<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SECURITY CAPITAL ATLANTIC INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MARYLAND 85-0415503
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION
NUMBER)
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SIX PIEDMONT CENTER JEFFREY A. KLOPF, COPY OF SERVICE TO:
ATLANTA, GEORGIA 30305 SECRETARY EDWARD J. SCHNEIDMAN
(404) 237-9292 SIX PIEDMONT CENTER MAYER, BROWN & PLATT
(ADDRESS, INCLUDING ZIP ATLANTA, GEORGIA 30305 190 SOUTH LASALLE STREET
CODE, AND TELEPHONE (404) 237-9292 CHICAGO, ILLINOIS 60603
NUMBER, INCLUDING AREA (NAME, ADDRESS,
CODE, OF REGISTRANT'S INCLUDING ZIP
PRINCIPAL EXECUTIVE CODE, AND TELEPHONE
OFFICES) NUMBER,
INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITY PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE REGISTRATION FEE(1)
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<S> <C> <C>
Debt Securities................. (2) --
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Preferred Stock, par value $.01
per share...................... (2) --
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Common Stock, par value $.01 per
share.......................... (2)(3) --
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Total........................... $500,000,000 $151,516
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</TABLE>
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(1) Pursuant to Rule 457(o) under the Securities Act of 1933, the registration
fee has been calculated on the basis of the maximum aggregate offering
price of all the securities listed.
(2) In no event will the aggregate offering price of Debt Securities,
Preferred Stock and Common Stock registered under this registration
statement exceed $500,000,000 or the equivalent thereof in one or more
foreign currencies or composite currencies including European Currency
Units.
(3) There is hereby registered such indeterminate amount of Common Stock as
may be issued upon conversion of Preferred Stock registered hereunder, for
which no separate consideration will be received.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<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
PRELIMINARY PROSPECTUS DATED OCTOBER 22, 1997
PROSPECTUS
$500,000,000
SECURITY CAPITAL ATLANTIC INCORPORATED
DEBT SECURITIES, PREFERRED SHARES AND COMMON SHARES
Security Capital Atlantic Incorporated ("ATLANTIC") may from time to time
offer and sell in one or more series (i) its unsecured senior debt securities
("Debt Securities"); (ii) shares of its preferred stock, par value $.01 per
share ("Preferred Shares"); and (iii) shares of its common stock, par value
$.01 per share ("Common Shares"), with an aggregate public offering price of up
to $500,000,000, on terms to be determined by market conditions at the time of
offering. The Debt Securities, Preferred Shares and Common Shares
(collectively, the "Offered Securities") may be offered separately or together,
in separate series, in amounts, at prices and on terms to be set forth in a
supplement to this Prospectus (a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, if applicable: (i) in the case of Debt Securities,
the specific title, aggregate principal amount, currency, form (which may be
registered or bearer, or certificated or global), authorized denominations,
maturity, rate (or manner of calculation thereof) and time of payment of
interest, terms for redemption at the option of ATLANTIC or repayment at the
option of the Holder, terms of any sinking fund payments, and the initial
public offering price, along with any other relevant specific terms; (ii) in
the case of Preferred Shares, the designation, any liquidation, dividend,
redemption, conversion, voting and other rights, and the initial public
offering price, along with any other relevant specific terms; and (iii) in the
case of Common Shares, the initial public offering price. In addition, such
specific terms may include limitations on direct or beneficial ownership and
restrictions on transfer of the Offered Securities, in each case as may be
appropriate to preserve the status of ATLANTIC as a real estate investment
trust ("REIT") for Federal income tax purposes.
The applicable Prospectus Supplement will also contain information, if
applicable, about certain U.S. Federal income tax considerations relating to,
and any listing on a securities exchange of, the Offered Securities covered by
such Prospectus Supplement.
The Offered Securities may be offered directly by ATLANTIC, through agents
designated from time to time by ATLANTIC or to or through underwriters or
dealers. If any agents or underwriters are involved in the sale of any of the
Offered Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution." No Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such Offered Securities.
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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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The date of this Prospectus is , 1997
<PAGE>
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. ATLANTIC is a fully integrated operating company with approximately
100 professionals and 450 property-level and support personnel dedicated to
implementing its highly focused operating strategy.
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 which exhibit strong market fundamentals. ATLANTIC believes that
population and employment growth are the primary demand generators for
multifamily product.
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.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, ATLANTIC
intends to use the net proceeds from the sale of the Offered Securities for
the development and acquisition of additional multifamily properties, as
suitable opportunities arise, for the repayment of certain outstanding
indebtedness at such time, for working capital purposes and, to a lesser
extent, for capital improvements to properties.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
For the purpose of computing these ratios, (i) "earnings" consist of
earnings from operations plus fixed charges other than capitalized interest
and (ii) "fixed charges" consist of interest on borrowed funds (including
capitalized interest) and amortization of debt discount and expense.
<TABLE>
<CAPTION>
SIX
MONTHS
PERIOD ENDED ENDED
DECEMBER 31, JUNE 30,
------------------- ---------
1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to combined fixed charges and
Preferred Share dividends....................... N/A 1.9 1.7 1.9 1.9 2.1
</TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
For the purpose of computing these ratios, (i) "earnings" consist of
earnings from operations plus fixed charges other than capitalized interest
and (ii) "fixed charges" consist of interest on borrowed funds (including
capitalized interest) and amortization of debt discount and expense.
<TABLE>
<CAPTION>
SIX
MONTHS
PERIOD ENDED ENDED
DECEMBER 31, JUNE 30,
------------------- ---------
1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges................ N/A 1.9 1.7 1.9 1.9 2.1
</TABLE>
2
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions of
the Debt Securities to which this Prospectus and any applicable Prospectus
Supplement may relate. The Debt Securities will be issued under an Indenture,
dated as of August 14, 1997 (the "Indenture"), between ATLANTIC and State
Street Bank and Trust Company, as trustee (the "Trustee"). The Indenture has
been incorporated by reference as an exhibit to the Registration Statement of
which this Prospectus is a part and is available at the corporate trust office
of the Trustee at 225 Franklin Street, Boston, Massachusetts 02110 or as
described below under "Available Information." The Indenture is subject to,
and governed by, the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The statements made hereunder relating to the Indenture and
the Debt Securities 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 provisions of the Indenture
and such Debt Securities. All section references appearing herein are to
sections of the Indenture, and capitalized terms used but not defined herein
have the respective meanings set forth in the Indenture.
GENERAL
The Debt Securities will be direct unsecured and unsubordinated obligations
of ATLANTIC and will rank equally with all other unsecured and unsubordinated
indebtedness of ATLANTIC from time to time outstanding. However, the Debt
Securities effectively will be subordinated to mortgages of ATLANTIC and its
subsidiaries. ATLANTIC and its subsidiaries may incur additional indebtedness,
subject to the provisions described under "--Certain Covenants--Limitations on
Incurrence of Debt."
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 of Directors of ATLANTIC (the "Board") or as
established in one or more indentures supplemental to the Indenture.
Reference is made to the Prospectus Supplement relating to the Debt
Securities offered thereby for the specific terms of such Debt Securities,
including:
(1) the title of such Debt Securities;
(2) any limit on the aggregate principal amount of such Debt Securities;
(3) the date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable and the
amount of principal payable thereon;
(4) the rate or rates, or the method by which such rate or rates will be
determined, at which such Debt Securities will bear interest, if any,
and the date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the Interest Payment
Dates (as defined) on which any such interest will be payable, the
Regular Record Dates (as defined), if any, for such Interest Payment
Dates, or the method by which such dates will be determined, and the
basis on which interest will be calculated if other than a 360-day
year comprised of twelve 30-day months;
(5) the place or places where the principal of (and premium or Make-Whole
Amount (as defined), if any, on) and interest and Additional Amounts
(as defined), if any, on such Debt Securities will be payable, where
such Debt Securities may be surrendered for registration of transfer
or exchange and where notices or demands to or on ATLANTIC in respect
of such Debt Securities and the Indenture may be served;
(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 the other terms and conditions on which, such Debt
Securities may be redeemed, in whole or in part, at the option of
ATLANTIC, if ATLANTIC is to have such an option;
(7) the obligation, if any, of ATLANTIC to redeem, repay or purchase such
Debt Securities pursuant to any sinking fund or analogous provision or
at the option of a Holder thereof, and the period or periods within
which, 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 the other terms and
3
<PAGE>
conditions on which, such Debt Securities will 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 denomination in which such Debt Securities will be
issuable;
(9) if other than the Trustee, the identity of the Security Registrar (as
defined) and Paying Agent (as defined);
(10) the percentage of the principal amount at which such Debt Securities
will be issued and, if other than the full principal amount thereof,
the portion of the principal amount thereof payable upon declaration
of acceleration of the maturity thereof, or the method for determining
such portion;
(11) if other than U.S. dollars, the currency or currencies in which the
principal of (and premium or Make-Whole Amount, if any, on) or
interest or Additional Amounts, if any, on such Debt Securities are
denominated and payable;
(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 such Debt Securities may be determined with reference to an
index, formula or other method (which index, formula or method may be
based, without limitation, on one or more currencies, currency units,
composite currency or currencies, commodities, equity indices or other
indices) and the manner in or which such amounts will be determined;
(13) whether the principal of (and premium or Make-Whole Amount, if any,
on) or interest or Additional Amounts, if any, on such Debt Securities
are to be payable, at the election of ATLANTIC or a Holder, in a
currency or currencies, currency unit or units or composite currency
or currencies, other than that in which such Debt Securities are
denominated or stated to be payable, the period or periods within
which, and the terms and conditions on 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 in which such Debt 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 Debt Securities are to be so payable;
(14) provisions, if any, granting special rights to the Holders of such
Debt Securities upon the occurrence of such events as may be
specified;
(15) any deletions from, modifications of or additions to the terms of such
Debt Securities with respect to the Events of Default or covenants set
forth in the Indenture;
(16) whether such Debt Securities are to be issuable in permanent global
form, and, if so, whether beneficial owners of interests in any such
permanent Global Security (as defined) may exchange such interests for
Debt Securities of such series and of like tenor of any authorized
form and denomination and the circumstances under which any such
exchanges may occur, and the identity of the Depository (as defined)
for such series;
(17) the Person to whom any interest on any Debt Security is payable, if
other than the Person in whose name such Debt Security is registered
at the close of business on the Regular Record Date for such interest;
(18) the applicability, if any, of the defeasance and covenant defeasance
provisions of Article Fourteen of the Indenture to such Debt
Securities and any provisions in modification thereof, in addition
thereto or in lieu thereof;
(19) if such Debt Securities are to be issuable in definitive form only
upon receipt of certificates, documents or conditions, the form and
terms of such certificates, documents or conditions;
(20) whether and under what circumstances ATLANTIC will pay Additional
Amounts as contemplated in the Indenture on such Debt Securities to
any Holder who is not a U.S. person in respect of any tax, assessment
or governmental charge and, if so, whether ATLANTIC will have the
option to redeem such Debt Securities rather than pay such Additional
Amounts (and the terms of any such option); and
(21) any other terms of such Debt Securities not inconsistent with the
provisions of the Indenture (Section 301).
4
<PAGE>
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
or bear no interest or bear interest at a rate which at the time of issuance
is below market rates ("Original Issue Discount Securities"). Special U.S.
Federal income tax, accounting and other considerations applicable to Original
Issue Discount Securities will be described in the applicable Prospectus
Supplement.
Under the Indenture, ATLANTIC will have the ability, in addition to the
ability to issue Debt Securities with terms different from those of Debt
Securities previously issued, without the consent of the Holders, to reopen a
previous issue of a series of Debt Securities and issue additional Debt
Securities of such series (Section 301).
Except as described under "--Certain Covenants--Limitations on Incurrence of
Debt" or in any applicable Prospectus Supplement, the Indenture does not
contain any other provisions which would limit the ability of ATLANTIC to
incur indebtedness or which would afford Holders of Debt Securities protection
in the event of (i) a highly leveraged or similar transaction involving
ATLANTIC, the management of ATLANTIC, or any affiliate of any such party, (ii)
a change of control or (iii) a reorganization, restructuring, merger or
similar transaction involving ATLANTIC which may adversely affect the Holders
of the Debt Securities. However, ATLANTIC's Charter limits beneficial
ownership of the Common Shares, by a single person or persons acting as a
group (other than Security Capital Group Incorporated ("Security Capital")),
to 9.8% of the Common Shares, with certain exceptions. See "Description of
Common Shares--Limitation on Ownership." Additionally, the Articles
Supplementary relating to ATLANTIC's shares of Series A Cumulative Redeemable
Preferred Stock (the "Series A Preferred Shares") limit beneficial ownership
of the Series A Preferred Shares, by a single person or persons acting as a
group, to 25% of the Series A Preferred Shares. Similarly, the Articles
Supplementary for each additional series of Preferred Shares will limit
beneficial ownership of such Preferred Shares. See "Description of Preferred
Shares--Limitation on Ownership." These limitations are designed to preserve
ATLANTIC's status as a REIT and, therefore, may act to prevent or hinder a
change of control. Reference is made to the applicable Prospectus Supplement
for information with respect to any deletions from, modifications of or
additions to the Events of Default or covenants of ATLANTIC which are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
DENOMINATIONS
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series issued in registered form, other than Debt Securities
issued in global form (which may be in any denomination), will be issued only
in denominations of $1,000 and integral multiples thereof (Section 302).
