if it
were not Trustee, Paying Agent, Security Registrar, Authenticating Agent or such
other agent.
SECTION 605. Money Held in Trust. Money held by the Trustee in trust
hereunder need not be segregated from other funds except to the extent required
by law. The Trustee shall be under no liability for interest on, or investment
of, any money received by it hereunder except as otherwise agreed with and for
the sole benefit of the Company.
SECTION 606. Compensation and Reimbursement. The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse each
of the Trustee and any predecessor Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by it in
connection with its administration of the trust hereunder (including the
reasonable compensation and the expenses and disbursements of its agents
and counsel), except to the extent any such expense, disbursement or
advance may be attributable to its negligence or bad faith; and
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(3) to indemnify each of the Trustee and any predecessor Trustee for,
and to hold it harmless against, any loss, liability or expense, arising
out of or in connection with the acceptance or administration of the trust
or trusts or the performance of its duties hereunder, including the costs
and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder except to the extent any such loss, liability or expense may be
attributable to its own negligence or bad faith.
As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a lien prior to the Securities on all
property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of (or premium or Make-Whole Amount, if
any, on) or interest or Additional Amounts, if any, on particular Securities or
any coupons.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 607. Trustee Eligibility; Conflicting Interests. There shall at all
times be a Trustee hereunder which is eligible to act as Trustee under Section
310(a)(1) of the Trust Indenture Act and has a combined capital and surplus of
at least $50,000,000. If such Trustee publishes reports of condition at least
annually, pursuant to law or the requirements of Federal, State, Territorial or
District of Columbia supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Trustee shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. No obligor on the Securities or Affiliate of
any such obligor shall serve as Trustee on such Securities. If at any time the
Trustee ceases to be eligible in accordance with the provisions of this Section,
it shall resign immediately in the manner and with the effect hereinafter
specified in this Article.
SECTION 608. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) The Trustee may resign at any time with respect to the Securities
of one or more series by giving written notice thereof to the Company. If
an instrument of acceptance by a successor Trustee has not been delivered
to the Trustee within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal
amount of the Outstanding Securities of such series delivered to the
Trustee and the Company.
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(d) If at any time:
(1) the Trustee fails to comply with the provisions of Section
310(b) of the Trust Indenture Act after written request therefor by
the Company or any Holder of a Security who has been a bona fide
Holder of a Security for at least six months, or
(2) the Trustee ceases to be eligible under Section 607 and
fails to resign after written request therefor by the Company or any
Holder of a Security who has been a bona fide Holder of a Security for
at least six months, or
(3) the Trustee becomes incapable of acting or is adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property
is appointed or any public officer takes charge or control of the
Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by or pursuant to a Board
Resolution, may remove the Trustee and appoint a successor Trustee with
respect to all Securities, or (ii) subject to Section 315(e) of the Trust
Indenture Act, any Holder of a Security who has been a bona fide Holder of
a Security for at least six months may, on behalf of such Holder and all
others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee with respect to all Securities and the
appointment of a successor Trustee or Trustees.
(e) If the Trustee resigns, is removed or becomes incapable of
acting, or if a vacancy occurs in the office of Trustee for any cause with
respect to the Securities of one or more series, the Company, by or
pursuant to a Board Resolution, shall promptly appoint a successor Trustee
or Trustees with respect to the Securities of such series (it being
understood that any such successor Trustee may be appointed with respect to
the Securities of one or more or all of such series and that at any time
there shall be only one Trustee with respect to the Securities of any
particular series). If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Securities of any series is appointed by Act of the Holders
of a majority in principal amount of the Outstanding Securities of such
series delivered to the Company and the retiring Trustee, the successor
Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee with respect to the Securities of
such series and to that extent supersede the successor Trustee appointed by
the Company. If no successor Trustee with respect to the Securities of any
series has been so appointed by the Company or the Holders of Securities
and accepted appointment in the manner hereinafter provided, any Holder of
a Security who has been a bona fide Holder of a Security of such series for
at least six months may, on behalf of such Holder and all others similarly
situated, petition any court of competent jurisdiction for the appointment
of a successor Trustee with respect to Securities of such series.
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(f) The Company shall give notice of each resignation and each
removal of the Trustee with respect to the Securities of any series and
each appointment of a successor Trustee with respect to the Securities of
any series in the manner provided for notices to the Holders of Securities
in Section 106. Each notice shall include the name of the successor Trustee
with respect to the Securities of such series and the address of its
Corporate Trust Office.
SECTION 609. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee shall execute,
acknowledge and deliver to the Company and the retiring Trustee an
instrument accepting such appointment, and, thereupon, the resignation or
removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested
with all the rights, powers, trusts and duties of the retiring Trustee;
but, on request of the Company or the successor Trustee, such retiring
Trustee shall, upon payment of its charges, execute and deliver an
instrument transferring to such successor Trustee all the rights, powers
and trusts of the retiring Trustee, and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such
retiring Trustee hereunder, subject nevertheless to its claim, if any,
provided for in Section 606.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company,
the retiring Trustee and each successor Trustee with respect to the
Securities of one or more series shall execute and deliver an indenture
supplemental hereto, pursuant to Article Nine, wherein each successor
Trustee shall accept such appointment and which (i) shall contain such
provisions as are necessary or desirable to transfer and confirm to, and to
vest in, each successor Trustee all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of such series to
which the appointment of such successor Trustee relates, (ii) if the
retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as are necessary or desirable to confirm that all
the rights, powers, trusts and duties of the retiring Trustee with respect
to the Securities of such series as to which the retiring Trustee is not
retiring shall continue to be vested in the retiring Trustee and (iii)
shall add to or change any of the provisions of this Indenture as are
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein
or in such supplemental indenture shall constitute such Trustees co-
trustees of the same trust and that each such Trustee shall be trustee of a
trust or trusts hereunder separate and apart from any trust or trusts
hereunder administered by any other such Trustee; and, upon the execution
and delivery of such supplemental indenture, the resignation or removal of
the retiring Trustee shall become effective to the extent provided therein
and each such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee with respect to the Securities of such
series to which the appointment of such successor Trustee relates; but, on
request
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of the Company or any successor Trustee, such retiring Trustee shall duly
assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder with respect to the
Securities of such series to which the appointment of such successor
Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts
referred to in paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 610. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with which
it may be consolidated, or any corporation resulting from any merger, conversion
or consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided that such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities or coupons have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities or coupons so authenticated with
the same effect as if such successor Trustee had itself authenticated such
Securities or coupons. In case any Securities or coupons have not been
authenticated by such predecessor Trustee, any such successor Trustee may
authenticate and deliver such Securities or coupons, in either its own name or
that of its predecessor Trustee, with the full force and effect which this
Indenture provides for the certificate of authentication of the Trustee.
SECTION 611. Appointment of Authenticating Agent. At any time when any of
the Securities remain Outstanding, the Trustee may appoint an Authenticating
Agent or Agents with respect to one or more series of Securities which shall be
authorized to act on behalf of the Trustee to authenticate Securities of such
series issued upon exchange, registration of transfer or partial redemption or
repayment thereof, and Securities so authenticated shall be entitled to the
benefits of this Indenture and shall be valid and obligatory for all purposes as
if authenticated by the Trustee hereunder. Any such appointment shall be
evidenced by an instrument in writing signed by a Responsible Officer of the
Trustee, a copy of which instrument shall be promptly furnished to the Company.
Whenever reference is made in this Indenture to the authentication and delivery
of Securities by the Trustee or the Trustee's certificate of authentication,
such reference shall be deemed to include authentication and delivery on behalf
of the Trustee by an Authenticating Agent and a certificate of authentication
executed on behalf of the Trustee by an Authenticating Agent. Each
Authenticating Agent shall be acceptable to the Company and, except as may
otherwise be provided pursuant to Section 301, shall at all times be a bank or
trust company or corporation organized and doing business and in good standing
under the laws
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of the United States of America or of any State or the District of Columbia,
authorized under such laws to act as Authenticating Agent, having a combined
capital and surplus of not less than $50,000,000 and subject to supervision or
examination by Federal or State or District of Columbia authorities. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or the requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. In case at any
time an Authenticating Agent ceases to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
is a party, or any corporation succeeding to the corporate agency or corporate
trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation is otherwise eligible under this
Section, without the execution or filing of any paper or further act on the part
of the Trustee or the Authenticating Agent.
An Authenticating Agent for any series of Securities may at any time resign
by giving written notice of resignation to the Trustee for such series and the
Company. The Trustee for any series of Securities may at any time terminate the
agency of an Authenticating Agent by giving written notice of termination to
such Authenticating Agent and the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent ceases to be eligible in accordance with the provisions of
this Section, the Trustee for such series may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give notice of such
appointment to all Holders of Securities of or within the series with respect to
which such Authenticating Agent will serve in the manner set forth in Section
106. Any successor Authenticating Agent upon acceptance of its appointment
hereunder shall become vested with all the rights, powers and duties of its
predecessor hereunder, with like effect as if originally named as an
Authenticating Agent herein. No successor Authenticating Agent shall be
appointed unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation including reimbursement of its reasonable expenses for
its services under this Section.
If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series may have endorsed thereon, in
addition to or in lieu of the Trustee's certificate of authentication, an
alternate certificate of authentication substantially in the following form:
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This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:
----------------------------,
as Authenticating Agent
By:
----------------------------
Authorized Officer
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders. Every Holder of
Securities or coupons, by receiving and holding the same, agrees with the
Company and the Trustee that neither the Company nor the Trustee nor any
Authenticating Agent nor any Paying Agent nor any Security Registrar shall be
held accountable by reason of the disclosure of any information as to the names
and addresses of the Holders of Securities in accordance with Section 312 of the
Trust Indenture Act, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under Section 312(b) of the Trust
Indenture Act.
SECTION 702. Reports by Trustee. Within 60 days after February 1 of each
year commencing with the first February 1 after the first issuance of Securities
pursuant to this Indenture, the Trustee shall transmit by mail to all Holders of
Securities as provided in Section 313(c) of the Trust Indenture Act a brief
report dated as of such February 1 if required by Section 313(a) of the Trust
Indenture Act.
SECTION 703. Reports by Company. The Company shall:
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may by rules and
regulations prescribe) which the Company is required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or,
if the Company is not required to file information, documents or reports
pursuant to either of such Sections, then it shall file with the Trustee
and the Commission, in accordance with rules and regulations prescribed by
the Commission, such of the supplementary and periodic information,
documents and reports which may be required
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pursuant to Section 13 of the Exchange Act in respect of a security listed
and registered on a national securities exchange as may be prescribed in
such rules and regulations;
(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed by the Commission, such additional
information, documents and reports with respect to compliance by the
Company with the conditions and covenants provided for in this Indenture,
as may be required by such rules and regulations; and
(3) transmit by mail to the Holders of Securities, within 30 days
after the filing thereof with the Trustee, in the manner and to the extent
provided in Section 313(c) of the Trust Indenture Act, such summaries of
any information, documents and reports required to be filed by the Company
pursuant to subparagraphs (1) and (2) of this Section as may be required by
rules and regulations prescribed by the Commission.
