<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 26, 1997
NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
SECURITY CAPITAL ATLANTIC INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS)
SIX PIEDMONT CENTER
ATLANTA, GEORGIA 30305
(404) 237-9292
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
JEFFREY A. KLOPF, SECRETARY
SECURITY CAPITAL ATLANTIC INCORPORATED
SIX PIEDMONT CENTER
ATLANTA, GEORGIA 30305
(404) 237-9292
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
EDWARD J. SCHNEIDMAN PATRICIA A. CERUZZI
MAYER, BROWN & PLATT SULLIVAN & CROMWELL
190 SOUTH LASALLE STREET 125 BROAD STREET
CHICAGO, ILLINOIS 60603 NEW YORK, NEW YORK 10004
(312) 782-0600 (212) 558-4000
--------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this registration statement becomes
effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
BEING OFFERING PRICE OFFERING REGISTRATION
TITLE OF SECURITIES BEING REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share 4,600,000 $24.125 $110,975,000 $33,629
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Preferred Share Purchase Rights 4,600,000 None None None
</TABLE>
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(1) Includes 600,000 shares which may be sold to the underwriters to cover
over-allotments.
(2) Estimated solely for the purpose of determining the registration fee based
on the average of the high and low prices of the Registrant's common stock
on the New York Stock Exchange on February 25, 1997.
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 26, 1997
4,000,000 SHARES
LOGO
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-----------
Security Capital Atlantic Incorporated ("ATLANTIC") is a highly focused real
estate operating company which engages in the development, acquisition,
operation and long-term ownership of multifamily communities in the
southeastern United States. ATLANTIC has elected to be taxed as a real estate
investment trust (a "REIT") for federal income tax purposes and pays regular
quarterly distributions to its shareholders.
All of the 4,000,000 shares of ATLANTIC's common stock, par value $.01 per
share (the "Shares"), offered hereby (the "Offering") are being sold by
ATLANTIC. See "Underwriting".
The last reported sale price of the Shares, which are listed under the symbol
"SCA", on the New York Stock Exchange (the "NYSE") on February 25, 1997 was $24
1/8. See "Price Range of ATLANTIC Shares and Distributions".
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
RELEVANT TO AN INVESTMENT IN THE SHARES.
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.
-----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) ATLANTIC(2)
----------------- ----------------- -----------------
<S> <C> <C> <C>
Per Share........................ $ $ $
Total(3)......................... $ $ $
</TABLE>
- -----
(1) ATLANTIC has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting".
(2) Before deducting estimated expenses of $ payable by ATLANTIC.
(3) ATLANTIC has granted the Underwriters an option for 30 days to purchase up
to an additional 600,000 Shares at the initial public offering price per
Share, less the underwriting discount, solely to cover over-allotments. If
such option is exercised in full, the total initial public offering price,
underwriting discount and proceeds to ATLANTIC will be $ ,
$ and $ , respectively. See "Underwriting".
-----------
The Shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
certificates for the Shares will be ready for delivery in New York, New York,
on or about , 1997, against payment therefor in immediately
available funds.
GOLDMAN, SACHS & CO.
-----------
The date of this Prospectus is , 1997.
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
DIVERSIFIED TARGET MARKET
LOGO
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed information
and financial statements appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information contained in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. Unless otherwise
indicated, all Share and per Share amounts have been adjusted to give effect to
ATLANTIC's one-for-two reverse Share split, which was effective on September
10, 1996. Pro forma information regarding communities owned at December 31,
1996 includes communities acquired through January 31, 1997 at their cost plus
budgeted renovations. All references to communities under control refer to
developments in planning that were under control as of January 31, 1997. The
term "in planning" means that construction is anticipated to commence within 12
months. The term "under control" means that ATLANTIC has an exclusive right
(through contingent contract or letter of intent) during a contractually
agreed-upon time period to acquire land for future development of multifamily
communities, subject to removal of contingencies during the due diligence
process, but does not currently own the land. Homestead Village(R) is a
registered trademark of Homestead Village Incorporated ("Homestead") and the
term "Homestead Village" as used herein shall be deemed to include a reference
to such registered trademark. See "Glossary" for the definitions of certain
other terms used in this Prospectus.
SECURITY CAPITAL ATLANTIC INCORPORATED
ATLANTIC's objective is to be the preeminent real estate operating company
focusing on multifamily communities in its southeastern United States target
market. Through its REIT Management Agreement with Security Capital (Atlantic)
Incorporated (the "REIT Manager" or "REIT Management"), ATLANTIC has access to
the services provided by the REIT Manager and its specialized service
affiliates, which provides ATLANTIC with the same resources as a fully
integrated operating company. The REIT Manager and its specialized service
affiliates have 81 professionals dedicated to implementing ATLANTIC's highly
focused operating strategy. ATLANTIC focuses on the development, acquisition,
operation and long-term ownership of multifamily communities. At January 31,
1997, ATLANTIC's portfolio consisted of 25,364 multifamily units, including
6,123 units under construction or in planning, in 16 metropolitan areas and 49
submarkets in growth areas of the southeastern United States. The total
expected investment cost of ATLANTIC's 70 operating communities, including
budgeted renovations and total budgeted development expenditures, was
approximately $968.3 million at January 31, 1997 and the total budgeted
development cost of ATLANTIC's 19 communities under construction or in planning
was approximately $379.8 million. Additionally, at January 31, 1997, ATLANTIC
had land in planning and under control for the development of 2,040 units with
a total budgeted development cost of $127.4 million.
ATLANTIC seeks to achieve long-term sustainable growth in per Share cash flow
by maximizing the operating performance of its core portfolio through value-
added operating systems and concentrating its experienced team of professionals
on developing and acquiring industry-leading multifamily communities in
targeted submarkets exhibiting strong job growth and favorable demographic
trends. Since its inception in 1993, ATLANTIC has employed a research-driven
investment approach, deploying its capital in markets and submarkets that
exhibit strong market fundamentals. ATLANTIC believes that population and
employment growth are the primary demand generators for multifamily product.
ATLANTIC believes that its future growth will be driven by (i) its research-
based investment strategy which focuses on a primary target market exhibiting
strong demographic trends and job growth prospects; (ii) an experienced
management team which provides ATLANTIC with several senior
3
<PAGE>
officers with the leadership, operational, investment and financial skills and
experience to oversee the operations of ATLANTIC; (iii) ongoing research and
development focused on identifying those submarkets and product types that will
offer continued opportunities for long-term cash flow growth; (iv) a
development strategy targeted to moderate income households which ATLANTIC
believes represent one of the largest and most underserved segments of the
renter population; (v) the acquisition and redevelopment of existing
multifamily communities in markets which are expected to experience favorable
growth in rents and income; (vi) a high-quality portfolio providing an internal
source of long-term cash flow growth; (vii) the substantial resources available
to ATLANTIC through its affiliation with Security Capital Group Incorporated
("Security Capital Group"); and (viii) a conservative balance sheet strategy
that is expected to provide ATLANTIC with significant incremental debt capacity
and allow ATLANTIC to take advantage of future investment opportunities on a
non-dilutive basis.
ATLANTIC recently announced that it has received a proposal from Security
Capital Group, which owns the REIT Manager, to exchange the REIT Manager and
SCG Realty Services Atlantic Incorporated ("SCG Realty Services"), its property
management affiliate, for Shares. See "--Recent Developments".
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
"RISK FACTORS" PRIOR TO MAKING AN INVESTMENT DECISION REGARDING THE SHARES
OFFERED HEREBY. THESE RISKS INCLUDE:
. The value of ATLANTIC's assets is not based on third-party appraisals;
therefore, the price of the Shares may be greater than the fair market value
of ATLANTIC's portfolio.
. The ability of Security Capital Group to exercise significant influence over
the business and policies of ATLANTIC due to its ownership of 56.9% of the
outstanding Shares (51.4% after the Offering), its right to nominate up to
three Directors and its right to prior approval over certain matters,
including ATLANTIC's operating budget and substantial deviations therefrom.
. Conflicts of interest between ATLANTIC and the REIT Manager, which is owned
by Security Capital Group, and other affiliates of Security Capital Group,
and the ability of Security Capital Group to influence decisions regarding
agreements with affiliates (which must be reviewed and approved at least
annually by ATLANTIC's independent Directors), which could result in
decisions that do not fully represent the interests of all shareholders. See
"--Recent Developments".
. ATLANTIC's ability to pay future distributions depends on a number of
factors, any change in which could affect ATLANTIC's ability to pay future
distributions.
. General real estate investment considerations, such as (i) the effect of
local economic and other conditions on real estate values and the ability of
residents to make rental payments, along with the general illiquidity of
equity real estate investments, which may limit the ability of ATLANTIC to
change its asset base; (ii) a possible inability to refinance revolving
credit and mortgage indebtedness; (iii) the risks inherent in development
activities, including the risk that construction may not be completed on
schedule; and (iv) competition in seeking residents for communities owned,
communities for acquisition and land for development.
. Concentration of communities representing 34.3% of ATLANTIC's pro forma
revenues for the year ended December 31, 1996 in the Atlanta, Georgia
metropolitan area, which thus may be affected by changes in the economic
conditions of that area.
. Taxation of ATLANTIC as a corporation if it fails to continue to qualify as
a REIT for federal income tax purposes, and ATLANTIC's liability for certain
federal, state and local taxes on its income and property.
4
<PAGE>
. The possibility that ATLANTIC being externally managed by an affiliate of
its principal shareholder may adversely affect the market price of the
Shares. See "--Recent Developments".
. Ability of ATLANTIC's Board of Directors (the "Board"), which is comprised
of a majority of independent Directors, to change certain policies of
ATLANTIC, including investment, financing and distribution policies, without
a vote of the shareholders, which could result in policies that do not fully
reflect the interests of all shareholders.
. Limitations on the shareholders' ability to change control of ATLANTIC due
to (i) restrictions on ownership of more than 9.8% of the outstanding shares
of ATLANTIC's stock and possible redemption of shares acquired or voidance
of the transfer of shares acquired in excess of 9.8% of the outstanding
shares of ATLANTIC's stock; (ii) ATLANTIC's shareholder rights plan; (iii)
ATLANTIC's classified Board; (iv) the Board's ability to reclassify unissued
shares of ATLANTIC's stock; and (v) advance notice requirements to nominate
Directors or bring other business before annual shareholders' meetings.
. Possible adverse effect of increases in market interest rates on Share
prices.
. Potential liability of ATLANTIC for unanticipated or future environmental
liabilities and the potential expense of compliance with the Fair Housing
Amendments Act of 1988 and the Americans with Disabilities Act of 1990.
. Restrictions associated with tax-exempt bonds used to finance certain
communities which require that a certain percentage of units in those
communities be occupied by lower-income households.
. The possible effect on the market price of the future sale of a substantial
number of Shares.
. Dilution of net tangible book value of the Shares.
For a discussion of ATLANTIC's transactions with related parties and the
compensation therefor, see "Certain Relationships and Transactions".
HIGHLIGHTS
ATLANTIC's highlights for 1996 include:
. ATLANTIC's 34 communities that were fully operational throughout 1996 and
1995 realized an increase in adjusted net operating income of 4.88%. See
"Business--Strategy for Cash Flow and Distribution Growth--"Same Store
Growth' ". This strong net operating income growth from the same store
portfolio generated 30% of ATLANTIC's funds from operations growth, and the
positive impact of acquisitions completed in 1996 generated an additional
29%. The remaining 41% of growth in funds from operations was produced by
the stabilization of new development communities. The contribution to funds
from operations growth from developments occurred even though ATLANTIC had
an average of $168.4 million of assets under development or in lease-up
during 1996. As these communities in lease-up begin to reach stabilization
in 1997 and subsequent years, they are expected to add significantly to
ATLANTIC's long-term performance. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources--Funds from Operations".
. The development of moderate income multifamily communities continues to be a
major component of ATLANTIC's investment strategy. During 1996, ATLANTIC
commenced construction of 2,815 units at a total expected investment cost of
$164.4 million. Of that total, 51.8% were moderate income communities.
During 1996, three developed communities (one of which was a moderate income
community) representing a total expected investment cost of $43.0 million
achieved stabilization, adding 804 units to ATLANTIC's stabilized portfolio.
5
<PAGE>
. ATLANTIC continues to take advantage of attractive investment opportunities
throughout its southeastern target market. During 1996, ATLANTIC acquired
13 communities consisting of 3,556 units, representing a total expected
investment cost of $171.7 million.
. ATLANTIC is implementing an asset optimization strategy pursuant to which
it may from time to time dispose of communities that are no longer
consistent with its long-term investment objectives and redeploy the
proceeds into strategic acquisitions and developments, preferably through
tax-deferred exchanges. During 1996, ATLANTIC completed the disposition of
four communities, realizing an aggregate gain of $6.7 million on aggregate
proceeds of $64.2 million.
. In May 1996, ATLANTIC closed a private placement of Shares that raised a
total of $249.3 million of net proceeds. The completion of this private
placement further enhanced the strength of ATLANTIC's balance sheet.
Proceeds from the private placement were used to fund investment activities
and repay borrowings under ATLANTIC's $350 million line of credit.
. On October 17, 1996, ATLANTIC sold its Homestead Village properties to a
newly formed company, Homestead, and entered into a funding commitment
agreement to fund the development of certain of such properties in exchange
for Homestead common stock and warrants that ATLANTIC subsequently
distributed to its shareholders. On a fully funded and converted basis,
ATLANTIC will own 15.35% of Homestead's common stock (assuming no further
equity offerings by Homestead, conversion of all convertible mortgage notes
and exercise of all outstanding warrants) as a result of its obligation to
fund up to $111.1 million of Homestead convertible mortgage notes, which
are expected to contribute significantly to ATLANTIC's future growth.
Homestead's common stock and warrants trade on the American Stock Exchange
(the "ASE") under the symbols "HSD" and "HSD.W", respectively. See "Certain
Relationships and Transactions--Homestead Transaction" and "--Funding
Commitment Agreements".
. ATLANTIC closed its initial public offering on October 18, 1996, raising
net proceeds of $110.0 million from the sale of 4,940,000 Shares at a price
of $24.00 per Share (before adjusting for the Homestead Distribution
described below). The proceeds from the offering were used to repay
borrowings under ATLANTIC's $350 million line of credit. At February 19,
1997, ATLANTIC had 37,891,580 Shares outstanding. ATLANTIC's long-term debt
as a percentage of total long-term undepreciated book capitalization (the
sum of long-term debt and shareholders' equity after adding back
accumulated depreciation) was 17.4% at December 31, 1996 on an historical
basis and 15.7% at December 31, 1996 on a pro forma basis as adjusted to
give effect to the Offering and the application of the proceeds therefrom.
. In December 1996, ATLANTIC replaced its secured line of credit with a new
$350 million unsecured line of credit. The new line of credit bears
interest at prime or, at ATLANTIC's option,
LIBOR plus 1.375% compared to the previous rate of LIBOR plus 1.5%. The
loan agreement provides for a further reduction in the interest rate
depending upon ATLANTIC's debt rating. ATLANTIC's objective is to achieve
an investment-grade debt rating in 1997. As of February 19, 1997, $275.5
million of borrowings were outstanding under the line of credit.
. During 1996, ATLANTIC's Share price increased from $23.00 (based on the
most recent offering price for a private offering conducted from November
1995 to May 1996) to $24.50 (based on the closing price on the NYSE on
December 31, 1996). In addition, shareholders received total cash
distributions of $1.65 per Share in 1996 and a special distribution of
0.110875 shares of Homestead common stock and warrants to purchase 0.074384
shares of Homestead common stock per Share (the "Homestead Distribution").
The securities distributed in the Homestead Distribution had a market value
of $2.67 per Share based on the closing prices of such securities on the
ASE on November 11, 1996, the day prior to the distribution date. See
"Price Range of ATLANTIC Shares and Distributions".
6
<PAGE>
OPERATING CHARACTERISTICS
ATLANTIC believes that its future growth will be driven by the following
operating characteristics:
. STRONG PRIMARY TARGET MARKET. ATLANTIC believes the southeastern United
States is geographically and economically diverse and, therefore, ATLANTIC
has a strong primary target market in which to seek future growth. Although
34.3% of ATLANTIC's pro forma revenues for the year ended December 31, 1996
are derived from the Atlanta, Georgia metropolitan area, as ATLANTIC
continues to develop and acquire new communities outside of Atlanta, it
expects the percentage of its revenues derived from communities located in
Atlanta to decline. ATLANTIC's primary target market cities are Atlanta,
Georgia; Birmingham, Alabama; Charlotte, North Carolina; Jacksonville,
Florida; Memphis, Tennessee; Nashville, Tennessee; Raleigh, North Carolina;
Richmond, Virginia; Southeast Florida (which includes Ft. Lauderdale and
West Palm Beach); Tampa, Florida; and Washington, D.C. Based on forecasts
published by Woods & Poole Economics, Inc., the projected population growth
in ATLANTIC's primary target market is 31.5% for the years 1997 through
2016, whereas the projected population growth of the United States as a
whole for the same period is 16.8%. For the same period, job growth is
projected to be 29.0% in ATLANTIC's primary target market, compared to 20.8%
for the United States as a whole. Depending on the level of new construction
starts by other multifamily developers, ATLANTIC believes that the
anticipated population and job growth in its primary target market should
contribute to ATLANTIC's objective of long-term growth in cash flow.
. EXPERIENCED MANAGEMENT TEAM. The REIT Manager provides ATLANTIC with both
strategic and day-to-day management, including research, investment
analysis, acquisition and due diligence, development, asset management,
capital markets, accounting and legal services. Through the REIT Management
Agreement, ATLANTIC has access to the services provided by the REIT Manager
and its specialized service affiliates, which provides ATLANTIC with access
to the same resources as a fully integrated operating company. ATLANTIC's
four senior executives have an average of 24 years of industry experience
developing and managing multifamily communities, thus providing ATLANTIC
with several senior officers with the leadership, operational, investment
and financial skills and experience to oversee the operations of ATLANTIC,
although ATLANTIC's future operations will depend, in part, on ATLANTIC's
ability to continue to retain and attract experienced personnel. See "--
Recent Developments".
. RESEARCH AND DEVELOPMENT. ATLANTIC is dedicated to ongoing research and
development. ATLANTIC utilizes Security Capital Investment Research
Incorporated ("Security Capital Investment Research"), an affiliate of the
REIT Manager, to conduct comprehensive evaluations of its target market on a
submarket-by-submarket basis to identify those submarkets and product types
that present better prospects for long-term cash flow growth. These
evaluations, combined with ATLANTIC's extensive market experience in the
southeastern United States, enable ATLANTIC to identify submarkets that
offer continued opportunities for long-term cash flow growth. In addition to
market research, considerable resources are devoted to product research. The
REIT Manager continually evaluates and refines ATLANTIC's multifamily
communities to incorporate technologies and designs that will enhance long-
term livability for its residents. ATLANTIC believes that its research-based
investment strategy differs from other multifamily REITs in that the REIT
Manager and its affiliates have dedicated personnel who conduct
comprehensive proprietary evaluations of ATLANTIC's target market on a
submarket-by-submarket basis taking into account 24 key variables that
ATLANTIC has identified as having the greatest impact on multifamily
operating performance. A few of these variables include market demand
analysis, detailed supply evaluations of each submarket and other economic
and demographic data.
. MODERATE INCOME DEVELOPMENTS. As of January 31, 1997, ATLANTIC's portfolio
consisted of seven upper middle income communities with a total expected
investment cost of $132.8 million,
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<PAGE>
35 middle income communities with a total expected investment cost of $564.3
million and 47 moderate income communities with a total expected investment
cost of $651.0 million. ATLANTIC focuses primarily on moderate income
communities (targeted to residents earning 65% to 90% of a submarket's
median household income, who comprise one of the largest segments of the
renter population). Moderate income communities comprised 51.8% of
ATLANTIC's 1996 development starts. In 1997, approximately 83.5% of
development starts and approximately 66.5% of ATLANTIC's total development
activities are expected to constitute moderate income communities, based on
total expected investment cost. Few other REITs in ATLANTIC's primary target
market currently focus on the moderate income segment. Moreover, ATLANTIC
believes that less than 10% of the 1995 and 1996 multifamily starts in
ATLANTIC's primary target market cities constituted moderate income product.
Consequently, ATLANTIC believes that the moderate income segment is a
significantly underserved market with limited competition. Moderate income
residents are typically longer-term residents because they often lack the
financial resources required to purchase single-family homes. As a result,
resident turnover is often significantly lower in moderate income
communities than in upper middle income or middle income communities. The
total cost of refurbishing and re-leasing a unit ranges from $700 to $1,500;
therefore, reducing resident turnover can have a material impact on an
asset's profitability. Due to market fundamentals and the operating
characteristics of moderate income communities, ATLANTIC believes that this
product category offers better prospects for cash flow growth.
. OPPORTUNISTIC ACQUISITIONS. It is often advantageous for ATLANTIC to acquire
existing multifamily communities in markets that are expected to experience
favorable growth in rents and income. In many cases, communities can be
acquired and redeveloped at prices well below the cost to build a comparable
community in the same area. The REIT Manager has the capability to
thoroughly analyze and evaluate communities in an efficient manner, which,
together with ATLANTIC's access to capital, provides ATLANTIC with a
competitive advantage in acquiring multifamily assets. From its inception on
October 26, 1993 to January 31, 1997, ATLANTIC had completed acquisitions
with a total expected investment cost of $977.4 million.
. HIGH QUALITY PORTFOLIO. As noted above, adjusted net operating income on a
"same store" basis increased 4.88% from 1995 to 1996 for the 34 communities
that were fully operational during both periods. As of January 31, 1997,
ATLANTIC's operating communities (excluding communities in lease-up) were
93.8% leased. See "Business--ATLANTIC's Operating System--Acquisitions".
ATLANTIC believes that this strong performance reflects the quality of its
portfolio and strength of its primary target market. In addition, as of
January 31, 1997, ATLANTIC's portfolio of multifamily communities consisted
of 58.6% of stabilized operating communities, 13.2% of pre-stabilized
operating communities and 28.2% of communities under development, based on
total expected investment cost. As the development communities are completed
and the pre-stabilized communities achieve stabilization, they are expected
to contribute significantly to ATLANTIC's objective of long-term growth in
cash flow.
. PORTFOLIO AND ASSET OPTIMIZATION. ATLANTIC develops and acquires communities
with a view to effective long-term ownership and operation. REIT Management
actively reviews ATLANTIC's asset base. These reviews generate operating and
capital plans and, with guidance from its affiliate, Security Capital
Investment Research, help ATLANTIC to identify submarkets and community
types that it believes will generate above average long-term growth
opportunities. Under its asset optimization program, ATLANTIC may from time
to time dispose of assets that no longer meet its long-term investment
objectives and redeploy the proceeds, preferably through tax-deferred
exchanges, into assets with better prospects for cash flow growth. As noted
above, ATLANTIC disposed of four operating communities during 1996.
. RESOURCES AND EXPERIENCE OF PRINCIPAL SHAREHOLDER. Security Capital Group,
ATLANTIC's largest shareholder and the owner of the REIT Manager, owns 56.9%
of ATLANTIC's outstanding
8
<PAGE>
Shares (51.4% after the Offering). ATLANTIC benefits from the substantial
resources available to it through its affiliation with Security Capital
Group, including capital markets, research, accounting and legal services.
See "--Recent Developments". To provide for a wider distribution of
ownership and greater liquidity, Security Capital Group intends, over time,
to allow its ownership interest in ATLANTIC to fall to between 40% and 50%
as ATLANTIC conducts equity offerings, which is consistent with its
ownership interests in the other operating companies in which Security
Capital Group invests.
. CONSERVATIVE BALANCE SHEET STRATEGY. ATLANTIC has a conservative balance
sheet strategy. Long-term debt as a percentage of total long-term
undepreciated book capitalization was 17.4% at December 31, 1996 on an
historical basis and 15.7% at December 31, 1996 on a pro forma basis as
adjusted to give effect to the Offering and the application of the proceeds
therefrom. In the future, ATLANTIC intends to access the public equity and
debt markets. ATLANTIC's objective is to achieve an investment-grade debt
rating in 1997 and to issue long-term, fixed-rate, fully amortizing
unsecured corporate debt, which will limit ATLANTIC's exposure to floating
rate or balloon financing. ATLANTIC's $350 million unsecured line of credit
enables ATLANTIC to take advantage of investment opportunities in its target
market without investing significant funds in short-term investments between
securities offerings. As of February 19, 1997, $275.5 million of borrowings
were outstanding under the line of credit and such outstanding borrowings
are expected to be approximately $295.0 million at the closing of the
Offering. This conservative balance sheet strategy is expected to provide
ATLANTIC with significant incremental debt capacity and allow ATLANTIC to
take advantage of future investment opportunities on a non-dilutive basis,
contributing to ATLANTIC's objective of long-term growth in cash flow.
RECENT DEVELOPMENTS
ATLANTIC recently announced that it has received a proposal from Security
Capital Group to exchange the REIT Manager and SCG Realty Services for Shares.
As a result of the proposed transaction, ATLANTIC would become an internally
managed REIT, and Security Capital Group would remain ATLANTIC's largest
shareholder. The Board has formed a special committee comprised of independent
Directors to review the proposed transaction. The transaction is subject to
approval by the special committee and the full Board. If the Board approves the
transaction, a proxy statement, subject to review by the Securities and
Exchange Commission (the "Commission"), will be mailed to ATLANTIC's
shareholders prior to a shareholder vote on the proposed transaction.
THE OFFERING
<TABLE>
<S> <C>
Shares offered hereby............................ 4,000,000
Shares to be outstanding after the Offering...... 41,891,580
Use of proceeds.................................. To retire line of credit debt.
See "Use of Proceeds".
NYSE Symbol...................................... SCA
</TABLE>
TAX STATUS OF ATLANTIC
ATLANTIC has elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), effective for the taxable year ended December
31, 1994. As a REIT, ATLANTIC generally will not be taxed on income it
currently distributes to its shareholders so long as it distributes at least
95% of its taxable income currently. REITs are subject to a number of
organizational and operational requirements. Even if ATLANTIC continues to
qualify for taxation as a REIT, ATLANTIC will be subject to certain federal,
state and local taxes on its income and property. See "Federal Income Tax
Considerations" and "Risk Factors--Taxation of ATLANTIC".
9
<PAGE>
COMMUNITIES
The information in the following table is as of December 31, 1996 for
communities owned at December 31, 1996, and as of January 31, 1997 for
communities acquired since December 31, 1996 (dollar amounts in thousands).
Additional information on ATLANTIC's communities is contained in Schedule III,
Real Estate and Depreciation, in ATLANTIC's financial statements.
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT INVESTMENT(2)
------------ ---------- ----- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
COMMUNITIES OWNED AS OF
DECEMBER 31, 1996:
OPERATING
COMMUNITIES(3):
MID-ATLANTIC:
Charlotte, North
Carolina:
STABILIZED:
Cameron Oaks.......... 1994 91.7% 264 $ 15,361 $ 15,441
Waterford Hills*...... 1995 86.3 270 12,617 14,068(4)
PRE-STABILIZED:
Cameron at Hickory
Grove(5)(6).......... 1996 97.5 202 8,392 8,456
Waterford Square I*... 1996 (7) 408 19,653 21,051(4)
---- ----- ---------- ----------
Subtotals/Average... 91.3 1,144 56,023 59,016
---- ----- ---------- ----------
Greenville, South
Carolina:
PRE-STABILIZED:
Cameron Court(6)...... 1996 94.9 234 11,060 11,099
Memphis, Tennessee:
STABILIZED:
Cameron at Kirby
Parkway.............. 1994 95.7 324 10,174 10,256
Stonegate............. 1994 90.4 208 7,076 7,263
PRE-STABILIZED:
Cameron Century
Center............... 1996 92.1 420 15,928 16,032
Country Oaks(8)....... 1996 96.5 200 8,484 8,696
---- ----- ---------- ----------
Subtotals/Average... 93.6 1,152 41,662 42,247
---- ----- ---------- ----------
Nashville, Tennessee:
STABILIZED:
Arbor Creek(9)........ 1994 94.2 360 18,183 18,289
Enclave at Brentwood.. 1995 94.5 380 16,126 16,259
---- ----- ---------- ----------
Subtotals/Average... 94.4 740 34,309 34,548
---- ----- ---------- ----------
Raleigh, North
Carolina:
STABILIZED:
Cameron Square........ 1994 95.9 268 15,982 16,066
Waterford Point*...... 1996 98.5 336 15,839 17,549(4)
PRE-STABILIZED:
Cameron Lake.......... 1996 91.3 196 9,293 9,773
Cameron Ridge(10)..... 1996 98.7 228 10,131 10,424
Emerald Forest........ 1996 85.6 320 14,680 14,705
---- ----- ---------- ----------
Subtotals/Average... 93.9 1,348 65,925 68,517
---- ----- ---------- ----------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT INVESTMENT(2)
------------ ---------- ----- ---------- -------------
<S> <C> <C> <C> <C> <C>
Richmond, Virginia:
STABILIZED:
Camden at Wellesley.... 1994 92.9% 340 $ 19,510 $ 19,564
Potomac Hunt(11)....... 1994 94.1 220 10,119 10,217
---- ----- -------- --------
Subtotals/Average.... 93.4 560 29,629 29,781
---- ----- -------- --------
Washington, D.C.:
STABILIZED:
Camden at Kendall
Ridge................. 1994 93.5 184 11,701 11,801
Cameron Saybrooke...... 1994 96.4 252 18,966 19,035
PRE-STABILIZED:
Sheffield Forest(6).... 1995 96.5 256 15,546 15,645
West Springfield
Terrace............... 1996 92.2 244 16,210 16,258
---- ----- -------- --------
Subtotals/Average.... 94.8 936 62,423 62,739
---- ----- -------- --------
Subtotals/Average--
Mid-Atlantic...... 93.7 6,114 301,031 307,947
---- ----- -------- --------
SOUTH ATLANTIC:
Atlanta, Georgia:
STABILIZED:
Azalea Park(12)(13).... 1995 92.6 447 25,768 25,971
Cameron Ashford........ 1994 91.5 365 24,912 24,963
Cameron
Briarcliff(11)........ 1994 91.4 220 14,249 14,323
Cameron Brook(12)(14).. 1994 95.5 440 22,428 22,528
Cameron Creek I........ 1994 91.8 404 24,544 24,637
Cameron Crest.......... 1994 95.5 377 23,824 23,935
Cameron Dunwoody....... 1994 84.0 238 16,852 16,955
Clairmont
Crest(12)(15)......... 1994 95.8 213 11,020 11,073
The Greens(12)(16)..... 1994 95.1 304 13,740 13,833
Lake Ridge............. 1993 95.5 268 17,372 17,458
Morgan's Landing....... 1993 93.9 165 8,671 8,696
Old Salem.............. 1994 98.8 172 8,116 8,244
Trolley Square......... 1994 92.2 270 13,906 13,988
Vinings Landing........ 1994 97.0 200 9,979 10,071
WintersCreek(12)(17)... 1995 94.0 200 7,787 7,923
Woodlands.............. 1995 89.6 644 25,741 26,217
PRE-STABILIZED:
Balmoral Village....... 1996 90.1 312 19,215 19,476
Cameron Forest(6)...... 1995 94.1 152 6,244 6,383
Cameron Place(6)....... 1995 93.9 212 8,075 8,173
Cameron Pointe(6)...... 1996 93.9 214 14,891 15,035
Cameron
Station(6)(12)(18).... 1995 95.4 348 16,080 16,242
---- ----- -------- --------
Subtotals/Average.... 93.1 6,165 333,414 336,124
---- ----- -------- --------
Birmingham, Alabama:
STABILIZED:
Cameron on the
Cahaba(19)............ 1995 96.0 400 18,925 19,032
Colony Woods I......... 1994 90.3 216 10,686 10,698
Colony Woods II*....... 1995 93.9 198 10,515 11,405(4)
Morning Sun Villas..... 1994 92.4 184 9,301 9,435
---- ----- -------- --------
Subtotals/Average.... 93.7 998 49,427 50,570
---- ----- -------- --------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT INVESTMENT(2)
------------ ---------- ----- ---------- -------------
<S> <C> <C> <C> <C> <C>
Ft. Lauderdale/W. Palm Beach,
Florida:
STABILIZED:
Cypress Lakes......... 1995 98.3% 176 $ 8,510 $ 8,774
Parrot's Landing
I(12)(20)............ 1994 95.6 408 18,651 18,843
Spencer Run(11)....... 1994 93.2 384 19,471 19,797
Sun Pointe
Cove(12)(21)......... 1994 94.1 221 9,369 9,492
Trails at Meadow
Lakes................ 1995 99.5 189 8,840 8,968
PRE-STABILIZED:
Park Place at Turtle
Run.................. 1996 95.1 350 15,714 15,828
The Pointe at Bayberry
Lake................. 1996 94.8 308 17,021 17,238
----- ----- ---------- ----------
Subtotals/Average... 95.4 2,036 97,576 98,940
----- ----- ---------- ----------
Ft. Myers, Florida:
STABILIZED:
Forestwood(12)(22).... 1994 96.5 397 13,781 13,994
Jacksonville, Florida:
STABILIZED:
Bay Club.............. 1994 93.2 220 12,222 12,319
PRE-STABILIZED:
Cameron Lakes I*...... 1996 (7) 302 16,117 17,777(4)
----- ----- ---------- ----------
Subtotals/Average... 93.2 522 28,339 30,096
----- ----- ---------- ----------
Miami, Florida:
STABILIZED:
Park Hill(23)......... 1994 93.9 264 8,842 8,885
Orlando, Florida:
STABILIZED:
Camden Springs........ 1994 95.3 340 17,357 17,552
Cameron Villas I(24).. 1994 95.8 192 8,013 8,118
Cameron Villas
II(11)............... 1995 100.0 42 1,773 1,849
Kingston Village...... 1995 93.3 120 6,013 6,211
The Wellington I(11).. 1994 96.9 192 8,002 8,078
----- ----- ---------- ----------
Subtotals/Average... 95.7 886 41,158 41,808
----- ----- ---------- ----------
Sarasota, Florida:
STABILIZED:
Camden at Palmer
Ranch................ 1994 98.4 432 24,198 24,435
Tampa, Florida:
STABILIZED:
Camden Downs.......... 1994 96.4 250 12,592 12,667
Cameron Lakes......... 1995 96.1 207 8,651 8,700
Country Place
Village(25).......... 1995 98.4 188 8,322 8,572
Foxbridge on the
Bay(12)(26).......... 1994 98.3 358 10,955 11,007
Summer Chase(11)...... 1994 99.0 96 3,772 3,791
PRE-STABILIZED:
Cameron Bayshore...... 1996 98.5 328 10,712 10,742
----- ----- ---------- ----------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT INVESTMENT(2)
------------ ---------- ------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Subtotals/Average...... 97.8% 1,427 $ 55,004 $ 55,479
---- ------ ---------- ----------
Subtotals/Average--
South Atlantic...... 94.5 13,127 651,739 660,331
---- ------ ---------- ----------
Subtotals/Average--
Operating
Communities....... 94.2 19,241 952,770 968,278
---- ------ ---------- ----------
COMMUNITIES UNDER
CONSTRUCTION:
MID-ATLANTIC:
Charlotte, North Carolina:
Waterford Square II*..... 1998 N/A 286 6,592 17,181
Nashville, Tennessee:
Cameron Overlook*........ 1998 N/A 452 7,338 23,848
Raleigh, North Carolina:
Cameron Brooke*.......... 1997 N/A 228 10,070 12,885
Waterford Forest*(27).... 1997 N/A 384 20,349 21,574
---- ------ ---------- ----------
Subtotals.............. N/A 612 30,419 34,459
---- ------ ---------- ----------
Richmond, Virginia:
Cameron at Wyndham*...... 1998 N/A 312 4,404 20,048
Cameron Crossing I &
II*..................... 1998 N/A 424 11,202 26,622
---- ------ ---------- ----------
Subtotals.............. N/A 736 15,606 46,670
---- ------ ---------- ----------
Washington, D.C.:
Cameron at
Milestone*(27).......... 1997 N/A 444 30,344 30,418
Woodway at Trinity
Center*(27)............. 1997 N/A 504 35,583 37,836
---- ------ ---------- ----------
Subtotals.............. N/A 948 65,927 68,254
---- ------ ---------- ----------
Subtotals--Mid-
Atlantic............ N/A 3,034 125,882 190,412
---- ------ ---------- ----------
SOUTH ATLANTIC:
Atlanta, Georgia:
Cameron Creek II*(27).... 1997 N/A 260 19,332 19,445
Birmingham, Alabama:
Cameron at the Summit
I*...................... 1997 N/A 372 8,483 21,645
Ft. Lauderdale/W. Palm
Beach, Florida:
Parrot's Landing II*..... 1997 N/A 152 8,070 9,648
Jacksonville, Florida:
Cameron Deerwood*(27).... 1997 N/A 336 14,504 17,598
Cameron Lakes II*........ 1998 N/A 253 2,869 14,967
Cameron Timberlin Parc
I*(27).................. 1997 N/A 320 15,447 16,885
---- ------ ---------- ----------
Subtotals.............. N/A 909 32,820 49,450
---- ------ ---------- ----------
Subtotals--South
Atlantic............ N/A 1,693 68,705 100,188
---- ------ ---------- ----------
Subtotals--
Communities Under
Construction...... N/A 4,727 194,587 290,600
---- ------ ---------- ----------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT INVESTMENT(2)
------------ ---------- ------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
COMMUNITIES IN PLANNING AND OWNED:
SOUTH ATLANTIC:
Atlanta, Georgia:
Cameron Landing*..... 1998 N/A 368 $ 2,020 $ 21,630
Ft. Lauderdale/W. Palm
Beach, Florida:
Cameron Waterway*.... 1998 N/A 300 4,386 21,280
Jacksonville, Florida:
Cameron Timberlin
Parc II*............ 1999 N/A 200 1,389 10,500
----- ------ ---------- ----------
Subtotals--
Communities in
Planning and
Owned............. N/A 868 7,795 53,410
----- ------ ---------- ----------
LAND HELD FOR FUTURE
MULTIFAMILY
DEVELOPMENT........... N/A -- 2,083 --
----- ------ ---------- ----------
Total
Communities
Owned at
December 31,
1996.......... 94.2% 24,836 1,157,235 1,312,288
----- ------ ---------- ----------
COMMUNITIES ACQUIRED
THROUGH JANUARY 31, 1997:
COMMUNITIES IN
PLANNING:
MID-ATLANTIC:
Richmond, Virginia:
Cameron at Virginia
Center*............. N/A 264 -- $ 15,983
SOUTH ATLANTIC:
Atlanta, Georgia:
Cameron at
Northpoint*......... N/A 264 -- 19,821
----- ------ ---------- ----------
Subtotals.......... N/A 528 -- 35,804
----- ------ ---------- ----------
Total
Communities
Owned at
January 31,
1997.......... 94.2% 25,364 $1,157,235 $1,348,092
===== ====== ========== ==========
</TABLE>
Additionally, at January 31, 1997, ATLANTIC had land in planning and under
control for the development of 2,040 units with a total budgeted development
cost of $127.4 million. The term "in planning" means that construction is
anticipated to commence within 12 months. The term "under control" means that
ATLANTIC has an exclusive right (through contingent contract or letter of
intent) during a contractually agreed-upon time period to acquire land for
future development of multifamily communities, subject to removal of
contingencies during the due diligence process, but does not currently own the
land. There can be no assurance that such land will be acquired. The unit and
total budgeted development cost information for these communities is based on
management's best estimates of the cost upon completion of these communities.
- -------
* Community developed by ATLANTIC.
(1) With respect to communities under construction or communities in planning
and owned, represents expected completion date.
(2) For operating communities, represents cost, including budgeted
renovations. For communities under construction and in planning,
represents total budgeted development cost, which includes the cost of
land, fees, permits, payments to contractors, architectural and
engineering fees and interest and property taxes to be capitalized during
the construction period. The term "in planning" means that construction is
anticipated to commence within 12 months.
14
<PAGE>
(3) The term "stabilized" means that renovation, repositioning, new management
and new marketing programs (or development and marketing in the case of
newly developed communities) have been completed and in effect for a
sufficient period of time (but in no event longer than 12 months, except
in cases of major rehabilitation) to achieve 93% occupancy at market
rents. Prior to being "stabilized", a community is considered "pre-
stabilized". See "Business--ATLANTIC's Operating System--Acquisitions".
(4) The total expected investment cost of these developed communities includes
potential incentive payments to third-party developer/managers that had
not been earned by them at December 31, 1996.
(5) Cameron at Hickory Grove Apartments are subject to a deed of trust
securing a mortgage note of $6.0 million.
(6) Community was stabilized in January 1997.
(7) Community is in lease-up, therefore, the percentage leased is not given
because it is not representative of a fully operational community.
(8) Country Oaks Apartments are subject to a deed of trust securing a mortgage
note of $5.9 million.
(9) The land associated with the Arbor Creek Apartments is leased by ATLANTIC
through the year 2058 under an agreement with the Metropolitan Nashville
Airport Authority.
(10) Cameron Ridge Apartments are subject to a deed of trust securing a
mortgage note of $5.9 million.
(11) Community is pledged as additional security under ATLANTIC's 30-year
credit enhancement agreement with the Federal National Mortgage
Association ("FNMA"). For a discussion of the FNMA credit enhancement
agreement. See "ATLANTIC's Operating System--Capital Markets/
Finance/Legal".
(12) The tax-exempt bond issue associated with this community is included in
ATLANTIC's credit enhancement agreement with FNMA.
(13) Azalea Park Apartments are subject to a deed of trust securing a mortgage
note related to $15.5 million of tax-exempt bonds.
(14) Cameron Brook Apartments are subject to a deed of trust securing a
mortgage note related to $19.5 million of tax-exempt bonds.
(15) Clairmont Crest Apartments are subject to a deed of trust securing a
mortgage note related to $11.6 million of tax-exempt bonds.
(16) The Greens Apartments are subject to a deed of trust securing a mortgage
note related to $10.4 million of tax-exempt bonds.
(17) WintersCreek Apartments are subject to a deed of trust securing a mortgage
note related to $5.0 million of tax-exempt bonds.
(18) Cameron Station Apartments are subject to a deed of trust securing a
mortgage note related to $14.5 million of tax-exempt bonds.
(19) Cameron on the Cahaba Phase II Apartments, which consist of 250 units, are
subject to a deed of trust securing a mortgage note of $8.0 million.
(20) Parrot's Landing Phase I Apartments are subject to a deed of trust
securing a mortgage note related to $15.8 million of tax-exempt bonds.
(21) Sun Pointe Cove Apartments are subject to a deed of trust securing a
mortgage note related to $8.5 million of tax-exempt bonds.
(22) Forestwood Apartments are subject to a deed of trust securing a mortgage
note related to $11.5 million of tax-exempt bonds.
(23) Park Hill Apartments were being held for sale at December 31, 1996.
(24) Cameron Villas I Apartments are subject to a deed of trust securing a
mortgage note of $6.3 million.
(25) Country Place Village Phase I Apartments, which consist of 88 units, are
subject to a deed of trust securing a mortgage note of $2.0 million.
(26) Foxbridge on the Bay Apartments are subject to a deed of trust securing a
mortgage note related to $10.4 million of tax-exempt bonds.
(27) Community was leasing completed units at January 31, 1997.
15
<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information on a pro forma
basis for ATLANTIC (the "Pro Forma Financial Results") as of and for the year
ended December 31, 1996 and on an historical basis for ATLANTIC (the
"Historical Financial Results") as of and for the years ended December 31,
1996, 1995 and 1994 and the period from inception (October 26, 1993) through
December 31, 1993. Such selected financial information is qualified in its
entirety by, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
financial statements and notes thereto included in this Prospectus. The Pro
Forma Financial Results are not necessarily indicative of what the actual
financial position and results of operations of ATLANTIC would have been as of
and for the periods indicated, nor do they purport to represent the financial
position and results of operations for future periods. Unless otherwise
indicated, all Share and per Share amounts have been adjusted to give effect to
ATLANTIC's one-for-two reverse Share split, which was effective on September
10, 1996.
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
------------ ------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------------
1996 1996 1995 1994 1993(1)
------------ ---------- --------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
Rental income.......... $ 148,361 $ 137,729 $ 103,634 $ 55,071 $ 156
Property management
fees paid to
affiliate............. 4,612 4,208 3,475 1,536 --
Property management
fees paid to third
parties............... 971 971 591 661 --
REIT management fee
paid to affiliate..... 11,808 10,445 6,923 3,671 12
General and
administrative
expenses.............. 641 673 646 266 1
Earnings before
extraordinary item.... 38,705 42,569 19,639 9,926 38
Extraordinary item--
loss on early
extinguishment of
debt.................. -- 3,940 -- -- --
Net earnings........... 38,705 38,629 19,639 9,926 38
Net earnings per Share
before extraordinary
item.................. 1.02 1.33 0.89 0.81 0.13
Net earnings per Share. $ 1.02 1.21 0.89 0.81 0.13
Cash distributions
declared and paid..... N/A 53,064 35,119 14,648 --
Cash distributions
declared and paid per
Share................. N/A $ 1.65 $ 1.60 $ 1.20 --
Weighted average Shares
outstanding........... 37,977 32,028 21,944 12,227 286
<CAPTION>
PRO FORMA HISTORICAL
------------ ------------------------------------------
DECEMBER 31,
DECEMBER 31, ------------------------------------------
1996 1996 1995 1994 1993
------------ ---------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Real estate owned, at
cost.................. $1,157,235 $1,157,235 $ 888,928 $ 631,260 $ 31,005
Total assets........... 1,135,065 1,135,065 885,824 637,846 31,850
Line of credit(2)...... 134,250 228,000 190,000 153,000 --
Mortgages payable...... 155,790 155,790 118,524 107,347 --
Total liabilities...... 342,673 436,423 328,886 271,216 178
Total shareholders'
equity................ $ 792,392 $ 698,642 $ 556,938 $ 366,630 $ 31,672
Number of Shares
outstanding........... 41,892 37,892 27,763 18,567 1,582
<CAPTION>
PRO FORMA HISTORICAL
------------ ------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------------
1996 1996 1995 1994 1993(1)
------------ ---------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Net earnings........... $ 38,705 $ 38,629 $ 19,639 $ 9,926 $ 38
Add (Deduct):
Depreciation........... 22,534 20,824 15,925 8,770 28
Gain (loss) on
disposition of real
estate................ -- (6,732) -- -- --
Gain on sale of
Homestead Assets...... -- (2,839) -- -- --
Provision for possible
loss on investments... 2,500 2,500 -- -- --
Extraordinary item--
loss on early
extinguishment of
debt.................. -- 3,940 -- -- --
---------- ---------- --------- --------- --------
Funds from
operations(3)......... $ 63,739 $ 56,322 $ 35,564 $ 18,696 $ 66
---------- ---------- --------- --------- --------
Net cash provided
(used) by operating
activities............ $ 61,773 $ 54,356 $ 39,732 $ 23,564 $ (492)
Net cash used by
investing activities.. (287,418) (287,418) (235,149) (390,077) (31,005)
Net cash provided by
financing activities.. 230,907 230,907 195,649 372,638 31,634
</TABLE>
- -------
(1) For the period from inception (October 26, 1993) to December 31, 1993.
(2) At February 19, 1997, ATLANTIC had $275.5 million of outstanding borrowings
under its $350 million unsecured line of credit and such outstanding
borrowings are expected to be approximately $295.0 million at the closing
of the Offering.
(3) ATLANTIC believes that funds from operations is helpful in understanding a
property portfolio in that such calculation reflects cash flow from
operating activities and the properties' ability to support interest
payments. For an explanation of funds from operations, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources". Funds from operations should not be
considered as an alternative to net income or any other generally accepted
accounting principles ("GAAP") measurement of performance as an indicator
of ATLANTIC's operating performance or as an alternative to cash flows from
operating, investing or financing activities as a measure of liquidity. On
January 1, 1996, ATLANTIC adopted the National Association of Real Estate
Investment Trusts' ("NAREIT") new definition of funds from operations.
Under this new definition, loan cost amortization is not added back to net
earnings in determining funds from operations. For comparability, funds
from operations for the periods prior to January 1, 1996 give effect to
this new definition. The funds from operations measure presented by
ATLANTIC may not be comparable to similarly titled measures of other REITs.
16
<PAGE>
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below. Each of these factors could adversely affect the
ability of ATLANTIC to make expected distributions to shareholders.
LACK OF INDEPENDENT VALUATION OF ASSETS
The value of ATLANTIC has not been determined on a community-by-community
basis because ATLANTIC is an ongoing business enterprise. Accordingly, no
appraisals, independent valuations or fairness opinions from a financial point
of view of the communities have been obtained in connection with the valuation
of ATLANTIC. Furthermore, the valuation of ATLANTIC is not based upon the
historical cost of assets or the current market value thereof. Therefore, the
price of the Shares may be greater than the fair market value of ATLANTIC's
portfolio.
INFLUENCE OF OFFICERS, DIRECTORS AND SIGNIFICANT SHAREHOLDER
Security Capital Group beneficially owns 56.9% of the outstanding Shares
(51.4% after the Offering). See "Principal Shareholders". Through its
ownership of Shares, Security Capital Group controls 56.9% (51.4% after the
Offering) of the vote on matters submitted for shareholder action, including
the election of Directors, and no other shareholder may hold more than 9.8% of
ATLANTIC's outstanding shares of stock. See "Description of Stock--Restriction
on Size of Holdings of Shares". Security Capital Group has the right to
nominate up to three Directors, depending on its level of ownership of Shares.
See "Certain Relationships and Transactions--Security Capital Group Investor
Agreement". The Directors so elected are in a position to exercise significant
influence over the affairs of ATLANTIC. Additionally, Security Capital Group
has the right to approve (i) ATLANTIC's annual operating budget and
substantial deviations therefrom, (ii) acquisitions or dispositions in a
single transaction or group of related transactions where the purchase price
exceeds $5 million and (iii) property management arrangements. Accordingly,
due to the foregoing, for so long as it continues to own at least 10% of the
outstanding Shares, Security Capital Group will retain significant influence
over the business and policies of ATLANTIC, which may result in decisions that
do not fully represent the interests of all shareholders of ATLANTIC. Security
Capital Group is also the owner of the REIT Manager and therefore will have
the ability to influence significantly the operations of ATLANTIC through the
REIT Manager as long as the REIT Manager manages ATLANTIC. See "Prospectus
Summary--Recent Developments". To provide for a wider distribution of
ownership and greater liquidity, Security Capital Group intends, over time, to
allow its ownership interest in ATLANTIC to fall to between 40% and 50% as
ATLANTIC conducts equity offerings, which is consistent with its ownership
interests in the other operating companies in which Security Capital Group
invests.
CONFLICTS OF INTEREST
ATLANTIC does not have any employees and relies on the REIT Manager for all
strategic and day-to-day management services. An affiliate of the REIT Manager
also provides property management services for approximately 87% of ATLANTIC's
multifamily communities.
Four officers of the REIT Manager and its affiliates (Jeffrey A. Klopf,
Senior Vice President of Security Capital Group, ATLANTIC and the REIT Manager
(securities offerings, corporate acquisitions and legal), Ariel Amir, Vice
President of Security Capital Group (securities offerings, corporate
acquisitions and legal), John H. Gardner, Jr., Senior Vice President of
ATLANTIC and the REIT Manager (multifamily dispositions) and Kathy B. Farr,
Vice President of ATLANTIC and the REIT Manager (multifamily dispositions))
may have conflicts of interest in allocating their time and efforts between
activities on behalf of ATLANTIC and other activities of the REIT Manager's
affiliates. Affiliates of the REIT Manager also provide management services to
Security Capital Pacific Trust ("PTR"), a NYSE-listed REIT which focuses on
multifamily communities in the western United States,
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and Security Capital Industrial Trust ("SCI"), a NYSE-listed REIT which
focuses on industrial real estate in the United States. Security Capital
Markets Group Incorporated ("Capital Markets Group"), Security Capital Group's
registered broker-dealer affiliate, devotes a substantial portion of its time
to these other REITs, Homestead, an ASE-listed real estate company which
focuses on extended-stay facilities in the United States, and Security Capital
Group. Messrs. Klopf and Amir provide centralized securities offering,
corporate acquisition and legal services to ATLANTIC and other affiliated real
estate companies, including PTR, SCI, Homestead and Security Capital Group,
and, as a result, do not focus their full efforts and attention on ATLANTIC.
Mr. Gardner and Ms. Farr provide multifamily disposition services to ATLANTIC
and PTR. In addition, the REIT Manager and its affiliates share a common
senior investment committee, which approves all acquisition and development
proposals before they are submitted to the respective REIT boards for
approval. PTR acquires multifamily communities but operates in a different
market than ATLANTIC. See "Policies With Respect to Certain Activities--
Conflict of Interest Policies" and "--Policies Applicable to the REIT Manager
and Officers and Directors of ATLANTIC".
The officers of ATLANTIC may also be subject to certain conflicts of
interest arising out of their positions with ATLANTIC and the REIT Manager and
its affiliates. These relationships may create conflicts between the promotion
of ATLANTIC's investment policies and those of the REIT Manager and its
affiliates. See "Policies With Respect to Certain Activities--Conflict of
Interest Policies".
Ned S. Holmes, a Director of ATLANTIC, is also Chairman and President of
Parkway Investments/Texas Inc., President and Chief Executive Officer of Laing
Properties, Inc. ("Laing") and an executive officer of certain of Laing's
affiliates. Laing and its affiliates engage in the acquisition, development
and management of multifamily communities and Mr. Holmes may therefore have
conflicts of interest in presenting acquisition or development opportunities
to ATLANTIC.
The owner of the REIT Manager, Security Capital Group, is ATLANTIC's
principal shareholder, and Security Capital Group could influence decisions
regarding the REIT Management Agreement, property management agreements
between ATLANTIC and affiliates of the REIT Manager and fees relating to such
agreements. Although all agreements with the REIT Manager and its affiliates
must be reviewed and approved at least annually by ATLANTIC's independent
Directors, no assurance of arm's-length negotiations can be given. See
"Prospectus Summary--Recent Developments" for a description of a proposal that
ATLANTIC has received from Security Capital Group to exchange the REIT Manager
and SCG Realty Services for Shares.
RISK OF INABILITY TO PAY FUTURE DISTRIBUTIONS
ATLANTIC's ability to pay future distributions depends on a number of
factors, including factors relating to the future operations of ATLANTIC.
These factors include, among other things, continued community occupancy,
capital expenditures and other costs relating to ATLANTIC's existing
communities. Some of the factors described above are beyond the control of
ATLANTIC, and a change in any such factor could affect ATLANTIC's ability to
pay future distributions. Hence, no assurance can be given as to ATLANTIC's
ability to pay future distributions. See "Price Range of ATLANTIC Shares and
Distributions".
GENERAL REAL ESTATE INVESTMENT RISKS
GENERAL
Real property investments are subject to varying degrees of risk. Real
estate cash flows and values are affected by a number of factors, including
changes in the general economic climate, local conditions (such as an
oversupply of multifamily communities or a reduction in rental demand in an
area), the quality and philosophy of management, competition from other
available multifamily
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communities and the ability of the owner to provide adequate maintenance and
insurance and to control operating costs. Although ATLANTIC seeks to minimize
these risks through the REIT Manager's market research and asset management
capabilities, these risks cannot be eliminated entirely. Real estate cash
flows and values are also affected by such factors as government regulations,
including zoning and tax laws, interest rate levels, the availability of
financing and potential liability under, and changes in, environmental and
other laws. Since a significant portion of ATLANTIC's income will be derived
from rental income from real property, ATLANTIC's income and distributable
cash flow would be adversely affected if a significant number of ATLANTIC's
residents were unable to meet their obligations to ATLANTIC, or if ATLANTIC
were unable to lease, on economically favorable terms, a significant number of
units in its multifamily communities.
Equity real estate investments are relatively illiquid and therefore may
tend to limit the ability of ATLANTIC to react promptly to changes in economic
or other conditions. In addition, certain significant expenditures associated
with equity investments (such as mortgage payments, real estate taxes and
maintenance costs) are generally not reduced when circumstances cause a
reduction in income from the investments. Like other REITs, ATLANTIC must
comply with safe harbor rules which enable a REIT to avoid punitive taxation.
Thus, ATLANTIC's ability to sell assets to change its asset base is restricted
by tax rules which impose holding periods for assets and potential
disqualification as a REIT upon certain asset sales.
DEBT FINANCING
To the extent it or its subsidiaries incur debt, ATLANTIC will be subject to
the risks associated with debt financing, including the risks that ATLANTIC's
cash flow from operations will be insufficient to meet required payments of
principal and interest, that ATLANTIC will be unable to refinance its
unsecured revolving line of credit or current or future mortgage indebtedness
on its communities, that the terms of such refinancings will not be as
favorable as the terms of existing indebtedness and that ATLANTIC will be
unable to make necessary capital expenditures for such purposes as renovations
and releasing units due to lack of available funds. If a community is
mortgaged to secure payment of indebtedness and ATLANTIC is unable to meet
mortgage payments, the community could be transferred to the mortgagee with a
consequent loss of income and asset value to ATLANTIC. ATLANTIC's policy will
be to generally arrange unsecured, fully amortizing, fixed rate long-term
debt. See "Policies With Respect to Certain Activities--Financing Policies".
RISKS OF REAL ESTATE DEVELOPMENT
ATLANTIC has developed or commenced development of 7,637 multifamily units
and expects to develop additional multifamily units in the future. Real estate
development involves significant risks in addition to those involved in the
ownership and operation of established multifamily communities, including the
risks that financing, if needed, may not be available on favorable terms for
development projects, that construction may not be completed on schedule
(resulting in increased debt service expense and construction costs) and that
communities may not be leased on profitable terms. Timely construction may be
adversely affected by local weather, local or national strikes and by local or
national shortages in materials, insulation, building supplies and energy and
fuel for equipment. ATLANTIC intends to finance future development with cash
on hand or revolving credit borrowings (which ATLANTIC expects to repay with
proceeds from sales of long-term debt or equity securities); however, until
such communities are developed and leased, they will not generate any cash
flow to ATLANTIC.
LAND USE AND ZONING CONSIDERATIONS
Governmental authorities at the federal, state and local levels are actively
involved in the promulgation and enforcement of regulations relating to land
use and zoning restrictions. Regulations may be promulgated which could have
the effect of restricting or curtailing certain uses of existing
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structures or requiring that such structures be renovated or altered in some
fashion. The establishment of such regulations could have the effect of
increasing the expenses and lowering the profitability of any of the
communities affected thereby.
CHANGES IN LAWS
Increased costs resulting from increases in real estate, income or transfer
taxes or other governmental requirements generally may not be passed through
directly to residents, inhibiting ATLANTIC's ability to recover such increased
costs. Substantial increases in rents, as a result of such increased costs,
may affect residents' ability to pay rent, causing increased vacancy. In
addition, changes in laws increasing potential liability for environmental
conditions or increasing the restrictions on discharges or other conditions
may result in significant unanticipated expenditures.
RISKS OF INVESTMENTS IN MORTGAGES
Although ATLANTIC's current policy is not to invest in mortgages unrelated
to its communities, ATLANTIC may invest in mortgages in connection with the
construction and development of new multifamily communities for ATLANTIC by
third parties. See "Policies With Respect to Certain Activities--Investment
Policies". In connection with the Homestead transaction, ATLANTIC invested in
convertible mortgage notes issued by Homestead. See "Certain Relationships and
Transactions--Homestead Transaction" and "--Funding Commitment Agreement". In
addition, ATLANTIC from time to time will invest in mortgage loans to Atlantic
Development Services Incorporated ("Atlantic Development Services"), an entity
in which ATLANTIC owns substantially all of the economic interest, to fund the
acquisition and development of certain communities that meet ATLANTIC's
investment criteria. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--REIT Management Agreement". Mortgage
investments are subject to certain risks, including that borrowers may not be
able to make debt service payments or pay principal when due, that the value
of mortgaged property may be less than the amounts owed, and that interest
rates payable on the mortgages may be lower than ATLANTIC's cost of funds. If
ATLANTIC invested in mortgages and if any of the above occurred, cash flows
could be adversely affected.
UNINSURED LOSS
ATLANTIC will initially carry comprehensive liability, fire, flood,
earthquake, extended coverage and rental loss insurance with respect to its
communities with policy specifications and insured limits customarily carried
for similar communities. There are, however, certain types of losses (such as
from wars) that may be either uninsurable or not economically insurable.
Should an uninsured loss occur, ATLANTIC could lose both its capital invested
in and anticipated profits from one or more communities.
COMPETITION
There are numerous commercial developers, real estate companies and other
owners of real estate that compete with ATLANTIC in seeking land for
development, communities for acquisition and disposition and residents for
communities. All of ATLANTIC's multifamily communities are located in
developed areas that include other multifamily communities. The number of
competitive multifamily communities in a particular area could have a material
adverse effect on ATLANTIC's ability to lease apartment units and on the rents
charged. In addition, other forms of single family and multifamily residential
communities provide housing alternatives to residents and potential residents
of ATLANTIC's multifamily communities.
CONCENTRATION OF COMMUNITIES IN ATLANTA
As of January 31, 1997, ATLANTIC's portfolio included $358.7 million of
communities, based on cost, that are located in the Atlanta, Georgia
metropolitan area, representing 34.3% of pro forma
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revenues for the year ended December 31, 1996, and thus may be affected by
changes in the economic conditions of that area. Conditions in the Atlanta
market, including the possibility of an economic downturn, could adversely
affect cash flows.
TAXATION OF ATLANTIC
TAX LIABILITIES AS A CONSEQUENCE OF THE FAILURE TO QUALIFY AS A REIT
ATLANTIC has elected to be taxed as a REIT under the Code, commencing with
its taxable year ending December 31, 1994. A qualified REIT generally is not
taxed on income it distributes to its shareholders as long as it distributes
at least 95% of its taxable income currently and it meets certain other
qualification requirements. No assurance can be given that ATLANTIC will
remain qualified as a REIT. No assurance can be given that legislation, new
regulations, administrative interpretations or court decisions will not
significantly change the rules applicable to ATLANTIC with respect to
qualification as a REIT or the federal income tax consequences of such
qualification.
If ATLANTIC fails to continue to qualify as a REIT, it will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. In addition, unless entitled to
relief under certain statutory provisions, ATLANTIC will be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. The additional tax could significantly reduce cash
flows.
OTHER TAX LIABILITIES
Even if ATLANTIC continues to qualify as a REIT, it is subject to certain
federal, state and local taxes on its income and property. See "Federal Income
Tax Considerations--Other Tax Considerations".
EXTERNAL MANAGEMENT
ATLANTIC is externally managed by the REIT Manager, which is owned by
Security Capital Group, which also owns 56.9% of the outstanding Shares (51.4%
after the Offering). The REIT Manager's indirect Share ownership provides it
with economic interests comparable to other shareholders, but ATLANTIC being
externally managed may adversely affect the market price of the Shares. See
"Prospectus Summary--Recent Developments" for a description of a proposal that
ATLANTIC has received from Security Capital Group to exchange the REIT Manager
and SCG Realty Services for Shares.
CHANGES IN POLICIES
The major policies of ATLANTIC, including its policies with respect to
investments, financing, growth, debt capitalization, REIT qualification and
distributions, are determined by the Board. Although it has no present
intention to do so, the Board may amend or revise these and other policies
from time to time without a vote of the shareholders of ATLANTIC. See
"Policies With Respect to Certain Activities". Accordingly, shareholders will
have limited control over changes in policies of ATLANTIC.
LIMITATIONS ON ACQUISITION OF SHARES AND CHANGE IN CONTROL
OWNERSHIP LIMIT
In order to maintain its qualification as a REIT, not more than 50% in value
of the outstanding shares of ATLANTIC's stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities). Pursuant to the constructive ownership rules, Security
Capital Group's ownership of Shares is attributed to its shareholders for
purposes of the 50% test.
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ATLANTIC's 9.8% share ownership limit for shareholders other than Security
Capital Group, as well as the ability of ATLANTIC to issue additional Shares
or other classes or series of stock (which may have rights and preferences
senior to the Shares), may have the effect of delaying or preventing a change
in control of ATLANTIC without the consent of the Board even if a change in
control were in the shareholders' interests and may also (i) deter tender
offers for the Shares, which offers may be advantageous to shareholders, and
(ii) limit the opportunity for shareholders to receive a premium for their
Shares that might otherwise exist if an investor were attempting to acquire in
excess of 9.8% of the outstanding shares of ATLANTIC's stock or otherwise
effect a change in control of ATLANTIC.
SHAREHOLDER PURCHASE RIGHTS
On March 12, 1996, the Board declared a dividend of one preferred share
purchase right (a "Purchase Right") for each Share outstanding. Each purchaser
of a Share subsequent to March 12, 1996 (including purchasers of Shares in the
Offering) will also receive a Purchase Right with each Share purchased. Each
Purchase Right entitles the holder, under certain circumstances, to purchase
from ATLANTIC two one-hundredths of a share of Series A Junior Participating
Preferred Stock, par value $.01 per share (the "Participating Preferred
Shares"), at a price of $40 per one one-hundredth of a Participating Preferred
Share, subject to adjustment. Purchase Rights are exercisable when a person or
group of persons (other than certain affiliates of ATLANTIC) acquires 20% or
more of the outstanding Shares or announces a tender offer for 25% or more of
the outstanding Shares. Under certain circumstances, each Purchase Right
entitles the holder to purchase, at the Purchase Right's then-current exercise
price, a number of Shares having a market value of twice the Purchase Right's
exercise price. The acquisition of ATLANTIC pursuant to certain mergers or
other business transactions would entitle each holder to purchase, at the
Purchase Right's then-current exercise price, a number of the acquiring
company's common shares having a market value at that time equal to twice the
Purchase Right's exercise price. The Purchase Rights held by certain 20%
shareholders (other than certain affiliates of ATLANTIC) would not be
exercisable.
The Purchase Rights may have the effect of delaying or preventing a change
in control of ATLANTIC without the consent of the Board even if a change in
control were in the shareholders' interests and may also adversely affect the
voting and other rights of shareholders. See "Description of Stock--Purchase
Rights".
CLASSIFIED BOARD
The Board has been divided into three classes of Directors. The terms of the
classes will expire in 1997, 1998 and 1999, respectively. Beginning in 1997,
as the term of a class expires, Directors for that class will be elected for a
three-year term and the Directors in the other two classes will continue in
office.
PREFERRED STOCK
ATLANTIC's Charter authorizes the Board to reclassify any unissued shares of
ATLANTIC's stock from time to time by setting or changing the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption. See
"Description of Stock--General" and "--Preferred Stock". Except as described
above under "--Shareholder Purchase Rights", no such shares have been so
reclassified to date.
ADVANCE NOTICE PROVISIONS
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
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first anniversary of the preceding year's annual meeting setting forth: (i) as
to each person whom the shareholder proposes to nominate for election or
reelection as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for the election of
directors pursuant to Regulation 14A of the Securities Exchange Act of 1934
(the "Exchange Act"); (ii) as to any other business that 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 (iii) as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (x) the
name and address of such shareholder as it appears on ATLANTIC's books and of
such beneficial owner and (y) the number of Shares which are owned
beneficially and of record by such shareholder and such beneficial owner, if
any.
The classified Board, the issuance of preferred stock and the advance notice
provisions discussed in the preceding paragraphs each could have the effect of
delaying or preventing a change in control of ATLANTIC even if a change in
control were in the shareholders' interests.
POSSIBLE ADVERSE CONSEQUENCE OF LIMITS ON OWNERSHIP OF SHARES
As noted above under "--Limitations on Acquisition of Shares and Change in
Control", under the REIT tax rules, not more than 50% in value of the
outstanding shares of ATLANTIC's stock may be owned, directly or indirectly,
by five or fewer individuals. ATLANTIC's Charter restricts the ownership of
more than 9.8% of the number or value of the outstanding shares of ATLANTIC's
stock by any single shareholder. The ownership limitation does not apply to
Security Capital Group. See "Certain Relationships and Transactions--Security
Capital Group Investor Agreement". The Board, in its sole discretion, may
waive this restriction if it is satisfied that ownership in excess of this
limit will not jeopardize ATLANTIC's status as a REIT. See "Description of
Stock--Restriction on Size of Holdings of Shares" for additional information
regarding the ownership limit.
EFFECT OF MARKET INTEREST RATES ON SHARE PRICES
One of the factors that may influence the price of the Shares in public
markets will be the annual yield on the price paid for Shares from
distributions by ATLANTIC. Thus, an increase in market interest rates may lead
purchasers of Shares to demand a higher annual yield, which could adversely
affect the market price of the Shares.
REGULATORY COMPLIANCE
POSSIBLE LIABILITY RELATING TO ENVIRONMENTAL LAWS
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner, developer or operator of real estate may be liable
for the costs of removal or remediation of certain hazardous or toxic
substances at, on, under or in its property. The costs of removal or
remediation of such substances could be substantial. Such laws often impose
such liability without regard to whether the owner or operator knew of, or was
responsible for, the release or presence of such hazardous or toxic
substances. The presence of such substances may adversely affect the owner's
ability to sell or rent such real estate or to borrow using such real estate
as collateral. Persons who arrange for the disposal or treatment of hazardous
or toxic substances also may be liable for the costs of removal or remediation
of such substances at the disposal or treatment facility, whether or not such
facility is owned or operated by such person. Certain environmental laws
impose liability for the release of asbestos-containing materials into the
air, pursuant to which third parties may seek recovery from owners or
operators of real properties for personal injuries associated with such
materials, and prescribe specific methods for the removal and disposal of such
materials, which may result in increased costs in connection with renovations
at ATLANTIC's communities.
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ATLANTIC has not been notified by any governmental authority of any non-
compliance, liability or other claim in connection with any of its communities
owned or being acquired at January 31, 1997, and ATLANTIC is not aware of any
environmental condition with respect to any of its communities that is likely
to be material. ATLANTIC has subjected each of its communities to a Phase I
environmental assessment (which does not involve invasive procedures such as
soil sampling or ground water analysis) by independent consultants. While some
of these assessments have led to further investigation and sampling, none of
the environmental assessments has revealed, nor is ATLANTIC aware of, any
environmental liability (including asbestos-related liability) that the REIT
Manager believes would have a material adverse effect on ATLANTIC's business,
financial condition or results of operations. No assurance can be given,
however, that these assessments and investigations reveal all potential
environmental liabilities, that no prior owner or operator created any
material environmental condition not known to ATLANTIC or the independent
consultants or that future uses and conditions (including, without limitation,
resident actions or changes in applicable environmental laws and regulations)
will not result in unreimbursed costs relating to environmental liabilities.
COMPLIANCE WITH THE FAIR HOUSING AMENDMENTS ACT OF 1988
The Fair Housing Amendments Act of 1988 (the "FHA") requires multifamily
communities first occupied after March 13, 1990 to be accessible to the
handicapped. Noncompliance with the FHA could result in the imposition of
fines or an award of damages to private litigants. ATLANTIC believes that its
communities that are subject to the FHA are in compliance with such law.
COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT OF 1990
ATLANTIC's communities and any newly developed or acquired multifamily
communities must comply with Title III of the Americans with Disabilities Act
of 1990 (the "ADA") to the extent that such communities are "public
accommodations" and/or "commercial facilities" as defined by the ADA.
Compliance with the ADA requirements requires that public accommodations
"reasonably accommodate" individuals with disabilities, which includes removal
of structural barriers to handicapped access in certain public areas of
ATLANTIC's communities, where such removal is readily achievable and that new
construction or alterations made to "commercial facilities" conform to
accessibility guidelines unless "structurally impracticable" for new
construction, or in excess of 20% of the cost of the alteration for existing
structures. The ADA does not, however, consider multifamily residential
communities, such as ATLANTIC's communities, to be public accommodations or
commercial facilities except to the extent portions of such communities, such
as a leasing office, are open to the public. ATLANTIC believes that its
communities comply with all present requirements under the ADA and applicable
state laws. Noncompliance with the ADA could result in the imposition of
injunctive relief, fines or an award of damages.
RESTRICTIONS ASSOCIATED WITH TAX-EXEMPT BOND FINANCINGS
ATLANTIC's portfolio includes communities which require that 20% of their
units be occupied by households whose income does not exceed 80% of the median
household income of the submarket in which the property is located; over 50%
of the households in such communities met such requirements in December 1996.
There can be no assurance that each community will continue to meet such
requirements in the future, in which case ATLANTIC may be required to
refinance the tax-exempt bonds used to finance such community.
EFFECT ON SHARE PRICE OF SHARES AVAILABLE FOR FUTURE SALE
Sales of a substantial number of Shares, or the perception that such sales
could occur, could adversely affect the prevailing market price for the
Shares. At February 19, 1997, ATLANTIC had 37,891,580 Shares issued and
outstanding, which were held of record by approximately 300 persons. All such
Shares may be sold in the public market pursuant to registration rights or
available exemptions from registration. See "Shares Available for Future
Sale". No prediction can be made regarding the effect of future sales of
Shares on the market prices of Shares.
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DILUTION
The pro forma net tangible book value per Share of ATLANTIC's assets after
the Offering will be lower than the initial public offering price per Share in
the Offering. Accordingly, persons acquiring Shares in the Offering will
experience immediate dilution of $ per Share in the net tangible
book value of Shares acquired in the Offering. See "Dilution".
SECURITY CAPITAL ATLANTIC INCORPORATED
ATLANTIC's objective is to be the preeminent real estate operating company
focusing on multifamily communities in its southeastern United States target
market. Through its REIT Management Agreement with the REIT Manager, ATLANTIC
has access to the services provided by the REIT Manager and its specialized
service affiliates, which provides ATLANTIC with the same resources as a fully
integrated operating company. The REIT Manager and its specialized service
affiliates have 81 professionals dedicated to implementing ATLANTIC's highly
focused operating strategy. ATLANTIC focuses on the development, acquisition,
operation and long-term ownership of multifamily communities. At January 31,
1997, ATLANTIC's portfolio consisted of 25,364 multifamily units, including
6,123 units under construction or in planning, in 16 metropolitan areas and 49
submarkets in growth areas of the southeastern United States. The total
expected investment cost of ATLANTIC's 70 operating communities, including
budgeted renovations and total budgeted development expenditures, was
approximately $968.3 million at January 31, 1997 and the total budgeted
development cost of ATLANTIC's 19 communities under construction or in
planning was approximately $379.8 million. Additionally, at January 31, 1997,
ATLANTIC had land in planning and under control for the development of 2,040
units with a total budgeted development cost of $127.4 million.
ATLANTIC seeks to achieve long-term sustainable growth in per Share cash
flow by maximizing the operating performance of its core portfolio through
value-added operating systems and concentrating its experienced team of
professionals on developing and acquiring industry-leading multifamily
communities in targeted submarkets exhibiting strong job growth and favorable
demographic trends. Since its inception in 1993, ATLANTIC has employed a
research-driven investment approach, deploying its capital in markets and
submarkets that exhibit strong market fundamentals. ATLANTIC believes that
population and employment growth are the primary demand generators for
multifamily product.
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
The proceeds to ATLANTIC from the sale of the Shares offered hereby, net of
all expenses of the Offering, are expected to be approximately $93.8 million.
The net proceeds of the Offering will be used to retire revolving credit debt
which was incurred for (i) the acquisition and development of multifamily
communities, (ii) capital improvements to communities, (iii) fundings under
ATLANTIC's funding commitment agreement with Homestead and (iv) general
corporate purposes. As of February 19, 1997, ATLANTIC had $275.5 million of
outstanding borrowings under its $350 million unsecured revolving line of
credit with Morgan Guaranty Trust Company of New York ("MGT"), as agent for a
syndicate of banks, and such outstanding borrowings are expected to be
approximately $295.0 million at the closing of the Offering. Borrowings under
the line of credit bear interest at prime (8.25% at February 19, 1997) or, at
ATLANTIC's option, LIBOR plus 1.375% (6.8125% at February 19, 1997). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Line of Credit".