PRINCIPAL AND INTEREST
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium or Make-Whole Amount, if any, on) and interest on
any series of Debt Securities will be payable at the corporate trust office of
the Trustee, initially located at 225 Franklin Street, Boston, Massachusetts
02110; provided that, at the option of ATLANTIC, payment of interest may be
made by check mailed to the address of the Person entitled thereto as it
appears in the Security Register or by wire transfer of funds to such Person
at an account maintained within the U.S. (Sections 301, 305, 306, 307 and
1002).
If any Interest Payment Date, Principal Payment Date or the Maturity Date
(as such terms are defined) falls on a day which is not a Business Day, the
required payment will be made on the next Business Day as if it were made on
the date such payment was due and no interest will 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, through and including
such next Business Day (Section 113). "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 a Debt
Security ("Defaulted Interest") will forthwith cease to be payable to the
Holder on the applicable
5
<PAGE>
Regular Record Date and either may be paid to the person in whose name such
Debt Security is registered at the close of business on a special record date
(the "Special Record Date") for the payment of such Defaulted Interest to be
fixed by the Trustee, notice of which will be given to the Holder of such Debt
Security not less than 10 days prior to such Special Record Date, or may be
paid at any time in any other lawful manner, all as more completely described
in the Indenture (Section 307).
MERGER, CONSOLIDATION OR SALE
ATLANTIC, without the consent of the Holders of any of the Debt Securities,
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 (a) either
(i) ATLANTIC is the continuing entity or (ii) the successor entity (if other
than ATLANTIC) formed by or resulting from any such consolidation or merger or
which received the transfer of such assets is a Person organized and existing
under the laws of the U.S. or any state thereof and expressly assumes 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 Debt Securities
outstanding and the due and punctual performance and observance of all of the
covenants and conditions contained in the Indenture and such Debt Securities;
(b) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of ATLANTIC or any Subsidiary or such
other entity as a result thereof as having been incurred by ATLANTIC or such
Subsidiary 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, has occurred and is continuing; and (c)
an officer's certificate and legal opinion covering such conditions are
delivered to the Trustee (Sections 801, 803, 804 and 806).
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 generally accepted accounting principles ("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 Securities
Exchange Act of 1934, as amended (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 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
on 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).
6
<PAGE>
In addition to the foregoing limitations on the incurrence of Debt, no
Subsidiary may incur any Unsecured Debt (as defined below) other than
intercompany Debt subordinate to the Debt Securities; provided, however, that
ATLANTIC 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 ATLANTIC or any Subsidiary) was not
intended to evade the foregoing limitations 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 (as defined below) 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 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
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 will be computed based on 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 calculations; 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, share
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 will 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 (Section 1005).
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 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 are not prevented
from selling or otherwise disposing for value their 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 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 becomes delinquent, (i) all taxes,
assessments and governmental charges levied or imposed on it
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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 on the property of ATLANTIC or any
Subsidiary; provided, however, that ATLANTIC will 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) 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 ATLANTIC would have
been required so to file such documents if it were so subject. ATLANTIC will
also in any event (a) within 15 days of each Required Filing Date (i) transmit
by mail to all Holders of Debt Securities, as their names and addresses appear
in the Security Register, without cost to such Holders, copies of the annual
reports and quarterly reports which ATLANTIC 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) 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 it were subject to such Sections and (b) if filing such
documents by ATLANTIC with the Commission is not permitted under the Exchange
Act, promptly upon written request and payment of the reasonable cost of
duplication and delivery, supply copies of such documents to any prospective
Holder (Section 1009).
ADDITIONAL COVENANTS AND/OR MODIFICATIONS TO THE COVENANTS DESCRIBED ABOVE
Any additional covenants of ATLANTIC and/or modifications to the covenants
described above with respect to any Debt Securities or series thereof will be
set forth in a supplement to the Indenture and described in the Prospectus
Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (i) default
which continues for 30 days in the payment of any installment of interest or
Additional Amounts payable on any Debt Security of such series; (ii) default
in the payment of the principal of (or premium or Make-Whole Amount, if any,
on) any Debt Security of such series at its Maturity; (iii) default in making
any sinking fund payment as required for any Debt Security of such series;
(iv) 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
series), continued for 60 days after written notice as provided in the
Indenture; (v) 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; (vi) 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 or unsatisfied in an aggregate amount (excluding amounts fully
covered by insurance) in excess of $25,000,000 for a period of 30 consecutive
days; (vii) certain events of bankruptcy, insolvency or reorganization, or
court appointment of a receiver, liquidator or trustee of ATLANTIC or any
Significant Subsidiary of ATLANTIC or for all or substantially all of its
properties; and (viii) any other Event of Default provided with respect to a
particular series of Debt Securities (Section 501). The term "Significant
Subsidiary" means each significant subsidiary (as defined in Regulation S-X
promulgated by the Commission) of ATLANTIC.
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If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing, then in every
such case, unless the principal of all of the Outstanding Debt Securities of
such series has already become due and payable, the Trustee or the Holders of
not less than 25% in principal amount of the Outstanding Debt Securities of
such series may declare the principal (or, if the Debt Securities of such
series 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 of the Debt Securities of such series 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 in clause (vii) at the preceding paragraph, acceleration is
automatic. However, at any time after such a declaration of acceleration with
respect to Debt Securities of such series has been made, but before a judgment
or decree for payment of the money due has been obtained by the Trustee, the
Holders of a majority in principal amount of the Outstanding Debt Securities
of such series 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
and Additional Amounts, if any, on the Debt Securities of such series, 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 Debt Securities of such series 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 Outstanding Debt Securities of any series may waive any past default with
respect to such series and its consequences, except a default (i) 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 Debt Security of such series or
(ii) in respect of a covenant or provision contained in the Indenture which
cannot be modified or amended without the consent of the Holder of each
Outstanding Debt Security affected thereby (Section 513).
The Trustee is required to give notice to the Holders of Debt Securities
within 90 days of a default under the Indenture; provided, however, that the
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of
the principal of (or premium or Make-Whole Amount, if any, on) or interest or
Additional Amounts, if any, on any Debt Security of such series or in the
payment of any sinking fund installment in respect of any Debt Security of
such series) if a Responsible Officer of the Trustee considers such
withholding to be in the interest of such Holders (Section 601).
The Indenture provides that no Holders of Debt Securities of any series 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 the Outstanding Debt Securities of
such series, as well as an offer of reasonable indemnity (Section 507). This
provision will not prevent, however, any Holder of Debt Securities from
instituting suit for the enforcement of payment of the principal of (and
premium or Make-Whole Amount, if any, on) and interest and Additional Amounts,
if any, on such Debt Securities 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 any
series of Debt Securities then Outstanding under the Indenture, unless such
Holders 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 Debt Securities of any series will 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 Debt Securities
of such series 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 of and amendments to 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 or
Additional Amounts, if any, 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 upon redemption of, or any Additional Amounts
payable with respect to, any such Debt Security, or reduce the amount of
principal of an Original Issue Discount Security or Make-Whole Amount, if any,
which 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 currency, for payment of the principal of (or premium
or Make-Whole Amount, if any, on) or interest or Additional Amounts, if any,
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 at least a majority in principal amount of each series of
Outstanding Debt Securities have the right to waive compliance by ATLANTIC
with certain covenants in the Indenture (Section 1012).
Modifications of and amendments to the Indenture may be made by ATLANTIC and
the Trustee without the consent of any Holder of Debt Securities 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 may 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 will become
effective only when there are no Debt Securities Outstanding of any series
created prior thereto which are entitled to the benefit of such provision;
(vi) to secure the Debt Securities; (vii) to establish the form or terms of
Debt Securities of any series; (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 in the Indenture, correct or supplement any provision in the
Indenture which may be defective or inconsistent or make any other changes
with respect to matters or questions arising under the Indenture, provided
that such action may 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 may
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
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principal amount of an Original Issue Discount Security which is deemed
Outstanding is the amount of the principal thereof which 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 which is deemed Outstanding is the U.S.
dollar equivalent, determined on the issue date for such Debt Security, of the
principal amount (or, in the case of an Original Issue Discount Security, the
U.S. 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 which is deemed Outstanding is 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 on the Debt
Securities or any Affiliate of ATLANTIC or of such other obligor are
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 which must be given by the Holder of
each Debt Security affected by certain modifications of and amendments to 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 such 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 which 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 duly called 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 which 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 will be no minimum quorum requirement for
such meeting; and (ii) the principal amount of the Outstanding Debt Securities
of such series which vote in favor of such request, demand, authorization,
direction, notice, consent, waiver or other action will 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 agent duly appointed in writing; and, except as otherwise
expressly provided in the Indenture, such action will 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 will 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).
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DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
ATLANTIC may discharge certain obligations to Holders of any series of Debt
Securities which have not already been delivered to the Trustee for
cancellation and which 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 such currency or
currencies, currency unit or units or composite currency or currencies in
which such Debt Securities are payable in an amount sufficient to pay the
entire indebtedness on such Debt Securities in respect of principal (and
premium or Make-Whole Amount, if any) and interest and Additional Amounts, if
any, payable to the date of such deposit (if such Debt Securities have become
due and payable) or to the Stated Maturity or Redemption Date, as the case may
be (Sections 1401, 1402, 1403 and 1404).
The Indenture provides that, if the provisions of Article Fourteen are made
applicable to the Debt Securities of or within any series pursuant to Section
301 of the Indenture, ATLANTIC may elect either (i) to defease and discharge
itself from any and all obligations with respect to such Debt Securities
(except for the obligation to pay Additional Amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the obligations to register
the transfer or exchange of such Debt Securities, to replace temporary or
mutilated, destroyed, lost or stolen Debt Securities, to maintain an office or
agency in respect of such Debt Securities and to hold moneys for payment in
trust) ("defeasance") (Section 1402) or (ii) to release itself from its
obligations with respect to such Debt Securities under Sections 1004 to 1009,
inclusive, of the Indenture (being the restrictions described under "--Certain
Covenants") and, if provided pursuant to Section 301 of the Indenture, their
obligations with respect to any other covenant, and any omission to comply
with such obligations will not constitute a default or an Event of Default
with respect to such Debt Securities ("covenant defeasance") (Section 1403),
in either case upon the irrevocable deposit by ATLANTIC with the Trustee, in
trust, of an amount, in such currency or currencies, currency unit or units or
composite currency or currencies in which such Debt Securities are payable at
Stated Maturity, or Governmental Obligations (as defined below), or both,
applicable to such Debt Securities which through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium or Make-Whole Amount,
if any, on) and interest and Additional Amounts, if any, on such Debt
Securities, and any mandatory sinking fund or analogous payments thereon, on
the scheduled due dates therefor (Section 1404).
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 Debt Securities will not recognize
income, gain or loss for U.S. Federal income tax purposes as a result of such
defeasance or covenant defeasance and will be subject to U.S. 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 U.S. Federal income tax law occurring after the date of the
Indenture (Section 1404).
Unless otherwise provided in the applicable Prospectus Supplement, if after
ATLANTIC has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any
series, (i) the Holder of a Debt Security of such series is entitled to, and
does, elect pursuant to Section 301 of the Indenture or the terms of such Debt
Security to receive payment in a currency, currency unit or composite currency
other than that in which such deposit has been made in respect of such Debt
Security or (ii) a Conversion Event (as defined below) occurs in respect of
the currency, currency unit or composite currency in which such deposit has
been made, the indebtedness represented by such Debt Security will 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 Debt Security as they become
due out of the proceeds yielded by converting the amount so deposited in
respect of such Debt Security into the currency, currency unit or composite
currency in which such Debt Security becomes payable as a result of such
election or Conversion Event based on the applicable market exchange rate
(Section 1405). "Conversion Event" means the cessation of use of (i) a
currency (other than the ECU or other currency unit) both by the government
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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
(Section 101).
If ATLANTIC effects covenant defeasance with respect to any Debt Securities
and such Debt Securities are declared due and payable because of the
occurrence of any Event of Default other than the Event of Default described
in clause (iv) under "--Events of Default, Notice and Waiver" with respect to
Sections 1004 through 1009, inclusive, of the Indenture (which Sections would
no longer be applicable to such Debt Securities) as to which there has been
covenant defeasance, the amount in such currency, currency unit or composite
currency in which such Debt Securities are payable, plus Government
Obligations on deposit with the Trustee, will be sufficient to pay amounts due
on such Debt Securities at the time of their Stated Maturity but may not be
sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Event of Default. However, ATLANTIC would
remain liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
REGISTRATION AND TRANSFER
Subject to certain limitations imposed on Debt Securities issued in book-
entry form, the Debt Securities of any series will be exchangeable for other
Debt Securities of the same series and of a like aggregate principal amount
and tenor of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the Trustee. In addition, subject
to certain limitations imposed on Debt Securities issued in book-entry form,
the Debt Securities of any series may be surrendered for conversion or
registration of transfer thereof at the corporate trust office of the Trustee.
Every Debt Security surrendered for registration of transfer or exchange must
be duly endorsed or accompanied by a written instrument of transfer. No
service charge will be made for any registration of transfer or exchange of
any Debt Securities, but 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 Debt Securities 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 Debt Securities (Section 1002).
Neither ATLANTIC nor the Trustee will be required to (i) issue, register the
transfer of or exchange Debt Securities of any series during a period
beginning at the opening of the business 15 days before any selection of Debt
Securities of such series 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 Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed
in part; or (iii) issue, register the transfer of or exchange any Debt
Security which has been surrendered for repayment at the option of the Holder,
except the portion, if any, of such Debt Security not to be so repaid (Section
305).