SECTION 704. Company to Furnish Trustee Names and Addresses of Holders. The
Company shall furnish or cause to be furnished to the Trustee:
(a) semi-annually, not later than 15 days after the Regular Record
Date for interest for each series of Securities, a list, in such form as
the Trustee may reasonably require, of the names and addresses of the
Holders of Registered Securities of such series as of such Regular Record
Date, or if there is no Regular Record Date for interest for such series of
Securities, semi-annually, on such dates as are set forth in the Board
Resolution or indenture supplemental hereto authorizing such series, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
provided, however, that, so long as the Trustee is the Security Registrar, no
such list shall be required to be furnished.
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE
SECTION 801. Consolidations and Mergers of Company and Sales, Leases and
Conveyances. The Company may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into any other Person,
provided that in any such case, (i) either the Company is the continuing entity,
or the successor entity (if other than the Company) is a Person organized and
existing under the laws of the United States or a State thereof and such
successor entity expressly assumes the due and punctual payment of the principal
of (and premium or Make-Whole Amount, if any, on) and interest and Additional
Amounts, if any, on all of the Securities, according to their tenor, and the due
and punctual performance and observance of all of the covenants and conditions
of this Indenture to be performed by the Company by supplemental indenture,
complying with Article Nine, satisfactory to the Trustee,
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executed and delivered to the Trustee by such Person and (ii) immediately after
giving effect to such transaction and treating any indebtedness which becomes an
obligation of the Company, the successor entity (if other than the Company) or
any Subsidiary as a result thereof as having been incurred by the Company, such
successor entity or such Subsidiary at the time of such transaction, no Event of
Default, and no event which, after notice or the lapse of time, or both, would
become an Event of Default, has occurred and is continuing.
SECTION 802. Rights and Duties of Successor Entity. In case of any such
consolidation, merger, sale, lease or conveyance and upon any such assumption by
the successor entity, such successor entity shall succeed to and be substituted
for the Company, with the same effect as if it had been named herein as the
party of the first part, and the predecessor entity, except in the event of a
lease, shall be relieved of any further obligation under this Indenture and the
Securities. Such successor entity thereupon may cause to be signed, and may
issue either in its own name or in the name of the Company, any or all of the
Securities issuable hereunder which theretofore have not been signed by the
Company and delivered to the Trustee; and, upon the order of such successor
entity, instead of the Company, and subject to all the terms, conditions and
limitations in this Indenture prescribed, the Trustee shall authenticate and
shall deliver any Securities which previously have been signed and delivered by
the officers of the Company to the Trustee for authentication, and any
Securities which such successor entity thereafter shall cause to be signed and
delivered to the Trustee for that purpose. All the Securities so issued shall in
all respects have the same legal rank and benefit under this Indenture as the
Securities theretofore or thereafter issued in accordance with the terms of this
Indenture as though all of such Securities had been issued at the date of the
execution hereof.
In case of any such consolidation, merger, sale, lease or conveyance, such
changes in phraseology and form (but not in substance) may be made in the
Securities thereafter to be issued as may be appropriate.
SECTION 803. Company Certificate and Opinion of Counsel. Any consolidation,
merger, sale, lease or conveyance permitted under Section 801 is also subject to
the condition that the Trustee receive a Company Certificate and an Opinion of
Counsel to the effect that any such consolidation, merger, sale, lease or
conveyance, and the assumption by any successor entity, complies with the
provisions of this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders. Without
the consent of any Holders of Securities or coupons, the Company, when
authorized by or pursuant to a Board Resolution, and the Trustee, at any time
and from time to time, may enter into one or more indentures supplemental
hereto, in form satisfactory to the Trustee, for any of the following purposes:
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(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company
contained herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (and if such covenants are to be
for the benefit of less than all series of Securities, stating that such
covenants are expressly being included solely for the benefit of such
series) or to surrender any right or power herein conferred on the Company;
or
(3) to add any additional Events of Default for the benefit of the
Holders of all or any series of Securities (and if such Events of Default
are to be for the benefit of less than all series of Securities, stating
that such Events of Default are expressly being included solely for the
benefit of such series); provided, however, that, in respect of any such
additional Events of Default, such supplemental indenture may provide for a
particular period of grace after default (which period may be shorter or
longer than that allowed in the case of other defaults) or may provide for
an immediate enforcement upon such default or may limit the remedies
available to the Trustee upon such default or may limit the right of the
Holders of a majority in aggregate principal amount of such series of
Securities to which such additional Events of Default apply to waive such
default; or
(4) to add to or change any of the provisions of this Indenture to
provide that Bearer Securities may be registrable as to principal, to
change or eliminate any restrictions on the payment of the principal of (or
premium or Make-Whole Amount, if any, on) or interest or Additional
Amounts, if any, on Bearer Securities, to permit Bearer Securities to be
issued in exchange for Registered Securities, to permit Bearer Securities
to be issued in exchange for Bearer Securities of other authorized
denominations or to permit or facilitate the issuance of Securities in
uncertificated form, provided that any such action shall not adversely
affect the interests of the Holders of Securities of any series or any
coupons appertaining thereto in any material respect; or
(5) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall become effective only
when there is no Security Outstanding of any series created prior to the
execution of such supplemental indenture which is entitled to the benefit
of such provision; or
(6) to secure the Securities; or
(7) to establish the form or terms of Securities of any series and
any coupons appertaining thereto as permitted by Sections 201 and 301,
including the provisions and procedures, if applicable, for the conversion
of such Securities into Common Shares or other securities of the Company;
or
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(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or
more series and to add to or change any of the provisions of this Indenture
as are necessary to provide for or facilitate the administration of the
trusts hereunder by more than one Trustee; or
(9) to cure any ambiguity, to correct or supplement any provision
hereof which may be defective or inconsistent with any other provision
hereof, or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not be inconsistent with
the provisions of this Indenture or to make any other changes, provided
that, in each case, such provisions shall not adversely affect the
interests of the Holders of Securities of any series or any coupons
appertaining thereto in any material respect; or
(10) to close this Indenture with respect to the authentication and
delivery of additional series of Securities or to qualify, or maintain
qualification of, this Indenture under the Trust Indenture Act; or
(11) to supplement any of the provisions of this Indenture to such
extent as are necessary to permit or facilitate the defeasance and
discharge of any series of Securities pursuant to Sections 401, 1402 and
1403; provided that, in each case, any such action shall not adversely
affect the interests of the Holders of Securities of such series and any
coupons appertaining thereto or any other series of Securities in any
material respect.
SECTION 902. Supplemental Indentures with Consent of Holders. With the
consent of the Holders of not less than a majority in principal amount of all
Outstanding Securities affected by such supplemental indenture, by Act of such
Holders delivered to the Company and the Trustee, the Company (when authorized
by or pursuant to a Board Resolution) and the Trustee may enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders of
Securities and coupons under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby:
(1) change the Stated Maturity of the principal of (or premium or
Make-Whole Amount, if any, on) or any installment of principal of or
interest on, any Security; or reduce the principal amount thereof or the
rate or amount of interest thereon or any Additional Amounts payable in
respect thereof, or any premium or Make-Whole Amount payable upon the
redemption thereof, or change any obligation of the Company to pay
Additional Amounts pursuant to Section 1011 (except as contemplated by
clause (1) of Section 801 and permitted by clause (1) of Section 901), or
reduce the amount of the principal of an Original Issue Discount Security
or Make-Whole Amount, if any, which would be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502
or the amount thereof provable in bankruptcy pursuant to Section 504; or
adversely affect any right of repayment at the option of the Holder of any
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Security, or change any Place of Payment where, or the currency or
currencies, currency unit or units or composite currency or currencies in
which, the principal of any Security or any premium or Make-Whole Amount or
any Additional Amounts payable in respect thereof or the interest thereon
is payable; or impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof (or, in the case
of redemption or repayment at the option of the Holder, on or after the
Redemption Date or the Repayment Date, as the case may be); or
(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of the Holders of which is required
for any such supplemental indenture, or the consent of the Holders of which
is required for any waiver with respect to such series (or compliance with
certain provisions of this Indenture or certain defaults hereunder and
their consequences) provided for in this Indenture, or reduce the
requirements of Section 1504 for quorum or voting; or
(3) modify any of the provisions of this Section, Section 513 or
Section 1012, except to increase the required percentage to effect such
action or to provide that certain other provisions of this Indenture cannot
be modified or waived without the consent of the Holder of each Outstanding
Security affected thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act approves the substance thereof.
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included for the benefit of
one or more particular series of Securities, or which modifies the rights of the
Holders of Securities of such series with respect to such covenant or other
provision, shall be deemed not to affect the rights under this Indenture of the
Holders of Securities of any other series.
SECTION 903. Execution of Supplemental Indentures. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this Article or the modification thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and shall be fully
protected in relying on, an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture. The
Trustee may, but shall not be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures. Upon the execution of any
supplemental indenture under this Article, this Indenture shall be modified in
accordance therewith, and such supplemental indenture shall form a part of this
Indenture for all purposes; and every Holder of Securities theretofore or
thereafter authenticated and delivered hereunder and of any coupon appertaining
thereto shall be bound thereby.
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SECTION 905. Conformity with Trust Indenture Act. Every supplemental
indenture executed pursuant to this Article shall conform to the requirements of
the Trust Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures. Securities
of any series authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall, if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company so determines, new
Securities of any series so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities of such series.
SECTION 907. Notice of Supplemental Indentures. Promptly after the
execution by the Company and the Trustee of any supplemental indenture pursuant
to the provisions of Section 902, the Company shall give notice thereof to the
Holders of each Outstanding Security affected, in the manner provided for in
Section 106, setting forth in general terms the substance of such supplemental
indenture.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium or Make-Whole Amount, Interest
and Additional Amounts. The Company covenants and agrees for the benefit of the
Holders of each series of Securities that it shall duly and punctually pay the
principal of (and premium or Make-Whole Amount, if any, on) and interest and
Additional Amounts, if any, on the Securities of such series in accordance with
the terms of such series of Securities, any coupons appertaining thereto and
this Indenture. Unless otherwise specified as contemplated by Section 301 with
respect to any series of Securities, any interest and Additional Amounts, if
any, on Bearer Securities on or before Maturity, other than Additional Amounts,
if any, payable as provided in Section 1010 in respect of principal of (or
premium or Make-Whole Amount, if any, on) such a Security, shall be payable only
upon presentation and surrender of the several coupons for such interest
installments as are evidenced thereby as they severally mature. Unless otherwise
specified with respect to Securities of any series pursuant to Section 301, at
the option of the Company, all payments of principal may be paid by check to the
registered Holder of the Registered Security or other person entitled thereto
against surrender of such Security.