25
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of ATLANTIC as of December
31, 1996 and as adjusted to give effect to the Offering and the application of
the proceeds therefrom. The table should be read in conjunction with the
financial statements of ATLANTIC included herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------
AS
HISTORICAL ADJUSTED
---------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Mortgage notes............................................ $155,790 $155,790
Shareholders' equity:
Shares of common stock, par value $.01 per share;
250,000,000 Shares authorized; 37,891,580 Shares
issued; 41,891,580 Shares issued as adjusted........... 379 419
Additional paid-in capital.............................. 747,640 841,350
Distributions in excess of net earnings................. (49,377) (49,377)
-------- --------
Total shareholders' equity............................ $698,642 $792,392
-------- --------
Total capitalization(1)............................... $854,432 $948,182
======== ========
</TABLE>
- --------
(1) Does not include borrowings under ATLANTIC's $350 million unsecured
revolving line of credit. At December 31, 1996, $228.0 million of
borrowings were outstanding under the line of credit ($134.3 million on an
as adjusted basis).
PRICE RANGE OF ATLANTIC SHARES AND DISTRIBUTIONS
The Shares are listed on the NYSE under the symbol "SCA". As of February 19,
1997, ATLANTIC had 37,891,580 Shares issued and outstanding, which were held
of record by approximately 300 shareholders. The Shares commenced trading on
the NYSE on October 15, 1996 and the high and low sales prices of the Shares
as reported in the NYSE Composite Tape were $24 5/8 and $20 7/8, respectively,
for the fourth quarter of 1996 (as adjusted for the Homestead Distribution
described below), and were $26 1/2 and $24, respectively, for the first
quarter of 1997 (through February 25). The following table sets forth
ATLANTIC's cash distributions per Share for the periods indicated. Unless
otherwise indicated, all Share and per Share amounts have been adjusted to
give effect to ATLANTIC's one-for-two reverse Share split, which was effective
on September 10, 1996.
<TABLE>
<CAPTION>
CASH
DISTRIBUTIONS
PER SHARE
-------------
<S> <C>
1995:
First Quarter................................................... $0.40
Second Quarter.................................................. $0.40
Third Quarter................................................... $0.40
Fourth Quarter.................................................. $0.40
-----
$1.60
=====
1996:
First Quarter................................................... $0.42
Second Quarter.................................................. $0.42
Third Quarter................................................... $0.42
Fourth Quarter.................................................. $0.39(1)
-----
$1.65
=====
1997:
First Quarter................................................... $0.39
</TABLE>
26
<PAGE>
- --------
(1) In light of the Homestead transaction and ATLANTIC's initial public
offering, the Board adjusted the distribution in the fourth quarter of
1996.
In addition to the quarterly cash distributions shown above, ATLANTIC made
the Homestead Distribution on November 12, 1996 to shareholders of record on
October 29, 1996. The securities distributed in the Homestead Distribution had
a market value of $2.67 per Share based on the closing prices of such
securities on the ASE on November 11, 1996, the day prior to the distribution
date. The Homestead Distribution resulted in an adjustment of $2.75 per Share
to ATLANTIC's Share price information on the NYSE on November 12, 1996.
Accordingly, ATLANTIC's October 1996 initial public offering price, as
adjusted for the Homestead Distribution, was $21.25 per Share (as compared to
the pre-adjustment price of $24.00 per Share).
ATLANTIC, in order to qualify as a REIT, is required to make distributions
(other than capital gain distributions) to its shareholders in amounts at
least equal to (i) the sum of (A) 95% of its "REIT taxable income" (computed
without regard to the dividends-paid deduction and its 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. ATLANTIC's long-term
distribution strategy is to distribute what it believes is a conservative
percentage of its cash flow, permitting ATLANTIC to retain funds for capital
improvements and other investments while funding its distributions. ATLANTIC
has paid 12 consecutive quarterly cash distributions since its inception in
October 1993.
ATLANTIC announces the following year's projected annual distribution level
after the Board's annual budget review and approval in December of each year.
At its December 19, 1996 Board meeting, the Board announced a projected annual
distribution level of $1.56 per Share for 1997 and declared a distribution of
$0.39 per Share for the first quarter of 1997, which was paid on February 19,
1997. The payment of distributions is subject to the discretion of the Board
and is dependent upon the financial condition and operating results of
ATLANTIC. ATLANTIC's unsecured line of credit contains covenants which provide
that ATLANTIC's distributions for the preceding four quarters, excluding the
Homestead Distribution, may not exceed 95% (97% for distributions made before
December 31, 1996) of funds from operations (as defined in the loan agreement)
for the preceding four quarters.
ATLANTIC expects to continue to pay regular quarterly distributions to its
shareholders, but the historical distributions presented above prior to the
fourth quarter of 1996 did not take into account the cost of being a public
company and should not be considered to be indicative of future distributions.
ATLANTIC's ability to pay future distributions depends on a number of factors
including, among other things, continued property occupancy, capital
expenditures and other costs relating to ATLANTIC's existing communities and
ATLANTIC's financial condition and capital requirements. A change in any such
factor could affect ATLANTIC's ability to pay future distributions. Moreover,
ATLANTIC's operating results may be adversely affected if occupancy levels
decrease, if revolving credit borrowing costs increase or if any other adverse
changes occur. See "Risk Factors--Risk of Inability to Pay Future
Distributions".
Cash available for distribution will be affected by a number of factors,
including rental revenues from existing and new residents, the level of
acquisition and new leasing activity, ATLANTIC's operating expenses, the
interest expense and other debt service costs of ATLANTIC, the ability of
residents to meet their obligations, taxes payable by ATLANTIC and
unanticipated capital expenditures. ATLANTIC's policy is to expense, rather
than capitalize, repairs and maintenance, in determining net earnings and cash
available for distribution. Only major renovations, replacements or
improvements with a substantial expected economic life (such as roofs, parking
lots and additions) are capitalized. ATLANTIC has budgeted $7.4 million for
such purposes for the remainder of 1997. No assurances can be given that cash
available for distribution will be sufficient to pay future distributions.
Although ATLANTIC does not expect any future cash shortfalls, any such
shortfalls which do arise
27
<PAGE>
could result in reductions in ATLANTIC's cash available for distribution which
could result in lower than expected distributions.
In addition to the $7.4 million of budgeted capital expenditures, as of
January 31, 1997, ATLANTIC had $85.5 million of unfunded construction
commitments. Additionally, as of January 31, 1997, ATLANTIC had $216.6 million
of developments in planning (owned and under control) of which $203.1 million
had not been funded. In addition, pursuant to its Funding Commitment
Agreement, ATLANTIC has agreed to provide secured financing of up to
approximately $111.1 million to Homestead in exchange for convertible mortgage
notes, of which $105.1 million had not been funded as of January 31, 1997. See
"Certain Relationships and Transactions--Funding Commitment Agreement".
ATLANTIC expects to finance its renovation, acquisition and development
investments and its funding commitment under its Funding Commitment Agreement
with borrowings under its $350 million unsecured revolving line of credit
(which matures in June 1998) and future offerings of debt and equity
securities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources".
For federal income tax purposes, distributions may consist of ordinary
income, capital gains, non-taxable return of capital or a combination thereof.
Distributions that exceed ATLANTIC's current and accumulated earnings and
profits (calculated for tax purposes) constitute a return of capital rather
than a dividend and reduce the shareholder's basis in the Shares. To the
extent that a distribution exceeds both current and accumulated earnings and
profits and the shareholder's basis in the Shares, it will generally be
treated as gain from the sale or exchange of that shareholder's Shares. For a
more complete discussion of the tax treatment of distributions to
shareholders, see "Federal Income Tax Considerations--Taxation of
Shareholders". ATLANTIC annually notifies shareholders of the taxability of
distributions paid during the preceding year. The following summarizes the
taxability of cash distributions paid in 1995 and 1994 on the Shares and the
estimated taxability for 1996.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Per Share:
Ordinary income............................................. $0.78 $0.92 $0.92
Return of capital........................................... 0.87 0.68 0.28
----- ----- -----
Total..................................................... $1.65 $1.60 $1.20
===== ===== =====
</TABLE>
The securities distributed to each ATLANTIC shareholder in the Homestead
Distribution were valued at $1.91 per Share for federal income tax purposes,
of which $0.90 was taxable as ordinary income and $1.01 was treated as a
return of capital. ATLANTIC's tax return for the year ended December 31, 1996
has not been filed, and the taxability information for 1996 is based upon the
best available data. ATLANTIC's tax returns for prior years have not been
examined by the Internal Revenue Service and, therefore, the taxability of
distributions is subject to change.
28
<PAGE>
DILUTION
The initial public offering price per Share exceeds the net tangible book
value per Share. Therefore, the holders of Shares issued prior to the Offering
will realize an immediate increase in the net tangible book value of their
Shares, while purchasers of Shares sold in the Offering will realize an
immediate dilution in the net tangible book value of their Shares. Net
tangible book value per Share is determined by subtracting total liabilities
from total tangible assets and dividing the remainder by the number of Shares
that will be outstanding after the Offering. The following table illustrates
the dilution to purchasers of Shares sold in the Offering.
<TABLE>
<S> <C>
Initial Public Offering Price per Share(1)............................ $
Net tangible book value per Share issued prior to the Offering........
Pro forma
increase in net tangible book value per Share attributable to
payments by purchasers of Shares sold in the Offering................
-------
Net pro forma tangible book value per Share after the Offering(2).....
-------
Dilution per Share.................................................... $( )
=======
</TABLE>
- --------
(1) Before deducting estimated expenses.
(2) Based on the Pro Forma Financial Results contained elsewhere in this
Prospectus.
BUSINESS
HIGHLY FOCUSED BUSINESS STRATEGY GROUNDED IN RESEARCH
Since its inception in 1993, ATLANTIC has employed a research-driven
investment approach, deploying its capital in markets and submarkets which
exhibit strong market fundamentals. ATLANTIC believes that population and
employment growth are the primary demand generators for multifamily product.
The following chart indicates the expected population and employment growth in
ATLANTIC's primary target market cities versus the United States as a whole
from 1997 to 2016. The chart is based on forecasts published by Woods & Poole
Economics, Inc., which bases its historical information on U.S. Census Bureau
Information. There can be no assurances that the forecasted population and job
growth shown below will in fact occur.
LOGO
29
<PAGE>
At January 31, 1997, ATLANTIC owned communities in 49 of the 150 submarkets
within its target market. REIT Management is continuously researching
additional submarkets and cities and ATLANTIC may add additional primary
target market cities in the future; however, ATLANTIC intends to remain
regionally focused in the southeastern United States.
ATLANTIC's initial investment strategy focused on two components; the
acquisition of a substantial base of established multifamily communities to
provide operating cash flow and the creation of an internal development
process focused primarily on the development of moderate income multifamily
communities. ATLANTIC expects to continue to selectively acquire upper middle
income communities and acquire and develop middle income communities; however,
the majority of its future investment activities will concentrate on
developing moderate income communities.
The table below illustrates the growth in ATLANTIC's expected investment in
multifamily communities since its inception on October 26, 1993 to January 31,
1997:
<TABLE>
<CAPTION>
TOTAL EXPECTED INVESTMENT(1)
----------------------------------------------------
DECEMBER 31,
JANUARY ----------------------------------------
31, 1997 1996 1995 1994 1993
---------- ---------- ---------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating communities:
Acquired................ $ 977,350 $ 968,951 $ 788,920 $600,880 $29,591
Less dispositions....... (90,922) (90,922) (30,934) -- --
---------- ---------- ---------- -------- -------
Net acquired............ 886,428 878,029 757,986 600,880 29,591
Developed............... 81,850 81,832 25,462 -- --
---------- ---------- ---------- -------- -------
Total operating
communities.......... 968,278 959,861 783,448 600,880 29,591
Communities under
construction............. 290,600 290,486 176,740 63,006 13,588
Communities in planning
and owned(2)............. 89,214 53,410 69,788 53,096 --
---------- ---------- ---------- -------- -------
Total owned
communities.......... $1,348,092 $1,303,757 $1,029,976 $716,982 $43,179
========== ========== ========== ======== =======
Communities in planning
and under control(2)..... $ 127,411 $ 139,275 $ 48,261 $ 69,232 --
========== ========== ========== ======== =======
</TABLE>
- --------
(1) For operating communities, represents cost, including budgeted
renovations. For communities under construction and in planning,
represents total budgeted development cost, which includes the cost of
land, fees, permits, payments to contractors, architectural and
engineering fees and interest and property taxes to be capitalized during
the construction period, for communities in development. Does not include
land held for future development, which is less than 1% of assets based on
cost.
(2) The term "in planning" means that construction is anticipated to commence
within 12 months. The term "under control" means that ATLANTIC has an
exclusive right (through contingent contract or letter of intent) during a
contractually agreed-upon time period to acquire land for future
development of multifamily communities, subject to removal of
contingencies during the due diligence process, but does not currently own
the land.
ATLANTIC'S OPERATING SYSTEM
The REIT Manager and its specialized service affiliates have 81
professionals dedicated to implementing ATLANTIC's highly focused business
strategy. ATLANTIC's "Operating System" consists of six functional areas:
research, acquisitions, development, due diligence and investment analysis,
property management and capital markets/finance/legal. By focusing on a single
discipline, professionals within each of these areas develop substantial
expertise. Interaction and communication among these functional areas remain
fluid; but separation promotes certain checks and balances. For example, all
acquisition and development investments must be approved by a four-member
investment committee and ultimately by the investment committee of the Board.
30
<PAGE>
RESEARCH
ATLANTIC is dedicated to ongoing research and development. ATLANTIC utilizes
Security Capital Investment Research, an affiliate of the REIT Manager, to
conduct comprehensive evaluations of its target market on a submarket-by-
submarket basis to identify those submarkets and product types that present
better prospects for long-term cash flow growth. These evaluations, combined
with ATLANTIC's extensive market experience in the southeastern United States,
enable ATLANTIC to identify submarkets that offer continued opportunities for
long-term cash flow growth. In addition to market research, considerable
resources are devoted to product research. The REIT Manager continually
evaluates and refines ATLANTIC's multifamily communities to incorporate
technologies and designs that will enhance long-term livability for its
residents.
ACQUISITIONS
Since its inception in 1993, ATLANTIC has selectively acquired multifamily
communities where demographic trends and market trends indicate a high
likelihood of achieving superior operating results. As of January 31, 1997,
ATLANTIC's portfolio of communities acquired, net of dispositions, aggregated
17,727 operating units, representing a total expected investment cost,
including budgeted renovations, of $886.4 million.
ATLANTIC categorizes operating multifamily communities (which exclude
communities under development) as either "stabilized" or "pre-stabilized". The
term "stabilized" means that renovation, repositioning, new management and new
marketing programs (or development and marketing in the case of newly
developed communities) have been completed and in effect for a sufficient
period of time (but in no event longer than 12 months, except in cases of
major rehabilitation) to achieve 93% occupancy at market rents. Prior to being
"stabilized", a community is considered "pre-stabilized". Due to its active
investment program since inception, 18.4% of ATLANTIC's multifamily operating
portfolio ($178.0 million) was classified as pre-stabilized as of January 31,
1997, based on total expected investment cost. At January 31, 1997, ATLANTIC's
operating communities (excluding communities in lease-up) were 93.8% leased.
For operating communities acquired by ATLANTIC, stabilized operations
generally have been achieved between six and 12 months after acquisition. For
communities that it is developing, ATLANTIC expects stabilized operations
generally to be achieved 12 to 18 months after construction commences.
DEVELOPMENTS
ATLANTIC has selectively developed multifamily communities where land costs
and demographic and market trends indicate a high likelihood of achieving
attractive, sustainable operating results. At January 31, 1997, ATLANTIC's
completed developed communities and its owned communities under construction
and in planning together comprised 34.2% of its multifamily portfolio, based
on total expected investment cost. As of January 31, 1997, the development
portion of ATLANTIC's multifamily portfolio consisted of the following:
<TABLE>
<CAPTION>
TOTAL EXPECTED
NUMBER OF UNITS INVESTMENT(1)
--------------- --------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Communities completed............................ 1,514 $ 81,850
Communities under construction................... 4,727 290,600
Communities in planning and owned(2)............. 1,396 89,214
----- --------
Totals....................................... 7,637 $461,664
===== ========
</TABLE>
- --------
(1) Represents total budgeted development cost, which includes the cost of
land, fees, permits, payments to contractors, architectural and
engineering fees and interest and property taxes to be capitalized during
the construction period. Does not include land held for future
development, which is less than 1% of assets, based on cost.
(2) Does not include land in planning and under control for the development of
2,040 units with a total budgeted development cost of $127.4 million.
31
<PAGE>
ATLANTIC carefully manages development risks by obtaining zoning and public
approvals prior to purchasing land. ATLANTIC does not take construction risk,
but instead uses qualified third-party general contractors to build its
communities, using guaranteed maximum price contracts. ATLANTIC targets
development for markets with high occupancy rates and population and job
growth trends that indicate increasing future demand. ATLANTIC cannot
eliminate all development risk, but believes that the opportunities to better
control its product and realize higher returns from development communities
compensate for any additional risk.
ATLANTIC traditionally has commenced development immediately after acquiring
a tract of land. However, in cases where land prices are favorable, ATLANTIC
has acquired and will acquire, on an unleveraged basis, prudent amounts of
zoned land for the development of future multifamily communities. In addition,
to provide for growth, ATLANTIC may utilize options and rights of first
refusal in order to control land for the development of future communities.
To enhance its flexibility in developing and acquiring multifamily
communities, ATLANTIC has and will enter into presale agreements to acquire
communities developed by third-party owner/developers where the developments
meet ATLANTIC's investment criteria. ATLANTIC has and will fund such
developments through development loans to these owner/developers. In addition,
to provide greater flexibility for the use of land acquired for development
and to dispose of excess parcels, ATLANTIC plans to make mortgage loans to
Atlantic Development Services to purchase land for development. ATLANTIC owns
all of the preferred stock of Atlantic Development Services, which entitles
ATLANTIC to substantially all of the net operating cash flow (95%) of Atlantic
Development Services. All of the common stock of Atlantic Development Services
is owned by an unaffiliated trust. The common stock is entitled to receive the
remaining 5% of net operating cash flow. As of December 31, 1996, the
outstanding balance of development and mortgage loans made by ATLANTIC to
third-party owner/ developers and Atlantic Development Services aggregated
$15.4 million and none, respectively. The activities of Atlantic Development
Services and third-party owner/developers are consolidated with ATLANTIC's
activities and all intercompany transactions have been eliminated in
consolidation.
DUE DILIGENCE AND INVESTMENT ANALYSIS
ATLANTIC believes that a REIT should have experienced personnel dedicated to
performing intelligent and thorough due diligence. The REIT Manager has three
full-time professionals performing due diligence for ATLANTIC. The REIT
Manager's professionals utilize due diligence information in screening
potential acquisitions and developments for ATLANTIC.
Prospective property investments are analyzed pursuant to several
underwriting criteria, including purchase price, competition and other market
factors, and prospects for long-term growth in cash flow. ATLANTIC's
investment decisions are based upon the expected contribution of the community
to long-term cash flow growth on an unleveraged basis. The expected economic
contribution is based on an evaluation of a community's stabilized operations,
including an estimate of all cash revenues from leases and other revenue
sources, minus expenses incurred in operating the community (including real
estate taxes, insurance, maintenance, turnover costs (such as carpet and
appliance replacement), personnel costs and utility charges, but excluding
depreciation, debt service and amortization of loan costs) and a reserve for
capital expenditures.
PROPERTY MANAGEMENT
ATLANTIC believes that a successful REIT must actively manage its
communities in order to increase cash flow and enhance the long-term economic
performance of the communities. Approximately 87% of ATLANTIC's operating
multifamily units are managed by SCG Realty Services, a property management
firm headquartered in Atlanta, Georgia, with the balance in various stages of
transition to SCG Realty Services' management. Security Capital Group is the
sole owner of SCG Realty Services and the REIT Manager. See "Prospectus
Summary--Recent Developments" for a
32
<PAGE>
description of a proposal that ATLANTIC has received from Security Capital
Group to exchange the REIT Manager and SCG Realty Services for Shares. The
property management fee paid to SCG Realty Services for the year ended
December 31, 1996 was $4.2 million. For a description of fees paid to SCG
Realty Services, see "Certain Relationships and Transactions--Property
Management Company".
SCG Realty Services has approximately 425 employees. SCG Realty Services
emphasizes locally-based management and has ten local offices to serve
ATLANTIC's target market. This network improves SCG Realty Services' ability
to respond to changes in local market conditions and resident needs. ATLANTIC
believes that SCG Realty Services has developed superior operating procedures,
financial controls, information systems and training programs, which it
expects to positively affect rental returns and occupancy rates. In addition,
incentive compensation programs have been implemented for on-site property
managers to further improve the performance of the communities. The REIT
Manager has taken an active role in overseeing SCG Realty Services' management
of ATLANTIC's multifamily communities.
ATLANTIC recognizes that highly focused day-to-day management attention is
essential to maximize short-term and long-term cash flow from each of its
multifamily communities. As a result, SCG Realty Services has been
specifically dedicated to the pursuit of this single goal. The professionals
within SCG Realty Services focus only on ATLANTIC's communities. Therefore,
their attention is not diluted by competing demands of other customers. SCG
Realty Services and the REIT Manager work closely together to develop
innovative new ideas to maintain high resident satisfaction while maximizing
cash flow growth. During 1996, SCG Realty Services established a Regional
Information Management ("RIM") Center. The RIM Center concept is designed to
enable property-level management personnel to focus on community operating
performance while moving certain accounting and administrative functions to
the RIM Center. The RIM Center is designed to carry out these functions for
several area communities and thus benefit from economies of scale, better
accounting control and enhanced cash management capabilities. During 1996,
ATLANTIC entered into revenue sharing agreements with certain cable television
and telephone service providers which provide for ATLANTIC to receive a
percentage of the service providers' revenues generated from subscribing
residents in return for access to the resident base.
CAPITAL MARKETS/FINANCE/LEGAL
ATLANTIC believes that a successful REIT must have the ability to access the
equity and debt markets efficiently, expeditiously and cost-effectively.
ATLANTIC's ability to efficiently access the capital markets permits it to
capitalize on the development and acquisition opportunities that exist in its
target market. In order to maximize this function and enhance relationships
with major institutional sources of capital, Security Capital Group formed
Capital Markets Group, a registered broker-dealer affiliate. Capital Markets
Group's services are included in the REIT Manager's fee and do not result in a
separate charge to ATLANTIC. Capital Markets Group and the REIT Manager have
arranged private offerings for ATLANTIC including:
. In August 1994, ATLANTIC received approximately $10 million in gross
proceeds from a private offering of Shares at a price of $20.00 per Share;
. During the period March 1995 through June 1995, ATLANTIC received
approximately $160 million in gross proceeds from a private offering of
Shares at a price of $22.00 per Share; and
. During the period November 1995 through May 1996, ATLANTIC received
approximately $250 million in gross proceeds (at a commission cost of less
than 1% paid to an unaffiliated third party) from a private offering of
Shares at a price of $23.00 per Share (including approximately $28.9
million of Shares sold to Security Capital Group at a price of $23.136 per
Share).
33
<PAGE>
Capital Markets Group and the REIT Manager have arranged debt facilities for
ATLANTIC including:
. In June 1994, the REIT Manager arranged a three-year, $200 million secured
line of credit for ATLANTIC (increased to $225 million in September 1994),
at an interest rate of prime or, at ATLANTIC's option, LIBOR plus 2% or the
certificate of deposit rate plus 2.125%;
. In August 1995, the REIT Manager arranged for an increase in the line of
credit to $300 million and for a reduction in the interest rate to LIBOR
plus 1.75% or the certificate of deposit rate plus 1.875%;
. In March 1996, the REIT Manager arranged for a further reduction in the
line of credit's interest rate to LIBOR plus 1.50% or the certificate of
deposit rate plus 1.625%;
. In June 1996, the REIT Manager arranged for an increase in the line of
credit to $350 million and an extension of the term to June 1998; and
. In December 1996, the REIT Manager arranged a new unsecured line of credit
that replaced the previous secured line of credit. The new line of credit
bears interest at prime or, at ATLANTIC's option, LIBOR plus 1.375%. The
loan agreement provides for a further reduction in the interest rate
depending upon ATLANTIC's debt rating. ATLANTIC's objective is to achieve
an investment-grade debt rating in 1997.
ATLANTIC's increased borrowing capacity enables it to acquire communities
prior to equity and long-term debt offerings and to eliminate or minimize the
amount of cash it must invest in low-yielding short-term investments. ATLANTIC
believes its current leverage provides considerable flexibility to prudently
utilize long-term debt as a financing tool in the future. After it has
achieved a substantial equity base and an investment-grade debt rating,
ATLANTIC expects to arrange fully amortizing, fixed-rate, 15-year to 25-year
unsecured debt, the proceeds of which will be used primarily for the reduction
of line of credit balances related to multifamily acquisition and development.
This long-term financing strategy is expected to allow ATLANTIC to prudently
increase its capital base with debt and equity.
In July 1995, the REIT Manager negotiated a credit enhancement agreement
with FNMA that covers all of ATLANTIC's tax-exempt bond issues. Under the
agreement with FNMA, ATLANTIC makes monthly principal payments, based on a 30-
year amortization, into a principal reserve account. Of these bond issues,
$108.2 million have variable interest rates. To mitigate the variable interest
rate exposure, ATLANTIC entered into swap agreements. These swap agreements
effectively result in ATLANTIC paying interest at a fixed rate of 6.64%.
STRATEGY FOR CASH FLOW AND DISTRIBUTION GROWTH
ATLANTIC seeks to achieve long-term sustainable growth in cash flow by
maximizing the operating performance of its core portfolio through value-added
operating systems and concentrating its experienced team of professionals on
developing and acquiring industry-leading communities in targeted submarkets
exhibiting strong job growth and favorable demographic trends.
In addition to its strong primary target market, ATLANTIC believes that the
following key factors will drive ATLANTIC's future growth: research and
development, moderate income development, opportunistic acquisitions, "same
store" growth, portfolio and asset optimization and a conservative balance
sheet strategy.
RESEARCH AND DEVELOPMENT
ATLANTIC believes that its research-based investment strategy differs from
other multifamily REITs in that the REIT Manager and its affiliates have
dedicated personnel who conduct comprehensive proprietary evaluations of
ATLANTIC's target market on a submarket-by-submarket basis taking into account
24 key variables that ATLANTIC has identified as having the greatest impact
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on multifamily operating performance. A few of these variables include market
demand analysis, detailed supply evaluations of each submarket and other
economic and demographic data. See "--ATLANTIC's Operating System--Research".
MODERATE INCOME DEVELOPMENT
Multifamily communities are differentiated by the income levels of their
residents. In descending order, the full multifamily spectrum includes upper
middle income apartments, middle income apartments, moderate income
apartments, mobile home parks and government subsidized housing. ATLANTIC
deploys capital into the first three categories. ATLANTIC's upper middle
income communities appeal to residents whose incomes, which equal 115% to 140%
of submarket median household income, are often sufficient to purchase homes.
These communities typically feature large luxurious units and numerous
amenities, including large exercise facilities and attached garages.
ATLANTIC's middle income communities appeal to residents whose incomes equal
90% to 115% of submarket median household income. Middle income communities
have smaller units and fewer amenities than upper middle income communities.
ATLANTIC's moderate income communities accommodate residents with incomes
ranging from 65% to 90% of submarket median household income. Residents in
this category, which typically include couples, single parents and families
with one or two children, are value-driven and focus on unit livability and
practical amenities such as washer/dryer hookups, storage space and
playgrounds.
ATLANTIC's initial acquisitions were principally middle income communities
since the existing moderate income inventory in the southeastern United States
consisted primarily of older communities (15-30 years old) which had been
poorly managed, were either dilapidated or approaching obsolescence and would
not compete effectively for residents in ATLANTIC's market. Accordingly,
ATLANTIC's portfolio at January 31, 1997 includes a larger percentage of upper
middle income communities (9.8%, based on total expected investment cost) and
middle income communities (41.9%, based on total expected investment cost)
than moderate income communities (48.3%, based on total expected investment
cost).
As of January 31, 1997, ATLANTIC's portfolio consisted of seven upper middle
income communities with a total expected investment cost of $132.8 million, 35
middle income communities with a total expected investment cost of $564.3
million and 47 moderate income communities with a total expected investment
cost of $651.0 million. ATLANTIC focuses primarily on moderate income
communities, which comprise one of the largest segments of the renter
population. Moderate income communities comprised 51.8% of ATLANTIC's 1996
development starts. In 1997, approximately 83.5% of development starts and
approximately 66.5% of ATLANTIC's total development activities are expected to
constitute moderate income communities, based on total expected investment
cost. The balance of development starts are expected to consist of middle
income communities.
Few other REITs in ATLANTIC's primary target market currently focus on the
moderate income segment. Moreover, ATLANTIC believes that less than 10% of the
1995 and 1996 multifamily starts in ATLANTIC's primary target market cities
constituted moderate income product. Consequently, ATLANTIC believes that the
moderate income segment is a significantly underserved market with limited
competition.
Moderate income residents are typically longer-term residents because they
often lack the financial resources required to purchase single-family homes.
As a result, resident turnover is often significantly lower in moderate income
communities than in upper middle income or middle income communities. The
total cost of refurbishing and re-leasing a unit ranges from $700 to $1,500;
therefore, reducing resident turnover can have a material impact on an asset's
profitability. Due to market fundamentals and the operating characteristics of
moderate income communities, ATLANTIC believes that this category offers
better prospects for cash flow growth.
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ATLANTIC's research-driven development strategy is focused on developing
state of the art communities in attractive submarkets that responds to renter
preferences and demographic trends. ATLANTIC believes that developing
communities designed for long-term appeal to one of the largest segments of
the renter population (moderate income households) will allow ATLANTIC to
achieve more consistent rental increases and higher occupancies over the long
term and thereby realize superior cash flow growth. Development, principally
of moderate income communities, will be a critical factor driving ATLANTIC's
long-term growth. By year-end 1997, ATLANTIC anticipates that approximately
44.3% of its total portfolio will consist of communities ATLANTIC has
developed or is in the process of developing and approximately 64.5% of these
development communities will be moderate income product, based on total
expected investment cost. Over an extended period, management believes that
operating results from ATLANTIC's development starts will contribute
significantly to ATLANTIC's cash flow growth.
Development opportunities also permit ATLANTIC to incorporate technologies
and designs aimed at enhancing long-term rental growth and reducing ongoing
maintenance costs. ATLANTIC has had the opportunity to evaluate and refine its
multifamily communities through its history of development. ATLANTIC, unlike a
typical merchant builder, intends to be a long-term owner of the communities
that it develops. Hence, ATLANTIC emphasizes long-term durability by using
materials and designs that minimize ongoing operation and maintenance costs.
OPPORTUNISTIC ACQUISITIONS
It is often advantageous for ATLANTIC to acquire existing multifamily
communities in markets that are expected to experience favorable growth in
rents and income. In many cases, communities can be acquired and redeveloped
at prices well below the cost to build a comparable community in the same
area. The REIT Manager has the capability to thoroughly analyze and evaluate
communities in an efficient manner which, together with ATLANTIC's access to
capital, provides ATLANTIC with a competitive advantage in acquiring
multifamily assets. From its inception on October 26, 1993 to January 31,
1997, ATLANTIC had completed acquisitions with a total expected investment
cost of $977.4 million.
"SAME STORE" GROWTH
Net operating income on a "same store" basis (as adjusted for pre-stabilized
versus stabilized accounting differences) increased 4.88% from 1995 to 1996
for the 34 communities that were fully operational during both periods. The
accounting differences result from capitalizing certain costs during the
period after acquisition when a community is being repositioned and is
classified as pre-stabilized and expensing those costs once repositioning is
completed and the community is classified as stabilized.
ATLANTIC believes that the underlying long-term conditions of its primary
target market, including its strong job growth, should continue to support
high occupancy levels and allow for consistent increases in rental income. In
addition, operating efficiencies and lower resident turnover resulting from
ATLANTIC's increasing focus on moderate income product are expected to reduce
operating costs and improve profit margins.
PORTFOLIO AND ASSET OPTIMIZATION
ATLANTIC develops and acquires communities with a view to effective long-
term operation and ownership. REIT Management actively reviews ATLANTIC's
asset base. These reviews generate operating and capital plans and, with
guidance from its affiliate, Security Capital Investment Research, help
ATLANTIC to identify submarkets and product types that it believes will
generate above average long-term growth opportunities. In evaluating each
multifamily community owned or being considered for acquisition or
development, the REIT Manager focuses on those components that it believes
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provide the greatest opportunity for consistent rental increases and high
occupancies over the long term. Submarket locations and demographics, unit
mix, density and amenities of each community are important contributors to
long-term cash flow growth. Under its asset optimization program, ATLANTIC may
from time to time dispose of assets that no longer meet its long-term
investment objectives and redeploy the proceeds, preferably through tax-
deferred exchanges, into assets with better prospects for cash flow growth.
ATLANTIC's asset optimization strategy is based on the premise that it has a
finite amount of investment capital and that this capital should be deployed
where it can produce maximum cash flow growth. ATLANTIC believes that many of
its existing upper middle income communities will be candidates for exchange
or disposition given the increased competition from this product type being
developed by third parties. Consistent with its current strategy, ATLANTIC
expects to redeploy the proceeds from these dispositions into moderate income
communities with superior growth prospects. During 1996, ATLANTIC disposed of
four operating communities aggregating 1,184 units. A gain was recognized on
each disposition with the total gain aggregating $6.7 million on aggregate
proceeds of $64.2 million. Each disposition has been included in a tax-
deferred exchange.
CONSERVATIVE BALANCE SHEET STRATEGY
ATLANTIC has a conservative balance sheet strategy. Long-term debt as a
percentage of total long-term undepreciated book capitalization was 17.4% at
December 31, 1996 on a historical basis and 15.7% at December 31, 1996 on a
pro forma basis as adjusted to give effect to the Offering and the application
of the proceeds therefrom. In the future, ATLANTIC intends to access the
public equity and debt markets. ATLANTIC's objective is to achieve an
investment-grade debt rating in 1997 and to issue long-term, fixed rate, fully
amortizing unsecured corporate debt, which will limit ATLANTIC's exposure to
floating rate or balloon financing. ATLANTIC's $350 million unsecured line of
credit enables ATLANTIC to take advantage of investment opportunities in its
target market without investing significant funds in short-term investments
between securities offerings. As of February 19, 1997, $275.5 million of
borrowings were outstanding under the line of credit and such outstanding
borrowings are expected to be approximately $295.0 million at the closing of
the Offering. This conservative balance sheet strategy is expected to provide
ATLANTIC with significant incremental debt capacity and allow ATLANTIC to take
advantage of future investment opportunities on a non-dilutive basis,
contributing to ATLANTIC's objective of long-term growth in cash flow.
EMPLOYEES
ATLANTIC currently has no employees. The REIT Manager, whose sole activity
is advising ATLANTIC, manages the day-to-day operations of ATLANTIC. The REIT
Manager and its specialized service affiliates have assembled a team of 81
operating professionals, collectively possessing extensive experience in
multifamily real estate. The majority of these persons are employed directly
by and focused entirely on the services provided by the REIT Manager, with the
balance providing centralized research, capital markets, legal and accounting
services. See "Prospectus Summary--Recent Developments".
LEGAL PROCEEDINGS
ATLANTIC is a party to various claims and routine litigation arising in the
ordinary course of its business. ATLANTIC does not believe that the results of
any of such claims and litigation, individually or in the aggregate, will have
a material adverse effect on its business, financial position or results of
operations.
COMPETITION
There are numerous commercial developers, real estate companies and other
owners of real estate that compete with ATLANTIC in seeking land for
development, communities for acquisition and disposition and residents for
communities. All of ATLANTIC's multifamily communities are located in
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developed areas that include other multifamily communities. The number of
competitive multifamily communities in a particular area could have a material
adverse effect on ATLANTIC's ability to lease units and on the rents charged.
In addition, other forms of single family and multifamily residential
communities provide housing alternatives to residents and potential residents
of ATLANTIC's multifamily communities.
AMERICANS WITH DISABILITIES ACT
ATLANTIC's communities must comply with Title III of the ADA to the extent
that such communities are "public accommodations" and/or "commercial
facilities" as defined by the ADA. The ADA does not consider multifamily
communities to be public accommodations or commercial facilities, except
portions of such facilities open to the public, such as the leasing office.
Noncompliance could result in imposition of fines or an award of damages to
private litigants. ATLANTIC believes that the mandated portions of its
communities comply with all present requirements under the ADA and applicable
state laws.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner, developer or operator of real estate may be liable
for the costs of removal or remediation of certain hazardous or toxic
substances at, on, under or in its property. The costs of removal or
remediation of such substances could be substantial. Such laws often impose
such liability without regard to whether the owner or operator knew of, or was
responsible for, the release or presence of such hazardous or toxic
substances. The presence of such substances may adversely affect the owner's
ability to sell or rent such real estate or to borrow using such real estate
as collateral. Persons who arrange for the disposal or treatment of hazardous
or toxic substances also may be liable for the costs of removal or remediation
of such substances at the disposal or treatment facility, whether or not such
facility is owned or operated by such person. Certain environmental laws
impose liability for the release of asbestos-containing materials into the
air, pursuant to which third parties may seek recovery from owners or
operators of real properties for personal injuries associated with such
materials, and prescribe specific methods for the removal and disposal of such
materials, which may result in increased costs in connection with renovations
at ATLANTIC's communities.
ATLANTIC has not been notified by any governmental authority of any non-
compliance, liability or other claim in connection with any of its communities
owned or being acquired at January 31, 1997, and ATLANTIC is not aware of any
environmental condition with respect to any of its communities that is likely
to be material. ATLANTIC has subjected each of its communities to a Phase I
environmental assessment (which does not involve invasive procedures such as
soil sampling or ground water analysis) by independent consultants. While some
of these assessments have led to further investigation and sampling, none of
the environmental assessments has revealed, nor is ATLANTIC aware of, any
environmental liability (including asbestos-related liability) that the REIT
Manager believes would have a material adverse effect on ATLANTIC's business,
financial condition or results of operations. No assurance can be given,
however, that these assessments and investigations reveal all potential
environmental liabilities, that no prior owner or operator created any
material environmental condition not known to ATLANTIC or the independent
consultants or that future uses and conditions (including, without limitation,
resident actions or changes in applicable environmental laws and regulations)
will not result in unreimbursed costs relating to environmental liabilities.
See "Risk Factors--Regulatory Compliance--Possible Liability Relating to
Environmental Laws".
INSURANCE COVERAGE
ATLANTIC carries comprehensive general liability coverage on its owned
communities, with limits of liability customary within the industry, to insure
against liability claims and related defense costs. Similarly, ATLANTIC is
insured against the risk of direct physical damage in amounts necessary to
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reimburse ATLANTIC on a replacement cost basis for costs incurred to repair or
rebuild each community, including loss of rental income during the
reconstruction period (up to a six-month period).
REIT MANAGEMENT
GENERAL
The REIT Manager provides ATLANTIC with strategic and day-to-day management,
research, investment analysis, acquisition, development, marketing,
disposition of assets, asset management, due diligence, capital markets, and
legal and accounting services, all of which are included in the REIT
Management fee. ATLANTIC currently has no employees. Hence, ATLANTIC depends
on the quality of the management provided by the REIT Manager. ATLANTIC
believes that its relationship with the REIT Manager provides ATLANTIC with
access to high quality and depth of management personnel and resources,
savings from a dedicated capital markets group, and access to centralized
research, accounting and legal support. As of January 31, 1997, 81 operating
professionals were employed by the REIT Manager and its specialized service
affiliates. The REIT Manager also provides office and other facilities
supporting ATLANTIC's needs. The REIT Manager's address is the same as
ATLANTIC's. The owner of the REIT Manager, Security Capital Group, currently
owns 56.9% of ATLANTIC's outstanding Shares (51.4% after the Offering). See
"Prospectus Summary--Recent Developments" for a description of a proposal that
ATLANTIC has received from Security Capital Group to exchange the REIT Manager
and SCG Realty Services for Shares.
The owner of the REIT Manager has a substantial shareholder interest in
ATLANTIC, creating alignment of interest with ATLANTIC's shareholders.
Furthermore, the REIT Manager provides all its services for one fee, and an
affiliate provides property management services at market rates in a
competitive environment. The REIT Manager does not receive additional fees for
investment banking, financing, asset sales or similar services. See "--REIT
Manager Compensation".
The REIT Manager has organized itself such that each operating professional
specializes in a particular discipline (such as research, marketing,
development, acquisition, due diligence, asset management, capital markets or
financial operations) rather than being responsible for all functions on a
project-by-project basis. Local investments are approved by the REIT Manager's
investment committee, using uniform criteria, prior to being submitted to
ATLANTIC's investment committee. Regional operating professionals focus on
specific target markets to ensure attention to resident services.
ATLANTIC believes that the quality of management should be assessed in light
of the following factors:
MANAGEMENT DEPTH/SUCCESSION
ATLANTIC believes that management should have several senior executives with
the leadership, operational, investment and financial skills and experience to
oversee the entire operations of the REIT. ATLANTIC believes that several of
its senior officers could serve as the principal executive officer and
continue ATLANTIC's performance. See "--Directors and Officers of ATLANTIC,
the REIT Manager and Relevant Affiliates" below.
STRATEGIC VISION
ATLANTIC believes that management should have the strategic vision to
determine an investment focus that provides favorable initial yields and long-
term growth prospects. The REIT Manager has demonstrated its strategic vision
by focusing ATLANTIC on multifamily communities in the southeastern United
States, where demographic and supply factors have permitted high occupancies
at increasing rents.
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ATLANTIC focuses primarily on moderate income communities, which comprise
one of the largest segments of the renter population. Few other REITs in
ATLANTIC's primary target market currently focus on the moderate income
segment. Consequently, ATLANTIC believes that the moderate income segment is a
significantly underserved market with limited competition.
RESEARCH CAPABILITY
ATLANTIC believes that management should have the means for researching
markets to determine appropriate investment opportunities. ATLANTIC divides
its target market cities into numerous submarkets for analysis purposes. The
REIT Manager and its affiliates have several persons who devote substantial
time to research, on a submarket-by-submarket basis, and are closely
supervised by senior officers of the REIT Manager.
INVESTMENT COMMITTEE PROCESS
ATLANTIC believes that investment committees should provide discipline and
guidance to the investment activities of the REIT in order to achieve its
investment goals. The four members of the REIT Manager's investment committee
have a combined 95 years experience in the real estate industry. See "--
Directors and Officers of ATLANTIC, the REIT Manager and Relevant Affiliates"
below. The investment committee receives detailed written analyses and
research, in a standardized format, from the REIT Manager's personnel and
evaluates all prospective investments pursuant to uniform underwriting
criteria prior to submission of investment recommendations to the investment
committee of the Board. The quality of the REIT Manager's investment committee
process is demonstrated by ATLANTIC's ability to achieve its investment goals
and generally realize its projected initial returns and growth from
multifamily investments.
DEVELOPMENT/REDEVELOPMENT AND ACQUISITION CAPABILITY
ATLANTIC believes that by internally developing projects and redeveloping
well located operating communities, management can capture for the REIT the
value that normally escapes through sales premiums paid to successful
developers. The REIT Manager's personnel have substantial development and
redevelopment experience, as described in "--Directors and Officers of
ATLANTIC, the REIT Manager and Relevant Affiliates" below. The REIT Manager
has 22 full-time professionals committed to development and acquisition
activities. The REIT Manager has arranged for over $977.4 million of
successful acquisitions for ATLANTIC. As of January 31, 1997, the REIT Manager
was developing 6,123 multifamily units for ATLANTIC with a total budgeted
development cost of $379.8 million. Additionally, as of January 31, 1997,
ATLANTIC had land in planning and under control for the development of 2,040
units with a total budgeted development cost of $127.4 million. REIT
Management has engaged in substantial development on behalf of ATLANTIC at
attractive yields that have exceeded projections and ATLANTIC believes that
development will contribute to ATLANTIC's objective of long-term growth in
cash flow. See "Business--ATLANTIC's Operating System".
DISPOSITION CAPABILITY
The ability to identify and effectively complete the cost-effective
disposition of targeted communities is essential to the successful execution
of ATLANTIC's asset optimization strategy. During 1995 and 1996, ATLANTIC
disposed of 1,780 units, realizing an aggregate gain of $6.7 million on
aggregate proceeds of $95.1 million, which were redeployed into strategic
acquisitions and developments. Marketing efforts and related costs and
negotiation were conducted primarily by the REIT Manager and, therefore,
broker fees were minimal.
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DUE DILIGENCE PROCESS
ATLANTIC believes that management should have experienced senior personnel
dedicated to performing intelligent and thorough due diligence. The REIT
Manager has three full time due diligence professionals and has developed
uniform systems and procedures for due diligence, as described under
"Business--ATLANTIC's Operating System--Due Diligence and Investment
Analysis". The REIT Manager's due diligence personnel have screened and
selected a large volume of investments.
OPERATING CAPABILITY
ATLANTIC believes that management can substantially improve funds from
operations by actively and effectively managing assets. As described under
"Business--ATLANTIC's Operating System", the REIT Manager and its affiliates
have devoted substantial personnel and financial resources to control and
effectively manage ATLANTIC's multifamily portfolio.
CAPITAL MARKETS CAPABILITY
ATLANTIC believes that management must be able effectively to raise equity
and debt capital in order for the REIT to achieve superior growth through
investment. As described under "Business--ATLANTIC's Operating System--Capital
Markets/Finance/Legal", REIT Management has successfully arranged funding for
ATLANTIC's investment program.
COMMUNICATIONS/SHAREHOLDER RELATIONS CAPABILITY
ATLANTIC believes that a REIT's success in capital markets and investment
activities can be enhanced by management's ability to effectively communicate
the REIT's strategy and performance to investors, sellers of property and the
financial media. The REIT Manager provides at its expense full time personnel
who prepare informational materials for and conduct periodic meetings with the
investment community and analysts.
ATLANTIC believes that successfully combining the foregoing attributes
significantly enhances a REIT's ability to increase cash flow and increase the
market valuation of the REIT's portfolio.
REIT MANAGER COMPENSATION
The REIT Management Agreement requires ATLANTIC to pay an annual fee of 16%
of cash flow as defined in the REIT Management Agreement, payable monthly.
Cash flow is calculated by reference to ATLANTIC's cash flow from operations
plus (i) fees paid to the REIT Manager, (ii) extraordinary expenses incurred
at the request of the independent Directors of ATLANTIC (of which there have
been none since inception) and (iii) 33% of any interest paid by ATLANTIC on
convertible subordinated debentures (of which there have been none since
inception); and after deducting (i) regularly scheduled principal payments
(excluding prepayments or balloon payments) for debt with commercially
reasonable amortization schedules, (ii) assumed principal and interest
payments on senior unsecured debt treated as having regularly scheduled
principal and interest payments like a 20-year level-payment, fully amortizing
mortgage (of which there have been none since inception) and (iii)
distributions actually paid with respect to any non-convertible preferred
stock (of which there have been none since inception). Cash flow does not
include (i) realized gains or losses from dispositions of investments, (ii)
interest income from cash equivalent investments and the Homestead convertible
mortgage notes and dividend and interest income from Atlantic Development
Services, (iii) provisions for possible losses on investments and (iv)
extraordinary items. The REIT Manager also receives a fee of 0.20% per year on
the average daily balance of cash equivalent investments. The REIT Management
fee aggregated $10.4 million, $6.9 million and $3.7 million for 1996, 1995 and
1994, respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--REIT Management Agreement".
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DIRECTORS AND OFFICERS OF ATLANTIC, THE REIT MANAGER AND RELEVANT AFFILIATES
DIRECTORS OF ATLANTIC
Members of the REIT Manager's Investment Committee are designated by an
asterisk.
C. RONALD BLANKENSHIP--47--Advisory Director of ATLANTIC since September
1996 and Director from April 1996 to September 1996; Chairman of PTR and PTR's
REIT manager and Managing Director of Security Capital Group since March 1991;
from June 1988 to March 1991, Regional Partner, Trammell Crow Residential,
Chicago, Illinois (multifamily real estate development and property
management); prior thereto, Executive Vice President and Chief Financial
Officer, The Mischer Corporation, Houston, Texas (multibusiness holding
company with investments primarily in real estate). While with Trammell Crow
Residential, Mr. Blankenship was on the Management Board for Trammell Crow
Residential Services, a property management company that managed approximately
90,000 multifamily units nationwide, and was Chief Executive Officer of
Trammell Crow Residential Services-North, which managed 10,000 multifamily
units in the Midwest and Northeast. In his various positions prior to his
affiliation with PTR's REIT manager, Mr. Blankenship supervised the
development of approximately 9,300 multifamily units. Mr. Blankenship
supervises the overall operations of PTR and PTR's REIT manager.
MANUEL A. GARCIA III--53--Director of ATLANTIC since December 1995; Chief
Executive Officer of Davgar Restaurants, Inc. since May 1969 where he is the
owner/operator of ten Burger King Restaurants in central Florida, five Pebbles
Restaurants, Harvey's Bistro and Manuel's on the 28th Restaurant in Orlando,
Florida; Director of Sprint/United Telephone, The Foundation for Orange County
Public Schools, Florida State University Seminole Boosters' Association, a
Director and Member of the Executive Committee of the Florida Citrus Sports
Association and National Director of Cities in Schools. Mr. Garcia is also on
the Board of the National Conference of Christians and Jews and an Honorary
Director of the Boys' Clubs and Boy Scouts of Central Florida. In addition,
Mr. Garcia is a former member of former President Bush's Drug Advisory
Council.
NED S. HOLMES--52--Director of ATLANTIC since May 1994; President and Chief
Executive Officer of Laing since May 1990; member of the Board of Directors of
Pall Mall Properties, Ltd., United Kingdom, and Chairman and President of
Parkway Investment/Texas Inc., a Houston-based real estate investment and
development company which specializes in residential (apartment and
townhouse), commercial (office and warehouse) and subdivision projects. Mr.
Holmes is also Senior Chairman of the Board of Heritage Bank and Chairman of
the Port Commission of the Port of Houston Authority.
*CONSTANCE B. MOORE--41--Co-Chairman, Chief Operating Officer and Director
of ATLANTIC and the REIT Manager since January 1996, where she has overall
responsibility for operations of ATLANTIC; from May 1994 to December 1995,
Managing Director of PTR, Director and Managing Director of PTR's REIT
manager; Senior Vice President of Security Capital Group from March 1993 to
April 1994; from January 1990 to December 1992, President and Director of
Kingswood Realty Advisors, Inc., investment advisor to ICM Property Investors,
a NYSE-listed REIT, and from March 1991 to December 1992, President and
Director of ICM Property Investors; from April 1989 to December 1989,
consultant to Bedford Properties, a real estate development and management
firm where Ms. Moore was responsible for acquiring a controlling interest in
ICM Property Investors and Kingswood for Bedford; from January 1983 to
November 1988, Senior Vice President and Director of Consolidated Capital
Equities Corporation, where she was in charge of portfolio and asset
management for Consolidated Capital's $3.0 billion diversified debt and equity
portfolio.
*JAMES C. POTTS--50--Co-Chairman and Chief Investment Officer of ATLANTIC
and the REIT Manager since January 1996 and Director of ATLANTIC and the REIT
Manager since October 1993, where he has overall responsibility for
investments of ATLANTIC; Chairman of ATLANTIC and the
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REIT Manager from May 1994 to December 1995; from December 1992 to April 1994,
Managing Director of PTR's REIT manager, where he supervised the asset
management of all of PTR's multifamily communities and oversaw the
relationship of PTR's REIT manager with SCG Realty Services Incorporated,
which provides on-site management for these communities; from April 1984 to
December 1992, Chief Executive Officer of four regional multifamily management
companies of Trammell Crow Residential Services, which collectively managed
approximately 52,000 units and employed 1,600 associates. Under Mr. Potts'
direction, Trammell Crow Residential Services supervised the lease-up of over
25,000 units, the assumption of management of over 15,000 acquired units, and
the increase in its third-party asset management business from 14,000 to
30,000 units. Mr. Potts was also on the Management Board of Trammell Crow
Residential Services (managing 90,000 units nationwide).
JOHN M. RICHMAN--69--Director of ATLANTIC since September 1996; Counsel to
the law firm of Wachtell, Lipton, Rosen & Katz since January 1, 1990; acting
Chairman and a director of R. R. Donnelley and Sons Company. Mr. Richman is a
member of the American, Illinois and New York Bar Associations. He was
Chairman and Chief Executive Officer of Kraft, Inc. from 1979 to 1989, prior
to which he was Senior Vice President--Administration and General Counsel of
that company. He is currently a director of BankAmerica Corporation and Bank
of America National Trust and Savings Association, USX Corporation and the
Evanston Hospital Corporation. He is also a Trustee of the Chicago Symphony
Orchestra, Northwestern University and The Johnson Foundation. In addition,
Mr. Richman is a Director of The Chicago Council on Foreign Relations and
Lyric Opera of Chicago and a member of The Business Council, The Commercial
Club of Chicago and the Economic Club of Chicago.
SENIOR OFFICERS OF ATLANTIC, THE REIT MANAGER AND RELEVANT AFFILIATES
CONSTANCE B. MOORE--See "--Directors of ATLANTIC" above.
JAMES C. POTTS--See "--Directors of ATLANTIC" above.
*J. LINDSAY FREEMAN--51--Senior Vice President of ATLANTIC and the REIT
Manager since May 1994 and Director of the REIT Manager since March 1995,
responsible for operations; from June 1980 to March 1994, Senior Vice
President and Operating Partner of Lincoln Property Company in Atlanta,
Georgia, where he was responsible for acquisitions, financing, construction
and management of multifamily communities within the Atlantic region and
oversaw operations of 16,000 multifamily units.
JEFFREY A. KLOPF--48--Senior Vice President and Secretary of ATLANTIC, the
REIT Manager and Security Capital Group since January 1996, where he provides
securities offerings and corporate acquisition services and oversees the
provisions of legal services for affiliates of Security Capital Group; from
January 1988 to December 1995, partner of Mayer, Brown & Platt where he
practiced corporate and securities law.
*BRADLEY C. MILLER--49--Senior Vice President of ATLANTIC and the REIT
Manager since June 1996 and Director of the REIT Manager since February 1997,
responsible for investments; from October 1979 to May 1996, Senior Vice
President and Operating Partner of Lincoln Property Company in Tampa, Florida,
where he was responsible for acquisitions, financing, construction and
management of multifamily communities within the Atlantic region and oversaw
the development of over 6,500 new multifamily units and operations of 11,000
multifamily units.
WILLIAM KELL--40--Vice President and Controller of ATLANTIC and the REIT
Manager since January 1996, where he supervises accounting and financial
reporting for ATLANTIC; from June 1991 to December 1995, Vice President and
Controller of PTR, where he had overall responsibility for
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<PAGE>
multifamily accounting and financial reporting; from 1987 to 1991, Vice
President and Treasurer, Bohannon Development Corporation, El Paso, Texas
(multifamily development); prior thereto, Manager with KPMG Peat Marwick in its
El Paso, Texas office.
OTHER OFFICERS
ARIEL AMIR--37--Vice President of Security Capital Group since June 1994;
from September 1985 to April 1994, an attorney with the law firm of Weil,
Gotshal & Manges, New York, New York, where he practiced securities and
corporate law. Mr. Amir provides securities offerings and corporate acquisition
services to ATLANTIC and affiliated entities.
RAYMOND D. BARROWS--34--Vice President of ATLANTIC and the REIT Manager since
May 1994, where he is a member of the development group; prior thereto, he
supervised the due diligence group; from January 1994 to December 1995, a
member of ATLANTIC's asset management group and prior thereto, a member of
PTR's asset management group; from May 1990 to August 1993, Portfolio Manager
with The First National Bank of Chicago where he was responsible for
underwriting and structuring transactions for both project and corporate
facilities.
LESLIE L. BIVINS--43--Vice President of ATLANTIC and the REIT Manager since
June 1996, where she is responsible for asset and property management for the
States of Georgia and Alabama and with SCG Realty Services since May 1994; from
January 1992 to May 1994, Senior Regional Manager of Laing Management Company
in Atlanta, Georgia, where she was responsible for management of over 2,000
units throughout the southeastern United States; from November 1987 through
December 1991, District Manager of Trammell Crow Residential, Atlanta, Georgia,
where she supervised the management of approximately 2,000 multifamily units in
the Atlanta market.
DARCY B. BORIS--34--Vice President of Security Capital Investment Research
since June 1995, and an associate from December 1994 to June 1995, where she
conducts strategic market analysis for ATLANTIC and affiliated companies; from
August 1993 to November 1994, Ms. Boris worked for Capital Markets Group; in
May 1993, she obtained her M.B.A. from the University of California at
Berkeley; from January 1987 to September 1991, she was with Marcus & Millichap
Incorporated, as Project Manager for Summerhill Development Company, the
multifamily development subsidiary of Marcus & Millichap Incorporated, where
she managed the development of multifamily housing, and prior thereto, she was
an analyst for its property investment subsidiary.
NEIL T. BROWN--40--Vice President of ATLANTIC and the REIT Manager since
April 1996, where he is responsible for directing the development of new
multifamily communities in the mid-Atlantic region; from July 1992 to December
1995, Regional Vice President/Regional Partner of JPI Development Partners,
Inc. where he was responsible for all development activity in Florida; prior
thereto, Partner of Trammell Crow Residential where he was responsible for
development of residential projects in Dade and Broward Counties, Florida.
MARK J. CHAPMAN--39--Vice President of Security Capital Investment Research
since November 1995, where he is the director of the group and conducts
strategic market analysis for ATLANTIC and affiliated companies; from March
1995 to November 1995, Vice President of PTR, with asset management
responsibilities in five major markets; from November 1994 to March 1995, Vice
President of Security Capital Pacific Incorporated; from July 1989 to November
1994, Vice President at Copley Real Estate Advisors, Inc., where he directed
asset management for Copley assets located from Connecticut to Virginia, valued
in excess of $1.5 billion; prior thereto, Director of Asset Management for
Liberty Real Estate, with responsibility for assets east of the Mississippi
River, including multifamily, office and retail properties.
ANDREW W. COLQUITT--30--Vice President of ATLANTIC and the REIT Manager since
December 1996, where he is responsible for land acquisition for all markets
north of Florida; prior thereto, he was
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<PAGE>
a member of the Development Group; from March 1994 to October 1995, Development
Associate for Trammell Crow Residential in Portland, Oregon, where he was
responsible for acquisition and development management for the Portland
development portfolio including 1,800 multifamily units; from June 1993 to
February 1994, Acquisitions Analyst for Prudential Real Estate Investors in San
Francisco, with emphasis on multifamily and office acquisitions; in May 1994,
he obtained his M.B.A. from the University of California at Berkeley; from June
1987 to June 1992, Cost Engineer and Project Engineer for Holder Construction
Company in Atlanta, Georgia, with emphasis on project management, estimating
and scheduling.
JOSEPH J. DOMINGUEZ--37--Vice President of ATLANTIC and the REIT Manager
since April 1996, where he is a member of the development group; prior thereto,
he was an associate in the development group; from November 1984 to August
1995, Vice President of Operations for The Casden Company, where he had overall
responsibility for the start-up and operations of a general contracting
subsidiary; prior thereto, Project Manager with Pacific Southwest Construction
Company where he oversaw the construction of various residential projects.
KATHY B. FARR--42--Vice President of ATLANTIC and the REIT Manager since June
1995, where she is responsible for multifamily dispositions; from January 1994
to April 1995, Vice President of Corporate Finance with Irvine Apartment
Communities, where she was responsible for all aspects of financing, including
the company's working capital line of credit and construction financings for
all new development activity; from 1984 to 1993 with the Irvine Company, most
recently as Senior Director-Project Finance, where she was responsible for
negotiating and closing construction and permanent financings on residential
and commercial properties. Ms. Farr is also a Vice President of PTR and PTR's
REIT manager where she is responsible for multifamily dispositions.
JOHN H. GARDNER, JR.--43--Senior Vice President of ATLANTIC and the REIT
Manager since September 1994, where he is responsible for overall multifamily
dispositions; Director of PTR's REIT manager since February 1995; Senior Vice
President of PTR and its REIT manager since September 1994, where he has
overall responsibility for multifamily dispositions; from December 1984 to
September 1994, Managing Director and Principal of Copley Real Estate Advisors
in Boston, where he had overall responsibility for the portfolio management
function for eight accounts valued at $7.5 billion.
W. SCOTT HARTMAN--32--Vice President of ATLANTIC and the REIT Manager since
September 1996, where he oversees financing activities, coordinates external
financial reporting and supervises acquisition due diligence compliance
activities; prior thereto, he was in the Management Development Program with
Security Capital Group working in six-month rotational assignments with
Managing Directors of Security Capital Group and its affiliates; from May 1993
to May 1994, Research Analyst with AMB Institutional Realty Advisors; in May
1994, Mr. Hartman obtained his J.D. from The University of California, Hastings
College of the Law and his M.B.A. from The University of California, Haas
School of Business.
GEORGE E. KELLY--44--Vice President of ATLANTIC and the REIT Manager since
December 1996, where he is responsible for planning, coordinating and executing
the production of development of multifamily communities; from May 1995 to
December 1996, Development Manager of ATLANTIC; from February 1995 to April
1995, Real Estate and Construction Management Consultant to property management
companies; from August 1992 to April 1995, Assistant Vice President of The
Travelers Realty Investment Company in Atlanta, Georgia.
MARY CAPERTON LESTER--42--Vice President of ATLANTIC and the REIT Manager
since July 1995, where she is responsible for asset and property managment in
the Mid-Atlantic region (except Georgia and Alabama) and with SCG Realty
Services since June 1994; prior thereto, she was a
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<PAGE>
member of the asset management group; from May 1993 to May 1994, she was with
Summit Management Company, where she specialized in new business development;
from April 1984 to May 1993, with Trammell Crow Residential Services, most
recently as a Vice President, where she was responsible for property
operations, marketing and new business development.
RONALD C. MAYHEW--54--Vice President of ATLANTIC and the REIT Manager since
July 1995, where he is a member of the development group; prior thereto, he was
an associate in the development group; from January 1984 to January 1995,
Director of Community Development and Senior Project Manager for The Casden
Company/Casden Properties, where he had sole responsibility for project
management and coordination of consultant teams; prior thereto, Project Manager
at Psomas & Associates, where he managed civil engineering and land planning.
JEFFREY G. MEGRUE--35--Vice President of ATLANTIC and the REIT Manager since
July 1995, where he is a member of the development group; prior thereto, he was
an associate in the development group; from March 1993 to May 1994, he was a
member of the acquisition group of PTR; from June 1988 to February 1993, Vice
President of Trammell Crow Residential Services North; prior thereto,
Development Associate for the New Jersey/Pennsylvania division of Trammell Crow
Residential.
KENT K. POULSEN--62--Vice President of ATLANTIC and the REIT Manager since
September 1995, where he is a member of the development group; prior thereto,
he was an associate in the development group; from April 1986 to May 1995,
Divisional Vice President for Construction of Trammell Crow Residential
Illinois Division; prior thereto, he held positions with responsibilities
ranging from design management through delivery of the final product. During
his career, Mr. Poulsen has overseen the construction of over 9,000 residential
units as well as several commercial projects.
GLENN T. RAND--36--Vice President of ATLANTIC and of the REIT Manager since
June 1996, where he is responsible for asset and property management for the
State of Florida, and with SCG Realty Services since May 1995; from August 1987
to April 1995, Vice President of Trammell Crow Residential and Avalon
Properties, where he was responsible for operations and third party management
solicitation in southern Florida and the northeastern United States.
JAMES C. ROOT--41--Vice President of ATLANTIC and the REIT Manager since
December 1996, where he is responsible for major capital expenditures; from
February 1994 to December 1996, Construction Services Manager, where he was
responsible for capital budgeting, major repairs and renovations of over 13,000
units located throughout the Southeast; from February 1993 to February 1994,
Construction Manager and Consultant in Chicago, Illinois, where he evaluated
potential acquisitions for Republic Management, a Houston-based, nationwide
property management company; from June 1992 to February 1993, Construction
Services Director with Genmar Realty Group, Inc. in Chicago, where he
established the Construction Department responsible for capital items for a
nationwide portfolio of communities.
ANN L. SCHUMACHER--38--Vice President of ATLANTIC and the REIT Manager since
July 1995 and a member of the accounting group since January 1994, where she is
responsible for accounting and financial reporting; from September 1988 to
October 1993, she was with Trammell Crow Company, most recently as Regional
Controller, where she managed the accounting department for the company's 26
million-square-foot industrial portfolio in Southern California and Arizona;
prior thereto, Senior Accountant for Price Waterhouse.
L. DOUGLAS SNIDER--42--Vice President of ATLANTIC and the REIT Manager since
July 1995, where he is responsible for directing the development of new
multifamily communities in the South Atlantic region; prior thereto, he was an
associate in the development group; from July 1993 to March
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<PAGE>
1995, Vice President of Operations with American Constructors, where he was
responsible for all design/build activities; from June 1990 to July 1993, Vice
President of Robert L. Mayer Corporation, where he was responsible for
residential and commercial development activities.
C. MELVIN WHITE--57--Vice President of ATLANTIC and the REIT Manager since
April 1996, where he has been a member of the development group since August
1995; from September 1991 to August 1995, Founder/Partner of Sherrill and
Associates, an interior specialty contracting firm; from 1985 to 1991,
Construction Manager of Laing where he was responsible for construction of
garden apartments, personal care retirement facilities and mid-rise office
space.
SHAREHOLDER RELATIONS AND CAPITAL MARKETS
The following persons provide shareholder relations and capital markets
services to ATLANTIC:
K. SCOTT CANON--34--President of Capital Markets Group since January 1996;
Vice President of Capital Markets Group from August 1993 to January 1996 and a
member of Capital Markets Group since March 1992, where he participates in
capital markets and institutional investor relations; from September 1991 to
March 1992, a personal account director for Chase Manhattan Investment
Services; from August 1987 to September 1991, a member of private client
services for Goldman, Sachs & Co. Mr. Canon is registered with the National
Association of Securities Dealers, Inc.
ROBERT H. FIPPINGER--53--Vice President of Capital Markets Group since June
1995 and with Security Capital Group since October 1994, where he directs
corporate communications services for affiliates of Security Capital Group;
from November 1991 to October 1994, with Grubb & Ellis, where he represented
corporate clients and provided tenant advisory services; from October 1988 to
January 1991, Executive Director of Techmart in Santa Clara, California; prior
thereto, Principal of Affiliated Capital Corp., a real estate development
company.
GERARD DE GUNZBURG--49--Senior Vice President of Capital Markets Group in its
New York office since January 1997 and Vice President from January 1993 to
December 1996, where he provides capital markets services for affiliates of
Security Capital Group; from June 1988 to December 1992, a consultant to
American and European companies; prior thereto, Director and Partner of Lincoln
Property Company, Europe, where he arranged real estate financing from 1976 to
1988. Mr. de Gunzburg is registered with the National Association of Securities
Dealers, Inc.
ALISON C. HEFELE--37--Vice President of Capital Markets Group since February
1994, where she provides capital markets services for affiliates of Security
Capital Group; from January 1990 to February 1994, Vice President with
Prudential Real Estate Investors (strategic planning and business development
for institutional real estate investment management services); from September
1985 to January 1990, a management consultant with McKinsey & Company; prior
thereto, a financial analyst with Morgan Stanley Realty Inc. Ms. Hefele is
registered with the National Association of Securities Dealers, Inc.
GARRET C. HOUSE--31--Vice President of Capital Markets Group since September
1996, where he provides capital markets services for affiliates of Security
Capital Group; from May 1994 to August 1996, he assisted with financing
activities for affiliates of Security Capital Group, and prior thereto, he was
a member of the Management Development Program from May 1993 to May 1994; in
May 1993, he obtained his M.B.A. from Harvard Graduate School of Business
Administration; from July 1989 to July 1991, Project Manager for Nansay
Corporation in Los Angeles, California; from July 1987 to July 1989, Analyst
with Merrill Lynch Capital Markets in New York. Mr. House is registered with
the National Association of Securities Dealers, Inc.
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<PAGE>
BRADFORD W. HOWE--32--Vice President of Capital Markets Group since January
1996, where he provides capital markets services for affiliates of Security
Capital Group and where he has been an associate since December 1994; from
March 1993 to December 1994, Assistant Vice President in the real estate
investment banking group of Kidder, Peabody & Co. Incorporated; from May 1992
to March 1993, real estate consultant at Coopers & Lybrand LLP. Mr. Howe is
registered with the National Association of Securities Dealers, Inc.
JAMES H. POLK, III--54--Trustee of PTR since 1976; Managing Director of
Capital Markets Group since August 1992, where he provides capital markets
services for affiliates of Security Capital Group. Mr. Polk has been affiliated
with PTR's REIT manager since March 1991; prior thereto, he was President and
Chief Executive Officer of PTR for sixteen years. He is registered with the
National Association of Securities Dealers, Inc. and is a past President and
Trustee of NAREIT.
DONALD E. SUTER--40--Senior Vice President of Capital Markets Group since
September 1996, where he provides capital markets services for affiliates of
Security Capital Group; from October 1995 to April 1996, President and Chief
Operating Officer for Cullinan Properties Limited in Peoria, Illinois: from
July 1984 to October 1995, Mr. Suter was with LaSalle Partners in Chicago,
Illinois, where his last position held was Senior Vice President, Corporate
Finance Group. Mr. Suter is registered with the National Association of
Securities Dealers, Inc.
CLASSIFICATION OF DIRECTORS
Pursuant to the terms of ATLANTIC's Charter, the Directors are divided into
three classes. One class (consisting of Mr. Potts) will hold office for a term
expiring at the annual meeting of shareholders to be held in 1997, a second
class (consisting of Messrs. Garcia and Holmes) will hold office for a term
expiring at the annual meeting of shareholders to be held in 1998 and a third
class (consisting of Ms. Moore and Mr. Richman) will hold office for a term
expiring at the annual meeting of shareholders to be held in 1999. Each
Director will hold office for the term to which he or she is elected and until
his or her successor is duly elected and qualifies. At each annual meeting of
shareholders of ATLANTIC, the successors to the class of Directors whose terms
expire at such meeting will be elected to hold office for a term expiring at
the annual meeting of shareholders held in the third year following the year of
their election. See "Certain Provisions of Maryland Law and of ATLANTIC's
Charter and Bylaws". Security Capital Group has a right to nominate up to three
Directors, depending upon its level of ownership of Shares, as described under
"Certain Relationships and Transactions--Security Capital Group Investor
Agreement". Ms. Moore and Mr. Potts are deemed to be the nominees of Security
Capital Group.
COMMITTEES OF THE BOARD
The Board has established an Audit Committee consisting of Messrs. Garcia and
Holmes. The Audit Committee is responsible for making recommendations
concerning the engagement of independent public accountants, reviewing the
plans and results of the audit engagement with the independent public
accountants, approving professional services provided by the independent public
accountants, reviewing the independence of the independent public accountants,
considering the range of audit and non-audit fees and reviewing the adequacy of
ATLANTIC's internal accounting controls.
The Board has established an Investment Committee consisting of Messrs.
Holmes and Potts. The Investment Committee is responsible for reviewing and
approving all asset acquisitions and other investment decisions between
meetings of the full Board. Any decisions made by the Investment Committee are
reported to the full Board at its next quarterly meeting. The Investment
Committee receives recommendations from the REIT Manager's investment
committee.
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COMPENSATION OF DIRECTORS
ATLANTIC pays an annual retainer of $14,000 to Directors who are not officers
or employees of ATLANTIC, the REIT Manager or its affiliates. These fees are
currently paid to Directors in cash (quarterly on each meeting date) and will
be paid to the Directors in Shares (quarterly on each dividend payment date)
based on the then-current market price of the Shares following the adoption by
ATLANTIC of a dividend reinvestment and share purchase plan as described below.
Such Directors also receive $1,000 for each meeting attended (other than
telephonic meetings), which is also paid in cash. Non-employee chairpersons of
Board committees (other than the Investment Committee) receive an additional
annual retainer of $1,000 payable in cash and non-employee members of the
Investment Committee receive an additional annual retainer of $4,000 payable in
cash. In the event that ATLANTIC adopts a dividend reinvestment and share
purchase plan, both the retainer and fees will be paid directly into such plan.
Officers of ATLANTIC, the REIT Manager or its affiliates who are Directors are
not paid any Director fees.
In addition, pursuant to the Outside Directors Plan, each Director who is not
an employee of ATLANTIC, the REIT Manager or its affiliates will be entitled to
receive, on the date of each annual meeting of shareholders, an option to
purchase 1,000 Shares at a price per Share equal to the closing price of one
Share on such annual meeting date. See "--Outside Directors Plan".
Directors are reimbursed for any out-of-town travel expenses incurred in
connection with attendance at Board meetings. Ms. Moore and Mr. Potts are not
separately compensated for serving as Directors.
OUTSIDE DIRECTORS PLAN
On March 12, 1996, the Board approved the Security Capital Atlantic
Incorporated Share Option Plan for Outside Directors (the "Outside Directors
Plan"). The Outside Directors Plan is incorporated by reference as an exhibit
to the Registration Statement of which this Prospectus forms a part and the
following summary of the material terms of the Outside Directors Plan is
qualified in its entirety by reference to the actual terms thereof.
The purpose of the Outside Directors Plan is to enable the Directors of
ATLANTIC who are not employees or officers of ATLANTIC or Security Capital
Group or any of its affiliates ("Outside Directors") to increase their
ownership of ATLANTIC and thereby further the identity of their interests with
those of ATLANTIC's other shareholders.
To achieve the foregoing objective, the Outside Directors Plan provides for
grants of options ("Options") to purchase Shares. The Secretary of ATLANTIC
(the "Administrator") administers the Outside Directors Plan with a view to
ATLANTIC's best interests and the Outside Directors Plan's objectives. The
Administrator has authority to adopt administrative guidelines, rules and
regulations relating to the Outside Directors Plan and to make all
determinations necessary or advisable for the implementation and administration
of the Outside Directors Plan.
The number of Shares reserved for issuance upon exercise of Options granted
under the Outside Directors Plan is 100,000. Shares that are forfeited will
again become available for awards under the Outside Directors Plan. The Shares
subject to the Outside Directors Plan may be currently authorized but unissued
Shares or treasury Shares held or subsequently purchased by ATLANTIC, including
Shares purchased in the open market or in private transactions.
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In the event of changes in the outstanding Shares by reason of any increase
or decrease in the number of issued Shares resulting from a subdivision or
consolidation of Shares or the payment of a dividend in Shares, or any other
increase or decrease in the number of Shares, or merger or consolidation, or
other similar event, the Administrator shall make appropriate adjustments to
the aggregate number of Shares available under the Outside Directors Plan.
On the date of each annual meeting of shareholders of ATLANTIC for the years
1997 through and including 2006, each Outside Director serving on such date
(after the election of Directors in the meeting) will be granted an Option to
purchase 1,000 Shares at an exercise price equal to the fair market value of
the Shares on such date. Also, each Outside Director serving at the time of
ATLANTIC's initial public offering was granted an Option to purchase 1,000
Shares at the initial public offering price of $24.00 per Share.
Each Option will be immediately exercisable, but must be exercised before the
earliest of the following events to occur: the date that is three months after
the date that the optionee's position as a Director terminates, the date that
is twelve months after the date the Director becomes disabled or dies or the
date that is five years after the date the Option is granted.
If fifty percent or more of the outstanding Shares are acquired by a cash
tender offer or exchange offer, each optionee shall have the right to exercise
his or her Option in full or surrender his or her outstanding Option in
exchange for a cash payment from ATLANTIC in an amount equal to the excess of
the offer price or value over the Option price. If ATLANTIC dissolves, each
optionee shall have the right to exercise his or her Option in full before the
date of the dissolution.