BOOK-ENTRY SECURITIES
Unless otherwise provided in the applicable Prospectus Supplement, the Debt
Securities of each series will be represented by one or more certificates (the
"Global Securities"). The Global Security representing Debt Securities will be
deposited with, or on behalf of, The Depository Trust Company ("DTC"), or
another successor depository appointed by ATLANTIC (DTC or such other
depository being the "Depository") and registered in the name of the
Depository or its nominee. Unless otherwise provided in the applicable
Prospectus
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Supplement, Debt Securities will not be issued in definitive form. If the
aggregate principal amount of any issue exceeds $200 million, one certificate
will be issued with respect to each $200 million of principal amount and an
additional certificate will be issued with respect to any remaining principal
amount of such issue.
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 provisions of Section 17A of the Exchange Act. DTC
holds securities which its participants ("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 physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc. (the "NYSE"), the American Stock Exchange, Inc. 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 which clear through or maintain a custodial relationship with
a Direct Participant, either directly or indirectly ("Indirect Participants").
The rules applicable to DTC and its Participants are on file with the
Commission.
Upon issuance by ATLANTIC of Debt Securities represented by a Global
Security, purchases of Debt Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Debt
Securities on DTC's records. The ownership interest of each actual purchaser
of each Debt Security ("Beneficial Owner") will in turn be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchase, but Beneficial Owners are
expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the Direct
or Indirect Participant through which the Beneficial Owner entered into the
transaction. Transfers of ownership interests in the Debt Securities will be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Debt Securities, except if use of
the book-entry system for the Debt Securities is discontinued. The laws of
some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such 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 Debt
Securities represented by such Global Security for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in Debt
Securities represented by a Global Security will not be entitled to have Debt
Securities represented by such Global Security registered in their names, will
not receive or be entitled to receive physical delivery of Debt Securities in
definitive form and will not be considered the owners or holders thereof under
the Indenture.
To facilitate subsequent transfers, all Debt Securities deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Debt Securities with DTC and their registration in
the name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Debt Securities; DTC's
records reflect only the identity of the Direct Participants to whose accounts
such Debt Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers. Conveyance of notices and other
communications by DTC to Direct Participants, by Direct Participants to
Indirect Participants, and by Direct Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
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Neither DTC nor Cede & Co. will consent or vote with respect to Debt
Securities. Under its usual procedures, DTC will mail an omnibus proxy to
ATLANTIC as soon as possible after the record date. The omnibus proxy will
assign Cede & Co.'s consenting or voting rights to those Direct Participants
to whose accounts the Debt Securities are credited on the record date
(identified in a listing attached to the omnibus proxy).
Payments of principal of (and premium and Make-Whole Amount, if any, on) and
interest and Additional Amounts, if any, on the Debt Securities represented by
a Global Security registered in the name of DTC or its nominee will be made by
ATLANTIC through the Trustee under the Indenture or a paying agent (the
"Paying Agent"), which may also be the Trustee under the Indenture, to DTC or
its nominee, as the case may be, as the registered owner of such Global
Security. None of ATLANTIC, the Trustee, the Paying Agent or the Security
Registrar for such Global Security will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in such Global Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
ATLANTIC has been advised that DTC, upon receipt of any payment of
principal, premium, Make-Whole Amount or interest in respect of a Global
Security, will credit Direct Participants' accounts on the payable date in
accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payment on the payable date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such Participant and not of DTC, the Paying
Agent or ATLANTIC, subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of principal, premium and interest to
DTC is the responsibility of the Paying Agent or ATLANTIC, as the case may be,
disbursement of such payments to Direct Participants is the responsibility of
DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
If the Depository with respect to a Global Security is at any time unwilling
or unable to continue as Depository and a successor Depository is not
appointed by ATLANTIC within 90 days, ATLANTIC will issue certificated notes
in exchange for the Debt Securities represented by such Global Security.
The information in this section concerning the Depository and the
Depository's book-entry system has been obtained from sources which ATLANTIC
believes to be reliable, but ATLANTIC takes no responsibility for the accuracy
thereof.
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). If two or more Persons are acting as Trustee
with respect to different series of Debt Securities, each such Trustee will be
a Trustee of a trust under the Indenture separate and apart from the trust
administered by any other Trustee, and, except as otherwise indicated herein,
any action described herein to be taken by the Trustee may be taken by each
such Trustee with respect to, and only with respect to, the one or more series
of Debt Securities for which it is Trustee under the Indenture (Sections 101
and 609).
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 will 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.
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"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) provisions for taxes of ATLANTIC 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.
"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 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 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 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
will be deemed to be incurred by ATLANTIC or any Subsidiary whenever ATLANTIC
or such Subsidiary creates, assumes, guarantees or otherwise becomes 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
Debt Securities.
"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
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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 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 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 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 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).
"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.
DESCRIPTION OF PREFERRED SHARES
GENERAL
The Board is authorized, without the approval of the holders of Common
Shares, to cause Preferred Shares to be issued in one or more series, to
determine the number of Preferred Shares of each series and to set the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms or conditions of
redemption of each series, which may be senior to the rights of Common Shares.
On October 15, 1997, ATLANTIC had 2,000,000 Series A Preferred Shares
outstanding, which were held of record by 15 shareholders.
The following description sets forth certain general terms and provisions of
the Preferred Shares to which any Prospectus Supplement may relate. The
following description of the general terms of the Preferred Shares does not
purport to be complete and is subject to and qualified in its entirety by
reference to ATLANTIC's Charter and Bylaws. Reference is made to the
Prospectus Supplement relating to the Preferred Shares offered thereby for the
specific terms of such Preferred Shares, including:
(1) The designation of such Preferred Shares;
(2) The number of shares offered, the liquidation preference per share and
the initial public offering price per share;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Shares;
(4) The date from which dividends on such Preferred Shares will cumulate,
if applicable;
(5) The procedures for the auction and remarketing, if any, for such
Preferred Shares;
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(6) The provisions for a sinking fund, if any, for such Preferred Shares;
(7) The terms and conditions of redemption, if applicable, of such
Preferred Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
(9) The terms and conditions on which such Preferred Shares will be
convertible into Common Shares, if applicable, including the
conversion price (or manner of calculation thereof);
(10) Whether interests in such Preferred Shares will be represented by
global securities;
(11) A discussion of Federal income tax considerations applicable to such
Preferred Shares;
(12) The relative ranking and preferences of such Preferred Shares as to
dividends and in the distribution of assets;
(13) Any limitations on issuance of any series of Preferred Shares ranking
senior to or on a parity with such Preferred Shares as to dividends
and in the distribution of assets;
(14) Any limitations on direct or beneficial ownership and restrictions on
transfer of such Preferred Shares, in each case as may be appropriate
to preserve ATLANTIC's status as a REIT; and
(15) Any other specific preferences, rights, voting powers, restrictions,
limitations as to dividends or qualifications of such Preferred
Shares.
RANKING
Unless otherwise specified in the applicable Prospectus Supplement, each
series of Preferred Shares will, as to dividends and in the distribution of
assets, rank (i) senior to all classes or series of Common Shares and to all
other equity securities ranking junior to such series of Preferred Shares;
(ii) on a parity with all equity securities issued by ATLANTIC the terms of
which specifically provide that such equity securities rank on a parity with
such series of Preferred Shares; and (iii) junior to all equity securities
issued by ATLANTIC the terms of which specifically provide that such equity
securities rank senior to such series of Preferred Shares. The rights of the
holders of each series of Preferred Shares will be subordinate to those of
ATLANTIC's general creditors.
DIVIDENDS
The holders of each series of Preferred Shares will be entitled to receive,
when, as and if declared by the Board, out of funds legally available for that
purpose, cash dividends at such rates and on such dates as will be set forth
in the applicable Prospectus Supplement. Such rates may be fixed or variable
or both. Dividends will be payable to holders of record as they appear in the
stock records of ATLANTIC on such record dates as are fixed by the Board.
Dividends on any series of Preferred Shares may be cumulative or non-
cumulative, as provided in the applicable Prospectus Supplement. Dividends, if
cumulative, will begin to accrue and will be fully cumulative from the date
set forth in the applicable Prospectus Supplement. If the Board fails to
declare a dividend payable on a dividend payment date on any series of
Preferred Shares for which dividends are non-cumulative, then the holders of
such Preferred Shares will have no right to receive a dividend in respect of
the dividend period ending on such dividend payment date, and ATLANTIC will
have no obligation to pay the dividend accrued for such period, whether or not
dividends on such Preferred Shares are declared payable on any future dividend
payment date. No interest, or sum of money in lieu of interest, will be
payable in respect of any dividend payment or payments on any series of
Preferred Shares which may be in arrears.
So long as any Preferred Shares of a series are outstanding, no full
dividends may be declared or paid or set apart for payment on any shares of
any other stock of ATLANTIC ranking on a parity with such series of Preferred
Shares as to dividends ("Dividend Parity Shares") for any period unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends have been or contemporaneously are paid or declared and a sum
sufficient for the payment thereof set apart for such payments for all past
dividend periods and the then current dividend period with respect to such
series of Preferred Shares or (ii) if such series of
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Preferred Shares does not have a cumulative dividend, full dividends have been
or contemporaneously are paid or declared and a sum sufficient for the payment
thereof set apart for such payments for the then current dividend period with
respect to such series of Preferred Shares. When dividends are not paid in
full, or a sum sufficient for the payment thereof is not set apart for
payment, on any series of Preferred Shares and any Dividend Parity Shares, all
dividends declared on such series of Preferred Shares and such Dividend Parity
Shares will be declared ratably in proportion to the amount of dividends
accrued and unpaid on such series of Preferred Shares (which will not include
any cumulation in respect of unpaid dividends for past dividend periods if
such series of Preferred Shares does not have a cumulative dividend) and on
such Dividend Parity Shares.
So long as any Preferred Shares of a series are outstanding, except as
provided in the immediately preceding paragraph, no dividends (other than in
Common Shares or other shares of stock of ATLANTIC ranking junior to such
series of Preferred Shares as to dividends and in the distribution of assets
("Fully Junior Shares")) may be declared or paid or set apart for payment or
other distribution may be declared or made on the Common Shares or any other
shares of stock of ATLANTIC ranking junior to such series of Preferred Shares
as to dividends or in the distribution of assets ("Junior Shares"), nor may
any Junior Shares be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any Junior Shares) by ATLANTIC (except by conversion
into or exchange for Fully Junior Shares) unless (i) if such series of
Preferred Shares has a cumulative dividend, full cumulative dividends have
been or contemporaneously are paid or declared and a sum sufficient for the
payment thereof set apart for such payments for all past dividend periods and
the then current dividend period with respect to such series of Preferred
Shares or (ii) if such series of Preferred Shares does not have a cumulative
dividend, full dividends have been or contemporaneously are paid or declared
and a sum sufficient for the payment thereof set apart for such payments for
the then current dividend period with respect to such series of Preferred
Shares.
Any dividend payment made on a series of Preferred Shares will first be
credited against the earliest accrued but unpaid dividend due with respect to
such series of Preferred Shares which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, a series of
Preferred Shares will be subject to mandatory redemption or redemption at the
option of ATLANTIC, in whole or in part, in each case on the terms, at the
times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares which is
subject to mandatory redemption will specify the number of Preferred Shares of
such series which will be redeemed by ATLANTIC in each year commencing after a
specified date, and the redemption price per share which will include all
dividends thereon accrued and unpaid, if any, to the date fixed for
redemption, without interest (which will not include any cumulation in respect
of unpaid dividends for past dividend periods if such series of Preferred
Shares does not have a cumulative dividend). The redemption price may be
payable in cash or other property, as specified in the applicable Prospectus
Supplement. If the redemption price for any series of Preferred Shares is
payable solely out of the sale proceeds of stock of ATLANTIC, the terms of
such series of Preferred Shares may provide that, if no such stock has been
issued or to the extent the sale proceeds from such stock are insufficient to
pay in full the aggregate redemption price then due, Preferred Shares of such
series will automatically and mandatorily be converted into shares of the
applicable stock of ATLANTIC pursuant to conversion provisions specified in
the applicable Prospectus Supplement. If fewer than all the outstanding
Preferred Shares of any series are to be redeemed, the shares to be redeemed
will be selected by ATLANTIC by lot or pro rata or by any other method
determined by ATLANTIC.
Notwithstanding the foregoing, unless (i) if such series of Preferred Shares
has a cumulative dividend, full cumulative dividends have been or
contemporaneously are paid or declared and a sum sufficient for the payment
thereof set apart for such payments for all past dividend periods and the then
current dividend period with respect to such series of Preferred Shares and
any shares of any other stock of ATLANTIC ranking on a parity with such series
of Preferred Shares as to distributions and in the distribution of assets
("Parity Shares") or (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends have been or
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contemporaneously are paid or declared and a sum sufficient for the payment
thereof set apart for such payments for the then current dividend period with
respect to such series of Preferred Shares and any Parity Shares, the
Preferred Shares of such series may not be redeemed and ATLANTIC may not
purchase or otherwise acquire any Preferred Shares of such series, except
pursuant to a purchase or exchange offer made on the same terms to all holders
of outstanding Preferred Shares of such series or by conversion into or
exchange for Fully Junior Shares.