SECTION 1002. Maintenance of Office or Agency. If Securities of a series
are issuable only as Registered Securities, the Company shall maintain in each
Place of Payment for any series of Securities an office or agency where
Securities of such series may be presented or surrendered for payment, where
Securities of such series may be surrendered for registration of transfer or
exchange and where notices and demands to or on the Company in respect of the
Securities of such series and this Indenture may be served. If Securities of a
series are issuable as Bearer Securities, the Company shall maintain: (i) in the
city of Boston, Massachusetts, an
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office or agency where any Registered Securities of such series may be presented
or surrendered for payment, where any Registered Securities of such series may
be surrendered for exchange, where notices and demands to or on the Company in
respect of the Securities of such series and this Indenture may be served and
where Bearer Securities of such series and any coupons appertaining thereto may
be presented or surrendered for payment in the circumstances described in the
following paragraph (and not otherwise); (ii) subject to any laws or regulations
applicable thereto, in a Place of Payment for such series which is located
outside the United States, an office or agency where Securities of such series
and any coupons appertaining thereto may be presented and surrendered for
payment (including payment of any Additional Amounts payable on Securities of
such series pursuant to Section 1010); provided, however, that if the Securities
of such series are listed on the Luxembourg Stock Exchange, The International
Stock Exchange or any other stock exchange located outside the United States and
such stock exchange so requires, the Company shall maintain a Paying Agent for
the Securities of such series in Luxembourg, London or any other required city
located outside the United States, as the case may be, so long as the Securities
of such series are listed on such exchange; and (iii) subject to any laws or
regulations applicable thereto, in a Place of Payment for such series located
outside the United States an office or agency where any Securities of such
series may be surrendered for registration of transfer, where Securities of such
series may be surrendered for exchange and where notices and demands to or on
the Company in respect of the Securities of such series and this Indenture may
be served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of each such office or agency. If at
any time the Company fails to maintain any such required office or agency or
fails to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, except that Bearer Securities of such series and the
related coupons may be presented and surrendered for payment (including payment
of any Additional Amounts payable on Bearer Securities of such series pursuant
to Section 1010) at the offices specified in the Security, in London, England,
and the Company hereby appoints the same as its agent to receive all such
presentations, surrenders, notices and demands, and the Company hereby appoints
the Trustee as its agent to receive all such presentations, surrenders, notices
and demands.
Unless otherwise specified with respect to any Securities pursuant to
Section 301, no payment of the principal of (or premium or Make-Whole Amount, if
any, on) or interest or Additional Amounts, if any, on Bearer Securities shall
be made at any office or agency of the Company in the United States or by check
mailed to any address in the United States or by transfer to an account
maintained with a bank located in the United States; provided, however, that, if
the Securities of a series are payable in Dollars, payment of the principal of
(and premium and Make-Whole Amount, if any, on) and interest and Additional
Amounts; if any, on any Bearer Security shall be made at the office of the
Company's Paying Agent in the city of Boston, Massachusetts if (but only if)
payment in Dollars of the full amount of such principal, premium, Make-Whole
Amount, interest or Additional Amounts, as the case may be, at all offices or
agencies outside the United States maintained for the purpose by the Company in
accordance with this Indenture, is illegal or effectively precluded by exchange
controls or other similar restrictions.
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The Company may from time to time designate one or more other offices or
agencies where the Securities of one or more series and any coupons appertaining
thereto may be presented or surrendered for any or all of such purposes, and may
from time to time rescind such designations; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in accordance with the requirements
set forth above for Securities of any series for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or agency.
Unless otherwise specified with respect to any Securities pursuant to Section
301, the Company hereby designates as a Place of Payment for each series of
Securities the office or agency of the Company in the city of Boston,
Massachusetts, and initially appoints the Trustee at its Corporate Trust Office
as Paying Agent in such city and as its agent to receive all such presentations,
surrenders, notices and demands.
Unless otherwise specified with respect to any Securities pursuant to
Section 301, if and so long as the Securities of any series (i) are denominated
in a Foreign Currency or (ii) may be payable in a Foreign Currency, or so long
as it is required under any other provision of the Indenture, then the Company
shall maintain with respect to each such series of Securities, or as so
required, at least one exchange rate agent.
SECTION 1003. Money for Securities Payments to Be Held in Trust. If the
Company at any time acts as its own Paying Agent with respect to any series of
any Securities and any coupons appertaining thereto, it shall, on or before each
due date of the principal of (and premium or Make-Whole Amount, if any, on) or
interest or Additional Amounts, if any, on any of the Securities of such series,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum in the currency or currencies, currency unit or units or composite currency
or currencies in which the Securities of such series are payable (except as
otherwise specified pursuant to Section 301 for the Securities of such series)
sufficient to pay the principal (and premium or Make-Whole Amount, if any) or
interest or Additional Amounts, if any, so becoming due until such sums shall be
paid to such Persons or otherwise disposed of as herein provided, and shall
promptly notify the Trustee of its action or failure so to act.
Whenever the Company has one or more Paying Agents for any series of
Securities and any coupons appertaining thereto, it shall, on or before each due
date of the principal of (and premium or Make-Whole Amount, if any, on) or
interest or Additional Amounts, if any, on any Securities of such series,
deposit with a Paying Agent a sum (in the currency or currencies, currency unit
or units or composite currency or currencies described in the preceding
paragraph) sufficient to pay the principal (and premium or Make-Whole Amount, if
any) or interest or Additional Amounts, if any, so becoming due, such sum to be
held in trust for the benefit of the Persons entitled to such principal,
premium, Make-Whole Amount, interest or Additional Amounts and (unless such
Paying Agent is the Trustee) the Company shall promptly notify the Trustee of
its action or failure so to act.
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The Company shall cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent shall:
(1) hold all sums held by it for the payment of principal of (and
premium or Make-Whole Amount, if any, on) or interest or Additional
Amounts, if any, on Securities in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor on the Securities) in the making of any such payment of
principal (and premium or Make-Whole Amount, if any) or interest or
Additional Amounts, if any; and
(3) at any time during the continuance of any such default, on the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee on the
same trusts as those on which such sums were held by the Company or such Paying
Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such sums.
Except as otherwise provided in the Securities of any series, any money
deposited with the Trustee or any Paying Agent, or then held by the Company, in
trust for the payment of the principal of (and premium or Make-Whole Amount, if
any, on) or interest or Additional Amounts, if any, on any Security of any
series and remaining unclaimed for two years after such principal (and premium
or Make-Whole Amount, if any) interest or Additional Amounts, if any, has become
due and payable shall be paid to the Company upon Company Request or (if then
held by the Company) shall be discharged from such trust; and the Holder of such
Security shall thereafter, as an unsecured general creditor, look only to the
Company for payment of the principal of (and premium or Make-Whole Amount, if
any, on) and interest and any Additional Amounts, if any, on any Security of
such series, without interest thereon, and all liability of the Trustee or such
Paying Agent with respect to such trust money, and all liability of the Company
as trustee thereof, shall thereupon cease; provided, however, that the Trustee
or such Paying Agent, before being required to make any such repayment, may at
the expense of the Company cause to be published once, in an Authorized
Newspaper, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be repaid
to the Company.
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SECTION 1004. Limitations on Incurrence of Debt.
(a) The Company shall not, and shall not permit any Subsidiary to,
incur any Debt if, immediately after giving effect to the incurrence of
such additional Debt and the application of the proceeds therefrom, the
aggregate principal amount of all outstanding Debt of the Company and its
Subsidiaries on a consolidated basis determined in accordance with GAAP is
greater than 60% of the sum of (without duplication) (i) the Company's
Total Assets as of the end of the calendar quarter covered in the Company's
Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case
may be, most recently filed with the Commission (or, if such filing is not
permitted under the Exchange Act, with the Trustee) prior to the incurrence
of such additional Debt and (ii) the purchase price of any real estate
assets or mortgages receivable acquired, and the amount of any securities
offering proceeds received (to the extent that such proceeds were not used
to acquire real estate assets or mortgages receivable or used to reduce
Debt), by the Company or any Subsidiary since the end of such calendar
quarter, including those proceeds obtained in connection with the
incurrence of such additional Debt.
(b) In addition to the limitations set forth in paragraph (a) of this
Section 1004, the Company shall not, and shall not permit any Subsidiary
to, incur any Debt if the ratio of Consolidated Income Available for Debt
Service to the Annual Service Charge for the four consecutive fiscal
quarters most recently ended prior the date on which such additional Debt
is to be incurred was less than 1.5 to 1.0, on a pro forma basis after
giving effect thereto and to the application of the proceeds therefrom, and
calculated on the assumption that (i) such Debt and any other Debt incurred
by the Company and its Subsidiaries since the first day of such four-
quarter period and the application of the proceeds therefrom, including to
refinance other Debt, had occurred at the beginning of such period; (ii)
the repayment or retirement of any other Debt by the Company and its
Subsidiaries since the first day of such four-quarter period had been
incurred, repaid or retired at the beginning of such period (except that,
in making such computation, the amount of Debt under any revolving credit
facility shall be computed based on the average daily balance of such Debt
during such period); (iii) in the case of Acquired Debt or Debt incurred in
connection with any acquisition since the first day of such four-quarter
period, the related acquisition had occurred as of the first day of such
period with the appropriate adjustments with respect to such acquisition
being included in such pro forma calculation; and (iv) in the case of any
acquisition or disposition by the Company or its Subsidiaries of any asset
or group of assets since the first day of such four-quarter period, whether
by merger, stock purchase or sale, or asset purchase or sale, such
acquisition or disposition or any related repayment of Debt had occurred as
of the first day of such period with the appropriate adjustments with
respect to such acquisition or disposition being included in such pro forma
calculation.
(c) In addition to the limitations set forth in paragraphs (a) and
(b) of this Section 1004, no Subsidiary shall incur any Unsecured Debt
other than intercompany
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Debt subordinate to the Securities; provided, however, that the Company or
a Subsidiary may acquire an entity which becomes a Subsidiary which has
Unsecured Debt if the incurrence of such Debt (including any guarantees of
such Debt assumed by the Company or any Subsidiary) was not intended to
evade the foregoing restrictions and the incurrence of such Debt (including
any guarantees of such Debt assumed by the Company or any Subsidiary) would
otherwise be permitted under this Indenture.
(d) In addition to the limitations set forth in paragraphs (a), (b)
and (c) of this Section 1004, the Company and its Subsidiaries shall not at
any time own Total Unencumbered Assets equal to less than 150% of the
aggregate outstanding principal amount of the Unsecured Debt of the Company
and its Subsidiaries on a consolidated basis.
(e) In addition to the limitations set forth in paragraphs (a), (b),
(c) and (d) of this Section 1004, the Company shall not, and shall not
permit any Subsidiary to, incur any Debt secured by any mortgage, lien,
charge, pledge, encumbrance or security interest of any kind on any of the
property of the Company or any Subsidiary, whether owned at the date hereof
or hereafter acquired, if, immediately after giving effect to the
incurrence of such additional Debt and the application of the proceeds
therefrom, the aggregate principal amount of all outstanding Debt of the
Company and its Subsidiaries on a consolidated basis which is secured by
any mortgage, lien, charge, pledge, encumbrance or security interest on
property of the Company or any Subsidiary is greater than 40% of the sum of
(without duplication) (i) the Company's Total Assets as of the end of the
calendar quarter covered in the Company's Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, as the case may be, most recently filed with
the Commission (or, if such filing is not permitted under the Exchange Act,
with the Trustee) prior to the incurrence of such additional Debt and (ii)
the purchase price of any real estate assets or mortgages receivable
acquired, and the amount of any securities offering proceeds received (to
the extent that such proceeds were not used to acquire real estate assets
or mortgages receivable or used to reduce Debt), by the Company or any
Subsidiary since the end of such calendar quarter, including those proceeds
obtained in connection with the incurrence of such additional Debt.
(f) For purposes of this Section 1004, Debt shall be deemed to be
"incurred" by the Company or a Subsidiary whenever the Company or such
Subsidiary shall create, assume, guarantee or otherwise become liable in
respect thereof.
SECTION 1005. Existence. Subject to Article Eight, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect the existence, rights (charter and statutory) and franchises of the
Company and its Subsidiaries; provided, however, that the Company shall not be
required to preserve any right or franchise if the Board of Directors determines
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders of
Securities of any series.