The Outside Directors Plan may be amended or terminated at any time by the
Board. The provisions relating to the amount, price and timing of grants under
the Outside Directors Plan may not be amended more than once every six months,
other than to comport with changes in the Code or the rules thereunder, unless
such amendment would not affect the exemption provided by Rule 16b-3
promulgated under Section 16 of the Exchange Act.
LIABILITY LIMITATION AND INDEMNIFICATION
Maryland law permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. ATLANTIC's Charter
contains such a provision which eliminates such liability to the maximum extent
permitted by Maryland law. ATLANTIC's officers and Directors are and will be
indemnified under ATLANTIC's Charter against certain liabilities. ATLANTIC's
Charter provides that ATLANTIC will, to the maximum extent permitted by
Maryland law in effect from time to time, indemnify and pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
individual who is a present or former Director or officer of ATLANTIC or (b)
any individual who, while a Director of ATLANTIC and at the request of
ATLANTIC, serves or has served another corporation, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a director, officer,
partner or trustee of such corporation, partnership, joint venture, employee
benefit plan or other enterprise. ATLANTIC has the power, with the approval of
the Board, to provide such indemnification and advancement of expenses to a
person who served a predecessor of ATLANTIC in any of the capacities described
in (a) or (b) above and to any employee or agent of ATLANTIC or its
predecessors.
Maryland law requires a corporation (unless its charter provides otherwise,
which ATLANTIC's Charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding
to which he or she is made a party by reason of his or
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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 ATLANTIC to advance
reasonable expenses to a director or officer upon ATLANTIC's receipt of (a) a
written affirmation by the Director or officer of his or her good faith belief
that he or she has met the standard of conduct necessary for indemnification by
ATLANTIC as authorized by ATLANTIC's Bylaws and (b) a written statement by or
on his or her behalf to repay the amount paid or reimbursed by ATLANTIC if it
shall ultimately be determined that the standard of conduct was not met.
Additionally, ATLANTIC has entered into indemnity agreements with each of its
officers and Directors which provide for reimbursement of all expenses and
liabilities of such officer or Director, arising out of any lawsuit or claim
against such officer or Director due to the fact that he or she was or is
serving as an officer or Director, except for such liabilities and expenses (a)
the payment of which is judicially determined to be unlawful, (b) relating to
claims under Section 16(b) of the Exchange Act or (c) relating to judicially
determined criminal violations.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to Directors,
officers or persons controlling ATLANTIC pursuant to the foregoing provisions,
ATLANTIC has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
COMMUNITIES
PORTFOLIO COMPOSITION
The following table indicates the composition of communities owned by
ATLANTIC at January 31, 1997:
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF ASSETS BASED
COMMUNITIES ON COST(1)
----------- -------------
<S> <C> <C>
Moderate Income....................................... 47 48.3%
Middle Income......................................... 35 41.9
Upper Middle Income................................... 7 9.8
--- ----
Total............................................... 89 100%
=== ====
</TABLE>
- --------
(1) For operating communities, represents cost, including budgeted renovations.
For communities under construction and in planning, represents total
budgeted development cost, which includes the cost of land, fees, permits,
payments to contractors, architectural and engineering fees and interest
and property taxes to be capitalized during the construction period. Does
not include land held for future development, which is less than 1% of
assets, based on cost.
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GEOGRAPHIC DISTRIBUTION
In order to effectively manage its multifamily communities, ATLANTIC has
organized its operations with a regional focus (Mid-Atlantic and South
Atlantic). ATLANTIC's multifamily communities are located in 16 metropolitan
areas in seven states and the District of Columbia. The table below
demonstrates the geographic distribution of ATLANTIC's portfolio (operating
communities and total communities, which includes operating communities and
owned communities under construction and in planning) at January 31, 1997:
<TABLE>
<CAPTION>
OPERATING COMMUNITIES TOTAL COMMUNITIES
------------------------- -------------------------
PERCENTAGE OF PERCENTAGE OF
NUMBER OF ASSETS BASED NUMBER OF ASSETS BASED
COMMUNITIES ON COST(1) COMMUNITIES ON COST(1)
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
MID-ATLANTIC:
Charlotte, North Carolina.. 4 6% 5 5%
Greenville, South
Carolina.................. 1 1 1 1
Memphis, Tennessee......... 4 4 4 3
Nashville, Tennessee....... 2 4 3 4
Raleigh, North Carolina.... 5 7 7 8
Richmond, Virginia......... 2 3 5 7
Washington, D.C. .......... 4 7 6 10
--- --- --- ---
Total Mid-Atlantic....... 22 32% 31 38%
--- --- --- ---
SOUTH ATLANTIC:
Atlanta, Georgia........... 21 35% 24 29%
Birmingham, Alabama........ 4 5 5 5
Ft. Lauderdale/West Palm
Beach, Florida............ 7 10 9 10
Ft. Myers, Florida......... 1 1 1 1
Jacksonville, Florida...... 2 3 6 7
Miami, Florida............. 1 1 1 1
Orlando, Florida........... 5 4 5 3
Sarasota, Florida.......... 1 3 1 2
Tampa, Florida............. 6 6 6 4
--- --- --- ---
Total South Atlantic..... 48 68% 58 62%
--- --- --- ---
Total.................. 70 100% 89 100%
=== === === ===
</TABLE>
- --------
(1) For operating communities, represents cost, including budgeted renovations.
For communities under construction and in planning, represents total
budgeted development cost, which includes the cost of land, fees, permits,
payments to contractors, architectural and engineering fees and interest
and property taxes to be capitalized during the construction period. Does
not include land held for future development, which is less than 1% of
assets, based on cost.
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<PAGE>
COMMUNITIES
The information in the following table is as of December 31, 1996 for
communities owned at December 31, 1996, except total expected investment which
is as of January 31, 1997, and as of January 31, 1997 for communities acquired
since December 31, 1996 (dollar amounts in thousands). Additional information
on ATLANTIC's communities is contained in Schedule III, Real Estate and
Depreciation, in ATLANTIC's financial statements. No individual community, or
group of communities operated as a single business unit, amounts to 10% or
more of ATLANTIC's pro forma total assets at December 31, 1996 nor does the
gross revenue from any such communities amount to 10% or more of ATLANTIC's
pro forma gross revenues for the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT INVESTMENT(2)
------------ ---------- ----- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
COMMUNITIES OWNED AS OF
DECEMBER 31, 1996:
OPERATING
COMMUNITIES(3):
MID-ATLANTIC:
Charlotte, North
Carolina:
STABILIZED:
Cameron Oaks.......... 1994 91.7% 264 $ 15,361 $ 15,441
Waterford Hills*...... 1995 86.3 270 12,617 14,068(4)
PRE-STABILIZED:
Cameron at Hickory
Grove(5)(6).......... 1996 97.5 202 8,392 8,456
Waterford Square I*... 1996 (7) 408 19,653 21,051(4)
---- ----- ---------- ----------
Subtotals/Average... 91.3 1,144 56,023 59,016
---- ----- ---------- ----------
Greenville, South
Carolina:
PRE-STABILIZED:
Cameron Court(6)...... 1996 94.9 234 11,060 11,099
Memphis, Tennessee:
STABILIZED:
Cameron at Kirby
Parkway.............. 1994 95.7 324 10,174 10,256
Stonegate............. 1994 90.4 208 7,076 7,263
PRE-STABILIZED:
Cameron Century
Center............... 1996 92.1 420 15,928 16,032
Country Oaks(8)....... 1996 96.5 200 8,484 8,696
---- ----- ---------- ----------
Subtotals/Average... 93.6 1,152 41,662 42,247
---- ----- ---------- ----------
Nashville, Tennessee:
STABILIZED:
Arbor Creek(9)........ 1994 94.2 360 18,183 18,289
Enclave at Brentwood.. 1995 94.5 380 16,126 16,259
---- ----- ---------- ----------
Subtotals/Average... 94.4 740 34,309 34,548
---- ----- ---------- ----------
Raleigh, North
Carolina:
STABILIZED:
Cameron Square........ 1994 95.9 268 15,982 16,066
Waterford Point*...... 1996 98.5 336 15,839 17,549(4)
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT INVESTMENT(2)
------------ ---------- ----- ---------- -------------
<S> <C> <C> <C> <C> <C>
PRE-STABILIZED:
Cameron Lake........... 1996 91.3% 196 $ 9,293 $ 9,773
Cameron Ridge(10)...... 1996 98.7 228 10,131 10,424
Emerald Forest......... 1996 85.6 320 14,680 14,705
---- ----- ---------- ----------
Subtotals/Average.... 93.9 1,348 65,925 68,517
---- ----- ---------- ----------
Richmond, Virginia:
STABILIZED:
Camden at Wellesley.... 1994 92.9 340 19,510 19,564
Potomac Hunt(11)....... 1994 94.1 220 10,119 10,217
---- ----- ---------- ----------
Subtotals/Average.... 93.4 560 29,629 29,781
---- ----- ---------- ----------
Washington, D.C.:
STABILIZED:
Camden at Kendall
Ridge................. 1994 93.5 184 11,701 11,801
Cameron Saybrooke...... 1994 96.4 252 18,966 19,035
PRE-STABILIZED:
Sheffield Forest(6).... 1995 96.5 256 15,546 15,645
West Springfield
Terrace............... 1996 92.2 244 16,210 16,258
---- ----- ---------- ----------
Subtotals/Average.... 94.8 936 62,423 62,739
---- ----- ---------- ----------
Subtotals/Average--
Mid-Atlantic...... 93.7 6,114 301,031 307,947
---- ----- ---------- ----------
SOUTH ATLANTIC:
Atlanta, Georgia:
STABILIZED:
Azalea Park(12)(13).... 1995 92.6 447 25,768 25,971
Cameron Ashford........ 1994 91.5 365 24,912 24,963
Cameron
Briarcliff(11)........ 1994 91.4 220 14,249 14,323
Cameron Brook(12)(14).. 1994 95.5 440 22,428 22,528
Cameron Creek I........ 1994 91.8 404 24,544 24,637
Cameron Crest.......... 1994 95.5 377 23,824 23,935
Cameron Dunwoody....... 1994 84.0 238 16,852 16,955
Clairmont
Crest(12)(15)......... 1994 95.8 213 11,020 11,073
The Greens(12)(16)..... 1994 95.1 304 13,740 13,833
Lake Ridge............. 1993 95.5 268 17,372 17,458
Morgan's Landing....... 1993 93.9 165 8,671 8,696
Old Salem.............. 1994 98.8 172 8,116 8,244
Trolley Square......... 1994 92.2 270 13,906 13,988
Vinings Landing........ 1994 97.0 200 9,979 10,071
WintersCreek(12)(17)... 1995 94.0 200 7,787 7,923
Woodlands.............. 1995 89.6 644 25,741 26,217
PRE-STABILIZED:
Balmoral Village....... 1996 90.1 312 19,215 19,476
Cameron Forest(6)...... 1995 94.1 152 6,244 6,383
Cameron Place(6)....... 1995 93.9 212 8,075 8,173
Cameron Pointe(6)...... 1996 93.9 214 14,891 15,035
Cameron
Station(6)(12)(18).... 1995 95.4 348 16,080 16,242
---- ----- ---------- ----------
Subtotals/Average.... 93.1 6,165 333,414 336,124
---- ----- ---------- ----------
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT INVESTMENT(2)
------------ ---------- ----- ---------- -------------
<S> <C> <C> <C> <C> <C>
Birmingham, Alabama:
STABILIZED:
Cameron on the
Cahaba(19)........... 1995 96.0% 400 $ 18,925 $ 19,032
Colony Woods I........ 1994 90.3 216 10,686 10,698
Colony Woods II*...... 1995 93.9 198 10,515 11,405(4)
Morning Sun Villas.... 1994 92.4 184 9,301 9,435
----- ----- ---------- ----------
Subtotals/Average... 93.7 998 49,427 50,570
----- ----- ---------- ----------
Ft. Lauderdale/W. Palm Beach,
Florida:
STABILIZED:
Cypress Lakes......... 1995 98.3 176 8,510 8,774
Parrot's Landing
I(12)(20)............ 1994 95.6 408 18,651 18,843
Spencer Run(11)....... 1994 93.2 384 19,471 19,797
Sun Pointe
Cove(12)(21)......... 1994 94.1 221 9,369 9,492
Trails at Meadow
Lakes................ 1995 99.5 189 8,840 8,968
PRE-STABILIZED:
Park Place at Turtle
Run.................. 1996 95.1 350 15,714 15,828
The Pointe at Bayberry
Lake................. 1996 94.8 308 17,021 17,238
----- ----- ---------- ----------
Subtotals/Average... 95.4 2,036 97,576 98,940
----- ----- ---------- ----------
Ft. Myers, Florida:
STABILIZED:
Forestwood(12)(22).... 1994 96.5 397 13,781 13,994
Jacksonville, Florida:
STABILIZED:
Bay Club.............. 1994 93.2 220 12,222 12,319
PRE-STABILIZED:
Cameron Lakes I*...... 1996 (7) 302 16,117 17,777(4)
----- ----- ---------- ----------
Subtotals/Average... 93.2 522 28,339 30,096
----- ----- ---------- ----------
Miami, Florida:
STABILIZED:
Park Hill(23)......... 1994 93.9 264 8,842 8,885
Orlando, Florida:
STABILIZED:
Camden Springs........ 1994 95.3 340 17,357 17,552
Cameron Villas I(24).. 1994 95.8 192 8,013 8,118
Cameron Villas
II(11)............... 1995 100.0 42 1,773 1,849
Kingston Village...... 1995 93.3 120 6,013 6,211
The Wellington I(11).. 1994 96.9 192 8,002 8,078
----- ----- ---------- ----------
Subtotals/Average... 95.7 886 41,158 41,808
----- ----- ---------- ----------
Sarasota, Florida:
STABILIZED:
Camden at Palmer
Ranch................ 1994 98.4 432 24,198 24,435
Tampa, Florida:
STABILIZED:
Camden Downs.......... 1994 96.4 250 12,592 12,667
Cameron Lakes......... 1995 96.1 207 8,651 8,700
Country Place
Village(25).......... 1995 98.4 188 8,322 8,572
Foxbridge on the
Bay(12)(26).......... 1994 98.3 358 10,955 11,007
Summer Chase(11)...... 1994 99.0 96 3,772 3,791
PRE-STABILIZED:
Cameron Bayshore...... 1996 98.5 328 10,712 10,742
----- ----- ---------- ----------
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT INVESTMENT(2)
------------ ---------- ------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Subtotals/Average...... 97.8% 1,427 $ 55,004 $ 55,479
---- ------ ---------- ----------
Subtotals/Average--
South Atlantic...... 94.5 13,127 651,739 660,331
---- ------ ---------- ----------
Subtotals/Average--
Operating
Communities....... 94.2 19,241 952,770 968,278
---- ------ ---------- ----------
COMMUNITIES UNDER
CONSTRUCTION:
MID-ATLANTIC:
Charlotte, North Carolina:
Waterford Square II*..... 1998 N/A 286 6,592 17,181
Nashville, Tennessee:
Cameron Overlook*........ 1998 N/A 452 7,338 23,848
Raleigh, North Carolina:
Cameron Brooke*.......... 1997 N/A 228 10,070 12,885
Waterford Forest*(27).... 1997 N/A 384 20,349 21,574
---- ------ ---------- ----------
Subtotals.............. N/A 612 30,419 34,459
---- ------ ---------- ----------
Richmond, Virginia:
Cameron at Wyndham*...... 1998 N/A 312 4,404 20,048
Cameron Crossing I &
II*..................... 1998 N/A 424 11,202 26,622
---- ------ ---------- ----------
Subtotals.............. N/A 736 15,606 46,670
---- ------ ---------- ----------
Washington, D.C.:
Cameron at
Milestone*(27).......... 1997 N/A 444 30,344 30,418
Woodway at Trinity
Center*(27)............. 1997 N/A 504 35,583 37,836
---- ------ ---------- ----------
Subtotals.............. N/A 948 65,927 68,254
---- ------ ---------- ----------
Subtotals--Mid-
Atlantic............ N/A 3,034 125,882 190,412
---- ------ ---------- ----------
SOUTH ATLANTIC:
Atlanta, Georgia:
Cameron Creek II*(27).... 1997 N/A 260 19,332 19,445
Birmingham, Alabama:
Cameron at the Summit
I*...................... 1997 N/A 372 8,483 21,645
Ft. Lauderdale/W. Palm
Beach, Florida:
Parrot's Landing II*..... 1997 N/A 152 8,070 9,648
Jacksonville, Florida:
Cameron Deerwood*(27).... 1997 N/A 336 14,504 17,598
Cameron Lakes II*........ 1998 N/A 253 2,869 14,967
Cameron Timberlin Parc
I*(27).................. 1997 N/A 320 15,447 16,885
---- ------ ---------- ----------
Subtotals/Average...... N/A 909 32,820 49,450
---- ------ ---------- ----------
Subtotals--South
Atlantic............ N/A 1,693 68,705 100,188
---- ------ ---------- ----------
Subtotals--
Communities
Under
Construction...... N/A 4,727 194,587 290,600
---- ------ ---------- ----------
COMMUNITIES IN PLANNING AND OWNED:
SOUTH ATLANTIC:
Atlanta, Georgia:
Cameron Landing*......... 1998 N/A 368 2,020 21,630
Ft. Lauderdale/W. Palm
Beach, Florida:
Cameron Waterway*........ 1998 N/A 300 4,386 21,280
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT INVESTMENT(2)
------------ ---------- ------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jacksonville, Florida:
Cameron Timberlin Parc
II*...................... 1999 N/A 200 $ 1,389 $ 10,500
----- ------ ---------- ----------
Subtotals--Communities
in Planning and Owned.. N/A 868 7,795 53,410
----- ------ ---------- ----------
LAND HELD FOR FUTURE
MULTIFAMILY DEVELOPMENT.... N/A -- 2,083 --
----- ------ ---------- ----------
Total Communities
Owned
at December 31, 1996.. 94.2% 24,836 $1,157,235 $1,312,288
----- ------ ---------- ----------
COMMUNITIES ACQUIRED
THROUGH JANUARY 31, 1997:
COMMUNITIES IN PLANNING:
MID-ATLANTIC:
Richmond, Virginia:
Cameron at Virginia
Center*.................. N/A 264 -- $ 15,983
SOUTH ATLANTIC:
Atlanta, Georgia:
Cameron at Northpoint*.... N/A 264 -- 19,821
----- ------ ---------- ----------
Subtotals............... N/A 528 -- 35,804
----- ------ ---------- ----------
Total Communities
Owned at January 31,
1997................. 94.2% 25,364 $1,157,235 $1,348,092
===== ====== ========== ==========
</TABLE>
Additionally, at January 31, 1997, ATLANTIC had land in planning and under
control for the development of 2,040 units with a total budgeted development
cost of $127.4 million. The term "in planning" means that construction is
anticipated to commence within 12 months. The term "under control" means that
ATLANTIC has an exclusive right (through contingent contract or letter of
intent) during a contractually agreed-upon time period to acquire land for
future development of multifamily communities, subject to removal of
contingencies during the due diligence process, but does not currently own the
land. There can be no assurance that such land will be acquired. The unit and
total budgeted development cost information for these communities is based on
management's best estimates of the cost upon completion of these communities.
- --------
* Community developed by ATLANTIC.
(1) With respect to communities under construction or communities in planning
and owned, represents expected completion date.
(2) For operating communities, represents cost, including budgeted
renovations. For communities under construction and in planning,
represents total budgeted development cost, which includes the cost of
land, fees, permits, payments to contractors, architectural and
engineering fees and interest and property taxes to be capitalized during
the construction period. The term "in planning" means that construction
is anticipated to commence within 12 months.
(3) The term "stabilized" means that renovation, repositioning, new
management and new marketing programs (or development and marketing in
the case of newly developed communities) have been completed and in
effect for a sufficient period of time (but in no event longer than 12
months, except in cases of major rehabilitation) to achieve 93% occupancy
at market rents. Prior to being "stabilized", a community is considered
"pre-stabilized". See "Business--ATLANTIC's Operating System--
Acquisitions".
(4) The total expected investment cost of these developed communities
includes potential incentive payments to third-party developer/managers
that had not been earned by them at December 31, 1996.
57
<PAGE>
(5) Cameron at Hickory Grove Apartments are subject to a deed of trust
securing a mortgage note of $6.0 million.
(6) Community was stabilized in January 1997.
(7) Community is in lease-up, therefore, the percentage leased is not given
because it is not representative of a fully operational community.
(8) Country Oaks Apartments are subject to a deed of trust securing a
mortgage note of $5.9 million.
(9) The land associated with the Arbor Creek Apartments is leased by ATLANTIC
through the year 2058 under an agreement with the Metropolitan Nashville
Airport Authority.
(10) Cameron Ridge Apartments are subject to a deed of trust securing a
mortgage note of $5.9 million.
(11) Community is pledged as additional security under ATLANTIC's 30-year
credit enhancement agreement with FNMA. For a discussion of the FNMA
credit enhancement agreement. See "Business--ATLANTIC's Operating
System--Capital Markets/Finance/Legal".
(12) The tax-exempt bond issue associated with this community is included in
ATLANTIC's credit enhancement agreement with FNMA.
(13) Azalea Park Apartments are subject to a deed of trust securing a mortgage
note related to $15.5 million of tax-exempt bonds.
(14) Cameron Brook Apartments are subject to a deed of trust securing a
mortgage note related to $19.5 million of tax-exempt bonds.
(15) Clairmont Crest Apartments are subject to a deed of trust securing a
mortgage note related to $11.6 million of tax-exempt bonds.
(16) The Greens Apartments are subject to a deed of trust securing a mortgage
note related to $10.4 million of tax-exempt bonds.
(17) WintersCreek Apartments are subject to a deed of trust securing a
mortgage note related to $5.0 million of tax-exempt bonds.
(18) Cameron Station Apartments are subject to a deed of trust securing a
mortgage note related to $14.5 million of tax-exempt bonds.
(19) Cameron on the Cahaba Phase II Apartments, which consist of 250 units,
are subject to a deed of trust securing a mortgage note of $8.0 million.
(20) Parrot's Landing Phase I Apartments are subject to a deed of trust
securing a mortgage note related to $15.8 million of tax-exempt bonds.
(21) Sun Pointe Cove Apartments are subject to a deed of trust securing a
mortgage note related to $8.5 million of tax-exempt bonds.
(22) Forestwood Apartments are subject to a deed of trust securing a mortgage
note related to $11.5 million of tax-exempt bonds.
(23) Park Hill Apartments were being held for sale at December 31, 1996.
(24) Cameron Villas I Apartments are subject to a deed of trust securing a
mortgage note of $6.3 million.
(25) Country Place Village Phase I Apartments, which consist of 88 units, are
subject to a deed of trust securing a mortgage note of $2.0 million.
(26) Foxbridge on the Bay Apartments are subject to a deed of trust securing a
mortgage note related to $10.4 million of tax-exempt bonds.
(27) Community was leasing completed units at January 31, 1997.
58
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth the Pro Forma Financial Results as of and for
the year ended December 31, 1996, and the Historical Financial Results as of
and for the years ended December 31, 1996, 1995 and 1994 and the period from
inception (October 26, 1993) through December 31, 1993. Such selected
financial information is qualified in its entirety by, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes thereto
included in this Prospectus. The Pro Forma Financial Results are not
necessarily indicative of what the actual financial position and results of
operations of ATLANTIC would have been as of and for the periods indicated,
nor do they purport to represent the financial position and results of
operations for future periods. Unless otherwise indicated, all Share and per
Share amounts have been adjusted to give effect to ATLANTIC's one-for-two
reverse Share split, which was effective on September 10, 1996.
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
------------ ------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------------
1996 1996 1995 1994 1993(1)
------------ ---------- --------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
Rental income.......... $ 148,361 $ 137,729 $ 103,634 $ 55,071 $ 156
Property management
fees paid to
affiliate............. 4,612 4,208 3,475 1,536 --
Property management
fees paid to third
parties............... 971 971 591 661 --
REIT management fee
paid to affiliate..... 11,808 10,445 6,923 3,671 12
General and
administrative
expenses.............. 641 673 646 266 1
Earnings before
extraordinary item.... 38,705 42,569 19,639 9,926 38
Extraordinary item--
loss on early
extinguishment of
debt.................. -- 3,940 -- -- --
Net earnings........... 38,705 38,629 19,639 9,926 38
Net earnings per Share
before extraordinary
item.................. 1.02 1.33 0.89 0.81 0.13
Net earnings per
Share................. $ 1.02 1.21 0.89 0.81 $ 0.13
Cash distributions
declared and paid..... N/A 53,064 35,119 14,648 --
Cash distributions
declared and paid per
Share................. N/A $ 1.65 $ 1.60 $ 1.20 --
Weighted average
Shares outstanding.... 37,977 32,028 21,944 12,227 286
<CAPTION>
PRO FORMA HISTORICAL
------------ ------------------------------------------
DECEMBER 31,
DECEMBER 31, ------------------------------------------
1996 1996 1995 1994 1993
------------ ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
FINANCIAL POSITION:
Real estate owned, at
cost.................. $1,157,235 $1,157,235 $ 888,928 $ 631,260 $ 31,005
Total assets........... 1,135,065 1,135,065 885,824 637,846 31,850
Line of credit(2)...... 134,250 228,000 190,000 153,000 --
Mortgages payable...... 155,790 155,790 118,524 107,347 --
Total liabilities...... 342,673 436,423 328,886 271,216 178
Total shareholders'
equity................ $ 792,392 $ 698,642 $ 556,938 $ 366,630 $ 31,672
Number of Shares
outstanding........... 41,892 37,892 27,763 18,567 1,582
<CAPTION>
PRO FORMA HISTORICAL
------------ ------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------------
1996 1996 1995 1994 1993(1)
------------ ---------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Net earnings........... $ 38,705 $ 38,629 $ 19,639 $ 9,926 $ 38
Add (Deduct):
Depreciation......... 22,534 20,824 15,925 8,770 28
Gain (loss) on
disposition of real
estate.............. -- (6,732) -- -- --
Gain on sale of
Homestead Assets.... -- (2,839) -- -- --
Provision for
possible loss on
investments......... 2,500 2,500 -- -- --
Extraordinary item--
loss on early
extinguishment of
debt................ -- 3,940 -- -- --
---------- ---------- --------- --------- --------
Funds from
Operations(3)......... $ 63,739 $ 56,322 $ 35,564 $ 18,696 $ 66
---------- ---------- --------- --------- --------
Net cash provided
(used) by operating
activities............ $ 61,773 $ 54,356 $ 39,732 $ 23,564 $ (492)
Net cash used by
investing activities.. (287,418) (287,418) (235,149) (390,077) (31,005)
Net cash provided by
financing activities.. 230,907 230,907 195,649 372,638 31,634
</TABLE>
- -------
(1) For the period from inception (October 26, 1993) to December 31, 1993.
(2) At February 19, 1997, ATLANTIC had $275.5 million of outstanding
borrowings under its $350 million unsecured line of credit and such
outstanding borrowings are expected to be approximately $295.0 million at
the closing of the Offering.
(3) ATLANTIC believes that funds from operations is helpful in understanding a
property portfolio in that such calculation reflects cash flow from
operating activities and the properties' ability to support interest
payments. For an explanation of funds from operations, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources". Funds from operations should not be
considered as an alternative to net income or any other GAAP measurement
of performance as an indicator of ATLANTIC's operating performance or as
an alternative to cash flows from operating, investing or financing
activities as a measure of liquidity. On January 1, 1996, ATLANTIC adopted
NAREIT's new definition of funds from operations. Under this new
definition, loan cost amortization is not added back to net earnings in
determining funds from operations. For comparability, funds from
operations for the periods prior to January 1, 1996 give effect to this
new definition. The funds from operations measure presented by ATLANTIC
may not be comparable to similarly titled measures of other REITs.
59
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with ATLANTIC's
financial statements and the notes thereto included in this Prospectus.
The statements contained in this discussion and elsewhere in this Prospectus
that are not historical facts are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934.These forward-looking statements are based on
current expectations, estimates and projections about the industry and markets
in which ATLANTIC operates, management's beliefs and assumptions made by
management. Words such as "expects", "anticipates", "intends", "plans",
"believes", "seeks", "estimates", variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions which are difficult to predict. Therefore,
actual outcomes and results may differ materially from what is expressed or
forecasted in such forward-looking statements. ATLANTIC undertakes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise. ATLANTIC's operating
results depend primarily on income from multifamily communities, which is
substantially influenced by (i) the demand for and supply of multifamily units
in ATLANTIC's primary target market and submarkets, (ii) operating expense
levels, (iii) the effectiveness of property-level operations and (iv) the pace
and price at which ATLANTIC can acquire and develop additional multifamily
communities. Capital and credit market conditions which affect ATLANTIC's cost
of capital also influence operating results.
OVERVIEW
Since its inception on October 26, 1993 and through December 31, 1996,
ATLANTIC has amassed a portfolio of 24,836 multifamily units with a total
expected investment cost of $1.30 billion located in the southeastern United
States. Additionally, at December 31, 1996, ATLANTIC had land in planning and
under control for the development of 2,228 units with a total budgeted
development cost of $139.3 million. ATLANTIC's investment in real estate has
been financed through both debt and equity. From inception through December
31, 1996, ATLANTIC has raised approximately $806.2 million in net equity,
primarily through private and public sales of Shares. Additionally, ATLANTIC
had long-term mortgage debt at December 31, 1996 of approximately $155.8
million which is secured by certain of the communities acquired. ATLANTIC's
$350 million unsecured line of credit provided the remaining investment
capital.
The following table summarizes ATLANTIC's multifamily investment activity
for 1996, 1995 and 1994 (dollar amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
OPERATING COMMUNITIES:
Communities.......................................... 70 58 43
Units................................................ 19,241 15,823 11,990
Total investment(1).................................. $959,860 $783,448 $600,880
Cost per unit........................................ $49.9 $49.5 $50.1
DEVELOPMENT COMMUNITIES:
Starts During Year:
Communities........................................ 9 6 4
Units.............................................. 2,815 2,214 1,212
Total investment(1)................................ $164,442 $143,822 $64,054
Cost per unit...................................... $58.4 $65.0 $52.8
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Completions During Year:
Communities ...................................... 3 2 --
Units............................................. 1,046 468 --
Total investment(1)............................... $56,370 $25,462 --
Cost per unit..................................... $53.9 $54.4 --
Stabilizations During Year:
Communities....................................... 3 -- --
Units............................................. 804 -- --
Total investment(1)............................... $43,004 -- --
Cost per unit..................................... $53.5 -- --
Under Construction at Year-End:
Communities....................................... 14 8 4
Units............................................. 4,727 2,958 1,212
Total investment(1)............................... $290,486 $176,740 $63,006
Cost per unit..................................... $61.5 $59.7 $52.0
Investment to date................................ $194,587 $94,094 $20,741
ACQUISITIONS:
Communities....................................... 13 15 40
Units............................................. 3,556 3,961 11,307
Total investment(1)............................... $171,731 $182,242 $582,077
Cost per unit..................................... $48.3 $46.0 $51.5
DISPOSITIONS:
Communities....................................... 4 2 --
Units............................................. 1,184 596 --
Proceeds.......................................... $64,150 $30,934 --
Gain.............................................. $6,732 -- --
</TABLE>
- --------
(1) For operating communities, represents cost, including budgeted
renovations. For communities under construction, represents total budgeted
development cost, which includes the cost of land, fees, permits, payments
to contractors, architectural and engineering fees and interest and
property taxes to be capitalized during the construction period.
In addition to its multifamily investment activity, ATLANTIC developed
extended-stay lodging facilities known as Homestead Village that were sold to
Homestead, a newly formed company, in 1996, as discussed below in "--Homestead
Transaction". ATLANTIC's investment, at cost, in Homestead Village properties
was $2.6 million at December 31, 1995. ATLANTIC did not begin developing
Homestead Village properties until 1995.
ATLANTIC's target market cities and submarkets have benefitted substantially
in recent periods from demographic trends (including population and job
growth) which increase the demand for multifamily units. Consequently, rental
rates for multifamily units have increased more than the inflation rate for
the last two years. Management of expense levels also influence operating
results. Over the past two years, rental expenses (other than real estate
taxes) as a percentage of rental revenues for multifamily communities have
generally remained flat due to a continual effort to reduce resident turnover.
Over the next few years, expenses are expected to increase at a rate slightly
lower than increases in rental revenue.
ATLANTIC believes that development of multifamily communities from the
ground up, which are built for long-term ownership and designed to meet broad
renter preferences and demographic trends, will provide a greater source of
long-term cash flow growth in the future. Therefore, while land prices are
favorable, ATLANTIC has acquired and will continue to acquire, on an
unleveraged basis, prudent amounts of land zoned for multifamily development.
ATLANTIC believes its ability to compete is significantly enhanced relative to
other companies because of the REIT Manager's depth of
61
<PAGE>
development and acquisition personnel and presence in local markets combined
with ATLANTIC's access to investment capital.
ATLANTIC's overall results of operations and financial condition for 1996,
1995 and 1994 have been significantly influenced by this investment activity.
Detailed information about this investment activity during 1996, which will
significantly influence future operations, is provided below.
CURRENT DEVELOPMENT ACTIVITY
At December 31, 1996, ATLANTIC had 4,727 units under construction,
representing a total expected investment cost of $290.5 million. These
development communities are summarized below (dollar amounts in thousands):
<TABLE>
<CAPTION>
DATE OF EXPECTED
FIRST STABILIZATION
TOTAL START DATE UNITS DATE
NUMBER INVESTMENT EXPECTED (QUARTER/ (QUARTER/ (QUARTER/
OF UNITS COST TO DATE INVESTMENT(1) YEAR) YEAR)(2) YEAR) % LEASED(3)
-------- ------------ ------------- ---------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMUNITIES UNDER
CONSTRUCTION AND IN
LEASE-UP(4):
MID-ATLANTIC:
Raleigh, North
Carolina:
Waterford Forest...... 384 $ 20,349 $ 21,574 2Q/95 3Q/96 3Q/97 64.3%
Washington, D.C.:
Cameron at Milestone.. 444 30,344 30,418 2Q/95 3Q/96 4Q/97 49.5
Woodway at Trinity
Center............... 504 35,583 37,836 2Q/95 3Q/96 2Q/98 49.4
----- -------- --------
Total Mid-Atlantic... 1,332 $ 86,276 $ 89,828
----- -------- --------
SOUTH ATLANTIC:
Atlanta, Georgia:
Cameron Creek II...... 260 $ 19,332 $ 19,445 2Q/95 3Q/96 3Q/97 41.9%
Jacksonville, Florida:
Cameron Deerwood...... 336 14,504 17,598 1Q/96 4Q/96 1Q/98 5.7
Cameron Timberlin Parc
I.................... 320 15,447 16,885 4Q/95 3Q/96 4Q/97 32.2
----- -------- --------
Total South
Atlantic............ 916 $ 49,283 $ 53,928
----- -------- --------
Total in Lease-up.. 2,248 $135,559 $143,756
----- -------- --------
OTHER COMMUNITIES UNDER
CONSTRUCTION:
MID-ATLANTIC:
Charlotte, North
Carolina:
Waterford Square II... 286 $ 6,592 $ 17,181 2Q/96 3Q/97 3Q/98 N/A
Nashville, Tennessee:
Cameron Overlook...... 452 7,338 23,848 2Q/96 3Q/97 1Q/99 N/A
Raleigh, North
Carolina:
Cameron Brooke........ 228 10,070 12,885 1Q/96 1Q/97 4Q/97 N/A
Richmond, Virginia:
Cameron at Wyndham.... 312 4,404 20,048 3Q/96 4Q/97 4Q/98 N/A
Cameron Crossing I &
II................... 424 11,202 26,622 1Q/96 2Q/97 4Q/98 N/A
----- -------- --------
Total Mid-Atlantic... 1,702 $ 39,606 $100,584
----- -------- --------
SOUTH ATLANTIC:
Birmingham, Alabama:
Cameron at the Summit
I.................... 372 $ 8,483 $ 21,531 2Q/96 3Q/97 3Q/98 N/A
Ft. Lauderdale/West
Palm Beach, Florida:
Parrot's Landing II... 152 8,070 9,648 2Q/96 1Q/97 4Q/97 N/A
Jacksonville, Florida:
Cameron Lakes II...... 253 2,869 14,967 4Q/96 4Q/97 3Q/98 N/A
----- -------- --------
Total South
Atlantic............ 777 $ 19,422 $ 46,146
----- -------- --------
Total Other........ 2,479 $ 59,028 $146,730
----- -------- --------
Total Communities
Under Construc-
tion............ 4,727 $194,587 $290,486
===== ======== ========
</TABLE>
- -------
(1) Represents total budgeted development cost, which includes the cost of
land, fees, permits, payments to contractors, architectural and
engineering fees and interest and property taxes to be capitalized during
the construction period.
(2) Represents the date that the first completed units were made available for
leasing (or are expected to be made available for leasing). ATLANTIC
begins leasing completed units prior to completion of the entire
community.
(3) The percentage leased is based on total units upon completion.
(4) A development community is considered in "lease-up" once ATLANTIC begins
leasing completed units.
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<PAGE>
There are risks associated with ATLANTIC's development and construction
activities which include: development and acquisition opportunities explored
by ATLANTIC may be abandoned; construction costs of a community may exceed
original estimates due to increased materials, labor or other expenses, which
could make completion of the community uneconomical; occupancy rates and rents
at a newly completed community are dependent on a number of factors, including
market and general economic conditions, and may not be sufficient to make the
community profitable; financing may not be available on favorable terms for
the development of a community; and construction and lease-up may not be
completed on schedule, resulting in increased debt service expense and
construction costs. Development activities are also subject to risks relating
to the inability to obtain, or delays in obtaining, all necessary land-use,
building, occupancy and other required governmental permits and
authorizations. The occurrence of any of the events described above could
adversely affect ATLANTIC's ability to achieve its projected yields on
communities under development or redevelopment.
1996 ACQUISITION ACTIVITY
ATLANTIC completed the acquisition of $171.7 million of operating
communities, representing a total of 3,556 units, in 1996. These acquisitions
are summarized below (dollar amounts in thousands):
<TABLE>
<CAPTION>
TOTAL
EXPECTED ACQUISITION
UNITS INVESTMENT(1) DATE
----- ------------- -----------
<S> <C> <C> <C>
MID-ATLANTIC:
Charlotte, North Carolina:
Cameron at Hickory Grove...................... 202 $ 8,392 04/10/96
Greenville, South Carolina:
Cameron Court................................. 234 11,060 04/22/96
Memphis, Tennessee:
Cameron Century Center........................ 420 15,928 10/18/96
Country Oaks.................................. 200 8,484 09/05/96
Raleigh, North Carolina:
Cameron Lake.................................. 196 9,293 11/13/96
Cameron Ridge................................. 228 10,131 10/17/96
Emerald Forest................................ 320 14,680 12/19/96
Washington, D.C.:
West Springfield Terrace...................... 244 16,210 09/30/96
----- --------
Total Mid-Atlantic.......................... 2,044 $ 94,178
----- --------
SOUTH ATLANTIC:
Atlanta, Georgia:
Balmoral Village.............................. 312 $ 19,215 10/22/96
Cameron Pointe................................ 214 14,891 05/30/96
Ft. Lauderdale/West Palm Beach, Florida:
Park Place at Turtle Run...................... 350 15,714 04/22/96
The Pointe at Bayberry Lake................... 308 17,021 05/29/96
Tampa, Florida:
Cameron Bayshore.............................. 328 10,712 12/20/96
----- --------
Total South Atlantic........................ 1,512 $ 77,553
----- --------
Total..................................... 3,556 $171,731
===== ========
</TABLE>
- --------
(1) Represents cost, including budgeted renovations.
63
<PAGE>
Acquisitions entail risks that investments will fail to perform in
accordance with expectations and that judgments with respect to the cost of
improvements to bring an acquired community up to standards established for
the market position intended for that community will prove inaccurate, as well
as general investment risks associated with any new real estate investment.
Although ATLANTIC undertakes an evaluation of the physical condition of each
new community before it is acquired, certain defects or necessary repairs may
not be detected until after the community is acquired, which could
significantly increase ATLANTIC's total acquisition costs.
RESULTS OF OPERATIONS
Net earnings for the years ended December 31, 1996, 1995 and 1994 were $38.6
million, $19.6 million and $9.9 million, respectively. Net earnings increased
$19.0 million in 1996 over 1995 and $9.7 million in 1995 over 1994.
PROPERTY OPERATIONS
At December 31, 1996, ATLANTIC had 19,241 operating multifamily units as
compared to 15,823 operating multifamily units at December 31, 1995 and 11,990
operating multifamily units at December 31, 1994. The increased number of
communities in operation resulted in increases in rental income ($34.1 million
in 1996 over 1995 and $48.6 million in 1995 over 1994), rental expenses ($9.0
million in 1996 over 1995 and $12.6 million in 1995 over 1994), real estate
taxes ($2.7 million in 1996 over 1995 and $4.0 million in 1995 over 1994),
property management fees ($1.1 million in 1996 over 1995 and $1.9 million in
1995 over 1994) and depreciation ($4.9 million in 1996 over 1995 and $7.2
million in 1995 over 1994).
During the period prior to a community being stabilized (see "Business--
ATLANTIC's Operating System--Acquisitions"), the REIT Manager and the property
managers begin implementing expense controls, reconfiguring the resident mix,
supervising renovations and implementing a strategy to increase rental income.
The full benefits of the changes are not reflected until the communities are
stabilized. As a result of high levels of acquisitions of operating
communities since inception, 26.7% of ATLANTIC's operating multifamily
communities, based on total expected investment cost, were classified as pre-
stabilized at December 31, 1996 as compared to 25.7% at December 31, 1995 and
94.7% at December 31, 1994.
Because ATLANTIC will be completing construction on its current development
portfolio and acquiring additional operating communities in its target market,
ATLANTIC anticipates increases in rental income and property-level expenses in
subsequent periods.
Cash provided by operating activities was $54.4 million in 1996, an increase
of $14.6 million from the 1995 level of $39.7 million. Cash provided by
operating activities in 1995 increased by $16.2 million from the 1994 level.
These increases are primarily the result of the increased number of
communities in operation.
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<PAGE>
COMMUNITIES FULLY OPERATING THROUGHOUT BOTH PERIODS
The following table presents the operating performance of ATLANTIC's 34
"same store" communities that were fully operational throughout 1996 and 1995.
Operating expenses and net operating income have been adjusted for pre-
stabilized versus stabilized accounting differences that result from
capitalizing certain costs during the period after acquisition when a
community is being repositioned and is classified as pre-stabilized and
expensing those costs once repositioning is completed and the community is
classified as stabilized. The same store communities consist of 9,458 units at
a total expected investment cost of $496.5 million (38.1% of ATLANTIC's total
portfolio) at December 31, 1996. A summary of the operating performance of the
same store communities in 1996 is as follows:
<TABLE>
<CAPTION>
1996 COMPARED
TO 1995
-------------
<S> <C>
Collections growth............................................. 2.76%
Operating expense decrease, as adjusted........................ -0.97%
Net operating income growth, as adjusted....................... 4.88%
<CAPTION>
1996
-------------
<S> <C>
Average physical occupancy..................................... 95.32%
Property operating expense ratio............................... 39.68%
Average rental rate per unit................................... $719
Recurring capital expenditures per unit........................ $209
</TABLE>
<TABLE>
<CAPTION>
ANNUAL
AVERAGE ANNUAL AVERAGE ANNUAL COLLECTIONS SAME STORE
PHYSICAL PHYSICAL GROWTH COMMUNITIES
OCCUPANCY 1996 OCCUPANCY 1995 (1996 OVER 1995) % BY MARKET
-------------- -------------- ---------------- -----------
<S> <C> <C> <C> <C>
MID-ATLANTIC:
Charlotte, North Caroli-
na..................... 95.92% 95.96% 4.54% 3.09%
Greenville, South Caro-
lina(1)................ -- -- -- --
Memphis, Tennessee(1)... -- -- -- --
Nashville, Tennessee.... 94.62 95.68 1.10 3.66
Raleigh, North Caroli-
na..................... 95.72 94.64 -0.94 3.22
Richmond, Virginia...... 94.71 96.17 2.90 3.93
Washington, D.C. ....... 94.62 94.38 0.37 6.18
----- ----- ----- ------
Total Mid-Atlantic.... 95.02% 95.32% 1.42% 20.08%
----- ----- ----- ------
SOUTH ATLANTIC:
Atlanta, Georgia........ 95.77% 96.31% 4.36% 42.21%
Birmingham, Alabama..... 92.25 95.40 -3.06 4.03
Ft. Lauderdale/West Palm
Beach, Florida......... 94.72 95.00 0.15 11.35
Jacksonville, Florida... 97.04 96.25 5.12 2.46
Orlando, Florida........ 95.06 95.05 3.64 6.72
Tampa/Ft.
Myers/Sarasota,
Florida................ 95.78 95.24 3.21 13.15
----- ----- ----- ------
Total South Atlantic.. 95.39% 95.72% 3.06% 79.92%
----- ----- ----- ------
Totals.............. 95.32% 95.65% 2.76% 100.00%
===== ===== ===== ======
</TABLE>
- --------
(1) ATLANTIC entered this market subsequent to January 1, 1995; therefore,
there are no communities for the same store comparison.
At January 1, 1994, ATLANTIC's portfolio consisted of only three pre-
stabilized operating communities and, consequently, comparisons for fully
operational communities between 1995 and 1994 are not meaningful.
65
<PAGE>
DEVELOPMENT DILUTION
ATLANTIC's development activity is dilutive to net earnings and funds from
operations in the short term, but is expected to add significantly to
ATLANTIC's long-term performance as the developments reach stabilization in
1997 and subsequent years.
During the construction period, the reduction to interest expense resulting
from the capitalization of interest on units under construction is less than
the operating income which could be earned on those expenditures if the
community were complete and earning a stabilized return, thus resulting in
dilution. Essentially, the return on investment during the construction period
is equivalent to ATLANTIC's cost of funds.
The lease-up phase commences when units are placed in service. During the
lease-up phase, ATLANTIC's policy is to expense operating expenses (including
pre-opening marketing expenses) and interest expense which during the
construction period is capitalized. The operating expenses and the interest
expense on such completed units will typically exceed rental revenues, due to
less than break-even occupancy, thus resulting in dilution in the form of a
"lease-up" deficit. These deficits are typically experienced for a period of
two to four months after "first units" are placed in service.
Development dilution begins to decline once occupancy increases and revenues
from completed units exceed the operating expenses and interest expense
associated with such completed units. However, the net operating income
generated during this pre-stabilized period is less than the net operating
income which would be earned if the community were stabilized. The time
required to achieve stabilization generally ranges from six to twelve months
after completion of construction.
INTEREST EXPENSE
The following summarizes ATLANTIC's interest expense (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
------------------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Mortgage.............................................. $ 9,484 $ 7,662 $3,363
Line of credit........................................ 16,947 15,784 6,670
Capitalized interest.................................. (10,250) (4,404) (793)
------- ------- ------
Total interest expense............................ $16,181 $19,042 $9,240
======= ======= ======
</TABLE>
Mortgage interest expense increased $1.8 million in 1996 as compared to 1995
and $4.3 million in 1995 as compared to 1994. These increases are the result
of additional weighted-average mortgage debt outstanding.
Line of credit interest expense increased $1.2 million in 1996 over 1995 and
$9.1 million in 1995 over 1994. The increase in 1996 is primarily a function
of an increase in the average outstanding balance ($204.3 million in 1996 as
compared to $178.3 million in 1995) partially offset by a lower weighted-
average daily interest rate (7.39% in 1996 as compared to 7.92% in 1995). The
increase in 1995 is primarily a function of an increase in the average
outstanding balance ($178.3 million in 1995 as compared to $65.6 million in
1994) and a higher weighted-average daily interest rate (7.92% in 1995 as
compared to 7.34% in 1994). The increases were also affected by amortization
of issuance costs and other loan-related costs.
The increases in interest expense were offset by increases in capitalized
interest of $5.8 million in 1996 over 1995 and $3.6 million in 1995 over 1994.
These increases in capitalized interest are the result of ATLANTIC's increased
development activity.
REIT MANAGEMENT FEE PAID TO AFFILIATE
The REIT Management fee paid by ATLANTIC increased by $3.5 million in 1996
over 1995 and $3.2 million in 1995 over 1994. Because the REIT Management fee
fluctuates with the level of
66
<PAGE>
ATLANTIC's cash flow calculated before the REIT Management fee, this increase
is expected based upon the larger increases in revenues than expenses
experienced by ATLANTIC during the year ended December 31, 1996. In the
future, interest income recognized on the convertible mortgage notes received
by ATLANTIC pursuant to the funding commitment agreement entered into as part
of the Homestead transaction will not be included in the calculation of the
REIT Management fee to be paid by ATLANTIC. Because this interest income is
not included in cash flow for purposes of calculating the REIT Management fee,
the REIT Management fee calculated as a percentage of ATLANTIC's funds from
operations will decline as the convertible mortgage notes are funded and the
related interest income increases. The REIT Management fee is described more
thoroughly below under "--REIT Management Agreement".
Additionally, as ATLANTIC arranges fully amortizing, fixed rate, long-term
unsecured debt, which it intends to arrange after achieving a substantial
equity base and an investment-grade debt rating, the REIT Management fee will
effectively decline in proportion to ATLANTIC's cash flow because regularly
scheduled principal payments or their assumed equivalent are deducted from the
cash flow amount on which the REIT Management fee is based. Currently,
principal and principal reserve account payments on long-term mortgage debt
are deducted in arriving at cash flow for purposes of calculating the REIT
Management fee, thus reducing REIT Management fee expense. See "Prospectus
Summary--Recent Developments" for a description of a proposal that ATLANTIC
has received from Security Capital Group to exchange the REIT Manager and SCG
Realty Services for Shares.
GAINS ON DISPOSITIONS AND VALUATION OF LONG-LIVED INVESTMENTS
ATLANTIC's strategy is to build its asset base through the development and
acquisition of multifamily communities that will provide long-term growth in
cash flow. ATLANTIC's real estate investments have been made with a view to
effective long-term operation and ownership. ATLANTIC's "asset optimization
strategy" is based on market research and is aimed at optimizing its portfolio
composition. Under this strategy, ATLANTIC may from time to time dispose of
assets that no longer meet its long-term investment objectives and redeploy
the proceeds therefrom, preferably through tax-deferred exchanges, into assets
with better prospects for growth. As a result of this asset optimization
strategy, ATLANTIC disposed of four operating communities aggregating 1,184
units in 1996. A gain was recognized on each disposition with the total gain
aggregating $6.7 million on total proceeds of $67.2 million.
The four communities that were disposed of in 1996 accounted for $3.6
million and $5.2 million of net operating income during 1996 and 1995,
respectively. Each disposition was included in a tax-deferred exchange. At
December 31, 1996, ATLANTIC held a portion of the proceeds from one of these
dispositions aggregating $1.7 million in an interest-bearing escrow account.
These funds were used in the acquisition of a land parcel in January 1997,
completing the tax-deferred exchange. Two communities that ATLANTIC disposed
of in 1995 accounted for $2.4 million of net operating income during 1995.
Statement of Financial Accounting Standards No. 121, Accounting For The
Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of
("SFAS No. 121"), adopted by ATLANTIC effective January 1, 1996, establishes
accounting standards for the review of long-lived assets to be held and used
for impairment whenever the carrying amount of an asset may not be
recoverable. SFAS No. 121 also requires that certain long-lived assets to be
disposed of be reported at the lower of carrying amount or fair value less
cost to sell. ATLANTIC did not recognize any losses on the date it adopted
SFAS No. 121.
Long-lived investments held and used are periodically evaluated for
impairment and provisions for possible losses are made if required. As of
December 31, 1996, such investments are carried at cost, which is not in
excess of fair market value and no provisions for possible losses have been
made. ATLANTIC recognized a provision for possible loss of $2.5 million in
1996 associated with a
67
<PAGE>
community that is being held for sale. The carrying value of this community at
December 31, 1996 was $8.8 million. This community is not being depreciated
during the period in which it is being held for sale. ATLANTIC expects the
disposition to occur in 1997. This community accounted for $1.0 million, $1.0
million and $0.5 million of net operating income for 1996, 1995 and 1994,
respectively. This income is included in ATLANTIC's earnings from operations
in those years.
HOMESTEAD TRANSACTION
As more fully described under "--Liquidity and Capital Resources--Homestead
Transaction" and "Certain Relationships and Transactions--Homestead
Transaction", ATLANTIC sold its Homestead Village properties (one operating
property and 25 properties under construction or in planning) and paid $16.6
million in cash to Homestead on October 17, 1996 in exchange for 4,201,220
shares of Homestead common stock. ATLANTIC recognized a gain on the
transaction of $2.8 million, net of expenses of $1.3 million. The Homestead
transaction was treated as a sale for financial accounting purposes, but was
treated as a contribution for tax purposes.
EXTRAORDINARY ITEM--LOSS ON EARLY EXTINGUISHMENT OF DEBT
In December 1996, ATLANTIC replaced its existing secured line of credit with
an unsecured line of credit. Such early extinguishment of debt resulted in the
write-off of unamortized loan costs of $3.9 million and is reflected as an
extraordinary item in the statement of earnings for the year ended December
31, 1996.
ENVIRONMENTAL MATTERS
ATLANTIC is subject to environmental regulations related to the ownership,
operation, development and acquisition of real estate. As part of its due
diligence procedures, ATLANTIC has conducted Phase I environmental assessments
on each community prior to acquisition. The cost of complying with
environmental regulations was not material to ATLANTIC's results of
operations. ATLANTIC is not aware of any environmental condition on any of its
communities that is likely to have a material adverse effect on ATLANTIC's
financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
ATLANTIC considers its liquidity and ability to generate cash from
operations and financings to be adequate and expects it to continue to be
adequate to meet ATLANTIC's development, acquisition, operating, debt service,
Homestead commitment and shareholder distribution requirements. At December
31, 1996, ATLANTIC had unfunded commitments for multifamily developments under
construction of $95.9 million and unfunded commitments of $111.1 million in
connection with the Homestead convertible mortgage notes described below.
INVESTING AND FINANCING ACTIVITIES
OVERVIEW. ATLANTIC's investment activities, which consisted primarily of
acquiring and developing multifamily communities, used approximately $287.4
million, $235.1 million and $390.1 million of cash for 1996, 1995 and 1994,
respectively.
ATLANTIC's financing activities provided net cash flow of $230.9 million,
$195.6 million and $372.6 million for 1996, 1995 and 1994, respectively.
Combined proceeds from equity offerings of $229.1 million in 1996, $205.8
million in 1995 (net of Share repurchases) and $239.7 million in 1994 were the
primary source of financing funds. Proceeds from line of credit borrowings,
net of repayments, were $38.0 million in 1996, $37.0 million in 1995 and
$153.0 million in 1994.
ATLANTIC expects to finance construction, development and acquisition of
multifamily communities primarily with cash on hand, borrowings under its line
of credit and cash from future securities offerings. After it has achieved a
substantial equity base and an investment-grade debt
68
<PAGE>
rating, ATLANTIC intends to arrange fully amortizing, fixed rate, 15-year to
25-year unsecured debt to finance additional acquisitions and developments.
ATLANTIC believes that its current conservative ratio of long-term debt to
total long-term undepreciated book capitalization (which was 17.4% at December
31, 1996) provides considerable flexibility to prudently increase its capital
base by utilizing long-term debt as a financing tool in the future. Long-term
undepreciated book capitalization is defined as the sum of long-term debt and
shareholders' equity after adding back accumulated depreciation.
1994 INVESTING AND FINANCING ACTIVITIES. ATLANTIC's investment strategy in
1994 focused on two components: the acquisition of a substantial base of
existing operating communities to provide operating cash flow and the creation
of an internal development process. During 1994, ATLANTIC acquired 40
operating communities, 31 of which were obtained in two large portfolio
acquisitions. These 40 communities, located in 14 metropolitan areas, added
11,307 units to the portfolio for a total of 11,990 operating units. See the
table of investment activity under "--Overview" above.
ATLANTIC's investment in real estate during 1994 of approximately $600.3
million was financed through a combination of debt and equity. As partial
payment for one of the portfolio acquisitions, ATLANTIC issued $100.0 million
in Shares to the seller of the portfolio and subsequently repurchased certain
of these Shares with proceeds from later equity offerings. Sales of Shares
through a private placement raised an additional $239.7 million. Existing debt
of $107.5 million associated with certain of the communities acquired was
assumed by ATLANTIC. Additionally, ATLANTIC had net borrowings on its line of
credit during 1994 of $153.0 million.
1995 INVESTING AND FINANCING ACTIVITIES. In 1995, ATLANTIC acquired existing
communities aggregating 3,961 units and disposed of two communities
aggregating 596 units. Also in 1995, ATLANTIC began construction on 2,214
multifamily units. In the fourth quarter ATLANTIC completed construction on
its first two internally developed multifamily communities, a 270-unit
property in Charlotte, North Carolina and a 198-unit property in Birmingham,
Alabama. See the table of investment activity under "--Overview" above.
During 1995, ATLANTIC's net additional investment in real estate was $257.7
million bringing its total real estate investment at December 31, 1995 to
$888.9 million. Sales of Shares generated the largest source of capital in
1995. ATLANTIC sold $205.8 million of Shares, net of Share repurchases,
through two private placements. In connection with the acquisition of certain
communities in 1995, ATLANTIC assumed $24.7 million in existing debt.
Additional borrowings on its line of credit during 1995 aggregated $37
million.
1996 INVESTING AND FINANCING ACTIVITIES. In 1996, ATLANTIC acquired
operating communities aggregating 3,556 units and disposed of four communities
aggregating 1,184 units. Also in 1996, ATLANTIC began construction on 2,815
multifamily units. In 1996, ATLANTIC completed construction on three
internally developed multifamily communities (1,046 units), bringing the total
of completed internally developed multifamily communities to five (1,514
units). See the table of investment activity under "--Overview" above.
During 1996, ATLANTIC's net additional investment in real estate was $268.3
million bringing its total real estate investment at December 31, 1996 to
$1.16 billion. Sales of Shares generated the largest source of capital in
1996.
In 1996, ATLANTIC raised net proceeds of $119.1 million from a private
placement of Shares. The private placement, which began in 1995, raised a
total of $249.3 million, net of commissions and other expenses.
ATLANTIC's initial public offering of Shares was completed on October 18,
1996. The proceeds from the sale, net of the underwriters' commissions and
other expenses, were $110.0 million.
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In connection with the acquisition of certain communities in 1996, ATLANTIC
assumed $17.9 million in existing debt. Additional borrowings on the line of
credit during 1996 aggregated $38.0 million. At December 31, 1996, ATLANTIC's
outstanding balance on its line of credit was $228.0 million.
At January 31, 1997, ATLANTIC had 4,727 units under construction with a
total budgeted development cost of $290.6 million of which $85.5 million was
unfunded. In addition, ATLANTIC owned multifamily developments in planning at
January 31, 1997 aggregating 1,396 units located in various target market
cities with a total budgeted development cost of $89.2 million. ATLANTIC's
multifamily developments under control at January 31, 1997 aggregated 2,040
units with a total budgeted development cost of $127.4 million. The foregoing
developments are subject to a number of conditions, and ATLANTIC cannot
predict with certainty that any of them will be consummated.
HOMESTEAD TRANSACTION. On October 17, 1996, ATLANTIC sold its moderate-
priced, purpose-built, extended-stay lodging facilities known as Homestead
Village properties to Homestead. In the transaction, ATLANTIC sold one
operating property and 25 properties under construction or in planning (or the
rights to acquire such properties) and paid $16.6 million in cash (the
"Homestead Assets"). In addition, ATLANTIC entered into a funding commitment
agreement to provide secured financing of up to $111.1 million to Homestead
for purposes of completing the development and construction of the properties
sold in the transaction. The Homestead transaction was treated as a sale for
financial accounting purposes, but was treated as a contribution for tax
purposes.
The transaction resulted in ATLANTIC receiving 4,201,220 shares of common
stock of Homestead in exchange for the Homestead Assets and 2,818,517
warrants, each to purchase one share of Homestead common stock at $10.00 per
share, in exchange for entering into the funding commitment agreement. On
November 12, 1996, ATLANTIC distributed the Homestead common stock and
warrants to its shareholders of record on October 29, 1996. ATLANTIC
shareholders received 0.110875 shares of Homestead common stock and 0.074384
Homestead warrants per Share. ATLANTIC will receive up to $98.0 million of
convertible mortgage notes from Homestead in exchange for funding up to $111.1
million under the funding commitment agreement. The difference between the
amounts funded and the convertible mortgage notes received of $13.1 million
(assuming full funding of the funding commitment) represents a mortgage note
premium that will be amortized as a reduction to interest income over the term
of the convertible mortgage notes.
ATLANTIC realized a gain of $2.8 million, after deducting expenses
associated with the transaction, representing the excess of the value of the
Homestead common stock received over the recorded basis of the Homestead
Assets. The Homestead warrants received represent a funding commitment fee
which has been valued at $6.5 million. The conversion feature of the
convertible mortgage notes has been valued at $6.9 million (assuming full
funding of the funding commitment). These deferred credits will be amortized
as an increase to interest income over the term of the convertible mortgage
notes. ATLANTIC intends to fund this commitment through cash on hand,
borrowings on its line of credit and sales of securities.
The convertible mortgage notes received from Homestead will bear interest at
9% per annum, will be due October 2006, will not be callable until 2001 and
will be convertible commencing March 31, 1997 at the option of the holder into
one share of Homestead common stock for every $11.50 of principal amount
outstanding. Upon full funding of ATLANTIC's convertible mortgage notes, its
conversion rights would represent a 15.35% ownership in Homestead (assuming no
further equity offerings by Homestead, conversion of all convertible mortgage
notes and exercise of all outstanding warrants). The effective yield on the
convertible mortgage notes, assuming conversion of all convertible mortgage
notes and exercise of all outstanding warrants, is estimated to be 8.46%,
after giving effect to the mortgage note premium, the funding commitment fee
and the conversion value of
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the convertible mortgage notes. At December 31, 1996, no funds had been
advanced pursuant to the funding commitment agreement and there were no
convertible mortgage notes outstanding. ATLANTIC advanced $13.0 million under
the funding commitment agreement through February 19, 1997.
ATLANTIC will deduct from net earnings the accretion of both the funding
commitment fee and the conversion value of the convertible mortgage notes in
calculating funds from operations. Therefore, the effective yield on the
convertible mortgage notes for purposes of calculating funds from operations
will be approximately 7.09% as compared to 8.46% for purposes of calculating
net earnings.
LINE OF CREDIT. ATLANTIC obtained a $200 million secured line of credit from
MGT, as agent for a group of lenders, in June 1994. In June 1996, the line of
credit was increased to $350 million. On December 18, 1996, ATLANTIC obtained
a $350 million unsecured line of credit agreement from MGT that replaced the
previous secured line of credit. Borrowings on the unsecured line of credit
bear interest at prime or, at ATLANTIC's option, LIBOR plus a margin ranging
from 1.0% to 1.375% (currently 1.375% as compared to 1.5% under the previous
agreement) depending on ATLANTIC's debt rating. ATLANTIC's objective is to
achieve an investment-grade debt rating in 1997. ATLANTIC currently pays a
commitment fee on the average unfunded line of credit balance of 0.1875%. If
ATLANTIC achieves an investment-grade debt rating, the commitment fee on the
average unfunded line of credit balance will range from 0.125% to 0.25% per
annum, depending on the amount of undrawn commitments. The line of credit
matures December 1998 and may be extended for one year with the approval of
MGT and the other participating lenders.
In August 1995, ATLANTIC entered into a swap agreement with Goldman Sachs
Capital Markets, L.P. covering $100 million of borrowings under the line of
credit, effectively mitigating a portion of its variable interest rate
exposure. Under this one-year agreement which became effective on February 5,
1996, ATLANTIC paid a fixed LIBOR interest rate of 7.46% on the $100 million
of borrowings through December 17, 1996 and 7.335% thereafter. A swap
agreement with MGT took effect upon the expiration of the prior swap agreement
on February 5, 1997 and provides for a fixed LIBOR interest rate of 7.325% on
$100 million of borrowings through February 5, 1998. The interest rate that
ATLANTIC pays will be reduced if ATLANTIC achieves an investment-grade debt
rating and will range from 6.95% to 7.2% depending on the debt rating
achieved. ATLANTIC paid $0.3 million more in interest than it received under
the swap agreement during 1996. ATLANTIC is exposed to credit loss in the
event of non-performance by the swap counterparty; however, ATLANTIC believes
the risk of loss is minimal.
All debt incurrences under the line of credit are subject to certain
covenants as more fully described in the loan agreement. Specifically,
distributions for the preceding four quarters, excluding the Homestead
Distribution, may not exceed 95% (97% for distributions made before December
31, 1996) of ATLANTIC's funds from operations (as defined in the loan
agreement) for the preceding four quarters. ATLANTIC is in compliance with all
such covenants.
As of February 19, 1997, $275.5 million of borrowings were outstanding under
the line of credit.
MORTGAGE DEBT. At December 31, 1996, ATLANTIC had approximately $155.8
million of mortgages payable consisting of approximately $34.2 million of
fixed rate conventional mortgage debt and approximately $121.6 million of
mortgages that secure ten tax-exempt bond issues. This long-term mortgage
debt, which is substantially fully amortizing, has a weighted-average interest
rate of 6.95%, and provides ATLANTIC with favorable and conservative financial
leverage on its investment in communities associated with such debt.
Nine of ATLANTIC's ten tax-exempt bond issues have variable interest rates.
All of the tax-exempt bond issues are included in a credit enhancement
agreement with FNMA. Under the agreement with FNMA, ATLANTIC makes monthly
principal payments, based upon a 30-year amortization, into a principal
reserve account. To mitigate the variable interest rate exposure associated
with these bond
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issues, ATLANTIC has entered into swap agreements. Under these swap
agreements, ATLANTIC pays and receives interest on the aggregate principal
amount of the underlying bonds outstanding, net of the amount held in the
principal reserve account. These swap agreements effectively result in
ATLANTIC paying interest at a fixed rate of 6.64% on these nine tax-exempt
bond issues.
ATLANTIC's swap agreements related to its tax-exempt variable rate mortgages
are summarized as follows:
<TABLE>
<CAPTION>
AMOUNTS OF FIXED
BONDS TERM INTEREST RATE(1) ISSUER
---------- ---- ---------------- ------
<S> <C> <C> <C>
$23.1 million June 1995 to June 2002 6.48% General Re Financial Products Corporation
64.6 million June 1995 to June 2005 6.74 Morgan Guaranty Trust Company of New York
5.0 million March 1996 to March 2006 6.18 Morgan Guaranty Trust Company of New York
15.5 million August 1996 to August 2006 6.51 Morgan Stanley Derivative Products Inc.
----
Weighted-average interest rate.......... 6.64%
====
</TABLE>
- --------
(1) Includes the fixed interest rate provided by the swap agreements, annual
fees associated with the swap agreements and credit enhancement agreement
and amortization of capitalized costs associated with the credit
enhancement agreement.
To the extent the deposits in the principal reserve account with FNMA have
not been used to redeem any of the outstanding bonds, ATLANTIC pays interest
at the variable rates as provided by the mortgage agreements on that portion
of bonds outstanding which is equivalent to the balance in the principal
reserve fund ($1.1 million at December 31, 1996).
DISTRIBUTIONS
ATLANTIC's current distribution policy is to pay quarterly cash
distributions to shareholders based upon what it considers to be a reasonable
percentage of cash flow. Because depreciation is a non-cash expense, cash flow
typically will be greater than earnings from operations and net earnings.
Therefore, quarterly cash distributions will be higher than quarterly
earnings, resulting in a reduction to shareholders' equity.
Cash distributions paid on Shares in 1996, 1995 and 1994 were $1.65 per
Share, $1.60 per Share and $1.20 per Share, respectively. Additionally in
1996, ATLANTIC made the Homestead Distribution, which was valued at $58.2
million.
ATLANTIC paid a quarterly cash distribution of $0.42 per Share in each of
the first three quarters of 1996. On November 12, 1996, the Homestead
Distribution was made to shareholders of record on October 29, 1996. On
December 16, 1996, in light of the Homestead transaction and ATLANTIC's
initial public offering, ATLANTIC paid a reduced fourth quarter cash
distribution of $0.39 per Share to shareholders of record on December 2, 1996.
ATLANTIC announces the following year's projected annual distribution level
after the Board's annual budget review and approval in December of each year.
At its December 19, 1996 meeting, the Board announced a projected annual
distribution level of $1.56 per Share for 1997 and declared a distribution of
$0.39 per Share for the first quarter of 1997, which was paid on February 19,
1997. The payment of distributions is subject to the discretion of the Board
and is dependent upon the financial condition and operating results of
ATLANTIC.
FUNDS FROM OPERATIONS
Funds from operations represents ATLANTIC's net earnings computed in
accordance with GAAP, excluding gains (or losses) from real estate
transactions, provisions for losses, extraordinary items and depreciation. On
January 1, 1996, ATLANTIC adopted NAREIT's new definition of funds from
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operations. Under this new definition, loan cost amortization is not added
back to net earnings in determining funds from operations. For comparability,
funds from operations for the periods prior to January 1, 1996 give effect to
this new definition.
In 1996, ATLANTIC sold its Homestead Assets to Homestead, as more fully
described above under "--Homestead Transaction". Management believes that
funds from operations for 1996 and 1995 should be adjusted to reflect the
effects of the Homestead transaction on results of operations in order to be
comparable. Accordingly, the table below also presents pro forma funds from
operations, which have been calculated as if the Homestead transaction had
occurred on January 1, 1995. ATLANTIC did not own any Homestead properties in
1994 and, therefore, 1994 funds from operations have not been adjusted.
Management believes that the pro forma funds from operations information
presented below provides a more meaningful comparison of 1996 and 1995;
however, the pro forma funds from operations information is unaudited, does
not give effect to or adjust for any other events (such as subsequent
acquisitions and dispositions of communities or subsequent sales of Shares),
and is not necessarily indicative of what actual funds from operations would
have been if the Homestead transaction had occurred on January 1, 1995.
Funds from operations and pro forma funds from operations were as follows
(amounts in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net earnings............................... $ 38,629 $ 19,639 $ 9,926
Add (Deduct):
Depreciation............................. 20,824 15,925 8,770
Gain on disposition of real estate....... (6,732) -- --
Gain on sale of Homestead Assets......... (2,839) -- --
Provision for possible loss on
investments............................. 2,500 -- --
Extraordinary item-loss on early
extinguishment of debt.................. 3,940 -- --
---------- ---------- ----------
Funds from operations...................... 56,322 35,564 18,696
---------- ---------- ----------
Add (deduct) pro forma adjustments relating
to the sale of Homestead:
Reduction in rental income(1)............ (424) -- --
Reduction in rental expenses(1).......... 173 -- --
Increase in interest expense(2).......... (2,739) (3,448) --
Other, net............................... 34 59 --
REIT Management fee effect(3)............ 475 542 --
---------- ---------- ----------
Total pro forma adjustments............ (2,481) (2,847) --
---------- ---------- ----------
Pro forma funds from operations............ 53,841 32,717 18,696
Cash distributions paid.................... (53,064) (35,119) (14,648)
---------- ---------- ----------
Excess (deficit) of pro forma funds from
operations over cash distributions........ $ 777 $ (2,402) $ 4,048
========== ========== ==========
Weighted-average Shares outstanding (as
adjusted for reverse Share split)......... 32,028 21,944 12,227
========== ========== ==========
</TABLE>
- -------
(1) Represents the reduction in rental income and rental expenses that would
have occurred had the Homestead property that commenced operations in 1996
been sold as of January 1, 1995.
(2) Represents the increase in interest expense due to (i) the reduction in
capitalized interest that would have resulted from the sale of the
Homestead Village properties under development and (ii) the increased
borrowings necessary to fund the cash payment to Homestead upon closing of
the Homestead transaction, as if these two items had occurred on January
1, 1995.
(3) Represents the decrease in REIT Management fee that would have resulted
from the pro forma adjustments.
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Funds from operations should not be considered as an alternative to net
income or any other GAAP measurement of performance as an indicator of
ATLANTIC's operating performance or as an alternative to cash flows from
operating, investing or financing activities as a measure of liquidity. Cash
flow from financing activities is expected to be substantially equivalent to
cash used in investing activities, as ATLANTIC utilizes revolving credit
borrowings, to be refunded with sales of equity and long-term, fully
amortizing unsecured debt securities, to fund its investment activities.
ATLANTIC's policy is to expense, rather than capitalize, repairs and
maintenance including carpet and appliance replacements, in determining net
income and funds from operations. Only major renovations, replacements or
improvements with a substantial expected economic life (such as roofs, parking
lots and additions) are capitalized. Therefore, the funds from operations
measure presented by ATLANTIC may not be comparable to similarly titled
measures of other REITs.
REIT MANAGEMENT AGREEMENT
ATLANTIC has a REIT management agreement (the "REIT Management Agreement")
pursuant to which the REIT Manager provides management services to ATLANTIC.
All officers of ATLANTIC are employees of the REIT Manager and ATLANTIC
currently has no employees. The REIT Manager provides both strategic and day-
to-day management of ATLANTIC, including research, investment analysis,
acquisition, development, marketing, disposition of assets, asset management,
due diligence, capital markets, legal and accounting services.
The REIT Management Agreement requires ATLANTIC to pay an annual fee of 16%
of cash flow as defined in the REIT Management Agreement, payable monthly.
Cash flow is calculated by reference to ATLANTIC's cash flow from operations
plus (i) fees paid to the REIT Manager, (ii) extraordinary expenses incurred
at the request of the independent Directors of ATLANTIC (of which there were
none in the periods reported), and (iii) 33% of any interest paid by ATLANTIC
on convertible subordinated debentures (of which there were none in the
periods reported); and after deducting (i) regularly scheduled principal
payments (excluding prepayments or balloon payments) for debt with
commercially reasonable amortization schedules, (ii) assumed principal and
interest payments on senior unsecured debt treated as having regularly
scheduled principal and interest payments like a 20-year level-payment, fully
amortizing mortgage (of which there were none in the periods reported) and
(iii) distributions actually paid with respect to any non-convertible
preferred stock (of which there were none in the periods reported). Cash flow
does not include: (i) realized gains or losses from dispositions of
investments, (ii) interest income from cash equivalent investments and the
Homestead convertible mortgage notes and dividend and interest income from
Atlantic Development Services, (iii) provisions for possible losses on
investments and (iv) extraordinary items.
The REIT Manager also receives a fee of 0.20% per year on the average daily
balance of cash equivalent investments. The REIT Management fee aggregated
$10.4 million, $6.9 million and $3.7 million for the years ended December 31,
1996, 1995 and 1994, respectively.
Total real estate operating, interest, general and administrative costs will
increase due to ATLANTIC's larger asset size, as well as unforeseen changes
that may occur. REIT Management fees paid by ATLANTIC will increase if cash
flow of ATLANTIC, as defined in the REIT Management Agreement, increases,
including such increases that may relate to increases in ATLANTIC's assets.
ATLANTIC does not expect its other operating costs and expenses to increase
except as a result of inflation, market conditions or other factors over which
the REIT Manager has no control. Operating costs for particular items,
however, may be increased if they are expected to result in greater decreases
in other expenses or increases in revenues from ATLANTIC's assets.
ATLANTIC must reimburse the REIT Manager for third-party and out-of-pocket
expenses relating to travel, transaction costs and similar costs relating to
the acquisition, development or disposition of assets or the obtaining of
financing for ATLANTIC and its operations. The REIT Manager will pay all
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of its own salary and other overhead expenses. ATLANTIC will not have any
employee expense; however, it will pay all of the third-party costs related to
its normal operations, including legal, accounting, travel, architectural,
engineering, shareholder relations, independent Director fees and similar
expenses, property management and similar fees paid on behalf of ATLANTIC, and
travel expenses incurred in seeking financing, community acquisitions,
community sales and similar activities on behalf of ATLANTIC and in attending
ATLANTIC Board, committee and shareholder meetings. Under the REIT Management
Agreement, the REIT Manager or any of its affiliates are not precluded from
rendering services to other investors, including REITs, even if such investors
compete with ATLANTIC. The REIT Manager is owned by ATLANTIC's largest
shareholder and, consequently, the REIT Manager has no intention of rendering
services to investors who compete with ATLANTIC.