Notice of the redemption of any Preferred Shares of any series will be
mailed not less than 30 days nor more than 90 days prior to the redemption
date to each holder of record of such series of Preferred Shares at the
address of such holder as shown on ATLANTIC's stock records. Each notice will
state: (i) the redemption date; (ii) the number of Preferred Shares of such
series to be redeemed; (iii) the redemption price; (iv) the place or places at
which certificates representing such Preferred Shares are to be surrendered;
(v) that dividends on such Preferred Shares will cease to accrue on such
redemption date; and (vi) the date on which the holder's conversion rights, if
any, as to such Preferred Shares will terminate. If fewer than all the
Preferred Shares of any series are to be redeemed, the notice mailed to each
such holder will also specify the number of Preferred Shares of such series to
be redeemed from such holder. If notice of redemption of any Preferred Shares
has been mailed and if ATLANTIC has deposited the funds necessary for such
redemption in trust, for the benefit of the holders of the Preferred Shares so
called for redemption, then from and after the redemption date, dividends will
cease to accrue on such Preferred Shares, such Preferred Shares will no longer
be deemed outstanding and all rights of the holders of such Preferred Shares
will terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any liquidation, dissolution or winding up of ATLANTIC, whether
voluntary or involuntary, before any payment or distribution is made to or set
apart for the holders of any Common Shares or any shares of any other stock of
ATLANTIC ranking junior to such series of Preferred Shares in the distribution
of assets ("Liquidation Junior Shares"), the holders of each series of
Preferred Shares will be entitled to receive out of assets of ATLANTIC legally
available for that purpose, liquidating distributions in the amount of the
liquidation preference per share (as specified in the applicable Prospectus
Supplement), plus an amount equal to all dividends (whether or not earned or
declared) thereon accrued and unpaid, if any (which will not include any
cumulation in respect of unpaid dividends for past dividend periods if such
series of Preferred Shares does not have a cumulative dividend); but the
holders of such series of Preferred Shares will not be entitled to any further
payment. If, upon any liquidation, dissolution or winding up of ATLANTIC, the
assets of ATLANTIC are insufficient to pay in full such preferential amount
with respect to such series of Preferred Shares and the corresponding amounts
with respect to all other stock of ATLANTIC ranking on a parity with such
series of Preferred Shares in the distribution of assets ("Liquidation Parity
Shares"), then such assets will be distributed among the holders of such
series of Preferred Shares and such Liquidation Parity Shares in proportion to
the full liquidating distributions to which they would otherwise be
respectively entitled.
Subject to the rights of the holders of any class or series of stock of
ATLANTIC ranking on a parity with or senior to such series of Preferred Shares
in the distribution of assets, upon any liquidation, dissolution or winding up
of ATLANTIC, whether voluntary or involuntary, after payment has been made in
full to all holders of a series of Preferred Shares, the remaining assets of
ATLANTIC will be distributed among the holders of any Liquidation Junior
Shares, according to their respective rights and preferences and in each case
according to their respective number of shares.
For the above purposes, a consolidation or merger of ATLANTIC with or into
any other entity, a sale or transfer of all or substantially all of ATLANTIC's
assets or a statutory share exchange will not be deemed to be a liquidation,
dissolution or winding up of ATLANTIC.
VOTING RIGHTS
Holders of each series of Preferred Shares will not have any voting rights,
except as set forth below or in the applicable Prospectus Supplement or as
otherwise required by applicable law. The following is a summary
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of the voting rights that, unless provided otherwise in the applicable
Prospectus Supplement, will apply to each series of Preferred Shares.
If and whenever six quarterly dividends (whether or not consecutive) payable
on any series of Preferred Shares or any Parity Shares are in arrears, whether
or not earned or declared, the number of directors then constituting the Board
will be increased by two, and the holders of such series of Preferred Shares,
together with the holders of any such Parity Shares, voting as a single class,
will have the right to elect two additional directors to serve on the Board at
the next annual meeting of shareholders or a special meeting of the holders of
such series of Preferred Shares and such Parity Shares and at each subsequent
annual meeting of shareholders until all such dividends in arrears have been
paid and a sum sufficient for the payment thereof has been set apart for
payment of the distribution for the current distribution period with respect
to such series of Preferred Shares and such Parity Shares. The term of office
of all directors so elected will terminate with the termination of such voting
rights. For so long as Security Capital and certain of its affiliates
beneficially own in excess of 10% of the outstanding Common Shares, in any
such vote by holders of such series of Preferred Shares and such Parity
Shares, any Preferred Shares of such series and Parity Shares beneficially
owned by Security Capital and such affiliates will be voted in the same
percentages as Preferred Shares of such series and Parity Shares which are not
beneficially owned by Security Capital and such affiliates.
The approval of two-thirds of the outstanding Preferred Shares of any series
and all series of Parity Shares similarly affected, voting as a single class,
will be necessary in order to (i) amend ATLANTIC's Charter to materially and
adversely affect the voting powers, rights or preferences of the holders of
such series of Preferred Shares, (ii) enter into a share exchange which
affects such series of Preferred Shares, consolidate with or merge into
another entity, or permit another entity to consolidate with or merge into
ATLANTIC, unless in each such case, each Preferred Share of such series
remains outstanding without a material and adverse change to its terms and
rights or is converted into or exchanged for preferred stock of the surviving
entity having preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption identical to those of a Preferred Share of such
series (except for changes which do not materially and adversely affect the
holders of such series of Preferred Shares) or (iii) authorize, reclassify,
create or increase the authorized amount of any class of stock ranking senior
to such series of Preferred Shares in the payment of dividends or in the
distribution of assets. However, ATLANTIC may create additional classes and
series of Parity Shares, Junior Shares and Fully Junior Shares, increase the
authorized number of shares of such stock and issue additional series of such
stock without the consent of any holder of such series of Preferred Shares.
Except as provided above and as required by law, the holders of each series
of Preferred Shares will not be entitled to vote on any merger or
consolidation involving ATLANTIC or a sale of all or substantially all of the
assets of ATLANTIC.
CONVERSION RIGHTS
The terms and conditions, if any, on which any series of Preferred Shares is
convertible into Common Shares will be set forth in the applicable Prospectus
Supplement. Such terms will include the number of Common Shares into which
each share of such series of Preferred Shares is convertible, the conversion
price (or manner of calculation thereof), the conversion period, provisions as
to whether conversion will be at the option of the holders of such series of
Preferred Shares or ATLANTIC, the events requiring an adjustment of the
conversion price and provisions affecting conversion upon the redemption of
such series of Preferred Shares.
LIMITATION ON OWNERSHIP
As discussed below under "Description of Common Shares--Limitation on
Ownership," for ATLANTIC to qualify as a REIT under the Internal Revenue Code
of 1986, as amended (the "Code"), 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 a taxable year, and the stock must be
beneficially owned by 100 or more persons during at least 335 days
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of ATLANTIC's taxable year of 12 months. Therefore, the Articles Supplementary
for each series of Preferred Shares will contain certain provisions limiting
the ownership and restricting the transfer of such Preferred Shares (the
"Preferred Shares Ownership Limit Provision"). Except as otherwise described
in the applicable Prospectus Supplement relating thereto, the provisions of
each Articles Supplementary relating to the Preferred Shares Ownership Limit
will provide (as in the case of the Series A Preferred Shares) as summarized
below.
The Preferred Shares Ownership Limit Provision will provide that, subject to
certain exceptions contained in such Articles Supplementary, no person, or
persons acting as a group, may beneficially own more than 25% of any series of
Preferred Shares outstanding at any time, except as a result of ATLANTIC's
redemption of Preferred Shares. Preferred Shares acquired in excess of the
Preferred Shares Ownership Limit Provision must be redeemed by ATLANTIC at a
price equal to the average daily per share closing sale price during the 30-
day period ending on the business day prior to the redemption date. Such
redemption is not applicable if a person's ownership exceeds the limitations
due solely to ATLANTIC's redemption of Preferred Shares; provided that
thereafter any additional Preferred Shares acquired by such person will be
Excess Shares (as hereinafter defined). See "Description of Common Shares--
Limitation on Ownership." From and after the date of notice of such
redemption, the holder of the Preferred Shares thus redeemed will cease to be
entitled to any distribution (other than distributions declared prior to the
date of notice of redemption), voting rights and other benefits with respect
to such shares except the right to receive payment of the redemption price
determined as described above. The Preferred Shares Ownership Limit Provision
may not be waived with respect to certain affiliates of ATLANTIC.
All certificates representing Preferred Shares will bear a legend referring
to the limitations and restrictions described above.
DESCRIPTION OF COMMON SHARES
GENERAL
The following description sets forth certain general terms and provisions of
the Common Shares to which any Prospectus Supplement may relate, including a
Prospectus Supplement which provides for Common Shares issuable pursuant to
subscription offerings or rights offerings or upon conversion of Preferred
Shares which are offered pursuant to such Prospectus Supplement and are
convertible into Common Shares for no additional consideration. The following
description of the terms of the Common Shares does not purport to be complete
and is subject to and qualified in its entirety by reference to ATLANTIC's
Charter and Bylaws.
The authorized stock of ATLANTIC consists of 250,000,000 Common Shares. The
Board may classify or reclassify any unissued Common Shares from time to time
by setting or changing the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption. No holder of any class
of stock of ATLANTIC will have any preemptive right to subscribe to any
securities of ATLANTIC except as may be granted by the Board pursuant to an
agreement between ATLANTIC and a shareholder. Under Maryland law, shareholders
are generally not liable for ATLANTIC's debts or obligations solely as a
result of their status as shareholders. For a description of certain
provisions which could have the effect of delaying, deferring or preventing a
change in control, see "Certain Provisions of Maryland Law and of ATLANTIC's
Charter and Bylaws."
The transfer agent and registrar for the Common Shares is The First National
Bank of Boston, 150 Royall Street, Canton, Massachusetts 02021.
COMMON SHARES
The outstanding Common Shares are fully paid and nonassessable. Each
outstanding Common Share entitles the holder to one vote on all matters
requiring a vote of shareholders, including the election of Directors,
Shareholders do not have the right to cumulate their votes in the election of
Directors, which means that the holders of a majority of the outstanding
Common Shares can elect all of the Directors then standing for election.
Holders of Common Shares are entitled to such distributions as may be
authorized from time to time by the
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Board out of assets legally available therefor. ATLANTIC's current
distribution policy is to pay quarterly distributions to shareholders based on
a reasonable percentage of funds from operations. ATLANTIC paid no
distributions in 1993. ATLANTIC paid distributions of $0.30 per Common Share
for 1994 quarters, $0.40 per Common Share for 1995 quarters and $0.42 per
Common Share for the first three quarters of 1996.
On November 12, 1996, ATLANTIC made a special distribution of 0.110875
shares of common stock of Homestead Village Incorporated ("Homestead") and
warrants to purchase 0.074384 shares of Homestead common stock per Common
Share to holders of record of Common Shares on October 29, 1996. On December
16, 1996, in light of the Homestead transaction and ATLANTIC's initial public
offering, ATLANTIC paid a fourth quarter 1996 distribution of $0.39 per Common
Share. ATLANTIC paid distributions of $0.39 per Common Share for the first
three quarters of 1997.
Upon any liquidation, dissolution or winding-up of ATLANTIC, holders of
Common Shares will be entitled, subject to the preferential rights of holders
of Preferred Shares, to share ratably in the assets of ATLANTIC remaining
after provision for payment of liabilities to creditors.
Subject to the provisions of ATLANTIC's Charter regarding the restrictions
on transfer of Common Shares, all Common Shares have equal distribution,
liquidation and other rights, and have no preference, preemptive, conversion
or exchange rights.
PURCHASE RIGHTS
On March 12, 1996, the Board declared a dividend of one Purchase Right for
each Common Share outstanding at the close of business on March 12, 1996 (the
"Rights Record Date") to the holders of Common Shares of record as of the
Rights Record Date. The dividend was paid on the Rights Record Date. The
holders of any additional Common Shares issued after the Rights Record Date
and before the redemption or expiration of the Purchase Rights will also be
entitled to one Purchase Right for each such additional Common Share. Each
Purchase Right entitles the registered holder under certain circumstances to
purchase from ATLANTIC two one-hundredths of a Participating Preferred Share
of ATLANTIC at a price of $40 per one one-hundredth of a Participating
Preferred Share (the "Purchase Price"), subject to adjustment. The description
and terms of the Purchase Rights are set forth in the Rights Agreement dated
as of March 12, 1996 between ATLANTIC and The First National Bank of Boston,
as rights agent (the "Rights Agreement").
The Purchase Rights will be exercisable and will be evidenced by separate
certificates only after the earliest to occur of: (i) 10 business days
following a public announcement that a person or group of affiliated or
associated persons (except for Security Capital and certain other affiliates
of ATLANTIC) has acquired beneficial ownership of 20% or more of the
outstanding Common Shares (thereby becoming an "Acquiring Person"), (ii) 15
business days (or such later date as may be determined by action of the Board
prior to such time as any person or group of affiliated persons becomes an
Acquiring Person) following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of person
(except for Security Capital and certain other affiliates of ATLANTIC) of 25%
or more of the outstanding Common Shares or (iii) 10 business days (or such
later date as may be determined by action of the Board prior to such time as
any person or group of affiliated persons becomes an Acquiring Person) after
the date of filing by any person of, or the first public announcement of the
intention of any person to file, any application, requests, submission or
other document with any Federal or state regulatory authority seeking approval
of, attempting to rebut any presumption of control upon, or otherwise
indicating an intention to enter into, any transaction or series of
transactions the consummation of which would result in any person (except for
Security Capital and certain other affiliates of ATLANTIC) becoming the
beneficial owner of 25% or more of the outstanding Common Shares, other than a
transaction in which newly issued Common Shares are issued directly by
ATLANTIC to such person (the first to occur of such dates being called the
"Rights Distribution Date"). With respect to any of the Common Share
certificates outstanding as of the Rights Record Date, until the Rights
Distribution Date, the Purchase Rights will be evidenced by such Common Share
certificate. Until the Rights Distribution Date (or earlier redemption or
expiration of the Purchase
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Rights), new Common Share certificates issued after the Rights Record Date
upon transfer or new issuance of Common Shares will contain a notation
incorporating the Rights Agreement by reference. Notwithstanding the
foregoing, if the Board in good faith determines that a person who would
otherwise be an Acquiring Person under the Rights Agreement has become such
inadvertently, and such person divests as promptly as practicable a sufficient
number of Common Shares so that such person would no longer be an Acquiring
Person, then such person will not be deemed to be an Acquiring Person for
purposes of the Rights Agreement.