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SECTION 1006. Maintenance of Properties. The Company shall cause all of
its properties used or useful in the conduct of its business or the business of
any Subsidiary to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and shall cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section shall prevent the
Company or any Subsidiary from selling or otherwise disposing for value its
properties in the ordinary course of its business.
SECTION 1007. Insurance. The Company shall, and shall cause each of its
Subsidiaries to, keep all of its insurable properties insured against loss or
damage at least equal to their then full insurable value with financially sound
and reputable insurance companies.
SECTION 1008. Payment of Taxes and Other Claims. The Company shall pay or
discharge or cause to be paid or discharged, before the same become delinquent,
(i) all taxes, assessments and governmental charges levied or imposed on the
Company or any Subsidiary or on the income, profits or property of the Company
or any Subsidiary and (ii) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien on the property of the Company or
any Subsidiary; provided, however, that the Company shall not be required to pay
or discharge or cause to be paid or discharged any such tax, assessment, charge
or claim whose amount, applicability or validity is being contested in good
faith by appropriate proceedings.
SECTION 1009. Provision of Financial Information. Whether or not the
Company is subject to Section 13 or 15(d) of the Exchange Act, the Company
shall, to the extent permitted under the Exchange Act, file with the Commission
the annual reports, quarterly reports and other documents which it would have
been required to file with the Commission pursuant to such Section 13 or 15(d)
(the "Financial Statements") if it were so subject, such documents to be filed
with the Commission on or prior to the respective dates (the "Required Filing
Dates") by which it would have been required so to file such documents if it
were so subject.
The Company shall also in any event (i) within 15 days of each Required
Filing Date (A) transmit by mail to all Holders, as their names and addresses
appear in the Security Register, without cost to such Holders, copies of the
annual reports and quarterly reports which the Company would have been required
to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
if it were subject to such Sections and (B) file with the Trustee copies of
annual reports, quarterly reports and other documents which the Company would
have been required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act if it were subject to such Sections and (ii) if filing such
documents by the Company with the Commission is not permitted under the Exchange
Act, promptly upon written request and payment of the reasonable cost of
duplication and delivery, supply copies of such documents to any prospective
Holder.
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SECTION 1010. Statement as to Compliance. The Company shall deliver to
the Trustee, within 120 days after the end of each fiscal year, a brief
certificate from the principal executive officer, principal financial officer or
principal accounting officer as to his or her knowledge of the Company's
compliance with all conditions and covenants under this Indenture verified in
the case of conditions precedent compliance with which is subject to
verification by accountants by the certificate or opinion of an accountant and,
in the event of any noncompliance, specifying such noncompliance and the nature
and status thereof. For purposes of this Section 1010, such compliance shall be
determined without regard to any period of grace or requirement of notice
provided under this Indenture.
SECTION 1011. Additional Amounts. If any Securities of a series provide
for the payment of Additional Amounts, the Company covenants and agrees for the
benefit of the Holders of Securities of such series that it shall pay to the
Holder of any Security of such series or any coupon appertaining thereto
Additional Amounts as may be specified as contemplated by Section 301. Whenever
in this Indenture there is mentioned, in any context except in the case of
clause (1) of Section 502, the payment of the principal of or of any premium,
Make-Whole Amount or interest on, or in respect of, any Security of any series
or payment of any coupon or the net proceeds received on the sale or exchange of
any Security of any series, such mention shall be deemed to include mention of
the payment of Additional Amounts provided by the terms of such series
established pursuant to Section 301 to the extent that, in such context,
Additional Amounts are, were or would be payable in respect thereof pursuant to
such terms and express mention of the payment of Additional Amounts (if
applicable) in any provisions hereof shall not be construed as excluding
Additional Amounts in those provisions hereof in which such express mention is
not made.
Except as otherwise specified as contemplated by Section 301, if the
Securities of a series provide for the payment of Additional Amounts, at least
10 days prior to the first Interest Payment Date with respect to Securities of
such series (or if the Securities of such series will not bear interest prior to
Maturity, the first day on which a payment of principal and any premium is
made), and at least 10 days prior to each date of payment of principal and any
premium or Make-Whole Amount or interest, if there has been any change with
respect to the matters set forth in the below-mentioned Company Certificate, the
Company shall furnish the Trustee and the principal Paying Agent or Paying
Agents, if other than the Trustee, with a Company Certificate instructing the
Trustee and such Paying Agent or Paying Agents whether such payment of principal
of and any premium or Make-Whole Amount or interest on the Securities of such
series shall be made to Holders of Securities of such series or any coupons
appertaining thereto who are not United States persons without withholding for
or on account of any tax, assessment or other governmental charge described in
the Securities of or within the series. If any such withholding is required,
then such Company Certificate shall specify by country the amount, if any,
required to be withheld on such payments to such Holders of Securities of such
series or any coupons appertaining thereto and the Company shall pay to the
Trustee or such Paying Agent the Additional Amounts required by the terms of
such Securities. In the event that the Trustee or any Paying Agent, as the case
may be, shall not so receive the above-mentioned certificate, then the Trustee
or such Paying Agent shall be entitled (i) to assume
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that no such withholding or deduction is required with respect to any payment of
principal or interest with respect to any Securities of such series or any
coupons appertaining thereto until it has received a certificate advising
otherwise and (ii) to make all payments of principal and interest with respect
to the Securities of such series or any coupons appertaining thereto without
withholding or deductions until otherwise advised. The Company covenants to
indemnify the Trustee and any Paying Agent for, and to hold them harmless
against, any loss, liability or expense reasonably incurred without negligence
or bad faith on their part arising out of or in connection with actions taken or
omitted by any of them or in reliance on any Company Certificate furnished
pursuant to this Section or in reliance on the Company's not furnishing such a
Company Certificate.
SECTION 1012. Waiver of Certain Covenants. The Company may omit in any
particular instance to comply with any term, provision or condition set forth in
Sections 1004 to 1009, inclusive, and with any other term, provision or
condition with respect to the Securities of any series specified in accordance
with Section 301 (except any such term, provision or condition which could not
be amended without the consent of all Holders of Securities of such series
pursuant to Section 902), if before or after the time for such compliance the
Holders of at least a majority in principal amount of all outstanding Securities
of such series, by Act of such Holders, either waive such compliance in such
instance or generally waive compliance with such covenant or condition, but no
such waiver shall extend to or affect such covenant or condition except to the
extent so expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any such
term, provision or condition shall remain in full force and effect.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Applicability of Article. Securities of any series which
are redeemable before their Stated Maturity shall be redeemable in accordance
with their terms and (except as otherwise specified as contemplated by Section
301 for Securities of any series) in accordance with this Article.
SECTION 1102. Election to Redeem; Notice to Trustee. The election of the
Company to redeem any Securities shall be evidenced by or pursuant to a Board
Resolution. In case of any redemption at the election of the Company of less
than all of the Securities of any series, the Company shall, at least 45 days
prior to the giving of the notice of redemption in Section 1104 (unless a
shorter notice shall be satisfactory to the Trustee), notify the Trustee of such
Redemption Date and of the principal amount of Securities of such series to be
redeemed. In the case of any redemption of Securities prior to the expiration of
any restriction on such redemption provided in the terms of such Securities or
elsewhere in this Indenture, the Company shall furnish the Trustee with a
Company Certificate evidencing compliance with such restriction.
SECTION 1103. Selection by Trustee of Securities to Be Redeemed. If less
than all the Securities of any series issued on the same day with the same terms
are to be redeemed, the
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particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities of
such series issued on such date with the same terms not previously called for
redemption, by such method as the Trustee deems fair and appropriate and which
may provide for the selection for redemption of portions (equal to the minimum
authorized denomination for Securities of such series or any integral multiple
thereof) of the principal amount of Securities of such series of a denomination
larger than the minimum authorized denomination for Securities of such series.
The Trustee shall promptly notify the Company and the Security Registrar
(if other than itself) in writing of the Securities selected for redemption and,
in the case of any Securities selected for partial redemption, the principal
amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Security redeemed or to be redeemed only in part, to the portion of
the principal amount of such Security which has been or is to be redeemed.
SECTION 1104. Notice of Redemption. Notice of redemption shall be given in
the manner provided in Section 106, not less than 30 days nor more than 60 days
prior to the Redemption Date, unless a shorter period is specified by the terms
of such series established pursuant to Section 301, to each Holder of Securities
to be redeemed, but failure to give such notice in the manner herein provided to
the Holder of any Security designated for redemption as a whole or in part, or
any defect in the notice to any such Holder, shall not affect the validity of
the proceedings for the redemption of any other such Security or portion
thereof.
Any notice which is mailed to the Holders of Registered Securities in the
manner herein provided shall be conclusively presumed to have been duly given,
whether or not the Holder receives the notice.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price, accrued interest to the Redemption Date
payable as provided in Section 1106, if any, and Additional Amounts, if
any;
(3) if less than all Outstanding Securities of any series are to be
redeemed, the identification (and, in the case of partial redemption, the
principal amount) of the particular Security or Securities to be redeemed;
(4) in case any Security is to be redeemed in part only, the notice
which relates to such Security shall state that on and after the Redemption
Date, on surrender of such Security, the holder will receive, without a
charge, a new Security or Securities of authorized denominations for the
principal amount thereof remaining unredeemed;
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(5) that on the Redemption Date, the Redemption Price and accrued
interest to the Redemption Date payable as provided in Section 1106, if
any, will become due and payable on each such Security, or the portion
thereof, to be redeemed and, if applicable, that interest thereon shall
cease to accrue on and after such date;
(6) the Place or Places of Payment where such Securities, together in
the case of Bearer Securities with all coupons appertaining thereto, if
any, maturing after the Redemption Date, are to be surrendered for payment
of the Redemption Price and accrued interest, if any;
(7) that the redemption is for a sinking fund, if such is the case;
(8) that, unless otherwise specified in such notice, Bearer
Securities of any series, if any, surrendered for redemption must be
accompanied by all coupons appertaining thereto maturing subsequent to the
date fixed for redemption or the amount of any such missing coupon or
coupons will be deducted from the Redemption Price, unless security or
indemnity satisfactory to the Company, the Trustee for such series and any
Paying Agent is furnished;
(9) if Bearer Securities of any series are to be redeemed and any
Registered Securities of such series are not to be redeemed, and if such
Bearer Securities may be exchanged for Registered Securities not subject to
the redemption on this Redemption Date pursuant to Section 305 or
otherwise, the last date, as determined by the Company, on which such
exchanges may be made; and
(10) the CUSIP number of such Security, if any, provided that neither
the Company nor the Trustee shall have any responsibility for any such
CUSIP number.
Notice of redemption of Securities to be redeemed shall be given by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company.
SECTION 1105. Deposit of Redemption Price. At least one Business Day
prior to any Redemption Date, the Company shall deposit with the Trustee or with
a Paying Agent (or, if the Company is acting as its own Paying Agent, which it
may not do in the case of a sinking fund payment under Article Twelve, segregate
and hold in trust as provided in Section 1003) an amount of money in the
currency or currencies, currency unit or units or composite currency or
currencies in which the Securities of such series are payable (except as
otherwise specified pursuant to Section 301 for the Securities of such series)
sufficient to pay on the Redemption Date the Redemption Price of, and (except if
the Redemption Date is an Interest Payment Date) accrued interest on, all the
Securities or portions thereof which are to be redeemed on such date.