The REIT Management Agreement is renewable by ATLANTIC annually, subject to
a determination by the independent Directors that the REIT Manager's
performance has been satisfactory and that the compensation payable to the
REIT Manager is fair. Each of ATLANTIC and the REIT Manager may terminate the
REIT Management Agreement on 60 days' notice. Because of the year-to-year
nature of the agreement, its maximum effect on ATLANTIC's results of
operations cannot be predicted, other than that REIT Management fees will
generally increase or decrease in proportion to cash flow increases or
decreases.
ATLANTIC recently announced that it received a proposal from Security
Capital Group to exchange the REIT Manager and SCG Realty Services for Shares.
As a result of the proposed transaction, ATLANTIC would become an internally
managed REIT and Security Capital Group would remain ATLANTIC's largest
shareholder. The Board has formed a special committee comprised of independent
Directors to review the proposed transaction. The proposed transaction is
subject to approval by the special committee and the full Board. If the Board
approves the transaction, a proxy statement, subject to review by the
Commission, will be mailed to ATLANTIC's shareholders prior to a shareholder
vote on the proposed transaction.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The Board reserves the right to make exceptions to ATLANTIC's policies
described below for transactions when it believes that the transaction is in
the best long-term interests of ATLANTIC and its shareholders. The Board may
amend or revise ATLANTIC's policies from time to time without a vote of the
shareholders of ATLANTIC.
INVESTMENT POLICIES
Prospective community investments are analyzed pursuant to several
underwriting criteria, including purchase price, competition and other market
factors, and prospects for long-term growth in cash flow. ATLANTIC's
investment decisions are based upon the expected contribution of the community
to long-term cash flow growth on an unleveraged basis. The expected economic
contribution is based on an evaluation of a community's stabilized operations,
including an estimate of all cash revenues from leases and other revenue
sources, minus expenses incurred in operating the community (including real
estate taxes, insurance, maintenance, turnover costs (such as carpet and
appliance replacement), personnel costs and utility charges, but excluding
depreciation, debt service and amortization of loan costs) and a reserve for
capital expenditures.
It is ATLANTIC's policy to generally limit its investments such that (i) no
more than 10% of its assets are invested in land held for development other
than land under development or where development is in planning, (ii) ATLANTIC
will not be treated as an investment company under the Investment Company Act
of 1940 and (iii) ATLANTIC will not invest in mortgage loans, other than
mortgage loans to third party owner/developers in connection with the
development of multifamily communities that are contractually required to be
sold to ATLANTIC upon completion or convertible mortgage loans to Homestead or
mortgage loans to entities in which ATLANTIC owns a substantial majority of
the economic interest and other than convertible mortgage loans where the
Board believes that such loans are in the best long-term interests of ATLANTIC
and its shareholders.
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ATLANTIC's strategy includes the development of industry-leading, moderate
income multifamily communities designed for the largest renter groups. Long
term, ATLANTIC believes that development will contribute as much, or more, to
its earnings growth than acquisitions.
While the current policy of ATLANTIC is to make equity investments in
multifamily communities exclusively, ATLANTIC may invest in other real estate
interests consistent with its qualification as a REIT. A change in this policy
could occur, for example, if ATLANTIC concludes that it may benefit from the
cash flow or any appreciation in the value of the community arising through
convertible mortgage investment.
Subject to the gross income and asset tests necessary for REIT
qualification, ATLANTIC may also invest in securities of other entities
engaged in real estate activities or securities of other issuers. See "Federal
Income Tax Considerations--Taxation of ATLANTIC". ATLANTIC does not currently
intend to invest in the securities of other issuers except in connection with
acquisitions of indirect interests in communities (normally, general or
limited partnership interests in special purpose partnerships controlled by
ATLANTIC and owning multifamily communities and except for preferred stock of
entities in which ATLANTIC has a substantial majority of the economic
interest).
FINANCING POLICIES
ATLANTIC does not intend to incur long-term, floating rate debt other than
in connection with property acquisitions in which the debt assumed is
impracticable to prepay or is tax-exempt debt. Because its assets are largely
long-term, ATLANTIC's debt is expected to be unsecured long-term, fixed rate,
fully amortizing debt. ATLANTIC has an unsecured line of credit for the
purpose of facilitating investment in developments and acquisitions as well as
for working capital. ATLANTIC may also determine to issue securities senior to
the Shares, including preferred stock and debt securities (either of which may
be convertible into Shares or be accompanied by warrants to purchase Shares).
ATLANTIC's financing policies are to replace line of credit borrowings with
the proceeds of equity offerings or unsecured long-term, fixed rate, fully
amortizing debt.
The proceeds of any borrowings by ATLANTIC may be used to pay distributions,
to provide working capital, to pay existing indebtedness or to finance
acquisitions, expansions or development of new multifamily communities.
CONFLICT OF INTEREST POLICIES
ATLANTIC does not intend to engage in principal transactions with officers
and Directors or to engage independent Directors to provide services to
ATLANTIC. In addition, transactions with the REIT Manager and its affiliates
are significantly restricted and must be reviewed and approved by a majority
of independent Directors. ATLANTIC will not borrow from or make loans to
affiliates, other than mortgage loans to entities in which ATLANTIC owns a
substantial majority of the economic interest, convertible mortgage loans to
Homestead or convertible mortgage loans where the Board believes that such
loans are in the best long-term interests of ATLANTIC and its shareholders.
With a view to resolving potential conflicts of interest and protecting the
interests of ATLANTIC's shareholders against such possible conflicts,
ATLANTIC's Charter requires that a majority of the Board be independent
Directors.
POLICIES APPLICABLE TO THE REIT MANAGER AND OFFICERS AND DIRECTORS OF ATLANTIC
The REIT Manager has agreed in writing not to engage in any principal
transaction with ATLANTIC, including but not limited to purchases, sales or
leases of communities or borrowing or lending of funds, except for
transactions approved by a majority of the independent Directors not otherwise
interested in such transaction as being fair and reasonable to ATLANTIC and on
terms and conditions not less favorable to ATLANTIC than those available from
unaffiliated third parties. The Homestead transaction would have been
prohibited by the terms of the REIT Management Agreement;
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the REIT Manager and ATLANTIC waived the prohibition and ATLANTIC's
shareholders approved the transaction. In addition to the requirements
described above, ATLANTIC will not engage in such transactions unless the
independent Directors believe that any such transaction is in the long-term
best interests of ATLANTIC and its shareholders. The sole activity of the REIT
Manager is advising ATLANTIC.
The REIT Management Agreement permits affiliates of the REIT Manager to
provide property management and other services to ATLANTIC for compensation.
The fees charged for such services must be comparable to fees that would be
charged by unaffiliated, qualified third parties. Any property management fees
are reviewed annually by the Board and must be approved by a majority of the
independent Directors.
With certain exceptions, officers and employees of the REIT Manager spend
all of their time on ATLANTIC's affairs. In the future, certain officers or
employees may be transferred to or from other affiliates of the REIT Manager,
consistent with REIT Management's plan for management depth and orderly
succession.
ATLANTIC does not intend to issue options or warrants to the REIT Manager or
its employees; however, in the event that ATLANTIC becomes an internally
managed REIT, ATLANTIC intends to adopt an employee incentive plan under which
options may be granted to employees, subject to Board and shareholder
approval.
Under the law of Maryland (where ATLANTIC is incorporated), each Director is
obligated to offer to ATLANTIC any opportunity (with certain limited
exceptions) which comes to him or her and which ATLANTIC could reasonably be
expected to have an interest in developing. In addition, under Maryland law, a
contract or other transaction between ATLANTIC and a Director or between
ATLANTIC and another corporation or entity in which a Director of ATLANTIC is
a director or has a material financial interest is not void or voidable solely
because of such interest or the presence of the Director at the meeting at
which the contract or transaction is approved or the Director's vote in favor
thereof, if (a) the contract or transaction is approved or ratified, after
disclosure of the common directorship or interest, by the affirmative vote of
a majority of disinterested Directors, even if the disinterested Directors
constitute less than a quorum, or by a majority of the votes cast by
disinterested stockholders, or (b) the contract or transaction is fair and
reasonable to ATLANTIC.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
ATLANTIC may, but does not presently intend to, make investments other than
as previously described. All investments will be primarily related to
multifamily communities and the management and development thereof. The Board
has authority to reclassify unissued Shares into senior securities, to offer
Shares or other securities and, subject to certain restrictions, to repurchase
or otherwise reacquire Shares or any other securities and may engage in such
activities in the future. ATLANTIC's policy is not to make loans to its
officers or directors or to the REIT Manager; however, in the event that
ATLANTIC becomes an internally managed REIT, ATLANTIC may (i) adopt an
employee incentive plan, under which loans may be made to employees to
purchase Shares, subject to Board and shareholder approval, and (ii) make
relocation and other loans to employees, subject to Board approval. ATLANTIC
may in the future make loans to partnerships and joint ventures in which it
participates in order to meet working capital needs. ATLANTIC has not engaged
in trading, underwriting or agency distribution or sale of securities of other
issuers and does not intend to do so. ATLANTIC does not intend to engage in
the purchase or sale of investments (other than acquisition or disposition of
communities in accordance with the REIT rules and ATLANTIC's investment
policies) and may on a selected basis in the future offer securities in
exchange for communities. ATLANTIC intends to make annual and quarterly
reports to shareholders. The annual reports will contain audited financial
statements.
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At all times, ATLANTIC intends to make investments in such a manner as to be
consistent with the requirements of the Code for ATLANTIC to qualify as a REIT
unless, because of changing circumstances or changes in the Code (or in
Treasury Regulations), the Board determines that it is no longer in the best
interests of ATLANTIC to qualify as a REIT.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
In addition to the transactions with affiliates described elsewhere in this
Prospectus, ATLANTIC has entered into the following transactions:
REIT MANAGEMENT AGREEMENT
Pursuant to the REIT Management Agreement, the REIT Manager assumed the day-
to-day management of ATLANTIC. The REIT Manager is owned by Security Capital
Group, which currently beneficially owns 56.9% of the outstanding Shares
(51.4% after the Offering). The REIT Manager's sole business and principal
occupation since its formation in October 1993 is advising ATLANTIC. The
services provided or coordinated by the REIT Manager include strategic and
day-to-day management, research, investment analysis, acquisition and due
diligence, multifamily community development, asset management, capital
markets, asset disposition, legal and accounting services. All such services
are included in the REIT Management fee, including capital markets and
development services, which most REITs capitalize (or, in the case of capital
markets, deduct from proceeds). The REIT Management fee is paid monthly and
was $10.4 million for the year ended December 31, 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--REIT
Management Agreement". See "Prospectus Summary--Recent Developments" for a
description of a proposal that ATLANTIC has received from Security Capital
Group to exchange the REIT Manager and SCG Realty Services for Shares.
SECURITY CAPITAL GROUP INVESTOR AGREEMENT
ATLANTIC and Security Capital Group are parties to an Investor Agreement,
dated as of October 28, 1993 (the "Investor Agreement"), which required
Security Capital Group to purchase $21.5 million in Shares, subject to certain
conditions. The Investor Agreement, among other things, requires ATLANTIC to
obtain Security Capital Group's approval of (i) the annual operating budget
and substantial deviations therefrom, (ii) contracts for investment
management, property management or leasing services or that contemplate annual
payments in excess of $100,000 and (iii) acquisitions or dispositions in a
single transaction or a group of related transactions where the purchase price
exceeds $5 million. The Investor Agreement also provides that, so long as
Security Capital Group owns at least 10% of the outstanding Shares, ATLANTIC
may not increase the Board to more than seven members. Security Capital Group
is entitled to designate one or more persons as Directors, and ATLANTIC is
obligated to use its best efforts to cause the election of such persons, as
follows: (i) so long as Security Capital Group owns at least 10%, but less
than 20%, of the outstanding Shares, it is entitled to nominate two persons;
and (ii) so long as Security Capital Group owns at least 20% of the
outstanding Shares, it is entitled to nominate three persons.
SHAREHOLDERS' AGREEMENT
To facilitate ATLANTIC's acquisition of certain communities from Laing,
Security Capital Group granted Laing certain rights to require Security
Capital Group to purchase Laing's Shares at pre-agreed prices. ATLANTIC
assumed Security Capital Group's first put obligation for 2,500,000 Shares and
on March 31, 1995 purchased such Shares from Laing at $22.00 per Share. In
exchange for ATLANTIC's assumption of the first put obligation, Security
Capital Group purchased $94.8 million of Shares at $22.00 per Share from
ATLANTIC in a private offering. In November 1995, ATLANTIC assumed Security
Capital Group's second put obligation for 1,250,000 Shares at $23.136 per
Share. In exchange for ATLANTIC's assumption of the second put obligation,
Security Capital Group
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purchased 1,250,000 Shares at a price of $23.136 per Share and purchased an
additional $21.1 million of Shares at $23.00 per Share in a private offering.
Security Capital Group's purchase under the third put obligation of 1,250,000
Shares (representing all Shares owned by Laing) at $24.53 per Share occurred
on July 1, 1996.
PROPERTY MANAGEMENT COMPANY
Commencing May 12, 1994, SCG Realty Services, an affiliate of the REIT
Manager, began providing property management services for certain of
ATLANTIC's communities. The agreement terminates September 30, 1997, subject
to earlier termination by ATLANTIC on 30 days' notice, is renewable annually
upon approval of ATLANTIC's independent Directors and contemplates a fee to
SCG Realty Services of 3.5% per annum of property revenues for properties
located in Atlanta and Washington, D.C. markets and 3.75% per annum of
community revenues for all other communities, paid monthly, which was $4.2
million for the year ended December 31, 1996. The REIT Manager anticipates
that SCG Realty Services will manage additional ATLANTIC properties in the
future. Any management contracts executed with SCG Realty Services are
expected to be at market rates. See "Business--ATLANTIC's Operating System--
Property Management". See "Prospectus Summary--Recent Developments" for a
description of a proposal that ATLANTIC has received from Security Capital
Group to exchange the REIT Manager and SCG Realty Services for Shares.
HOMESTEAD TRANSACTION
In March 1996, the Board began considering ways for ATLANTIC to maximize
shareholder value with respect to its Homestead Village properties. In May
1996, ATLANTIC, PTR, Security Capital Group and Homestead entered into a
merger agreement, pursuant to which each of ATLANTIC, PTR and Security Capital
Group agreed to sell, through a series of merger transactions, all of their
respective assets relating to Homestead Village properties to Homestead, and
ATLANTIC and PTR agreed to enter into the Funding Commitment Agreements (see
"--Funding Commitment Agreement"). ATLANTIC's and PTR's respective
shareholders approved the Homestead transaction on September 13, 1996 and
September 12, 1996, respectively, and the closing of the Homestead transaction
occurred on October 17, 1996, which resulted in ATLANTIC (a) owning 4,201,220
shares of Homestead common stock, (b) owning 2,818,517 warrants to purchase
one share of Homestead common stock at $10.00 per share, (c) owning up to
$98.0 million in convertible mortgage notes as described below (see "--Funding
Commitment Agreement") and (d) providing a cash payment of $16.6 million to
Homestead on the closing date. The $16.6 million payment was required because
ATLANTIC's Homestead Village properties, only one of which was operating, were
in earlier stages of development than PTR's Homestead Village properties,
therefore, ATLANTIC had not funded the same percentage of total costs as PTR.
The payment also assured that ATLANTIC received all of its shares of Homestead
common stock at the closing of the transaction rather than in smaller
increments over time as funds are expended to complete the properties
contributed by ATLANTIC. ATLANTIC distributed the Homestead common stock and
warrants which it received to its shareholders pro rata in the Homestead
Distribution on November 12, 1996. Each holder of record of a Share on October
29, 1996 received 0.110875 shares of Homestead common stock and warrants to
purchase 0.074384 shares of Homestead common stock.
FUNDING COMMITMENT AGREEMENT
Pursuant to the applicable Funding Commitment Agreement, ATLANTIC agreed to
make mortgage loans to Homestead of up to $111.1 million, which amount was
anticipated to be sufficient to complete the development of the Homestead
Village facilities contributed by ATLANTIC. ATLANTIC received 2,818,517
warrants, each to purchase one share of Homestead common stock, in exchange
for its entering into the Funding Commitment Agreement, which ATLANTIC
subsequently distributed pro rata to its shareholders in the Homestead
Distribution. Each Homestead warrant is exercisable at $10.00 per share and
expires October 27, 1997. The exercise price was determined based on the
overall structure of the Homestead transaction and, in particular, considering
Homestead's future capital needs and a desire to provide liquidity to
ATLANTIC's shareholders with respect to their
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warrants. ATLANTIC will receive convertible mortgage notes in respect of
fundings under the Funding Commitment Agreement in stated amounts of up to
$98.0 million. The effect of these provisions of the Funding Commitment
Agreement is that ATLANTIC will fund $1,133,535 for each $1,000,000 principal
amount of convertible mortgage loans. The convertible mortgage loans will be
recorded for financial reporting purposes at a premium of approximately $13.0
million which will be amortized and recorded as an adjustment to interest
income over the ten-year term of the mortgage loans using the effective
interest method. The relative ownership percentages of ATLANTIC, PTR and
Security Capital Group in Homestead were determined based upon the relative
value of the contributed assets assuming that all of the properties to be
contributed had been developed and were fully operational. ATLANTIC agreed to
fund convertible mortgages to provide for the development of the Homestead
Village properties and to achieve its ownership allocations. The funded amount
of ATLANTIC under the convertible mortgages therefore was in an amount that
was anticipated, pursuant to development budgets, to be sufficient to complete
the development of the Homestead Village properties contributed by ATLANTIC.
The difference between the funded amount and the stated amount of the
convertible mortgage loans arose because the rate of return on the existing
Homestead Village facilities contributed by PTR was projected to exceed the
rate of return on the Homestead Village facilities contributed by ATLANTIC and
PTR to Homestead which were under construction or in pre-development planning.
This expected difference in the rates of return arose because, as of July 1,
1996, PTR was expected to have 28 Homestead Village facilities in operation
and generating income, while ATLANTIC was expected to have none and the
average property development costs for the existing PTR Homestead Village
properties, on balance, were expected to be less than those for the ATLANTIC
and PTR Homestead Village properties projected to be built in the future
because a large portion of the existing PTR Homestead Village properties were
in planning or under development during 1992 and 1993 when land prices and
construction costs were less than they were when the transaction was
negotiated and were anticipated to be over the next 18 months. Because of the
foregoing factors, and as a result of Homestead's desire to issue a single
class of convertible mortgage notes bearing a 9% per annum interest rate, the
stated amounts of the convertible mortgage notes were adjusted to provide an
effective yield (after giving effect to the premium due to the issuance of the
Homestead warrants and the convertibility of the mortgage notes) to each of
ATLANTIC (8.46% on a fully funded basis) and PTR (12.42% on a fully funded
basis) that was reflective of the relative rates of return anticipated to be
realized on all of the facilities contributed by ATLANTIC and PTR,
respectively. The obligation of ATLANTIC is limited to a specific dollar
amount for each property identified in the Funding Commitment Agreement. Upon
any determination by Homestead to commence development of a property
identified in the Funding Commitment Agreement, Homestead is required to
notify ATLANTIC and ATLANTIC is required to fund up to the full amount of its
obligation with respect to such property. Homestead is required to endeavor in
good faith to complete the development of such property consistent with the
development plans for such property. Each mortgage note issued by Homestead
pursuant to the Funding Commitment Agreement is convertible into shares of
Homestead common stock on the basis of one share of Homestead common stock for
every $11.50 of principal outstanding on the mortgage loan. The obligation of
Homestead to call for funding of, and the obligation of ATLANTIC to provide
funding for, the mortgage loans expire on March 31, 1998, except with respect
to properties for which Homestead has given notice that it intends to develop.
Interest on the mortgage notes accrues at the rate of 9% per annum on the
unpaid principal balance, payable every six months. The mortgage notes are
scheduled to mature on October 31, 2006, and are not callable until October
27, 2001. Homestead has pledged the assets being contributed by ATLANTIC as
collateral for the mortgage loans being made by ATLANTIC. Through February 19,
1997, ATLANTIC had funded $13.0 million of its commitment under the Funding
Commitment Agreement and had received $11.5 million of convertible mortgage
notes.
PROTECTION OF BUSINESS AGREEMENT
ATLANTIC entered into a protection of business agreement with Homestead at
the closing of the Homestead transaction which prohibits ATLANTIC and its
affiliates from engaging, directly or indirectly,
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in the extended-stay lodging business except through Homestead and its
subsidiaries. The agreement also prohibits Homestead from, directly or
indirectly, engaging in the ownership, operation, development, management or
leasing of multifamily properties. The agreement does not prohibit ATLANTIC
from: (i) owning securities of Homestead; (ii) owning up to 5% of the
outstanding securities of another person engaged in owning, operating,
developing, managing or leasing extended-stay lodging properties, so long as it
does not actively participate in the business of such person; (iii) owning the
outstanding securities of another person, a majority owned subsidiary,
division, group, franchise or segment of which is engaged in owning, operating,
developing, managing or leasing extended-stay lodging properties, so long as
not more than 5% of such person's consolidated revenues are derived from such
properties; and (iv) owning securities of another person primarily engaged in a
business other than owning, operating, developing, managing or leasing
extended-stay lodging properties, including a person primarily engaged in
business as an owner, operator or developer of hotel properties, whether or not
such person owns, operates, develops, manages or leases extended-stay lodging
properties. The agreement does not prohibit Homestead from: (i) owning
securities of ATLANTIC, PTR or Security Capital Group; (ii) owning up to 5% of
the outstanding securities of another person engaged in owning, operating,
developing, managing or leasing garden-style multifamily properties; and (iii)
owning the outstanding securities of another person, a majority-owned
subsidiary, division, group, franchise or segment of which is engaged in
owning, operating, developing, managing or leasing garden-style multifamily
properties, so long as not more than 5% of such person's consolidated revenues
are derived from such properties. The agreement will terminate in the event of
an acquisition, directly or indirectly (other than by purchase from ATLANTIC,
PTR or Security Capital Group or any of their respective affiliates), by any
person (or group of associated persons acting in concert), other than ATLANTIC,
PTR or Security Capital Group or their respective affiliates, of 25% or more of
the outstanding voting stock of Homestead, without the prior written consent of
Homestead's board of directors. Subject to earlier termination pursuant to the
preceding sentence, the Protection of Business Agreement will terminate on
October 17, 2006.
HOMESTEAD INVESTOR AGREEMENT
ATLANTIC entered into an investor and registration rights agreement with
Homestead at the closing of the Homestead transaction pursuant to which
ATLANTIC is entitled to designate one person for nomination to the Homestead
Board of Directors, and Homestead will use its best efforts to cause the
election of such nominee, until March 31, 1998 and for so long thereafter as
ATLANTIC has the right to convert in excess of $20 million in principal amount
of loans made pursuant to its Funding Commitment Agreement. Such nominee may,
but need not, include the same person(s) nominated by Security Capital Group
pursuant to Security Capital Group's investor agreement with Homestead. In
addition, Homestead has granted to ATLANTIC registration rights with respect to
the distribution of all of the shares of Homestead common stock issuable upon
conversion of the convertible mortgage notes. Prior to October 22, 1997,
ATLANTIC may request one registration of those shares of Homestead common stock
which are issued upon conversion of any or all of the convertible mortgage
notes during such one-year period and which it intends to distribute to its
stockholders. After such one-year anniversary, ATLANTIC may request three
additional registrations pursuant to Rule 415 promulgated under the Securities
Act of all shares of Homestead common stock issued or issuable upon conversion
of the convertible mortgage notes. Such registration, except for the fees and
disbursements of counsel to ATLANTIC, shall be at the expense of Homestead.
DEVELOPMENT AGREEMENT
ATLANTIC and Hanover Realty Services Inc. ("Hanover") are parties to several
development agreements, in connection with the acquisition and development of
six communities. In consideration for Hanover's development of these
communities the development agreements provide that ATLANTIC will make certain
earnout payments to Hanover either in the form of cash, Shares or shares of
Security Capital Group's common stock, as determined in the sole discretion of
Hanover. The amount of such
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payments shall be determined on a per site basis and shall be a percentage of
the amount by which annualized net operating income, capitalized at a rate as
provided by the agreement, exceeds the total actual project costs. In February
1997, Hanover was paid $0.8 million with respect to one community. The
aggregate amount of such earnout amounts for the five remaining communities,
however, cannot exceed $5.8 million. Hanover was not entitled to receive any
earnout payments at January 31, 1997 on the five remaining communities.
OTHER TRANSACTIONS WITH AFFILIATES
In ATLANTIC's March through June 1995 private offering, Security Capital
Group purchased $94.8 million of Shares at $22.00 per Share. In ATLANTIC's
December 1995 through May 1996 private offering, Security Capital Group
purchased an aggregate of $50 million of Shares, $21.1 million of which were
purchased at $23.00 per Share (which was the price per Share paid by other
investors in the offering) and $28.9 million of which were purchased at
$23.136 per Share. See "--Shareholders' Agreement". In ATLANTIC's October 1996
initial public offering, Security Capital Group purchased $10 million of
Shares at $24.00 per Share. Except as described above, all subscriptions were
made on the same terms and at the same times as made available to other
investors.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of February 19, 1997, the beneficial
ownership of Shares for (i) each person known to ATLANTIC to be the beneficial
owner of more than 5% of ATLANTIC's Shares, (ii) each Director of ATLANTIC and
(iii) the Directors and executive officers of ATLANTIC as a group. Unless
otherwise indicated in the footnotes, all of such interests are owned
directly, and the indicated person or entity has sole voting and investment
power.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED ALL SHARES
------------------- ------------------ ----------
<S> <C> <C>
Security Capital Group Incorporated ...... 21,545,669(1) 56.9%
125 Lincoln Avenue
Santa Fe, NM 87501
Ameritech Pension Trust .................. 2,223,320 5.9
Ameritech Corporation
225 West Randolph Street
HQ-13A
Chicago, IL 60606
General Motors Investment Management
Corporation.............................. 2,173,913(2) 5.7
767 Fifth Avenue
New York, NY 10153
Manuel A. Garcia III...................... 11,000(3) *
P.O. Box 2066
Davgar Restaurants, Inc.
Winter Park, FL 32790
Ned S. Holmes ............................ 58,500(3)(4) *
Parkway Investments/Texas, Inc.
55 Waugh Drive
Houston, TX 77007
Constance B. Moore........................ 11,600 *
Six Piedmont Center
Atlanta, GA 30305
James C. Potts............................ 13,050 *
Six Piedmont Center
Atlanta, GA 30305
John M. Richman........................... 11,000(3) *
Wachtell, Lipton, Rosen & Katz
227 West Monroe Street, Suite 4825
Chicago, IL 60606
All Directors and executive officers as a
group
(10 persons)............................. 105,150 *
</TABLE>
- --------
* Less than 1%
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(1) These Shares are owned of record by SC Realty Incorporated, a wholly-owned
subsidiary of Security Capital Group, and are pledged to secure Security
Capital Group's $300 million revolving line of credit facility with a
syndicate of banks. As of February 19, 1997, there were $109.5 million of
outstanding borrowings under the line of credit. The line of credit is
also secured by securities owned by Security Capital Group of PTR, SCI,
Homestead and Security Capital U.S. Realty, an entity based in Luxembourg
which invests in real estate operating companies in the United States.
Security Capital Group estimates that the aggregate market value of the
pledged securities exceeded $2.8 billion as of February 19, 1997. Security
Capital Group was in compliance with all covenants under the line of
credit at December 31, 1996.
(2) 1,956,522 of these Shares are owned by the General Motors Hourly-Rate
Employees Pension Trust and 217,391 of these Shares are owned by the
General Motors Salaried Employees Pension Trust.
(3) Includes 1,000 Shares each for Messrs. Garcia, Holmes and Richman which
are issuable upon exercise of Options granted under the Outside Directors
Plan. See "REIT Management--Outside Directors Plan".
(4) Mr. Holmes directly owns 2,500 of these Shares. Mr. Holmes may be deemed
to beneficially own 55,000 of these Shares which are owned by Mr. Holmes'
wife and children and by Holmes Family Venture Ltd., a family entity with
respect to which Mr. Holmes shares voting and dispositive power.
DESCRIPTION OF STOCK
The following summary of the terms of the stock of ATLANTIC does not purport
to be complete and is subject to and qualified in its entirety by reference to
ATLANTIC's Charter and Bylaws, copies of which have been filed as exhibits to
the registration statement of which this Prospectus forms a part.
GENERAL
The authorized stock of ATLANTIC consists of 250,000,000 Shares. The Board
may classify or reclassify any unissued Shares from time to time by setting or
changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or 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. For a
description of certain provisions that could have the effect of delaying,
deferring or preventing a change in control, see "Risk Factors--Limitations on
Acquisition of Shares and Change in Control", "Certain Relationships and
Transactions--Security Capital Group Investor Agreement" and "Certain
Provisions of Maryland Law and of ATLANTIC's Charter and Bylaws".
The transfer agent and registrar for the Shares is The First National Bank
of Boston, 150 Royall Street, Canton, Massachusetts 02021.
COMMON STOCK
The outstanding Shares are fully paid and nonassessable. Each 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 Shares can elect all of the Directors
then standing for election. Shareholders are entitled to such distributions as
may be authorized from time to time by the Directors 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 has paid
consecutive distributions of $0.30 per Share for 1994 quarters, $0.40 per
Share for 1995 quarters and $0.42 per Share for the first three quarters of
1996.
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On November 12, 1996, the Homestead Distribution was made to shareholders of
record on October 29, 1996. On December 16, 1996, in light of the Homestead
transaction and ATLANTIC's initial public offering, ATLANTIC paid a fourth
quarter 1996 distribution of $0.39 per Share. On February 19, 1997, ATLANTIC
paid a distribution of $0.39 per Share. See "Price Range of ATLANTIC Shares
and Distributions".
In the event of any liquidation, dissolution or winding-up of the affairs of
ATLANTIC, holders of Shares will be entitled, subject to the preferential
rights of holders of preferred stock, if any, 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 restriction on
transfers of Shares, all Shares have equal distribution, liquidation and other
rights, and shall have no preference, preemptive, conversion or exchange
rights.
PREFERRED STOCK
The Board is empowered by ATLANTIC's Charter, without the approval of
shareholders, to classify or reclassify any unissued shares of ATLANTIC's
stock from time to time. Prior to the issuance of any such stock, the Board is
required to set, subject to the provisions of ATLANTIC's Charter regarding the
restriction on transfers of stock, the terms, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for such
stock. The issuance of preferred stock could have the effect of delaying or
preventing a change in control of ATLANTIC and may adversely affect the voting
and other rights of shareholders. No shares of preferred stock are outstanding
and ATLANTIC has no present plans to issue any preferred stock other than as
contemplated by the Rights Agreement (as defined below).
PURCHASE RIGHTS
On March 12, 1996, the Board declared a dividend of one Purchase Right for
each Share outstanding at the close of business on March 12, 1996 (the "Rights
Record Date") to the holders of Shares of record as of the Rights Record Date.
The dividend was paid on the Rights Record Date. The holders of any additional
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 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: (1) 10 business days
following a public announcement that a person or group of affiliated or
associated persons (excluding Security Capital Group) has acquired beneficial
ownership of 20% or more of the outstanding Shares (thereby becoming an
"Acquiring Person"), (2) 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 persons (excluding Security Capital Group) of 25% or more of the
outstanding Shares or (3) 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, request, submission or other document with any
federal or state regulatory authority seeking approval of, attempting to
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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 (other than Security Capital Group) becoming
the beneficial owner of 25% or more of the outstanding Shares, other than a
transaction in which newly issued 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 Share certificates outstanding
as of the Rights Record Date, until the Rights Distribution Date, the Purchase
Rights will be evidenced by such Share certificate. Until the Rights
Distribution Date (or earlier redemption or expiration of the Purchase
Rights), new Share certificates issued after the Rights Record Date upon
transfer or new issuance of 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 Shares so that such
person would no longer be an Acquiring Person, then such person shall not be
deemed to be an Acquiring Person for purposes of the Rights Agreement.
The Purchase Rights 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 be
entitled to a minimum preferential quarterly distribution payment of $1 per
share but will be entitled to an aggregate distribution of 50 times the
distribution declared per Share. Each Participating Preferred Share will have
50 votes, voting together with the Shares. In the event of liquidation, the
holders of the Participating Preferred Shares will be entitled to a minimum
preferential liquidation payment of $1 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 Share. In the event of any merger,
consolidation or other transaction in which Shares are exchanged, each
Participating Preferred Share will be entitled to receive 50 times the amount
received per Share. In the event of 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.
In the event that 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 thereafter be void), will thereafter have the
right to receive upon exercise a number of Shares having a market value
(determined in accordance with the Rights Agreement) of twice the Purchase
Price. In lieu of the issuance of Shares upon exercise of Purchase Rights, the
Board may, under certain circumstances, and if there is an insufficient number
of 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 Shares which otherwise would have been issuable upon
exercise of Purchase Rights.
In the event that, 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
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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
thereof 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
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 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 relating to the securities issuable upon exercise of 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, 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 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 that attempts to acquire
ATLANTIC on terms not approved by its 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 of the Shares. The form of Rights
Agreement specifying the terms of the Purchase Rights has been incorporated by
reference into the registration statement of which this Prospectus forms a
part and is incorporated herein by reference. 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.
RESTRICTION ON SIZE OF HOLDINGS OF SHARES
ATLANTIC's Charter contains certain restrictions on the number of shares of
ATLANTIC's stock that 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 short 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.
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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 shares of ATLANTIC's stock. The Board, upon receipt of a
ruling from the Internal Revenue Service (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 shares of
ATLANTIC's stock 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 shares of ATLANTIC's stock that would (i) create a
direct or indirect ownership of shares of ATLANTIC's stock in excess of the
Ownership Limit, (ii) result in the shares of ATLANTIC's stock 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, shall be null and void ab initio, and the intended transferee
will acquire no rights to the shares of ATLANTIC's stock. The foregoing
restrictions on transferability and ownership 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
Group (and its transferees) from the foregoing ownership restriction.
Any shares the purported transfer of which would result in a person owning
shares of ATLANTIC's stock in excess of the Ownership Limit or cause ATLANTIC
to become "closely held" under Section 856(h) of the Code that is not
otherwise permitted as provided above will constitute excess shares ("Excess
Shares"), which will be transferred pursuant to 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 restrictions on ownership. While these Excess
Shares are held in trust, distributions on such Excess Shares will be paid to
the trust for the benefit of the Charitable Beneficiary and may only be voted
by the trustee for the benefit of the Charitable Beneficiary. Subject to the
Ownership Limit, the Excess Shares shall 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 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 as reported
on any exchange or quotation system over or through which the relevant class
of shares of stock may be traded, or if not then traded over or through any
exchange or quotation system, then the market price on the relevant date as
determined in good faith by the Board.
From and after the purported transfer to the purported transferee of the
Excess Shares, the purported transferee shall cease to be entitled to
distributions (other than liquidating distributions), voting rights and other
benefits with respect to the Excess Shares except the right to payment on the
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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 shall be repaid, upon demand, to ATLANTIC, which shall 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 Shares will bear a legend referring to the
restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other percentage between 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 shall upon demand be required to
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 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 Shares
might receive a premium for their Shares over the then-prevailing market price
or which such holders might believe to be otherwise in their best interest.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF ATLANTIC'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and
ATLANTIC's Charter and Bylaws. The summary 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, copies of which have been incorporated by
reference as exhibits to the Registration Statement of which this Prospectus
forms a part.
CLASSIFICATION OF THE BOARD
ATLANTIC's Charter provides that the number of Directors may be increased or
decreased from time to time by the 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 1997, another class will
hold office initially for a term expiring at the annual meeting of
shareholders to be held in 1998 and another class will hold office initially
for a term expiring at the annual meeting of shareholders to be held in 1999.
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 board provision could increase the likelihood
that incumbent Directors will retain their positions.
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DIRECTOR LIABILITY LIMITATION AND INDEMNIFICATION
Maryland law permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. ATLANTIC's Charter
contains such a provision which eliminates such liability to the maximum
extent permitted by Maryland law.
ATLANTIC's officers and Directors are and will be indemnified under
ATLANTIC's Charter against certain liabilities. ATLANTIC's Charter provides
that ATLANTIC will, to the maximum extent permitted by Maryland law in effect
from time to time, indemnify and pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any individual who is a
present or former Director or officer of ATLANTIC or (b) any individual who,
while a Director of ATLANTIC and at the request of ATLANTIC, serves or has
served another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise. ATLANTIC has the power, with the approval of
the Board, to provide such indemnification and advancement of expenses to a
person who served a predecessor of ATLANTIC in any of the capacities described
in (a) or (b) above and to any employee or agent of ATLANTIC or its
predecessors.
Maryland law requires a corporation (unless its charter provides otherwise,
which ATLANTIC's Charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding
to which he or she is made a party by reason of his or her service in that
capacity. Maryland law permits a corporation to indemnify its present and
former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. Maryland law permits ATLANTIC to advance
reasonable expenses to a director or officer upon ATLANTIC's receipt of (a) a
written affirmation by the Director or officer of his or her good faith belief
that he or she has met the standard of conduct necessary for indemnification
by ATLANTIC as authorized by ATLANTIC's Bylaws and (b) a written statement by
or on his or her behalf to repay the amount paid or reimbursed by ATLANTIC if
it shall ultimately be determined that the standard of conduct was not met.
Additionally, ATLANTIC has entered into indemnity agreements with each of
its officers and Directors which provide for reimbursement of all expenses and
liabilities of such officer or Director, arising out of any lawsuit or claim
against such officer or Director due to the fact that he or she was or is
serving as an officer or Director, except for such liabilities and expenses
(a) the payment of which is judicially determined to be unlawful, (b) relating
to claims under Section 16(b) of the Exchange Act or (c) relating to
judicially determined criminal violations.
Insofar as indemnification for liabilities arising under the Securities Act
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.
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BUSINESS COMBINATIONS
Under Maryland law, certain "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
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 time 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 (a) 80% of the votes entitled to be cast by holders of
outstanding voting shares of the corporation and (b) two-thirds of the votes
entitled to be cast by holders of 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 stockholders 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 that 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 Group and its
affiliates and successors. As a result, Security Capital Group and its
affiliates and successors may be able to enter into business combinations with
ATLANTIC that 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 stockholder 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 stockholders 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 stockholders 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 stockholders at which the
voting rights of such shares are considered and not approved. If
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voting rights for Control Shares are approved at a stockholders meeting and
the acquiror becomes entitled to vote a majority of the shares entitled to
vote, all other stockholders 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 Group 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 stockholder, 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 annual meeting setting forth: (i) as to
each person whom the shareholder proposes to nominate for election or
reelection as a Director, all information relating to such person that is
required to be disclosed in solicitations of proxies for the election of
directors, pursuant to Regulation 14A of the Exchange Act; (ii) as to any
other business that 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 (iii) as to the shareholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made, (x) the name and address of such shareholder
as they appear on ATLANTIC's books, and of such beneficial owner and (y) the
number of Shares which are owned beneficially and of record by such
shareholder and such beneficial owner, if any.
SHARES AVAILABLE FOR FUTURE SALE
As of February 19, 1997, ATLANTIC had 37,891,580 Shares issued and
outstanding, which were held of record by approximately 300 shareholders. Upon
completion of the Offering, ATLANTIC will have 41,891,580 Shares issued and
outstanding and 3,000 Shares reserved for issuance upon exercise of
outstanding Options. ATLANTIC has reserved an additional 97,000 Shares for
future issuance upon exercise of Options under the Outside Directors Plan. See
"REIT Management--Outside Directors Plan". All of the 4,000,000 Shares to be
issued by ATLANTIC in the Offering (other than any Shares purchased by
affiliates) will be tradeable without restriction under the Securities Act,
along with the 4,940,000 Shares issued in ATLANTIC's October 1996 initial
public offering (other than the 416,666 Shares which were purchased by
Security Capital Group and any other Shares which were purchased by
affiliates). The rest of the Shares currently issued and outstanding or
reserved for issuance upon exercise of options will be eligible for sale,
subject to the volume resale, manner of sale and notice limitations of Rule
144 of the Securities Act.
In general, under Rule 144, a person (or persons whose Shares are aggregated
in accordance with the Rule) who has beneficially owned his or her Shares for
at least two years, including any such persons who may be deemed "affiliates"
of ATLANTIC (as defined in the Securities Act), would be entitled to sell
within any three-month period a number of Shares that does not exceed the
greater of 1% of the then outstanding number of Shares or the average weekly
trading volume of the Shares during the four calendar weeks preceding each
such sale. After Shares are held for three years, a person who is not deemed
an "affiliate" of ATLANTIC is entitled to sell such Shares under Rule 144
without regard to the volume limitations described above. Sales of Shares by
affiliates will continue to
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be subject to the volume limitations. As defined in Rule 144, an "affiliate"
of an issuer is a person that directly or indirectly, through the use of one
or more intermediaries, controls, is controlled by, or is under common control
with, such issuer.
ATLANTIC has granted Security Capital Group, which beneficially owns
21,545,669 Shares, the right to demand, at any time, registration of all or
any part of the Shares owned by Security Capital Group pursuant to Rule 415 of
the Securities Act. In addition, ATLANTIC has agreed to file a registration
statement (in October 1997) pursuant to Rule 415 of the Securities Act for up
to $50 million of Shares on behalf of certain investors who purchased Shares
in ATLANTIC's last private offering. The persons entitled to register their
securities are responsible for all costs and expenses (other than ATLANTIC's
legal, audit and certain accounting fees) incident to any registration of the
type discussed in this paragraph.
No prediction can be made as to the effect, if any, that future sales of
Shares or the availability of Shares for future sale will have on the market
price prevailing from time to time. Sales of substantial amounts of Shares
(including Shares issued upon the exercise of options), or the perception that
such sales could occur, could adversely affect the prevailing market price of
the Shares.
FEDERAL INCOME TAX CONSIDERATIONS
ATLANTIC intends to operate in a manner that permits it to satisfy the
requirements for taxation as a REIT under the applicable provisions of the
Code. No assurance can be given, however, that such requirements will be met.
The following is a description of 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 ATLANTIC's Shares is urged to consult his or her own tax advisor with
respect to the federal, state, local, foreign and other tax consequences of
the purchase, ownership and disposition of the Shares.
Based upon certain representations of ATLANTIC with respect to the facts as
set forth and explained in the discussion below, in the opinion of Mayer,
Brown & Platt, counsel to ATLANTIC, ATLANTIC has been organized in conformity
with the requirements for qualification as a REIT beginning with its taxable
year ended December 31, 1994, and its proposed method of operation described
in this Prospectus and as represented by management will enable it to satisfy
the requirements for such qualification.
This opinion is conditioned upon certain representations made by ATLANTIC as
to certain factual matters relating to ATLANTIC's organization and intended or
expected manner of operation. In addition, this opinion is based on the law
existing and in effect on the date hereof. ATLANTIC's qualification and
taxation as a REIT will depend upon ATLANTIC's ability to meet on a continuing
basis, through actual operating results, asset composition, distribution
levels and diversity of stock ownership, the various qualification tests
imposed under the Code discussed below. Mayer, Brown & Platt will not review
compliance with these tests on a continuing basis. No assurance can be given
that ATLANTIC will satisfy such tests on a continuing basis.
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are met, entities, such as ATLANTIC, that invest primarily in real
estate and that otherwise would be treated for federal income tax purposes as
corporations, are generally not taxed at the corporate level on their "REIT
taxable income" that is currently distributed to shareholders. This treatment
substantially eliminates the "double taxation" (at both the corporate and
shareholder levels) that generally results from the use of corporations.
If ATLANTIC fails to qualify as a REIT in any year, however, it will be
subject to federal income taxation as if it were a domestic corporation, and
its shareholders will be taxed in the same manner as
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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 that permits it to qualify as a REIT in each taxable year thereafter.
There can be no assurance, however, that this expectation will be fulfilled,
since qualification as a REIT depends on ATLANTIC continuing to satisfy
numerous asset, income and distribution tests described below, which in turn
will be dependent in part on ATLANTIC's operating results.
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 that 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 United States) 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. 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
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during the second half of each taxable year, no more than 50% in value of the
stock of ATLANTIC may be owned, directly or indirectly and by applying certain
constructive ownership rules, by five or fewer individuals, which for this
purpose includes certain tax-exempt entities. Any stock held by a qualified
domestic pension or other retirement trust will be treated as held directly by
its beneficiaries in proportion to their actuarial interest in such trust
rather than by such trust. Pursuant to the constructive ownership rules,
Security Capital Group's ownership of shares is attributed to its shareholders
for purposes of the 50% test.
In order to ensure compliance with the 50% test, ATLANTIC has placed certain
restrictions on the transfer of the shares of its stock to prevent additional
concentration of ownership. Moreover, to evidence compliance with these
requirements under United States Treasury Department ("Treasury") regulations,
ATLANTIC must maintain records which disclose the actual ownership of its
outstanding shares of stock. In fulfilling its obligations to maintain
records, ATLANTIC must and will demand written statements each year from the
record holders of designated percentages of shares of its stock disclosing the
actual owners of such shares (as prescribed by Treasury regulations). 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 Stock--Restriction on Size of
Holdings of Shares". 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 GAAP). 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 one non-
government issuer, 5% of the value of ATLANTIC's total assets or (ii) 10% of
the outstanding voting securities of any one such issuer. Where ATLANTIC
invests in a partnership, it will be deemed to own a proportionate share of
the partnership's assets.
GROSS INCOME TESTS
There are three separate percentage tests relating to the sources of
ATLANTIC's gross income which must be satisfied for each taxable year. For
purposes of these tests, where 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
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acquired at or in lieu of a foreclosure of the mortgage collateralized by
such property ("foreclosure property"); and (vii) commitment fees received
for agreeing to make loans collateralized by mortgages on real property or
to purchase or lease real property.
Rents received from a resident will not, however, qualify as rents from
real property in satisfying the 75% test (or the 95% gross income test
described below) if ATLANTIC, or an owner of 10% or more of ATLANTIC,
directly or constructively owns 10% or more of such resident. In addition,
if rent attributable to personal property leased in connection with a lease
of real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will
not qualify as rents from real property. Moreover, an amount received or
accrued will not qualify as rents from real property (or as interest
income) for purposes of the 75% and 95% gross income tests if it is based
in whole or in part on the income or profits of any person, although an
amount received or accrued generally will not be excluded from "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Finally, for rents received to qualify as
rents from real property, ATLANTIC generally must not operate or manage the
property or furnish or render services to residents, other than through an
"independent contractor" from whom ATLANTIC derives no income, except that
the "independent contractor" requirement does not apply to the extent that
the services provided by ATLANTIC are "usually or customarily rendered" in
connection with the rental of multifamily units for occupancy only, or are
not otherwise considered "rendered to the occupant for his convenience".
2. THE 95% TEST. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of ATLANTIC's gross income for the
taxable year must be derived from the above-described qualifying income, or
from dividends, interest or gains from the sale or disposition of stock or
other securities that are not dealer property. Dividends (other than on
REIT shares) and interest on any obligations not collateralized by an
interest in real property are included for purposes of the 95% test, but
not for purposes of the 75% test.
For purposes of determining whether ATLANTIC complies with the 75% and
95% income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property
(excluding foreclosure property) unless such property is held by ATLANTIC
for at least four years and certain other requirements (relating to the
number of properties sold in a year, their tax bases, and the cost of
improvements made thereto) are satisfied. See "--Taxation of ATLANTIC--
General".
Even if ATLANTIC fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code.
These relief provisions will generally be available if: (i) ATLANTIC's
failure to comply was due to reasonable cause and not to willful neglect;
(ii) ATLANTIC reports the nature and amount of each item of its income
included in the tests on a schedule attached to its tax return; and (iii)
any incorrect information on this schedule is not due to fraud with intent
to evade tax. If these relief provisions apply, however, ATLANTIC will
nonetheless be subject to a special tax upon the greater of the amount by
which it fails either the 75% or 95% gross income test for that year.
3. THE 30% TEST. ATLANTIC must derive less than 30% of its gross income
for each taxable year from the sale or other disposition of: (i) real
property held for less than four years (other than foreclosure property and
involuntary conversions); (ii) stock or securities held for less than one
year; and (iii) property in a prohibited transaction. ATLANTIC does not
anticipate that it will have any substantial difficulty in complying with
this test.
ANNUAL DISTRIBUTION REQUIREMENTS
In order to qualify as a REIT, ATLANTIC is required to make distributions
(other than capital gain dividends) to its shareholders each year in an amount
at least equal to (i) the sum of (a) 95% of
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ATLANTIC's REIT taxable income (computed without regard to the dividends paid
deduction and the REIT's net capital gain) and (b) 95% of the net income
(after tax), if any, from foreclosure property, minus (ii) the sum of certain
items of non-cash income. Such distributions must be paid in the taxable year
to which they relate, or in the following taxable year if declared before
ATLANTIC timely files its tax return for such year and if paid on or before
the first regular dividend payment after such declaration. To the extent that
ATLANTIC does not distribute all of its net capital gain or distributes at
least 95%, but less than 100%, of its REIT taxable income, as adjusted, it
will be subject to tax on the undistributed amount at regular capital gains or
ordinary corporate tax rates, as the case may be.
ATLANTIC intends to make timely distributions sufficient to satisfy the
annual distribution requirements. It is possible that ATLANTIC may not have
sufficient cash or other liquid assets to meet the 95% distribution
requirement, due to timing differences between the actual receipt of income
and actual payment of expenses on the one hand, and the inclusion of such
income and deduction of such expenses in computing ATLANTIC's REIT taxable
income on the other hand. To avoid any problem with the 95% distribution
requirement, ATLANTIC will closely monitor the relationship between its REIT
taxable income and cash flow and, if necessary, intends to borrow funds in
order to satisfy the distribution requirement. However, there can be no
assurance that such borrowing would be available at such time.
If ATLANTIC fails to meet the 95% distribution requirement as a result of an
adjustment to ATLANTIC's tax return by the IRS, ATLANTIC may retroactively
cure the failure by paying a "deficiency dividend" (plus applicable penalties
and interest) within a specified period.
FAILURE TO QUALIFY
If ATLANTIC fails to qualify for taxation as a REIT in any taxable year and
the relief provisions do not apply, ATLANTIC will be subject to applicable
federal and state tax (including any applicable alternative minimum tax) on
its taxable income at regular corporate rates. Distributions to shareholders
in any year in which ATLANTIC fails to qualify will not be deductible by
ATLANTIC, nor generally will they be required to be made under the Code. In
such event, to the extent of current and accumulated earnings and profits, all
distributions to shareholders will be taxable as ordinary income and, subject
to certain limitations in the Code, corporate distributees may be eligible for
the dividends received deduction. Unless entitled to relief under specific
statutory provisions, ATLANTIC also will be disqualified from re-electing
taxation as a REIT for the four taxable years following the year during which
qualification was lost.
HOMESTEAD MORTGAGES. Since consummation of the Homestead transaction,
ATLANTIC has held mortgage notes of Homestead which are convertible into
shares of Homestead common stock. See "Certain Relationships and
Transactions--Funding Commitment Agreements". Pursuant to the terms of the
Funding Commitment Agreement, ATLANTIC funded $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
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not hold any Homestead common stock at such time. The deemed distribution
would constitute a taxable dividend, taxable as ordinary income, to the extent
that the earnings and profits of Homestead were allocable to the deemed
distribution. The amount of the deemed distribution which exceeded the
allocated earnings and profits of Homestead would be considered a return of
capital and would reduce ATLANTIC's tax basis in the convertible mortgages
(but not below zero) by the value of the deemed distribution. To the extent
that the value of the deemed distribution exceeds ATLANTIC's tax basis in the
convertible mortgages, the deemed distribution would result in gain to
ATLANTIC. ATLANTIC's tax basis in the convertible mortgages would then
immediately be increased by the value of the property deemed to have been
distributed.
Except as discussed below with respect to cash received in lieu of
fractional shares of Homestead common stock, ATLANTIC will not recognize gain
or loss upon the exercise of the conversion right. ATLANTIC's tax basis in the
Homestead common stock received upon the conversion will be equal to
ATLANTIC's tax basis in the mortgages converted. Upon conversion of the
mortgages, ATLANTIC will receive cash in lieu of any fractional shares of
Homestead common stock and will recognize gain to the extent that the cash
received exceeds ATLANTIC's tax basis in the portion of the mortgages
converted for cash in lieu of fractional shares. In the event that ATLANTIC
exercises its conversion right, it is expected that ATLANTIC, consistent with
its status as a REIT, will shortly thereafter distribute to its shareholders
or sell in the open market the Homestead common stock received. ATLANTIC will
recognize gain upon such distribution or sale of the Homestead common stock
received upon conversion in an amount equal to the excess of the fair market
value of the Homestead common stock over ATLANTIC's tax basis therein, and the
earnings and profits of ATLANTIC will be increased by the amount of any such
gain recognized. In computing its taxable income for the year in which any
Homestead common stock is distributed, ATLANTIC will be allowed a dividends
paid deduction in an amount equal to the fair market value at the time of
distribution of the Homestead common stock distributed, but in no event in
excess of the earnings and profits of ATLANTIC.
TAXATION OF 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 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). See "Price Range of ATLANTIC Shares and Distributions". 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
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capital loss, to the extent of distributions from ATLANTIC required to be
treated by such shareholder as long-term capital gains.
BACKUP WITHHOLDING
ATLANTIC will report to its domestic shareholders and to the IRS the amount
of dividends 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 dividends 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 that
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 nonforeign
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, trusts 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
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shareholder files with ATLANTIC the required form evidencing such lower rate
or (ii) the foreign shareholder files an IRS Form 4224 with ATLANTIC claiming
that the distribution is "effectively connected" income. Treasury Regulations
proposed in 1996, which have not yet been adopted, and are therefore not
currently effective, would, if and when they become effective, revise in
certain respects the rules applicable to foreign shareholders with respect to
payments made after December 31, 1997.
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
TAX ON BUILT-IN GAIN
Pursuant to I.R.S. Notice 88-19, 1988-1 C.B. 486, a "C" corporation that
elects to be taxed as a REIT has to recognize any gain that would have been
realized if the "C" corporation had sold all of its assets for their
respective fair market values at the end of its last taxable year before the
taxable year in which it qualifies to be taxed as a REIT and immediately
liquidated unless the REIT elects to be taxed under rules similar to the rules
of Section 1374 of the Code.
Since ATLANTIC has made this election, if during the 10-year period
beginning on the first day of the first taxable year for which ATLANTIC
qualifies as a REIT (the "Recognition Period"), ATLANTIC recognizes gain on
the disposition of any asset held by ATLANTIC as of the beginning of such
Recognition Period, then, to the extent of the excess of (a) the fair market
value of such asset as of the beginning of such Recognition Period over (b)
ATLANTIC's adjusted basis in such asset as of the beginning of such
Recognition Period, such gain will be subject to tax at the highest regular
corporate rate. Because ATLANTIC acquired many of its communities in fully
taxable transactions and presently expects to hold each community beyond the
Recognition Period, it is not anticipated that ATLANTIC will pay a substantial
corporate level tax on its built-in gain.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX CONSEQUENCES
Prospective 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
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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 Shares 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 PURCHASE,
OWNERSHIP AND SALE OF SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REAL
ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, ATLANTIC
has agreed to sell to each of the Underwriters named below, and each of such
Underwriters, for whom Goldman, Sachs & Co. are acting as representatives, has
severally agreed to purchase from ATLANTIC, the respective number of Shares
set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Goldman, Sachs & Co.........................................
---------
Total................................................... 4,000,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Shares offered
hereby, if any are taken.
The Underwriters propose to offer the Shares in part directly to the public
at the initial public offering price set forth on the cover page of this
Prospectus and in part to certain securities dealers at such price less a
concession of $ per Share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per Share to
certain brokers and dealers. After the Shares are released for sale to the
public, the offering price and other selling terms may from time to time be
varied by the representatives.
ATLANTIC has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 600,000
additional Shares solely to cover over-allotments, if any. If the Underwriters
exercise their over-allotment option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of Shares to be purchased by each of them, a shown in
the foregoing table, bears to the 4,000,000 Shares offered.
Security Capital Group and ATLANTIC have agreed that, during the period
beginning from the date of this Prospectus and continuing to and including the
date 90 days after the last closing of the Offering, and certain of ATLANTIC's
Directors and officers have agreed that, during the period
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beginning from the date of this Prospectus and continuing to and including the
date 180 days after the last closing of the Offering, they will not offer,
sell, contract to sell or otherwise dispose of any securities of ATLANTIC
(except (i) pursuant to employee or director stock option plans existing, or
on the conversion or exchange of convertible or exchangeable securities
outstanding, on the date of this Prospectus, (ii) pursuant to rights offerings
to existing shareholders (which may include sales of unsubscribed and
additional Shares to third parties), (iii) for the issuance of limited
partnership interests (which partnership interests may be exchangeable for
Shares after such 90-day period) and (iv) for the issuance of Shares to
Security Capital Group in connection with the proposed transaction pursuant to
which ATLANTIC would become an internally managed REIT) which are
substantially similar to the Shares or which are convertible into or
exchangeable for securities which are substantially similar to the Shares
without the prior written consent of Goldman, Sachs & Co., except that
ATLANTIC may sell Shares to the Underwriters in connection with the Offering.
ATLANTIC has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
Goldman, Sachs & Co. and its affiliates in the past provided investment
banking services for ATLANTIC and affiliates of ATLANTIC. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources". Goldman, Sachs & Co. was the managing
underwriter of ATLANTIC's initial public offering in October 1996. Finally, in
connection with the Homestead transaction, Goldman, Sachs & Co. provided a
fairness opinion to PTR and has been engaged to provide a fairness opinion to
SCI in connection with the proposal made by Security Capital Group to SCI that
SCI become an internally managed REIT.
EXPERTS
The financial statements and related schedule of ATLANTIC included in this
Prospectus and elsewhere in the registration statement of which this
Prospectus forms a part have been audited by Ernst & Young LLP, independent
auditors, to the extent indicated in their reports thereon also appearing
elsewhere herein and in the registration statement. Such financial statements
have been included herein in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
VALIDITY OF SHARES
The validity of the issuance of the Shares offered pursuant to this
Prospectus will be passed upon for ATLANTIC by Mayer, Brown & Platt, Chicago,
Illinois. Certain legal matters will be passed upon for the Underwriters by
Sullivan & Cromwell, New York, New York. Mayer, Brown & Platt has in the past
represented and is currently representing ATLANTIC, Security Capital Group and
certain of their affiliates.
ADDITIONAL INFORMATION
ATLANTIC is subject to the informational requirements of the Exchange Act,
and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: Seven World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such reports, proxy statements and other information can also be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005. In addition, such reports, proxy statements and other information can
also be obtained from the Commission's Web site at http://www.sec.gov.
101
<PAGE>
This Prospectus constitutes a part of a Registration Statement filed by
ATLANTIC with the Commission under the Securities Act. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations
of the Commission. Statements contained in this Prospectus as to the content of
any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document
incorporated by reference in, or filed as an exhibit to, the Registration
Statement, each such statement being qualified in all respects by such
reference and the exhibits and schedules hereto. For further information
regarding ATLANTIC and the Shares offered hereby, reference is hereby made to
the Registration Statement and such exhibits and schedules.
102
<PAGE>
GLOSSARY
"Acquiring Person" means a person or group of affiliated or associated
persons (excluding certain affiliates of ATLANTIC and certain current
shareholders) that has acquired beneficial ownership of 20% or more of the
outstanding Shares.
"ADA" means the Americans with Disabilities Act of 1990.
"Administrator" means the Secretary of ATLANTIC as administrator of the
Outside Directors Plan.
"ASE" means the American Stock Exchange.
"ATLANTIC" means, as the context may require, Security Capital Atlantic
Incorporated, a Maryland corporation formed in April 1994 and/or its
predecessor and its subsidiaries.
"Atlantic Development Services" means Atlantic Development Services
Incorporated, an entity in which ATLANTIC owns substantially all of the
economic interest.
"Board" means ATLANTIC's Board of Directors.
"Capital Markets Group" means Security Capital Markets Group Incorporated,
an affiliate of the REIT Manager and a registered broker-dealer.
"Charitable Beneficiary" means an organization or organizations described in
Sections 170(b)(1)(A) and 170(c) of the Code and identified by the Board as
the beneficiary or beneficiaries of the Excess Shares trust.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Control Share acquisition" means, under Maryland law, the acquisition of
Control Shares, subject to certain exceptions.
"Control Shares" means, under Maryland law, 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.
"Excess Shares" means shares of ATLANTIC's stock that would result in a
person owning shares of ATLANTIC's stock in excess of the Ownership Limit or
cause ATLANTIC to become "closely held" under Section 856(h) of the Code,
unless acquired in a permitted transfer.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FHA" means the Fair Housing Amendments Act of 1988.
"Final Expiration Date" means March 12, 2006.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980.
"FNMA" means the Federal National Mortgage Association.
"Funds from operations" means net earnings (computed in accordance with
GAAP), excluding gains (or losses) from real estate transactions, provisions
for losses, extraordinary items and depreciation, and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for
103
<PAGE>
unconsolidated partnerships and joint ventures are calculated to reflect funds
from operations on the same basis.
"GAAP" means generally accepted accounting principles.
"Historical Financial Results" means selected financial information on an
historical basis for ATLANTIC as of and for the years ended December 31, 1996,
1995 and 1994 and the period ended December 31, 1993.
"Homestead" means Homestead Village Incorporated, a Maryland corporation.
"Homestead Assets" means the assets ATLANTIC contributed to Homestead on
October 17, 1996.
"Homestead Distribution" means the distribution on November 12, 1996 by
ATLANTIC of 0.110875 shares of Homestead common stock and warrants to purchase
0.074384 shares of Homestead common stock to each holder of a Share on October
29, 1996.
"In planning" means communities owned or under control by ATLANTIC (land
which is under control through contingent contract or letter of intent) with
construction anticipated to commence within 12 months.
"Interested Stockholder" means any person who beneficially owns 10% or more
of the voting power of a Maryland corporation's shares or an affiliate of a
Maryland corporation who, at any time 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.
"Investor Agreement" means the Investor Agreement dated October 28, 1993
between Security Capital Group and ATLANTIC.
"IRS" means the Internal Revenue Service.
"Laing" means Laing Properties, Inc.
"NAREIT" means the National Association of Real Estate Investment Trusts.
"NYSE" means the New York Stock Exchange, Inc.
"Offering" means the offering of Shares to the public by ATLANTIC pursuant
to this Prospectus.
"Options" means options to acquire Shares granted pursuant to the Outside
Directors Plan.
"Outside Directors" means the Directors of ATLANTIC who are not employees or
officers of ATLANTIC or Security Capital Group or any of its affiliates.
"Outside Directors Plan" means the Security Capital Atlantic Incorporated
Share Option Plan for Outside Directors.
"Ownership Limit" means 9.8% of the number or value of the issued and
outstanding shares of ATLANTIC's stock.
"Participating Preferred Shares" means the shares of Series A Junior
Participating Preferred Stock, $0.01 par value per share.
104
<PAGE>
"Pro Forma Financial Results" means selected financial information on a pro
forma basis for ATLANTIC as of and for the year ended December 31, 1996.
"PTR" means Security Capital Pacific Trust, a publicly traded REIT managed
by an affiliate of Security Capital Group.
"Purchase Price" means $40 per one one-hundredth of a Participating
Preferred Share.
"Purchase Right" means a preferred share purchase right entitling the
holder, under certain circumstances, to purchase Participating Preferred
Shares or Shares pursuant to the Rights Agreement.
"Recognition Period" means the 10-year period beginning on the first day of
the first taxable year for which ATLANTIC qualifies as a REIT.
"Redemption Price" means $0.01 per Purchase Right.
"REIT" means a real estate investment trust as defined under the Code.
"REIT Management Agreement" means the REIT management agreement pursuant to
which the REIT Manager assumed the day-to-day management of ATLANTIC.
"REIT Manager" or "REIT Management" means Security Capital (Atlantic)
Incorporated, a wholly owned subsidiary of Security Capital Group.
"Rights Agreement" means the Rights Agreement governing the terms upon which
the Purchase Rights will become exercisable.
"Rights Distribution Date" means the earlier to occur of (i) 10 days
following a public announcement that a person has become an Acquiring Person
or (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 persons
(excluding certain affiliates of ATLANTIC and certain current shareholders) of
25% or more of the outstanding Shares.
"Rights Record Date" means March 12, 1996.
"SCG Realty Services" means SCG Realty Services Atlantic Incorporated, an
affiliate of the REIT Manager.
"SCI" means Security Capital Industrial Trust, a publicly traded REIT
managed by an affiliate of Security Capital Group.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Capital Group" means Security Capital Group Incorporated,
ATLANTIC's principal shareholder and the owner of the REIT Manager.
"Security Capital Investment Research" means Security Capital Investment
Research Incorporated, an affiliate of the REIT Manager.
"Shares" means the shares of common stock, par value $.01 per share, of
ATLANTIC.
"Stabilized" means that renovation, repositioning, new management and new
marketing programs (or development and marketing in the case of newly
developed communities) have been completed
105
<PAGE>
and in effect for a sufficient period of time (but in no event longer than 12
months, except in cases of major rehabilitation) to achieve 93% occupancy at
market rents. Prior to being "stabilized", a community is considered "pre-
stabilized".
"Treasury" means the United States Treasury Department.
"UBTI" means unrelated business taxable income as defined under the Code.
"Under control" means that ATLANTIC has an exclusive right (through
contingent contract or letter of intent) during a contractually agreed-upon
time period to acquire land for future development of multifamily communities,
subject to removal of contingencies during the due diligence process, but does
not currently own the land.
"Underwriting Agreement" means the Underwriting Agreement between ATLANTIC
and the Underwriters.
"Underwriters" means the Underwriters named in the Prospectus.
106
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HISTORICAL:
Report of Independent Auditors.......................................... F-2
Balance Sheets as of December 31, 1996 and 1995......................... F-3
Statements of Earnings for the years ended December 31, 1996, 1995 and
1994................................................................... F-4
Statements of Shareholders' Equity for the years ended December 31,
1994, 1995 and 1996.................................................... F-5
Statements of Cash Flows for the years ended December 31, 1996, 1995 and
1994................................................................... F-6
Notes to Financial Statements........................................... F-7
Schedule III--Real Estate and Accumulated Depreciation.................. F-21
Note to Schedule III.................................................... F-26
PRO FORMA (UNAUDITED):
Summary of Pro Forma adjustments........................................ F-27
Pro Forma Balance Sheet as of December 31, 1996......................... F-28
Pro Forma Statement of Earnings for the year ended December 31, 1996.... F-29
Notes to Pro Forma Financial Statements................................. F-30
COMBINED HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
PURSUANT TO RULE 3-14:
Report of Independent Auditors.......................................... F-34
Group C Communities Combined Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1995......... F-35
Notes to Group C Communities Combined Historical Summary of Gross Income
and Direct Operating Expenses.......................................... F-36
Report of Independent Auditors.......................................... F-37
Group D Communities Combined Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1995......... F-38
Notes to Group D Communities Combined Historical Summary of Gross Income
and Direct Operating Expenses.......................................... F-39
Report of Independent Auditors.......................................... F-41
Group E Communities Combined Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1995......... F-42
Notes to Group E Communities Combined Historical Summary of Gross Income
and Direct Operating Expenses.......................................... F-43
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and ShareholdersSECURITY CAPITAL ATLANTIC INCORPORATED
We have audited the accompanying balance sheets of Security Capital Atlantic
Incorporated as of December 31, 1996 and 1995, and the related statements of
earnings, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Security Capital Atlantic
Incorporated at December 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Supplemental Schedule of Real
Estate and Accumulated Depreciation is presented for purposes of additional
analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, is fairly stated
in all material respects in relation to the basic financial statements taken
as a whole.
Ernst & Young LLP
Dallas, TexasFebruary 3, 1997
F-2
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
---------- --------
<S> <C> <C>
ASSETS
------
Real estate.............................................. $1,157,235 $888,928
Less accumulated depreciation............................ 41,166 23,561
---------- --------
Net investments in real estate......................... 1,116,069 865,367
Cash and cash equivalents--unrestricted.................. 4,339 6,494
Cash and cash equivalents--restricted tax-deferred
exchange proceeds....................................... 1,672 --
Other assets............................................. 12,985 13,963
---------- --------
Total assets........................................... $1,135,065 $885,824
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Line of credit......................................... $ 228,000 $190,000
Mortgages payable...................................... 155,790 118,524
Distributions payable.................................. 14,778 --
Accounts payable....................................... 20,076 11,030
Accrued expenses and other liabilities................. 17,779 9,332
---------- --------
Total liabilities.................................... 436,423 328,886
---------- --------
Shareholders' equity:
Common shares (250,000,000 authorized, 37,891,580
issued and outstanding at December 31, 1996 and
27,762,817 issued and outstanding at December 31,
1995)................................................. 379 278
Additional paid-in capital............................. 747,640 576,824
Distributions in excess of net earnings................ (49,377) (20,164)
---------- --------
Total shareholders' equity........................... 698,642 556,938
---------- --------
Total liabilities and shareholders' equity........... $1,135,065 $885,824
========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Revenues:
Rental income...................................... $137,729 $103,634 $55,071
Interest income.................................... 427 245 149
-------- -------- -------
138,156 103,879 55,220
-------- -------- -------
Expenses:
Rental expenses.................................... 36,808 27,814 15,260
Real estate taxes.................................. 12,293 9,570 5,595
Property management fees:
Paid to affiliate................................ 4,208 3,475 1,536
Paid to third parties............................ 971 591 661
Depreciation....................................... 20,824 15,925 8,770
Interest........................................... 16,181 19,042 9,240
REIT management fee paid to affiliate.............. 10,445 6,923 3,671
General and administrative......................... 673 646 266
Provision for possible loss on investments......... 2,500 -- --
Other.............................................. 255 254 295
-------- -------- -------
105,158 84,240 45,294
-------- -------- -------
Earnings from operations............................. 32,998 19,639 9,926
Gain on disposition of real estate................. 6,732 -- --
Gain on sale of Homestead Assets................... 2,839 -- --
-------- -------- -------
Earnings before extraordinary item................... 42,569 19,639 9,926
Extraordinary item--loss on early extinguishment of
debt.............................................. 3,940 -- --
-------- -------- -------
Net earnings......................................... $ 38,629 $ 19,639 $ 9,926
======== ======== =======
Weighted-average shares outstanding.................. 32,028 21,944 12,227
======== ======== =======
Per share amounts:
Earnings per share before extraordinary item....... $ 1.33 $ 0.89 $ 0.81
======== ======== =======
Net earnings per share............................. $ 1.21 $ 0.89 $ 0.81
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON DISTRIBUTIONS
SHARES ADDITIONAL IN EXCESS
AT PAR PAID-IN OF NET
VALUE CAPITAL EARNINGS TOTAL
------ ---------- ------------- --------
<S> <C> <C> <C> <C>
Balances at December 31, 1993........ $ 16 $ 31,618 $ 38 $ 31,672
Net earnings....................... -- -- 9,926 9,926
Distributions paid................. -- -- (14,648) (14,648)
Shares issued--private offerings... 170 339,510 -- 339,680
---- -------- -------- --------
Balances at December 31, 1994........ 186 371,128 (4,684) 366,630
Net earnings....................... -- -- 19,639 19,639
Distributions paid................. -- -- (35,119) (35,119)
Shares issued--private offerings... 130 289,578 -- 289,708
Shares repurchased................. (38) (83,882) -- (83,920)
---- -------- -------- --------
Balances at December 31, 1995........ 278 576,824 (20,164) 556,938
Net earnings....................... -- -- 38,629 38,629
Distributions paid................. -- -- (53,064) (53,064)
Distributions--Homestead........... -- (58,228) -- (58,228)
Distributions accrued.............. -- -- (14,778) (14,778)
Shares issued--private offerings... 52 119,125 -- 119,177
Shares issued--initial public
offering.......................... 49 109,919 -- 109,968
---- -------- -------- --------
Balances at December 31, 1996........ $379 $747,640 $(49,377) $698,642
==== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net earnings................................ $ 38,629 $ 19,639 $ 9,926
Adjustments to reconcile net earnings to net
cash flow provided by operating activities:
Depreciation and amortization............. 22,492 17,496 9,480
Provision for possible loss on
investments.............................. 2,500 -- --
Gain on disposition of real estate........ (6,732) -- --
Gain on sale of Homestead Assets.......... (2,839) -- --
Extraordinary item-loss on early
extinguishment of debt................... 3,940 -- --
Increase (decrease) in accounts payable... (374) 937 1,909
Increase in accrued expenses and other
liabilities.............................. 1,993 3,053 6,141
Increase in other assets.................. (5,253) (1,393) (3,892)
--------- --------- ---------
Net cash flow provided by operating
activities................................ 54,356 39,732 23,564
--------- --------- ---------
Investing activities:
Real estate investments..................... (331,440) (259,008) (390,077)
Proceeds from disposition of real estate.... 63,544 23,859 --
Cash payment to Homestead................... (16,595) -- --
Tax-deferred exchange proceeds held in es-
crow....................................... (1,672) -- --
Other....................................... (1,255) -- --
--------- --------- ---------
Net cash flow used by investing activities.. (287,418) (235,149) (390,077)
--------- --------- ---------
Financing activities:
Proceeds from sale of shares................ 229,145 289,708 239,680
Repurchase of shares........................ -- (83,920) --
Proceeds from line of credit................ 246,000 270,000 166,000
Payments on line of credit.................. (208,000) (233,000) (13,000)
Proceeds from mortgage debt................. 20,500 -- --
Distributions paid.......................... (53,064) (35,119) (14,648)
Debt issuance costs incurred................ (2,573) (5,019) (5,204)
Regularly scheduled mortgage principal
payments................................... (1,101) (623) (190)
Mortgage principal payments at maturity..... -- (6,378) --
--------- --------- ---------
Net cash flow provided by financing
activities................................. 230,907 195,649 372,638
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................ (2,155) 232 6,125
Cash and cash equivalents, beginning of
year....................................... 6,494 6,262 137
--------- --------- ---------
Cash and cash equivalents, end of year...... $ 4,339 $ 6,494 $ 6,262
========= ========= =========
</TABLE>
See Note 9 for information on non-cash investing and financing activities.
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Security Capital Atlantic Incorporated ("ATLANTIC") is an equity real estate
investment trust organized as a corporation under the laws of the State of
Maryland, which owns, acquires, develops and operates income-producing
multifamily communities in the southeastern United States.
Principles of Financial Presentation
The accounts of ATLANTIC and its wholly owned subsidiaries are consolidated
in the accompanying financial statements. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
ATLANTIC considers all cash on hand, demand deposits with financial
institutions and short-term, highly liquid investments with original
maturities of three months or less to be cash equivalents.
Real Estate and Depreciation
Real estate is carried at cost, which is not in excess of net realizable
value. Costs directly related to the acquisition, renovation or development of
real estate are capitalized. Costs incurred in connection with the pursuit of
unsuccessful acquisitions are expensed at the time the pursuit is abandoned.
Repairs and maintenance, including carpet and appliance replacements, are
expensed as incurred. Renovations and improvements are capitalized and
depreciated over their estimated useful lives.