The Purchase Price will expire on March 12, 2006 (the "Final Expiration
Date"), unless the Final Expiration Date is extended or unless the Rights are
earlier redeemed or exchanged by ATLANTIC, in each case as described below.
The Purchase Price payable, and the number of Participating Preferred Shares
or other securities or property issuable, upon exercise of the Purchase Rights
are subject to adjustment under certain circumstances from time to time to
prevent dilution. With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an adjustment of at
least 1% in such Purchase Price.
Participating Preferred Shares purchasable upon exercise of the Purchase
Rights will not be redeemable. Each Participating Preferred Share will have 50
votes, voting together with the Common Shares. Upon any liquidation, the
holders of the Participating Preferred Shares will be entitled to a minimum
preferential liquidation payment of $1.00 per share, plus an amount equal to
all accrued and unpaid dividends thereon, but will be entitled to an aggregate
payment of 50 times the payment made per Common Share. Upon any merger,
consolidation or other transaction in which Common Shares are exchanged, each
Participating Preferred Share will be entitled to receive 50 times the amount
received per Common Share. Upon the issuance of Participating Preferred Shares
upon exercise of the Purchase Rights, in order to facilitate trading, a
depositary receipt may be issued for each one one-hundredth of a Participating
Preferred Share. The Participating Preferred Shares will be protected by
customary antidilution provisions.
If any person or group of affiliated or associated persons becomes an
Acquiring Person, proper provision will be made so that each holder of a
Purchase Right, other than Purchase Rights beneficially owned by the Acquiring
Person (which will therefore be void), will thereafter have the right to
receive upon exercise a number of Common Shares having a market value
(determined in accordance with the Rights Agreement) of twice the Purchase
Price. In lieu of the issuance of Common Shares upon exercise of Purchase
Rights, the Board may, under certain circumstances, and if there if an
insufficient number of Common Shares authorized but unissued to permit the
exercise in full of the Purchase Rights, the Board is required to, take such
action as may be necessary to cause ATLANTIC to issue or pay upon the exercise
of Purchase Rights, cash (including by way of a reduction of purchase price),
property, other securities or any combination of the foregoing having an
aggregate value equal to that of the Common Shares which otherwise would have
been issuable upon exercise of Purchase Rights.
If, after any person or group becomes an Acquiring Person, ATLANTIC is
acquired in a merger or other business combination transaction or 50% or more
of its consolidated assets or earning power are sold, proper provision will be
made so that each holder of a Purchase Right will thereafter have the right to
receive, upon the exercise therefor at the then-current Purchase Price, a
number of shares of common stock of the acquiring company having a market
value (determined in accordance with the Rights Agreement) of twice the
Purchase Price.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by that person or group of 50% or more of the outstanding
Common Shares, the Board may exchange the Purchase Rights (other than Purchase
Rights owned by that person or group which will have become void), in whole or
in part, at an exchange ratio of one Common Share (or one one-hundredth of a
Participating Preferred Share) per Purchase Right (subject to adjustment).
As soon as practicable after a Rights Distribution Date, ATLANTIC is
obligated to use its best efforts to file a registration statement under the
Securities Act of 1933, as amended (the "Securities Act") relating to the
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securities issuable upon exercise of such Purchase Rights and to cause such
registration statement to become effective as soon as practicable.
At any time prior to the time a person or group of persons becomes an
Acquiring Person, the Board may redeem the Purchase Rights in whole, but not
in part, at a price of $0.01 per Purchase Right (the "Redemption Price")
payable in cash, Common Shares or any other form of consideration deemed
appropriate by the Board. The redemption of the Purchase Rights may be made
effective at such time, on such basis and with such conditions as the Board in
its sole discretion may establish. Immediately upon the effectiveness of any
redemption of the Purchase Rights, the right to exercise the Purchase Rights
will terminate and the only right of the holders of the Purchase Rights will
be to receive the Redemption Price.
The terms of the Purchase Rights may be amended by the Board without the
consent of the holders of the Purchase Rights, except that, from and after the
time any person or group of affiliated or associated persons becomes an
Acquiring Person, no such amendment may adversely affect the interests of the
holders of the Purchase Rights.
The Purchase Rights have certain anti-takeover effects. The Purchase Rights
will cause substantial dilution to a person or group which attempts to acquire
ATLANTIC on terms not approved by the Board, except pursuant to an offer
conditioned on a substantial number of Purchase Rights being acquired. The
Purchase Rights should not interfere with any merger or other business
combination approved by the Board since the Purchase Rights may be redeemed by
ATLANTIC at the Redemption Price prior to the time that a person or group has
acquired beneficial ownership of 20% or more the Common Shares. The form of
Rights Agreement specifying the terms of the Purchase Rights has been
incorporated by reference as an exhibit to the registration statement of which
this Prospectus is a part. The foregoing description of the Purchase Rights
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Rights Agreement, including the definitions
therein of certain terms.
LIMITATION ON OWNERSHIP
ATLANTIC's Charter contains certain limitations on the number of shares of
ATLANTIC's stock which individual shareholders may own. For ATLANTIC to
qualify as a REIT under the Code, no more than 50% in value of the shares of
ATLANTIC's stock (after taking into account options to acquire shares) may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities and constructive ownership among specified
family members) during the last half of a taxable year (other than the first
taxable year) or during a proportionate part of a shorter taxable year. The
shares of ATLANTIC's stock must also be beneficially owned (other than during
the first taxable year) by 100 or more persons during at least 335 days of a
taxable year or during a proportionate part of a shorter taxable year. Because
ATLANTIC is a REIT, its Charter contains restrictions on the acquisition of
shares of ATLANTIC's stock intended to ensure compliance with these
requirements.
Subject to certain exceptions specified in ATLANTIC's Charter, no holder may
own, or be deemed to own by virtue of the attribution provisions of the Code,
more than 9.8% (the "Ownership Limit") of the number or value of the issued
and outstanding Common Shares. The Board, upon receipt of a ruling from the
IRS or an opinion of counsel or other evidence satisfactory to the Board and
upon such other conditions as the Board may direct, may also exempt a proposed
transferee from the Ownership Limit. The proposed transferee must give written
notice to ATLANTIC of the proposed transfer no later than the fifteenth day
prior to any transfer which, if consummated, would result in the intended
transferee owning Common Shares in excess of the Ownership Limit. The Board
may require such opinions of counsel, affidavits, undertakings or agreements
as it may deem necessary or advisable in order to determine or ensure
ATLANTIC's status as a REIT. Any transfer of Common Shares which would (i)
create a direct or indirect ownership of Common Shares in excess of the
Ownership Limit, (ii) result in the Common Shares being beneficially owned by
fewer than 100 persons (determined without reference to any rules of
attribution) as provided in Section 856(a) of the Code or (iii) result in
ATLANTIC being "closely held" within the meaning of Section 856(h) of the
Code, will be null and void ab initio, and the
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intended transferee will acquire no rights to the Common Shares. The foregoing
limitations on ownership and restrictions on transfer will not apply if the
Board determines, which determination must be approved by the shareholders,
that it is no longer in the best interests of ATLANTIC to attempt to qualify,
or to continue to qualify, as a REIT. ATLANTIC's Charter excludes Security
Capital (and its transferees) from the foregoing ownership limitations.
Any Common Shares the purported transfer of which would result in a person
owning Common Shares in excess of the Ownership Limit or cause ATLANTIC to
become "closely held" under Section 856(h) of the Code which is not otherwise
permitted as provided above will constitute excess shares ("Excess Shares"),
which will be transferred pursuant to ATLANTIC's Charter to a party not
affiliated with ATLANTIC designated by ATLANTIC as the trustee of a trust for
the exclusive benefit of an organization or organizations described in
Sections 170(b)(1)(A) and 170(c) of the Code and identified by the Board as
the beneficiary or beneficiaries of the trust (the "Charitable Beneficiary"),
until such time as the Excess Shares are transferred to a person whose
ownership will not violate the limitations on ownership. While these Excess
Shares are held in trust, distributions on such Excess Shares will be paid to
the trust for the benefit of the Charitable Beneficiary and may only be voted
by the trustee for the benefit of the Charitable Beneficiary. Subject to the
Ownership Limit, the Excess Shares will be transferred by the Trustee at the
direction of ATLANTIC to any person (if the Excess Shares would not be Excess
Shares in the hands of such person). The purported transferee will receive the
lesser of (i) the price paid by the purported transferee for the Excess Shares
(or, if no consideration was paid, fair market value on the day of the event
causing the Excess Shares to be held in trust) and (ii) the price received
from the sale or other disposition of the Excess Shares held in trust. Any
proceeds in excess of the amount payable to the purported transferee will be
paid to the Charitable Beneficiary. In addition, such Excess Shares held in
trust are subject to purchase by ATLANTIC for a 90-day period at a purchase
price equal to the lesser of (i) the price paid for the Excess Shares by the
purported transferee (or, if no consideration was paid, fair market value at
the time of the event causing the Common Shares to be held in trust) and (ii)
the fair market value of the Excess Shares on the date ATLANTIC elects to
purchase. Fair market value, for these purposes, means the last reported sales
price reported on the NYSE on the trading day immediately preceding the
relevant date, or if not then traded on the NYSE, the last reported sales
price on the trading day immediately preceding the relevant date, or if not
then traded on the NYSE, the last reported sales price on the trading day
immediately preceding the relevant date as reported on any exchange or
quotation system over or through which the Common Shares may be traded, or if
not then traded over or through any exchange or quotation system, then the
market price on the relevant date as determined in good faith by the Board.
From and after the purported transfer to the purported transferee of the
Excess Shares, the purported transferee will cease to be entitled to
distributions (other than liquidating distributions), voting rights and other
benefits with respect to the Excess Shares except the right to payment upon
the transfer of the Excess Shares as described above. Any distribution paid to
a purported transferee on Excess Shares prior to the discovery by ATLANTIC
that such Excess Shares have been transferred in violation of the provisions
of the Charter will be repaid, upon demand, to ATLANTIC, which will pay any
such amounts to the trust for the benefit of the Charitable Beneficiary. If
the foregoing transfer restrictions are determined to be void, invalid or
unenforceable by any court of competent jurisdiction, then the purported
transferee of any Excess Shares may be deemed, at the option of ATLANTIC, to
have acted as an agent on behalf of ATLANTIC in acquiring such Excess Shares
and to hold such Excess Shares on behalf of ATLANTIC.
All certificates representing Common Shares will bear a legend referring to
the limitations and restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other percentage between one-quarter of 1% and
5%, as provided in the rules and regulations promulgated under the Code) of
the number or value of the outstanding shares of ATLANTIC's stock must give a
written notice containing certain information to ATLANTIC by January 31 of
each year. In addition, each shareholder must upon demand disclose to ATLANTIC
in writing such information with respect to the direct, indirect and
constructive ownership of shares of ATLANTIC's stock as the Board deems
reasonably necessary to comply
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with the provisions of the Code applicable to a REIT, to determine ATLANTIC's
status as a REIT, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance
These ownership limitations could have the effect of discouraging a takeover
or other transaction in which holders of some, or a majority, of the Common
Shares might receive a premium for their Common Shares over the then-
prevailing market price or which such holders might believe to be otherwise in
their best interest.
DESCRIPTION OF RIGHTS
As described under "Plan of Distribution," ATLANTIC may sell the Offered
Securities to investors directly through Rights. If Offered Securities are to
be sold through Rights, such Rights will be distributed as a dividend to
ATLANTIC's shareholders for which such shareholders will pay no separate
consideration. The Prospectus Supplement with respect to the Rights offering
will set forth the relevant terms of the Rights, including (i) the kind and
number of Offered Securities which will be offered pursuant to the Rights,
(ii) the period during which and the price at which the Rights will be
exercisable, (iii) the number of Rights to be issued, (iv) any provisions for
changes to or adjustments in the exercise price of the Rights and (v) any
other material terms of the Rights. See "Plan of Distribution."
CERTAIN PROVISIONS OF MARYLAND LAW AND OF ATLANTIC'S CHARTER AND BYLAWS
The following description of certain provisions of Maryland law and of
ATLANTIC's Charter and Bylaws does not purport to be complete and is subject
to and qualified in its entirety by reference to Maryland law and ATLANTIC's
Charter and Bylaws.
CLASSIFICATION OF THE BOARD
ATLANTIC's Charter provides that the number of Directors may be increased or
decreased from time to time by vote of a majority of the Board but may not be
less than three. Pursuant to ATLANTIC's Charter, the Directors are divided
into three classes. One class will hold office initially for a term expiring
at the annual meeting of shareholders to be held in 1998, another class will
hold office initially for a term expiring at the annual meeting of
shareholders to be held in 1999 and another class will hold office initially
for a term expiring at the annual meeting of shareholders to be held in 2000.
As the term of each class expires, Directors in that class will be elected for
a term of three years and until their successors are duly elected and qualify.
ATLANTIC believes that classification of the Board will help to assure the
continuity and stability of ATLANTIC's business strategies and policies as
determined by the Board.