SECTION 1106. Securities Payable on Redemption Date. Notice of redemption
having been given as provided above, the Securities so to be redeemed shall, on
the Redemption Date, become due and payable at the Redemption Price therein
specified in the currency or currencies,
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currency unit or units or composite currency or currencies in which the
Securities of such series are payable (except as otherwise specified pursuant to
Section 301 for the Securities of such series) (together with accrued interest,
if any, to the Redemption Date), and from and after such date (unless the
Company defaults in the payment of the Redemption Price and accrued interest)
such Securities shall, if the same were interest-bearing, cease to bear interest
and the coupons for such interest appertaining to any Bearer Securities so to be
redeemed, except to the extent provided below, shall be void. Upon surrender of
any such Security for redemption in accordance with such notice, together with
any coupons appertaining thereto maturing after the Redemption Date, such
Security shall be paid by the Company at the Redemption Price, together with
accrued interest, if any, to the Redemption Date; provided, however, that
installments of interest on Bearer Securities whose Stated Maturity is on or
prior to the Redemption Date shall be payable only at an office or agency
located outside the United States (except as otherwise provided in Section 1002)
and, unless otherwise specified as contemplated by Section 301, only upon
presentation and surrender of coupons for such interest; and provided, further,
that, installments of interest on Registered Securities whose Stated Maturity is
on or prior to the Redemption Date shall be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such at the
close of business on the relevant Record Dates according to their terms and the
provisions of Section 307.
If any Bearer Security surrendered for redemption is not accompanied by all
coupons appertaining thereto maturing after the Redemption Date, such Security
may be paid after deducting from the Redemption Price an amount equal to the
face amount of all such missing coupons, or the surrender of such missing coupon
or coupons may be waived by the Company and the Trustee if there is furnished to
them such security or indemnity as they may require to save each of them and any
Paying Agent harmless. If thereafter the Holder of such Security surrenders to
the Trustee or any Paying Agent any such missing coupon in respect of which a
deduction has been made from the Redemption Price, such Holder shall be entitled
to receive the amount so deducted; provided, however, that interest represented
by a coupon shall be payable only at an office or agency located outside the
United States (except as otherwise provided in Section 1002) and, unless
otherwise specified as contemplated by Section 301, only upon presentation and
surrender of such coupon.
If any Security called for redemption is not so paid upon surrender thereof
for redemption, the principal (and premium or Make-Whole Amount, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Security.
SECTION 1107. Securities Redeemed in Part. Any Security which is to be
redeemed only in part (pursuant to the provisions of this Article or of Article
Twelve) shall be surrendered at a Place of Payment therefor (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or his attorney duly authorized in writing and
accompanied by appropriate evidence of genuineness and authority) and the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder of such Security without service charge a new Security or Securities of
the same series, of any authorized denomination
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as requested by such Holder in aggregate principal amount equal to and in
exchange for the unredeemed portion of the principal of the Security so
surrendered.
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. Applicability of Article. The provisions of this Article
shall be applicable to any sinking fund for the retirement of Securities of a
series except as otherwise specified as contemplated by Section 301 for
Securities of such series.
The minimum amount of any sinking fund payment provided for by the terms of
Securities of any series is herein referred to as a "mandatory sinking fund
payment," and any payment in excess of such minimum amount provided for by the
terms of such Securities of any series is herein referred to as an "optional
sinking fund payment." If provided for by the terms of any Securities of any
series, the cash amount of any mandatory sinking fund payment may be subject to
reduction as provided in Section 1202. Each sinking fund payment shall be
applied to the redemption of Securities of any series as provided for by the
terms of Securities of such series.
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities. The
Company may, in satisfaction of all or any part of any mandatory sinking fund
with respect to the Securities of a series, (i) deliver Outstanding Securities
of such series (other than any previously called for redemption), together in
the case of any Bearer Securities of such series with all unmatured coupons
appertaining thereto, and (ii) apply as a credit Securities of such series which
have been redeemed either at the election of the Company pursuant to the terms
of such Securities or through the application of permitted optional sinking fund
payments pursuant to the terms of such Securities, as provided for by the terms
of such Securities, or which have otherwise been acquired by the Company,
provided that such Securities so delivered or applied as a credit have not been
previously so credited. Such Securities shall be received and credited for such
purpose by the Trustee at the applicable Redemption Price specified in such
Securities for redemption through operation of the sinking fund and the amount
of such mandatory sinking fund payment shall be reduced accordingly.
SECTION 1203. Redemption of Securities for Sinking Fund. Not less than 60
days prior to each sinking payment date for Securities of any series, the
Company shall deliver to the Trustee a Company Certificate specifying the amount
of the next ensuing mandatory sinking fund payment for such series pursuant to
the terms of such series, the portion thereof, if any, which is to be satisfied
by payment of cash in the currency or currencies, currency unit or units or
composite currency or currencies in which the Securities of such series are
payable (except as otherwise specified pursuant to Section 301 for the
Securities of such series) and the portion thereof, if any, which is to be
satisfied by delivering and crediting Securities of such series pursuant to
Section 1202, and the optional amount, if any, to be added in cash to the next
ensuing mandatory sinking fund payment, and shall also deliver to the Trustee
any Securities to be so delivered and credited. If such Company Certificate
specifies an optional amount to be
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added in cash to the next ensuing mandatory sinking fund payment, the Company
shall thereupon be obligated to pay the amount therein specified. Not less than
30 days before each such sinking fund payment date the Trustee shall select the
Securities to be redeemed on such sinking fund payment date in the manner
specified in Section 1103 and cause notice of the redemption thereof to be given
in the name of and at the expense of the Company in the manner provided in
Section 1104. Such notice having been duly given, the redemption of such
Securities shall be made upon the terms and in the manner stated in Sections
1106 and 1107.
ARTICLE THIRTEEN
REPAYMENT AT THE OPTION OF HOLDERS
SECTION 1301. Applicability of Article. Repayment of Securities of any
series before their Stated Maturity at the option of Holders thereof shall be
made in accordance with the terms of such Securities, if any, and (except as
otherwise specified by the terms of such series established pursuant to Section
301) in accordance with this Article.
SECTION 1302. Repayment of Securities. Securities of any series subject to
repayment in whole or in part at the option of the Holders thereof will, unless
otherwise provided in the terms of such Securities, be repaid at a price equal
to the principal amount thereof, together with interest, if any, thereon accrued
to the Repayment Date specified in or pursuant to the terms of such Securities.
The Company covenants that at least one Business Day prior to the Repayment Date
it shall deposit with the Trustee or with a Paying Agent (or, if the Company is
acting as it own Paying Agent, segregate and hold in trust as provided in
Section 1003) an amount of money in the currency or currencies, currency unit or
units or composite currency or currencies in which the Securities of such series
are payable (except as otherwise specified pursuant to Section 301 for the
Securities of such series) sufficient to pay the principal (or, if so provided
by the terms of the Securities of any series, a percentage of the principal) of,
and (except if the Repayment Date is an Interest Payment Date) accrued interest
on, all the Securities or portions thereof, as the case may be, to be repaid on
such date.
SECTION 1303. Exercise of Option. Securities of any series subject to
repayment at the option of the Holders thereof will contain an "Option to Elect
Repayment" form on the reverse of such Securities. In order for any Security to
be repaid at the option of the Holder, the Trustee must receive at the Place of
Payment therefor specified in the terms of such Security (or at such other place
or places of which the Company shall from time to time notify the Holders of
such Securities), not earlier than 60 days nor later than 30 days prior to the
Repayment Date, (i) the Security so providing for such repayment together with
the "Option to Elect Repayment" form on the reverse thereof duly completed by
the Holder (or by the Holder's attorney duly authorized in writing) or (ii) a
telegram, telex, facsimile transmission or a letter from a member of a national
securities exchange, or the National Association of Securities Dealers, Inc., or
a commercial bank or trust company in the United States setting forth the name
of the Holder of the Security, the principal amount of the Security, the
principal amount of the Security to be repaid, the CUSIP number, if any, or a
description of the tenor and terms of the Security, a statement that the option
to elect repayment is being exercised thereby and a guarantee that the
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Security to be repaid, together with the duly completed form entitled "Option to
Elect Repayment" on the reverse of the Security, will be received by the Trustee
not later than the fifth Business Day after the date of such telegram, telex,
facsimile transmission or letter; provided, however, that such telegram, telex,
facsimile transmission or letter shall only be effective if such Security and
form duly completed are received by the Trustee by such fifth Business Day. If
less than the entire principal amount of such Security is to be repaid in
accordance with the terms of such Security, the principal amount of such
Security to be repaid, in increments of the minimum denomination for Securities
of such series, and the denomination or denominations of the Security or
Securities to be issued to the Holder for the portion of the principal amount of
such Security surrendered which is not to be repaid, must be specified. The
principal amount of any Security providing for prepayment at the option of the
Holder thereof may not be repaid in part if, following such repayment, the
unpaid principal amount of such Security would be less than the minimum
authorized denomination of Securities of or within the series of which such
Security to be repaid is a part. Except as otherwise may be provided by the
terms of any Security providing for repayment at the option of the Holder
thereof, exercise of the repayment option by the Holder shall be irrevocable
unless waived by the Company.
SECTION 1304. When Securities Presented for Repayment Become Due and
Payable. If Securities of any series providing for repayment at the option of
the Holders thereof have been surrendered as provided in this Article and as
provided by or pursuant to the terms of such Securities, such Securities or the
portions thereof, as the case may be, to be repaid shall become due and payable
and shall be paid by the Company on the Repayment Date therein specified, and on
and after such Repayment Date (unless the Company defaults in the payment of
such Securities on such Repayment Date) such Securities shall, if the same were
interest-bearing, cease to bear interest and the coupons for such interest
appertaining to any Bearer Securities so to be repaid, except to the extent
provided below, shall be void. Upon surrender of any such Security for repayment
in accordance with such provisions, together with any coupons appertaining
thereto maturing after the Repayment Date, the principal amount of such security
so to be repaid shall be paid by the Company, together with accrued interest, if
any, to the Repayment Date; provided, however, that coupons whose Stated
Maturity is on or prior to the Repayment Date shall be payable only at an office
or agency located outside the United States (except as otherwise provided in
Section 1002) and, unless otherwise specified pursuant to Section 301, only upon
presentation and surrender of such coupons; and provided, further, that, in the
case of Registered Securities, installments of interest, if any, whose Stated
Maturity is on or prior to the Repayment Date shall be payable (but without
interest thereon, unless the Company defaults in the payment thereof) to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Record Dates according to their
terms and the provisions of Section 307.
If any Bearer Security surrendered for repayment is not accompanied by all
coupons appertaining thereto maturing after the Repayment Date, such Security
may be paid after deducting from the amount payable therefor as provided in
Section 1302 an amount equal to the face amount of all such missing coupons, or
the surrender of such missing coupon or coupons may be waived by the Company and
the Trustee if there is furnished to them such security or
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indemnity as they may require to save each of them and any Paying Agent
harmless. If thereafter the Holder of such Security surrenders to the Trustee or
any Paying Agent any such missing coupon in respect of which a deduction has
been made as provided in the preceding sentence, such Holder shall be entitled
to receive the amount so deducted; provided, however, that interest represented
by a coupon shall be payable only at an office or agency located outside the
United States (except as otherwise provided in Section 1002) and, unless
otherwise specified as contemplated by Section 301, only upon presentation and
surrender of such coupon.