Depreciation is computed over the economic useful lives of depreciable
property on a straight-line basis. Communities are depreciated principally
over the following periods:
<TABLE>
<S> <C>
Buildings and improvements...................... 20-40 years
Furnishings and other........................... 2-10 years
</TABLE>
Make-Ready and Repairs and Maintenance
Make-ready expenses (expenses incurred in preparing a vacant multifamily
unit for the next resident) and repairs and maintenance, other than
acquisition-related renovation costs identified during ATLANTIC's pre-
acquisition due diligence, are expensed as incurred. ATLANTIC expenses carpet
and appliance repairs and replacements once all planned acquisition-related
renovation expenses for such items have been incurred.
F-7
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Interest
Periodically, ATLANTIC enters into swap agreements to manage its variable
interest rate exposure. Swap agreements are used to exchange interest rate
payment streams based on a notional principal amount. Under the swap
agreements, ATLANTIC pays a fixed rate of interest to a swap counterparty
pursuant to one agreement and receives a variable rate of interest from a swap
counterparty pursuant to another agreement. The amounts received from the
variable rate agreement are structured such that the amount received will
closely approximate the amount of variable interest due on a portion of the
underlying line of credit or mortgage note borrowings. The difference between
the variable amount received and the fixed amount paid represents either the
cost or the benefit of the interest rate swap agreement and is recorded as an
increase or decrease to the variable interest paid on the underlying debt
instrument.
During 1996, 1995 and 1994, the total interest paid in cash on all
outstanding debt was $24,677,000, $20,609,000 and $8,412,000, respectively.
ATLANTIC capitalizes interest as part of the cost of real estate projects
under development. Interest capitalized during 1996, 1995 and 1994 aggregated
$10,250,000, $4,404,000 and $793,000, respectively.
Cost of Raising Capital
Costs incurred in connection with the issuance of shares of common stock,
par value $.01 per share (the "Shares"), are deducted from shareholders'
equity. Costs incurred in connection with the incurrence or renewal of debt
are capitalized, included with other assets and amortized over the term of the
related loan or renewal term. Amortization of deferred financing costs
included in interest expense for 1996, 1995 and 1994 totaled $1,663,000,
$1,568,000 and $707,000, respectively.
Revenue Recognition
Rental and interest income are recorded on the accrual method of accounting.
Gains on sales of real estate are recorded when criteria required by Statement
of Financial Accounting Standards No. 66, Accounting for Sales of Real Estate,
have been met. A provision for possible loss is made when collection of
receivables is considered doubtful.
Rental Expenses
Rental expenses include utilities, repairs and maintenance, make-ready costs
(including carpet and appliance replacement), property insurance, marketing,
landscaping, on-site personnel and other administrative costs.
Federal Income Taxes
ATLANTIC has made an election to be taxed as a real estate investment trust
under the Internal Revenue Code of 1986, as amended. ATLANTIC believes it
qualifies as a real estate investment trust. Accordingly, no provisions have
been made for federal income taxes in the accompanying financial statements.
Per Share Data
Per share data is computed based on the weighted average number of Shares
outstanding during the period. The Share and per Share amounts included in the
financial statements have been restated to reflect the reverse Share split
discussed in Note 6.
F-8
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Reclassifications
Certain of the 1995 and 1994 amounts have been reclassified to conform to
the 1996 presentation.
NOTE 2 HOMESTEAD TRANSACTION
On October 17, 1996, ATLANTIC sold its moderate-priced, purpose-built,
extended-stay lodging facilities known as Homestead Village(R) properties to
Homestead Village Incorporated ("Homestead"). In the transaction, ATLANTIC
sold one operating property and 25 properties under construction or in
planning (or the rights to acquire such properties) and paid $16.6 million in
cash (the "Homestead Assets"). In addition, ATLANTIC entered into a funding
commitment agreement to provide secured financing of up to $111.1 million to
Homestead for purposes of completing the development and construction of the
properties sold in the transaction. The Homestead transaction was treated as a
sale for financial accounting purposes, but was treated as a contribution for
tax purposes.
The transaction resulted in ATLANTIC receiving 4,201,220 shares of common
stock of Homestead in exchange for the Homestead Assets and 2,818,517 warrants
to purchase one share of Homestead common stock at $10 per share in exchange
for entering into the funding commitment agreement. On November 12, 1996,
ATLANTIC distributed the Homestead common stock and warrants to its
shareholders of record on October 29, 1996 (the "Homestead Distribution").
ATLANTIC shareholders received 0.110875 shares of Homestead common stock and
0.074384 Homestead warrants per Share. ATLANTIC will receive up to $98.0
million of convertible mortgage notes from Homestead in exchange for funding
up to $111.1 million under the funding commitment agreement. The difference
between the amounts funded and the convertible mortgage notes received of
$13.1 million (assuming full funding of the funding commitment) represents a
mortgage note premium that will be amortized as a reduction to interest income
over the term of the convertible mortgage notes.
ATLANTIC realized a gain of $2.8 million, after deducting expenses
associated with the transaction, representing the excess value of the
Homestead common stock received over the recorded basis of the Homestead
Assets. The Homestead warrants received represent a funding commitment fee
which has been valued at $6.5 million. The conversion feature of the
convertible mortgage notes has been valued at $6.9 million (assuming full
funding of the funding commitment). These deferred credits will be amortized
as an increase to interest income over the term of the convertible mortgage
notes.
The convertible mortgage notes received from Homestead will bear interest at
9% per annum, will be due October 2006, will not be callable until 2001 and
will be convertible commencing March 31, 1997 at the option of the holder into
one share of Homestead common stock for every $11.50 of principal amount
outstanding. Upon full funding of ATLANTIC's convertible mortgage notes, its
conversion rights would represent a 15.35% ownership in Homestead (assuming no
further equity offerings by Homestead, conversion of all convertible mortgage
notes and exercise of all outstanding warrants). The effective yield on the
convertible mortgage notes, assuming conversion of all convertible mortgage
notes and exercise of all outstanding warrants, is estimated to be 8.46%,
after giving effect to the mortgage note premium, the funding commitment fee
and the conversion value of the convertible mortgage notes. At December 31,
1996, no funds had been advanced pursuant to the funding commitment agreement
and there were no convertible mortgage notes outstanding. ATLANTIC advanced
$6.0 million under the funding commitment agreement in January 1997.
F-9
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3 REAL ESTATE
Investment in Real Estate
Investments in real estate, at cost, were as follows (dollar amounts in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1996 1995
-------------------- -------------------
INVESTMENT UNITS INVESTMENT UNITS
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Multifamily:
Operating communities:
Acquired.................... $ 878,029 17,727 $757,986 15,355
Developed................... 74,741 1,514 23,097 468
---------- ------ -------- ------
952,770 19,241 781,083 15,823
Developments under
construction................. 194,587 4,727 94,094 2,958
Developments in planning:
Owned....................... 7,795 868(1) 9,830 1,258(1)
Under control(2)............ -- 2,228(1) -- 922(1)
---------- ------ -------- ------
7,795 3,096 9,830 2,180
Land held for future
development.................. 2,083 -- 1,294 --
---------- ------ -------- ------
Total multifamily(3)...... 1,157,235 27,064 886,301 20,961
---------- ------ -------- ------
Homestead Village(R)
properties(4).................. -- -- 2,627 2,515
---------- ------ -------- ------
Total..................... $1,157,235(5) 27,064 $888,928(5) 23,476
========== ====== ======== ======
</TABLE>
- --------
(1) Unit information is based on management's estimates and is unaudited.
(2) ATLANTIC's investment at December 31, 1996 and 1995 for multifamily
developments under control was $1.4 million and $0.6 million,
respectively, and is reflected in the "Other assets" caption of ATLANTIC's
balance sheets.
(3) At December 31, 1996, ATLANTIC had unfunded commitments for multifamily
developments under construction of $95.9 million, for a total completed
construction cost of $290.5 million. Cost for multifamily developments in
planning shown above are primarily for land acquisitions.
(4) ATLANTIC sold all of its Homestead Village(R) properties to Homestead on
October 17, 1996. The Homestead transaction is discussed in Note 2.
(5) Of ATLANTIC's investment in real estate, at cost, communities located in
Atlanta, Georgia aggregated 30.7% and 36.4% at December 31, 1996 and 1995,
respectively.
F-10
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The change in investments in real estate, at cost, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Beginning balances.............................. $ 888,928 $631,260 $ 31,005
Acquisitions and renovation expenditures........ 179,752 187,267 571,288
Development expenditures, including land
acquisitions................................... 179,783 101,335 28,967
Recurring capital expenditures.................. 2,783 -- --
Provision for possible loss..................... (2,500) -- --
Dispositions.................................... (59,988) (30,934) --
Sale of Homestead Assets........................ (31,523) -- --
---------- -------- --------
Ending balances................................. $1,157,235 $888,928 $631,260
========== ======== ========
</TABLE>
Third Party Owner/Developers
To enhance its flexibility in developing and acquiring multifamily
communities, ATLANTIC has and will enter into presale agreements to acquire
communities developed by third-party owner/developers where the developments
meet ATLANTIC's investment criteria. ATLANTIC has and will fund such
developments through development loans to these owner/developers. In addition,
to provide greater flexibility for the use of land acquired for development
and to dispose of excess parcels, ATLANTIC plans to make mortgage loans to
Atlantic Development Services Incorporated ("Atlantic Development Services")
to purchase land for development. ATLANTIC owns all of the preferred stock of
Atlantic Development Services, which entitles ATLANTIC to substantially all of
the net operating cash flow (95%) of Atlantic Development Services. All of the
common stock of Atlantic Development Services is owned by an unaffiliated
trust. The common stock is entitled to receive the remaining 5% of net
operating cash flow. As of December 31, 1996, the outstanding balance of
development and mortgage loans made by ATLANTIC to third-party
owner/developers and Atlantic Development Services aggregated $15,413,000 and
none, respectively. The activities of Atlantic Development Services and third-
party owner/developers are consolidated with ATLANTIC's activities and all
intercompany transactions have been eliminated in consolidation.
Gains and Losses from Dispositions or Impairments of Real Estate
ATLANTIC acquires and develops communities with a view to effective long-
term operation and ownership. Each year, REIT Management generates operating
and capital plans based on an ongoing active review of ATLANTIC's portfolio.
Based upon ATLANTIC's market research and in an effort to optimize its
portfolio composition, ATLANTIC may from time to time dispose of assets that
no longer meet its long-term investment objectives and redeploy the proceeds,
preferably through tax-deferred exchanges, into assets with better prospects
for growth.
As a result of this asset optimization strategy, ATLANTIC disposed of four
operating communities aggregating 1,184 units in 1996. A gain was recognized
on each disposition with the total gain aggregating $6,732,000. These four
communities accounted for $3,648,000 and $5,174,000 of net operating income
during 1996 and 1995, respectively. Each disposition has been included in a
tax-deferred exchange. At December 31, 1996, ATLANTIC held a portion of the
proceeds from one of these dispositions aggregating $1,672,000 in an interest-
bearing escrow account. These funds were used in the acquisition of a land
parcel in January 1997, completing the tax-deferred exchange.
ATLANTIC disposed of two communities in 1995. The proceeds from these
dispositions were not materially different from the book value of the assets
on the date of disposition. These two communities accounted for $2,409,000 of
net operating income during 1995.
F-11
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Statement of Financial Accounting Standards No. 121, Accounting For The
Impairment of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of
("SFAS No. 121"), adopted by ATLANTIC effective January 1, 1996, establishes
accounting standards for the review of long-lived assets to be held and used
for impairment whenever the carrying amount of an asset may not be
recoverable. SFAS No. 121 also requires that certain long-lived assets to be
disposed of be reported at the lower of carrying amount or fair value less
cost to sell. ATLANTIC did not recognize any losses on the date it adopted
SFAS No. 121.
Long-lived investments held and used are periodically evaluated for
impairment and provisions for possible losses are made if required. As of
December 31, 1996, such investments are carried at cost, which is not in
excess of fair market value and no provisions for possible losses have been
made. ATLANTIC recognized a provision for possible loss of $2,500,000 in 1996
associated with a community that is being held for sale. The carrying value of
this community at December 31, 1996 was $8,842,000. This community is not
being depreciated during the period in which it is being held for sale.
ATLANTIC expects the disposition of this community to occur in 1997. This
community accounted for $959,000, $1,023,000 and $501,000 of net operating
income for 1996, 1995 and 1994, respectively. This income is included in
ATLANTIC's earnings from operations in these years.
NOTE 4 LINE OF CREDIT AND MORTGAGES PAYABLE
Line of Credit
On December 18, 1996, ATLANTIC obtained a $350 million unsecured line of
credit from Morgan Guaranty Trust Company of New York ("MGT"), as agent for a
group of lenders, that replaced the previous $350 million secured line of
credit. Borrowings on the unsecured line of credit bear interest at prime or,
at ATLANTIC's option, LIBOR plus a margin ranging from 1.0% to 1.375%
(currently 1.375% as compared to 1.5% under the previous agreement) depending
on ATLANTIC's debt rating. ATLANTIC's objective is to achieve an investment-
grade debt rating in 1997. ATLANTIC currently pays a commitment fee on the
average unfunded line of credit balance of 0.1875%. If ATLANTIC achieves an
investment-grade debt rating, the commitment fee on the average unfunded line
of credit balance will range from 0.125% to 0.25% per annum, depending on the
amount of undrawn commitments. The line of credit matures December 1998 and
may be extended for one year with the approval of MGT and the other
participating lenders.
In 1996, ATLANTIC expensed all previously unamortized costs associated with
the secured line of credit that was extinguished in 1996. These costs
aggregated $3,940,000 and are reflected as an extraordinary item in ATLANTIC's
1996 statement of earnings.
All debt incurrences under the unsecured line of credit are subject to
certain covenants. Specifically, distributions for the preceding four
quarters, excluding the Homestead Distribution, may not exceed 95% (97% for
distributions made before December 31, 1996) of ATLANTIC's funds from
operations (as defined in the loan agreement) for the preceding four quarters.
ATLANTIC is in compliance with all such covenants.
A summary of ATLANTIC's line of credit borrowings is as follows (dollar
amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Total line of credit.... $350,000 $300,000 $225,000
Borrowings outstanding
at December 31......... 228,000 190,000 153,000
Weighted-average daily
borrowings............. 204,265 178,318 65,556
Maximum borrowings
outstanding at any
month end.............. 234,000 252,000 153,000
Weighted-average daily
interest rate.......... 7.39% 7.92% 7.34%
Weighted-average
interest rate at
December 31............ 7.24% 7.73% 8.17%
</TABLE>
F-12
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In August 1995, ATLANTIC entered into a swap agreement with Goldman Sachs
Capital Markets, L.P. covering $100 million of borrowings under the line of
credit, effectively mitigating a portion of its variable interest rate
exposure. Under this one-year agreement which became effective on February 5,
1996, ATLANTIC paid a fixed rate of interest of 7.46% on the $100 million of
borrowings through December 17, 1996 and 7.335% thereafter. Upon expiration of
the existing swap agreement on February 5, 1997, a swap agreement with MGT
will take effect. The new agreement will provide for a fixed rate of 7.325% on
$100 million of borrowings through February 5, 1998. The interest rate
ATLANTIC will pay under the new agreement will be reduced if ATLANTIC achieves
an investment-grade debt rating and will range from 6.95% to 7.2% depending on
the rating achieved. ATLANTIC paid $332,000 more in interest than it received
under the swap agreement during 1996. ATLANTIC is exposed to credit loss in
the event of non-performance by the swap counterparty; however, ATLANTIC
believes the risk of loss is minimal.
Mortgages Payable
Mortgages payable consisted of the following at December 31, 1996 (dollar
amounts in thousands):
<TABLE>
<CAPTION>
PERIODIC
INTEREST MATURITY PAYMENT PRINCIPAL
COMMUNITY RATE DATE TERMS BALANCE
--------- -------- -------- ---------------- ---------
<S> <C> <C> <C> <C>
Conventional fixed rate:
Cameron Ridge.............. 7.000% 09/18/98(1) fully amortizing $ 5,888
Country Place Village I.... 7.750% 11/01/00 (2) 2,004
Country Oaks............... 7.655% 07/01/02 (3) 5,933
Cameron at Hickory Grove... 8.000% 07/10/03 (4) 5,979
Cameron Villas I........... 8.750% 04/01/24 fully amortizing 6,343
Cameron on the Cahaba II... 7.125% 03/01/29 fully amortizing 8,021
--------
34,168
--------
Tax exempt fixed rate or
variable rate subject to
swap agreements(5):
Cameron Station............ 6.000% 06/01/07 interest only 14,500
Azalea Park................ (6) 06/01/25 interest only 15,500
Cameron Brook.............. (6) 06/01/25 interest only 19,500
Clairmont Crest............ (6) 06/01/25 interest only 11,600
Forestwood................. (6) 06/01/25 interest only 11,485
Foxbridge on the Bay....... (6) 06/01/25 interest only 10,400
The Greens................. (6) 06/01/25 interest only 10,400
Parrot's Landing I......... (6) 06/01/25 interest only 15,835
Sun Pointe Cove............ (6) 06/01/25 interest only 8,500
WintersCreek............... (6) 06/01/25 interest only 5,000
Less amounts held in
principal reserve
fund(7)................... (1,098)
--------
121,622
--------
$155,790
========
Total annual weighted-
average interest rate..... 6.95%
========
</TABLE>
- --------
(1) This loan is callable at the option of the mortgage lender on September
10, 1998 and at subsequent five-year intervals through September 10, 2013.
(2) Interest and principal payments due monthly; balloon payment of $1,849,000
due at maturity.
F-13
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) Interest and principal payments due monthly; balloon payment of $5,539,000
due at maturity.
(4) Interest and principal payments due monthly; balloon payment of $5,556,000
due at maturity.
(5) These communities, in addition to others, are held by Security Capital
Atlantic Multifamily Incorporated, a wholly owned subsidiary of ATLANTIC.
Security Capital Atlantic Multifamily Incorporated is a legal entity that
is separate and distinct from ATLANTIC with separate assets and
liabilities and business operations.
(6) Interest rate is fixed through swap agreements executed in conjunction
with the credit enhancement agreement with the Federal National Mortgage
Association ("FNMA") discussed below. Through these swap agreements,
ATLANTIC has effectively mitigated its variable interest rate exposure.
(7) ATLANTIC has a 30-year credit enhancement agreement with FNMA related to
the tax-exempt bond issues. This credit enhancement agreement requires
ATLANTIC to make monthly payments on each mortgage, based on a 30-year
amortization, into a principal reserve account.
ATLANTIC's swap agreements related to its tax-exempt variable rate mortgages
are summarized as follows:
<TABLE>
<CAPTION>
AMOUNTS FIXED
OF INTEREST
BONDS TERM RATE(1) ISSUER
- ------- -------------------------- -------- ------
<S> <C> <C> <C>
$23.1
million June 1995 to June 2002 6.48% General Re Financial Products Corporation
64.6
million June 1995 to June 2005 6.74 Morgan Guaranty Trust Company of New York
5.0
million March 1996 to March 2006 6.18 Morgan Guaranty Trust Company of New York
15.5
million August 1996 to August 2006 6.51 Morgan Stanley Derivative Products Inc.
----
Weighted-average interest rate.... 6.64%
====
</TABLE>
- --------
(1) Includes the fixed interest rate provided by the swap agreements, annual
fees associated with the swap agreements and credit enhancement agreement
and amortization of capitalized costs associated with the credit
enhancement agreement.
ATLANTIC paid $1,832,000 more in interest during 1996 and $575,000 more in
interest during 1995 than it received under the swap agreements. The swap
agreements cover the principal amount of the bonds, net of amounts deposited
in the principal reserve fund. ATLANTIC pays interest on that portion of bonds
not covered by the swap agreements at the variable rates as provided by the
mortgage agreements. ATLANTIC is exposed to credit loss in the event of non-
performance by the swap counterparties; however, ATLANTIC believes the risk of
loss is minimal.
Real estate with an aggregate undepreciated cost at December 31, 1996 of
$50,714,000 and $206,963,000 serves as collateral for the conventional
mortgages payable and the tax-exempt mortgages payable, respectively.
The change in mortgages payable is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Balances at January 1............................ $118,524 $107,347 $ --
Mortgages assumed................................ 17,867 24,678 107,537
Mortgage proceeds................................ 20,500 -- --
Regularly scheduled principal payments........... (1,101) (623) (190)
Reduction upon disposition of multifamily
community....................................... -- (6,500) --
Principal payments at maturity................... -- (6,378) --
-------- -------- --------
Balances at December 31.......................... $155,790 $118,524 $107,347
======== ======== ========
</TABLE>
F-14
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Approximate principal payments due on mortgages payable during each of the
years in the five-year period ending December 31, 2001 and thereafter are as
follows (in thousands):
<TABLE>
<S> <C>
1997................................................................... $ 1,537
1998................................................................... 7,136
1999................................................................... 1,577
2000................................................................... 3,554
2001................................................................... 1,812
Thereafter............................................................. 140,174
--------
$155,790
========
</TABLE>
NOTE 5 DISTRIBUTIONS
ATLANTIC made total cash distributions of $1.65 per Share in 1996, $1.60 per
Share in 1995 and $1.20 per Share in 1994. On December 19, 1996, ATLANTIC's
Board of Directors (the "Board") declared a distribution of $0.39 per Share
for the first quarter of 1997. The distribution is payable on February 19,
1997.
In addition, on November 12, 1996, ATLANTIC distributed 0.110875 shares of
Homestead common stock and warrants to purchase 0.074384 shares of Homestead
common stock per Share in the Homestead Distribution to each shareholder of
record on October 29, 1996. The Homestead Distribution was valued at $58.2
million based on the estimated fair value of the net assets sold to Homestead.
For federal income tax purposes, the following summarizes the taxability of
cash distributions paid for 1994 and 1995 and the estimated taxability for
1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Per Share:
Ordinary income....................................... $ 0.78 $ 0.92 $ 0.92
Return of capital..................................... 0.87 0.68 0.28
------- ------- -------
Total............................................... $ 1.65 $ 1.60 $ 1.20
======= ======= =======
</TABLE>
The securities distributed to each ATLANTIC shareholder in the Homestead
Distribution were valued at $1.91 per Share for federal income tax purposes,
of which $0.90 was taxable as ordinary income and $1.01 was treated as a
return of capital. ATLANTIC's tax return for the year ended December 31, 1996
has not been filed, and the taxability information for 1996 is based on the
best available data. ATLANTIC's tax returns for prior years have not been
examined by the Internal Revenue Service and, therefore, the taxability of
distributions and dividends is subject to change.
NOTE 6 SHAREHOLDERS' EQUITY
Shares Authorized
At December 31, 1996, 250,000,000 Shares were authorized. The Board may
classify or reclassify any unissued shares of ATLANTIC's stock from time to
time by setting or changing the preferences, conversion or other rights,
voting powers, restrictions, limitations as to distributions, qualifications
and terms or conditions of redemption of such shares. No such shares have been
reclassified, except as described under "Purchase Rights" below, and no
reclassified shares are issued or outstanding.
F-15
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Reverse Share Split
On September 10, 1996, the shareholders of ATLANTIC authorized a one-for-two
reverse split of ATLANTIC's Shares. A transfer from the common shares account
to additional paid-in capital was made to reflect the reduced number of Shares
outstanding after the split. All references in the accompanying financial
statements to the number of Shares and per Share amounts have been restated to
reflect the reverse Share split.
Ownership Restrictions and Significant Shareholder
ATLANTIC's Charter restricts beneficial ownership (or ownership generally
attributed to a person under the REIT tax rules) of ATLANTIC's outstanding
shares of stock by a single person, or persons acting as a group, to 9.8% of
ATLANTIC's outstanding shares of stock. The purpose of this provision is to
assist in protecting and preserving ATLANTIC's REIT status and to protect the
interest of shareholders in takeover transactions by preventing the
acquisition of a substantial block of shares unless the acquiror makes a cash
tender offer for all outstanding shares. For ATLANTIC to qualify as a REIT
under the Internal Revenue Code of 1986, as amended, not more than 50% in
value of its outstanding shares of stock may be owned by five or fewer
individuals at any time during the last half of ATLANTIC's taxable year. The
provision permits five persons to individually acquire up to a maximum of 9.8%
each of the outstanding shares of stock, or an aggregate of 49% of the
outstanding shares and, thus, assists the Board in protecting and preserving
ATLANTIC's REIT status for tax purposes.
Shares of stock owned by a person or group of persons in excess of these
limits are subject to redemption by ATLANTIC. The provision does not apply
where a majority of the Board, in its sole absolute discretion, waives such
limit after determining that the status of ATLANTIC as a REIT for federal
income tax purposes will not be jeopardized or the disqualification of
ATLANTIC as a REIT is advantageous to the shareholders.
The Board has exempted Security Capital Group Incorporated ("Security
Capital Group"), an affiliate of the REIT Manager (see Note 7), from the
ownership restrictions described above. Security Capital Group owned 56.9% of
the outstanding Shares at December 31, 1996. For tax purposes, Security
Capital Group's ownership is attributed to its shareholders.
Capital Offerings
On October 18, 1996, ATLANTIC completed an initial public offering of
4,940,000 Shares at a price of $24.00 per Share (before adjusting for the
Homestead Distribution described in Notes 2 and 5). The Shares, excluding the
416,666 Shares sold to Security Capital Group, were sold through an
underwritten offering. The proceeds from the sale of these 4,940,000 Shares,
net of underwriters' commission and other expenses, were approximately $110.0
million. The proceeds were used to repay borrowings under ATLANTIC's $350
million line of credit.
From inception through May 1996, ATLANTIC raised capital through various
private offerings. ATLANTIC sold a total of 31,701,580 Shares during this
period at prices ranging from $20 to $23.136 per Share. In addition, ATLANTIC
exchanged 5,000,000 Shares at a price of $20 per Share as partial
consideration for the acquisition of a pool of communities in May 1994. The
acquisition price was negotiated prior to the seller becoming a related party.
To facilitate ATLANTIC's transactions with the seller, Security Capital Group
granted the seller certain rights to require Security Capital Group to
purchase the 5,000,000 Shares owned by the seller at pre-agreed prices. In
consideration for Security Capital Group purchasing Shares through its private
offerings, ATLANTIC assumed Security Capital Group's obligation with respect
to 3,750,000 Shares. ATLANTIC repurchased these Shares directly from the
seller. The remaining 1,250,000 Shares were acquired directly from the seller
by Security Capital Group.
F-16
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Option Plan
On March 12, 1996, ATLANTIC adopted the Security Capital Atlantic
Incorporated Share Option Plan for Outside Directors (the "Outside Directors
Plan"). There are 100,000 Shares reserved for issuance upon exercise of
options granted under the Outside Directors Plan. The Outside Directors Plan
provides that each member of the Board who is not an employee of ATLANTIC or
the REIT Manager on the date of each annual meeting of ATLANTIC's shareholders
will receive an option to purchase 1,000 Shares at an exercise price equal to
the fair market value of the Shares on such date. The options will be granted
on the date of the annual meeting of shareholders for the years 1997 through
and including 2006. The options granted are for a term of five years and are
exercisable in whole or in part. At December 31, 1996, 3,000 options had been
granted at an exercise price of $24.00 per Share, none of which have been
exercised.
Purchase Rights
On March 12, 1996, the Board declared and paid a dividend of one preferred
share purchase right ("Purchase Right") for each Share outstanding at the
close of business on March 12, 1996 to the holders of ATLANTIC's Shares on
that date. Holders of additional Shares issued after March 12, 1996 and prior
to the expiration of the rights on March 12, 2006 will be entitled to one
Purchase Right for each additional Share.
Each Purchase Right entitles the holder, under certain circumstances, to
purchase from ATLANTIC two one-hundredths of a share of non-redeemable Series
A Junior Participating Preferred Stock of ATLANTIC, par value $0.01 per share
(the "Participating Preferred Shares"), at a price of $40 per one one-
hundredth of a Participating Preferred Share, subject to adjustment. ATLANTIC
has designated two one-hundredths of the total Shares outstanding at any point
in time as Participating Preferred Shares. Purchase Rights are exercisable
when a person or group of persons (other than certain affiliates of ATLANTIC)
acquire beneficial ownership of 20% or more of the outstanding Shares,
commence or announce a tender offer or exchange offer which would result in
the beneficial ownership by a person or group of persons (other than certain
affiliates of ATLANTIC) of 25% or more of the outstanding Shares or file or
announce their intention to file with any regulatory authority an application
seeking approval of any transaction which would result in the beneficial
ownership by a person or group of persons (other than certain affiliates of
ATLANTIC) of 25% or more of the outstanding Shares. Under certain
circumstances, each Purchase Right entitles the holder to purchase at the
Purchase Right's then current exercise price, a number of Shares having a
market value of twice the Purchase Right's exercise price. The acquisition of
ATLANTIC pursuant to certain mergers or other business transactions would
entitle each holder to purchase, at the Purchase Right's then current exercise
price, a number of the acquiring company's common shares having a market value
at that time equal to twice the Purchase Right's exercise price. The Purchase
Rights held by certain 20% shareholders (other than certain affiliates of
ATLANTIC) would not be exercisable. As of December 31, 1996, ATLANTIC had no
Participating Preferred Shares outstanding and the events required to exercise
the Purchase Rights had not occurred. Therefore, the Purchase Rights dividend
had no value and was not recorded in the financial statements.
NOTE 7 REIT MANAGEMENT AND PROPERTY MANAGEMENT AGREEMENTS
REIT Management Agreement
ATLANTIC has a REIT management agreement (the "REIT Management Agreement")
with Security Capital (Atlantic) Incorporated (the "REIT Manager") to provide
management services to ATLANTIC. The REIT Manager is a subsidiary of Security
Capital Group (see Note 6). All officers of
F-17
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
ATLANTIC are employees of the REIT Manager and ATLANTIC currently has no
employees. The REIT Manager provides both strategic and day-to-day management
of ATLANTIC, including research, investment analysis, acquisition,
development, marketing, disposition of assets, asset management, due
diligence, capital markets, legal and accounting services.
The REIT Management Agreement requires ATLANTIC to pay an annual fee of 16%
of cash flow, as defined in the REIT Management Agreement, payable monthly.
Cash flow is calculated by reference to ATLANTIC's cash flow from operations
plus (i) fees paid to the REIT Manager, (ii) extraordinary expenses incurred
at the request of the independent Directors of ATLANTIC (of which there were
none in the periods reported) and (iii) 33% of any interest paid by ATLANTIC
on convertible subordinated debentures (of which there were none in the
periods reported); and after deducting (i) regularly scheduled principal
payments (excluding prepayments or balloon payments) for debt with
commercially reasonable amortization schedules, (ii) assumed principal and
interest payments on senior unsecured debt treated as having regularly
scheduled principal and interest payments like a 20-year level-payment, fully
amortizing mortgage (of which there were none in the periods reported) and
(iii) distributions actually paid with respect to any non-convertible
preferred stock (of which there were none in the periods reported). Cash flow
does not include: (i) realized gains or losses from dispositions of
investments, (ii) interest income from cash equivalent investments and the
Homestead convertible mortgage notes and dividend and interest income from
Atlantic Development Services, (iii) provisions for possible losses on
investments and (iv) extraordinary items.
The REIT Manager also receives a fee of 0.20% per year on the average daily
balance of cash equivalent investments. ATLANTIC must also reimburse the REIT
Manager for third-party and out-of-pocket expenses relating to travel,
transaction costs and similar costs relating to the acquisition, development
or disposition of assets or the obtaining of financing for ATLANTIC and its
operations. The REIT Manager will pay all of its own salary and other overhead
expenses. ATLANTIC will not have any employee expense; however, it will pay
all of the third-party costs related to its normal operations, including
legal, accounting, travel, architectural, engineering, shareholder relations,
independent Director fees and similar expenses, property management and
similar fees paid on behalf of ATLANTIC, and travel expenses incurred in
seeking financing, community acquisitions, community dispositions and similar
activities on behalf of ATLANTIC and in attending ATLANTIC Board, committee
and shareholder meetings.
The REIT Management Agreement is renewable by ATLANTIC annually, subject to
a determination by the independent Directors that the REIT Manager's
performance has been satisfactory and that the compensation payable to the
REIT Manager is fair. Each of ATLANTIC and the REIT Manager may terminate the
REIT Management Agreement on 60 days' notice. Because of the year-to-year
nature of the agreement, its maximum effect on ATLANTIC's results of
operations cannot be predicted, other than that REIT management fees will
generally increase or decrease in proportion to cash flow increases or
decreases.
Property Management Agreement
SCG Realty Services Atlantic Incorporated ("SCG Realty Services") provides
property management services to ATLANTIC. SCG Realty Services currently
manages approximately 87% of ATLANTIC's multifamily communities. Security
Capital Group owns 100% of SCG Realty Services' voting shares.
The property management agreement, like the REIT Management Agreement, is
renewable annually and subject to a determination by the independent Directors
that SCG Realty Services' performance has been satisfactory and that the
compensation payable to SCG Realty Services is at rates prevailing in the
markets in which ATLANTIC operates. ATLANTIC may terminate the property
management agreement on 30 days' notice.
F-18
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data (in thousands except per Share amounts)
for 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
-------- ------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
1996:
Rental income.............. $30,809 $32,876 $35,959 $38,085 $137,729
======= ======= ======= ======= ========
Earnings before
extraordinary item........ $ 6,650 $ 9,747 $11,131 $15,041 $ 42,569
======= ======= ======= ======= ========
Net earnings............... $ 6,650 $ 9,747 $11,131 $11,101 $ 38,629
======= ======= ======= ======= ========
Earnings per Share before
extraordinary item........ $ 0.24 $ 0.32 $ 0.34 $ 0.41 $ 1.33
======= ======= ======= ======= ========
Net earnings per Share..... $ 0.24 $ 0.32 $ 0.34 $ 0.30 $ 1.21
======= ======= ======= ======= ========
Weighted-average Shares.... 27,777 30,393 32,952 36,925 32,028
======= ======= ======= ======= ========
1995:
Rental income.............. $22,952 $24,330 $26,969 $29,383 $103,634
======= ======= ======= ======= ========
Net earnings............... $ 4,175 $ 4,956 $ 5,333 $ 5,175 $ 19,639
======= ======= ======= ======= ========
Net earnings per Share..... $ 0.22 $ 0.23 $ 0.23 $ 0.21 $ 0.89
======= ======= ======= ======= ========
Weighted-average Shares.... 18,567 21,642 23,340 24,153 21,944
======= ======= ======= ======= ========
</TABLE>
The total of the four quarterly amounts for net earnings per Share may not
equal the total for the year. These differences result from the use of a
weighted average to compute the average number of Shares outstanding.
NOTE 9 SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the years ended December 31,
1996, 1995 and 1994 are as follows:
(a) As discussed in Note 2, in 1996, ATLANTIC received Homestead common
stock valued at $51,717,000 upon the sale of the Homestead Assets (assets
with a net book value of $31,028,000 and cash of $16,595,000). A gain of
$2,839,000, net of expenses of $1,255,000, was recognized on the
transaction.
(b) As discussed in Note 2, in 1996, ATLANTIC received warrants to
purchase Homestead common stock valued at $6,511,000 in exchange for
entering into a funding commitment agreement. The value of the warrants has
been recognized as deferred revenue.
(c) ATLANTIC made a $58,228,000 non-cash distribution to its shareholders
in November 1996 consisting of the Homestead common stock and warrants.
F-19
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(d) In December 1996, ATLANTIC declared a distribution for the first
quarter of 1997 in the amount of $14,778,000.
(e) In connection with the acquisition of communities, ATLANTIC assumed
mortgage debt in the amount of $17,867,000, $24,678,000 and $107,537,000 in
1996, 1995 and 1994, respectively.
(f) In 1994, ATLANTIC issued $100,000,000 of Shares in partial
consideration for the purchase of a pool of communities.
(g) ATLANTIC sold a community in 1995 that secured $6,500,000 of mortgage
debt.
NOTE 10 COMMITMENTS AND CONTINGENCIES
ATLANTIC is a party to various claims and routine litigation arising in the
ordinary course of business. ATLANTIC does not believe that the claims and
litigation, individually or in the aggregate, will have a material adverse
effect on its business, financial position or results of operations.
ATLANTIC is subject to environmental regulations related to the ownership,
operation, development and acquisition of real estate. As part of its due
diligence procedures, ATLANTIC has conducted Phase I environmental assessments
on each community prior to acquisition. The cost of complying with
environmental regulations was not material to ATLANTIC's results of
operations. ATLANTIC is not aware of any environmental condition on any of its
communities that is likely to have a material adverse effect on its business,
financial position or results of operations.
NOTE 11 FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, other assets, accrued
expenses and other liabilities approximates fair value as of December 31, 1996
and 1995 because of the short maturity of these instruments. Similarly, the
carrying value of line of credit borrowings approximates fair value as of
those dates because the interest rate fluctuates based on published market
rates. In the opinion of management, the interest rates associated with the
mortgages payable approximates the market interest rates for this type of
instrument, and as such, the carrying values approximate fair value at
December 31, 1996 and 1995, in all material respects.
NOTE 12 PROPOSED TRANSACTION
On January 22, 1997, ATLANTIC received a proposal from Security Capital
Group to exchange the REIT Manager and SCG Realty Services for Shares. As a
result of the proposed transaction, ATLANTIC would become an internally
managed REIT, and Security Capital Group would remain ATLANTIC's largest
shareholder. The Board has formed a special committee comprised of independent
Directors to review the proposed transaction. The proposed transaction is
subject to approval by the special committee, the Board and ATLANTIC's
shareholders.
F-20
<PAGE>
SCHEDULE III
SECURITY CAPITAL ATLANTIC
INCORPORATED
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH CARRIED AT
TO ATLANTIC COSTS DECEMBER 31, 1996
-------------------- CAPITALIZED --------------------------------------
ENCUM- BUILDINGS AND SUBSEQUENT TO BUILDINGS AND TOTALS ACCUMULATED
MUTIFAMILY COMMUNITIESL BRANCES LAND IMPROVEMENTS LAND ACQUIIMPROVEMENTSSITION(C) DEPRECIATION
- ----------------------- ------- ------ ------------- ------------- ---------- --------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Communities
acquired:
Atlanta, Georgia:
Azalea Park..... $15,500 $3,717 $21,076 $ 975 $3,717 $22,051 $ 25,768 $ 715
Balmoral
Village......... -- 2,871 16,270 74 2,871 16,344 19,215 73
Cameron
Ashford......... -- 3,672 20,841 399 3,672 21,240 24,912 1,551
Cameron
Briarcliff...... (b) 2,105 11,953 191 2,105 12,144 14,249 897
Cameron Brook... 19,500 3,318 18,784 326 3,318 19,110 22,428 1,279
Cameron Creek
I............... -- 3,627 20,589 328 3,627 20,917 24,544 1,473
Cameron Crest... -- 3,525 20,009 290 3,525 20,299 23,824 1,426
Cameron
Dunwoody........ -- 2,486 14,114 252 2,486 14,366 16,852 1,050
Cameron Forest.. -- 884 5,008 352 884 5,360 6,244 145
Cameron Place... -- 1,124 6,372 579 1,124 6,951 8,075 185
Cameron Pointe.. -- 2,172 12,306 413 2,172 12,719 14,891 192
Cameron
Station......... 14,500 2,338 13,246 496 2,338 13,742 16,080 354
Clairmont
Crest........... 11,600 1,603 9,102 315 1,603 9,417 11,020 626
The Greens...... 10,400 2,004 11,354 382 2,004 11,736 13,740 794
Lake Ridge...... -- 2,001 11,359 4,012 2,001 15,371 17,372 1,200
Morgan's
Landing......... -- 1,168 6,646 857 1,168 7,503 8,671 608
Old Salem....... -- 1,053 6,144 919 1,053 7,063 8,116 485
Trolley Square.. -- 2,031 11,528 347 2,031 11,875 13,906 911
Vinings
Landing......... -- 1,363 7,902 714 1,363 8,616 9,979 613
WintersCreek.... 5,000 1,133 6,434 220 1,133 6,654 7,787 233
Woodlands....... -- 3,785 21,471 485 3,785 21,956 25,741 761
Birmingham,
Alabama:
Cameron on the
Cahaba I........ -- 1,020 5,784 352 1,020 6,136 7,156 281
Cameron on the
Cahaba II....... 8,021 1,688 9,580 501 1,688 10,081 11,769 463
Colony Woods I.. -- 1,560 8,845 281 1,560 9,126 10,686 676
Morning Sun
Villas.......... -- 1,260 7,309 732 1,260 8,041 9,301 554
Charlotte, North
Carolina:........
Cameron at
Hickory Grove... 5,979 1,203 6,808 381 1,203 7,189 8,392 137
Cameron Oaks.... -- 2,255 12,800 306 2,255 13,106 15,361 974
<CAPTION>
CONSTRUCTION YEAR
MUTIFAMILY COMMUNITIESL YEAR ACQUIRED
- ----------------------- ------------ --------
<S> <C> <C>
Communities
acquired:
Atlanta, Georgia:
Azalea Park..... 1987 1995
Balmoral
Village......... 1990 1996
Cameron
Ashford......... 1990 1994
Cameron
Briarcliff...... 1989 1994
Cameron Brook... 1988 1994
Cameron Creek
I............... 1988 1994
Cameron Crest... 1988 1994
Cameron
Dunwoody........ 1989 1994
Cameron Forest.. 1981 1995
Cameron Place... 1979 1995
Cameron Pointe.. 1987 1996
Cameron
Station......... (c) 1995
Clairmont
Crest........... 1987 1994
The Greens...... 1986 1994
Lake Ridge...... 1979 1993
Morgan's
Landing......... 1983 1993
Old Salem....... 1968 1994
Trolley Square.. 1989 1994
Vinings
Landing......... 1978 1994
WintersCreek.... 1984 1995
Woodlands....... (d) 1995
Birmingham,
Alabama:
Cameron on the
Cahaba I........ 1987 1995
Cameron on the
Cahaba II....... 1990 1995
Colony Woods I.. 1991 1994
Morning Sun
Villas.......... 1985 1994
Charlotte, North
Carolina:........
Cameron at
Hickory Grove... 1988 1996
Cameron Oaks.... 1989 1994
</TABLE>
(see notes following table)
F-21
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH CARRIED AT
TO ATLANTIC COSTS DECEMBER 31, 1996
----------------------- CAPITALIZED --------------------------------------
ENCUM- BUILDINGS AND SUBSEQUENT TO BUILDINGS AND TOTALS ACCUMULATED
MUTIFAMILY COMMUNITIESL BRANCES LAND IMPROVEMENTS LANDACQUISIMPROVEMENTSITION (C) DEPRECIATION
- ----------------------- ------- ------ ------------- ------------- ---------- --------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ft.
Lauderdale/West
Palm Beach,
Florida:
Cypress Lakes... $ -- $1,225 $ 6,961 $ 324 $ 1,225 $ 7,285 $ 8,510 $ 271
Park Place at
Turtle Run..... -- 2,208 12,223 1,283 2,208 13,506 15,714 223
Parrot's Landing
I.............. 15,835 2,691 15,276 684 2,691 15,960 18,651 1,072
The Pointe at
Bayberry Lake.. -- 2,508 14,210 303 2,508 14,513 17,021 222
Spencer Run..... (b) 2,852 16,194 425 2,852 16,619 19,471 1,133
Sun Pointe
Cove........... 8,500 1,367 7,773 229 1,367 8,002 9,369 550
Trails at Meadow
Lakes.......... -- 1,285 7,293 262 1,285 7,555 8,840 282
Ft. Myers,
Florida:
Forestwood...... 11,485 2,031 11,540 210 2,031 11,750 13,781 815
Greenville, South
Carolina:
Cameron Court... -- 1,602 9,369 89 1,602 9,458 11,060 163
Jacksonville,
Florida:
Bay Club........ -- 1,789 10,160 273 1,789 10,433 12,222 773
Memphis,
Tennessee:
Cameron Century
Center......... -- 2,382 13,496 50 2,382 13,546 15,928 60
Cameron at Kirby
Parkway........ -- 1,386 7,959 829 1,386 8,788 10,174 686
Country Oaks.... 5,933 1,246 7,061 177 1,246 7,238 8,484 63
Stonegate....... -- 985 5,608 483 985 6,091 7,076 360
Miami, Florida:
Park Hill....... -- 1,650 9,377 (2,185)(e) 1,650 7,192 8,842 606
Nashville,
Tennessee:
Arbor Creek..... -- -- (f) 17,671 512 -- 18,183 18,183 1,267
Enclave at
Brentwood...... -- 2,263 12,847 1,016 2,263 13,863 16,126 605
Orlando, Florida:
Camden Springs.. -- 2,477 14,072 808 2,477 14,880 17,357 1,056
Cameron Villas
I.............. 6,343 1,087 6,317 609 1,087 6,926 8,013 473
Cameron Villas
II............. (b) 255 1,454 64 255 1,518 1,773 56
Kingston
Village........ -- 876 4,973 164 876 5,137 6,013 192
The Wellington.. (b) 1,155 6,565 282 1,155 6,847 8,002 466
Raleigh, North
Carolina:
Cameron Lake.... -- 1,385 7,848 60 1,385 7,908 9,293 35
Cameron Ridge... 5,888 1,503 8,519 109 1,503 8,628 10,131 38
Cameron Square.. -- 2,314 13,143 525 2,314 13,668 15,982 959
Emerald Forest.. -- 2,202 12,478 -- 2,202 12,478 14,680 --
Richmond,
Virginia:
Camden at
Wellesley...... -- 2,878 16,339 293 2,878 16,632 19,510 1,240
Potomac Hunt.... (b) 1,486 8,452 181 1,486 8,633 10,119 464
<CAPTION>
CONSTRUCTION YEAR
MUTIFAMILY COMMUNITIESL YEAR ACQUIRED
- ----------------------- ------------ --------
<S> <C> <C>
Ft.
Lauderdale/West
Palm Beach,
Florida:
Cypress Lakes... 1987 1995
Park Place at
Turtle Run..... 1989 1996
Parrot's Landing
I.............. 1986 1994
The Pointe at
Bayberry Lake.. 1988 1996
Spencer Run..... 1987 1994
Sun Pointe
Cove........... 1986 1994
Trails at Meadow
Lakes.......... 1983 1995
Ft. Myers,
Florida:
Forestwood...... 1986 1994
Greenville, South
Carolina:
Cameron Court... 1991 1996
Jacksonville,
Florida:
Bay Club........ 1990 1994
Memphis,
Tennessee:
Cameron Century
Center......... 1988 1996
Cameron at Kirby
Parkway........ 1985 1994
Country Oaks.... 1985 1996
Stonegate....... 1986 1994
Miami, Florida:
Park Hill....... 1968 1994
Nashville,
Tennessee:
Arbor Creek..... 1986 1994
Enclave at
Brentwood...... 1988 1995
Orlando, Florida:
Camden Springs.. 1986 1994
Cameron Villas
I.............. 1982 1994
Cameron Villas
II............. 1981 1995
Kingston
Village........ 1982 1995
The Wellington.. 1988 1994
Raleigh, North
Carolina:
Cameron Lake.... 1985 1996
Cameron Ridge... 1985 1996
Cameron Square.. 1987 1994
Emerald Forest.. 1986 1996
Richmond,
Virginia:
Camden at
Wellesley...... 1989 1994
Potomac Hunt.... 1987 1994
</TABLE>
(see notes following table)
F-22
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH CARRIED AT
TO ATLANTIC COSTS DECEMBER 31, 1996
---------------------- CAPITALIZED ------------------------------------
ENCUM- BUILDINGS AND SUBSEQUENT TO BUILDINGS AND TOTALS ACCUMULATED
MUTIFAMILY COMMUNITIESL BRANCES LAND IMPROVEMENTS LAND ACQUIIMPROVEMENTSSITIO(C)N DEPRECIATION
- ----------------------- -------- -------- ------------- ------------- ---------- ------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sarasota,
Florida:
Camden at Palmer
Ranch........... $ -- $ 3,534 $ 20,057 $ 607 $ 3,534 $ 20,664 $ 24,198 $ 1,469
Tampa, Florida:
Camden Downs.... -- 1,840 10,447 305 1,840 10,752 12,592 780
Cameron
Bayshore........ -- 1,607 9,105 -- 1,607 9,105 10,712 --
Cameron Lakes... -- 1,126 6,418 1,107 1,126 7,525 8,651 365
Country Place
Village I....... 2,004 567 3,219 140 567 3,359 3,926 125
Country Place
Village II...... -- 644 3,658 94 644 3,752 4,396 141
Foxbridge on the
Bay............. 10,400 1,591 9,036 328 1,591 9,364 10,955 652
Summer Chase.... (b) 542 3,094 136 542 3,230 3,772 219
Washington, D.C.:
Camden at
Kendall Ridge... -- 1,708 9,698 295 1,708 9,993 11,701 755
Cameron at
Saybrooke....... -- 2,802 15,906 258 2,802 16,164 18,966 1,190
Sheffield
Forest.......... -- 2,269 12,859 418 2,269 13,277 15,546 374
West Springfield
Terrace......... -- 2,417 13,695 98 2,417 13,793 16,210 92
Less amounts
held in
principal
reserve
fund(g)......... (1,098) -- -- -- -- -- -- --
-------- -------- -------- ------- ---------- ---------- ---------- -------
Total Operating
Communities
Acquired........ $155,790 $124,701 $726,004 $27,324 $ 124,701 $ 753,328 $ 878,029 $38,948
-------- -------- -------- ------- ---------- ---------- ---------- -------
COMMUNITIES
DEVELOPED:
Birmingham,
Alabama:
Colony Woods
II.............. $ -- $ 1,254 $ -- $ 9,261 $ 1,551 $ 8,964 $ 10,515 $ 365
Charlotte, North
Carolina:
Waterford
Hills........... -- 1,508 -- 11,109 1,943 10,674 12,617 476
Waterford Square
I............... -- 1,890 -- 17,763 2,053 17,600 19,653 436
Jacksonville,
Florida:
Cameron Lakes
I............... -- 1,759 -- 14,358 1,959 14,158 16,117 216
Raleigh, North
Carolina:
Waterford
Point........... -- 985 -- 14,854 1,493 14,346 15,839 519
-------- -------- -------- ------- ---------- ---------- ---------- -------
Total Operating
Communities
Developed....... $ -- $ 7,396 $ -- $67,345 $ 8,999 $ 65,742 $ 74,741 $ 2,012
-------- -------- -------- ------- ---------- ---------- ---------- -------
TOTAL OPERATING
COMMUNITIES..... $155,790 $132,097 $726,004 $94,669 $ 133,700 $ 819,070 $ 952,770 $40,960
-------- -------- -------- ------- ---------- ---------- ---------- -------
<CAPTION>
CONSTRUCTION YEAR
MUTIFAMILY COMMUNITIESL YEAR ACQUIRED
- ----------------------- ------------ --------
<S> <C> <C>
Sarasota,
Florida:
Camden at Palmer
Ranch........... 1988 1994
Tampa, Florida:
Camden Downs.... 1988 1994
Cameron
Bayshore........ 1984 1996
Cameron Lakes... 1986 1995
Country Place
Village I....... 1982 1995
Country Place
Village II...... 1983 1995
Foxbridge on the
Bay............. 1986 1994
Summer Chase.... 1988 1994
Washington, D.C.:
Camden at
Kendall Ridge... 1990 1994
Cameron at
Saybrooke....... 1990 1994
Sheffield
Forest.......... 1987 1995
West Springfield
Terrace......... 1978 1996
Less amounts
held in
principal
reserve
fund(g).........
Total Operating
Communities
Acquired........
COMMUNITIES
DEVELOPED:
Birmingham,
Alabama:
Colony Woods
II.............. 1995 1994
Charlotte, North
Carolina:
Waterford
Hills........... 1995 1993
Waterford Square
I............... 1996 1994
Jacksonville,
Florida:
Cameron Lakes
I............... 1996 1995
Raleigh, North
Carolina:
Waterford
Point........... 1996 1994
Total Operating
Communities
Developed.......
TOTAL OPERATING
COMMUNITIES.....
</TABLE>
(see notes following table)
F-23
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH CARRIED AT
TO ATLANTIC COSTS DECEMBER 31, 1996
--------------------- CAPITALIZED -------------------------------------
ENCUM- BUILDINGS AND SUBSEQUENT TO BUILDINGS AND TOTALS ACCUMULATED
MUTIFAMILY COMMUNITIESL BRANCES LAND IMPROVEMENTS LAND ACQUIIMPROVEMENTSSITIO(C)N DEPRECIATION
- ----------------------- ------- ------- ------------- ------------- ---------- -------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMMUNITIES UNDER
CONSTRUCTION:
Atlanta, Georgia:
Cameron Creek
II.............. $ -- $ 2,730 $ -- $ 16,602 $ 2,897 $ 16,435 $ 19,332 $ 39
Birmingham,
Alabama:
Cameron at the
Summit I........ -- 2,774 -- 5,709 2,778 5,705 8,483 --
Charlotte, North
Carolina:
Waterford Square
II.............. -- 2,014 -- 4,578 2,065 4,527 6,592 --
Ft.
Lauderdale/West
Palm Beach,
Florida:
Parrot's Landing
II.............. -- 1,328 -- 6,742 1,367 6,703 8,070 --
Jacksonville,
Florida:
Cameron
Deerwood........ -- 2,331 -- 12,173 2,332 12,172 14,504 --
Cameron Lakes
II.............. -- 1,340 -- 1,529 1,340 1,529 2,869 --
Cameron
Timberlin Parc
I............... -- 2,167 -- 13,280 2,282 13,165 15,447 16
Nashville,
Tennessee:
Cameron
Overlook........ -- 2,659 -- 4,679 2,659 4,679 7,338 --
Raleigh, North
Carolina:
Cameron Brooke.. -- 1,353 -- 8,717 1,382 8,688 10,070 --
Waterford
Forest.......... -- 2,371 -- 17,978 2,480 17,869 20,349 52
Richmond,
Virginia:
Cameron at
Wyndham......... -- 2,038 -- 2,366 2,052 2,352 4,404 --
Cameron Crossing
I & II.......... -- 2,752 -- 8,450 2,768 8,434 11,202 --
Washington, D.C.:
Cameron at
Milestone....... -- 5,477 -- 24,867 5,607 24,737 30,344 43
Woodway at
Trinity Center.. -- 5,342 -- 30,241 5,584 29,999 35,583 56
------ ------- ------ -------- ---------- ----------- ----------- ----
TOTAL
COMMUNITIES
UNDER
CONSTRUCTION.... $ -- $36,676 $ -- $157,911 $ 37,593 $ 156,994 $ 194,587 $206
------ ------- ------ -------- ---------- ----------- ----------- ----
<CAPTION>
CONSTRUCTION YEAR
MUTIFAMILY COMMUNITIESL YEAR ACQUIRED
- ----------------------- ------------ ---------
<S> <C> <C>
COMMUNITIES UNDER
CONSTRUCTION:
Atlanta, Georgia:
Cameron Creek
II.............. -- (h) 1994
Birmingham,
Alabama:
Cameron at the
Summit I........ -- 1996
Charlotte, North
Carolina:
Waterford Square
II.............. -- 1995
Ft.
Lauderdale/West
Palm Beach,
Florida:
Parrot's Landing
II.............. -- 1994
Jacksonville,
Florida:
Cameron
Deerwood........ -- (h) 1996
Cameron Lakes
II.............. -- 1996
Cameron
Timberlin Parc
I............... -- (h) 1995
Nashville,
Tennessee:
Cameron
Overlook........ -- 1996
Raleigh, North
Carolina:
Cameron Brooke.. -- 1995
Waterford
Forest.......... -- (h) 1995
Richmond,
Virginia:
Cameron at
Wyndham......... -- 1993
Cameron Crossing
I & II.......... -- 1995(i)
Washington, D.C.:
Cameron at
Milestone....... -- (h) 1995
Woodway at
Trinity Center.. -- (h) 1994
TOTAL
COMMUNITIES
UNDER
CONSTRUCTION....
</TABLE>
(see notes following table)
F-24
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONCLUDED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH CARRIED AT
TO ATLANTIC COSTS DECEMBER 31, 1996
---------------------- CAPITALIZED ---------------------------------
ENCUM- BUILDINGS AND SUBSEQUENT TO BUILDINGS AND TOTALS ACCUMULATED CONSTRUCTION
MUTIFAMILY COMMUNITIESL BRANCES LAND IMPROVEMENTS LAND ACIMPROVEMENTSQUISI(C)TION DEPRECIATION YEAR
- ----------------------- -------- -------- ------------- ------------- -------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMMUNITIES IN
PLANNING:
Atlanta, Georgia:
Cameron
Landing......... $ -- $ 1,508 $ -- $ 512 $ 1,508 $ 512 $ 2,020 $ -- --
Ft.
Lauderdale/West
Palm Beach,
Florida:
Cameron
Waterway........ -- 4,025 -- 361 4,029 357 4,386 -- --
Jacksonville,
Florida:
Cameron
Timberlin Parc
II.............. -- 1,294 -- 95 1,294 95 1,389 -- --
-------- -------- -------- -------- -------- -------- ---------- -------
TOTAL
COMMUNITIES IN
PLANNING........ $ -- $ 6,827 $ -- $ 968 $ 6,831 $ 964 $ 7,795 $ --
-------- -------- -------- -------- -------- -------- ---------- -------
LAND HELD FOR
FUTURE
DEVELOPMENT:
Birmingham,
Alabama:
Cameron at the
Summit II....... -- 2,008 -- 75 2,083 -- 2,083 -- --
-------- -------- -------- -------- -------- -------- ---------- -------
TOTAL LAND HELD
FOR FUTURE
DEVELOPMENT..... $ -- $ 2,008 $ -- $ 75 $ 2,083 $ -- $ 2,083 $ --
-------- -------- -------- -------- -------- -------- ---------- -------
TOTAL........... $155,790 $177,608 $726,004 $253,623 $180,207 $977,028 $1,157,235 $41,166
======== ======== ======== ======== ======== ======== ========== =======
<CAPTION>
YEAR
MUTIFAMILY COMMUNITIESL ACQUIRED
- ----------------------- --------
<S> <C>
COMMUNITIES IN
PLANNING:
Atlanta, Georgia:
Cameron
Landing......... 1996
Ft.
Lauderdale/West
Palm Beach,
Florida:
Cameron
Waterway........ 1996
Jacksonville,
Florida:
Cameron
Timberlin Parc
II.............. 1995
TOTAL
COMMUNITIES IN
PLANNING........
LAND HELD FOR
FUTURE
DEVELOPMENT:
Birmingham,
Alabama:
Cameron at the
Summit II....... 1996
TOTAL LAND HELD
FOR FUTURE
DEVELOPMENT.....
TOTAL...........
</TABLE>
- ----
(a) For federal income tax purposes, ATLANTIC's aggregate cost of real estate
at December 31, 1996 was $1,133,431,000.
(b) Pledged as additional collateral under credit enhancement agreement with
the Federal National Mortgage Association.
(c) Phase I (108 units) was constructed in 1981 and Phase II (240 units) was
constructed in 1983.
(d) Phase I (332 units) was constructed in 1983 and Phase II (312 units) was
constructed in 1985.
(e) A provision for possible loss of $2,500,000 was recognized in December
1996 to more properly reflect the fair value of this community.
(f) The land associated with this community is leased by ATLANTIC through the
year 2058 under an agreement with the Metropolitan Nashville Airport
Authority.
(g) The FNMA credit enhancement agreement requires payments to be made to a
principal reserve fund.
(h) This community is leasing completed units.
(i) 19.24 acres purchased in 1995; 9.86 acres purchased in 1996.
F-25
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTE TO SCHEDULE III
AS OF DECEMBER 31, 1996
The following is a reconciliation of the carrying amount and related
accumulated depreciation of ATLANTIC's investment in real estate, at cost (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
CARRYING AMOUNT 1996 1995 1994
--------------- ---------- -------- --------
<S> <C> <C> <C>
Beginning balances........................ $ 888,928 $631,260 $ 31,005
Acquisitions and renovation expenditures.. 179,752 187,267 571,288
Development expenditures, including land
acquisitions............................. 179,783 101,335 28,967
Recurring capital expenditures............ 2,783 -- --
Provision for possible loss............... (2,500) -- --
Dispositions.............................. (59,988) (30,934) --
Sale of Homestead Assets.................. (31,523) -- --
---------- -------- --------
Ending balances........................... $1,157,235 $888,928 $631,260
========== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
ACCUMULATED DEPRECIATION 1996 1995 1994
------------------------ ---------- -------- --------
<S> <C> <C> <C>
Beginning balances........................ $ 23,561 $ 8,798 $ 28
Depreciation for the period............... 20,824 15,925 8,770
Accumulated depreciation of real estate
disposed of.............................. (3,219) (1,162) --
---------- -------- --------
Ending balances........................... $ 41,166 $ 23,561 $ 8,798
========== ======== ========
</TABLE>
F-26
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
PRO FORMA FINANCIAL STATEMENTS
SUMMARY OF PRO FORMA ADJUSTMENTS
(UNAUDITED)
The accompanying unaudited pro forma balance sheet as of December 31, 1996
reflects the sale of $100.0 million of Shares in this Offering (4,000,000
Shares at $25.00 per Share), net of estimated costs of issuance of $6.2
million, as if those Shares had been sold as of December 31, 1996. For pro
forma purposes, the proceeds from the sale of Shares in the Offering have been
used to repay borrowings on ATLANTIC's $350 million line of credit.
The accompanying unaudited pro forma statement of earnings for the the year
ended December 31, 1996 reflects: (i) the acquisition and disposition by
ATLANTIC of all communities acquired or disposed of since December 31, 1995 as
if these communities had been acquired or disposed of as of January 1, 1996;
(ii) the assumption of mortgage debt associated with the acquisition of the
communities acquired since December 31, 1995 as if this mortgage debt had been
assumed as of January 1, 1996; (iii) the sale of Shares through private
placement subsequent to December 31, 1995, necessary to fund pro forma
acquisitions, as if the Shares had been issued as of January 1, 1996; (iv) the
sale of Shares in ATLANTIC's initial public offering in October 1996, net of
costs of issuance, necessary to fund pro forma acquisitions as if the Shares
had been issued as of January 1, 1996; (v) the sale of the Homestead Village
properties and subsequent distribution of the Homestead common stock and
warrants to ATLANTIC's shareholders as if the transaction had been consummated
on January 1, 1996; and (vi) the sale of $100.0 million of Shares in this
Offering (4,000,000 Shares at $25.00 per Share), net of estimated costs of
issuance of $6.2 million, as if those Shares had been issued as of January 1,
1996. For pro forma purposes, the proceeds from the sale of Shares in the
Offering have been used to repay pro forma borrowings on ATLANTIC's line of
credit.
The pro forma financial statements do not reflect the funding of ATLANTIC's
obligation of approximately $111.1 million under a funding commitment
agreement with Homestead or receipt of the related convertible mortgage notes
of approximately $98.0 million, as this funding is related to future
development costs of the properties sold to Homestead.
The unaudited pro forma financial statements have been prepared by
management of ATLANTIC and do not purport to be indicative of the results
which would actually have been obtained had the transactions described above
been completed on the dates indicated or which may be obtained in the future.
The pro forma financial statements should be read in conjunction with the
financial statements of ATLANTIC included elsewhere herein.
F-27
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
PRO FORMA BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PROPOSED
COMMON
SHARE
HISTORICAL ISSUANCE(A) PRO FORMA
---------- ----------- ----------
ASSETS
<S> <C> <C> <C>
Real estate................................ $1,157,235 $ $1,157,235
Less accumulated depreciation............. 41,166 41,166
---------- ---------- ----------
Net investment in real estate............. 1,116,069 1,116,069
Cash and cash equivalents--unrestricted.... 4,339 4,339
Cash and cash equivalents--restricted tax-
deferred exchange proceeds................ 1,672 1,672
Other assets............................... 12,985 12,985
---------- ---------- ----------
Total assets............................ $1,135,065 $ $1,135,065
========== ========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Liabilities:
Line of credit............................ $ 228,000 $ (93,750) $ 134,250
Mortgages payable......................... 155,790 155,790
Distributions payable..................... 14,778 14,778
Accounts payable.......................... 20,076 20,076
Accrued expenses and other liabilities.... 17,779 17,779
---------- ---------- ----------
Total liabilities....................... $ 436,423 $ (93,750) $ 342,673
---------- ---------- ----------
Shareholders' Equity:
Common shares (250,000,000 shares
authorized; 37,891,580 issued in
historical period and 41,891,580 issued
on pro forma basis)...................... 379 40 419
Additional paid-in capital................ 747,640 93,710 841,350
Distributions in excess of net earnings... (49,377) (49,377)
---------- ---------- ----------
Total shareholders' equity.............. 698,642 93,750 792,392
---------- ---------- ----------
Total liabilities and shareholders'
equity................................. $1,135,065 $ 0 $1,135,065
========== ========== ==========
</TABLE>
See accompanying notes to pro forma financial statements.
F-28
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
PRO FORMA STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS HISTORICAL PRO FORMA ADJUSTMENTS
---------- -------------- ------------- ----------------------------
HOMESTEAD ACQUISITIONS/
ATLANTIC TRANSACTION(B) SUBTOTAL DISPOSITIONS ACQUISITIONS OTHER PRO FORMA
---------- -------------- -------- ------------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental income.......... $137,729 $ (424) $137,305 $11,056 (c) $ $ $148,361
Interest income........ 427 (21) 406 406
-------- ------- -------- ------- ---------- ---------- --------
Total income.......... 138,156 (445) 137,711 11,056 148,767
-------- ------- -------- ------- ---------- ---------- --------
Expenses:
Rental expenses........ 50,072 (173) 49,899 4,279 (c) 54,178
Property management
fees paid to
affiliate............. 4,208 4,208 458 (c) (54)(d) 4,612
Depreciation........... 20,824 (43) 20,781 (735)(e) 2,488 (f) 22,534
Mortgage interest...... 9,484 9,484 785 (g) 10,269
Interest on line of
credit................ 6,697 2,739 9,436 (6,148)(h) 3,288
REIT management fees... 10,445 (475) 9,970 1,838 (i) 11,808
General and
administrative........ 673 (32) 641 641
Provision for possible
loss on investments... 2,500 2,500 2,500
Other.................. 255 (23) 232 232
-------- ------- -------- ------- ---------- ---------- --------
Total expenses........ 105,158 1,993 107,151 4,787 2,434 (4,310) 110,062
-------- ------- -------- ------- ---------- ---------- --------
Net earnings, excluding
gains on dispositions
and extraordinary item. $ 32,998 $(2,438) $ 30,560 $6,269 $ (2,434) $ 4,310 $ 38,705
======== ======= ======== ======= ========== ========== ========
Weighted-average shares
outstanding............ 32,028 32,028 5,949 (j) 37,977
======== ======== ========== ========
Net earnings per share,
excluding gains on
dispositions and
extraordinary item..... $ 1.03 $ 0.95 $ 1.02
======== ======== ========
</TABLE>
See accompanying notes to pro forma financial statements.
F-29
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA FINANCIAL STATEMENTS
DECEMBER 31, 1996
(UNAUDITED)
(a) Reflects the proposed issuance of 4,000,000 Shares at a price of $25.00
per Share. The total proceeds of $100.0 million, net of estimated costs of
issuance of $6.2 million which results in $93.8 million of cash available
which, for pro forma purposes, have been assumed to be used to repay the
borrowings under ATLANTIC's line of credit.
(b) Reflects the sale of ATLANTIC's Homestead Assets as if the transaction
had taken place on January 1, 1996 as follows: (i) the elimination of the
historical results of operations of ATLANTIC's Homestead Village properties
from January 1, 1996 to the date of sale (October 17, 1996), (ii) the
recognition of additional interest expense and a corresponding reduction in
the REIT management fee resulting from the additional borrowings that would
have been necessary in 1996 to finance the assets that were sold to Homestead,
and (iii) the recognition of the historical interest expense that was
capitalized on the Homestead Assets and the corresponding reduction in the
REIT management fee.
(c) All of ATLANTIC's acquisitions subsequent to December 31, 1995 were
acquired from unaffiliated third parties. These acquisitions are described
below:
<TABLE>
<CAPTION>
OCCUPANCY
ACQUISITION ACQUISITION AT DATE OF
COMMUNITY DATE LOCATION COST (IN 000'S) UNITS PRODUCT TYPE ACQUISITION
--------- ----------- -------- --------------- ----- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Cameron at Hickory Grove
(formerly Esprit)...... 4/10/96 Charlotte, NC $ 8,000 202 Moderate 93.6%
Cameron Court (formerly
Paces Court)........... 4/22/96 Greenville, SC 11,007 234 Middle 91.0
Park Place at Turtle Run
(formerly Park Place).. 4/22/96 Ft. Lauderdale, FL 14,355 350 Moderate 91.7
The Pointe at Bayberry
Lake................... 5/29/96 Ft. Lauderdale, FL 16,650 308 Moderate 90.9
Cameron Pointe.......... 5/30/96 Atlanta, GA 14,450 214 Middle 96.3
Country Oaks............ 9/5/96 Memphis, TN 8,250 200 Moderate 98.0
West Springfield
Terrace................ 9/30/96 Washington, DC 16,100 244 Moderate 94.7
Cameron Ridge (formerly
Lincoln Ridge)......... 10/17/96 Raleigh, NC 10,000 228 Middle 99.6
Cameron Century Center
(formerly Arbors of
Century Center)........ 10/18/96 Memphis, TN 15,800 420 Moderate 90.7
Balmoral Village........ 10/22/96 Atlanta, GA 19,125 312 Middle 95.5
Cameron Lake (formerly
Summer Lake)........... 11/12/96 Raleigh, NC 9,225 196 Moderate 84.1
Emerald Forest.......... 12/19/96 Raleigh, NC 14,625 320 Moderate 85.6
Cameron Bayshore (for-
merly Chesapeake)...... 12/20/96 Tampa, FL 10,700 328 Moderate 97.0
</TABLE>
F-30
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
This adjustment reflects historical gross income and rental expenses for all
communities acquired subsequent to December 31, 1995 for the period January 1,
1996 to the respective dates of acquisition (results of operations after the
date of acquisition are included in ATLANTIC's historical operating results).
Also reflects removal from ATLANTIC's historical balances of gross income and
rental expenses for all communities disposed of subsequent to December 31,
1995 to the respective dates of disposition. The historical gross income and
rental expenses relating to the period prior to ATLANTIC's acquisition of the
communities exclude amounts which would not be comparable to the proposed
future operations of the communities such as certain interest income and
income taxes.
The following tables summarize the historical income and expense amounts
shown on the pro forma statement of earnings (in thousands):
<TABLE>
<CAPTION>
RENTAL RENTAL
INCOME EXPENSES(1)
------- -----------
<S> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1996:
Group C communities................................... $ 5,805 $ 2,481
Group D communities................................... 6,180 2,505
Group E communities................................... 11,645 4,753
Other communities acquired in 1996.................... 3,683 1,534
------- -------
Totals for the year................................. 27,313 11,273
Less: Post acquisition amounts already included in
ATLANTIC's historical balances................... (9,690) (3,616)
Less: Dispositions.................................... (6,567) (2,920)
------- -------
Net adjustment to ATLANTIC's historical balances.... $11,056 $ 4,737
======= =======
</TABLE>
- --------
(1) Includes property management fees and real estate taxes.
F-31
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
The following analysis reconciles the audited information for the Group C
Communities, the Group D Communities and the Group E Communities to the
amounts contained in the pro forma statement of earnings (in thousands):
<TABLE>
<CAPTION>
RENTAL RENTAL
INCOME EXPENSES (1)
------- ------------
<S> <C> <C>
Group C Communities: Audited results of
operations for the year ended December 31, 1995. $ 5,876 $3,043
Adjustment to reflect the results of operations
of Group C communities for 1996............... (71)(2) (562)(2)
------- ------
Total 1996 Group C........................... $ 5,805 $2,481
======= ======
Group D Communities: Audited results of
operations for the year ended December 31, 1995. $ 6,173 $2,576
Adjustment to reflect the results of operations
of Group D communities for 1996............... 7(2) (71)(2)
------- ------
Total 1996 Group D........................... $ 6,180 $2,505
======= ======
Group E Communities: Audited results of
operations for the year ended December 31, 1995. $11,347 $4,990
Adjustment to reflect the results of operations
of Group E communities for 1996............... 298(2) (237)(2)
------- ------
Total 1996 Group E........................... $11,645 $4,753
======= ======
</TABLE>
- --------
(1) Includes property management fees and real estate taxes.
(2) Represents incremental income and expense adjustments necessary to
reconcile the 1995 audited results with the 1996 actual results.
(d) Reflects the difference for the year ended December 31, 1996 between
historical property management fee expense and ATLANTIC's pro forma property
management fee expense.
(e) Reflects the removal of depreciation expense recognized on communities
disposed of subsequent to December 31, 1995 which is included in ATLANTIC's
historical balances.
F-32
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
(f) Reflects depreciation expense from January 1, 1996 through the
acquisition date for all communities acquired subsequent to December 31, 1995
(depreciation expense after the date of acquisition is included in ATLANTIC's
historical operating results). This depreciation adjustment is based on
ATLANTIC's purchase cost assuming asset lives of 10 to 40 years. Depreciation
is computed using a straight-line method.
(g) Reflects pro forma interest expense for the year ended December 31, 1996
on the three mortgage notes assumed in connection with acquisitions in 1996.
The interest rates on the mortgage notes varies from 7.0% to 8.0%.
(h) Represents the reduction to interest expense resulting from the pro forma
repayments on the line of credit. The interest reduction is calculated using
the weighted-average daily interest rate of 7.39% for 1996.
(i) Reflects the additional REIT management fee that would have been incurred
in the year ended December 31, 1996 had the pro forma acquisitions and
dispositions and the pro forma repayments on the line of credit all occurred as
of January 1, 1996.
(j) The number of Shares used in the calculation of the pro forma per Share
data was based on the weighted average number of Shares outstanding during the
period adjusted to give effect to Shares assumed to have been issued on January
1, 1996 as necessary to complete the pro forma acquisitions and to make the pro
forma repayments on the line of credit.
F-33
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Security Capital Atlantic Incorporated
We have audited the accompanying combined Historical Summary of Gross Income
and Direct Operating Expenses (the Historical Summary) of the Group C
Communities described in Note 1 for the year ended December 31, 1995. This
combined Historical Summary is the responsibility of the Group C Communities'
management. Our responsibility is to express an opinion on this combined
Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined Historical Summary is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined Historical
Summary. An audit also includes assessing the accounting principles used and
the significant estimates made by management, as well as evaluating the
overall presentation of the combined Historical Summary. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11
of Security Capital Atlantic Incorporated as described in the accompanying
Note 1 of the combined Group C Communities and is not intended to be a
complete presentation of the income and expenses of the combined Group C
Communities.
In our opinion, the combined Historical Summary of Gross Income and Direct
Operating Expenses referred to above presents fairly, in all material
respects, the combined gross income and direct operating expenses as described
in Note 1 of the combined Group C Communities for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
West Palm Beach, Florida
April 26, 1996
F-34
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP C COMMUNITIES
COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Gross income:
Rental...................................................... $5,760,923
Other....................................................... 114,949
----------
Total gross income........................................ 5,875,872
----------
Direct operating expenses:
Utilities and other operating expenses...................... 1,279,237
Real estate taxes........................................... 615,907
Repairs and maintenance..................................... 783,851
Management fees............................................. 228,903
Advertising................................................. 88,289
Insurance................................................... 47,163
----------
Total direct operating expenses........................... 3,043,350
----------
Excess of gross income over direct operating expenses......... $2,832,522
==========
</TABLE>
See accompanying notes.