The classified Director provision could have the effect of making the
removal of incumbent Directors more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of ATLANTIC, even though such an attempt might be beneficial to
ATLANTIC and its shareholders. At least two annual meetings of shareholders,
instead of one, will generally be required to effect a change in a majority of
the Board. Thus, the classified Director provision could increase the
likelihood that incumbent Directors will retain their positions.
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 shareholders for money damages except for liability
resulting from (i) actual receipt of an improper benefit or profit in money,
property or services or (ii) 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.
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ATLANTIC's Directors and officers 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 (i) any individual who is a present or former
Director or officer of ATLANTIC or (ii) any individual who, while a Director
or officer 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, trust, employee benefit plan or other
enterprise. 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 describe in
clause (i) or (ii) 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 have become 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 ATLANTIC to advance
reasonable expenses to a Director or officer upon ATLANTIC's receipt of (i) 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 as authorized by ATLANTIC's Bylaws and (ii) a written statement by
or on his or her behalf to repay the amount paid or reimbursed by ATLANTIC if
it is ultimately determined that the standard of conduct was not met.
Additionally, ATLANTIC has entered into indemnify 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
(i) the payment of which is judicially determined to be unlawful, (ii)
relating to claims under Section 16(b) of the Exchange Act or (iii) relating
to judicially determined criminal violations.
Insofar as indemnification for liabilities arising under 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.
BUSINESS COMBINATIONS
Under Maryland law, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting
power of the corporation's shares or an affiliate of the corporation who, at
any tine within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then-outstanding
voting stock of the corporation (an "Interested Stockholder") or an affiliate
of such an Interested Stockholder are prohibited for five years after the most
recent date on which the Interested Stockholder became an Interested
Stockholder. Thereafter, any such business combination must be recommended by
the board of directors of such corporation and approved by the affirmative
vote of at least (i) 80% of the votes entitled to be cast by holders of
outstanding voting shares of the corporation and (ii) two-thirds of the votes
entitled to be cast by holders of
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outstanding voting shares of the corporation other than shares held by the
Interested Stockholder with whom (or with whose affiliate) the business
combination is to be effected, unless, among other things, the corporation's
shareholders receive a minimum price (as defined under Maryland law) for their
shares and the consideration is received in cash or in the same form as
previously paid by the Interested Stockholder for its shares. These provisions
of Maryland law do not apply, however to business combinations which are
approved or exempted by the board of directors of the corporation prior to the
time that the Interested Stockholder becomes an Interested Stockholder. The
Board has exempted from these provisions of Maryland law any business
combination with Security Capital and its affiliates and successors. As a
result, Security Capital and its affiliates and successors may be able to
enter into business combinations with ATLANTIC which may not be in the best
interests of ATLANTIC's shareholders without compliance by ATLANTIC with the
super-majority vote requirements and other provisions of the statute.
CONTROL SHARE ACQUISITIONS
Maryland law provides that "Control Shares" of a Maryland corporation
acquired in a "Control Share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on
the matter, excluding shares of stock owned by the acquiror or by officers or
directors who are employees of the corporation. "Control Shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by the acquiror, or in respect of which the acquiror is
able to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquiror to exercise voting
power in electing directors within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third, (ii) one-third or more
but less than a majority or (iii) a majority of all voting power. Control
Shares do not include shares the acquiring person is then entitled to vote as
a result of having previously obtained shareholder approval. A "Control Share
acquisition" means the acquisition of Control Shares, subject to certain
exceptions.
A person who has made or proposes to make a Control Share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors to call a special meeting of shareholders to
be held within 50 days of demand to consider the voting rights of the shares.
If no request for a meeting is made, the corporation may itself present the
question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the corporation may
redeem any or all of the Control Shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to
the absence of voting rights for the Control Shares, as of the date of the
last Control Share acquisition or of any meeting of shareholders at which the
voting rights of such shares are considered and not approved. If voting rights
for Control Shares are approved at a shareholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
shareholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the Control Share acquisition.
The Control Share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws
of the corporation.
ATLANTIC's Bylaws contain a provision exempting any and all acquisitions by
Security Capital and its affiliates and successors from the provisions of the
Control Share acquisition statute.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
For nominations or other business to be properly brought before an annual
meeting of shareholders by a shareholder, ATLANTIC's Bylaws require such
shareholder to deliver a notice to the Secretary, absent specified
circumstances, not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's
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annual meeting setting forth: (a) as to each person whom the shareholder
proposes to nominate for election or reelection as a Director, all information
relating to such person which is required to be disclosed in solicitations of
proxies for the election of directors, pursuant to Regulation 14A of the
Exchange Act; (b) as to any other business which the shareholder proposes to
bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such shareholder and of
the beneficial owner, if any, on whose behalf the proposal is made; and (c) as
to the shareholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made, (i) the name and address of
such shareholder as they appear on ATLANTIC's books, and of such beneficial
owner and (ii) the number of Common Shares which are owned beneficially and of
record by such shareholder and such beneficial owner, if any.
FEDERAL INCOME TAX CONSIDERATIONS
ATLANTIC intends to operate in a manner which permits it to satisfy the
requirements for taxation as a REIT under the applicable provisions of the
Code. No assurance can be given, however, that such requirements will be met.
The following is a description of the Federal income tax consequences to
ATLANTIC and its shareholders of the treatment of ATLANTIC as a REIT. Since
these provisions are highly technical and complex, each prospective purchaser
of the Offered Securities is urged to consult his or her own tax advisor with
respect to the Federal, state, local, foreign and other tax consequences of
the purchase, ownership and disposition of the Offered Securities.
Based on 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 proposed method of operation described
in this Prospectus and as represented by management will enable it to satisfy
the requirements for such qualification.
This opinion is conditioned on 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 on 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, which invest primarily in real
estate and which otherwise would be treated for Federal income tax purposes as
corporations, are generally not taxed at the corporate level on their "REIT
taxable income" which is currently distributed to shareholders. This treatment
substantially eliminates the "double taxation" (at both the corporate and
shareholder levels) which 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, and
its shareholders will be taxed in the same manner as shareholders of ordinary
corporations. In this event, ATLANTIC could be subject to potentially
significant tax liabilities, and therefore the amount of cash available for
distribution to its shareholders would be reduced or eliminated.
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 which 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, nor does it
discuss all of the aspects of Federal income taxation which may be relevant to
a prospective shareholder in light of his or her particular circumstances or
to certain types of shareholders (including insurance companies, tax-exempt
entities, financial institutions or broker-dealers, foreign corporations and
persons who are not citizens or residents of the U.S.) subject to special
treatment under the Federal income tax laws.
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. For taxable years beginning after August 5, 1997, the
Taxpayer Relief Act of 1997 (the "1997 Act") permits a REIT, with respect to
undistributed net long-term capital gains it received during the taxable year,
to designate in a notice mailed to shareholders within 60 days of the end of
the taxable year (or in a notice mailed with its annual report for the taxable
year) such amount of such gains which its shareholders are to include in their
taxable income as long-term capital gains. Thus, if ATLANTIC made this
designation, the shareholders of ATLANTIC would include in their income as
long-term capital gains their proportionate share of the undistributed net
capital gains as designated by ATLANTIC and ATLANTIC would have to pay the tax
on such gains within 30 days of the close of its taxable year. Each
shareholder of ATLANTIC would be deemed to have paid such shareholder's share
of the tax paid by ATLANTIC on such gains, which tax would be credited or
refunded to the shareholder. A shareholder would increase his tax basis in his
Company stock by the difference between the amount of income to the holder
resulting from the designation less the holder's credit or refund for the tax
paid by ATLANTIC. 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
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purpose includes certain tax-exempt entities. Any stock held by a qualified
domestic pension or other retirement trust will be treated as held directly by
its beneficiaries in proportion to their actuarial interest in such trust
rather than by such trust. Pursuant to the constructive ownership rules,
Security Capital's ownership of shares is attributed to its shareholders for
purposes of the 50% test. Under the 1997 Act, for taxable years beginning
after August 5, 1997, if ATLANTIC complies with the Treasury regulations for
ascertaining its actual ownership and did not know, or exercising reasonable
diligence would not have reason to know, that more than 50% in value of its
outstanding shares of stock were held, actually or constructively, by five or
fewer individuals, then ATLANTIC will be treated as meeting such requirement.
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 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). A list of those persons failing or
refusing to comply with such demand must be maintained as a part of ATLANTIC's
records. A shareholder failing or refusing to comply with ATLANTIC's written
demand must submit with his or her tax returns a similar statement disclosing
the actual ownership of shares of ATLANTIC's stock and certain other
information. 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. See "Description of
Common Shares--Limitation on Ownership". ATLANTIC intends to enforce the 9.8%
limitation on ownership of shares of its stock 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 generally accepted accounting principles (including certain
government guaranteed securities). First, at least 75% of the value of
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 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 non-government issuer, 5% of the value of ATLANTIC's total
assets or (ii) 10% of the outstanding voting securities of any one issuer. If
ATLANTIC invests in a partnership, it will be deemed to own a proportionate
share of the partnership's assets.
Gross Income Tests
There are currently 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, if ATLANTIC invests in a partnership, ATLANTIC will
be treated as receiving its share of the income and loss of the partnership,
and the gross income of the partnership will retain the same character in the
hands of ATLANTIC as it has in the hands of the partnership. 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
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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 tenant 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 tenant. 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".
For taxable years beginning after August 5, 1997, a REIT is permitted to
render a de minimis amount of impermissible services to tenants, or in
connection with the management of property, and still treat amounts
received with respect to that property as rent from real property. The
amount received or accrued by the REIT during the taxable year for the
impermissible services with respect to a property may not exceed one
percent of all amounts received or accrued by the REIT directly or
indirectly from the property. The amount received for any service (or
management operation) for this purpose shall be deemed to be not less than
150% of the direct cost of the REIT in furnishing or rendering the service
(or providing the management or operation).
2. The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of 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".
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. The 30% gross income test has been repealed by the 1997 Act for
taxable years beginning after August 5, 1997.
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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.
For taxable years beginning after August 5, 1997, the 1997 Act (i) expands the
class of non-cash income that is excluded from the distribution requirement to
include income from the cancellation of indebtedness and (ii) extends the
treatment of original issue discount as non-cash income to REITs, like
ATLANTIC, that use an accrual method of accounting. 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. For taxable years beginning after August 5, 1997, the 1997 Act permits
a REIT, with respect to undistributed net long-term capital gains it received
during the taxable year, to designate in a notice mailed to shareholders
within 60 days of the end of the taxable year (or in a notice mailed with its
annual report for the taxable year) such amount of such gains which its
shareholders are to include in their taxable income as long-term capital
gains. Thus, if ATLANTIC made this designation, the shareholders of ATLANTIC
would include in their income as long-term capital gains their proportionate
share of the undistributed net capital gains as designated by ATLANTIC and
ATLANTIC would have to pay the tax on such gains within 30 days of the close
of its taxable year. Each shareholder of ATLANTIC would be deemed to have paid
such shareholder's share of the tax paid by ATLANTIC on such gains, which tax
would be credited or refunded to the shareholder. A shareholder would increase
his tax basis in his Company stock by the difference between the amount of
income to the holder resulting from the designation less the holder's credit
or refund for the tax paid by ATLANTIC.
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.
Failure to Qualify
If ATLANTIC fails to qualify for taxation as a REIT in any taxable year and
certain relief provisions do not apply, ATLANTIC will be subject to tax
(including applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which
ATLANTIC fails to quality as a REIT 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 reelecting
taxation as a REIT for the four taxable years following the year during which
qualification was lost.
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TAXATION OF ATLANTIC'S SHAREHOLDERS
Taxation of Taxable Domestic Shareholders
As long as ATLANTIC qualifies as a REIT, distributions made to ATLANTIC's
taxable domestic shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends-
received deduction for corporations. Distributions (and for tax years
beginning after August 5, 1997, undistributed amounts) that are designated as
capital gain dividends will be taxed as long-term capital gains (to the extent
they do not exceed ATLANTIC's actual net capital gain for the taxable year)
without regard to the period for which the shareholder has held its Shares.
However, corporate shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. To the extent that ATLANTIC makes
distributions in excess of current and accumulated earnings and profits, these
distributions are treated first as a tax-free return of capital to the
shareholder, reducing the tax basis of a shareholder's Shares by the amount of
such distribution (but not below zero), with distributions in excess of the
shareholder's tax basis taxable as capital gains (if the Shares are held as a
capital asset). In addition, any dividend declared by ATLANTIC in October,
November or December of any year and payable to a shareholder of record on a
specific date in any such month shall be treated as both paid by ATLANTIC and
received by the shareholder on December 31 of such year, provided that the
dividend is actually paid by ATLANTIC during January of the following calendar
year. Shareholders may not include in their individual income tax returns any
net operating losses or capital losses of ATLANTIC. Federal income tax rules
may also require that certain minimum tax adjustments and preferences be
apportioned to ATLANTIC shareholders.
In general, any loss upon a sale or exchange of Shares by a shareholder who
has held such Shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss, to the extent of
distributions from ATLANTIC required to be treated by such shareholder as
long-term capital gains.
The 1997 Act made certain changes to the Code with respect to taxation of
long-term capital gains earned by taxpayers other than a corporation. In
general, for sales made after May 6, 1997, the maximum tax rate for individual
taxpayers on net long-term capital gains (i.e., the excess of net long-term
capital gain over net short-term capital loss) is lowered to 20% for most
assets. This 20% rate applies to sales on or after July 29, 1997 only if the
asset was held for more than 18 months at the time of disposition. Capital
gains on the disposition of assets on or after July 29, 1997 held for more
than one year and up to 18 months at the time of disposition will be taxed as
"mid-term gain" at a maximum rate of 28%. Also, so called "unrecaptured
section 1250 gain" is subject to a maximum federal income tax rate of 25%.