If the principal amount of any Security surrendered for repayment shall not
be so repaid upon surrender thereof, such principal amount (together with
interest, if any, thereon accrued to such Repayment Date) shall, until paid,
bear interest from the Repayment Date at the rate of interest or Yield to
Maturity (in the case of Original Issue Discount Securities) set forth in such
Security.
SECTION 1305. Securities Repaid in Part. Upon surrender of any Registered
Security which is to be repaid in part only, the Company shall execute and the
Trustee shall authenticate and deliver to the Holder of such Security, without
service charge and at the expense of the Company, a new Registered Security or
Securities of the same series, of any authorized denomination specified by the
Holder, in an aggregate principal amount equal to and in exchange for the
portion of the principal of such Security so surrendered which is not to be
repaid.
ARTICLE FOURTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1401. Applicability of Article; Company's Option to Effect
Defeasance or Covenant Defeasance. If, pursuant to Section 301, provision is
made for either or both of (i) defeasance of the Securities of or within a
series under Section 1402 or (ii) covenant defeasance of the Securities of or
within a series under Section 1403 to be applicable to the Securities of any
series, then the provisions of such Section or Sections, as the case may be,
together with the other provisions of this Article (with such modifications
thereto as may be specified pursuant to Section 301 with respect to any
Securities), shall be applicable to such Securities and any coupons appertaining
thereto, and the Company may at its option by Board Resolution, at any time,
with respect to such Securities and any coupons appertaining thereto, elect to
defease such Outstanding Securities and any coupons appertaining thereto
pursuant to Section 1402 (if applicable) or Section 1403 (if applicable) upon
compliance with the conditions set forth below in this Article.
SECTION 1402. Defeasance and Discharge. Upon the Company's exercise of the
above option applicable to this Section with respect to any Securities of or
within a series, the Company shall be deemed to have been discharged from its
obligations with respect to such Outstanding Securities and any coupons
appertaining thereto on the date the conditions set forth in Section 1404 are
satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means
that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by such Outstanding Securities and any coupons
appertaining thereto, which shall
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thereafter be deemed "Outstanding" only for the purposes of Section 1405 and the
other Sections of this Indenture referred to in clauses (i) and (ii) below, and
to have satisfied all of its other obligations under such Securities and any
coupons appertaining thereto and this Indenture insofar as such Securities and
any coupons appertaining thereto are concerned (and the Trustee, at the expense
of the Company, shall execute proper instruments acknowledging the same), except
for the following which shall survive until otherwise terminated or discharged
hereunder: (i) the rights of Holders of such Outstanding Securities and any
coupons appertaining thereto to receive, solely from the trust fund described in
Section 1404 and as more fully set forth in such Section, payments in respect of
the principal of (and premium or Make-Whole Amount, if any, on) and interest and
Additional Amounts, if any, on such Securities and any coupons appertaining
thereto when such payments are due; (ii) the Company's obligations with respect
to such Securities under Sections 305, 306, 1002 and 1003 and with respect to
the payment of Additional Amounts, if any, on such Securities as contemplated by
Section 1011; (iii) the rights, powers, trusts, duties and immunities of the
Trustee hereunder; and (iv) this Article. Subject to compliance with this
Article Fourteen, the Company may exercise its option under this Section
notwithstanding the prior exercise of its option under Section 1403 with respect
to such Securities and any coupons appertaining thereto.
SECTION 1403. Covenant Defeasance. Upon the Company's exercise of the above
option applicable to this Section with respect to any Securities of or within a
series, the Company shall be released from its obligations under Sections 1004
to 1009, inclusive, and, if specified pursuant to Section 301, its obligations
under any other covenant, with respect to such Outstanding Securities and any
coupons appertaining thereto on and after the date the conditions set forth in
Section 1404 are satisfied (hereinafter, "covenant defeasance"), and such
Securities and any coupons appertaining thereto shall thereafter be deemed not
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with
Sections 1004 to 1009, inclusive, or such other covenant, but shall continue to
be deemed "Outstanding" for all other purposes hereunder. For this purpose, such
covenant defeasance means that, with respect to such Outstanding Securities and
any coupons appertaining thereto, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such Section or such other covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such Section or such other
covenant or by reason of reference in any such Section or such other covenant to
any other provision herein or in any other document and such omission to comply
shall not constitute a default or an Event of Default under clause (4) or (9) of
Section 501 or otherwise, as the case may be, but, except as specified above,
the remainder of this Indenture and such Securities and any coupons appertaining
thereto shall be unaffected thereby.
SECTION 1404. Conditions to Defeasance or Covenant Defeasance. The
following shall be the conditions to application of Section 1402 or Section 1403
to any Outstanding Securities of or within a series and any coupons appertaining
thereto:
(a) The Company has irrevocably deposited or caused to be deposited
with the Trustee (or another trustee satisfying the requirements of Section
607 who shall agree to
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comply with the provisions of this Article Fourteen applicable to it) funds
in trust for the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of such Securities and any coupons appertaining thereto: (i) an
amount in such currency or currencies, currency unit or units or composite
currency or currencies in which such Securities and any coupons
appertaining thereto are then specified as payable at Stated Maturity, or
(ii) Government Obligations applicable to such Securities and any coupons
appertaining thereto (determined on the basis of the currency or
currencies, currency unit or units or composite currency or currencies in
which such Securities and any coupons appertaining thereto are then
specified as payable at Stated Maturity) which through the scheduled
payment of principal and interest in respect thereof in accordance with
their terms will provide, not later than one day before the due date of any
payment of principal of (and premium or Make-Whole Amount, if any, on) and
interest and Additional Amounts, if any, on such Securities and any coupons
appertaining thereto, money in an amount, or (iii) a combination thereof in
an amount, sufficient, without consideration of any reinvestment of such
principal and interest, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, and which shall be applied
by the Trustee (or other qualifying trustee) to pay and discharge, (A) the
principal of (and premium or Make-Whole Amount, if any, on) and interest
and Additional Amounts, if any, on such Outstanding Securities and any
coupons appertaining thereto on the Stated Maturity of such principal or
installment of principal or interest and (B) any mandatory sinking fund
payments or analogous payments applicable to such Outstanding Securities
and any coupons appertaining thereto on the day on which such payments are
due and payable in accordance with the terms of this Indenture and of such
Securities and any coupons appertaining thereto, provided that the Trustee
has been irrevocably instructed to apply such money or the proceeds of such
Government Obligations to such payments with respect to such Securities.
Before such a deposit, the Company may give to the Trustee, in accordance
with Section 1102, a notice of its election to redeem all or any portion of
such Outstanding Securities at a future date in accordance with the terms
of the Securities of such series and Article Eleven, which notice shall be
irrevocable. Such irrevocable redemption notice, if given, shall be given
effect in applying the foregoing.
(b) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which the Company is a party
or by which it is bound (and shall not cause the Trustee to have a
conflicting interest pursuant to Section 310(b) of the Trust Indenture Act
with respect to any Security of the Company).
(c) No Event of Default or event which with notice or lapse of time or
both would become an Event of Default with respect to such Securities and
any coupons appertaining thereto has occurred and is continuing on the date
of such deposit or, insofar as clauses (7) and (8) of Section 501 are
concerned, at any time during the period ending
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on the 91st day after the date of such deposit (it being understood that
this condition shall not be deemed satisfied until the expiration of such
period).
(d) In the case of an election under Section 1402, the Company has
delivered to the Trustee an Opinion of Counsel stating that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of execution of this Indenture,
there has been a change in the applicable Federal income tax law, in either
case to the effect that, and based thereon such opinion shall confirm that,
the Holders of such Outstanding Securities and any coupons appertaining
thereto will not recognize income, gain or loss for Federal income tax
purposes as a result of such defeasance and will be subject to Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance had not occurred.
(e) In the case of an election under Section 1403, the Company has
delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of such Outstanding Securities and any coupons appertaining thereto
will not recognize income, gain or loss for Federal income tax purposes as
a result of such covenant defeasance and will be subject to Federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such covenant defeasance had not occurred.
(f) The Company has delivered to the Trustee a Company Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance under Section 1402 or the covenant defeasance under Section 1403
(as the case may be) have been complied with and an Opinion of Counsel to
the effect that either (i) as a result of a deposit pursuant to paragraph
(a) above and the related exercise of the Company's option under Section
1402 or Section 1403 (as the case may be), registration is not required
under the Investment Company Act of 1940, as amended, by the Company with
respect to the trust funds representing such deposit or by the Trustee for
such trust funds or (ii) all necessary registrations under such Act have
been effected.
(g) After the 91st day following the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally.
(h) Notwithstanding any other provisions of this Section, such
defeasance or covenant defeasance shall be effected in compliance with any
additional or substitute terms, conditions or limitations which may be
imposed on the Company in connection therewith pursuant to Section 301.
SECTION 1405. Deposited Money and Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions. Subject to the provisions of the last
paragraph of Section 1003, all money and Government Obligations (or other
property as may be provided pursuant to Section 301) (including the proceeds
thereof) deposited with the Trustee (or other qualifying
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trustee) pursuant to Section 1404 in respect of any Outstanding Securities of
any series and any coupons appertaining thereto shall be held in trust and
applied by the Trustee or such other qualifying trustee, in accordance with the
provisions of such Securities and any coupons appertaining thereto and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee or such
other qualifying trustee may determine, to the Holders of such Securities and
any coupons appertaining thereto of all sums due and to become due thereon in
respect of principal (and premium or Make-Whole Amount, if any) and interest and
Additional Amounts, if any, but such money need not be segregated from other
funds except to the extent required by law.
Unless otherwise specified with respect to any Security pursuant to Section
301, if, after a deposit referred to in Section 1404(a) has been made, (i) the
Holder of a Security in respect of which such deposit was made is entitled to,
and does, elect pursuant to Section 301 or the terms of such Security to receive
payment in a currency, currency unit or composite currency other than that in
which the deposit pursuant to Section 1404(a) has been made in respect of such
Security or (ii) a Conversion Event occurs in respect of the currency, currency
unit or composite currency in which the deposit pursuant to Section 1404(a) has
been made, the indebtedness represented by such Security and any coupons
appertaining thereto shall be deemed to have been, and will be, fully discharged
and satisfied through the payment of the principal of (and premium or Make-Whole
Amount, if any, on), and interest and Additional Amounts, if any, on such
Security as the same become due out of the proceeds yielded by converting (from
time to time as specified below in the case of any such election) the amount or
other property deposited in respect of such Security into the currency, currency
unit or composite currency in which such Security becomes payable as a result of
such election or Conversion Event based on the applicable market exchange rate
for such currency, currency unit or composite currency in effect on the second
Business Day prior to each payment date, except, with respect to a Conversion
Event, for such currency, currency unit or composite currency in effect (as
nearly as feasible) at the time of the Conversion Event.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the Government Obligations deposited
pursuant to Section 1404 or the principal and interest received in respect
thereof other than any such tax, fee or other charge which by law is for the
account of the Holders of such Outstanding Securities and any coupons
appertaining thereto.
Anything in this Article to the contrary notwithstanding, the Trustee or
such other qualifying trustee shall deliver or pay to the Company, from time to
time upon Company Request, any money or Government Obligations (or other
property and any proceeds therefrom) held by it as provided in Section 1404
which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee or such other qualifying trustee, are in excess of the amount thereof
which would then be required to be deposited to effect a defeasance or covenant
defeasance, as applicable, in accordance with this Article.