F-35
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP C COMMUNITIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
DECEMBER 31, 1995
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined Historical Summary of Gross Income and Direct Operating
Expenses (the Historical Summary) for the year ended December 31, 1995,
relates to the operations of the following Group C Communities which were
acquired from unaffiliated parties by Security Capital Atlantic Incorporated
(the Company) between January 1, 1996 and April 29, 1996:
<TABLE>
<CAPTION>
ACQUISITION DATE COMMUNITY NAME LOCATION ACQUISITION COST
---------------- -------------- -------------------------- ----------------
(IN 000S)
<C> <S> <C> <C>
April 10, 1996 Cameron at Charlotte, North Carolina $ 8,000
Hickory
Grove
(formerly
Esprit)
April 22, 1996 Park Place Ft. Lauderdale, Florida 14,355
at Turtle
Run
(formerly
Park
Place)
April 22, 1996 Cameron Greenville, South Carolina 11,007
Court
(formerly
Paces
Court)
</TABLE>
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Registration Statement on Form S-11
of the Company. The combined Historical Summary is not intended to be a
complete presentation of combined income and expenses of the Group C
Communities for the year ended December 31, 1995, as certain costs such as
depreciation, amortization, certain mortgage interest, professional fees and
other costs not directly related to the future operations of the Group C
Communities have been excluded. These costs are not considered to be direct
operating expenses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Rental income from leasing activities consist of lease payments earned from
tenants under lease agreements with terms of one year or less.
Capitalization Policy
Ordinary repairs and maintenance are expensed as incurred; major
replacements and betterments are capitalized.
Advertising Expense
The cost of advertising is expensed as incurred.
Use of Estimates
The preparation of the combined Historical Summary in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined Historical
Summary and accompanying notes. Actual results could differ from those
estimates.
3. RELATED PARTY TRANSACTIONS
Management fees of $228,903 were paid to affiliates of the prior owners
under property management contracts.
4. DEBT ASSUMPTION
During 1995, the Cameron at Hickory Grove Apartments secured an 8.75%,
interest-only mortgage note with a balance of $6,660,000. The Company assumed
this mortgage note on April 10, 1996 in connection with the acquisition of the
property. Substantial modifications in the terms of the note were made prior
to the assumption by the Company. Therefore, on a continuing basis, the
interest expense incurred will differ from the amounts incurred prior to the
Company's assumption of the debt. Accordingly, no interest expense is
recognized in the accompanying combined Historical Summary.
F-36
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Security Capital Atlantic Incorporated
We have audited the accompanying combined Historical Summary of Gross Income
and Direct Operating Expenses (the Historical Summary) of the Group D
Communities described in Note 1 for the year ended December 31, 1995. This
combined Historical Summary is the responsibility of the Group D Communities'
management. Our responsibility is to express an opinion on this combined
Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined Historical Summary is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined Historical
Summary. An audit also includes assessing the accounting principles used and
the significant estimates made by management, as well as evaluating the
overall presentation of the combined Historical Summary. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11
of Security Capital Atlantic Incorporated as described in the accompanying
Note 1 of the combined Group D Communities and is not intended to be a
complete presentation of the income and expenses of the combined Group D
Communities.
In our opinion, the combined Historical Summary of Gross Income and Direct
Operating Expenses referred to above presents fairly, in all material
respects, the combined gross income and direct operating expenses as described
in Note 1 of the combined Group D Communities for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
West Palm Beach, Florida
August 13, 1996
F-37
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP D COMMUNITIES
COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM JANUARY 1, 1996 THROUGH THE
EARLIER OF JUNE 30, 1996 OR DATE OF ACQUISITION
<TABLE>
<CAPTION>
1995 1996
---------- -----------
(UNAUDITED)
<S> <C> <C>
Gross income:
Rental................................................. $5,927,498 $2,530,039
Other.................................................. 245,113 95,154
---------- ----------
Total gross income................................... 6,172,611 2,625,193
---------- ----------
Direct operating expenses:
Utilities and other operating expenses................. 1,252,442 595,707
Real estate taxes...................................... 557,446 278,615
Repairs and maintenance................................ 336,297 78,735
Management fees........................................ 266,917 106,175
Advertising............................................ 65,935 35,320
Insurance.............................................. 97,417 58,141
---------- ----------
Total direct operating expenses...................... 2,576,454 1,152,693
---------- ----------
Excess of gross income over direct operating expenses.... $3,596,157 $1,472,500
========== ==========
</TABLE>
See accompanying notes.
F-38
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP D COMMUNITIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM JANUARY 1, 1996 THROUGH THE
EARLIER OF JUNE 30, 1996 OR DATE OF ACQUISITION
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined Historical Summary of Gross Income and Direct Operating Expenses
(the Historical Summary) for the year ended December 31, 1995 and the period
from January 1, 1996 through the earlier of June 30, 1996 or the date Security
Capital Atlantic Incorporated (the "Company") acquired the community (the "Date
of Acquisition") relates to the operations of the following Group D Communities
which have been or are likely to be acquired from unaffiliated parties by the
Company between May 29, 1996 and September 30, 1996:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
DATE COMMUNITY NAME LOCATION COST
----------- -------------- -------- -----------
<S> <C> <C> <C>
(IN 000'S)
May 29, 1996 The Pointe at Bayberry Lake Ft. Lauderdale, Florida $ 16,650
May 30, 1996 Cameron Pointe (formerly Calibre Pointe) Atlanta, Georgia 14,450
-- (/1/) Country Oaks Memphis, Tennessee -- (/1/)
</TABLE>
- --------
(/1/Property)is under contract
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11 of
the Company. The combined Historical Summary is not intended to be a complete
presentation of combined income and expenses of the Group D Communities for the
year ended December 31, 1995 and the period from January 1, 1996 through the
earlier of June 30, 1996 or the Date of Acquisition, as certain costs such as
depreciation, amortization, certain mortgage interest, professional fees and
other costs not directly related to the future operations of the Group D
Communities have been excluded. These costs are not considered to be direct
operating expenses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Rental income from leasing activities consist of lease payments earned from
tenants under lease agreements with terms of one year or less.
Capitalization Policy
Ordinary repairs and maintenance are expensed as incurred; major replacements
and betterments are capitalized.
Advertising Expense
The cost of advertising is expensed as incurred.
Use of Estimates
The preparation of the combined Historical Summary in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined Historical
Summary and accompanying notes. Actual results could differ from those
estimates.
F-39
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP D COMMUNITIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES--(CONCLUDED)
Unaudited Interim Historical Summary
The combined historical summary of gross income and direct operating
expenses for the period from January 1, 1996 through the earlier of June 30,
1996 or the Date of Acquisition is unaudited. In the opinion of management,
all adjustments necessary for a fair presentation of such combined historical
summary have been included. The results of operations for the period are not
necessarily indicative of the Group D Communities future results of
operations.
3. RELATED PARTY TRANSACTIONS
Management fees of $266,917 and $106,175 (unaudited) were paid to affiliates
of the prior owners under property management contracts in 1995 and 1996,
respectively.
4. DEBT ASSUMPTION
In June 1995, the Country Oaks Apartments secured a mortgage note in the
amount of $6,010,000. The note provides for monthly payments of $42,663,
including principal and interest at 7.655% through July 2002, at which time
all outstanding principal and interest will be due. The Company will assume
this note in connection with the acquisition of the community.
F-40
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Security Capital Atlantic Incorporated
We have audited the accompanying combined Historical Summary of Gross Income
and Direct Operating Expenses (the Historical Summary) of the Group E
Communities described in Note 1 for the year ended December 31, 1995. This
combined Historical Summary is the responsibility of the Group E Communities'
management. Our responsibility is to express an opinion on this combined
Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined Historical Summary is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined Historical Summary. An
audit also includes assessing the basis of accounting used and significant
estimates made by management, as well as evaluating the overall presentation of
the combined Historical Summary. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11 of
Security Capital Atlantic Incorporated as described in the accompanying Note 1
of the combined Group E Communities and is not intended to be a complete
presentation of the income and expenses of the combined Group E Communities.
In our opinion, the combined Historical Summary of Gross Income and Direct
Operating Expenses referred to above presents fairly, in all material respects,
the combined gross income and direct operating expenses as described in Note 1
of the combined Group E Communities for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
Dallas, Texas
January 31, 1997
F-41
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP E COMMUNITIES
COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1995 AND
THE PERIOD FROM JANUARY 1, 1996 THROUGH THE DATE OF ACQUISITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------- -----------
(UNAUDITED)
<S> <C> <C>
Gross income:
Rental.................................................... $10,774 $9,022
Other..................................................... 573 554
------- ------
Total gross income...................................... 11,347 9,576
------- ------
Direct operating expenses:
Utilities and other operating expenses.................... 1,674 1,351
Real estate taxes......................................... 956 848
Repairs and maintenance................................... 1,470 1,198
Management fees........................................... 468 378
Interest on certain obligations assumed................... 437 341
Advertising............................................... 207 148
Insurance................................................. 215 176
------- ------
Total direct operating expenses......................... 5,427 4,440
------- ------
Excess of gross income over direct operating expenses....... $ 5,920 $5,136
======= ======
</TABLE>
See accompanying notes.
F-42
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP E COMMUNITIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1995 AND
THE PERIOD FROM JANUARY 1, 1996 THROUGH THE DATE OF ACQUISITION
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined Historical Summary of Gross Income and Direct Operating Expenses
(the Historical Summary) for the year ended December 31, 1995 and the period
from January 1, 1996 through the date Security Capital Atlantic Incorporated
(the Company) acquired the community (the Date of Acquisition), relates to the
operations of the following Group E Communities which were acquired from
unaffiliated parties by the Company between September 30, 1996 and December 20,
1996:
<TABLE>
<CAPTION>
ACQUISITION
PRICE
DATE COMMUNITY NAME LOCATION (IN 000'S)
---- -------------- -------- -----------
<C> <S> <C> <C>
September 30, 1996 West Springfield Terrace Washington, D.C. $16,100
October 17, 1996 Cameron Ridge (formerly Lin- Raleigh, NC 10,000
coln Ridge)
October 18, 1996 Cameron Century Center Memphis, TN 15,800
(formerly Arbors at Century
Center)
October 22, 1996 Balmoral Village Atlanta, GA 19,125
December 20, 1996 Cameron Bayshore Tampa, FL 10,700
(formerly Chesapeake)
</TABLE>
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Registration Statement of Form S-11 of
the Company. The combined Historical Summary is not intended to be a complete
presentation of combined income and expenses of the Group E Communities for the
year ended December 31, 1995 and the period from January 1, 1996 through the
Date of Acquisition, as certain costs such as depreciation, amortization,
certain mortgage interest, professional fees and other costs not considered
comparable to the future operations of the Group E Communities have been
excluded.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Rental income consists of lease payments earned from tenants under lease
agreements with terms of one year or less.
Capitalization Policy
Ordinary repairs and maintenance are expensed as incurred; major replacements
and betterments are capitalized.
Advertising Expense
The cost of advertising is expensed as incurred.
Use of Estimates
The preparation of the combined Historical Summary in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined Historical
Summary and accompanying notes. Actual results could differ from those
estimates.
F-43
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP E COMMUNITIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES--(CONTINUED)
Unaudited Interim Historical Summary
The combined Historical Summary of Gross Income and Direct Operating Expenses
for the period from January 1, 1996 through the Date of Acquisition is
unaudited. In the opinion of management, all adjustments necessary for a fair
presentation of such combined Historical Summary have been included. The
results of operations for the period are not necessarily indicative of the
Group E Communities future results of operations.
3. RELATED PARTY TRANSACTIONS
Management fees of $73,000 in 1995 and 1996 and allocated accounting costs of
$53,000 and $49,000 in 1995 and 1996, respectively, were paid to affiliates of
the prior owners under property management contracts.
4. DEBT ASSUMPTION
ATLANTIC assumed outstanding debt in connection with the acquisition of
Lincoln Ridge. A 7% mortgage note with an outstanding balance of $5,920,186 at
October 17, 1996 (the date of acquisition) was assumed by the Company. The
note, which is collateralized by the community, matures on September 10, 2013,
subject to the lender's call options in 1998, 2003 or 2008. The mortgage note
requires monthly principal and interest payments of $50,660 until September
1998, at which time the interest rate will be based on the prime rate or, at
the Company's option, may be fixed at a rate based on the current Treasury
rate. Beginning in September, 1998, the note requires monthly payments of
interest and monthly principal payments beginning at $15,206, increasing by
approximately 9% annually.
The mortgage note had an outstanding balance of $6,071,000 at December 31,
1995. The Company's assumption of this mortgage note did not provide for any
modification to the original terms of the note through September 1998;
therefore, interest expense incurred prior to the Company's assumption is
representative of future interest expense. Accordingly, interest expense of
$437,000 and $341,000 for 1995 and 1996, respectively, is recognized in the
combined Historical Summary.
F-44
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF ATLANTIC SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 17
Security Capital Atlantic Incorporated.................................... 25
Use of Proceeds........................................................... 25
Capitalization............................................................ 26
Price Range of ATLANTIC Shares and Distributions.......................... 26
Dilution.................................................................. 29
Business.................................................................. 29
REIT Management........................................................... 39
Communities............................................................... 51
Selected Financial Information............................................ 59
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 60
Policies With Respect to Certain Activities............................... 75
Certain Relationships and Transactions.................................... 78
Principal Shareholders.................................................... 82
Description of Stock...................................................... 83
Certain Provisions of Maryland Law and of ATLANTIC's Charter and Bylaws... 88
Shares Available for Future Sale.......................................... 91
Federal Income Tax Considerations......................................... 92
Underwriting.............................................................. 100
Experts................................................................... 101
Validity of Shares........................................................ 101
Additional Information.................................................... 101
Glossary.................................................................. 103
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 SHARES
LOGO
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-----------
PROSPECTUS
-----------
GOLDMAN, SACHS & CO.
REPRESENTATIVES OF THE UNDERWRITERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses incurred by the Registrant in
connection with the offering of the shares being registered. All the amounts
shown are estimates (other than the SEC registration fee and the NASD fee).
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
SEC registration fee.......................................... $ 33,629
NASD fee...................................................... 11,598
New York Stock Exchange listing fee........................... 14,000
Printing and engraving fees................................... 400,000
Legal fees and expenses (other than Blue Sky)................. 250,000
Accounting fees and expenses.................................. 200,000
Blue Sky fees and expenses (including fees of counsel)........ 5,000
Miscellaneous expenses........................................ 85,773
----------
Total..................................................... $1,000,000
==========
</TABLE>
ITEM 31. SALES TO SPECIAL PARTIES.
See Item 32. In addition, on October 18, 1996, Security Capital Group
Incorporated ("Security Capital Group") purchased 416,666 shares of common
stock in the Registrant's initial public offering of 4,940,000 shares of
common stock.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
From October 26, 1993 (the date of the Registrant's inception) through June
28, 1994, Security Capital Group purchased an aggregate of 13,066,575 shares
of the Registrant's common stock at a price of $20.00 per share. Such
purchases were exempt from registration pursuant to Section 4(2) of the
Securities Act. On May 12, 1994, Laing Properties, Inc. received 5,000,000
shares of the Registrant's common stock in partial consideration for
ATLANTIC's acquisition of a portfolio of properties. Of the 5,000,000 shares
issued to Laing Properties, Inc., 3,750,000 shares have been repurchased by
the Registrant under a put obligation. In August 1994, the Registrant sold
500,000 shares of common stock in a private offering at a price of $20.00 per
share (including 331,713 shares which were sold to Security Capital Group).
From March 1995 through June 1995, the Registrant sold 7,272,728 shares of
common stock in a private offering at a price of $22.00 per share (including
4,310,705 shares which were sold to Security Capital Group). From November
1995 through May 1996, the Registrant sold 10,862,278 shares of common stock
in a private offering at a price of $23.00 per share (including 919,712 shares
which were sold to Security Capital Group at a price of $23.00 per share and
1,250,000 shares which were sold to Security Capital Group at a price of
$23.136 per share). All such transactions were effected pursuant to the
exemption from registration contained in Section 4(2) of the Securities Act
and Rule 506 thereunder.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Maryland law permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit of profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Registrant's
Charter contains such a provision which eliminates such liability to the
maximum extent permitted by Maryland law.
II-1
<PAGE>
The Registrant's officers and Directors are and 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 (a) any individual
who is a present or former Director or officer of the Registrant or (b) any
individual who, while a Director or officer of the Registrant and at the
request of the Registrant, serves or has served another corporation,
partnership, joint venture, trust, employee benefit plan or any other
enterprise as a director, officer, partner or trustee of such corporation,
partnership, joint venture, employee benefit plan or other enterprise. The
Registrant has the power, with the approval of the Registrant's Board of
Directors, to provide such indemnification and advancement of expenses to a
person who served a predecessor of the Registrant in any of the capacities
described in (a) or (b) above and to any employee or agent of the Registrant
or its predecessors.
Maryland law requires a corporation (unless its charter provides otherwise,
which the Registrant's charter does not) to indemnify a director or officer
who has been successful, on the merits or otherwise, in the defense of any
proceeding to which he or she is made a party by reason of his or her service
in that capacity. Maryland law permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. Maryland law permits the Registrant to
advance reasonable expenses to a Director or officer upon the Registrant's
receipt of (a) a written affirmation by the Director or officer of his or her
good faith belief that he or she has met the standard of conduct necessary for
indemnification by the Registrant as authorized by the Registrant's Bylaws and
(b) a written statement by or on his or her behalf to repay the amount paid or
reimbursed by the Registrant if it shall ultimately be determined that the
standard of conduct was not met.
The Registrant has entered into indemnity agreements with each of its
officers and Directors which provide for reimbursement of all expenses and
liabilities of such officer or Director, arising out of any lawsuit or claim
against such officer or Director due to the fact that he or she was or is
serving as an officer or Director, except for such liabilities and expenses
(a) the payment of which is judicially determined to be unlawful, (b) relating
to claims under Section 16(b) of the Securities Exchange Act of 1934 or (c)
relating to judicially determined criminal violations.
The form of Underwriting Agreement filed as an exhibit to this registration
statement provides for the reciprocal indemnifications by the Underwriters of
the Registrant, and its Directors, officers and controlling persons, and by
the Registrant of the Underwriters, and their respective directors, officers
and controlling persons, against certain liabilities under the Securities Act.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
The consideration to be received by the Registrant for the shares registered
will be credited to the appropriate capital account.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
See Index to Financial Statements and Index to Exhibits.
II-2
<PAGE>
ITEM 36. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the questions of whether such
indemnification is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
The Registrant hereby undertakes that: (1) for purposes of determining any
liability under the Securities Act of 1933, the information omitted from the
form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was
declared effective; and (2) for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEAN 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,
Ariel Amir, Edward J. Schneidman and Michael T. Blair 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-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-11 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ATLANTA, STATE OF GEORGIA, ON THE 25TH DAY OF
FEBRUARY, 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>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ James C. Potts Co-Chairman, Chief February 25, 1997
____________________________________ Investment Officer and
James C. Potts Director
/s/ Constance B. Moore Co-Chairman, Chief Operating February 25, 1997
____________________________________ Officer and Director
Constance B. Moore
/s/ William Kell Vice President and February 25, 1997
____________________________________ Controller (Principal
William Kell Financial and Accounting
Officer)
/s/ M. A. Garcia III Director February 25, 1997
____________________________________
M. A. Garcia III
/s/ Ned S. Holmes Director February 25, 1997
____________________________________
Ned S. Holmes
/s/ John M. Richman Director February 25, 1997
____________________________________
John M. Richman
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT DESCRIPTION
----------- --------------------
<C> <S>
*1 Form of Underwriting Agreement between Security Capital Atlantic
Incorporated ("ATLANTIC") and Goldman, Sachs & Co., as
representatives of the several underwriters
2.1 Merger and Distribution Agreement, dated as of May 21, 1996, among
Security Capital Pacific Trust ("PTR"), ATLANTIC, Security Capital
Group Incorporated ("Security Capital Group") and Homestead
Village Properties Incorporated ("Homestead") (incorporated by
reference to Exhibit 2 to Homestead's Form S-4 Registration
Statement (File No. 333-4455; the "Homestead S-4"))
2.2 Form of Articles of Merger (incorporated by reference to Exhibit
2.1 to the Homestead S-4)
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
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 12, 1996, between ATLANTIC and
The First National Bank of Boston, as Rights Agent, including form
of Rights Certificate (incorporated by reference to Exhibit 4.5 to
the ATLANTIC S-11)
4.7 Form of stock certificate for shares of common stock of ATLANTIC
(incorporated by reference to Exhibit 4.6 to the ATLANTIC S-11)
5 Opinion of Mayer, Brown & Platt as to the legality of the shares
being registered
8 Opinion of Mayer, Brown & Platt as to certain tax matters
10.1 Transfer and Registration Rights Agreement, dated as of December
15, 1995, among ATLANTIC and the investors listed on the signature
pages thereto (incorporated by reference to Exhibit 10.1 to the
ATLANTIC S-11)
10.2 Supplemental Registration Rights Agreement, dated as of December
15, 1995, among ATLANTIC and the investors listed on the signature
pages thereto (incorporated by reference to Exhibit 10.2 to the
ATLANTIC S-11)
10.3 Second Amended and Restated REIT Management Agreement, dated as of
June 30, 1996, between ATLANTIC and the REIT Manager (incorporated
by reference to Exhibit 10.3 to the ATLANTIC S-11)
10.4 Investor Agreement, dated as of October 28, 1993, between ATLANTIC
and Security Capital Group (incorporated by reference to Exhibit
10.4 to the ATLANTIC S-11)
10.5 Revolving Credit Agreement, dated as of December 18, 1996, between
ATLANTIC and Morgan Guaranty Trust Company of New York, as agent
bank, including form of Revolving Credit Note
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT DESCRIPTION
----------- --------------------
<C> <S>
10.6 Form of Indemnification Agreement entered into between ATLANTIC
and each of its Directors (incorporated by reference to Exhibit
10.6 to the ATLANTIC S-11)
10.7 Security Capital Atlantic Incorporated Share Option Plan for
Outside Directors (incorporated by reference to Exhibit 10.7 to
the ATLANTIC S-11)
10.8 First Amendment to Security Capital Atlantic Incorporated Share
Option Plan for Outside Directors (incorporated by reference to
Exhibit 10.8 to the ATLANTIC S-11)
10.9 Consolidated Amended and Restated Promissory Note by Atlantic
Homestead Village Incorporated in favor of ATLANTIC (incorporated
by reference to Exhibit 4.6 to the Homestead S-4)
10.10 Amended and Restated Promissory Note by Atlantic Homestead Village
Limited Partnership in favor of ATLANTIC (incorporated by
reference to Exhibit 4.7 to the Homestead S-4)
10.11 Protection of Business Agreement among ATLANTIC, PTR, Security
Capital Group and Homestead
10.12 Investor and Registration Rights Agreement between Homestead and
ATLANTIC
10.13 Funding Commitment Agreement between Homestead and ATLANTIC
10.14 Form of Property Management Agreement for ATLANTIC's communities
(incorporated by reference to Exhibit 10.13 to the ATLANTIC S-11)
21 Subsidiaries of ATLANTIC
23.1 Consent of Mayer, Brown & Platt (included in Exhibits 5 and 8)
23.2 Consent of Ernst & Young LLP, Dallas, Texas
24 Power of Attorney pursuant to which amendments to this
Registration Statement may be filed (included at page II-4)
27 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
II-7
<PAGE>
EX 4.4
ARTICLES SUPPLEMENTARY
RIGHTS OF SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK
of
SECURITY CAPITAL ATLANTIC INCORPORATED
The undersigned, being a duly authorized officer of Security Capital
Atlantic Incorporated, a Maryland corporation (the "Corporation"), does hereby
certify to the State Department of Assessments and Taxation of Maryland pursuant
to Section 2-208(b) of the Maryland General Corporation Law that:
FIRST: The Board of Directors of the Corporation (the "Board of
Directors") has reclassified 746,032 unissued shares of Common Stock, $.01 par
value per share (the "Common Shares"), of the Corporation as shares of Series A
Junior Participating Preferred Stock.
SECOND: The following is a description of the Series A Preferred Shares
(as defined below), including the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption thereof:
Section 1. Designation and Amount. There shall be a series of preferred
stock of the Corporation, $0.01 par value per share, which shall be designated
"Series A Junior Participating Preferred Stock," $0.01 par value per share (the
"Series A Preferred Shares"), and the number of shares constituting that series
shall be 746,032. Such number of shares may be increased or decreased by
resolution of the Board of Directors and by the filing of articles supplementary
in accordance with the provisions of the Maryland General Corporation Law
stating that such increase or reduction has been so authorized; provided,
however, that no decrease shall reduce the number of Series A Preferred Shares
to a number less than the number of Series A Preferred Shares then outstanding
plus the number of Series A Preferred Shares issuable upon exercise of
outstanding rights, options or warrants or upon conversion of outstanding
securities issued by the Corporation.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any shares
of any class or series of preferred shares of the Corporation ranking prior and
superior to the Series A Preferred Shares with respect to dividends, the holders
of Series A Preferred Shares shall be entitled to receive, when, as and if
authorized and declared by the Board of Directors out of funds legally available
for the purpose, quarterly dividends payable in cash to holders of record on the
last Business Day of January, April, July and October in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
(commencing on the first Quarterly Dividend Payment Date after the first
issuance of a Series A Preferred Share or fraction thereof)
1
<PAGE>
in an amount per share (rounded to the nearest cent) equal to the greater of (a)
$1.00 or (b) subject to the provision for adjustment hereinafter set forth, 100
times the aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in Common Shares (hereinafter
defined) or a subdivision of the outstanding Common Shares (by a
reclassification or otherwise), declared on the Common Shares since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any Series A
Preferred Share or fraction thereof. In the event the Board of Directors shall
at any time following March 12, 1996 (i) authorize and declare any dividend on
Common Shares payable in Common Shares, (ii) subdivide the outstanding Common
Shares or (iii) combine the outstanding Common Shares into a smaller number of
shares, then in each such case the amount to which holders of Series A Preferred
Shares were entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying each such amount by a
fraction the numerator of which is the number of Common Shares outstanding
immediately after such event and the denominator of which is the number of
Common Shares that were outstanding immediately prior to such event.
(B) The Board of Directors of the Corporation shall authorize and declare a
dividend or distribution on the Series A Preferred Shares as provided in
paragraph (A) above at the time it declares a dividend or distribution on the
Common Shares (other than a dividend payable in Common Shares).
(C) No dividend or distribution (other than a dividend or distribution
payable in Common Shares) shall be paid or payable to the holders of Common
Shares unless, prior thereto, all accrued but unpaid dividends to the date of
that dividend or distribution shall have been paid to the holders of Series A
Preferred Shares.
(D) Dividends shall begin to accrue and be cumulative on outstanding Series
A Preferred Shares from the Quarterly Dividend Payment Date next preceding the
date of issuance of such Series A Preferred Shares, unless the date of issuance
of such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue and
be cumulative from the date of issuance of such shares, or unless the date of
issuance is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of Series A Preferred Shares entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the Series A Preferred Shares in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date
for the determination of holders of Series A Preferred Shares entitled to
receive payment of a dividend or distribution, authorized and declared thereon,
which record date shall be no more than 30 days prior to the date fixed for the
payment thereof.
2
<PAGE>
Section 3. Voting Rights. The holders of Series A Preferred Shares shall
have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each one
one-hundredth of a Series A Preferred Share shall entitle the holder thereof to
one vote on all matters submitted to a vote of the shareholders of the
Corporation. In the event the Board of Directors shall at any time following
March 12, 1996 (i) authorize and declare any dividend on Common Shares payable
in Common Shares, (ii) subdivide the outstanding Common Shares or (iii) combine
the outstanding Common Shares into a smaller number of shares, then in each such
case the number of votes per share to which holders of Series A Preferred Shares
were entitled immediately prior to such event shall be adjusted by multiplying
such number by a fraction the numerator of which is the number of Common Shares
outstanding immediately after such event and the denominator of which is the
number of Common Shares that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or required by law, the holders of
Series A Preferred Shares and the holders of Common Shares and any other shares
of stock of the Corporation having general voting rights shall vote together as
one class on all matters submitted to a vote of shareholders of the Corporation.
(C) (i) Whenever, at any time or times, dividends payable on any Series
A Preferred Shares shall be in arrears in an amount equal to at least six
full quarterly dividends (whether or not authorized and declared and
whether or not consecutive), the holders of record of the outstanding
Series A Preferred Shares shall have the exclusive right, voting separately
as a single class, to elect two directors of the Corporation at a special
meeting of shareholders of the Corporation or at the Corporation's next
annual meeting of shareholders, and at each subsequent annual meeting of
shareholders, as provided below. At elections for such directors, the
holders of Series A Preferred Shares shall be entitled to cast one vote for
each one one-hundredth of a Series A Preferred Share held, subject to
adjustment.
(ii) Upon the vesting of such right of the holders of Series A
Preferred Shares, the maximum authorized number of members of the Board of
Directors shall automatically be increased by two and the two vacancies so
created shall be filled by vote of the holders of the outstanding Series A
Preferred Shares as hereinafter set forth. A special meeting of the
shareholders of the Corporation then entitled to vote shall be called by
any Co-Chairman, Managing Director, Senior Vice President or the Secretary
of the Corporation, if requested in writing by the holders of record of not
less than 10% of the Series A Preferred Shares then outstanding. At such
special meeting, or, if no such special meeting shall have been called,
then at the next annual meeting of shareholders of the Corporation, the
holders of Series A Preferred Shares shall elect, voting as above provided,
two directors of the Corporation to fill the aforesaid vacancies created by
the automatic increase in the number of members of the Board of Directors.
At any and all
3
<PAGE>
such meetings for such election, the holders of a majority of the
outstanding Series A Preferred Shares shall be necessary to constitute a
quorum for such election, whether present in person or by proxy, and such
two directors shall be elected by the vote of at least a plurality of
shares held by such shareholders present or represented at the meeting.
Any director elected by holders of Series A Preferred Shares pursuant to
this Section may be removed at any annual or special meeting, by vote of a
majority of the shareholders voting as a class who elected such director,
with or without cause. In case any vacancy shall occur among the directors
elected by the holders of the Series A Preferred Shares pursuant to this
Section, such vacancy may be filled by the remaining director so elected,
or his successor then in office, and the director so elected to fill such
vacancy shall serve until the next meeting of shareholders for the election
of directors. After the holders of the Series A Preferred Shares shall
have exercised their right to elect directors in any default period and
during the continuance of such period, the number of directors shall not be
further increased or decreased except by vote of the holders of Series A
Preferred Shares as herein provided or pursuant to the rights of any equity
securities ranking senior to or pari passu with the Series A Preferred
Shares.
(iii) The right of the holders of Series A Preferred Shares, voting
separately as a class, to elect two members of the Board of Directors of
the Corporation as aforesaid shall continue until, and only until, such
time as all arrears in dividends (whether or not declared) on Series A
Preferred Shares shall have been paid, authorized or declared and set apart
for payment, at which time such right shall terminate, except as herein or
by law expressly provided, subject to revesting in the event of each and
every subsequent default of the character above-mentioned. Upon any
termination of the right of the holders of Series A Preferred Shares as a
class to vote for directors as herein provided, the term of office of all
directors then in office elected by the holders of Series A Preferred
Shares pursuant to this Section shall terminate immediately. Whenever the
term of office of the directors elected by the holders of Series A
Preferred Shares pursuant to this Section shall terminate and the special
voting powers vested in the holders of Series A Preferred Shares pursuant
to this Section shall have expired, the maximum number of members of the
Board of Directors of the Corporation shall be such number as may be
provided for in the Bylaws of the Corporation irrespective of any increase
made pursuant to the provisions of this Section.
(D) Except as otherwise provided herein or required by law, holders of
Series A Preferred Shares shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of the Common Shares as provided herein) for taking any corporate
action.
4
<PAGE>
Section 4. Certain Restrictions.
(A) Whenever any quarterly dividends or other dividends or distributions
payable on the Series A Preferred Shares as provided in Section 2 are in
arrears, then, thereafter and until all accrued and unpaid dividends and
distributions, whether or not authorized and declared, on Series A Preferred
Shares outstanding shall have been paid in full, the Corporation shall not:
(i) authorize, declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Shares,
other than dividends paid or payable in such junior shares;
(ii) authorize, declare or pay dividends on or make any other
distributions on any shares ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Preferred
Shares, except dividends paid ratably on the Series A Preferred Shares, and
all such parity shares on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are
then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Shares, provided
that the Corporation may at any time redeem, purchase or otherwise acquire
any such parity shares in exchange for shares of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding
up) to the Series A Preferred Shares; or
(iv) purchase or otherwise acquire for consideration any Series A
Preferred Shares, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative
rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of the Corporation
unless the Corporation could, under paragraph (A) of this Section, purchase or
otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any Series A Preferred Shares purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof. All such shares shall
upon their cancellation become authorized but unissued preferred shares and may
be reissued as part of a new series of preferred shares
5
<PAGE>
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any
voluntary liquidation, dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to Series A Preferred
Shares unless, prior thereto, the holders of Series A Preferred Shares shall
have received $1.00 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment (the "Series A Liquidation Preference"). Following the payment of
the full amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of Series A Preferred Shares unless,
prior thereto, the holders of Common Shares shall have received an amount per
share (the "Common Adjustment") equal to the quotient obtained by dividing (i)
the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as
set forth in subparagraph C below to reflect such events as share splits, share
dividends and recapitalizations with respect to the Common Shares) (such number
in clause (ii), the "Adjustment Number"). Following the payment of the full
amount of the Series A Liquidation Preference and the Common Adjustment in
respect of all outstanding Series A Preferred Shares and Common Shares,
respectively, holders of Series A Preferred Shares and holders of Common Shares
shall receive their ratable and proportionate share of the remaining assets to
be distributed in the ratio, on a per share basis, of the Adjustment Number to 1
with respect to such Series A Preferred Shares and Common Shares, on a per share
basis, respectively.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Series A Liquidation Preference and the
liquidation preferences of all other series of preferred shares, if any, which
rank on a parity with the Series A Preferred Shares, then such remaining assets
shall be distributed ratably to the holders of the Series A Preferred Shares and
such parity shares in proportion to their respective liquidation preferences.
(C) In the event the Corporation shall at any time following March 12, 1996
(i) declare any dividend on the Common Shares payable in Common Shares, (ii)
subdivide the outstanding Common Shares or (iii) combine the outstanding Common
Shares into a smaller number of shares, then in each such case the Adjustment
Number in effect immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction the numerator of which is the
number of Common Shares outstanding immediately after such event and the
denominator of which is the number of Common Shares that were outstanding
immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the Common Shares are exchanged for or changed into other shares or securities,
cash and/or any other property, then in any such case, the Series A Preferred
Shares shall at the same time be similarly exchanged or changed in an amount per
share (subject to the provision for adjustment hereinafter set forth)
6
<PAGE>
equal to 100 times the aggregate amount of shares, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each Common Share is exchanged or changed. In the event the Board of Directors
shall at any time (i) authorize and declare any dividend on Common Shares
payable in Common Shares, (ii) subdivide the outstanding Common Shares or (iii)
combine the outstanding Common Shares into a smaller number of shares, then in
each such case the amount set forth in the preceding sentence with respect to
the exchange or change of Series A Preferred Shares shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
Common Shares outstanding immediately after such event and the denominator of
which is the number of Common Shares that were outstanding immediately prior to
such event.
Section 8. Redemption. The Series A Preferred Shares shall not be
redeemable by the Corporation. The preceding sentence shall not limit the
ability of the Corporation to purchase or otherwise deal in such shares to the
extent permitted by law.
Section 9. Ranking. The Series A Preferred Shares shall rank junior to
all other series of the Corporation's preferred stock (whether with or without
par value) as to the payment of dividends and the distribution of assets, unless
the terms of any such series shall provide otherwise.
Section 10. Amendment. Neither the Corporation's Amended and Restated
Articles of Incorporation, nor any Articles Supplementary relating to the Series
A Preferred Shares shall be amended in any manner which would materially alter
or change the powers, preferences or special rights of the Series A Preferred
Shares so as to affect the holders of Series A Preferred Shares adversely
without the affirmative vote of the holders of a majority or more of the
outstanding Series A Preferred Shares, voting separately as a class.
Section 11. Fractional Shares. Series A Preferred Shares may be issued in
fractions of a share that are integral multiples of one-one hundredth of a
share, which shall entitle the holder, in proportion to such holder's fractional
shares, to exercise voting rights, receive dividends and participate in
distributions and to have the benefit of all other rights of holders of Series A
Preferred Shares.
THIRD: The Series A Preferred Shares have been reclassified and designated
by the Board of Directors under the authority contained in the charter of the
Corporation. These Articles Supplementary have been approved by the Board of
Directors in the manner and by the vote required by law.
FOURTH: The undersigned officer acknowledges these Articles Supplementary
to be the act of the Corporation and further, as to all matters or facts
required to be verified under oath, such officer acknowledges that to the best
of his or her knowledge, information and belief, these matters and facts are
true in all material respects and that this statement is made under the
penalties of perjury.
7
<PAGE>
IN WITNESS WHEREOF, these Articles Supplementary have been duly executed by
the undersigned officer this 18th day of October, 1996.
SECURITY CAPITAL ATLANTIC INCORPORATED
By: /s/ Jeffrey A. Klopf
---------------------
Name: Jeffrey A. Klopf
Title: Senior Vice President and Secretary
Attest:
By: /s/ Lucinda Marker
-------------------
Name: Lucinda Marker
Title: Assistant Secretary
8
<PAGE>
EXHIBIT 5
[LETTERHEAD OF MAYER, BROWN & PLATT]
February 26, 1997
Security Capital Atlantic Incorporated
Six Piedmont Center
Atlanta, Georgia 30305
Re: Registration Statement on Form S-11
Ladies and Gentlemen:
We have acted as counsel to Security Capital Atlantic Incorporated, a
Maryland corporation ("ATLANTIC"), in connection with its proposed offering of
shares of common stock, par value $.01 per share (the "Shares"), as more fully
set forth in the registration statement on Form S-11 (the "Registration
Statement") relating to the Shares.
As counsel to ATLANTIC, we have examined originals or copies certified to
our satisfaction of ATLANTIC's charter, ATLANTIC's Bylaws, resolutions of
ATLANTIC's Board of Directors and such records, certificates and other documents
and such questions of law as we considered necessary or appropriate for the
purpose of this opinion. As to certain facts material to our opinion, we have
relied, to the extent we deem such reliance proper, upon certificates of public
officials and officers of ATLANTIC. In rendering such 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, limitations
and qualifications set forth herein, we are of the opinion that the Shares, when
sold and delivered against payment therefor and in the manner described in the
Registration Statement, will be validly issued, fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under the caption "Validity of Shares."
<PAGE>
MAYER, BROWN & PLATT
Security Capital Atlantic Incorporated
February 26, 1997
Page 2
We are admitted to practice law in the State of Illinois and we express no
opinions as to matters under or involving any laws other than the laws of
the State of Illinois, the federal laws of the United States of America and
the Maryland General Corporation Law.
Very truly yours,
/s/ Mayer, Brown & Platt
MAYER, BROWN & PLATT
<PAGE>
[LETTERHEAD OF MAYER, BROWN & PLATT]
Exhibit 8
February 26, 1997
Board of Directors
Security Capital Atlantic Incorporated
Six Piedmont Center
Atlanta, Georgia 30305
Re: Security Capital Atlantic Incorporated
Registration Statement on Form S-11
---------------------------------------
Ladies and Gentlemen:
In connection with the offering of Shares/1/ in Security Capital Atlantic
Incorporated, a Maryland corporation ("ATLANTIC"), pursuant to the Form S-11
Registration Statement filed with the Securities 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 headings "PROSPECTUS SUMMARY -- Tax Status of
Atlantic" and "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
- ----------------------
/1/ Unless otherwise specifically defined herein, all capitalized terms have
the meaning assigned to them in the Registration Statement.
<PAGE>
MAYER, BROWN & PLATT
Board of Directors
Security Capital Atlantic Incorporated
February 26, 1997
Page 2
presented in such documents, or otherwise furnished to us, accurately and
completely describes all material facts.
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 beginning on May 12, 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 headings
"PROSPECTUS SUMMARY -- Tax Status of Atlantic" and "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
MAYER, BROWN & PLATT
<PAGE>
EX 10.5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REVOLVING CREDIT AGREEMENT
dated as of December 18, 1996
among
Security Capital Atlantic Incorporated,
The Banks Listed Herein
and
Morgan Guaranty Trust Company of New York,
as Agent
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I
DEFINITIONS
-----------
<TABLE>
<CAPTION>
<S> <C>
SECTION 1.01. Definitions.............................. 1
SECTION 1.02. Accounting Terms and Determinations...... 20
SECTION 1.03. Types of Borrowings...................... 21
ARTICLE II
THE CREDITS
-----------
SECTION 2.01. Commitments to Lend...................... 21
SECTION 2.02. Notice of Borrowing...................... 25
SECTION 2.03. Notice to Banks; Funding of Loans........ 26
SECTION 2.04. Notes.................................... 27
SECTION 2.05. Method of Electing Interest Rates........ 27
SECTION 2.06. Interest Rates........................... 29
SECTION 2.07. Fees..................................... 31
SECTION 2.08. Optional Termination or Reduction of
Commitments............................ 32
SECTION 2.09. Maturity; Mandatory Termination or
Reduction of Commitments............... 33
SECTION 2.10. Optional Prepayments..................... 34
SECTION 2.11. General Provisions as to Payments........ 35
SECTION 2.12. Funding Losses........................... 36
SECTION 2.13. Computation of Interest and Fees......... 36
ARTICLE III
CONDITIONS
SECTION 3.01. Conditions Precedent to Effectiveness
of Agreement........................... 36
SECTION 3.02. Borrowings............................... 39
SECTION 3.03.. Conditions Precedent to New Acquisitions
and Additional Real Property Assets.... 41
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Corporate Existence and Power............ 42
SECTION 4.02. Corporate and Governmental Authoriza-
tion; No Contravention................. 42
SECTION 4.03. Binding Effect........................... 42
SECTION 4.04. Financial Information.................... 42
SECTION 4.05. Litigation............................... 43
SECTION 4.06. Compliance with ERISA.................... 43
SECTION 4.07. Environmental Matters.................... 43
SECTION 4.08. Taxes.................................... 44
SECTION 4.09. Subsidiaries............................. 44
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 4.10. Investments.............................. 45
SECTION 4.11. Not an Investment Company................ 45
SECTION 4.12. Full Disclosure.......................... 45
SECTION 4.13. Relationship of Borrower and Its
Affiliates............................. 45
SECTION 4.14. Contracts................................ 45
SECTION 4.15. Qualification as a REIT.................. 46
SECTION 4.16. No Plan Assets........................... 46
SECTION 4.17. Subsidiary Debt.......................... 46
SECTION 4.18. Ownership of Property.................... 46
ARTICLE V
COVENANTS
SECTION 5.01. Information.............................. 47
SECTION 5.02. Payment of Obligations................... 50
SECTION 5.03. Maintenance of Property; Insurance....... 50
SECTION 5.04. Conduct of Business and Maintenance of
Existence.............................. 50
SECTION 5.05. Compliance with Laws..................... 51
SECTION 5.06. Inspection of Property, Books and Re51
cords.................................. 51
SECTION 5.07. Debt to Consolidated Tangible Net Worth.. 51
SECTION 5.08. EBITDA to Interest Expense Coverage...... 52
SECTION 5.09. EBITDA to Debt Service Coverage.......... 52
SECTION 5.10. Unencumbered Cash Flow................... 52
SECTION 5.11. Unencumbered Asset Pool Value............ 52
SECTION 5.12. Minimum Consolidated Tangible............ 52
Net Worth.............................. 52
SECTION 5.13. Secured Debt Ratio....................... 53
SECTION 5.14. Debt to Total Asset Value Ratio.......... 53
SECTION 5.15. Investments in Unimproved Real........... 53
Property............................... 53
SECTION 5.16. Minority Holdings........................ 53
SECTION 5.17. Joint Ventures........................... 53
SECTION 5.18. Restricted Payments...................... 53
SECTION 5.19. Certain Requirements for the
Unencumbered Asset Pool................ 54
SECTION 5.20. Investments.............................. 54
SECTION 5.21. Consolidations, Mergers and Sales
of Assets.............................. 55
SECTION 5.22. Use of Proceeds.......................... 55
SECTION 5.23. Sale of Unencumbered Asset Pool.......... 55
SECTION 5.24. Liens; Release of Liens.................. 56
SECTION 5.25. Limitations on Recourse Debt............. 56
SECTION 5.26. Limitations on Subsidiary Debt........... 56
SECTION 5.27. Other Debt Instruments................... 56
SECTION 5.28. Hedging Requirements..................... 57
SECTION 5.29. Restriction on Intercompany Debt;
Subordination.......................... 57
SECTION 5.30. Affiliate Transactions................... 57
SECTION 5.31. Contracts................................ 58
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 5.32. Real Estate Investment Trust............. 58
SECTION 5.33. No Plan Assets........................... 59
SECTION 5.34. Environmental Matters.................... 59
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default........................ 59
SECTION 6.02. Notice of Default........................ 63
ARTICLE VII
THE AGENT
SECTION 7.01. Appointment and Authorization............ 63
SECTION 7.02. Agent and Affiliates..................... 63
SECTION 7.03. Action by Agent.......................... 63
SECTION 7.04. Consultation with Experts................ 63
SECTION 7.05. Liability of Agent....................... 63
SECTION 7.06. Indemnification.......................... 64
SECTION 7.07. Credit Decision.......................... 64
SECTION 7.08. Successor Agent.......................... 64
SECTION 7.09. Agent's Fee.............................. 65
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate
Inadequate or Unfair................... 65
SECTION 8.02. Illegality............................... 66
SECTION 8.03. Increased Cost and Reduced Return........ 66
SECTION 8.04. Taxes.................................... 68
SECTION 8.05. Base Rate Loans Substituted for Affected
Fixed Rate Loans....................... 70
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices.................................. 70
SECTION 9.02. No Waivers............................... 71
SECTION 9.03. Expenses; Indemnification................ 71
SECTION 9.04. Sharing of Set-Offs...................... 72
SECTION 9.05. Amendments and Waivers................... 73
SECTION 9.06. Successors and Assigns................... 73
SECTION 9.07. Collateral............................... 75
SECTION 9.08. Governing Law; Submission to
Jurisdiction........................... 75
SECTION 9.09. Counterparts; Integration;
Effectiveness.......................... 75
SECTION 9.10. WAIVER OF JURY TRIAL..................... 76
SECTION 9.11. Survival................................. 76
SECTION 9.12. Domicile of Loans........................ 76
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 9.13. Limitation of Liability.................. 76
SECTION 9.14. Recourse Obligation...................... 76
SECTION 9.15. Further Assurances....................... 76
SECTION 9.16. Confidentiality; Disclosure of
Information............................ 77
</TABLE>
iv
<PAGE>
REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT, dated as of December 18, 1996, among
SECURITY CAPITAL ATLANTIC INCORPORATED, the BANKS listed on the signature pages
hereof and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent.
W I T N E S S E T H:
- - - - - - - - - -
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have
the following meanings:
"Adjusted EBITDA" means EBITDA less an amount equal to (i) the Unit
Amount for each unit for each Real Property Asset which is 100% owned in fee or
leasehold directly or indirectly by the Borrower and its wholly-owned
Subsidiaries and (ii) the Borrower's pro-rata share of the Unit Amount for each
unit for each Real Property Asset which is not 100% owned or leased, directly or
indirectly, by the Borrower and its wholly-owned Subsidiaries. Notwithstanding
anything to the contrary contained herein, the Unit Amount shall not be applied
to any Construction Assets.
"Adjusted London Interbank Offered Rate" has the meaning set forth in
Section 2.06(b).
"Adjusted Net Operating Income" means, when used with respect to any
parcel of real property, Net Operating Income less an amount equal to the Unit
Amount for each unit in the subject property.
"Administrative Questionnaire" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Agent and submitted to
the Agent (with a copy to the Borrower) duly completed by such Bank.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. An Affiliate of the Borrower
<PAGE>
or any Subsidiary includes, without limitation, (i) any officer or director of
such Person and (ii) any record or beneficial owner of more than 10% of any
class of Equity Interests of such Person; provided that, for purposes of this
clause (ii), so long as Group owns beneficially more than 45% of each class of
Equity Interests of the Borrower, an Affiliate of the Borrower for purposes of
clause (ii) shall not include any record or beneficial owner of less than 20% of
any class of Equity Interests of the Borrower. For purposes of this definition
"control" of any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of Equity
Interests, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agent" means Morgan Guaranty Trust Company of New York in its
capacity as agent for the Banks hereunder, and its successors in such capacity.
"Agreement" means this Revolving Credit Agreement, as it may be
amended, supplemented or otherwise modified from time to time.
"Applicable Lending Office" means, with respect to any Bank, (i) in
the case of its Base Rate Loans, its Domestic Lending Office and (ii) in the
case of its Euro-Dollar Loans, its Euro-Dollar Lending Office.
"Applicable Margin" means, with respect to each Loan, the respective
percentages per annum determined, at any time, based on the range into which the
Borrower's Credit Rating then falls, in accordance with the table set forth
below. Any change in the Borrower's Credit Rating causing it to move to a
different range on the table shall effect an immediate change in the Applicable
Margin. In the event that the Borrower receives two (2) Credit Ratings that are
not equivalent, the Applicable Margin shall be determined by the lower of such
two (2) Credit Ratings. In the event that the Borrower receives more than two
(2) Credit Ratings, and such ratings are not equivalent, the Applicable Margin
shall be determined by the lower of the two (2) highest ratings, provided that
each of said two (2) highest ratings shall be Investment Grade Ratings and at
least one of which shall be an Investment Grade Rating from S&P or Moody's. In
the event that only one of the Rating Agencies shall have set the Borrower's
Credit Rating, then the Applicable Margin shall be based on such rating only.
-2-
<PAGE>
<TABLE>
<CAPTION>
Applicable
Range of Borrower's Margin for Applicable
Credit Rating Base Rate Margin for Euro
(S&P/Moody's Loans Dollar Loans
Ratings) (% per annum) (% per annum)
- -------- ------------- -------------
<S> <C> <C>
BBB+/Baa1 0.0 1.000
BBB/Baa2 0.0 1.125
BBB-/Baa3 0.0 1.250
Non-Invest-
ment Grade
or not rated 0.0 1.375
</TABLE>
"Assignee" has the meaning set forth in Section 9.06(c).
"Available Commitment" means, with respect to each Bank, at any time,
the amount obtained by multiplying such Bank's Commitment at such time by a
fraction, the numerator of which is the Total Available Commitments at such time
and the denominator of which is $350,000,000.
"Bank" means each bank listed on the signature pages hereof, each
Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective
successors.
"Base Rate" means, for any day, a rate per annum equal to the higher
of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate for such day.
"Base Rate Loan" means a Loan which bears interest at the Base Rate
pursuant to the applicable Notice of Borrowing or Notice of Interest Rate
Election or the provisions of Section 2.05(c) or Article VIII.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrower" means Security Capital Atlantic Incorporated, a Maryland
corporation, and its successors.
"Borrowing" has the meaning set forth in Section 1.03.
-3-
<PAGE>
"Capital Expenditures" means, for any period, the sum of all
expenditures (whether paid in cash or accrued as a liability) by the Borrower
which are capitalized on the balance sheet of the Borrower in conformity with
GAAP.
"Closing Date" means the date on or after the Effective Date on which
the conditions set forth in Section 3.01 shall have been satisfied to the
satisfaction of the Lead Agent.
"Combined Debt Service" means, as of any date of determination, the
sum of (i) Debt Service payable in connection with Real Property Assets owned
100% by the Borrower or any wholly-owned Subsidiary, and (ii) Borrower's pro
rata share (such share being based upon the Borrower's percentage ownership
interest) of Debt Service payable in connection with investments in joint
ventures, whether consolidated or unconsolidated of Borrower or its wholly-owned
Subsidiaries.
"Combined Interest Expense" means, as of any date of determination,
the sum of (i) Interest Expense of the Borrower or any wholly-owned Subsidiary,
and (ii) the Borrower's pro rata share (such share being based upon the
Borrower's percentage ownership interest) of Interest Expense with respect to
investments in joint ventures, whether consolidated or unconsolidated of the
Borrower or its wholly-owned Subsidiaries.
"Commitment" means, with respect to each Bank, the amount set forth
opposite the name of such Bank on the signature pages hereof, as such amount may
be reduced from time to time pursuant to Sections 2.08 and 2.09.
"Commitment Fee" has the meaning set forth in Section 2.07(b).
"Commitment Reduction Date" means the last day of each of six
consecutive six-month periods, the first such day being the last day of the six-
month period immediately following the Conversion Date and the last such day
being the third anniversary of the Conversion Date.
"Consolidated Capital Expenditures" means, for any period, the product
of (A) the Unit Amount, and (B) the sum of the number of units contained in all
completed properties as of the last day of each month during the applicable
twelve month period, divided by 12, except to the extent that actual capital
expenditures in the aggregate exceed for such period amounts raised by the
Borrower and its Subsidiaries pursuant to (x) equity offerings, (y) borrowings
from third parties (including borrowings pursuant to this Agreement) and (z)
undistributed Funds From Operations, in which
-4-
<PAGE>
case the excess shall also be deemed to be Consolidated Capital Expenditures.
"Consolidated Subsidiary" means, at any date, any Subsidiary or other
entity which the Borrower owns the majority economic interest in or property of,
the accounts of which would be consolidated with those of the Borrower in its
consolidated financial statements if such statements were prepared as of such
date.
"Consolidated Tangible Net Worth" means, at any date, the consolidated
stockholders' equity of the Borrower and its Consolidated Subsidiaries, plus any
accumulated depreciation, less their consolidated Intangible Assets, all
determined as of such date. For purposes hereof, "Intangible Assets" means the
amount (to the extent reflected in determining such consolidated stockholders'
equity) of (i) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of assets of a going concern business made
within twelve months after the acquisition of such business) subsequent to March
31, 1995 in the book value of any asset owned by the Borrower or a Consolidated
Subsidiary and (ii) all unamortized debt discount and expense, unamortized
deferred charges, goodwill, patents, trademarks, service marks, trade names,
anticipated future benefit of tax loss carry-forwards, copyrights, organization
expenses and other intangible assets.
"Construction Asset Costs" shall mean, with respect to Construction
Assets, the aggregate, good faith estimated cost of construction of such
Construction Assets (including land acquisition costs).
"Construction Assets" shall mean, as of any date, the Real Property
Assets listed on Exhibit C attached hereto and made a part hereof, subject to
adjustment, each of which is not subject to any Lien, unless the same is being
contested in good faith and the same is discharged, bonded or paid off within
sixty (60) days of the filing of such Lien, on which construction of
improvements has begun (as evidenced by foundation excavation) but have not yet
been substantially completed (as such completion shall be evidenced by (i) being
not less than 90% complete, (ii) the issuance of a permanent certificate of
occupancy or its equivalent, (iii) the commencement of the payment of rent by
tenants of such Real Property Asset and (iv) being more than 85% leased to
tenants).
"Conversion Date" has the meaning set forth in Section 2.01(d).
-5-
<PAGE>
"Conversion Option" has the meaning set forth in Section 2.01(d).
"Credit Rating" means the rating assigned by the Rating Agencies to
Borrower's senior unsecured long term indebtedness.
"D&P" means Duff & Phelps Credit Rating Co.
"Debt" of any Person means, at any date, without duplication, as shown
on such Person's balance sheet as prepared in accordance with GAAP (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee which are capitalized in
accordance with generally accepted accounting principles, (v) all Debt secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person, (vi) all Debt of others guaranteed by such Person,
(vii) accounts payable, dividends of any kind or character or other proceeds
payable with respect to any stock and accrued expenses which in the aggregate
are in excess of five percent (5%) of the undepreciated value of the assets of
the Borrower determined in accordance with GAAP, (viii) all contingent
obligations of such Person and (ix) all guaranty obligations of such Person,
whether for Debt or otherwise, not shown on such Person's balance sheet.
"Debt Service" shall mean, measured as of the last day of each
calendar quarter, an amount equal to the sum of (i) Interest Expense actually
payable by Borrower for the previous four consecutive quarters including the
quarter then ended, plus (ii) regularly scheduled payments of principal on such
Debt, whether or not paid by Borrower (excluding balloon payments and scheduled
balloon amortization payments) for the previous four consecutive quarters
including the quarter then ended.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City and Los Angeles are
authorized by law to close.
-6-
<PAGE>
"Domestic Lending Office" means, as to each Bank, its office located
at its address set forth in its Administrative Questionnaire (or identified in
its Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Agent.
"EBITDA" means an amount derived from (i) net earnings plus (ii)
depreciation, amortization, interest expense and income taxes plus or minus
(iii) any losses or gains resulting from sales, write-downs, write-ups, write-
offs or other valuation adjustments of assets or liabilities, in each case, as
determined on a consolidated basis in accordance with GAAP.
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 9.09.
"Eligible Assignee" means (a) a commercial bank, trust company,
insurance company, investment bank or pension fund organized under the laws of
the United States of America, or any state thereof, and having total assets in
excess of $5,000,000,000; (b) a savings and loan association or savings bank
organized under the laws of the United States of America, or any state thereof,
and having a tangible net worth of at least $500,000,000; (c) a commercial bank
organized under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development ("OECD"), or a political
subdivision of any such country, and having total assets in excess of
$10,000,000,000, provided that such bank is acting through a branch or agency
located in the United States of America; or (d) the central bank of any country
which is a member of the OECD.
"Environmental Claim" means, with respect to any Person, any written
notice, claim, demand or similar communication by any other Person alleging
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damage, property damages, personal injuries,
fines or penalties arising out of, based on or resulting from (i) the presence,
or release into the environment, of any Hazardous Substances at any location,
whether or not owned by such Person or (ii) circumstances forming the basis of
any violation, or alleged violation, of any Environmental Law, in each case as
to which there is a reasonable possibility of an adverse determination with
respect thereto and which, if adversely determined, could have a Material
Adverse Effect.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchis-
-7-
<PAGE>
es, licenses, agreements and other governmental restrictions relating to the
environment, the effect of the environment on human health or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances or
wastes into the environment including, without limitation, ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, Hazardous Substances or wastes or the
clean-up or other remediation thereof.
"Equity Interests" means any and all shares of common stock or
equivalent equity or ownership interests, participations, rights or other
equivalents, however designated (other than warrants or other options which have
not been exercised) in a corporation or in any other Person (including, without
limitation, equivalent general or limited partnership interests in any
partnership).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Borrower, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under Section 414 of the Internal
Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its office,
branch or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its Euro-
Dollar Lending Office) or such other office, branch or affiliate of such Bank as
it may hereafter designate as its Euro-Dollar Lending Office by notice to the
Borrower and the Agent.
"Euro-Dollar Loan" means a Loan which bears interest at a rate
calculated by reference to the London Interbank Offered Rate pursuant to the
applicable Notice of Borrowing or Notice of Interest Rate Election.
"Euro-Dollar Reference Bank" means the principal London office of
Morgan Guaranty Trust Company of New York.
"Euro-Dollar Reserve Percentage" has the meaning set forth in Section
2.06(b).
-8-
<PAGE>
"Event of Default" has the meaning set forth in Section 6.01.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day; provided that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to Morgan Guaranty Trust Company of New
York on such day on such transactions as determined by the Agent.
"Fitch" means Fitch Investors Service Inc.
"Fixed Rate Loans" means Euro-Dollar Loans.
"Funds From Operations" means an amount derived from (i) net earnings
plus (ii) depreciation and amortization plus or minus (iii) any losses or gains
resulting from sales, write-downs, write-ups, write-offs or other valuation
adjustments of assets or liabilities, in each case, as determined on a
consolidated basis in accordance with GAAP.
"GAAP" means generally accepted accounting principles recognized as
such in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and Board or in such
other statements by such other entity as may be approved by a significant
segment of the accounting profession, which are applicable to the circumstances
as of the date of determination.
"Group" means Security Capital Group Incorporated, a Maryland
corporation, and its successors.
"Gross Asset Value" shall mean the sum of (x) the aggregate book value
of the Real Property Assets which are multifamily residential property and are
at least 85% leased to tenants, plus any accumulated depreciation, and (y) 50%
of the aggregate book value of the Construction Assets which are multifamily
residential property, all determined in accordance with GAAP as of the
applicable date.
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<PAGE>
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hazardous Substances" means any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives, by-products
and other hydrocarbons, asbestos or any substance having any constituent
elements displaying any of the foregoing characteristics.
"Historical Value" means the purchase price of any Property
(including improvements) and ordinary related purchase transaction costs, plus
the cost of subsequent capital improvements made by the Borrower, less any
provision for losses, all determined in accordance with GAAP. If the Property
is purchased as part of a group of properties, the Historical Value shall be
calculated based upon a reasonable allocation of the aggregate purchase price by
the Borrower for all purposes, consistent with GAAP.
"Homestead Investment" means an Investment in Homestead Village
Incorporated ("Homestead"), which Investment when made shall not exceed (a) 30%
of the common stock of Homestead, (b) 30% in warrants of Homestead, (c)
$115,000,000 in convertible mortgages with respect to the assets of Homestead,
or (d) 20% of the Consolidated Tangible Net Worth of the Borrower.
"Indemnitee" has the meaning set forth in Section 9.03(b).
"Interest Expense" means, measured as of the last day of any calendar
quarter, an amount equal to the interest (whether accrued, paid or capitalized)
actually payable by Borrower on its Debt for the previous four consecutive
quarters including the quarter then ended, exclusive of capital-
-10-
<PAGE>
ized interest relating to Construction Assets and development activity.
"Interest Period" means (1) with respect to each Euro-Dollar
Borrowing, the period commencing (x) on the date of such Borrowing specified in
the applicable Notice of Borrowing or (y) on the date specified in the
applicable Notice of Interest Rate Election and ending in either case 1, 2, 3 or
6 months thereafter, as the Borrower may elect in the applicable notice;
provided that:
(a) any Interest Period which would otherwise end on a day which
is not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last Euro-
Dollar Business Day of a calendar month; and
(c) if any Interest Period includes a date on which a payment of
principal of the Loans is required to be made under Section 2.09 but does
not end on such date, then (i) the principal amount (if any) of each Euro-
Dollar Loan required to be repaid on such date shall have an Interest
Period ending on such date and (ii) the remainder (if any) of each such
Euro-Dollar Loan shall have an Interest Period determined as set forth
above, and
(2) with respect to each Base Rate Borrowing, the period commencing on the
date of such Borrowing and ending 30 days thereafter or any subsequent period of
30 days, in each case commencing on the last day of the preceding Interest
Period; provided that:
(a) any Interest Period (other than an Interest Period
determined pursuant to clause (b)(i) below) which would otherwise end on a
day which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) if any Interest Period includes a date on which a payment of
principal of the Loans is required to be made under Section 2.09 but does
not end
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<PAGE>
on such date, then (i) the principal amount (if any) of each Base Rate Loan
required to be repaid on such date shall have an Interest Period ending on
such date and (ii) the remainder (if any) of each such Base Rate Loan shall
have an Interest Period determined as set forth above.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Investment" means any investment in any Person, whether by means of
share purchase, capital contribution, loan, time deposit or otherwise, other
than any Permitted Investment.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, the
Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset
which it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement relating to such asset.
"Loan" means a Base Rate Loan, a Euro-Dollar Loan or a Swing Loan and
"Loans" means Base Rate Loans, Euro-Dollar Loans or Swing Loans or any
combination of the foregoing.
"Loan Documents" means this Agreement, the Notes, each Notice of
Borrowing and each Notice of Interest Rate Election.
"London Interbank Offered Rate" has the meaning set forth in Section
2.06(c).
"Material Adverse Effect" means a material adverse effect on (i) the
business, operations, properties, assets or financial condition of the Borrower
and its Consolidated Subsidiaries taken as a whole or (ii) the ability of the
Borrower to perform its obligations under the Loan Documents.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $5,000,000.
"Minority Holdings" means partnerships, limited liability companies,
corporations and other Persons held or
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<PAGE>
owned by the Borrower which are not consolidated with the Borrower on the
Borrower's financial statements.
"Moody's" means Moody's Investors Services, Inc. or any successor
thereto.
"Multiemployer Plan" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the ERISA Group is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions, including for
these purposes any Person which ceased to be a member of the ERISA Group during
such five year period.
"Net Offering Proceeds" means all cash or other assets received by
Borrower as a result of the sale of common shares, preferred shares, partnership
interests, limited liability company interests, convertible securities or other
ownership or equity interests in Borrower or a Consolidated Subsidiary less
customary costs and discounts of issuance paid by Borrower or by a Consolidated
Subsidiary.
"Net Operating Income" means, when used with respect to any parcel of
real property, the revenues, less operating expenses recorded in accordance with
GAAP for such property that are related to the ownership, operation or
maintenance of such property, but specifically excluding interest expense and
fees paid to the REIT Manager and similar general overhead expenses.
"New Acquisitions" means real property assets (or interests therein)
acquired by Borrower after November 1, 1996, excluding the Homestead Investment.
"Non-Recourse Debt" means Debt of the Borrower on a consolidated basis
for which the right of recovery of the obligee thereof is limited to recourse
against the Real Property Assets securing such Debt (subject to such limited
exceptions to the non-recourse nature of such Debt such as fraud,
misappropriation, misapplication and environmental indemnities, as are usual and
customary in like transactions at the time of the incurrence of such Debt).
"Notes" means promissory notes of the Borrower, substantially in the
form of Exhibit A-1 hereto with respect to the Swing Lender and Exhibit A-2
hereto with respect to any other Bank, evidencing the obligation of the Borrower
to repay the Loans, and "Note" means any one of such promissory notes issued
hereunder.
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<PAGE>
"Notice of Borrowing" is defined in Section 2.02.
"Notice of Interest Rate Election" has the meaning set forth in
Section 2.05.
"Other Taxes" has the meaning set forth in Section 8.04(b).
"Outstanding Working Capital Amount" means the aggregate outstanding
and unpaid principal balance of all Loans used for working capital purposes from
time to time; provided, that any cash flow from the Real Property Assets used by
the Borrower to purchase New Acquisitions, fund the Homestead Investment or for
Development Activity may be applied by the Borrower to reduce the Outstanding
Working Capital Amount; and provided, further, that all payments and prepayments
of principal made hereunder shall be applied first to reduce the Outstanding
Working Capital Amount.
"Parent" means, with respect to any Bank, any Person controlling such
Bank.
"Participant" has the meaning set forth in Section 9.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Intercompany Debt" means (i) loans from the Borrower to any
Subsidiary, and (ii) loans between Subsidiaries, all of which loans shall be
unsecured loans, which:
(A) are evidenced by a written agreement which provides that payment
of any amounts in respect of such indebtedness shall be made only to the extent
that Net Operating Income is available to pay such amounts after the payment of
all amounts then due and payable on all other indebtedness of the borrower
(subject, however, to the accrual of unpaid amounts under such indebtedness) and
further provides that any amounts paid in violation hereof shall be held in
trust by the payee thereof for the benefit of the Banks and disgorged to the
Banks upon demand; and
(B) are evidenced by a written agreement which prohibits such Person
from exercising any remedies, including accelerating any indebtedness and
commencing any action (including the filing of a bankruptcy petition or similar
proceeding) against the borrower for collection of interest, principal or other
charges while any Note or any other amounts due hereunder are outstanding and
prohibits such
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Person from filing a claim in a bankruptcy or similar proceeding commenced by
the Borrower or, in whole or in part, by one or more Affiliates of the Borrower
and requires that such Affiliate shall vote against any plan presented in such
proceeding which would alter the terms of the Notes or the Loan Documents
(provided that such Person may file a claim in a bankruptcy or similar
proceeding commenced by an independent Person other than itself) unless such
plan is endorsed by the Banks.
"Permitted Investments" means (i) loans, equity investments and
capital contributions to Atlantic Development Services Incorporated, (ii) land
and building loans to unaffiliated, third party real estate developers to fund
the costs of the development and construction of improvements on properties
which are subject to purchase contracts with the Borrower, and which loans are
secured by mortgages on such properties, (iii) cash or Temporary Cash
Investments received in an exchange under Section 1031 of the Internal Revenue
Code and (iv) the investment in the ordinary course of the Borrower's business
of undistributed Net Operating Income after payment of Debt Service on all Debt.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan (other than
a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Property" means any interest in any kind of property or asset,
whether real, personal, tangible or intangible.
"Property Management Contract" means the contract between the Borrower
and the Property Manager, dated as of September 1, 1996, as the same may be
amended and restated from time to time.
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"Property Manager" means SCG Realty Services Atlantic Incorporated, a
Delaware corporation, and its successors.
"Rating Agencies" means, collectively, S&P, Moody's, D&P and Fitch.
"Real Property Assets" means as of any time, the real property assets
(including interests in participating, convertible or other mortgages in which
Borrower's interest therein is characterized as equity according to GAAP), owned
directly or indirectly by the Borrower at such time, cash received in an
exchange under Section 1031 of the Internal Revenue Code, the Homestead
Investment, as such may be modified from time to time to reflect sales,
conveyances, assignments, acquisitions or other transfers of Real Property
Assets.
"Recourse Debt" shall mean Debt of the Borrower or any Consolidated
Subsidiary that is not Non-Recourse Debt.
"Refunded Swing Loan" has the meaning set forth in Section
2.01(a)(iii).
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"REIT" has the meaning set forth in Section 4.15.
"REIT Management Contract" means the REIT Management Agreement by and
between the Borrower and the REIT Manager, dated as of June 30, 1996, as the
same may be amended and restated from time to time.
"REIT Manager" means Security Capital (Atlantic) Incorporated, a
Nevada corporation, and its successors.
"Request to Extend" has the meaning set forth in Section 2.01(c).
"Required Banks" means at any time Banks having at least 66-2/3% of
the aggregate amount of the Commitments or, if the Commitments shall have been
terminated, holding Notes evidencing at least 66-2/3% of the aggregate unpaid
principal amount of the Loans.
"Revolver Termination Date" means December 18, 1998 or any subsequent
anniversary of the Closing Date to which the Revolver Termination Date has been
extended pursuant to Section 2.01(c) or any prior anniversary to which the
Revolver Termination Date has been advanced pursuant to Sec-
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tion 2.01(d), or, if any such day is not a Euro-Dollar Business Day, the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls
in another calendar month, in which case the Revolver Termination Date shall be
the next preceding Euro-Dollar Business Day.
"Revolving Credit Period" means the period from and including the
Closing Date to but excluding the Revolver Termination Date.
"Secured Debt" means Debt of the Borrower and its Consolidated
Subsidiaries secured by a Lien.
"Stabilized" shall mean, with respect to any Real Property Asset, the
earlier of (i) twelve (12) months after substantial completion of construction
or development of any new construction or development Real Property Asset, and
(ii) the date on which the occupancy level is at least eighty-five percent
(85%).
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor thereto.
"Subsidiary" means any corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Borrower.
"Swing Lender" means Morgan Guaranty Trust Company of New York, in its
capacity as the Swing Lender under the Swing Loan Facility described in Section
2.01(a)(ii), and its successors in such capacity.
"Swing Loan" means a Loan made by the Swing Lender pursuant to Section
2.01(a)(ii).
"Swing Loan Commitment" means $25,000,000 or if less, the aggregate
amount of the Commitments.
"Swing Loan Refund Amount" has the meaning set forth in Section
2.01(a)(iii).
"Temporary Cash Investment" means any Investment in (i) direct
obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof, (ii) commercial paper
rated at least A-1 by S&P or P-1 by Moody's, (iii) demand and time deposits
with, including certificates of deposit issued by, any office located in the
United States of any bank or trust company which is organized or licensed under
the laws of the
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United States or any state thereof and has capital, surplus and undivided
profits aggregating at least $1,000,000,000, (iv) cash received in an exchange
under Section 1031 of the Internal Revenue Code or (v) repurchase agreements
with respect to securities described in clause (i) above entered into with an
office of a bank or trust company meeting the criteria specified in clause (iii)
above, provided in each case described in clauses (i) - (v) above that such
Investment matures within one year from the date of acquisition thereof by the
Borrower or a Subsidiary, or (vi) money market funds that invest primarily in
Investments of the kind described in clauses (i) - (v) above.
"Total Asset Value" shall mean the sum of (a) the Borrower's
aggregate Net Operating Income (based on the immediately preceding calendar
quarter and annualized, and adjusted to exclude the Net Operating Income from
any Real Property Assets not owned for the full quarter and the Real Property
Assets described in (iii) below) divided by eight and three-fourths percent
(8.75%), plus (b) the total book value of (i) Real Property Assets acquired
during the immediately preceding calendar quarter, (ii) land not yet being
developed and (iii) land (and any improvements being constructed thereon) on
which the construction of new income producing improvements has been commenced
and is continuing and for up to six (6) months after completion of all
improvements thereon, plus (c) the amount of any cash and cash equivalents,
excluding tenant security and other restricted deposits, plus (d) the total book
value of all of the Borrower's other assets not described in (a), (b) or (c)
above, excluding intangibles and equity investments in joint ventures. Total
Asset Value shall be calculated on a consolidated basis in accordance with GAAP.
"Total Available Commitments" means, at any time of determination, the
least of (i) if Borrower shall not have received an Investment Grade Rating from
both S&P and Moody's, the maximum aggregate principal amount of Loans that could
have been outstanding during the most recent four quarters, as to which a
certificate has been delivered pursuant to Section 5.01(c), in order for the
ratio of Unencumbered Asset Pool Cash Flow to Unsecured Interest Expense for
such period to exceed 1.75:1, (ii) the maximum aggregate principal amount of
Loans that could have been outstanding during the most recent preceding four
quarters as to which a certificate has been delivered pursuant to Section
5.01(c) in order for the ratio of the sum of (x) the Unencumbered Asset Pool
Value and (y) 50% of the aggregate book value of the Construction Assets which
are multifamily residential property to Unsecured Debt outstanding as of the
date of determination for such period to exceed 1.75:1 and the ratio of the
aggregate amount of the Unencumbered Asset Pool Value
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to Unsecured Debt outstanding as of the date of determination to exceed 1.5:1,
(iii) the aggregate amount of the Commitments at such time less the amount by
which Interest Expense payable on Construction Assets and development activity
exceeds EBITDA, if any, or (iv) $350,000,000 less the amount by which Interest
Expense payable on Construction Assets and development activity exceeds EBITDA,
if any. For purposes of clause (iii) and (iv) of this definition, Interest
Expense shall be calculated based on what would be included in Interest Expense
as defined herein other than the exclusion for capitalized interest relating to
Construction Assets and development activity.
"Unencumbered Asset Pool" means, as of any date, the Real Property
Assets listed on Exhibit B attached hereto and made a part hereof, subject to
adjustment as set forth herein, each of which is 100% owned in fee (or leasehold
in the case of assets listed as such on Exhibit B) by the Borrower or any
Consolidated Subsidiary of the Borrower and each of which is not subject to any
Lien, unless the same is being contested in good faith and the same is
discharged, bonded or paid off within sixty (60) days of the filing of such
Lien, together with all New Acquisitions or Real Property Assets, excluding the
Homestead Investment, which have become part of the Unencumbered Asset Pool as
of such date in accordance with Section 3.03 and excluding any Real Property
Asset which has been released from the Unencumbered Asset Pool under this
Agreement and the other Loan Documents as of such date in accordance with
Sections 5.23 and 5.24 and all other terms of this Agreement.
"Unencumbered Asset Pool Cash Flow" shall mean, as of any date of
determination, Adjusted Net Operating Income but only with respect to the
Unencumbered Asset Pool.
"Unencumbered Asset Pool Value" means, with respect to Real Property
Assets in the Unencumbered Asset Pool, for the period being measured, the lesser
of (a) the aggregate Historical Value of such Real Property Assets; and (b) the
sum of (i) for those Real Property Assets that (1) have been Stabilized for more
than the preceding twelve calendar months or (2) have been Stabilized for one,
two or three full preceding calendar quarters, the sum of the Net Operating
Income for the preceding twelve months in the case of (1) and the Net Operating
Income for the one, two or three preceding Stabilized calendar quarters, as
annualized, in the case of (2) divided by nine and one-fourth percent (9.25%),
plus (ii) the Historical Value of the remaining Real Property Assets, excluding
Construction Assets.