"Unrecaptured section 1250 gain" generally includes the long-term capital gain
realized on (i) the sale after May 6, 1997 of a real property asset described
in Section 1250 of the Code or (ii) the sale after July 28, 1997 of a real
property asset described in Section 1250 of the Code which the taxpayer has
held for more than 18 months, but in each case not in excess of the amount of
depreciation (less the gain, if any, treated as ordinary income under Code
Section 1250) taken on such asset. A rate of 18% instead of 20% will apply
after December 31, 2000 for assets held for more than 5 years. However, the
18% rate applies only to assets acquired after December 31, 2000 unless the
taxpayer elects to treat an asset held prior to such date as sold for fair
market value on January 1, 2001. In the case of individuals whose ordinary
income is taxed at a 15% rate, the 20% rate is reduced to 10% and the 10% rate
for assets held for more than 5 years is reduced to 8%.
Certain aspects of the new legislation are currently unclear, including how
the reduced rates will apply to gains earned by REITs such as ATLANTIC. Until
the IRS issues some guidance, it is unclear whether or how the 20% or 10%
rates will apply to distributions of long-term capital gains by ATLANTIC. The
1997 Act gives the IRS authority to apply the 1997 Act's new rules on taxation
of capital gains to sales by pass-thru entities, including REITs. It is
possible that the IRS could provide in such regulations that REIT capital gain
dividends must be determined by looking through to the assets sold by the REIT
and treated by REIT shareholders as "long-term capital gain", "mid-term gain"
and "unrecaptured section 1250 gain" to the extent of such respective gain
realized by the REIT. No regulations have yet been issued. Such regulations,
if and when issued, may have a retroactive affect.
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Shareholders of ATLANTIC should consult their tax advisors with regard to
(i) the application of the changes made by the 1997 Act with respect to
taxation of capital gains and capital gain dividends and (ii) to state, local
and foreign taxes on capital gains.
Backup Withholding
ATLANTIC will report to its domestic shareholders and to the IRS the amount
of distributions paid during each calendar year, and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
shareholder may be subject to backup withholding at applicable rates with
respect to distributions paid unless such shareholder (i) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact or (ii) provides a taxpayer identification number, certifies as to
no loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. A shareholder which
does not provide ATLANTIC with its correct taxpayer identification number may
also be subject to penalties imposed by the IRS. Any amount paid as backup
withholding will be credited against the shareholder's income tax liability.
In addition, ATLANTIC may be required to withhold a portion of capital gain
distributions made to any shareholders who fail to certify their non-foreign
status to ATLANTIC. See "--Taxation of Foreign Shareholders" below.
Taxation of Tax-Exempt Shareholders
The IRS has issued a revenue ruling in which it held that amounts
distributed by a REIT to a tax-exempt employees' pension trust do not
constitute unrelated business taxable income ("UBTI"). Subject to the
discussion below regarding a "pension-held REIT", based upon the ruling, the
analysis therein and the statutory framework of the Code, distributions by
ATLANTIC to a shareholder that is a tax-exempt entity should also not
constitute UBTI, provided that the tax-exempt entity has not financed the
acquisition of its Shares with "acquisition indebtedness" within the meaning
of the Code, and that the Shares are not otherwise used in an unrelated trade
or business of the tax-exempt entity, and that ATLANTIC, consistent with its
present intent, does not hold a residual interest in a real estate mortgage
investment conduit.
However, if any pension or other retirement trust that qualifies under
Section 401(a) of the Code ("qualified pension trust") holds more than 10% by
value of the interests in a "pension-held REIT" at any time during a taxable
year, a portion of the dividends paid to the qualified pension trust by such
REIT may constitute UBTI. For these purposes, a "pension-held REIT" is defined
as a REIT if (i) such REIT would not have qualified as a REIT but for the
provisions of the Code which look through such a qualified pension trust in
determining ownership of stock of the REIT and (ii) at least one qualified
pension trust holds more than 25% by value of the interests of such REIT or
one or more qualified pension trusts (each owning more than a 10% interest by
value in the REIT) hold in the aggregate more than 50% by value of the
interests in such REIT.
Taxation of Foreign Shareholders
ATLANTIC will qualify as a "domestically-controlled REIT" so long as less
than 50% in value of its Shares is held by foreign persons (i.e., nonresident
aliens and foreign corporations, partnerships, trust and estates). It is
currently anticipated that ATLANTIC will qualify as a domestically controlled
REIT. Under these circumstances, gain from the sale of the Shares by a foreign
person should not be subject to U.S. taxation, unless such gain is effectively
connected with such person's U.S. business or, in the case of an individual
foreign person, such person is present within the U.S. for more than 182 days
in such taxable year.
Distributions of cash generated by ATLANTIC's real estate operations (but
not by its sale or exchange of such communities) that are paid to foreign
persons generally will be subject to U.S. withholding tax at a rate of 30%,
unless (i) an applicable tax treaty reduces that tax and the foreign
shareholder files with ATLANTIC the required form evidencing such lower rate
of (ii) the foreign shareholder files an IRS Form 4224 with ATLANTIC claiming
that the distribution is "effectively connected" income. Recently promulgated
Treasury Regulations revise in certain respects the rules applicable to
foreign shareholders with respect to payments made after December 31, 1998.
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Distributions of proceeds attributable to the sale or exchange by ATLANTIC
of U.S. real property interests are subject to income and withholding taxes
pursuant to the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"), and may be subject to branch profits tax in the hands of a
shareholder which is a foreign corporation if it is not entitled to treaty
relief or exemption. ATLANTIC is required by applicable Treasury Regulations
to withhold 35% of any distribution to a foreign person that could be
designated by ATLANTIC as a capital gain dividend; this amount is creditable
against the foreign shareholder's FIRPTA tax liability.
The Federal income taxation of foreign persons is a highly complex matter
that may be affected by many other considerations. Accordingly, foreign
investors in ATLANTIC should consult their own tax advisors regarding the
income and withholding tax considerations with respect to their investment in
ATLANTIC.
OTHER TAX CONSIDERATIONS
Homestead Mortgages
ATLANTIC holds mortgage notes of Homestead which are convertible into shares
of Homestead common stock. 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. If 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.
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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 for disposition at a time which
is not otherwise economically advantageous to ATLANTIC. For example, depending
on 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.
ATLANTIC Development Services
ATLANTIC Development Services will pay Federal and state income taxes at the
full applicable corporate rates on its income prior to payment of any
dividends. ATLANTIC Development Services will attempt to minimize the amount
of such taxes, but there can be no assurance whether or to the extent to which
measures taken to minimize taxes will be successful. To the extent that
ATLANTIC Development Services is required to pay Federal, state or local
taxes, the cash available for distribution by ATLANTIC Development Services to
its shareholders will be reduced accordingly.
Tax Effects of the Merger
On September 8, 1997, the shareholders of ATLANTIC voted to approve the
merger (the "Merger") of ATLANTIC's REIT manager, Security Capital (Atlantic)
Incorporated (the "REIT Manager"), and its property manager, SCG Realty
Services Atlantic Incorporated ("SCG Realty Services"), into a newly formed
subsidiary of ATLANTIC. In the opinion of Mayer, Brown & Platt, based on
certain representations of Security Capital and ATLANTIC, the Merger was
properly treated for Federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code. Accordingly, ATLANTIC did 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 did 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 was or 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 is treated as a reorganization with the meaning of
Section 368(a) of the Code.
Basis and Holding Period. The assets formerly held by the REIT Manager and
SCG Realty Services have the same adjusted tax basis in the hands of ATLANTIC
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 includes 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 Gains Rules" of IRS Notice 88-19,
1988-1 C.B. 486, ATLANTIC will be subject to corporate level tax if it
disposes of any of the assets acquired from Security Capital Group 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. ATLANTIC has covenanted to make
this election.
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Liability for Other Taxes. Pursuant to the Merger agreement, Security
Capital is 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 is 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 occurred. Security
Capital, however, 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 "affiliate group".
Consequence 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 consequence on ATLANTIC's continued qualification as a
REIT. In the opinion of Mayer, Brown & Platt, based upon certain
representations of Security Capital Group and ATLANTIC, the consummation of
the Merger will not jeopardize the status of ATLANTIC as a REIT under the
Code.
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 taxes 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 shareholders should recognize that the present Federal income
tax treatment of an investment in ATLANTIC 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 ATLANTIC.
State and Local Taxes
ATLANTIC and its shareholders may be subject to state or local taxation in
various jurisdictions, including those in which it or they transact business
or reside. The state and local tax treatment of ATLANTIC and its shareholders
may not conform to the federal income tax consequences discussed above.
Consequently, prospective shareholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in the
Offered Securities of ATLANTIC.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
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PURCHASE, OWNERSHIP, AND SALES OF COMMON SHARES, PREFERRED SHARES OR DEBT
SECURITIES IN AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT
TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
PLAN OF DISTRIBUTION
The Offered Securities may be offered directly by ATLANTIC, through agents
designated from time to time by ATLANTIC, to or through underwriters or
dealers. Direct sales to investors may be accomplished through subscription
offerings or through Rights distributed to ATLANTIC's shareholders. In
connection with subscription offerings or the distribution of Rights to
shareholders, if all of the underlying Offered Securities are not subscribed
for, ATLANTIC may sell such unsubscribed Offered Securities to third parties
directly or through underwriters or agents and, in addition, whether or not
all of the underlying Offered Securities are subscribed for, ATLANTIC may
concurrently offer additional Offered Securities to third parties directly or
through underwriters or agents. Any such underwriter, dealer or agent involved
in the offer and sale of the Offered Securities will be named in the
applicable Prospectus Supplement.
The distribution of the Offered Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed,
or at prices related to the prevailing market prices at the time of sale or at
negotiated prices (any of which may represent a discount from the prevailing
market prices). ATLANTIC also may, from time to time, authorize underwriters
acting as ATLANTIC's agents to offer and sell the Offered Securities on such
terms and conditions as are set forth in the applicable Prospectus Supplement.
In connection with the sale of Offered Securities, underwriters may be deemed
to have received compensation from ATLANTIC in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of
Offered Securities for whom they may act as agent. Underwriters may sell
Offered Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agent.
Any underwriting compensation paid by ATLANTIC to underwriters or agents in
connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters,
dealers and agents participating in the distribution of the Offered Securities
may be deemed to be underwriters, and any discounts and commissions received
by them and any profit realized by them on resale of the Offered Securities
may be deemed to be underwriting discounts and commissions, under the
Securities Act. Underwriters, dealers and agents may be entitled, under
agreements entered into with ATLANTIC, to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act.
If so indicated in the applicable Prospectus Supplement, ATLANTIC will
authorize dealers acting as ATLANTIC's agents to solicit offers by certain
institutions to purchase Offered Securities from ATLANTIC at the public
offering price set forth in such Prospectus Supplement pursuant to delayed
delivery contracts ("Contracts") providing for payment and delivery on the
date or dates stated in such Prospectus Supplement. Each Contract will be for
an amount not less than, and the aggregate principal amount of Offered
Securities sold pursuant to Contracts will be not less nor more than, the
respective amounts stated in the applicable Prospectus Supplement.
Institutions with whom Contracts, when authorized, may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions and other institutions but
will in all cases be subject to the approval of ATLANTIC. Contracts will not
be subject to any conditions except (i) the purchase by an institution of the
Offered Securities covered by its Contracts may not at the time of delivery be
prohibited under the laws of any jurisdiction in the U.S. to which such
institution is subject and (ii) if the Offered Securities are being sold to
underwriters, ATLANTIC must have sold to such underwriters the total principal
amount of the Offered Securities less the principal amount thereof covered by
Contracts.
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Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for ATLANTIC and its subsidiaries in
the ordinary course of business.
INDEPENDENT AUDITORS AND EXPERTS
The financial statements of ATLANTIC appearing in ATLANTIC's Annual Report
on Form 10-K for the year ended December 31, 1996 have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such financial statements are
incorporated by reference 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 period ended March 31, 1997 and the three- and six-month
periods ended June 30, 1997, incorporated by reference 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 reports, included in ATLANTIC's Quarterly Report on Form 10-Q for the
quarters ended March 31, 1997 and June 30, 1997 and incorporated herein by
reference, state that they did not audit and they do not express an opinion on
that interim financial information. Accordingly, the degree of reliance on
their reports 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 Securities Act for
their reports on the unaudited interim financial information because those
reports are not a "report" or a "part" of the Registration Statement (as
defined below) prepared or certified by the auditors within the meaning of
Sections 7 and 11 of the Securities Act.
LEGAL MATTERS
Certain legal matters relating to the validity of the Offered Securities
will be passed on for ATLANTIC by Mayer, Brown & Platt, Chicago, Illinois.
Mayer, Brown & Platt has in the past represented and is currently representing
ATLANTIC and certain of its affiliates.
AVAILABLE INFORMATION
ATLANTIC is subject to the informational requirements of the Exchange Act,
and, in accordance therewith, files reports, proxy and information statements
and other information with the Commission. Reports, proxy and information
statements and other information filed by ATLANTIC can be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at its regional offices at Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661 and Seven World Trade
Center, New York, New York 10048. Copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission maintains a Web
site which contains such reports, proxy and information statements and other
information at http://www.sec.gov. ATLANTIC's outstanding Common Shares and
Series A Preferred Shares are listed on the NYSE under the symbols "SCA" and
"SCA-PRA", respectively, and all reports, proxy and information statements and
other information concerning ATLANTIC may be inspected at the offices of the
NYSE at 20 Broad Street, New York, New York 10005.