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ARTICLE FIFTEEN
MEETINGS OF HOLDERS OF SECURITIES
SECTION 1501. Purposes for Which Meetings May Be Called. A meeting of
Holders of Securities of any series may be called at any time and from time to
time pursuant to this Article to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be made, given or taken by Holders of Securities of such
series.
SECTION 1502. Call, Notice and Place of Meetings.
(a) The Trustee may at any time call a meeting of Holders of
Securities of any series for any purpose specified in Section 1501, to be
held at such time and at such place in the city of Boston, Massachusetts,
as the Trustee determines. Notice of every meeting of Holders of Securities
of any series, setting forth the time and the place of such meeting and in
general terms the action proposed to be taken at such meeting, shall be
given, in the manner provided in Section 106, not less than 21 nor more
than 180 days prior to the date fixed for the meeting.
(b) In case at any time the Company, pursuant to a Board Resolution,
or the Holders of at least 10% in principal amount of the Outstanding
Securities of any series have requested the Trustee to call a meeting of
the Holders of Securities of such series for any purpose specified in
Section 1501, by written request setting forth in reasonable detail the
action proposed to be taken at the meeting, and the Trustee has not made
the first publication of the notice of such meeting within 21 days after
receipt of such request or does not thereafter proceed to cause the meeting
to be held as provided herein, then the Company or the Holders of
Securities of such series in the amount above specified, as the case may
be, may determine the time and the place in the city of Boston,
Massachusetts, for such meeting and may call such meeting for such purposes
by giving notice thereof as provided in paragraph (a) above.
SECTION 1503. Persons Entitled to Vote at Meetings. To be entitled to vote
at any meeting of Holders of Securities of any series, a Person shall be (i) a
Holder of one or more Outstanding Securities of such series or (ii) a Person
appointed by an instrument in writing as proxy for a Holder or Holders of one or
more Outstanding Securities of such series by such Holder or Holders. The only
Persons who shall be entitled to be present or to speak at any meeting of
Holders of Securities of any series are the Persons entitled to vote at such
meeting and their counsel, any representatives of the Trustee and its counsel,
and any representatives of the Company and its counsel.
SECTION 1504. Quorum; Action. The Persons entitled to vote a majority in
principal amount of the Outstanding Securities of a series shall constitute a
quorum for a meeting of Holders of Securities of such series; provided, however,
that if any action is to be taken at such meeting with respect to a consent or
waiver which this Indenture expressly provides may be
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given by the Holders of not less than a specified percentage in principal amount
of the Outstanding Securities of a series, the Persons entitled to vote such
specified percentage in principal amount of the Outstanding Securities of such
series shall constitute a quorum. In the absence of a quorum within 30 minutes
after the time appointed for any such meeting, the meeting shall, if convened at
the request of Holders of Securities of such series, be dissolved. In any other
case the meeting may be adjourned for a period of not less than 10 days as
determined by the chairman of the meeting prior to the adjournment of such
meeting. In the absence of a quorum at any such adjourned meeting, such
adjourned meeting may be further adjourned for a period of not less than 10 days
as determined by the chairman of the meeting prior to the adjournment of such
adjourned meeting. Notice of the reconvening of any adjourned meeting shall be
given as provided in Section 1502(a), except that such notice need be given only
once not less than five days prior to the date on which the meeting is scheduled
to be reconvened. Notice of the reconvening of any adjourned meeting shall state
expressly the percentage, as provided above, of the principal amount of the
Outstanding Securities of such series which shall constitute a quorum.
Except as limited by the proviso to Section 902, any resolution presented
to a meeting or adjourned meeting duly reconvened at which a quorum is present
as aforesaid may be adopted by the affirmative vote of the Holders of a majority
in principal amount of the Outstanding Securities of such series; provided,
however, that, except as limited by the proviso to Section 902, any resolution
with respect to any request, demand, authorization, direction, notice, consent,
waiver or other action which this Indenture expressly provides may be made,
given or taken by the Holders of a specified percentage, which is less than a
majority, in principal amount of the Outstanding Securities of a series may be
adopted at a meeting or an adjourned meeting duly reconvened and at which a
quorum is present as aforesaid by the affirmative vote of the Holders of such
specified percentage in principal amount of the Outstanding Securities of such
series.
Any resolution passed or decision taken at any meeting of Holders of
Securities of any series duly held in accordance with this Section shall be
binding on all the Holders of Securities of such series and any coupons
appertaining thereto, whether or not present or represented at the meeting.
Notwithstanding the foregoing provisions of this Section 1504, if any
action is to be taken at a meeting of Holders of Securities of any series with
respect to any request, demand, authorization, direction, notice, consent,
waiver or other action which this Indenture expressly provides may be made,
given or taken by the Holders of a specified percentage in principal amount of
all Outstanding Securities affected thereby, or of the Holders of such series
and one or more additional series;
(1) there shall be no minimum quorum requirement for such meeting;
and
(2) the principal amount of the Outstanding Securities of such series
which vote in favor of such request, demand, authorization, direction,
notice, consent, waiver
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or other action shall be taken into account in determining whether such
request, demand, authorization, direction, notice, consent, waiver or other
action has been made, given or taken under this Indenture.
SECTION 1505. Determination of Voting Rights; Conduct and Adjournment of
Meetings.
(a) Notwithstanding any provisions of this Indenture, the Trustee may
make such reasonable regulations as it may deem advisable for any meeting
of Holders of Securities of a series in regard to proof of the holding of
Securities of such series and of the appointment of proxies and in regard
to the appointment and duties of inspectors of votes, the submission and
examination of proxies, certificates and other evidence of the right to
vote, and such other matters concerning the conduct of the meeting as it
deems appropriate. Except as otherwise permitted or required by any such
regulations, the holding of Securities shall be proved in the manner
specified in Section 104 and the appointment of any proxy shall be proved
in the manner specified in Section 104 or by having the signature of the
Person executing the proxy witnessed or guaranteed by any trust company,
bank or banker authorized by Section 104 to certify to the holding of
Bearer Securities. Such regulations may provide that written instruments
appointing proxies, regular on their face, may be presumed valid and
genuine without the proof specified in Section 104 or other proof.
(b) The Trustee shall, by an instrument in writing appoint a
temporary chairman of the meeting, unless the meeting has been called by
the Company or by Holders of Securities as provided in Section 1502(b), in
which case the Company or the Holders of Securities of or within the series
calling the meeting, as the case may be, shall in like manner appoint a
temporary chairman. A permanent chairman and a permanent secretary of the
meeting shall be elected by vote of the Persons entitled to vote a majority
in principal amount of the Outstanding Securities of such series
represented at the meeting.
(c) At any meeting each Holder of a Security of such series or proxy
shall be entitled to one vote for each $1,000 principal amount of the
Outstanding Securities of such series held or represented by such Holder;
provided, however, that no vote shall be cast or counted at any meeting in
respect of any Security challenged as not Outstanding and ruled by the
chairman of the meeting to be not Outstanding. The chairman of the meeting
shall have no right to vote, except as a Holder of a Security of such
series or proxy.
(d) Any meeting of Holders of Securities of any series duly called
pursuant to Section 1502 at which a quorum is present may be adjourned from
time to time by Persons entitled to vote a majority in principal amount of
the Outstanding Securities of such series represented at the meeting, and
the meeting may be held as so adjourned without further notice.
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SECTION 1506. Counting Votes and Recording Action of Meetings. The vote on
any resolution submitted to any meeting of Holders of Securities of any series
shall be by written ballots on which shall be subscribed the signatures of the
Holders of Securities of such series or of their representatives by proxy and
the principal amounts and series numbers of the Outstanding Securities of such
series held or represented by them. The permanent chairman of the meeting shall
appoint two inspectors of votes who shall count all votes cast at the meeting
for or against any resolution and who shall make and file with the secretary of
the meeting their verified written reports in duplicate of all votes cast at the
meeting. A record, at least in duplicate, of the proceedings of each meeting of
Holders of Securities of any series shall be prepared by the secretary of the
meeting and there shall be attached to such record the original reports of the
inspectors of votes on any vote by ballot taken thereat and affidavits by one or
more persons having knowledge of the fact, setting forth a copy of the notice of
the meeting and showing that such notice was given as provided in Section 1502
and, if applicable, Section 1504. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
SECTION 1507. Evidence of Action Taken by Holders. Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by a specified percentage in principal
amount of the Holders of any or all series may be embodied in and evidenced by
one or more instruments of substantially similar tenor signed by such specified
percentage of Holders in person or by agent duly appointed in writing; and,
except as otherwise expressly provided herein, such action shall become
effective when such instrument or instruments are delivered to the Trustee.
Proof of execution of any instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Article
Six) conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Article.
SECTION 1508. Proof of Execution of Instruments. Subject to Article Six,
the execution of any instrument by a Holder or his agent or proxy may be proved
in accordance with such reasonable rules and regulations as may be prescribed by
the Trustee or in such manner as shall be satisfactory to the Trustee.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
SECURITY CAPITAL ATLANTIC INCORPORATED
By:
-----------------------------------
Constance B. Moore
[SEAL] Co-Chairman
Attest:
- -----------------------
Jeffrey A. Klopf
Secretary
STATE STREET BANK AND TRUST COMPANY,
As Trustee
By:
--------------------------------
Name:
------------------------------
[SEAL] Title:
-----------------------------
Attest:
- -----------------------
Secretary
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STATE OF GEORGIA )
) ss:
COUNTY OF FULTON )
On the _____ day of __________, 1997, before me personally came Constance
B. Moore, to me known, who, being by me duly sworn, did depose and say that she
resides at 2633 Howell Mill Road, N.W., Atlanta, Georgia 30327, that she is a
Co-Chairman of Security Capital Atlantic Incorporated, one of the entities
described in and which executed the foregoing instrument; that she knows the
seal of such entity; that the seal affixed to such instrument is such seal; that
it was so affixed by authority of the Board of Directors of such entity, and
that she signed his name thereto by like authority.
[Notarial Seal]
-------------------------------------
Notary Public
Commission Expires
STATE OF MASSACHUSETTS )
) ss:
COUNTY OF SUFFOLK )
On the _____ day of __________, 1997, before me personally came
____________________, to me known, who, being by me duly sworn, did depose and
say that _____ resides at ________________________________________, that _____
is a ____________________ of State Street Bank and Trust Company, one of the
entities described in and which executed the foregoing instrument; that _____
knows the seal of such entity; that the seal affixed to such instrument is such
seal; that it was so affixed by authority of the Board of Directors of such
entity, and that _____ signed his name thereto by like authority.