"Unfunded Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the value
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of all benefit liabilities under such Plan, determined on a plan termination
basis using the assumptions prescribed by the PBGC for purposes of Section 4044
of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to
such liabilities under Title IV of ERISA (excluding any accrued but unpaid
contributions), all determined as of the then most recent valuation date for
such Plan, but only to the extent that such excess represents a potential
liability of a member of the ERISA Group to the PBGC or any other Person under
Title IV of ERISA.
"Unit Amount" means $200 for each period of twelve months (or a pro
rata portion thereof for any shorter period).
"Unsecured Debt" means Debt which is not secured by a Lien.
"Unsecured Interest Expense" means Interest Expense of the Borrower,
its Consolidated Subsidiaries and Minority Holdings in connection with Unsecured
Debt of such parties.
"United States" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.
SECTION 1.02. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a basis consistent (except for changes concurred in by the Borrower's
independent public accountants) with the most recent consolidated financial
statements of the Borrower and its Consolidated Subsidiaries delivered to the
Banks; provided that, if the Borrower notifies the Agent that the Borrower
wishes to amend any covenant in Article V to eliminate the effect of any change
in generally accepted accounting principles on the operation of such covenant
(or if the Agent notifies the Borrower that the Required Banks wish to amend
Article V for such purpose), then the Borrower's compliance with such covenant
shall be determined on the basis of generally accepted accounting principles in
effect immediately before the relevant change in generally accepted accounting
principles became effective, until either such notice is withdrawn or such
covenant is amended in a manner satisfactory to the Borrower and the Required
Banks.
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SECTION 1.03. Types of Borrowings. The term "Borrowing" denotes the
aggregation of Loans of one or more Banks to be made to the Borrower pursuant to
Article II (or a Swing Loan made solely by the Swing Lender) on the same date
and for the same Interest Periods. Borrowings are classified for purposes of
this Agreement by reference to the pricing of Loans comprising such Borrowing
(e.g., a "Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans).
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend.
(a) During Revolving Credit Period. (i) During the Revolving Credit
Period, each Bank severally agrees, on the terms and conditions set forth in
this Agreement, to make loans to the Borrower pursuant to this Section from time
to time in amounts such that the aggregate principal amount of Loans by such
Bank at any one time outstanding shall not exceed the amount of its Available
Commitment. Each Borrowing under this Section 2.01 (a)(i) shall be in an
aggregate principal amount of $1,000,000 or any larger multiple of $250,000
(except that any such Borrowing may be in the aggregate amount available) and
shall be made from the several Banks ratably in proportion to their respective
Commitments. Within the foregoing limits, the Borrower may borrow under this
Section 2.01(a)(i), prepay Loans to the extent permitted by Section 2.10, and
reborrow at any time during the Revolving Credit Period under this subsection
(a).
(ii) Swing Loans. During the Revolving Credit Period, the Swing
Lender agrees, on the terms and conditions set forth in this Agreement, to make
loans to the Borrower pursuant to this Section 2.01(a)(ii) from time to time in
amounts such that (i) the aggregate principal amount of Swing Loans does not at
any time exceed the Swing Loan Commitment, and (ii) the sum of the aggregate
outstanding principal amount of the Loans and Swing Loans at such time does not
exceed the aggregate Available Commitments. Each Borrowing under this Section
2.01(a)(ii) shall be in an aggregate principal amount of $1,000,000 or any
larger multiple of $250,000 (except that any such Borrowing may be in the
aggregate available amount of Swing Loans determined in accordance with the
immediately preceding sentence). Within the foregoing limits, the Borrower may
borrow under this Section 2.01(a)(ii), repay or, to the extent permitted
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by Section 2.10, prepay Swing Loans and reborrow at any time during the
Revolving Credit Period under this Section 2.1(a)(ii).
(iii) Conversion of Swing Loans to Loans. The Swing Lender shall, on
behalf of the Borrower (which hereby irrevocably directs the Swing Lender to act
on its behalf), on notice given by the Swing Lender no later than 1:00 P.M. (New
York City time), on the Domestic Business Day immediately following the funding
of any Swing Loan, request each Bank to make, and each Bank hereby agrees to
make, a Base Rate Loan, in an amount (with respect to each Bank, its "Swing Loan
Refund Amount") equal to such Bank's ratable share of the aggregate Commitments
with respect to the aggregate principal amount of the Swing Loans (the "Refunded
Swing Loans") outstanding on the date of such notice, to repay the Swing Lender.
Unless any of the events described in clause (f) or (g) of Section 6.01 with
respect to the Borrower shall have occurred and be continuing (in which case the
procedures of Section 2.01(a)(iv) shall apply), each Bank shall make such Base
Rate Loan available to the Agent at its address specified in or pursuant to
Section 9.01 in immediately available funds, not later than 1:00 P.M. (New York
City time), on the Domestic Business Day immediately following the date of such
notice. The Agent shall pay the proceeds of such Loans to the Swing Lender,
which shall immediately apply such proceeds to repay Refunded Swing Loans.
Effective on the day such Loans are made, the portion of the Swing Loans so paid
shall no longer be outstanding as Swing Loans, shall no longer be due as Swing
Loans under the Note held by the Swing Lender, and shall be due as Base Rate
Loans under the respective Notes issued to the Banks (including the Swing
Lender) in accordance with their ratable share of the aggregate Commitments.
The Borrower authorizes the Swing Lender to charge the Borrower's accounts with
the Agent (up to the amount available in each such account) in order to
immediately pay the amount of such Refunded Swing Loans to the extent amounts
received from the Banks are not sufficient to repay in full such Refunded Swing
Loans.
(iv) Purchase of Participations in Swing Loans. If, prior to the time
Loans would have otherwise been made pursuant to Section 2.01(a)(iii), one of
the events described in clause (f) or (g) of Section 6.01 with respect to the
Borrower shall have occurred and be continuing, each Bank shall, on the date
such Loans were to have been made pursuant to the notice referred to in Section
2.01(a)(iii) (the "Refunding Date"), purchase an undivided participating
interest in the Swing Loans in an amount equal to such Bank's Swing Loan Refund
Amount. On the Refunding Date, each Bank shall transfer to the Swing Lender, in
immediately
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available funds, such Bank's Swing Loan Refund Amount, and upon receipt thereof
the Swing Lender shall deliver to such Bank a Swing Loan participation
certificate dated the date of the Swing Lender's receipt of such funds and in
the Swing Loan Refund Amount of such Bank.
(v) Payments on Participated Swing Loans. Whenever, at any time after
the Swing Lender has received from any Bank such Bank's Swing Loan Refund Amount
pursuant to Section 2.01(a)(iv), the Swing Lender receives any payment on
account of the Swing Loans in which the Banks have purchased participations
pursuant to Section 2.01(a)(iv), the Swing Lender will promptly distribute to
each such Bank its ratable share (determined on the basis of the Swing Loan
Refund Amounts of all of the Banks) of such payment (appropriately adjusted, in
the case of interest payments, to reflect the period of time during which such
Bank's participating interest was outstanding and funded); provided, however,
that in the event that such payment received by the Swing Lender is required to
be returned, such Bank will return to the Swing Lender any portion thereof
previously distributed to it by the Swing Lender.
(vi) Obligations to Refund or Purchase Participations in Swing Loans
Absolute. Each Bank's obligation to transfer the amount of a Loan to the Swing
Lender as provided in Section 2.01(a)(iii) or to purchase a participating
interest pursuant to Section 2.01(a)(iv) shall be absolute and unconditional and
shall not be affected by any circumstance, including, without limitation, (i)
any set-off, counterclaim, recoupment, defense or other right which such Bank,
the Borrower or any other Person may have against the Swing Lender or any other
Person, other than the Swing Lender's gross negligence or willful misconduct in
connection with making any such Swing Loan, (ii) the occurrence or continuance
of a Default or an Event of Default or the termination or reduction of the
Commitments, (iii) any adverse change in the condition (financial or otherwise)
of the Borrower or any other Person, (iv) any breach of this Agreement by the
Borrower, any other Bank or any other Person, or (v) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing.
(b) After Revolving Credit Period. If the Borrower has elected the
Conversion Option, each Bank severally agrees, on the terms and conditions set
forth in this Agreement, to maintain its Loans outstanding on the Conversion
Date for a maximum term of three years; provided that the principal amount of
such Bank's Loans shall not exceed the principal amount of its Loans outstanding
on the Conversion Date; and provided, further, that the aggregate principal
amount of such Bank's outstanding Loans shall at no time
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exceed the amount of its Available Commitment. On and after the Conversion
Date, amounts prepaid or required to be repaid pursuant to Article II shall not
be reborrowed, and amounts repaid pursuant to Section 8.02 shall not be
reborrowed except as provided therein.
(c) Extension of Revolver Termination Date. The Borrower may request
a one-year extension of the Revolver Termination Date then in effect by
delivering a written request therefor to the Agent not less than sixty (60) days
prior to such Revolver Termination Date (a "Request to Extend"). The Agent
shall notify the Banks of the receipt of such request and each Bank shall give
notice in writing to the Agent not less than thirty (30) days prior to the
Revolver Termination Date of such Bank's acceptance or rejection of such
request. If all the Banks shall have notified the Agent on or prior to the date
which is thirty (30) days prior to the Revolver Termination Date that they
accept such request, the Revolver Termination Date shall be extended for one
year. If any Bank shall not have notified the Agent on or prior to the date
which is thirty (30) days prior to the Revolver Termination Date that it accepts
such request, the Revolver Termination Date shall not be extended. The Agent
shall notify the Borrower whether the Request to Extend has been accepted or
rejected as well as which Bank or Banks rejected the Borrower's Request to
Extend (each such Bank a "Rejecting Bank").
Notwithstanding the preceding paragraph, within ten (10) days after
notification from the Agent that the Request to Extend has been rejected (a
"Notice of Rejection"), and provided that the aggregate amount of Commitments of
the Rejecting Banks do not exceed 20% of the total aggregate amount of
Commitments then outstanding, the Borrower may by written notice to the Agent
and any Rejecting Bank exercise either or a combination of the following
options: (i) require any Rejecting Bank to assign all of its rights and
obligations under this Agreement, the Notes and the other Loan Documents to any
transferee selected by the Borrower and approved by the Agent (a "Transferee"),
or (ii) prepay the entire amount of the outstanding Loan from each such
Rejecting Bank, in which case each such Rejecting Bank's Commitment shall be $0,
in each of clause (i) and (ii) pursuant to the terms and conditions set forth
below. Notwithstanding the foregoing, however, in no event the aggregate of all
Commitments of all Banks (including any Transferee pursuant to clause (i) above)
shall be less than $280,000,000.
In the event the Borrower elects the option set forth in clause (i)
above, the assignment shall occur pursuant to the terms of a Transfer Supplement
in substantially
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the form of Exhibit D hereto, effective no later than the tenth (10th) day after
the Borrower receives a Notice of Rejection from the Agent, and otherwise
pursuant to Section 9.06(c) hereof. On such effective date the Transferee shall
pay to such Rejecting Bank the principal amount outstanding of the Loans
assigned to it by such Rejecting Bank, together with accrued interest thereon,
as well as the accrued Commitment Fee with respect to the Commitment of such
Rejecting Bank, and, if such effective date is not the last day of the Interest
Period for each of the Loans being assigned, the Borrower shall reimburse to the
Rejecting Bank the losses and expenses specified in Section 2.12. The Borrower
shall also deliver to the Agent on such effective date (y) an executed copy of
such Assignment and Assumption Agreement and (z) written confirmation from such
Transferee that it accepts the Request to Extend, and, upon such receipt with
respect to all Transferees, the Agent shall notify the Borrower that the Request
to Extend has been accepted.
(d) Conversion Option. If the Borrower delivers a Request to Extend
as provided in Section 2.01(c), any Bank shall not have notified the Agent on or
prior to the date which is thirty (30) days prior to the Revolver Termination
Date that it accepts such request, and such Bank has not been paid in full to
the extent of its outstanding Commitment or replaced by a Transferee accepting
such extension pursuant to Section 2.01(c), then not later than ten (10) days
after the Agent has notified the Borrower that the Request to Extend has been
rejected, if (x) no Default has then occurred and is continuing, provided that
if the Agent shall have actual notice of such Default, it shall have provided
notice thereof to the Borrower and (y) no Event of Default has then occurred and
is continuing, the Borrower may notify the Agent that it elects both to
terminate the Revolving Credit Period as of the Revolver Termination Date then
in effect (the date of such termination being the "Conversion Date") and
effective as of the Conversion Date to maintain its Loans then outstanding
pursuant to Section 2.01(b) (the "Conversion Option").
SECTION 2.02. Notice of Borrowing. The Borrower shall give the Agent
notice (a "Notice of Borrowing") not later than 12:00 noon (New York City time)
on (x) the Domestic Business Day before each Base Rate Borrowing, (y) the third
Euro-Dollar Business Day before each Euro-Dollar Borrowing and (z) the date of
each Borrowing of a Swing Loan, specifying:
(a) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Base Rate Borrowing or Swing Borrowing, or a Euro-Dollar
Business Day in the case of a Euro-Dollar Borrowing,
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(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing are to be initially
Base Rate Loans, Swing Loans or Euro-Dollar Loans, provided that, all Swing
Loans shall bear interest based on the Base Rate,
(d) in the case of a Fixed Rate Borrowing, the duration of the
initial Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period, and
(e) if the proceeds of the Loans are to be used for working capital
purposes, and if so, the Outstanding Working Capital Amount both immediately
before and after such Borrowing.
No more than four (4) Swing Loans may be borrowed during any calendar
month.
SECTION 2.03. Notice to Banks; Funding of Loans.
(a) Upon receipt of a Notice of Borrowing, the Agent shall promptly
notify each Bank of the contents thereof and of such Bank's share (if any) of
such Borrowing and such Notice of Borrowing shall not thereafter be revocable by
the Borrower.
(b) Not later than 1:00 P.M. (New York City time) on the date of each
Borrowing (including, without limitation, each Swing Borrowing), each Bank (or,
in the case of a Swing Loan, the Swing Lender) participating therein shall make
available its share of such Borrowing, in Federal or other funds immediately
available in New York City, to the Agent at its address referred to in Section
9.01. Unless the Agent determines that any applicable condition specified in
Article III has not been satisfied, the Agent will make the funds so received
from the Banks available to the Borrower at the Agent's aforesaid address not
later than 1:00 P.M. (New York City time).
(c) Unless the Agent shall have received notice from a Bank prior to
the date of any Borrowing that such Bank will not make available to the Agent
such Bank's share of such Borrowing, the Agent may assume that such Bank has
made such share available to the Agent on the date of such Borrowing in
accordance with subsection (b) of this Section 2.03 and the Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so
made such share available to the Agent, such Bank and the Borrower severally
agree to repay to the Agent forthwith on
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demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Agent, at (i) in the case of the Borrower, a rate per
annum equal to the higher of the Federal Funds Rate and the interest rate
applicable thereto pursuant to Section 2.06 and (ii) in the case of such Bank,
the Federal Funds Rate. If such Bank shall repay to the Agent such
corresponding amount, such amount so repaid shall constitute such Bank's Loan
included in such Borrowing for purposes of this Agreement.
SECTION 2.04. Notes.
(a) The Loans of each Bank shall be evidenced by a single Note
payable to the order of such Bank for the account of its Applicable Lending
Office in an amount equal to the aggregate unpaid principal amount of such
Bank's Loans.
(b) Each Bank may, by notice to the Borrower and the Agent, request
that its Loans of a particular type, including Swing Loans, be evidenced by a
separate Note in an amount equal to the aggregate unpaid principal amount of
such Loans. Each such Note shall be in substantially the form of Exhibit A-1
hereto with respect to the Swing Lender and Exhibit A-2 hereto and with respect
to any other Bank, with appropriate modifications to reflect the fact that it
evidences solely Loans of the relevant type. Each reference in this Agreement
to the "Note" of such Bank shall be deemed to refer to and include any or all of
such Notes, as the context may require.
(c) Upon receipt of each Bank's Note pursuant to Section 3.01(a), the
Agent shall forward such Note to such Bank. Each Bank shall record the date,
amount and type of each Loan made by it and the date and amount of each payment
of principal made by the Borrower with respect thereto, and may, if such Bank so
elects in connection with any transfer or enforcement of its Note, endorse on
the schedule forming a part thereof appropriate notations to evidence the
foregoing information with respect to each such Loan then outstanding; provided
that the failure of any Bank to make any such recordation or endorsement shall
not affect the obligations of the Borrower hereunder or under the Notes. Each
Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and
to attach to and make a part of its Note a continuation of any such schedule as
and when required.
SECTION 2.05. Method of Electing Interest Rates. (a) The Loans
included in each Borrowing shall bear inter-
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est initially at the type of rate specified by the Borrower in the applicable
Notice of Borrowing. Thereafter, the Borrower may from time to time elect to
change or continue the type of interest rate borne by all the Loans comprised in
such Borrowing (subject in each case to the provisions of Article VIII and
except for any Swing Loans), as follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect to
convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day;
(ii) if such Loans are Euro-Dollar Loans, the Borrower may elect
to convert such Loans to Base Rate Loans or elect to continue such Loans as
Euro-Dollar Loans for an additional Interest Period, in each case effective
on the last day of the then current Interest Period applicable to such
Loans.
Each such election shall be made by delivering a notice (a "Notice of
Interest Rate Election") to the Agent at least three Euro-Dollar Business Days
before the conversion or continuation selected in such notice is to be effective
(unless the relevant Loans are to be converted from Euro-Dollar Loans to Base
Rate Loans or continued as Base Rate Loans of the same type for an additional
Interest Period, in which case such notice shall be delivered to the Agent at
least three Domestic Business Days before such conversion or continuation is to
be effective). Notwithstanding the foregoing, in the case of any conversion of
a Euro-Dollar Loan to a Base Rate Loan, or the continuation of a Base Rate Loan,
such notice need only be delivered to the Agent at least one Domestic Business
Day before such conversion or continuation is to be effective. During the
Revolving Credit Period a Notice of Interest Rate Election may, if it so
specifies, divide the aggregate principal amount of the relevant Borrowing into
two or more portions, each of which shall thereafter be deemed a "Borrowing";
provided that each such portion is allocated ratably among the Loans comprising
such Borrowing and is at least $1,000,000 or any larger multiple of $250,000.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Borrowing to which such notice applies;
(ii) the date on which the conversion or continuation selected
in such notice is to be effective, which shall comply with the applicable
clause of subsection (a) above;
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(iii) if the Loans comprising such Borrowing are to be
converted, the new type of Loans and, if such Loans of a new type are Fixed
Rate Loans, the duration of the next Interest Period applicable thereto;
and
(iv) if such Loans are to be continued as Euro-Dollar Loans for
an additional Interest Period, the duration of such additional Interest
Period,
and, if requested by the Agent, shall be accompanied by a certificate of the
Borrower satisfactory to the Agent showing the calculation of Total Available
Commitments as of the commencement of such Interest Period.
Each Interest Period specified in a Notice of Interest Rate Election
shall comply with the provisions of the definition of Interest Period.
(c) Upon receipt of a Notice of Interest Rate Election from the
Borrower pursuant to subsection (a) above, the Agent shall promptly notify each
Bank of the contents thereof and such notice shall not thereafter by revocable
by the Borrower. If the Borrower fails to deliver a timely Notice of Interest
Rate Election to the Agent for any Borrowing consisting of Fixed Rate Loans,
such Loans shall be converted into Base Rate Loans on the last day of the then
current Interest Period applicable thereto.
SECTION 2.06. Interest Rates.
(a) Each Base Rate Loan shall bear interest on the outstanding
principal amount thereof, for each day from the date such Loan is made until it
becomes due, at a rate per annum equal to the Base Rate plus the Applicable
Margin for Base Rate Loans for such day. Such interest shall be payable for
each Interest Period on the last day thereof. Any overdue principal of or
interest on any Base Rate Loan shall bear interest, payable on demand, for each
day until paid at a rate per annum equal to the sum of four percent (4%) plus
the rate otherwise applicable to Base Rate Loans for such day.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during each Interest Period applicable
thereto, at a rate per annum equal to the sum of the Applicable Margin for Euro-
Dollar Loans for such day plus the Adjusted London Interbank Offered Rate
applicable to such Interest Period. Such interest shall be payable for each
Interest Period on the last day thereof and, if such Interest Period is longer
than three months, at intervals of three months after the first day thereof.
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The "Adjusted London Interbank Offered Rate" applicable to any
Interest Period means a rate per annum equal to the quotient obtained (rounded
upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the
applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar
Reserve Percentage.
The "London Interbank Offered Rate" applicable to any Interest Period
means the average (rounded upward, if necessary, to the next higher 1/16 of 1%)
of the respective rates per annum at which deposits in dollars are offered to
the Euro-Dollar Reference Bank in the London interbank market at approximately
11:00 a.m. (London time) two Euro-Dollar Business Days before the first day of
such Interest Period in an amount approximately equal to the principal amount of
the Euro-Dollar Loan of the Euro-Dollar Reference Bank to which such Interest
Period is to apply and for a period of time comparable to such Interest Period.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents). The Adjusted London Interbank Offered Rate shall be adjusted
automatically on and as of the effective date of any change in the Euro-Dollar
Reserve Percentage.
(c) Any overdue principal of or interest on any Euro-Dollar Loan
shall bear interest, payable on demand, for each day from and including the date
payment thereof was due to but excluding the date of actual payment, at a rate
per annum equal to the sum of four percent (4%) plus the rate applicable to Base
Rate Loans for such day.
(d) Each Swing Loan shall bear interest on the outstanding principal
amount thereof, and in the case of any amount of overdue Swing Loan, overdue
interest thereon at a rate per annum for each day equal to the sum of four
percent (4%) plus the rate applicable to Base Rate Loans for such day.
(e) The Agent shall determine each interest rate applicable to the
Loans hereunder. The Agent shall give
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prompt notice to the Borrower and the participating Banks of each rate of
interest so determined, and its determination thereof shall be conclusive in the
absence of manifest error.
(f) Each Euro-Dollar Reference Bank agrees to use its best efforts to
furnish quotations to the Agent as contemplated by this Section. If any Euro-
Dollar Reference Bank does not furnish a timely quotation, the Agent shall
determine the relevant interest rate on the basis of the quotation or quotations
furnished by the remaining Euro-Dollar Reference Bank or Banks or, if none of
such quotations is available on a timely basis, the provisions of Section 8.01
shall apply.
SECTION 2.07. Fees.
(a) Upfront Fee. On the Closing Date, the Borrower shall pay to the
Agent for the account of the Banks an upfront fee equal to .10% of the
Commitments of each Bank.
(b) Unused Commitment Fee. During the Revolving Credit Period, the
Borrower shall pay to the Agent for the account of the Banks ratably in
proportion to their respective Commitments a commitment fee (the "Commitment
Fee") on the amount by which the aggregate amount of the Commitments exceeds
the aggregate outstanding principal amount of the Loans and the Swing Loans in
any given quarter at the respective percentages per annum based upon (i) the
range into which the Borrower's Credit Rating then falls and (ii) the range into
which the ratio (expressed as a percentage) of the daily average undrawn and
uncancelled Commitments to the Loan Amount for the preceding quarter falls, in
accordance with the following table. The Commitment Fee shall accrue from and
including the Closing Date to but excluding the Revolver Termination Date (or
such earlier date that the Commitments terminate in their entirety). The
Commitment Fee shall be payable in arrears on each January 1, April 1, July 1
and October 1 during the Term and any extension thereof.
<TABLE>
<CAPTION>
Applicable
commitment fee Applicable
Applicable if average undrawn commitment fee
commitment fee Commitments are if average
if average undrawn greater than undrawn Commit-
Range of Commitments are 33% of Loan ments are equal
Borrower's equal to or less Amount and to or greater
Credit rating than 33% of less than 66% than 66% of
(S&P/Moody's Loan Amount of Loan Amount Loan Amount
Ratings) (% per annum) (% per annum) (% per annum)
- ------------- ------------------ ----------------- --------------
<S> <C> <C> <C>
BBB+/Baa1 to
BBB-/Baa3 .1250 .1875 .2500
Unrated .1875 .1875 .1875
</TABLE>
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Any change in the Borrower's Credit Rating causing it to move into a different
range on the table shall effect an immediate change in the applicable percentage
per annum. In the event that the Borrower's Credit Rating is such that the
Rating Agencies' ratings are split between a higher and a lower range on the
table, the applicable percentage per annum shall be based upon the lower of such
two (2) Credit Ratings. In the event that only one (1) Rating Agency has set
the Borrower's Credit Rating, then the applicable percentage per annum shall be
based on such single rating.
(c) Extension Fee. Within one week of the notification by the Agent
to the Borrower that a Request to Extend has been accepted pursuant to Section
2.01(c), the Borrower shall pay to the Agent for the account of the Banks
ratably in proportion to their Commitments an extension fee of 1/4 of 1% of the
Commitments; provided, that if Borrower shall have received and maintains an
Investment Grade Rating from both S&P and Moody's, the extension fee payable
hereunder shall be in an amount equal to .15% of the Commitments then
outstanding.
(d) Conversion Fee. On the date that pursuant to Section 2.01(d) the
Borrower notifies the Agent of its election of the Conversion Option, the
Borrower shall pay to the Agent for the account of the Banks ratably in
proportion to their Commitments of the then outstanding principal balance of the
Loans a conversion fee of 1/4 of 1% of the Commitments that will be outstanding
as of the Conversion Date; provided, that if Borrower shall have received and
maintains an Investment Grade Rating from both S&P and Moody's, the conversion
fee payable hereunder shall be in an amount equal to .15% of the Commitments
then outstanding.
(e) Fees Non-Refundable. All fees set forth in this Section 2.07
shall be deemed to have been earned on the date payment is due in accordance
with the provisions hereof and shall be non-refundable. The obligation of the
Borrower to pay such fees in accordance with the provisions hereof shall be
binding upon the Borrower and shall inure to the benefit of the Agent and the
Banks regardless of whether any Loans are actually made.
SECTION 2.08. Optional Termination or Reduction of Commitments.
During the Revolving Credit Period, the Borrower may, upon at least three
Domestic Business Days' notice to the Agent prior to the end of any Interest
Period, (i) terminate the Commitments at any time, if no Loans or Swing Loans
are outstanding at such time or (ii) ratably
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reduce from time to time by an aggregate amount of $1,000,000 or any larger
multiple of $250,000, the aggregate amount of the Commitments in excess of the
aggregate outstanding principal amount of the Loans and the Swing Loans.
SECTION 2.09. Maturity; Mandatory Termination or Reduction of
Commitments.
(a) The Commitments and Swing Commitment shall terminate on the
Revolver Termination Date or, if pursuant to Section 2.01(d) the Borrower has
exercised the Conversion Option, except with respect to the Swing Loans, on the
third anniversary of the Conversion Date, and any Loans then outstanding
(together with accrued interest thereon) shall mature and be due and payable on
such date.
(b) On any date on or after the Conversion Date on which the
Commitment of any Bank shall be greater than the principal amount of the Loan or
Loans or Swing Loans of such Bank outstanding on such date (after giving effect
to any repayment, prepayment and borrowing on such date), the Commitment of such
Bank shall be automatically reduced to an amount equal to such outstanding
principal amount.
(c) The Commitment of each Bank shall be further reduced, on (x) each
of the first five Commitment Reduction Dates, by an amount equal to fifteen
percent (15%) of the amount of such Bank's Commitment in effect on the
Conversion Date (after giving effect to any reduction pursuant to subsection (e)
on such date), and (y) the sixth Commitment Reduction Date, by an amount equal
to twenty-five percent (25%) of the amount of such Bank's Commitment in effect
on the Conversion Date (after giving effect to any reduction pursuant to
subsection (e) on such date). No reduction of any Commitment pursuant to
subsection (c), (d) or (e) shall reduce the amount of any subsequent mandatory
reduction of such Commitment pursuant to this subsection (f).
(d) On each date of reduction of any Commitment, the Borrower shall
repay such principal amount (together with accrued interest thereon) of each
Bank's outstanding Loans or Swing Loans, if any, as may be necessary so that
after such repayment the aggregate outstanding principal amount of such Bank's
Loans or Swing Loans does not exceed the amount of such Bank's Available
Commitment as then reduced. In connection with the prepayment of a Euro-Dollar
Loan prior to the maturity thereof, the Borrower shall also pay any applicable
expenses pursuant to Section 2.12.
(e) If at any time the Borrower or any Consolidated Subsidiary sells,
transfers, assigns or conveys any Real Property Asset which shall cause the
Borrower to fail to be in compliance with any covenant contained in Article V
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hereof, the Borrower shall pay to the Agent, for the account of the Banks,
within ten (10) days of the date such Real Property Asset is sold, transferred,
assigned or conveyed, an amount such that the Borrower subsequent to such
payment shall be in compliance with the covenants contained in Article V hereof.
Borrower shall make such prepayment together with interest accrued to the date
of the prepayment on the principal amount prepaid. In connection with the
prepayment of a Euro-Dollar Loan prior to the maturity thereof, the Borrower
shall also pay any applicable expenses pursuant to Section 2.12. Each such
prepayment shall be applied to prepay ratably the Loans of the Banks. As used
in this Section 2.09(e) only, the phrase "sells, transfers, assigns or conveys"
shall not include (i) sales or conveyances among Borrower and any wholly-owned
Subsidiaries, or (ii) mortgages secured by Real Property Assets.
(f) If at any time the Borrower or any Consolidated Subsidiary shall
issue shares of capital stock or other equity interest, the Borrower shall pay
to the Agent, for the account of the Banks, within ten (10) days after the date
of such issuance, an amount equal to the Net Offering Proceeds of such issuance
less any such proceeds which shall be used to make any Permitted Investment
which occurs within ten (10) days after the date of such issuance of shares of
capital stock or other equity interest. The Borrower shall make such prepayment
together with interest accrued to the date of the prepayment on the principal
amount prepaid. In connection with the prepayment of a Euro-Dollar Loan prior
to the maturity thereof, the Borrower shall also pay any applicable expenses
pursuant to Section 2.12. Each such prepayment shall be applied to prepay
ratably the Loans of the Banks.
SECTION 2.10. Optional Prepayments.
(a) The Borrower may, upon at least one (1) Domestic Business Days'
notice to the Agent, prepay any Base Rate Borrowing or Swing Loan in whole at
any time or from time to time in part in amounts aggregating $1,000,000 or any
larger multiple of $250,000, by paying the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment. Each such
optional prepayment shall be applied to prepay ratably the Loans of the several
Banks included in such Borrowing.
(b) The Borrower may, upon at least three Euro-Dollar Business Days'
notice to the Agent, in case of a Borrowing comprised of Euro-Dollar Loans,
prepay the Loans comprising such Borrowing, on the last day of any Interest
Period applicable to such Borrowing, in whole at any time, or from time to time
in part in amounts aggregating $1,000,000 or any larger multiple of $250,000, by
paying the
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principal amount to be prepaid together with accrued interest thereon to the
date of prepayment. Each such optional prepayment shall be applied to prepay
ratably the Loans of the several Banks included in such Borrowing.
(c) Upon receipt of a notice of prepayment pursuant to this Section,
the Agent shall promptly notify each Bank of the contents thereof and of such
Bank's ratable share (if any) of such prepayment and such notice shall not
thereafter be revocable by the Borrower.
SECTION 2.11. General Provisions as to Payments.
(a) The Borrower shall make each payment of principal of, and
interest on, the Loans and of fees hereunder, not later than 12:00 Noon (New
York City time) on the date when due, in Federal or other funds immediately
available in New York City, to the Agent at its address referred to in Section
9.01. The Agent will promptly distribute to each Bank its ratable share of each
such payment received by the Agent for the account of the Banks. If and to the
extent that the Agent shall receive any such payment for the account of the
Banks on or before 12:00 Noon (New York City time) on any Domestic Business Day,
and Agent shall not have distributed to any Bank its applicable share of such
payment on such Domestic Business Day, Agent shall distribute such amount to
such Bank together with interest thereon, for each day from the date such amount
should have been distributed to such Bank until the date Agent distributes such
amount to such Bank, at the Federal Funds Rate. Whenever any payment of
principal of, or interest on, the Base Rate Loans or of fees shall be due on a
day which is not a Domestic Business Day, the date for payment thereof shall be
extended to the next succeeding Domestic Business Day. Whenever any payment of
principal of, or interest on, the Euro-Dollar Loans shall be due on a day which
is not a Euro-Dollar Business Day, the date for payment thereof shall be
extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar
Business Day falls in another calendar month, in which case the date for payment
thereof shall be the next preceding Euro-Dollar Business Day. If the date for
any payment of principal is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.
(b) Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to the Banks hereunder that the
Borrower will not make such payment in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date and the Agent
may, in reliance upon such assumption, cause to be distributed to each Bank on
such due date an amount equal to the amount then due such Bank. If and to the
extent that the Borrower shall not have so made such payment, each Bank
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shall repay to the Agent forthwith on demand such amount distributed to such
Bank together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Agent, at the Federal Funds Rate.
SECTION 2.12. Funding Losses. If the Borrower makes any payment of
principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is
converted to a Base Rate Loan (pursuant to this Article II or Article VI or VIII
or otherwise) on any day other than the last day of an Interest Period
applicable thereto, or the last day of an applicable period fixed pursuant to
Section 2.06(c), or if the Borrower fails to borrow or prepay any Fixed Rate
Loans after notice has been given to any Bank in accordance with Section 2.03(a)
or 2.10(c), the Borrower shall reimburse each Bank within 15 days after demand
for any resulting loss or expense incurred by it (or by an existing or
prospective Participant in the related Loan), including (without limitation) any
loss incurred in obtaining, liquidating or employing deposits from third
parties, but excluding loss of margin for the period after any such payment or
conversion or failure to borrow or prepay; provided that such Bank shall have
delivered to the Borrower a certificate as to the amount of such loss or
expense, which certificate shall be prima facie evidence of the matters
certified therein.
SECTION 2.13. Computation of Interest and Fees. Interest based on
the Prime Rate hereunder shall be computed on the basis of a year of 365 days
(or 366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day if and only if such payment is made in accordance with the provisions of the
first sentence of Section 2.11(a)).
ARTICLE III
CONDITIONS
SECTION 3.01. Conditions Precedent to Effectiveness of Agreement.
The Closing as contemplated hereunder shall occur upon receipt by the Agent of
the following documents, each dated as of the Closing Date (or dated as
otherwise provided below) or a date otherwise satisfactory to the Agent and in
each case satisfactory in form and substance to the Agent:
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(a) a duly executed Note for the account of each Bank, complying with the
provisions of Section 2.04;
(b) a duly executed copy of this Agreement;
(c) an opinion of Mayer, Brown & Platt, counsel for the Borrower,
satisfactory to the Agent;
(d) all documents the Agent may reasonably request relating to the
existence of the Borrower, the authority for and the validity of this Agreement
and the other Loan Documents, and any other matters relevant hereto, all in form
and substance reasonably satisfactory to the Agent. Such documentation shall
include, without limitation, the articles of incorporation and by-laws of the
Borrower, as amended, modified or supplemented to the Closing Date, each
certified to be true, correct and complete by a senior officer of the Borrower,
as of a date not more than ten (10) days prior to the Closing Date, together
with a good standing certificate from the Secretary of State (or the equivalent
thereof) of Maryland and a good standing certificate from the Secretary of State
(or the equivalent thereof) from the Secretary of State (or the equivalent
thereof) of each other State in which the Borrower is required to be qualified
to transact business, each to be dated not more than ten (10) days prior to the
Closing Date;
(e) all certificates, agreements and other documents and papers referred to
in this Section 3.01 and Section 3.02, unless otherwise specified, in sufficient
counterparts, satisfactory in form and substance to the Agent in its sole
discretion;
(f) the Borrower shall have taken all actions required to authorize the
execution and delivery of this Agreement and the other Loan Documents and the
performance thereof by the Borrower;
(g) an unaudited consolidated balance sheet and income statement of the
Borrower for the fiscal quarter ended September 30, 1996;
(h) wire transfer instructions in connection with the Loans to be made
on the Closing Date;
(i) all fees due and payable pursuant to Section 2.07 hereof on or before
the Closing Date;
(j) copies of all consents, licenses and approvals, if any, required in
connection with the execution, delivery and performance by the Borrower, and the
validity and enforceability, of the Loan Documents, or in connection with any of
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the transactions contemplated thereby, and such consents, licenses and approvals
shall be in full force and effect;
(k) satisfactory reports of Uniform Commercial Code filing searches
conducted by a search firm acceptable to the Agent with respect to the Borrower,
such searches to be conducted in each of the locations specified by the Agent;
(l) no material defaults or events of default (as defined therein) shall
exist under any existing agreement entered into by Borrower in connection with
any Debt of Borrower;
(m) the representations and warranties of the Borrower contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date both before and after giving effect to the making of any Loans;
(n) certificates of insurance with respect to the Unencumbered Asset Pool
demonstrating the coverages required under this Agreement;
(o) with respect to each Real Property Asset in the Unencumbered Asset Pool
which was not previously mortgaged in connection with the Second Amended and
Restated Credit Agreement, dated as of June 27, 1996, among Borrower, Agent and
the banks party thereto:
(i) a satisfactory environmental report indicating that (A) the Real
Property Asset complies with all Environmental Laws in all material respects,
(B) is free of
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all Materials of Environmental Concern in all material respects and (C) is not
subject to any Environmental Claim, or if any of the foregoing is not satisfied,
Agent shall have received from the Borrower either (1) a satisfactory
indemnification indemnifying the Agent and the Banks and guaranteeing the
remediation of the applicable Material of Environmental Concern from a party
acceptable to the Agent, (2) evidence satisfactory to the Agent in its sole
discretion that the Borrower has adequate rights as an indemnitee pursuant to an
environmental indemnity pursuant to which a party acceptable to the Agent
indemnifies the Borrower or which guarantees the remediation of Materials of
Environmental Concern or (3) cash or Temporary Cash Investments, letters of
credit or evidence that the Borrower has access to such items, equal to an
amount satisfactory to the Agent to be used for remediation of the applicable
Material of Environmental Concern;
(ii) evidence of compliance with zoning and other local laws, together
with copies of the certificates of occupancy for each thereof (or evidence
satisfactory to the Agent as to why no certificate of occupancy is required);
(iii) (A) a description of the Real Property Asset, (B) two years of
historical cash flow operating statements, if available, (C) three years of cash
flow projections (including capital expenditures), if available, (D) a
satisfactory engineer's property/structural inspection report of the Real
Property Asset (other than Construction Assets), (E) an investment memorandum
prepared by the Borrower in connection with the acquisition of such Real
Property Asset by Borrower and (F) such additional information regarding the
Real Property Asset as the Agent may reasonably request; and
(p) a certificate of the chief financial officer or the chief accounting
officer of the Borrower certifying that the Borrower is in compliance with all
covenants of the Borrower contained in this Agreement, including, without
limitation, the requirements of Section 5.07 through 5.19, inclusive, as of the
Closing Date.
The Agent shall promptly notify the Borrower and the Banks of the Closing Date,
and such notice shall be conclusive and binding on all parties hereto.
SECTION 3.02. Borrowings. The obligation of any Bank to make a
Loan, other than a Refunding Swing Loan, on the occasion of any Borrowing is
subject to the satisfaction of the following conditions:
(a) receipt by the Agent of a Notice of Borrowing as required by
Section 2.02;
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(b) if requested by the Agent or the Required Banks, receipt by the
Agent of a certificate of the Borrower satisfactory to the Agent showing the
calculation of Total Available Commitments as of the date of such Borrowing;
(c) the fact that, immediately after such Borrowing, the aggregate
outstanding principal amount of the Loans and Swing Loans will not exceed the
amount of the Total Available Commitments;
(d) the fact that, immediately before and after such Borrowing, no
Default or Event of Default shall have occurred and be continuing;
(e) the fact that the representations and warranties of the Borrower
contained in this Agreement and any other Loan Document (except those that
relate specifically to an earlier date) shall be true in all material respects
on and as of the date of such Borrowing;
(f) there shall not be more than twelve (12) Borrowings (including
Swing Loans) outstanding at any time;
(g) receipt by the Agent of a certificate of the Borrower
satisfactory to the Agent showing the calculation of the aggregate Borrowings
hereunder (determined on a cumulative basis);
(h) no law or regulation shall have been adopted, no order, judgment
or decree of any governmental authority shall have been issued, and no
litigation shall be pending or threatened, which does or, with respect to any
threatened litigation, seeks to enjoin, prohibit or restrain, the making or
repayment of the Loans, or any participations therein or the consummation of the
transactions contemplated hereby; and
(i) no event, act or condition shall have occurred after the Closing
Date which, in the reasonable judgment of the Agent or the Required Banks, as
the case may be, has had or is likely to have a Material Adverse Effect.
Each Borrowing hereunder shall be deemed to be a representation and
warranty by the Borrower on the date of such Borrowing as to the facts specified
in clauses (b), (c), (d), (e), (h) and (i) of this Section.
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SECTION 3.03. Conditions Precedent to New Acquisitions and Additional
Real Property Assets.
(a) All New Acquisitions or Real Property Assets to be added to the
Unencumbered Asset Pool shall be approved by the Required Banks; provided, that
if Borrower shall have received an Investment Grade Rating from both S&P and
Moody's, and for so long as Borrower shall maintain both such Investment Grade
Ratings, no such approval shall be required to include any New Acquisition or
Real Property Asset in the Unencumbered Asset Pool, which is (i) 100% owned in
fee or leasehold by Borrower or any Consolidated Subsidiary of Borrower, (ii)
not subject (nor is any equity interest therein subject) to any Lien, negative
pledge, stock pledge or pledge of partnership interest and (iii) in compliance
with the provisions of Section 5.19 hereof.
(b) If Borrower shall not have received or shall not maintain an
Investment Grade Rating from both S&P and Moody's, Borrower shall submit to the
Agent and the Banks as provided in subsection (c) below the materials set forth
below (the "Due Diligence Package") relating to each potential New Acquisition
or Real Property Asset to be added to the Unencumbered Asset Pool. The Due
Diligence Package shall include (i) a description of the Real Property Asset or
New Acquisition, (ii) two years of historical cash flow operating statements, if
available, (iii) three years of cash flow projections (including capital
expenditures), if available, (iv) an environmental report in compliance with
Section 3.01(p), (v) a satisfactory engineer's property/structural inspection
report (other than Construction Assets), (vi) evidence of compliance with zoning
and other local laws, (vii) a final investment memorandum prepared by the
Borrower in connection with the New Acquisition or Real Property Asset and
(viii) such additional information regarding the Real Property Asset or New
Acquisition as the Agent may reasonably request. The Borrower shall permit the
Agent at all reasonable times and upon reasonable prior notice to make an
inspection of such New Acquisition or Real Property Asset.
(c) If Borrower shall not have received or shall not maintain an
Investment Grade Rating from both S&P and Moody's, the Borrower shall distribute
a copy of each item constituting the Due Diligence Package by overnight mail to
each of the Banks for their review and approval. Failure to respond to the
Agent in writing by any Bank within ten (10) Domestic Business Days after
receipt of the Due Diligence Package, shall be deemed to be an approval by such
Bank of such potential New Acquisition or Real Property Asset.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.01. Corporate Existence and Power. The Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of Maryland, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
SECTION 4.02. Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Borrower of each
Loan Document to which it is or will be a party are within its corporate powers,
have been duly authorized by all necessary corporate action, require no action
by or in respect of, or filing with, any governmental body, agency or official
and do not contravene, or constitute a default under, any provision of
applicable law or regulation, or of the certificate of incorporation or by-laws
of the Borrower or of any agreement, judgment, injunction, order, decree or
other instrument binding upon the Borrower or any of its Subsidiaries, or result
in the creation or imposition of any Lien on any asset of the Borrower or any of
its Subsidiaries, except as contemplated by the Loan Documents.
SECTION 4.03. Binding Effect. Each Loan Document constitutes, or
when duly executed and delivered will constitute a valid and binding obligation
of the Borrower.
SECTION 4.04. Financial Information.
(a) The unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of September 30, 1996 and the related unaudited
consolidated statement of earnings and statement of cash flows for the three
months then ended, a copy of which has been delivered to each of the Banks,
fairly present, in conformity with generally accepted accounting principles, the
consolidated financial position of the Borrower and its Consolidated
Subsidiaries as of such date and their consolidated results of operations and
cash flows for such three month period.
(b) Since September 30, 1996 there has been no material adverse
change in the business, operations, properties, assets or financial condition of
the Borrower and its Consolidated Subsidiaries, taken as a whole.
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SECTION 4.05. Litigation. There is no action, suit or proceeding
pending against, or to the knowledge of the Borrower threatened against or
affecting, the Borrower or any of its Subsidiaries before any court or
arbitrator or any governmental body, agency or official in which there is a
reasonable possibility of an adverse decision which could have a Material
Adverse Effect.
SECTION 4.06. Compliance with ERISA. Each member of the ERISA Group
has fulfilled its obligations under the minimum funding standards of ERISA and
the Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.
SECTION 4.07. Environmental Matters. Except as indicated in the
environmental reports delivered to the Agent pursuant to Section 3.01(o)(i), (i)
the Borrower, each Subsidiary, the Property Manager and the REIT Manager (x) is
in compliance with all applicable Environmental Laws, except to the extent non-
compliance would not have a Material Adverse Effect, (y) has all material
permits, licenses, approvals, rulings, variances, exemptions or other
authorizations under applicable Environmental Laws to operate each Real Property
Asset as presently conducted or as reasonably anticipated to be conducted, (z)
has received no written communication, from a governmental authority, alleging
that the Borrower, any such Subsidiary, the Property Manager or the REIT Manager
is not in full compliance with all Environmental Laws, and there are no events
or circumstances, to the Borrower's, any Subsidiary's, the Property Manager's or
the REIT Manager's knowledge, that may prevent or interfere with such full
compliance in the future, except to the extent non-compliance would not have a
Material Adverse Effect, (ii) there is no Environmental Claim pending or, to the
Borrower's, any such Subsidiary's, the Property Manager's or the REIT Manager's
knowledge, threatened against the Borrower, any such Subsidiary, the Property
Manager or the REIT Manager, (iii) to the Borrower's or any such Subsidiary's,
the Property Manager's or the REIT Manager's knowledge, there are no past or
present actions, activities, circumstances, conditions, events or incidents
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including, without limitation, the release, emission, discharge or disposal of
any Hazardous Substances, that could form the basis of any Environmental Claim
against the Borrower, any such Subsidiary, the Property Manager or the REIT
Manager, (iv) to the Borrower's or any such Subsidiary's, the Property Manager's
or the REIT Manager's knowledge, without in any way limiting the generality of
the foregoing (A) there are no sites on any Real Property Asset in which the
Borrower, any such Subsidiary, the Property Manager or the REIT Manager, has
stored (except in full compliance with Environmental Laws), disposed or arranged
for the disposal of any Hazardous Substances, (B) there are no underground
storage tanks located on any Real Property Asset, other than propane tanks, (C)
there is no asbestos contained in or forming a part of any improvement on any
Real Property Asset, other than non-friable materials that are the subject of an
operations and maintenance program, and (D) no polychlorinated biphenyls (PCBs)
are used or stored on any Real Property Asset, other than transformers owned by
utility companies. To the extent that the foregoing representation and warranty
applies solely to the Property Manager or REIT Manager, as the case may be, and
not to the Borrower or any Subsidiary, this representation and warranty applies
to the Property Manager or such REIT Manager, as the case may be, solely in its
capacity as Property Manager or REIT Manager with respect to the Real Property
Assets.
SECTION 4.08. Taxes. The Borrower and its Subsidiaries have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by the Borrower or any
Subsidiary, except if such assessment is being contested in good faith by
appropriate proceedings and adequate reserves have been established with respect
thereto. The charges, accruals and reserves on the books of the Borrower and its
Subsidiaries in respect of taxes or other governmental charges are, in the
opinion of the Borrower, adequate.
SECTION 4.09. Subsidiaries. Each of the Borrower's corporate
Subsidiaries, the Property Manager and the REIT Manager is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, each of the Borrower's partnership Subsidiaries
is a limited partnership duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization, and each such entity has all
corporate or partnership powers, as applicable, and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
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SECTION 4.10. Investments. Neither the Borrower nor any Consolidated
Subsidiary has any Investment in any Person other than Investments specified in
clauses (i), (ii), (iii) and (iv) of Section 5.20.
SECTION 4.11. Not an Investment Company. Neither the Borrower nor any
Subsidiary or Affiliate of the Borrower is an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
SECTION 4.12. Full Disclosure. All information heretofore furnished by
the Borrower to the Agent or any Bank for purposes of or in connection with this
Agreement or any transaction contemplated hereby is, and all such information
hereafter furnished by the Borrower to the Agent or any Bank will be, true and
accurate, taken as a whole, in all material respects on the date as of which
such information is stated or certified. The Borrower has disclosed to the Banks
in writing any and all facts which materially and adversely affect or may so
affect (to the extent the Borrower can now reasonably foresee) the business,
operations, properties, assets or financial condition of the Borrower and its
Consolidated Subsidiaries, taken as a whole, or the value of any Real Property
Asset, or the ability of the Borrower to perform its obligations under any Loan
Document.
SECTION 4.13. Relationship of Borrower and Its Affiliates. The
Borrower is an Affiliate of Group and is controlled by Group. At the date
hereof, at least 55% of each class of Equity Interests of the Borrower is owned
beneficially by Group. Each of the Property Manager and the REIT Manager is an
Affiliate of Group and is controlled by Group.
SECTION 4.14. Contracts. Except as indicated on Schedule 4.14 or has
been previously delivered to the Agent in connection with the Second Amended and
Restated Credit Agreement, dated as of June 27, 1996, among Borrower, Agent and
the banks party thereto, there are no material leasing, asset management,
property management or advisory contracts in connection with the Real Property
Assets other than the Property Management Contract and the REIT Management
Contract. All contracts in connection with the operation of the Real Property
Assets (other than the Property Management Contract, the REIT Management
Contract and the Investor Agreement between Group and the Borrower) are (i) to
the Borrower's knowledge, market rate contracts with third parties on customary
terms for similar contracts and (ii) in each case (except for contracts set
forth on Schedule 4.14) terminable by the Borrower on no more than 30 days'
notice.
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SECTION 4.15. Qualification as a REIT. The Borrower qualifies, and
intends to maintain its status as a "real estate investment trust" for purposes
of the Internal Revenue Code (a "REIT").
SECTION 4.16. No Plan Assets. The Borrower does not hold "plan assets"
within the meaning of Section 2510.3-101 of the Regulations of the Department of
Labor.
SECTION 4.17. Subsidiary Debt. No Subsidiary has any Debt outstanding
other than Debt permitted under Section 5.26.
The Borrower shall also be deemed to represent and warrant that as of
the first day of each Interest Period of each Borrowing (x) the aggregate
outstanding principal amount of the Loans does not exceed the amount of the
Total Available Commitments, (y) no Default has occurred and is continuing and
(z) the representations and warranties of the Borrower contained in this
Agreement and any other Loan Document (except (i) the representations and
warranties set forth in Section 4.05 as to any matter which has theretofore been
disclosed in writing by the Borrower to the Banks, (ii) the representation and
warranty set forth in Section 4.14 to the extent such contracts are otherwise
permitted by this Agreement and (iii) the representation and warranty set forth
in Section 4.07 to the extent a breach thereof would by virtue of the proviso to
Section 6.01(c) not give rise to an Event of Default pursuant to Section 5.34)
are true in all material respects on and as of such day.
SECTION 4.18. Ownership of Property. Schedule 4.18 attached hereto and
made a part hereof sets forth all the real property owned or leased by the
Borrower and Persons in which the Borrower, directly or indirectly, owns an
interest as of the Closing Date. As of the Closing Date, Borrower and such
Persons have good and insurable fee simple title (or leasehold title if so
designated on Schedule 4.18) to all of such real property, subject to customary
encumbrances and liens as of the date of this Agreement. As of the date of this
Agreement, there are no mortgages, deeds of trust, indentures, debt instruments
or other agreements creating a Lien against any of the Real Property Assets
except as disclosed on Schedule 4.18.
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ARTICLE V
COVENANTS
The Borrower agrees that, so long as any Bank has any Commitment
hereunder or any amount payable under any Note or hereunder remains unpaid:
SECTION 5.01. Information. The Borrower will deliver to each of the
Banks:
(a) as soon as available and in any event within 90 days after the end
of each fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and
the related consolidated statement of earnings and statement of cash flows for
such fiscal year, setting forth in each case in comparative form the figures for
the previous fiscal year, all reported on (in a manner acceptable to the
Securities and Exchange Commission, if the Borrower is required to file reports
with the Securities and Exchange Commission), by Arthur Andersen, Coopers &
Lybrand, Deloitte & Touche, Ernst & Young, KPMG Peat Marwick, Price Waterhouse
or Kenneth Leventhal & Co.;
(b) as soon as available and in any event within 45 days after the end
of each of the first three quarters of each fiscal year of the Borrower, a
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
of the end of such quarter and the related consolidated statement of earnings
and statement of cash flows for such quarter and for the portion of the
Borrower's fiscal year ended at the end of such quarter, setting forth in the
case of such financial statements in comparative form the figures for the
corresponding quarter and the corresponding portion of the Borrower's previous
fiscal year, all certified (subject to normal year-end or audit adjustments) as
to fairness of presentation, generally accepted accounting principles and
consistency by the controller of the Borrower;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the chief
financial officer or the chief accounting officer of Borrower (i) setting forth
in reasonable detail the calculations required to establish whether the Borrower
was in compliance with the requirements of Sections 5.07 through 5.19 on the
last day of the preceding quarter; (ii) stating whether any Default exists on
the date of such certificate and, if any Default then exists, setting forth the
details thereof and the action which the Borrower is taking or proposes to take
with respect thereto; and (iii) certifying (x) that such financial statements
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fairly present the financial condition and the results of operations of the
Borrower on the dates and for the periods indicated, on the basis of GAAP, with
respect to the Borrower subject, in the case of interim financial statements, to
normally recurring year-end adjustments, and (y) that such officer has reviewed
the terms of the Loan Documents and has made, or caused to be made under his or
her supervision, a review in reasonable detail of the business and condition of
the Borrower during the period beginning on the date through which the last such
review was made pursuant to this Section 5.01(c) (or, in the case of the first
certification pursuant to this Section 5.01(c), the Closing Date) and ending on
a date not more than ten (10) Domestic Business Days prior to the date of such
delivery and that (1) on the basis of such financial statements and such review
of the Loan Documents, no Event of Default existed under Section 6.01(b) with
respect to Sections 5.07 through 5.19, inclusive, at or as of the date of said
financial statements, and (2) on the basis of such review of the Loan Documents
and the business and condition of the Borrower, no Default or Event of Default
under any other provision of Section 6.01 occurred or, if any such Default or
Event of Default has occurred, specifying the nature and extent thereof and, if
continuing, the action the Borrower proposes to take in respect thereof. Such
certificate shall, set forth the calculations required to establish the matters
described in clause (1) above;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements (i) whether
anything has come to their attention to cause them to believe that any Default
existed on the date of such statements and (ii) confirming the calculations set
forth in the most recent officer's certificate delivered pursuant to clause (c)
above;
(e) within five days after any executive officer of the Borrower
(including without limitation any member of the board of directors, any managing
director, any senior vice president, the secretary or the controller) obtains
knowledge of any Default, if such Default is then continuing, a certificate of
the controller of the Borrower setting forth the details thereof and the action
which the Borrower is taking or proposes to take with respect thereto;
(f) within five days after any executive officer of the Borrower
(including without limitation any member of the board of directors, any managing
director, any senior vice president, the secretary or the controller) obtains
knowledge of any Environmental Claim against the Borrower, any Subsidiary, the
Property Manager or the REIT Manager, a certificate of the controller of the
Borrower setting forth
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the details thereof and the action which such Person is taking or proposes to
take with respect thereto;
(g) promptly upon the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports and proxy
statements so mailed;
(h) promptly upon the filing thereof, if any, copies of all
registration statements (other than the exhibits thereto and any registration
statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and
8-K (or their equivalents) which the Borrower shall have filed with the
Securities and Exchange Commission;
(i) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined in
Section 4043 of ERISA) with respect to any Plan which might constitute grounds
for a termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or notice that any Multiemployer
Plan is in reorganization, is insolvent or has been terminated, a copy of such
notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent
to terminate, impose liability (other than for premiums under Section 4007 of
ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of
such notice; (iv) applies for a waiver of the minimum funding standard under
Section 412 of the Internal Revenue Code, a copy of such application; (v) gives
notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of
such notice and other information filed with the PBGC; (vi) gives notice of
withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such
notice; or (vii) fails to make any payment or contribution to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement which has resulted or could result
in the imposition of a Lien or the posting of a bond or other security, a
certificate of the controller of the Borrower setting forth details as to such
occurrence and action, if any, which the Borrower or applicable member of the
ERISA Group is required or proposes to take;
(j) simultaneously with delivery of the certificate required pursuant
to Section 5.01(c), an updated Schedule 4.18, certified by the chief financial
or accounting officer or any senior vice president or vice president of the
Borrower as true, correct and complete as of the date such updated schedules are
delivered;
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(k) within fifteen (15) days after filing of the annual income tax
return with the Internal Revenue Service, a certificate of the chief financial
or accounting officer of Borrower certifying that Borrower is properly
classified and continues to qualify as a real estate investment trust under the
Internal Revenue Code and has taken all actions consistent with maintaining such
status; and
(l) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries as the
Agent, at the request of any Bank, may reasonably request.
SECTION 5.02. Payment of Obligations. The Borrower will pay and
discharge, and will cause each Subsidiary to pay and discharge, at or before
maturity, all their respective material obligations and liabilities, including,
without limitation, any obligation pursuant to any agreement by which it or any
of its properties, or any Subsidiary or any of its Subsidiaries' properties, may
be bound and any tax liabilities, impositions, assessments, and public charges
of every character, except where the same may be contested in good faith by
appropriate proceedings, and will maintain, and will cause each Subsidiary to
maintain, in accordance with generally accepted accounting principles,
appropriate reserves for the accrual of any of the same.
SECTION 5.03. Maintenance of Property; Insurance.
(a) The Borrower will keep, and will cause each Subsidiary to keep,
all property useful and necessary in its business in good order and condition,
ordinary wear and tear excepted.
(b) The Borrower shall or shall cause the Subsidiaries to maintain
"all risk" insurance covering 100% replacement cost of its real property assets
with insurers having an A.M. Best policyholder's rating of not less than A- and
financial size category of not less than X which insurance shall in any event
not provide for materially less coverage than the insurance in effect on the
Closing Date. The Borrower will deliver to the Banks (i) upon request of any
Bank through the Agent from time to time full information as to the insurance
carried, (ii) within five days of receipt of notice from any insurer a copy of
any notice of cancellation or material change in coverage from that existing on
the date of this Agreement and (iii) forthwith, notice of any cancellation or
nonrenewal of coverage by the Borrower.
SECTION 5.04. Conduct of Business and Maintenance of Existence. The
Borrower will (x) continue to engage in business of the same general type as now
conducted by the Borrower, and will preserve, renew and keep in full force
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and effect its corporate existence and its rights, privileges and franchises
necessary or desirable in the normal conduct of business and (y) except to the
extent that a failure to do so would not have a Material Adverse Effect, cause
each Subsidiary to engage in business of the same general type as now conducted
by the Borrower and its Subsidiaries, and preserve, renew and keep in full force
and effect their respective corporate or partnership existence and their
respective rights, privileges and franchises necessary or desirable in the
normal conduct of business; provided that nothing in this Section 5.04 shall
prohibit (i) the merger of a Subsidiary into the Borrower or the merger or
consolidation of a Subsidiary with or into another Person if the corporation
surviving such consolidation or merger is a Subsidiary and if, in each case,
after giving effect thereto, no Default shall have occurred and be continuing,
(ii) the termination of the corporate existence of any Subsidiary if the
Borrower in good faith determines that such termination is in the best interest
of the Borrower and is not materially disadvantageous to the Banks, or (iii) the
Homestead Investment.
SECTION 5.05. Compliance with Laws. The Borrower will comply, and
cause each Subsidiary to comply, with all applicable laws, ordinances, rules,
regulations, and requirements of governmental authorities (including, without
limitation, Environmental Laws, land use laws, all zoning and building codes
with respect to the Real Property Assets and ERISA and the rules and regulations
thereunder) except where the necessity of compliance therewith is contested in
good faith by appropriate proceedings and except to the extent non-compliance
would not have a Material Adverse Effect.
SECTION 5.06. Inspection of Property, Books and Records. The
Borrower will keep, and will cause each Subsidiary to keep, proper books of
record and account in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and activities; and will
permit, and will cause each Subsidiary to permit, representatives of any Bank at
such Bank's expense and risk to visit and inspect any of their respective
properties, including without limitation the Real Property Assets, to examine
and make abstracts from any of their respective books and records and to discuss
their respective affairs, finances and accounts with their respective officers,
employees and independent public accountants, all at such reasonable times, upon
reasonable prior notice and as often as may reasonably be desired.
SECTION 5.07. Debt to Consolidated Tangible Net Worth. As of the last
day of each calendar quarter, the ratio as of the date of determination of (i)
the sum of (x)
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the aggregate Debt of the Borrower and its Consolidated Subsidiaries and (y) the
Borrower's pro rata share of the Debt of any Subsidiaries of the Borrower which
are not Consolidated Subsidiaries, at the time of determination, to (ii)
Consolidated Tangible Net Worth of the Borrower and its Consolidated
Subsidiaries will be equal to or less than 1.0:1.
SECTION 5.08. EBITDA to Interest Expense Coverage. As of the last
day of each calendar quarter, the ratio of EBITDA to Combined Interest Expense
will not, for the previous four (4) consecutive quarters including the quarter
then ended, be less than 2.0:l.
SECTION 5.09. EBITDA to Debt Service Coverage. As of the last day of
each calendar quarter, the ratio of (x) Adjusted EBITDA to (y) Combined Debt
Service for the previous four (4) consecutive quarters including the quarter
then ended, will not be less than 1.5:1; provided, that if Borrower shall have
received an Investment Grade Rating from both S&P and Moody's, then for so long
as Borrower maintains such Investment Grade Rating, the ratio of (x) EBITDA to
(y) Combined Debt Service for the previous four (4) consecutive quarters
including the quarter then ended, will not be less than 1.4:1.
SECTION 5.10. Unencumbered Cash Flow. If Borrower shall not have
received or shall not maintain an Investment Grade Rating from both S&P and
Moody's, as of the last day of each calendar quarter, the ratio of (x)
Unencumbered Asset Pool Cash Flow to (y) Unsecured Interest Expense for the
previous four (4) consecutive quarters including the quarter then ended, will
not be less than 1.75:1.
SECTION 5.11. Unencumbered Asset Pool Value. (a) At no time shall the
ratio, calculated on a quarterly basis by the Borrower as of the last day of
each calendar quarter, of the sum of (i) the Unencumbered Asset Pool Value and
(ii) 50% of the aggregate book value of the Construction Assets which are
multifamily residential property, as of the date of determination, to the
aggregate amount of Unsecured Debt outstanding as of the date of determination,
be less than 1.75:1.
(b) At no time shall the ratio, calculated on a quarterly basis by
the Borrower as of the last day of each calendar quarter, of the Unencumbered
Asset Pool Value to the aggregate amount of Unsecured Debt outstanding as of the
date of determination, be less than 1.5:1.
SECTION 5.12. Minimum Consolidated Tangible Net Worth. Consolidated
Tangible Net Worth will at no time be less than the sum of (x) $500,000,000 and
(y) seventy-five percent (75%) of all Net Offering Proceeds received by Bor-
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rower after the date hereof, but less seventy-five percent (75%) of the cost of
any repurchases of any shares or other equity interests in Borrower.
SECTION 5.13. Secured Debt Ratio. Secured Debt of the Borrower and
its Consolidated Subsidiaries shall at no time exceed forty (40%) percent of
Gross Asset Value.
SECTION 5.14. Debt to Total Asset Value Ratio. After the Conversion
Date, at no time shall the ratio, calculated on a quarterly basis by the
Borrower as of the last day of each calendar quarter, of the aggregate amount of
Debt of the Borrower and its Consolidated Subsidiaries outstanding as of the
date of determination, to Total Asset Value exceed fifty-five percent (55%)
during the first year after the Conversion Date, if any, and fifty percent (50%)
thereafter.
SECTION 5.15. Investments in Unimproved Real Property. The aggregate
amount of the investments of the Borrower and its Consolidated Subsidiaries in
unimproved real property, excluding Construction Assets, will at no time exceed
10% of Gross Asset Value.
SECTION 5.16. Minority Holdings. The value of the Borrower's Minority
Holdings, exclusive of the Homestead Investment, shall at no time exceed ten
(10%) percent of Gross Asset Value.
SECTION 5.17. Joint Ventures. The value of the Borrower's interest in
any joint ventures, whether consolidated or unconsolidated, shall at no time
exceed ten (10%) percent of Gross Asset Value.
SECTION 5.18. Restricted Payments. The Borrower will not make any
Restricted Payment during any of its fiscal quarters which, when added to all
Restricted Payments made during the three immediately preceding fiscal quarters,
exceeds 95% of the Funds From Operations during its four fiscal quarters then
most recently ended; provided that the foregoing shall not prohibit the Borrower
from making the minimum amount of Restricted Payments required to be made in
order for the Borrower to comply with the provisions of Section 5.32.
Notwithstanding anything contained to the contrary in this Section 5.18, the
Borrower may declare or make Restricted Payments during the fiscal quarter in
which the Borrower shall contribute the Homestead Assets to Homestead, which
Restricted Payments shall consist of a portion of the Homestead Investment
consisting of common stock and/or warrants with respect to Homestead received by
the Borrower in connection with such contributions. Notwithstanding anything
contained to the contrary in this Section 5.18, the Borrower may declare or make
Restricted Payments
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during the fiscal quarter ending December 31, 1996 which, when added to all
Restricted Payments made during the three immediately preceding fiscal quarters,
do not exceed 97% of the Funds From Operations during its four fiscal quarters
then most recently ended. Such provision shall apply only with respect to
Restricted Payments made on or before December 31, 1996 and shall have no effect
with respect to the provisions of this Section 5.18 as to any Restricted
Payments made from and after January 1, 1997. For purposes of this provision
"Restricted Payment" means (i) any dividend or other distribution on any shares
of the Borrower's capital stock (except dividends payable solely in shares of
its capital stock or in rights to subscribe for or purchase shares of its
capital stock) or (ii) any payment on account of the purchase, redemption,
retirement or acquisition of (a) any shares of the Borrower's capital stock or
(b) any option, warrant or other right to acquire shares of the Borrower's
capital stock.
SECTION 5.19. Certain Requirements for the Unencumbered Asset Pool.
(a) At all times, (i) the Real Property Assets in the Unencumbered
Asset Pool shall be on average during any consecutive twelve-month period at
least 85% leased to tenants and (ii) no Real Property Asset in the Unencumbered
Asset Pool shall be less than 85% leased to tenants during any consecutive six-
month period. In the event that the requirements of this Section 5.19 are not
satisfied and if Borrower would not be in compliance with the covenants
contained in this Article V if such Real Property Asset were not in the
Unencumbered Asset Pool based on pro forma calculations as of the last day of
the previous calendar quarter, the Borrower shall be prohibited from further
Borrowings unless Borrower adds a New Acquisition or Real Property Asset to the
Unencumbered Asset Pool in accordance with this Agreement in order to restore
compliance with the requirements of this provision. Failure to restore
compliance with the requirements of this Section 5.19 within thirty (30) days of
such non-compliance shall be an Event of Default.
(b) Any Subsidiary which owns any of the Real Property Assets in the
Unencumbered Asset Pool shall not at any time incur any Recourse Debt for
borrowed money which in the aggregate exceeds $100,000 unless such Subsidiary
guaranties Borrower's obligations under this Agreement.
SECTION 5.20. Investments. Neither the Borrower nor any Consolidated
Subsidiary will make or acquire any Investment in any Person other than:
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(i) Investments in Subsidiaries made primarily for the purpose of
(A) prudent tax planning as disclosed to the Agent in writing at least ten (10)
days prior to such transaction or (B) assuming or refinancing Debt described in
Sections 5.26 (i) and (ii),
(ii) Temporary Cash Investments,
(iii) Permitted Investments,
(iv) the Homestead Investment, and
(v) any Investment not otherwise permitted by the foregoing clauses
of this Section if, immediately after such Investment is made or acquired, the
aggregate net book value of all Investments permitted by this clause (v) does
not exceed 10% of Consolidated Tangible Net Worth.
SECTION 5.21. Consolidations, Mergers and Sales of Assets. The
Borrower will not (i) consolidate or merge with or into any other Person or (ii)
sell, lease or otherwise transfer, directly or indirectly, all or any
substantial part of the assets of the Borrower and its Subsidiaries, taken as a
whole, to any other Person.
SECTION 5.22. Use of Proceeds. The proceeds of the Loans made under
this Agreement will be used by the Borrower to directly or indirectly acquire
and develop parcels of real property improved or to be improved by income-
producing multifamily buildings, to refinance the acquisition costs thereof, for
the Homestead Investment and for working capital purposes, provided, however,
the Outstanding Working Capital Amount shall not exceed $30,000,000 at any one
time. None of such proceeds will be used, directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of buying or carrying any
"margin stock" within the meaning of Regulation U.
SECTION 5.23. Sale of Unencumbered Asset Pool. Prior to the sale or
transfer of any Real Property Asset in the Unencumbered Asset Pool or any
interest in any Subsidiary owning any Real Property Asset in the Unencumbered
Asset Pool, the Borrower shall (i) deliver prior written notice to the Agent and
the Banks, (ii) deliver to the Agent and the Banks a certificate from its chief
financial or accounting officer certifying that at the time of such sale or
other disposal (based on pro-forma calculations for the previous period assuming
that such Real Property Asset or interest was not owned by Borrower for the
relevant period) all of the covenants contained in Sections 5.07 through 5.19
are and after giving effect to the transaction shall continue to be true and
accurate in all respects, and (iii) pay to the
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Lead Agent an amount equal to that required pursuant to Section 2.09(e).
SECTION 5.24. Liens; Release of Liens. Neither the Borrower nor any
of its Subsidiaries shall at any time during the Term directly or indirectly
create, incur, assume or permit to exist any Lien for borrowed monies or any
other Lien unless the same is being contested in good faith and the same is
discharged, bonded off or paid within sixty (60) days of filing of such Lien, on
or with respect to any Real Property Asset in the Unencumbered Asset Pool.
Notwithstanding the foregoing, the Borrower may obtain a release from the terms
of this Agreement of any Real Property Asset in the Unencumbered Asset Pool
provided that the Borrower has complied with Section 2.09(e) and prior to or
simultaneously with such release (i) Borrower shall pay to the Agent any amounts
due pursuant to Section 2.09(e), and (ii) Borrower delivers to the Agent and the
Banks a certificate from its chief financial or accounting officer certifying
that at the time of the release all of the covenants contained in Sections 5.07
through 5.19 are and after giving effect to the transaction shall continue to be
true and accurate in all respects.
SECTION 5.25. Limitations on Recourse Debt. Neither the Borrower nor
any Consolidated Subsidiary shall at any time create, incur or guaranty any
Recourse Debt, except for (i) Recourse Debt existing on the date of this
Agreement, (ii) the assumption of up to $50,000,000 of Recourse Debt in
connection with New Acquisitions and (iii) Unsecured Debt with an Investment
Grade Credit Rating.
SECTION 5.26. Limitations on Subsidiary Debt. The Borrower will not
permit any Subsidiary to have or incur any Debt other than (i) Debt incurred or
assumed for the purpose of financing all or any part of the cost of acquiring or
developing an asset, provided that the amount of Debt so incurred or assumed
does not exceed the acquisition or development cost of such asset, (ii) Debt
consisting, or in respect, of existing tax-exempt bonds or the refinancing
thereof, (iii) Debt the sole obligee of which is the Borrower and (iv) Permitted
Intercompany Debt.
SECTION 5.27. Other Debt Instruments. The Borrower will not, and will
not permit any Subsidiary to enter into any agreement containing any provision
(a) which would be violated or breached by any Borrowings hereunder or by the
performance by the Borrower of its obligations hereunder or under any other Loan
Document, or (b) which is materially more restrictive upon the Borrower than the
terms and conditions of this Agreement. The Borrower will not, and will not
permit any of its Subsidiaries to, enter into any agreement (other than this
Agreement and the other Loan Docu-
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ments) prohibiting the creation or assumption of any Lien upon its properties
(other than with respect to any mortgage on a particular property), revenues or
assets, whether now owned or hereafter acquired, or restricting the ability of
the Borrower to amend or modify this Agreement or any other Loan Document. From
and after the date hereof, neither the Borrower nor any of its Subsidiaries
shall enter into any agreements with the holder of any Debt of the Borrower or
such Subsidiaries whereby the stated maturity date thereof is scheduled for any
date prior to the first anniversary of the Revolver Termination Date, as the
same may be extended in accordance with the provisions hereof, except in
connection with the assumption of up to $50,000,000 of Debt in connection with
New Acquisitions.
SECTION 5.28. Hedging Requirements. The Borrower shall maintain
Interest Rate Hedges on a notional amount of the Debt of the Borrower and its
Consolidated Subsidiaries which, when added to the aggregate principal amount of
the Debt of the Borrower and its Consolidated Subsidiaries which bears interest
at a fixed rate, equals or exceeds 100% of the aggregate principal amount of all
Debt, exclusive of the Loans, of the Borrower and its Consolidated Subsidiaries,
except in connection with the assumption of up to $50,000,000 of Debt in
connection with New Acquisitions and the Obligations and principal reserve funds
required to be maintained in connection with tax-exempt bonds.
SECTION 5.29. Restriction on Intercompany Debt; Subordination. The
Borrower (x) will cause each Subsidiary not to, and (y) as lender to Homestead
will not, modify or waive in any manner the terms of the Permitted Intercompany
Debt, and will cause each Subsidiary to comply with the terms of the
subordination provisions thereof. The Borrower will not, and will not permit
any Subsidiary to, sell, transfer, assign or pledge any Permitted Intercompany
Debt of which it is the obligee.
SECTION 5.30. Affiliate Transactions. The Borrower will not enter
into any transaction with or make any payment to any Affiliates of the Borrower,
other than the Property Management Contract, the REIT Management Contract, the
Investor Agreement between Group and the Borrower or Permitted Intercompany Debt
or any payments made in accordance therewith or dividends on shares of capital
stock to the extent not prohibited hereby. Notwithstanding the foregoing, the
Borrower or any Subsidiary may enter into transactions with Affiliates (other
than purchases or sales of real property, loan transactions or transactions for
services provided pursuant to the Property Management Contract) which involve
(i) underwriting or placement agent agreements as to which no amounts are
payable by the Borrower other than expenses payable to third parties or
indemnity obliga-
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tions, in each case not less favorable to the Borrower or any Subsidiary than
those which are generally available in the market, (ii) stock purchase, option
or warrant agreements in which the Borrower is selling or agreeing to sell
Equity Interests thereunder, (iii) collective insurance agreements, (iv) the
Homestead Investment or (v) any other contract as to which the Borrower gives
the Agent 30 days prior notice of the terms thereof and, in the reasonable
judgment of the Required Banks, such terms are not less favorable to the
Borrower or any Subsidiary than those which are generally available in the
market. In addition, notwithstanding the foregoing, the Borrower may enter into
(i) temporary or bridge loan transactions with Group or any wholly-owned
subsidiary thereof, which loans shall be unsecured and subordinate (on the same
terms and conditions as set forth in clauses (A) and (B) of the definition of
"Permitted Intercompany Debt") to any and all Loans made by any Bank and
terminable upon thirty (30) days' notice and (ii) any and all transactions with
or through Atlantic Development Services Incorporated which are permitted by,
and in accordance with the terms of, this Agreement. No such transaction with
or through Atlantic Development Services Incorporated ("ADS") shall be
permitted, unless (i) all loans or advances to ADS are secured by first priority
liens and security interests (subject only to prior liens and security interests
securing performance guaranties granted in the ordinary course of ADS' business)
in real properties developed or acquired by ADS, (ii) the Borrower shall, at all
times, beneficially own at least ninety percent (90%) of the economic interests
in ADS, and (iii) the financial condition and results of operation of ADS shall
be consolidated with those of the Borrower for purposes of the financial
statements.