ATLANTIC has filed with the Commission a registration statement on Form S-3
(together with all amendments and exhibits, the "Registration Statement")
under the Securities Act, with respect to the securities offered hereby. This
prospectus ("Prospectus"), which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted as permitted by the rules and
regulations of the Commission. Statements made in this Prospectus as to the
content of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document which is filed or incorporated by reference as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description, and each such statement will be deemed qualified in its entirety
by such reference.
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INCORPORATION BY REFERENCE
The following documents filed by ATLANTIC with the Commission (File No. 1-
12303) pursuant to the Exchange Act are incorporated by reference in this
Prospectus:
(1) ATLANTIC's Annual Report on Form 10-K for the year ended December 31,
1996;
(2) ATLANTIC's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1997 and June 30, 1997;
(3) ATLANTIC's Current Reports on Form 8-K filed January 27, 1997 and March
26, 1997;
(4) The description of the Common Shares included in ATLANTIC's
Registration Statement on Form 8-A; and
(5) The description of ATLANTIC's preferred share purchase rights included
in ATLANTIC's Registration Statement on Form 8-A.
All documents subsequently filed by ATLANTIC pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the
offering made hereby will be deemed to be incorporated by reference in this
Prospectus from the date of filing of such documents. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
will be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein, or in any subsequently filed
document which is incorporated or deemed to be incorporated by reference
herein, modifies or supersedes such statement. Any such statement so modified
or superseded will not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
ATLANTIC will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any and all of the information which has
been incorporated by reference herein (not including exhibits to such
information unless such exhibits are specifically incorporated by reference in
such information). Requests should be directed to Security Capital Atlantic
Incorporated, Six Piedmont Center, Suite 600, Atlanta, Georgia 30305
Attention: Secretary, telephone (404) 237-9292.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities registered hereby, all of which
will be paid by the Registrant:
<TABLE>
<S> <C>
SEC registrtion fee........................................... $ 151,516
Printing and duplicating expenses............................. 300,000
Legal fees and expenses....................................... 300,000
Blue Sky fees and expenses.................................... 5,000
Accounting fees and expenses.................................. 150,000
Miscellaneous expenses........................................ 93,484
----------
Total......................................................... $1,000,000
==========
</TABLE>
ITEM 15. IDEMNIFICATION 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 shareholders for money damages except for liability
resulting from (i) actual receipt of an improper benefit or profit in money,
property or services or (ii) 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 of final disposition of a proceeding to (i) any individual
who is a present or former Director or officer of the Registrant or (ii) 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 clause (i) or (ii) 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 (i) 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 Charter
and (ii) a written statement by or on his or her behalf to repay the amount
paid or reimbursed by the Registrant if it is ultimately determined that the
standard of conduct was not met.
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Additionally, 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
(i) the payment of which is judicially determined to be unlawful, (ii)
relating to claims under Section 16(b) of the Securities Exchange Act of 1934
or (iii) relating to judicially determined criminal violations.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
See the Exhibit Index, which is hereby incorporated herein by reference.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
Provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall 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.
The undersigned Registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of
the subscription offer, the transactions by the underwriters during the
subscription period, the amount of unsubscribed securities to be purchased by
the underwriters, and the terms of any subsequent reoffering thereof. If any
public offering by the underwriters is to be made on terms differing from
those set forth on the cover page of the prospectus, a post-effective
amendment will be filed to set forth the terms of such offering.
II-2
<PAGE>
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 provisions set forth or described in Item 15 of
this Registration Statement, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. If 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 matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act of 1933 and
will be governed by the final adjudication of such issue.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of Security Capital Atlantic
Incorporated, a Maryland corporation, and each of the undersigned directors
and officers of Security Capital Atlantic Incorporated, hereby constitutes and
appoints James C. Potts, Constance B. Moore, William Kell, Jeffrey A. Klopf
and Ariel Amir its, his or her true and lawful attorneys-in-fact and agents,
for it, him or her and in its, his or her name, place and stead, in any and
all capacities, with full power to act alone, to sign any and all amendments
to this Registration Statement, and any registration statement to register
additional securities pursuant to Rule 462 under the Securities Act of 1933,
and to file each such document with all exhibits thereto, and any and all
documents in connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully
and to all intents and purposes as it, he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED 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 21ST DAY OF
OCTOBER, 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 REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ James C. Potts Co-Chairman, Chief October 21, 1997
____________________________________ Investment
James C. Potts Officer and Director
/s/ Constance B. Moore Co-Chairman, Chief Operating October 21, 1997
____________________________________ Officer and Director
Constance B. Moore
/s/ William Kell Vice President and October 21, 1997
____________________________________ Controller
William Kell (Principal Financial and
Accounting Officer)
/s/ M. A. Garcia III Director October 21, 1997
____________________________________
M. A. Garcia III
/s/ Ned S. Holmes Director October 21, 1997
____________________________________
Ned S. Holmes
/s/ John M. Richman Director October 21, 1997
____________________________________
John M. Richman
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
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 (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 Second Amended and Restated Bylaws of ATLANTIC (incorporated by
reference to Exhibit 4.4 to the ATLANTIC S-11)
4.6 Rights Agreement, dated as of March 22, 1996, between ATLANTIC and The
First National Bank of Boston, as Rights Agent, including form of
Rights Certificate (incorporated by reference to Exhibit 4.6 to the
ATLANTIC S-11)
4.7 Indenture, dated as of August 14, 1997, between ATLANTIC and State
Street Bank and Trust Company, as Trustee (incorporated by reference
to Exhibit 4.8 to ATLANTIC's Form S-11 Registration Statement (File
No. 333-30747))
5 Opinion of Mayer, Brown & Platt as to the legality of the securities
being registered
8 Opinion of Mayer, Brown & Platt as to certain tax matters
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 (included at page II-3)
</TABLE>
II-5
<PAGE>
Exhibit 5
October 22, 1997
The Board of Directors
Security Capital Atlantic Incorporated
Six Piedmont Center
Atlanta, Georgia 30305
Re: Security Capital Atlantic Incorporated
Registration Statement on Form S-3
--------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Security Capital Atlantic Incorporated,
a Maryland corporation ("ATLANTIC"), in connection with the proposed sale of the
following securities (the "Securities") of ATLANTIC, as set forth in the Form
S-3 Registration Statement filed with the Securities and Exchange Commission on
the date hereof (the "Registration Statement"): (i) one or more series of
unsecured senior debt securities (the "Debt Securities"), (ii) one or more
series of preferred stock, par value $.01 per share (the "Preferred Shares"),
and (iii) common stock, par value $.01 per share (the "Common Shares").
Each series of the Debt Securities will be issued under an Indenture dated
as of August 14, 1997 (the "Indenture"), between ATLANTIC and State Street Bank
and Trust Company, as Trustee. Each series of the Preferred Shares will be
issued under ATLANTIC's charter, as amended and supplemented (the "Charter"),
and Articles Supplementary to be filed with the Maryland State Department of
Assessments and Taxation (the "Maryland SDAT"). The Common Shares will be
issued under the Charter. Certain terms of the Securities to be issued by
ATLANTIC from time to time will be approved by the Board of Directors of
ATLANTIC or a committee thereof as part of the corporate action taken and to be
taken in connection with the authorization of the issuance of the Securities
(the "Corporate Proceedings").
As special counsel to ATLANTIC, we have examined originals or copies
certified or otherwise identified to our satisfaction of the Charter, ATLANTIC's
Bylaws, resolutions of ATLANTIC's Board of Directors and such ATLANTIC records,
certificates and other
<PAGE>
The Board of Directors
Security Capital Atlantic Incorporated
October 22, 1997
Page 2
documents and such questions of law as we considered necessary or appropriate
for the purpose of this opinion. As to certain facts material to our opinion, we
have relied, to the extent we deem such reliance proper, upon certificates of
public officials and officers of ATLANTIC. In rendering this opinion, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity to authentic original documents
of all documents submitted to us as copies.
Based upon and subject to the foregoing and to the assumptions, conditions
and limitations set forth herein, we are of the opinion that:
(1) upon the completion of the Corporate Proceedings relating to a series
of the Debt Securities and the due execution, authentication, issuance and
delivery of the Debt Securities of such series, the Debt Securities of such
series, when sold in exchange for the consideration set forth in the Prospectus
contained in the Registration Statement and any Prospectus Supplement relating
to such series of the Debt Securities, will be duly authorized and will be
binding obligations of ATLANTIC enforceable in accordance with their terms and
entitled to the benefits of the Indenture, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally and subject to general principles of equity;
(2) upon the completion of the Corporate Proceedings relating to a series
of the Preferred Shares, the execution, delivery and filing with, and recording
by, the Maryland SDAT of Articles Supplementary relating to such series of the
Preferred Shares, and the due execution, countersignature and delivery of the
Preferred Shares of such series, the Preferred Shares of such series, when sold
in exchange for the consideration set forth in the Prospectus and any Prospectus
Supplement relating to such series of the Preferred Shares, will be duly
authorized, legally issued, fully paid and nonassessable; and
(3) upon the completion of the Corporate Proceedings relating to the Common
Shares and the due execution, countersignature and delivery of the Common
Shares, the Common Shares, when sold in exchange for the consideration set forth
in the Prospectus and any Prospectus Supplement relating to the Common Shares,
will be duly authorized, legally issued, fully paid and nonassessable.
<PAGE>
The Board of Directors
Security Capital Atlantic Incorporated
October 22, 1997
Page 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to our firm in the Registration
Statement.
Very truly yours,
/s/ MAYER, BROWN & PLATT
<PAGE>
Exhibit 8
October 22, 1997
The Board of Directors
Security Capital Atlantic Incorporated
Six Piedmont Center
Atlanta, Georgia 30305
Re: Security Capital Atlantic Incorporated
Registration Statement on Form S-3
--------------------------------------
Ladies and Gentlemen:
In connection with the offering of the Offered Securities/1/ of Security
Capital Atlantic Incorporated, a Maryland corporation ("ATLANTIC"), pursuant to
the Form S-3 Registration Statement filed with the Securities and Exchange
Commission (the "Registration Statement"), you have requested our opinions
concerning (i) the qualification and taxation of ATLANTIC as a REIT and (ii) the
information in the Registration Statement under the heading "Federal Income Tax
Considerations."
In formulating our opinions, we have reviewed and relied upon the
Registration Statement, such other documents and information provided by you,
and such applicable provisions of law as we have considered necessary or
desirable for purposes of the opinions expressed herein.
In addition, we have relied upon certain representations made by ATLANTIC
relating to the organization and actual and proposed operation of ATLANTIC and
its relevant subsidiaries. For purposes of our opinions, we have not made an
independent investigation of the facts set forth in such documents,
representations from ATLANTIC or the Registration Statement. We have,
consequently, relied upon your representations that the information presented in
such documents, or otherwise furnished to us, accurately and completely
describes all material facts.
- ----------------------------
/1/ Unless otherwise specifically defined herein, all capitalized terms have
the meaning assigned to them in the Registration Statement.
<PAGE>
The Board of Directors
Security Capital Atlantic Incorporated
October 22, 1997
Page 2
Our opinions expressed herein are based on the Internal Revenue Code of
1986, as amended (the "Code"), the Treasury regulations promulgated thereunder,
and the interpretations of the Code and such regulations by the courts and the
Internal Revenue Service, all as they are in effect and exist at the date of
this letter. It should be noted that statutes, regulations, judicial decisions,
and administrative interpretations are subject to change at any time and, in
some circumstances, with retroactive effect. A material change that is made
after the date hereof in any of the foregoing bases for our opinions, could
adversely affect our conclusions.
Based upon and subject to the foregoing, it is our opinion that:
1. Beginning with ATLANTIC's taxable year ended December 31, 1994,
ATLANTIC has been organized in conformity with the requirements for
qualification as a REIT under the Code, and ATLANTIC's actual and proposed
method of operation, as described in the Registration Statement and as
represented by ATLANTIC has enabled it and will continue to enable it to satisfy
the requirements for qualification as a REIT.
2. The information in the Registration Statement under the heading
"Federal Income Tax Considerations," to the extent that it constitutes matters
of law or legal conclusions, has been reviewed by us and is correct in all
material respects.
Other than as expressly stated above, we express no opinion on any issue
relating to ATLANTIC or to any investment therein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein and under
the caption "Federal Income Tax Considerations" in the Registration Statement.
Very truly yours,
/s/ MAYER, BROWN & PLATT
<PAGE>
Exhibit 15
October 20, 1997
Board of Directors and Shareholders
Security Capital Atlantic Incorporated
We are aware of the incorporation by reference in the Registration Statement
(Form S-3) and related Prospectus of Security Capital Atlantic Incorporated for
the registration of $500,000,000 in debt and equity securities of our reports
dated April 24, 1997, except for Note 6, as to which the date is May 1, 1997
and July 22, 1997, except for Notes 5 and 6 as to which the date is August 5,
1997, relating to the unaudited condensed interim financial statements of
Security Capital Atlantic Incorporated that are included in its Forms 10-Q for
the quarters ended March 31, 1997 and June 30, 1997.
Pursuant to Rule 436(c) of the Securities Act of 1933 our reports are 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.
/s/ Ernst & Young LLP
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and the related Prospectus of Security
Capital Atlantic Incorporated for the registration of $500,000,000 in debt and
equity securities and to the incorporation by reference therein of 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 included in
its Annual Report (Form 10-K) for the year ended December 31, 1996, filed with
the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Dallas, Texas
October 20, 1997