[Notarial Seal]
-------------------------------------
Notary Public
Commission Expires
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EXHIBIT A
FORMS OF CERTIFICATION
EXHIBIT A-1
FORM OF CERTIFICATE TO BE GIVEN BY PERSON ENTITLED
TO RECEIVE BEARER SECURITY OR TO OBTAIN INTEREST
PAYABLE PRIOR TO THE EXCHANGE DATE
CERTIFICATE
[Insert title or sufficient description of Securities to be delivered]
This is to certify that, as of the date hereof, and except as set forth
below, the above-captioned Securities held by you for our account (i) are owned
by person(s) which are not citizens or residents of the United States, domestic
partnerships, domestic corporations or any estate or trust the income of which
is subject to United States federal income taxation regardless of its source
("United States person(s)"), (ii) are owned by United States person(s) which are
(a) foreign branches of United States financial institutions (financial
institutions, as defined in United States Treasury Regulations Section 1.165-
12(c)(1)(v) are herein referred to as "financial institutions") purchasing for
their own account or for resale, or (b) United States person(s) who acquired the
Securities through foreign branches of United States financial institutions and
who hold the Securities through such United States financial institutions on the
date hereof (and in either case (a) or (b), each such United States financial
institution hereby agrees, on its own behalf or through its agent, that you may
advise Security Capital Atlantic Incorporated or its agent that such financial
institution will provide a certificate within a reasonable time stating that it
agrees to comply with the requirements of Section 165(j)(3)(A), (B) or (C) of
the United States Internal Revenue Code of 1986, as amended, and the regulations
thereunder), or (iii) are owned by a financial institution for purposes of
resale during the restricted period (as defined in United States Treasury
Regulations Section 1.163-5(c)(2)(i)(D)(7)), and, such financial institution
described in clause (iii) above (whether or not also described in clause (i) or
(ii)), certifies that it has not acquired the Securities for purposes of resale
directly or indirectly to a United States person or to a person within the
United States or its possessions.
As used herein, "United States" means the United States of America
(including the States and the District of Columbia); and its "possessions"
include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island
and the Northern Mariana Islands.
We undertake to advise you promptly by tested telex on or prior to the date
on which you intend to submit your certification relating to the above-captioned
Securities held by you for our account in accordance with your Operating
Procedures if any applicable statement herein is not
<PAGE>
correct on such date, and in the absence of any such notification it may be
assumed that this certification applies as of such date.
This certificate excepts and does not relate to [U.S.$] _______________ of
such interest in the above-captioned Securities in respect of which we are not
able to certify and as to which we understand an exchange for an interest in a
Permanent Global Security or an exchange for and delivery of definitive
Securities (or, if relevant, collection of any interest) cannot be made until we
do so certify.
We understand that this certificate may be required in connection with
certain tax legislation in the United States. If administrative or legal
proceedings are commenced or threatened in connection with which this
certificate is or would be relevant, we irrevocably authorize you to produce
this certificate or a copy thereof to any interested party in such proceedings.
Dated: __________ ___, 19___
[To be dated no earlier than the 15th day prior
to the earlier of (i) the Exchange Date or
(ii) the relevant Interest Payment Date occurring
prior to the Exchange Date, as applicable]
[Name of Person Making Certification]
-------------------------------------
(Authorized Signatory)
Name:
Title:
<PAGE>
EXHIBIT A-2
FORM OF CERTIFICATE TO BE GIVEN BY EUROCLEAR
AND CEDEL S.A. IN CONNECTION WITH THE EXCHANGE OF
A PORTION OF A TEMPORARY GLOBAL SECURITY OR TO
OBTAIN INTEREST PAYABLE PRIOR TO THE EXCHANGE DATE
CERTIFICATE
[Insert title or sufficient description of Securities to be delivered]
This is to certify that, based solely on written certifications that we
have received in writing, by tested telex or by electronic transmission from
each of the persons appearing in our records as persons entitled to a portion of
the principal amount set forth below (our "Member Organizations") substantially
in the form attached hereto, as of the date hereof, [U.S.$] _______________
principal amount of the above-captioned Securities (i) is owned by person(s)
which are not citizens or residents of the United States, domestic partnerships,
domestic corporations or any estate or trust the income of which is subject to
United States Federal income taxation regardless of its source ("United States
person(s)"), (ii) is owned by United States persons(s) which are (a) foreign
branches of United States financial institutions (financial institutions, as
defined in United States Treasury Regulations Section 1.165-12(c)(1)(v) are
herein referred to as "financial institutions") purchasing for their own account
or for resale, or (b) United States person(s) who acquired the Securities
through foreign branches of United States financial institutions and who hold
the Securities through such United States financial institutions on the date
hereof (and in either case (a) or (b), each such financial institution has
agreed, on its own behalf or through its agent, that we may advise Security
Capital Atlantic Incorporated or its agent that such financial institution will
provide a certificate within a reasonable time stating that it agrees to comply
with the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal
Revenue Code of 1986, as amended, and the regulations thereunder), or (iii) is
owned by a financial institution for purposes of resale during the restricted
period (as defined in United States Treasury Regulations Section 1.163-
5(c)(2)(i)(D)(7)), and that such financial institutions described in clause
(iii) above (whether or not also described in clause (i) or (ii)) have certified
that they have not acquired the Securities for purposes of resale directly or
indirectly to a United States person or to a person within the United States or
its possessions.
As used herein, "United States" means the United States of America
(including the States and the District of Columbia); and its "possessions"
include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island
and the Northern Mariana Islands.
We further certify that (i) we are not making available herewith for
exchange (or, if relevant, collection of any interest) any portion of the
temporary global Security representing the above-captioned Securities excepted
in the above-referenced certificates of Member Organizations and (ii) as of the
date hereof we have not received any notification from any of our Member
Organizations to the effect that the statements made by such Member
Organizations
<PAGE>
with respect to any portion of the part submitted herewith for exchange (or, if
relevant, collection of any interest) are no longer true and cannot be relied on
as of the date hereof.
We understand that this certification is required in connection with
certain tax legislation in the United States. If administrative or legal
proceedings are commenced or threatened in connection with which this
certificate is or would be relevant, we irrevocably authorize you to produce
this certificate or a copy thereof to any interested party in such proceedings.
Dated: __________ ___, 19___
[To be dated no earlier than the earlier of
the Exchange Date or the relevant Interest
Payment Date occurring prior to the Exchange
Date, as applicable]
[Morgan Guaranty Trust Company of New York,
Brussels Office,] as Operator of the
Euroclear System
[Cedel S.A.]
By:
----------------------------------------
<PAGE>
Exhibit 15
August 1, 1997
Shareholders and Board of Directors
Security Capital Atlantic Incorporated
We are aware of the inclusion in Amendment No. 1 to the Registration Statement
on Form S-11 (No. 333-30747) of Security Capital Atlantic Incorporated for the
registration of its Notes of our report dated April 24, 1997, except for Note 6,
as to which the date is May 1, 1997, relating to the unaudited condensed interim
financial statements of Security Capital Atlantic Incorporated as of March 31,
1997 and for the three-month periods ended March 31, 1997 and 1996.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
Ernst & Young LLP
/s/ Ernst & Young LLP
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of (a) our report dated February 3, 1997, with respect to the financial
statements at December 31, 1996 and 1995 and for each of the three years in the
period ended December 31, 1996 and schedule of Security Capital Atlantic
Incorporated ("ATLANTIC"), (b) our report dated April 26, 1996 with respect to
the combined Historical Summary of Gross Income and Direct Operating Expenses of
the Group C Communities of ATLANTIC, (c) our report dated August 13, 1996 with
respect to the combined Historical Summary of Gross Income and Direct Operating
Expenses of the Group D Communities of ATLANTIC and (d) our report dated January
31, 1997 with respect to the combined Historical Summary of Gross Income and
Direct Operating Expenses of the Group E Communities of ATLANTIC, all of which
are included in Amendment No. 1 to the Registration Statement of ATLANTIC on
Form S-11 (No. 333-30747) and the related Prospectus for the registration of its
Notes.
Ernst & Young LLP
/s/ Ernst & Young LLP
Dallas, Texas
August 1, 1997
<PAGE>
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
_________
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
_____________________
SECURITY CAPITAL ATLANTIC INCORPORATED
(Exact name of obligor as specified in its charter)
MARYLAND 85-0415503
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SIX PIEDMONT CENTER
ATLANTA, GEORGIA 30305
SENIOR DEBT SECURITIES
(Title of indenture securities)
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to
which it is subject.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its parent,
State Street Corporation.
(See note on page 2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
1. A copy of the articles of association of the trustee as now in
effect.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission as
Exhibit 1 to Amendment No. 1 to the Statement of Eligibility
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated
herein by reference thereto.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee to
commence business was necessary or issued is on file with the
Securities and Exchange Commission as Exhibit 2 to Amendment No. 1 to
Statement of Eligibility and Qualification of Trustee (Form T-1) filed
with the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
3. A copy of the authorization of the trustee to exercise corporate
trust powers, if such authorization is not contained in the documents
specified in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise corporate
trust powers is on file with the Securities and Exchange Commission
Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated
herein by reference thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4 to
the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein by
reference thereto.
1
<PAGE>
5. A copy of each indenture referred to in Item 4. if the obligor is in
default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act
is annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the {July 24, 1997}.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Henry W. Seemore
-------------------------------
NAME Henry W. Seemore
TITLE Assistant Vice President
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by {SECURITY
CAPITAL ATLANTIC}. of its {SENIOR DEBT SECURITIES}, we hereby consent that
reports of examination by Federal, State, Territorial or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Henry W. Seemore
-------------------------------------
NAME Henry W. Seemore
TITLE Assistant Vice President
Dated: July 24, 1997
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business March 31, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
Cash and balances due from depository institutions:
<S> <C>
Noninterest-bearing balances and currency and coin....................... 1,665,142
Interest-bearing balances................................................ 8,193,292
Securities.................................................................... 10,238,113
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary...................................... 5,853,144
Loans and lease financing receivables:
Loans and leases, net of unearned income ............ 4,936,454
Allowance for loan and lease losses ................. 70,307
Allocated transfer risk reserve...................... 0
Loans and leases, net of unearned income and allowances.................. 4,866,147
Assets held in trading accounts............................................... 957,478
Premises and fixed assets..................................................... 380,117
Other real estate owned....................................................... 884
Investments in unconsolidated subsidiaries.................................... 25,835
Customers' liability to this bank on acceptances outstanding.................. 45,548
Intangible assets............................................................. 158,080
Other assets.................................................................. 1,066,957
----------
Total assets.................................................................. 33,450,737
==========
LIABILITIES
Deposits:
In domestic offices...................................................... 8,270,845
Noninterest-bearing............................ 6,318,360
Interest-bearing............................... 1,952,485
In foreign offices and Edge subsidiary................................... 12,760,086
Noninterest-bearing............................ 53,052
Interest-bearing............................... 12,707,034
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary...................................... 8,216,641
Demand notes issued to the U.S. Treasury and Trading Liabilities.............. 926,821
Other borrowed money.......................................................... 671,164
Subordinated notes and debentures............................................. 0
Bank's liability on acceptances executed and outstanding...................... 46,137
Other liabilities............................................................. 745,529
Total liabilities............................................................. 31,637,223
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus................................. 0
Common stock.................................................................. 29,931
Surplus....................................................................... 360,717
Undivided profits and capital reserves/Net unrealized holding gains (losses).. 1,426,881
Cumulative foreign currency translation adjustments........................... (4,015)
Total equity capital.......................................................... 1,813,514
----------
Total liabilities and equity capital.......................................... 33,450,737
==========
</TABLE>
4
<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
5
<PAGE>
5. A copy of each indenture referred to in Item 4. if the obligor is in
default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act is
annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter of the
obligor, the trustee has relied upon the information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer to Item 2. of this statement will be amended, if necessary, to
reflect any facts which differ from those stated and which would have been
required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation duly
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the {July 24, 1997}.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Henry W. Seemore
-------------------------------------
NAME Henry W. Seemore
TITLE Assistant Vice President
6