SECTION 5.31. Contracts. The Borrower will not, and will cause each
Subsidiary not to, modify the Property Management Contract or the REIT
Management Contract in any manner that (i) increases fees payable thereunder
(except, in the case of the Property Management Agreement, increases consistent
with market rates), (ii) adversely affects the Borrower's termination rights or
(iii) reduces the duties of the REIT Manager or the Property Manager.
SECTION 5.32. Real Estate Investment Trust. At all times prior to
electing treatment as a REIT, the Borrower (including without limitation its
organization and method of operations and those of its subsidiaries) will
satisfy the conditions specified in Sections 856 through 859 of the Internal
Revenue Code in order to elect treatment as a REIT. Borrower will timely elect
treatment as a REIT for the tax year 1994 and will for each tax year thereafter
continue to qualify as, and maintain its election under Section 856(c)(1) of the
Internal Revenue Code to be a REIT.
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SECTION 5.33. No Plan Assets. The Borrower will at no time hold
"plan assets" within the meaning of Section 2510.3-101 of the Regulations of the
Department of Labor.
SECTION 5.34. Environmental Matters. At its sole cost and expense,
the Borrower will comply with, and will cause each Subsidiary, the Property
Manager and the REIT Manager to comply with, all Environmental Laws, except to
the extent non-compliance would not have a Material Adverse Effect. Without
limiting the generality of the foregoing, the Borrower will not, and will cause
each Subsidiary, the Property Manager and the REIT Manager not to, use, store,
discharge, install or transport on any Real Property Asset, or permit to be
used, stored, discharged, installed or transported on any Real Property Asset,
any Hazardous Substances other than Hazardous Substances of such types and in
such quantities as are customarily used or stored in or at comparable,
prudently-managed multifamily buildings. Furthermore, the Borrower will (i)
immediately commence any and all remedial action needed according to the
environmental reports delivered to the Agent pursuant to Section 3.01(a)(xvii),
(ii) diligently pursue such action to completion and (iii) promptly deliver to
the Agent notice of initiation as well as notice of completion of such action.
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default. If one or more of the following
events ("Events of Default") shall have occurred and be continuing:
(a) (i) the Borrower shall fail to pay when due any principal of or
interest on any Loan, or (ii) shall fail to pay for five (5) Business Days after
written notice thereof has been given to the Borrower by the Agent, any fees or
any other amount payable hereunder;
(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.07 through 5.19, 5.21 through 5.29, 5.32, or 5.33,
inclusive;
(c) the Borrower shall fail to observe or perform the covenant
contained in Section 5.20, 5.30, 5.31 or 5.34 for five (5) days after the
Borrower shall have knowledge thereof; or the Borrower shall fail to observe or
perform any other covenant or agreement contained in this Agreement (other than
those covered by clause (a) or (b) above) or the Borrower or any Subsidiary
shall fail to perform any covenant or agreement contained in any other Loan
Document to
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which it is a party for 30 days (or such shorter period as may be provided for
therein) after written notice thereof has been given to the Borrower by the
Agent at the request of any Bank; provided, however, that, in the event a
Default hereunder arises due to a breach of the covenant contained in Section
5.34, which breach is caused by non-compliance with Environmental Laws affecting
a Real Property Asset (the "Contaminated Property") due solely to the action or
inaction of one or more third parties, then the Borrower shall have up to sixty
(60) days to (i) cure such breach (the "Cure Period") and (ii) provide the Agent
with a report of an environmental consultant, reasonably acceptable to the
Required Banks, which report demonstrates to the reasonable satisfaction of the
Required Banks that such breach has been cured and that the Contaminated
Property is in compliance with applicable Environmental Laws (satisfaction of
(i) and (ii) collectively a "Cure"). In the event the breach of Section 5.34
shall not have been Cured by the end of the Cure Period, then such breach shall
constitute an Event of Default hereunder;
(d) any representation, warranty, certification or statement made by
the Borrower in any Loan Document or in any certificate, financial statement or
other document delivered pursuant to any Loan Document shall prove to have been
incorrect in any material respect when made (or deemed made);
(e) the Borrower shall default in the payment when due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise) of
any amount owing in respect of any Debt (other than the Obligations and Non-
Recourse Debt for which the aggregate outstanding principal amount is
$25,000,000 or less) and such default shall continue beyond the giving of any
required notice and the expiration of any applicable grace period and such
default has not been waived, in writing, by the holder of any such Debt; or the
Borrower shall default in the performance or observance of any obligation or
condition with respect to any such Debt or any other event shall occur or
condition exist beyond the giving of any required notice and the expiration of
any applicable grace period, if the effect of such default, event or condition
is to accelerate the maturity of any such indebtedness or to permit (without any
further requirement of notice or lapse of time) the holder or holders thereof,
or any trustee or agent for such holders, to accelerate the maturity of any such
indebtedness;
(f) the Borrower or any Subsidiary shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a
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trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(g) an involuntary case or other proceeding shall be commenced
against the Borrower or any Subsidiary seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 90 days; or an order for
relief shall be entered against the Borrower or any Subsidiary under the federal
bankruptcy laws as now or hereafter in effect;
(h) any member of the ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $5,000,000 which it shall have become
liable to pay under Title IV of ERISA; or notice of intent to terminate a
Material Plan shall be filed under Title IV of ERISA by any member of the ERISA
Group, any plan administrator or any combination of the foregoing; or the PBGC
shall institute proceedings under Title IV of ERISA to terminate, to impose
liability (other than for premiums under Section 4007 of ERISA) in respect of,
or to cause a trustee to be appointed to administer any Material Plan; or a
condition shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any Material Plan must be terminated; or there shall
occur a complete or partial withdrawal from, or a default, within the meaning of
Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans
which could cause one or more members of the ERISA Group to incur a current
payment obligation in excess of $5,000,000;
(i) a judgment or order for the payment of money in excess of
$5,000,000 shall be rendered against the Borrower or any Subsidiary and such
judgment or order shall continue unsatisfied and unstayed for a period of 30
days (excluding any judgment as to which, and only to the extent, a reputable
insurance company has acknowledged coverage of such claim in writing);
(j) (i) the Borrower is no longer an Affiliate of Group, is no longer
controlled by Group, or Group no longer owns beneficially, and either of record
or through a wholly-owned subsidiary of Group which holds of record, at least
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20% of each class of Equity Interests of the Borrower having the right to vote
on the election of directors and any other material actions, proposals, issues
or activities of the Borrower and its Subsidiaries, (ii) the REIT Manager is no
longer an Affiliate of Group or (iii) the Property Manager is no longer an
Affiliate of Group or is no longer controlled by Group;
(k) any person or group of persons (within the meaning of Section 13
or 14 of the Securities Exchange Act of 1934, as amended) other than Group shall
have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated
by the Securities and Exchange Commission under said Act) of a percentage of any
class of Equity Interests of the Borrower having the right to vote on the
election of directors and any other material actions, proposals, issues or
activities of the Borrower and its Subsidiaries, equal to the percentage of such
class then owned beneficially by Group minus 10% or, during any period of 24
consecutive calendar months commencing on or after October 18, 1996, individuals
who were directors of the Borrower on the first day of such period (and
directors appointed or nominated by any number of such individuals) shall cease
to constitute a majority of the board of directors of the Borrower;
(l) any Loan Document shall for any reason cease to be in full force
and effect, or the material rights, powers and privileges purported to be
created thereby; or
(m) Borrower shall cease at any time to qualify as a REIT under the
Internal Revenue Code;
then, and in every such event, the Agent shall (i) if requested by Banks having
more than 50% in aggregate amount of the Commitments, by notice to the Borrower
terminate the Commitments and they shall thereupon terminate, or (ii) if
requested by Banks holding Notes evidencing more than 50% in aggregate principal
amount of the Loans, by notice to the Borrower declare the Notes (together with
accrued interest thereon) to be, and the Notes shall thereupon become,
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Borrower; provided that in
the case of any of the Events of Default specified in clause (g) or (h) above
with respect to the Borrower, without any notice to the Borrower or any other
act by the Agent or the Banks, the Commitments shall thereupon terminate and the
Notes (together with accrued interest thereon) shall become immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Borrower.
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SECTION 6.02. Notice of Default. The Agent shall give notice to the
Borrower under Section 6.01(c) promptly upon being requested to do so by any
Bank and shall thereupon notify all the Banks thereof.
ARTICLE VII
THE AGENT
SECTION 7.01. Appointment and Authorization. Each Bank irrevocably
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement and the other Loan Documents as are
delegated to the Agent by the terms hereof or thereof, together with all such
powers as are reasonably incidental thereto.
SECTION 7.02. Agent and Affiliates. Morgan Guaranty Trust Company of
New York shall have the same rights and powers under this Agreement as any other
Bank and may exercise or refrain from exercising the same as though it were not
the Agent, and Morgan Guaranty Trust Company of New York and its affiliates may
accept deposits from, lend money to, and generally engage in any kind of
business with the Borrower or any Subsidiary or affiliate of the Borrower as if
it were not the Agent hereunder.
SECTION 7.03. Action by Agent. The obligations of the Agent
hereunder are only those expressly set forth herein. Without limiting the
generality of the foregoing, the Agent shall not be required to take any action
with respect to any Default, except as expressly provided in Article VI.
SECTION 7.04. Consultation with Experts. The Agent may consult with
legal counsel (who may be counsel for the Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
SECTION 7.05. Liability of Agent. Neither the Agent nor any of its
affiliates nor any of their respective directors, officers, agents or employees
shall be liable for any action taken or not taken by it in connection herewith
(i) with the consent or at the request of the Required Banks or of a lesser
number of Banks requesting action pursuant to Section 6.01 or (ii) in the
absence of its own gross negligence or willful misconduct. Neither the Agent
nor any of its directors, officers, agents or employees shall be re-
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sponsible for or have any duty to ascertain, inquire into or verify (i) any
statement, warranty or representation made in connection with this Agreement or
any borrowing hereunder; (ii) the performance or observance of any of the
covenants or agreements of the Borrower; (iii) the satisfaction of any condition
specified in Article III, except receipt of items required to be delivered to
the Agent; or (iv) the validity, effectiveness or genuineness of this Agreement,
the Notes, any other Loan Documents or any other instrument or writing furnished
in connection herewith or therewith. The Agent shall not incur any liability by
acting in reliance upon any notice, consent, certificate, statement, or other
writing (which may be a bank wire, telex or similar writing) believed by it to
be genuine or to be signed by the proper party or parties.
SECTION 7.06. Indemnification. Each Bank shall, ratably in
accordance with its Commitment, indemnify the Agent, its affiliates and their
respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from such indemnitees' gross negligence or willful misconduct) that such
indemnitees may suffer or incur in connection with this Agreement or any other
Loan Document or any action taken or omitted by such indemnitees hereunder or
thereunder.
SECTION 7.07. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.08. Successor Agent. The Agent may resign at any time by
giving notice thereof to the Banks and the Borrower. Upon any such resignation,
the Required Banks shall have the right to appoint a successor Agent, which
successor Agent, provided no Event of Default shall have occurred and be
continuing, shall be subject to approval by the Borrower, which approval shall
not be unreasonably withheld or delayed. If no successor Agent shall have been
so appointed by the Required Banks, and shall have accepted such appointment,
within 30 days after the retiring Agent gives notice of resignation, then the
retiring Agent may, on behalf of the Banks, appoint a successor Agent. The
Agent, whether appointed by the Required Banks or by the retiring
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Agent, shall be a commercial bank organized or licensed under the laws of the
United States of America or of any State thereof and having a combined capital
and surplus of at least $500,000,000. Upon the acceptance of its appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent. In addition, if
Morgan Guaranty Trust Company of New York ("Morgan"), as Agent, shall at any
time hold Commitments equal to less than $25,000,000 in the aggregate, it shall
promptly notify the Banks and the Borrower thereof and shall offer to resign as
Agent. If such offer shall be accepted by the Required Banks (for this purpose
only, Morgan shall be deemed to have accepted its own offer to resign), a
successor Agent shall be appointed in accordance with this Section 7.08.
SECTION 7.09. Agent's Fee. The Borrower shall pay to the Agent for
its own account fees in the amounts and at the times previously agreed upon
between the Borrower and the Agent.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or
Unfair. If on or prior to the first day of any Interest Period for any Fixed
Rate Borrowing:
(a) the Agent is advised by the Euro-Dollar Reference Bank that
deposits in dollars (in the applicable amounts) are not being offered to the
Euro-Dollar Reference Bank in the relevant market for such Interest Period, or
(b) Banks having 50% or more of the aggregate amount of the
Commitments advise the Agent that the Adjusted London Interbank Offered Rate, as
the case may be, as determined by the Agent will not adequately and fairly
reflect the cost to such Banks of funding their Euro-Dollar Loans for such
Interest Period,
the Agent shall forthwith give notice thereof to the Borrower and the Banks,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, (i) the obligations of the Banks to
make Euro-Dollar Loans, as the case may be, or to convert
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outstanding Loans into Euro-Dollar Loans shall be suspended and (ii) each
outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the
last day of the then current Interest Period applicable thereto. Unless the
Borrower notifies the Agent at least two Domestic Business Days before the date
of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been
given that it elects not to borrow on such date, such Borrowing shall instead be
made as a Base Rate Borrowing.
SECTION 8.02. Illegality. If, on or after the date of this
Agreement, the adoption of any applicable law, rule or regulation, or any change
in any applicable law, rule or regulation, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank (or its Euro-Dollar Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it unlawful or impossible for any
Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-
Dollar Loans and such Bank shall so notify the Agent, the Agent shall forthwith
give notice thereof to the other Banks and the Borrower, whereupon until such
Bank notifies the Borrower and the Agent that the circumstances giving rise to
such suspension no longer exist, the obligation of such Bank to make Euro-Dollar
Loans, or to convert outstanding Loans into Euro-Dollar Loans, shall be
suspended. Before giving any notice to the Agent pursuant to this Section, such
Bank shall designate a different Euro-Dollar Lending Office if such designation
will avoid the need for giving such notice and will not, in the judgment of such
Bank, be otherwise disadvantageous to such Bank. If such notice is given, each
Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate
Loan either (a) on the last day of the then current Interest Period applicable
to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund
such Loan to such day or (b) immediately if such Bank shall determine that it
may not lawfully continue to maintain and fund such Loan to such day.
SECTION 8.03. Increased Cost and Reduced Return.
(a) If, on or after the date hereof, the adoption of any applicable
law, rule or regulation, or any change in any applicable law, rule or
regulation, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
Applicable Lending Office) with any request or directive (whether or not having
the force of law) of any such authority, central bank or comparable
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agency shall impose, modify or deem applicable any reserve (including, without
limitation, any such requirement imposed by the Board of Governors of the
Federal Reserve System, but excluding with respect to any Euro-Dollar Loan any
such requirement included in an applicable Euro-Dollar Reserve Percentage),
special deposit, insurance assessment or similar requirement against assets of,
deposits with or for the account of, or credit extended by, any Bank (or its
Applicable Lending Office) or shall impose on any Bank (or its Applicable
Lending Office) or on the United States market for certificates of deposit or
the London interbank market any other condition affecting its Fixed Rate Loans,
its Note or its obligation to make Fixed Rate Loans, and the result of any of
the foregoing is to increase the cost to such Bank (or its Applicable Lending
Office) of making or maintaining any Fixed Rate Loan, or to reduce the amount of
any sum received or receivable by such Bank (or its Applicable Lending Office)
under this Agreement or under its Note with respect thereto, by an amount deemed
by such Bank to be material, then, within 15 days after demand by such Bank
(with a copy to the Agent), and provided such Bank is generally exercising
rights similar to those set forth in this Section 8.03 (a) against other
borrowers similarly situated to the Borrower, the Borrower shall pay to such
Bank such additional amount or amounts as will compensate such Bank for such
increased cost or reduction.
(b) If any Bank shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of such Bank (or its Parent) as a consequence of such Bank's
obligations hereunder to a level below that which such Bank (or its Parent)
could have achieved but for such adoption, change, request or directive (taking
into consideration its policies with respect to capital adequacy) by an amount
deemed by such Bank to be material, then from time to time, within 15 days after
demand by such Bank (with a copy to the Agent), and provided such Bank is
generally exercising rights similar to those set forth in this Section 8.03(b)
against other borrowers similarly situated to the Borrower, the Borrower shall
pay to such Bank such additional amount or amounts as will compensate such Bank
(or its Parent) for such reduction.
(c) Each Bank will promptly notify the Borrower and the Agent of any
event of which it has knowledge, occur-
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ring after the date hereof, which will entitle such Bank to compensation
pursuant to this Section and will designate a different Applicable Lending
Office if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. A certificate of any Bank claiming compensation
under this Section and setting forth the additional amount or amounts to be paid
to it hereunder shall be prima facie evidence of the matters certified therein.
In determining such amount, such Bank may use any reasonable averaging and
attribution methods.
SECTION 8.04. Taxes.
(a) Any and all payments by the Borrower to or for the account of any
Bank or the Agent hereunder or under any Note shall be made free and clear of
and without deduction for any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Bank and the Agent, taxes imposed on its
income, and franchise taxes imposed on it, by the jurisdiction under the laws of
which such Bank or the Agent (as the case may be) is organized or any political
subdivision thereof and, in the case of each Bank, taxes imposed on its income,
and franchise or similar taxes imposed on it, by the jurisdiction of such Bank's
Applicable Lending Office or any political subdivision thereof (all such non-
excluded taxes, duties, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any Note to any Bank or the Agent, (i) the sum payable shall
be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
8.04) such Bank or the Agent (as the case may be) receives an amount equal to
the sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions, (iii) the Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law and (iv) the Borrower shall furnish to the Agent,
at its address referred to in Section 9.01, the original or a certified copy of
a receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes and any other excise or property taxes, or charges or
similar levies, including without limitation documentary, intangibles,
recording, mortgage recording and transfer taxes, which arise from any extension
of credit hereunder, any payment made hereunder or under any Note or from the
execution or delivery or performance of, or the exercise of remedies
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under, or otherwise with respect to, this Agreement or any other Loan Document
(hereinafter referred to as "Other Taxes").
(c) The Borrower agrees to indemnify each Bank and the Agent for the
full amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section 8.04) paid by such Bank or the Agent (as the case may be) and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto. This indemnification shall be made within 15 days from the
date such Bank or the Agent (as the case may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
and from time to time thereafter if requested in writing by the Borrower (but
only so long as such Bank remains lawfully able to do so), shall provide the
Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or any
successor form prescribed by the Internal Revenue Service, certifying that such
Bank is entitled to benefits under an income tax treaty to which the United
States is a party which reduces the rate of withholding tax on payments of
interest or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States. If the form provided by a Bank at the time such Bank first becomes a
party to this Agreement indicates a United States interest withholding tax rate
in excess of zero, withholding tax at such rate shall be considered excluded
from "Taxes" as defined in Section 8.04(a).
(e) For any period with respect to which a Bank has failed to provide
the Borrower with the appropriate form pursuant to Section 8.04(d) (unless such
failure is due to a change in treaty, law or regulation occurring subsequent to
the date on which a form originally was required to be provided), such Bank
shall not be entitled to indemnification under Section 8.04(a) with respect to
Taxes imposed by the United States; provided that, should a Bank, which is
otherwise exempt from or subject to a reduced rate of withholding tax, become
subject to Taxes because of its failure to deliver a form required hereunder,
the Borrower shall take such steps as such Bank shall reasonably request to
assist such Bank to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for
the account of any Bank pursuant to this
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Section 8.04, then such Bank will change the jurisdiction of its Applicable
Lending Office so as to eliminate or reduce any such additional payment which
may thereafter accrue if such change, in the judgment of such Bank, is not
otherwise disadvantageous to such Bank.
SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate
Loans. If (i) the obligation of any Bank to make or maintain Euro-Dollar Loans
has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded
compensation under Section 8.03 or 8.04 with respect to its Euro-Dollar Loans
and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice
to such Bank through the Agent, have elected that the provisions of this Section
shall apply to such Bank, then, unless and until such Bank notifies the Borrower
that the circumstances giving rise to such suspension or demand for compensation
no longer exist:
(a) all Loans which would otherwise be made by such Bank as (or
continued as or converted into) Euro-Dollar Loans shall be Base Rate Loans (on
which interest and principal shall be payable contemporaneously with the related
Fixed Rate Loans of the other Banks), and
(b) after each of its Euro-Dollar Loans has been repaid (or converted
into a Base Rate Loan), all payments of principal which would otherwise be
applied to repay such Fixed Rate Loans shall be applied to repay its Base Rate
Loans instead.
If such Bank notifies the Borrower that the circumstances giving rise
to such notice no longer apply, the principal amount of each such Base Rate Loan
shall be converted into a Euro-Dollar Loan on the first day of the next
succeeding Interest Period applicable to the related Euro-Dollar Loans of the
other Banks.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile transmission or similar writing) and shall be given to such
party: (x) in the case of the Borrower or the Agent, at its address or telex
number set forth on the signature pages hereof, (y) in the case of any Bank, at
its address or telex number set forth in its Administrative Questionnaire or (z)
in the case of any party, such other address or telex number as such
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party may hereafter specify for the purpose by notice to the Agent and the
Borrower. Each such notice, request or other communication shall be effective
(i) if given by telex, when such telex is transmitted to the telex number
specified in this Section and the appropriate answer back is received, (ii) if
given by mail, 72 hours after such communication is deposited in the mails with
first class postage prepaid, addressed as aforesaid or (iii) if given by any
other means, when delivered at the address specified in this Section; provided
that notices to the Agent under Article II or Article VIII shall not be
effective until received.
SECTION 9.02. No Waivers. No failure or delay by the Agent or any
Bank in exercising any right or remedy hereunder or under any Note, and no
course of dealing with respect thereto, shall operate as a waiver thereof nor
shall any single or partial exercise of any right or remedy hereunder or under
any Note or under any other Loan Document preclude any other or further exercise
thereof or the exercise of any other right or remedy. The rights and remedies
provided herein, under any Note or in any other Loan Document are cumulative and
may be exercised independently or concurrently and are not exclusive of any
other rights or remedies provided by law.
SECTION 9.03. Expenses; Indemnification.
(a) The Borrower shall pay (i) all out-of-pocket expenses of the
Agent, including reasonable fees and disbursements of special counsel and local
counsel for the Agent, in connection with the preparation and administration of
this Agreement and each other Loan Document, any waiver or consent hereunder or
thereunder or any amendment hereof or thereof or any Default or alleged Default
hereunder, (ii) all appraisal fees, recording and filing fees, taxes, brokerage
fees and commissions, abstract fees, title insurance premiums and fees, Uniform
Commercial Code and other search fees, escrow fees, environmental report fees,
engineering report fees, and all other costs and expenses of every character
incurred in connection with the preparation, execution, delivery, filing,
recordation or performance of any Loan Document and (iii) if an Event of Default
occurs, all out-of-pocket expenses incurred by the Agent and each Bank,
including fees and disbursements of counsel, in connection with such Event of
Default, and collection, bankruptcy, insolvency and other enforcement
proceedings resulting therefrom.
(b) The Borrower agrees to indemnify the Agent and each Bank, their
respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses,
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damages, costs and expenses of any kind, including, without limitation, the
reasonable fees and disbursements of counsel, which may be incurred by such
Indemnitee in connection with any investigative, administrative or judicial
proceeding (whether or not such Indemnitee shall be designated a party thereto)
brought or threatened relating to or arising out of (i) this Agreement or any
Loan Document or any actual or proposed use of proceeds of Loans hereunder, (ii)
any violation by the Borrower or any Subsidiary or the Property Manager or the
REIT Manager of any applicable Environmental Law or other law, (iii) any
Environmental Claim or other claim arising out of the management, use, control,
ownership or operation of property or assets by the Borrower or any Subsidiary
or the Property Manager or the REIT Manager, including, without limitation, all
on-site and off-site activities involving Hazardous Substances, (iv) the breach
of any representation, warranty or covenant set forth herein or in any Loan
Document, (v) the grant to the Agent of any Lien on any property or assets of
the Borrower or any Subsidiary, or (vi) the exercise by the Agent and the Banks
of their rights and remedies (including, without limitation, foreclosure) under
any agreement creating any such Lien, provided that no Indemnitee shall have the
right to be indemnified hereunder for such Indemnitee's own gross negligence or
willful misconduct as determined by a court of competent jurisdiction.
SECTION 9.04. Sharing of Set-Offs. Each Bank agrees that if it
shall, by exercising any right of set-off or counterclaim or otherwise, receive
payment of a proportion of the aggregate amount of principal and interest due
with respect to any Note held by it which is greater than the proportion
received by any other Bank in respect of the aggregate amount of principal and
interest due with respect to any Note held by such other Bank, the Bank
receiving such proportionately greater payment shall purchase such
participations in the Notes held by the other Banks, and such other adjustments
shall be made, as may be required so that all such payments of principal and
interest with respect to the Notes held by the Banks shall be shared by the
Banks pro rata; provided that nothing in this Section shall impair the right of
any Bank to exercise any right of set-off or counterclaim it may have and to
apply the amount subject to such exercise to the payment of indebtedness of the
Borrower other than its indebtedness under the Notes. The Borrower agrees, to
the fullest extent it may effectively do so under applicable law, that any
holder of a participation in a Note, whether or not acquired pursuant to the
foregoing arrangements, may exercise rights of set-off or counterclaim and other
rights with respect to such participation as fully as if such holder of a
participation were a direct creditor of the Borrower in the amount of such
participation. If any Rejecting Bank shall be repaid pursuant
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to Section 2.01(c), then, from and after the Conversion Date, the provisions of
this Section 9.04 shall not apply as to such Rejecting Bank.
SECTION 9.05. Amendments and Waivers. Except as expressly provided
in any other Loan Document, any provision of this Agreement or the Notes or any
other Loan Document may be amended or waived if, but only if, such amendment or
waiver is in writing and is signed by the Borrower and the Required Banks (or by
the Agent after receiving approval therefor from the Required Banks) (and, if
the rights or duties of the Agent are affected thereby, by the Agent); provided
that no such amendment or waiver shall, unless signed by all the Banks, (i)
increase or decrease the Commitment of any Bank (except for a ratable decrease
in the Commitments of all Banks) or subject any Bank to any additional
obligation (other than any Bank signing such amendment or waiver), (ii) reduce
the principal of or rate of interest on any Loan or any fees hereunder, except
as provided below, (iii) postpone the date fixed for any payment of principal of
or interest on any Loan or any fees hereunder or for any reduction or
termination of any Commitment, (iv) change the aggregate amount by which or to
which the Commitments are required to be reduced on or prior to any Commitment
Reduction Date, or (v) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Notes, or the number of Banks, which
shall be required for the Banks or any of them to take any action under this
Section or any other provision of this Agreement. In addition, no such
amendment or waiver shall, unless signed by the Swing Lender and each other Bank
affected thereby, increase the Swing Loan Commitment, postpone the date fixed
for the termination of the Swing Loan Commitment or otherwise affect any of its
rights or obligations hereunder relating to the Swing Loan Commitment or the
Swing Loans.
SECTION 9.06. Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, except that the Borrower may not assign or otherwise transfer any of
its rights under this Agreement without the prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment on
any or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrower and the Agent, such Bank shall remain responsible for the performance
of its obligations hereunder, and the Borrower and the Agent shall continue to
deal
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solely and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement. Any agreement pursuant to which any Bank may
grant such a participating interest shall provide that such Bank shall retain
the sole right and responsibility to enforce the obligations of the Borrower
hereunder including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
participation agreement may provide that such Bank will not agree to any
modification, amendment or waiver of this Agreement described in clause (i),
(ii), (iii), (iv) or (vi) of Section 9.05 without the consent of the
Participant. The Borrower agrees that each Participant shall, to the extent
provided in its participation agreement, be entitled to the benefits of Article
VIII with respect to its participating interest. An assignment or other
transfer which is not permitted by subsection (c) or (d) below shall be given
effect for purposes of this Agreement only to the extent of a participating
interest granted in accordance with this subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part of all, of its
rights and obligations under this Agreement and the Notes and the other Loan
Documents, and such Assignee shall assume such rights and obligations, pursuant
to a Transfer Supplement in substantially the form of Exhibit D hereto executed
by such Assignee and such transferor Bank, with (and subject to) the subscribed
consent of the Agent and, unless an Event of Default shall have occurred and be
continuing, the Borrower, which in each case shall not be unreasonably withheld
(the withholding of such consent shall not be deemed unreasonable if such
Assignee is not an Eligible Assignee); provided that if an Assignee is an
affiliate of such transferor Bank, no such consent shall be required; and
provided further that if the Assignee is not an Affiliate of the transferor Bank
and not a Bank, the amount of the Commitment being assigned shall not be less
than the lesser of (i) the entire Commitment of the transferor Bank or (ii)
$10,000,000. Upon execution and delivery of such instrument and payment by such
Assignee to such transferor Bank of an amount equal to the purchase price agreed
between such transferor Bank and such Assignee, such Assignee shall be a Bank
party to this Agreement and shall have all the rights and obligations of a Bank
with a Commitment as set forth in such instrument of assumption, and the
transferor Bank shall be released from its obligations hereunder to a
corresponding extent, and no further consent or action by any party shall be
required. Upon the consummation of any assignment pursuant to this subsection
(c), the transferor Bank, the Agent and the Borrower shall make appropriate
arrangements so that, if required, a new Note is issued to the Assignee. In
connection with any such
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assignment, the transferor Bank shall pay to the Agent an administrative fee for
processing such assignment in the amount of $2,500. If the Assignee is not
incorporated under the laws of the United States of America or a state thereof,
it shall deliver to the Borrower and the Agent certification as to exemption
from deduction or withholding of any United States federal income taxes in
accordance with Section 8.04.
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's rights
shall be entitled to receive any greater payment under Section 8.03 or 8.04 than
such Bank would have been entitled to receive with respect to the rights
transferred, unless such transfer is made with the Borrower's prior written
consent (provided no Event of Default shall have occurred and be continuing) or
by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to
designate a different Applicable Lending Office under certain circumstances or
at a time when the circumstances giving rise to such greater payment did not
exist.
SECTION 9.07. Collateral. Each of the Banks represents to the Agent
and each of the other Banks that it in good faith is not relying upon any
"margin stock" (as defined in Regulation U) of the Borrower or any Subsidiary
Guarantor or Affiliate as collateral in the extension or maintenance of the
credit provided for in this Agreement.
SECTION 9.08. Governing Law; Submission to Jurisdiction. This
Agreement and each Loan Document, including, without limitation, each Note,
shall be governed by and construed in accordance with the laws of the State of
New York. The Borrower hereby submits to the nonexclusive jurisdiction of the
United States District Court for the Southern District of New York and of any
New York State court sitting in New York City for purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated hereby. The Borrower irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
forum.
SECTION 9.09. Counterparts; Integration; Effectiveness. This
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement constitutes the
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entire agreement and understanding among the parties hereto and supersedes any
and all prior agreements and understandings, oral or written, relating to the
subject matter hereof. This Agreement shall become effective upon receipt by
the Agent of counterparts hereof signed by each of the parties hereto (or, in
the case of any party as to which an executed counterpart shall not have been
received, receipt by the Agent in form satisfactory to it of telegraphic, telex
or other written confirmation from such party of execution of a counterpart
hereof by such party).
SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT
AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 9.11. Survival. All indemnities set forth herein shall
survive the execution and delivery of this Agreement and the other Loan
Documents and the making and repayment of the Loans and the termination of the
Commitments hereunder.
SECTION 9.12. Domicile of Loans. Each Bank may transfer and carry
its Loans at, to or for the account of any domestic or foreign branch office,
subsidiary or affiliate of such Bank.
SECTION 9.13. Limitation of Liability. No claim may be made by the
Borrower or any other Person acting by or through Borrower against the Agent or
any Bank or the affiliates, directors, officers, employees, attorneys or agent
of any of them for any consequential or punitive damages in respect of any claim
for breach of contract or any other theory of liability arising out of or
related to the transactions contemplated by this Agreement or by the other Loan
Documents, or any act, omission or event occurring in connection therewith; and
the Borrower hereby waives, releases and agrees not to sue upon any claim for
any such damages, whether or not accrued and whether or not known or suspected
to exist in its favor.
SECTION 9.14. Recourse Obligation. This Agreement and the Obligations
hereunder are fully recourse to the Borrower. Notwithstanding the foregoing, no
recourse under or upon any obligation, covenant, or agreement contained in this
Agreement shall be had against any officer, director, shareholder or employee of
the Borrower except in the event of fraud or misappropriation of funds on the
part of such officer, director, shareholder or employee.
SECTION 9.15. Further Assurances. At any time or from time to time
upon the request of the Agent, the Borrow-
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er will, at its expense, promptly execute, acknowledge, and deliver such further
documents and do such other acts and things as shall be necessary or advisable,
in the Agent's discretion, in order to effect fully the purposes of this
Agreement or any of the other Loan Documents. The Borrower will pay all fees
and expenses (including reasonable attorneys fees) incurred by the Agent in
connection therewith.
SECTION 9.16. Confidentiality; Disclosure of Information. Each party
hereto shall treat the transactions contemplated hereby and all financial and
other information furnished to it about the Banks, the Borrower, any Subsidiary
or any of the Real Property Assets, as applicable, as confidential; provided,
however, that such confidential information may be disclosed (a) as required by
law or pursuant to generally accepted accounting procedures, (b) to officers,
directors, employees, agents, partners, attorneys, accountants, engineers and
other consultants of the parties hereto who need to know such information,
provided such Persons are instructed to treat such information confidentially,
or (c) by any Bank to any Participant or Assignee or any prospective transferee
(provided such prospective transferee agrees to treat such information
confidentially), which disclosure to prospective transferees may include any and
all information which has been delivered to such Bank by the Borrower pursuant
to this Agreement or the other Loan Documents or which has been delivered to
such Bank in connection with such Bank's credit evaluation of the Borrower prior
to entering into this Agreement. Notwithstanding the foregoing, this Section
9.16 shall not apply to any Bank so long as any Event of Default hereunder or
under any other Loan Documents shall have occurred and be continuing and, in any
such event, such Bank shall be entitled to disclose any information furnished to
it in connection with this Agreement as it deems necessary or appropriate in its
sole and absolute discretion.
-77-
<PAGE>
[BLANK PAGE]
-78-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
BORROWER:
SECURITY CAPITAL ATLANTIC
INCORPORATED
By: /s/ Constance B. Moore
_______________________________________________
Name: Constance B. Moore
Title: Co-Chairman and Chief Operating Officer
7777 Market Center Avenue
El Paso, Texas 79912
Attention: Anne Schumacher
Fax number: (915) 877-3301
Commitments BANKS:
$40,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ Timothy V. O'Donovan
______________________________________________
Name: Timothy V. O'Donovan
Title: Vice President
$35,000,000 THE FIRST NATIONAL BANK OF
BOSTON
By: /s/ Daniel J. Sullivan
______________________________________________
Name: Daniel J. Sullivan
Title: Vice President
$35,000,000 TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: /s/ Brian M. Koune
______________________________________________
Name: Brian M. Koune
Title: Vice President
-79-
<PAGE>
$40,000,000 WELLS FARGO BANK, NATIONAL
ASSOCIATION
By: /s/ Mary Ann Kelly
------------------------------
Name: Mary Ann Kelly
Title: Vice President
$35,000,000 BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION
By: /s/ Kelly M. Allred
------------------------------
Name: Kelly M. Allred
Title: Vice President
$40,000,000 FIRST UNION NATIONAL BANK OF
GEORGIA
By: /s/ Authorized Signatory
------------------------------
Name: Authorized Signatory
Title: Vice President
$30,000,000 NATIONSBANK OF TEXAS, N.A.
By: /s/ Authorized Signatory
------------------------------
Name: Authorized Signatory
Title: Senior Vice President
-80-
<PAGE>
$25,000,000 DRESDNER BANK AG NEW YORK AND
GRAND CAYMAN BRANCHES
By: /s/ Johannes Boeckman
--------------------------------
Name: Johannes Boeckman
Title: Vice President
By: /s/ Jody Harrison
--------------------------------
Name: Jody Harrison
Title: Assistant Treasurer
$20,000,000 DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
By: /s/ Linda J. O'Connell
--------------------------------
Name: LINDA J. O'CONNELL
Title: Vice President
By: /s/ Pamela D. Ingram
--------------------------------
Name: PAMELA D. INGRAM
Title: Assistant Vice President
$15,000,000 CORESTATES BANK, N.A.
By: /s/ R. Scott Relick
--------------------------------
Name: R. Scott Relick
Title: Vice President
-81-
<PAGE>
$35,000,000 COMMERZBANK AKTIENGESELLSCHAFT,
LOS ANGELES BRANCH
By: /s/ Wolter Mehring
--------------------------------
Name: Wolter Mehring
Title: Vice President
By: /s/ Steve F. Larsen
--------------------------------
Name: Steve F. Larsen
Title: Vice President
Total Commitments
- -----------------
$350,000,000
-82-
<PAGE>
AGENT:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By: /s/ Timothy V. O'Donovan
----------------------------
Name: Timothy V. O'Donovan
Title: Vice President
60 Wall Street
New York, New York 10260-0060
Attention: William R. Barrett
Fax Number: (212) 648-5748
Domestic Lending Office:
J.P. Morgan Services Inc.
500 Stanton-Christiana Road
Newark, Delaware 19713
Attention: Jeannie Mattson
Fax Number: (302) 634-4222
Euro-Currency Lending Office:
Nassau, Bahamas Office
c/o J.P. Morgan Services Inc.
Euro-Loan Servicing Unit
500 Stanton-Christiana Road
Newark, Delaware 19713
Attention: Jeannie Mattson
Fax Number: (302) 634-4222
-83-
<PAGE>
PROTECTION OF BUSINESS AGREEMENT EX 10.11
--------------------------------
THIS PROTECTION OF BUSINESS AGREEMENT (this "Agreement") is entered into as
of October 17, 1996, by and among Security Capital Atlantic Incorporated, a
Maryland corporation ("Atlantic"), Security Capital Pacific Trust, a Maryland
real estate investment trust ("PTR"), and Security Capital Group Incorporated, a
Maryland corporation ("SCG"), and Homestead Village Incorporated, a Maryland
corporation ("Homestead").
WHEREAS, on the date hereof the parties are entering into a series of
related transactions as described in that certain Merger and Distribution
Agreement, dated as of May 21, 1996, among Atlantic, PTR, SCG and Homestead (the
"Merger Agreement"), pursuant to which, among other things, PTR, Atlantic and
SCG will cause their respective subsidiaries engaged in the conduct of the
extended-stay lodging business to be merged with and into Homestead;
WHEREAS, Atlantic, PTR and SCG and their respective affiliates will
continue to engage in certain businesses after the date hereof;
WHEREAS, as a condition to the consummation of the transactions
contemplated by the Merger Agreement, the parties hereto desire to enter into
certain agreements restricting the activities of Atlantic, PTR and SCG and their
respective affiliates; and
WHEREAS, pursuant to the Merger Agreement, it is contemplated that
securities of Homestead will be distributed by PTR and Atlantic in a public
distribution to their respective shareholders.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used herein shall have the
meanings set forth below:
"Affiliate" with regard to any Person, means (a) any Person directly or
indirectly controlling, controlled by or under common control with such Person,
(b) any Person owning or controlling 10% or more of the outstanding voting
interests of such Person or (c) any Person of which such Person owns or controls
10% or more of the voting interests. The term "Affiliates" and "Affiliated"
shall have correlative meanings. For purposes of this Agreement, the term
"Affiliate" shall not include Security Capital U.S. Realty, a Luxembourg
corporation, or any Person controlled by Security Capital U.S. Realty and no
party hereto shall be deemed to be an Affiliate of any other party hereto.
<PAGE>
"Extended-Stay Property" means real property that is or is planned to be
used primarily for lodging facilities generally offering studio apartments,
including cooking facilities, which are generally rented for incremental periods
of one week but shall not include any real property that is or is planned to be
used primarily as corporate apartments.
"Interest" means any kind of right, title or interest (whether legal or
beneficial), whether such right, title or interest is held directly or
indirectly through an interest in a Person that either directly or indirectly
owns such interest, but excluding any interests in Homestead.
"Multifamily Property" means real property that is or is planned to be used
primarily for garden style multifamily dwellings which are generally leased for
six-month to twelve-month periods and require security deposits and also
includes real property that is or is planned to be used primarily for master-
planned apartment neighborhoods.
"Person" means an individual or any corporation, partnership, trust,
unincorporated association or any other legal entity; provided, however that,
for purposes of Sections 2, 3 and 4 hereof, the term "Person" shall not include
an individual.
"Restricted Area" means the continental United States.
Section 2. Agreement not to Engage in Certain Activities.
(a) During the term provided in Section 6 hereof, none of Atlantic,
PTR or SCG nor any of their respective Affiliates shall, anywhere within
the Restricted Area, directly or indirectly, engage in the ownership,
operation, development, management or leasing of any Extended-Stay
Property.
(b) During the term provided in Section 6 hereof, neither Homestead
nor any of its Affiliates shall, anywhere within the Restricted Area,
directly or indirectly, engage in the ownership, operation, development,
management or leasing of any Multifamily Property.
Section 3. Atlantic, PTR and SCG Limitations on Protection of Business.
Notwithstanding anything to the contrary contained in this Agreement, each of
Atlantic, PTR and SCG and their respective Affiliates may:
(a) be an owner of securities of any class of Homestead;
(b) be an owner of up to 5% of the outstanding shares of stock of any
class of securities of a Person (public or private) primarily engaged in
owning, operating, developing, managing or leasing Extended-Stay
Properties, so long as Atlantic, PTR and SCG and their Affiliates have no
active participation (except to the extent permitted by clauses (c) and (d)
below) in the business of such Person;
-2-
<PAGE>
(c) be an owner of any amount of the outstanding shares of stock of
any class of securities of a Person (public or private), a majority owned
subsidiary, division, group, franchise or segment of which is engaged in
owning, operating, developing, managing or leasing Extended-Stay
Properties, so long as not more than 5% of such Person's consolidated
revenues are derived from the ownership, operation, development, management
or leasing of Extended-Stay Properties; and
(d) be an owner of the outstanding shares of stock of any class of
securities of a Person (public or private) primarily engaged in a business
other than owning, operating, developing, managing or leasing Extended-Stay
Properties, including a Person primarily engaged in business as an owner,
operator or developer of hotel properties, whether or not such Person owns,
operates, develops, manages or leases any Extended-Stay Properties.
Section 4. Homestead Limitations on Protection of Business.
Notwithstanding anything to the contrary contained in this Agreement, Homestead
and its Affiliates may:
(a) be an owner of securities of any class of any of Atlantic, PTR or
SCG;
(b) be an owner of up to 5% of the outstanding shares of stock of any
class of securities of a Person (public or private) primarily engaged in
owning, operating, developing, managing or leasing Multifamily Properties,
so long as Homestead and its Affiliates have no active participation
(except to the extent permitted by clause (c) below) in the business of
such Person; and
(c) be an owner of any amount of the outstanding shares of stock of
any class of securities of a Person (public or private), a majority owned
subsidiary, division, group, franchise or segment of which is engaged in
owning, operating, developing, managing or leasing Multifamily Properties,
so long as not more than 5% of such Person's consolidated revenues are
derived from the ownership, operation, development, management or leasing
of Multifamily Properties.
Section 5. Reasonable and Necessary Restrictions. Each of the parties
hereto acknowledges that the restrictions, prohibitions and other provisions
hereof are reasonable, fair and equitable in scope, terms and duration, are
necessary to protect the legitimate business interests of each of the other
parties hereto, and are a material inducement to such party to enter into the
transactions contemplated by the Merger Agreement.
Section 6. Term.
6.1 General. Subject to earlier termination pursuant to Section 6.2, this
Agreement shall be effective from and after the date hereof and shall continue
in effect until the tenth anniversary of the date hereof.
-3-
<PAGE>
6.2 Change in Control. Notwithstanding anything to the contrary contained
herein, the provisions of Section 2 of this Agreement shall terminate and be of
no further force or effect upon the occurrence of a Change in Control. As used
herein, "Change in Control" means the acquisition, directly or indirectly (other
than by purchase from PTR, Atlantic or SCG, or any of their respective
Affiliates), by any Person (or group of associated Persons acting in concert),
other than PTR, Atlantic, SCG, or their respective Affiliates, of 25% or more of
the outstanding shares of voting stock of Homestead, without the prior written
consent of the Board of Directors of Homestead.
Section 7. Specific Performance. Each of the parties hereto acknowledges
that the obligations undertaken by it pursuant to this Agreement are unique and
that the other parties hereto will not have an adequate remedy at law if it
shall fail to perform any of its obligations hereunder, and each of the parties
hereto therefore confirms that the right of each other party hereto to specific
performance of the terms of this Agreement is essential to protect the rights
and interests of such party. Accordingly, in addition to any other remedies
that any party hereto may have at law or in equity, each such party shall have
the right to have all obligations, covenants, agreements and other provisions of
this Agreement specifically performed by each other party, and each party shall
have the right to obtain preliminary and permanent injunctive relief to secure
specific performance and to prevent a breach or contemplated breach of this
Agreement by each other party hereto.
Section 8. Operations of Affiliated Parties. Each of the parties hereto
agrees that it will refrain from authorizing or permitting any Affiliated party
to perform any activities that would be prohibited by the terms of this
Agreement if such activities were performed by it.
Section 9. Ancillary Agreements. Nothing contained in this Agreement
shall in any way restrict or impair the obligations and rights of any party
under the terms of any agreement entered into in connection with the
transactions contemplated by the Merger Agreement, including, without
limitation, the foreclosure by PTR or Atlantic under any mortgages secured by
the properties of Homestead and the operation of such properties subsequent to
such foreclosure.
Section 10. Miscellaneous Provisions.
10.1 Interpretation. The parties hereto acknowledge that the fundamental
policies of this Agreement are to protect each other party's interest in its
respective business and to eliminate potential conflicts of interest that may
exist as a result of actions taken or proposed to be taken by the other parties
hereto, and this Agreement shall be construed and enforced in a manner
consistent with and in furtherance of these policies.
10.2 Binding Effect. Subject to any provisions hereof restricting
assignment, all covenants and agreements in this Agreement by or on behalf of
any of the parties hereto shall
-4-
<PAGE>
bind and inure to the benefit of their respective successors, assigns, heirs,
and personal representatives.
10.3 Assignment. None of the parties hereto may assign any of its rights
under this Agreement, or attempt to have any other entity or individual assume
any of its obligations hereunder.
10.4 Severability. If performance of any provision of this Agreement, at
the time such performance shall be due, shall transcend the limit of validity
prescribed by law, then the obligation to be performed shall be reduced to the
limit of such validity; and if any clause or provision contained in this
Agreement operates or would operate to invalidate this Agreement, in whole or in
part, then such clause or provision only shall be held ineffective, as though
not herein contained, and the remainder of this Agreement shall remain operative
and in full force and effect. The parties shall negotiate in good faith a
replacement clause or provision as consistent with the ineffective clause or
provision as is practicable under law.
10.5 Governing Law. This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes relating thereto shall be governed by
and construed in accordance with the laws of the State of Maryland, not
including the choice-of-law rules thereof.
10.6 Amendment. Except as otherwise expressly provided in this Agreement,
no amendment, modification or discharge of this Agreement shall be valid or
binding unless set forth in writing and duly executed by each of the parties
hereto.
10.7 Waiver. Any waiver by any party or consent by any party to any
variation from any provision of this Agreement shall be valid only if in writing
and only in the specific instance in which it is given, and such waiver or
consent shall not be construed as a waiver of any other provision or as a
consent with respect to any similar instance or circumstance.
10.8 Headings. Section and subsection headings contained in this Agreement
are inserted for convenience of reference only, shall not be deemed to be a part
of this Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
10.9 No Presumption Against Drafter. Each of the parties hereto have
jointly participated in the negotiation and drafting of this Agreement. In the
event of an ambiguity or a question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by each of the parties hereto
and no presumptions or burdens of proof shall arise favoring any party by virtue
of the authorship of any of the provisions of this Agreement.
10.10 Execution in Counterparts. This Agreement may be executed in one
or more counterparts, none of which need contain the signatures of each of the
parties hereto and each of which shall be deemed an original.
-5-
<PAGE>
10.11 Limitation of Liability. Any obligation or liability whatsoever of
PTR which may arise at any time under this Agreement or any obligation or
liability which may be incurred by it pursuant to any other instrument,
transaction or undertaking contemplated hereby shall be satisfied, if at all,
out of PTR's assets only. No such obligation or liability shall be personally
binding upon, nor shall resort for the enforcement thereof be had to, the
property of any of its shareholders, trustees, officers, employees or agents,
regardless of whether such obligation or liability is in the nature of contract,
tort or otherwise.
-6-
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement, or
caused this Agreement to be duly executed on its behalf, as of the date first
set forth above.
SECURITY CAPITAL ATLANTIC INCORPORATED
By: /s/ James C. Potts
------------------
James C. Potts
Co-Chairman
SECURITY CAPITAL PACIFIC TRUST
By: /s/ C. Ronald Blankenship
-------------------------
C. Ronald Blankenship
Chairman
SECURITY CAPITAL GROUP INCORPORATED
By: /s/ Jeffrey A. Klopf
--------------------
Jeffrey A. Klopf
Senior Vice President
HOMESTEAD VILLAGE INCORPORATED
By: /s/ David C. Dressler, Jr.
--------------------------
David C. Dressler, Jr.
Chairman
S-1
<PAGE>
EX 10.12
INVESTOR AND REGISTRATION RIGHTS AGREEMENT
THIS INVESTOR AND REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is
entered into as of October 17, 1996, between Homestead Village Incorporated, a
Maryland corporation ("Homestead"), and Security Capital Atlantic Incorporated,
a Maryland corporation ("Atlantic").
WHEREAS, on the date hereof, the parties are entering into a series of
transactions as described in that certain Merger and Distribution Agreement,
dated as of May 21, 1996, among Atlantic, Security Capital Pacific Trust
("PTR"), Security Capital Group Incorporated ("SCG") and Homestead (the "Merger
Agreement"), pursuant to which, among other things, Homestead will acquire all
of Atlantic's assets relating to its operation of extended-stay lodging
facilities;
WHEREAS, pursuant to the Merger Agreement, Atlantic and Homestead are
entering into a Funding Commitment Agreement (the "Funding Commitment
Agreement"), pursuant to which Atlantic will agree to make certain loans to
Homestead, which loans will be secured by mortgages, and the notes evidencing
such loans will be convertible into shares of Common Stock, $0.01 par value per
share ("Common Stock"), of Homestead on the terms and conditions described
therein;
WHEREAS, pursuant to a Warrant Purchase Agreement (the "Warrant
Purchase Agreement"), dated as of May 21, 1996, among Homestead, SCG, Atlantic
and PTR, Homestead has agreed to issue to Atlantic warrants to acquire Common
Stock; and
WHEREAS, the execution of this Agreement is a condition to the
consummation of the transactions contemplated by the Merger Agreement, the
Funding Commitment Agreement and the Warrant Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto agree as follows:
Section 1. Board Representation. Until March 31, 1998 and for so
long thereafter as Atlantic shall continue to have the right to convert in
excess of $20 million in principal amount of loans made pursuant to the Funding
Commitment Agreement, Homestead shall not increase the number of members of its
Board of Directors to more than seven (7) members and Atlantic shall be entitled
to designate one person for nomination to the Homestead Board of Directors (such
person, a "Nominee") and Homestead will use its best efforts to cause the
election of such Nominee. The Nominee of Atlantic may, but need not, include
the same person or persons nominated by SCG pursuant to the Investor Agreement
of even date herewith between SCG and Homestead or the person nominated by PTR
pursuant to the Investor and Registration Rights Agreement of even date herewith
between PTR and Homestead.
<PAGE>
Section 2. Inspection. Until March 31, 1998 and for so long thereafter
as Atlantic shall continue to have the right to convert any principal amount of
loans made, pursuant to the Funding Commitment Agreement, at any time during
regular business hours and as often as reasonably requested of Homestead's
officers, Homestead shall permit Atlantic or any authorized employee, agent or
representative of Atlantic to examine and make copies and abstracts from the
records and books of account of, and to visit the properties of, Homestead and
to discuss the affairs, finances, and accounts of Homestead with any of its
officers of directors; provided, that all costs and expenses of such inspection
shall be borne by Atlantic.
Section 3. Registration Rights.
(a) Demand. At any time prior to the first anniversary of the date on
which the Common Stock is registered under Section 12(b) or 12(g) of the
Exchange Act of 1934, as amended (the "Exchange Act"), Atlantic may request
one registration of all or any part of its Registrable Securities (as
defined in sub-section (h) below) under the Securities Act of 1933, as
amended (the "Securities Act"), by delivering written notice (which notice
shall state that Atlantic intends to dispose of such securities through a
public distribution thereof) to Homestead specifying the number of
Registrable Securities that Atlantic desires to distribute and Homestead
shall use its reasonable efforts to effect the registration of such
Registrable Securities under the Securities Act in accordance with the
further provisions of this Section 3.
(b) Shelf Registration. At any time after the first anniversary of
the date on which the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, Atlantic may request, on up to three separate
occasions, registration of all or any part of its Registrable Securities
pursuant to Rule 415 under the Securities Act by delivering written notice
(which notice shall state that Atlantic intends to dispose of such
securities through a public distribution thereof) to Homestead and
Homestead shall use its reasonable efforts to effect the registration of
such Registrable Securities under the Securities Act in accordance with the
further provisions of this Section 3.
(c) Registration Procedures. If and whenever Homestead is required by
any of the provisions of this Section 3 to use its reasonable efforts to
effect the registration of any of the Registrable Securities under the
Securities Act, Homestead shall:
(i) prepare and file with the Securities and Exchange Commission
(the "Commission") a registration statement with respect to such
securities and use its reasonable efforts to cause such registration
statement to become effective and remain effective for as long as
shall be necessary to complete the distribution of the Registrable
Securities so registered;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection
-2-
<PAGE>
therewith as may be necessary to keep such registration statement
effective for so long as shall be necessary to complete the
distribution of the Registrable Securities so registered and to comply
with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such registration
statement whenever Atlantic shall desire to sell or otherwise dispose
of the same within such period;
(iii) furnish to Atlantic such numbers of copies of such
registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement, including any
preliminary prospectus, and any amendment or supplement thereto, and
such other documents, as Atlantic may reasonably request in order to
facilitate the sale or other disposition of the Registrable
Securities;
(iv) use its reasonable efforts to register and qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as Atlantic shall
reasonably request, and do any and all other acts and things
reasonably requested by Atlantic to assist it to consummate the public
sale or other disposition in such jurisdictions of the securities
owned by Atlantic, except that Homestead shall not for any such
purpose be required to qualify to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified or to file therein
any general consent to service of process;
(v) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months,
beginning with the first fiscal quarter beginning after the effective
date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act;
(vi) use its reasonable efforts to list such securities on any
securities exchange or quotation system on which any securities of
Homestead are then listed, if the listing of such securities is then
permitted under the rules of such exchange or quotation system; and
(vii) notify Atlantic, at any time when a prospectus relating to
the Registrable Securities is required to be delivered under the
Securities Act, of the happening of any event of which it has
knowledge as a result of which the prospectus included in such
registration statement, as then in effect, contains an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing.
-3-
<PAGE>
(d) Homestead's Ability to Postpone. Homestead shall have the right
to postpone the filing of a registration statement under this Section 3 for
a reasonable period of time (not exceeding 60 days) if Homestead furnishes
Atlantic with a certificate signed by the Chairman of the Board or the
President of Homestead stating that, in its good faith judgment,
Homestead's Board of Directors has determined that effecting the
registration at such time would adversely affect a material financing,
acquisition, disposition of assets or stock, merger or other comparable
transaction or would require Homestead to make public disclosure of
information the public disclosure of that would have a material adverse
effect upon Homestead.
(e) Expenses. All expenses incurred in the registration of
Registrable Securities under this Agreement shall be paid by Homestead.
The expenses shall include, without limitation, the expenses of preparing
the registration statement and the prospectus used in connection therewith
and any amendment or supplement thereto, printing and photocopying
expenses, all registration and filing fees under Federal and state
securities laws, and expenses of complying with the securities or blue sky
laws of any jurisdictions, provided, however, that Atlantic shall be
responsible for the fees and disbursements of its own counsel.
(f) Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 3:
(i) Indemnity by Homestead. Without limitation of any other
indemnity provided to Atlantic, to the extent permitted by law,
Homestead will indemnify and hold harmless Atlantic and its officers,
directors and any individual, partnership, corporation, trust,
unincorporated organization or other entity (a "Person") if any, who
controls Atlantic (within the meaning of the Securities Act or the
Exchange Act), against any losses, claims, damages, liabilities and
expenses (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages, liabilities and expenses (or
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of
a material fact contained in any registration statement (including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto), (ii) the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or (iii) any
violation or alleged violation by Homestead of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state
securities law, and Homestead will reimburse Atlantic and its
officers, directors and any controlling person thereof for any
reasonable legal or other expenses
-4-
<PAGE>
incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, expense or action; provided,
however, that Homestead shall not be liable in any such case for any
such loss, claim, damage, liability, expense or action to the extent
that it arises out of or is based upon a Violation that occurs in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by Atlantic or
any officer, director or controlling person thereof.
(ii) Indemnity by Atlantic. In connection with any registration
statement in which Atlantic is participating, Atlantic will furnish to
Homestead in writing such information and affidavits as Homestead
reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, will
indemnify Homestead, its directors and officers and each Person who
controls Homestead (within the meaning of the Securities Act or
Exchange Act) against any losses, claims, damages, liabilities and
expenses resulting from any Violation, but only to the extent that
such Violation is contained in any information or affidavit so
furnished in writing by Atlantic; provided, that the obligation to
indemnify will be several and not joint and several with any other
Person and will be limited to the net amount received by Atlantic from
the sale of Registrable Securities pursuant to such registration
statement.
(iii) Notice; Right to Defend. Promptly after receipt by an
indemnified party under this Section 3(f) of notice of the
commencement of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 3(f), deliver to the
indemnifying party a written notice of the commencement thereof and
the indemnifying party shall have the right to participate in, and, if
the indemnifying party agrees in writing that it will be responsible
for any costs, expenses, judgments, damages and losses incurred by the
indemnified party with respect to such claim, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof
with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying
party, if the indemnified party reasonably believes that
representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall relieve
such indemnifying party of any liability to the indemnified party
under this Section 3(f) only if and to the extent that such failure is
prejudicial to its ability to defend such action, and the omission so
to deliver written notice to the indemnifying party will not relieve
it
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<PAGE>
of any liability that it may have to any indemnified party other than
under this Section 3(f).
(iv) Contribution. If the indemnification provided for in this
Section 3(f) is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss,
liability, claim, damage or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage
or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the
indemnified party on the other hand in connection with the statements
or omissions which resulted in such loss, liability, claim, damage or
expense as well as any other relevant equitable considerations. The
relevant fault of the indemnifying party and the indemnified party
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission
to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. Notwithstanding the
foregoing, the amount Atlantic shall be obligated to contribute
pursuant to this Section 3(f)(iv) shall be limited to an amount equal
to the aggregate value of the Registrable Securities distributed by
Atlantic pursuant to the registration statement which gives rise to
such obligation to contribute (less the aggregate amount of any
damages which Atlantic has otherwise been required to pay in respect
of such loss, claim, damage, liability or action or any substantially
similar loss, claim, damage, liability or action arising from the
distribution of such Registrable Securities).
(v) Survival of Indemnity. The indemnification provided by this
Section 3(f) shall be a continuing right to indemnification and shall
survive the registration and sale of any securities by any Person
entitled to indemnification hereunder and the expiration or
termination of this Agreement.
(g) Limitations on Registration Rights.
(i) Homestead shall not, without the prior written consent of
Atlantic, include in any registration in which Atlantic has a right to
participate pursuant to this Agreement any securities of any Person
other than Atlantic and PTR.
(ii) Atlantic shall not, without the prior written consent of
Homestead, effect any public sale or distribution (including sales
pursuant to Rule 144 under the Securities Act) of securities of
Homestead during any period commencing 30 days prior to and ending 60
days after the effective date any registration statement
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<PAGE>
filed by Homestead on behalf of any Person (including Homestead),
other than a registration statement on Form S-8 or any successor form.
(h) Registrable Security. The term Registerable Security means (i)
any shares of Common Stock issuable to Atlantic pursuant to the conversion
of notes issuable pursuant to the terms of the Funding Commitment Agreement
or otherwise held by Atlantic, (ii) any other shares of Common Stock owned
by Atlantic and (iii) any shares of Common Stock or other securities that
may subsequently be issued with respect to such shares of Common Stock as a
result of a stock split or dividend or any sale, transfer, assignment or
other transaction by Homestead involving the shares of Common Stock and any
securities into which the shares of Common Stock may thereafter be changed
as a result of merger, consolidation, recapitalization or otherwise. As to
any particular Registrable Securities, such securities will cease to be
Registrable Securities when they have been distributed to the public
pursuant to an offering registered under the Securities Act. All
Registrable Securities shall cease to be Registrable Securities when all
such securities may be sold in any three-month period pursuant to Rule 144,
or any successor to such rule, under the Securities Act.
Section 4. File Reports. For so long as Atlantic owns any Registrable
Securities, Homestead shall file on a timely basis all annual, quarterly and
other reports required to be filed by it under Section 13 and 15(d) of the
Exchange Act, and the rules and regulations of the Commission thereunder, as
amended from time to time.
Section 5. Miscellaneous.
(a) Survival of Covenants. All covenants contained herein shall survive
the execution of this Agreement and shall remain in full force and effect until
terminated in accordance with this Agreement.
(b) Successors and Assigns. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective heirs, personal
representatives, successors, assigns and affiliates.
(c) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, sent via a recognized
overnight courier with delivery confirmed in writing or sent via facsimile to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
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If to Homestead:
Homestead Village Incorporated
125 Lincoln Avenue, Suite 300
Santa Fe, New Mexico 87501
Attention: David C. Dressler, Jr.
Facsimile: (505) 982-2925
If to Atlantic:
Security Capital Atlantic Incorporated
Six Piedmont Center, Sixth Floor
Atlanta, Georgia 30385
Attention: James C. Potts
Facsimile: (404) 233-2379
(d) Waiver. No party may waive any of the terms or conditions of this
Agreement, except by a duly executed writing referring to the specific provision
to be waived.
(e) Amendment. This Agreement may be amended only by a writing duly
executed by both Homestead and Atlantic.
(f) Severability. Insofar as is possible, each provision of this Agreement
shall be interpreted so as to render it valid and enforceable under applicable
law and severable from the remainder of this Agreement. A finding that any such
provision is invalid or unenforceable in any jurisdiction shall not affect the
validity or enforceability of any other provision or the validity or
enforceability of such provision under the laws of any other jurisdiction.
(g) Entire Agreement. This Agreement constitutes the entire agreement, and
supersedes all other prior agreements and understandings, both written and oral,
between the parties hereto and their affiliates, with respect to the subject
matter hereof.
(h) Expenses. Except as otherwise expressly contemplated herein to the
contrary, regardless of whether the transactions contemplated hereby are
consummated, each party hereto shall pay its own expenses incident to preparing
for, entering into and carrying out this Agreement and the consummation of the
transactions contemplated hereby.
(i) Captions. The Section and Paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
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<PAGE>
(j) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
(k) Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Maryland.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement, or
caused this Agreement to be duly executed on its behalf, as of the date first
set forth above.
HOMESTEAD VILLAGE INCORPORATED
By: /s/ David C. Dressler, Jr.
--------------------------
David C. Dressler, Jr.
Chairman
SECURITY CAPITAL ATLANTIC INCORPORATED
By: /s/ James C. Potts
------------------
James C. Potts
Chairman
S-1
<PAGE>
10.13
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FUNDING COMMITMENT AGREEMENT
By and Between
SECURITY CAPITAL ATLANTIC INCORPORATED
"ATLANTIC"
AND
HOMESTEAD VILLAGE INCORPORATED
"Homestead"
ATLANTIC HOMESTEAD VILLAGE LIMITED PARTNERSHIP
"Partnership Borrower"
Dated: October 17, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1. DEFINITIONS..................................................... 3
Section 1.1. Certain Defined Terms.................................. 3
Section 1.2. Other Definitional Provisions.......................... 10
ARTICLE 2. THE LOANS....................................................... 11
Section 2.1. The Homestead Loan..................................... 11
Section 2.2. The Partnership Loan................................... 11
Section 2.3. Future Projects........................................ 11
Section 2.4. Subsidiary Loans....................................... 12
Section 2.5. Duration of Funding Commitment......................... 13
Section 2.6. Project Specific Funding Commitment.................... 13
Section 2.7. Replacement Projects................................... 14
Section 2.8. Release of Security Documents.......................... 15
ARTICLE 3. REPRESENTATIONS AND WARRANTIES.................................. 15
Section 3.1. Existence and Power.................................... 15
Section 3.2. Authorization and Binding Obligations.................. 15
Section 3.3. No Legal Bar or Resultant Lien......................... 16
Section 3.4. No Consent............................................. 16
Section 3.5. Compliance with Laws................................... 16
Section 3.6. Litigation............................................. 16
Section 3.7. Defaults............................................... 17
Section 3.8. Status of Property..................................... 17
Section 3.9. Use of Proceeds........................................ 17
Section 3.10. Real Property Environmental Matters.................... 17
Section 3.11. Financial Condition.................................... 18
Section 3.12. No Condemnation........................................ 18
Section 3.13. No Actions............................................. 18
Section 3.14. No Adverse Conditions.................................. 18
ARTICLE 4. COVENANTS....................................................... 18
Section 4.1. Construction of Improvements........................... 18
Section 4.2. Plans; Project Budgets; Project Schedules and
Material Changes..................................... 19
Section 4.3. Inspection and Examination............................. 19
Section 4.4. Permits and Approvals.................................. 19
Section 4.5. Governmental Requirements.............................. 19
Section 4.6. Books and Records...................................... 20
Section 4.7. Title to Property and Improvements..................... 20
Section 4.8. Costs and Expenses..................................... 20
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<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
Page
----
Section 4.9. Use of Advances........................................ 20
Section 4.10. Insurance.............................................. 20
Section 4.11. Environmental Matters.................................. 20
Section 4.12. Selection of Architects; Contractors; Inspecting A/E's. 21
Section 4.13. Further Assurances..................................... 21
Section 4.14. Quarterly Statements................................... 21
Section 4.15. Continued Existence.................................... 22
Section 4.16. Defaults Under Other Loans............................. 22
ARTICLE 5. ADVANCE CONDITIONS............................................. 22
Section 5.1. Conditions Precedent to First Advance under this
Agreement............................................ 22
Section 5.2. Conditions Precedent to First Advance for New Project.. 24
Section 5.3. Initial Improvement Advance Conditions................. 26
Section 5.4. Additional Improvement Advance Conditions.............. 26
Section 5.5. Final-Advance Conditions............................... 27
ARTICLE 6. PROCEDURE FOR ADVANCES; RESERVES............................... 28
Section 6.1. General................................................ 28
Section 6.2. Payments to Atlantic................................... 28
Section 6.3. Retainage and Contractor's Fee Holdback................ 29
Section 6.4. Interest Reserve....................................... 29
Section 6.5. Owner's Contingency.................................... 29
Section 6.6. Cost Overruns and Savings; Change Order Reserve........ 30
ARTICLE 7. EVENTS OF DEFAULT.............................................. 30
Section 7.1. Failure to Pay......................................... 30
Section 7.2. Other Loan Document Defaults........................... 31
Section 7.3. Judgment or Attachment................................. 31
Section 7.4. Violation of Governmental Requirements................. 31
Section 7.5. Insolvency, etc........................................ 31
Section 7.6. Unapproved Transfer.................................... 32
ARTICLE 8. REMEDIES....................................................... 33
Section 8.1. General................................................ 33
Section 8.2. Remedies Cumulative.................................... 34
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<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
Page
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ARTICLE 9. MISCELLANEOUS................................................. 35
Section 9.1. Survival of Representations, Warranties and Covenants. 35
Section 9.2. Successors and Assigns................................ 35
Section 9.3. Notices............................................... 35
Section 9.4. Waiver................................................ 36
Section 9.5. Amendment............................................. 36
Section 9.6. Severability.......................................... 36
Section 9.7. Entire Agreement...................................... 36
Section 9.8. Expenses.............................................. 36
Section 9.9. Captions.............................................. 36
Section 9.10. Governing Law......................................... 36
Section 9.11. No Joint Venture or Partnership....................... 37
Section 9.12. No Third Party Beneficiary Rights Created............. 37
Section 9.13. Incorporation by Reference............................ 37
Section 9.14. Counterparts.......................................... 37
Section 9.15. Scope of Review of Plans.............................. 37
Section 9.16. Governmental Regulation............................... 37
Section 9.17. Subordination......................................... 38
Section 9.18. Indemnity............................................. 38
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<PAGE>
FUNDING COMMITMENT AGREEMENT
THIS FUNDING COMMITMENT AGREEMENT (this "Agreement"), is entered into as of
October 17, 1996, among HOMESTEAD VILLAGE INCORPORATED, a Maryland corporation
("Homestead"), ATLANTIC HOMESTEAD VILLAGE LIMITED PARTNERSHIP, a Delaware
limited partnership (the "Partnership Borrower") and SECURITY CAPITAL ATLANTIC
INCORPORATED, a Maryland corporation ("Atlantic").
RECITALS
A. Prior to the date hereof, Atlantic agreed to make to Atlantic Homestead
Village Incorporated (the "Prior Corporate Borrower") a loan (the "Corporate
Loan") of up to a maximum amount of $90,765,665 (the "Maximum Corporate Loan
Amount") to fund, among other things, acquisition and construction costs and
expenses incurred in connection with the acquisition and development of
Homestead Village extended stay lodging facilities. In connection with agreeing
to make the Corporate Loan, Atlantic agreed that the Prior Corporate Borrower's
repayment obligation for funds advanced in respect of the Corporate Loan would
be adjusted by a discount factor of .8821961120 (the "Discount Factor"). To
evidence the Prior Corporate Borrower's obligation to repay the Corporate Loan,
at the discounted rate, the Prior Corporate Borrower has delivered to Atlantic
an Amended and Restated Promissory Note (the "Corporate Note"), dated May 28,
1996, in the face amount of $80,073,117 (i.e., the Maximum Corporate Loan Amount
as adjusted by the Discount Factor) (which note amended and restated a prior
promissory note dated January 24, 1996, and delivered by the Prior Corporate
Borrower to Atlantic to evidence the Corporate Loan), and to secure the payment
obligations under the Corporate Note and the Partnership Note (as defined
below), the Prior Corporate Borrower has, prior to the date hereof, delivered to
Atlantic deeds to secure debt, deeds of trust and mortgages (the "Existing
Corporate Security Documents"), creating liens on the existing Homestead Village
Projects listed in Exhibit A hereto which are owned by the Prior Corporate
Borrower (the "Existing Corporate Projects"). (The Corporate Note, the Existing
Corporate Security Documents and all other instruments heretofore delivered by
the Prior Corporate Borrower in connection therewith to secure the payment of
the Corporate Note and the Partnership Note are herein called the "Existing
Corporate Loan Documents".)
B. Prior to the date hereof, Atlantic agreed to make to the Partnership
Borrower a loan (the "Partnership Loan") of up to a maximum amount of
$20,353,019 (the "Maximum Partnership Loan Amount") to fund, among other things,
acquisition and construction costs and expenses incurred in connection with the
acquisition and development of Homestead Village
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extended stay lodging facilities. In connection with agreeing to make the
Corporate Loan, Atlantic agreed that the Partnership Borrower's repayment
obligation for funds advanced in respect of the Partnership Loan would be
adjusted by the Discount Factor. To evidence the Partnership Borrower's
obligation to repay the Partnership Loan, at the discounted rate, the
Partnership Borrower has delivered to Atlantic an Amended and Restated
Promissory Note (the "Partnership Note"), dated May 28, 1996, in the face amount
of $17,955,354 (the Maximum Partnership Loan Amount as adjusted by the Discount
Factor) (which note amended and restated a prior promissory note dated January
24, 1996, and delivered by the Partnership Borrower to Atlantic to evidence the
Partnership Loan), and to secure the payment obligations under the Corporate
Note and the Partnership Note, the Partnership Borrower has, prior to the date
hereof, delivered to Atlantic deeds to secure debt, deeds of trust and mortgages
(the "Existing Partnership Security Documents"), creating liens on the existing
Homestead Village Projects listed in Exhibit A hereto which are owned by the
Partnership Borrower (the "Existing Partnership Projects"). (The Partnership
Note, the Existing Partnership Security Documents and all other instruments
heretofore delivered by the Partnership Borrower in connection therewith to
secure the payment of the Corporate Note and the Partnership Note are herein
called the "Existing Partnership Loan Documents"; and the Existing Corporate
Loan Documents and Existing Partnership Loan Documents are collectively referred
to herein as the "Existing Loan Documents".)
C. On the date hereof, the parties are entering into a series of
transactions as described in that certain Merger and Distribution Agreement,
dated as of May 21, 1996, among Atlantic, Security Capital Pacific Trust
("PTR"), Security Capital Group Incorporated ("SCG") and Homestead (the "Merger
Agreement"), pursuant to which, among other things, Homestead is,
contemporaneously herewith, acquiring all of the stock of Atlantic's
subsidiaries which own, operate or develop Atlantic's Homestead Village
extended-stay lodging facilities. As a consequence of the mergers contemplated
under the Merger Agreement, the Prior Corporate Borrower has been merged into
Homestead and in connection therewith Homestead has succeeded to and assumed all
of the Prior Corporate Borrower's obligations and liabilities, including those
under the Corporate Note and the Existing Corporate Loan Documents.
D. Upon and subject to the provisions of this Agreement, Homestead, the
Partnership Borrower and Atlantic desire to continue the funding provided for
under the Existing Loan Documents, and in consideration of the issuance,
pursuant to that certain Warrant Purchase Agreement, dated as of May 21, 1996
among Atlantic, PTR, SCG and Homestead, to Atlantic by Homestead of warrants to
purchase shares of common stock, $0.01 par value per share, of Homestead
("Homestead Common Stock"), Atlantic is willing to provide funds to Homestead
and the Partnership Borrower for the costs incurred in connection with
performing due diligence investigations, securing required development approvals
and otherwise completing the acquisition
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and development of the proposed future Homestead Village projects listed in
Exhibit A (which projects, and any replacement projects approved by Atlantic
pursuant to the provisions of this Agreement, are herein called the "Future
Projects").
E. The execution of this Agreement is a condition to the consummation of
the transactions contemplated by the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
Section 1.1. CERTAIN DEFINED TERMS. As used herein, the following terms
shall have the following meanings:
"Agreement" shall mean this Funding Commitment Agreement.
"Acquisition Notice" has the meaning set forth in Section 2.3 of this
Agreement.
"Architect" means the architect retained by a Borrower to provide
architectural services for a Project.
"Architect's Agreement" means the agreement for architectural services
executed by a Borrower and an Architect in connection with the design of a
Project, and all exhibits, attachments, riders and addenda thereto.
"Architect's Certificate" means a Certificate from the Architect for a
Project, in form and substance reasonably acceptable to Atlantic, wherein the
Architect acknowledges the collateral assignment of the Architect's Agreement
and the Plans prepared by such Architect from Borrower to Atlantic pursuant to
this Agreement and agrees to perform all of its obligations under the
Architect's Agreement in the event Atlantic takes possession of the subject
Project in connection with the exercise of its remedies hereunder or under the
Security Documents after an Event of Default.
"Atlantic" has the meaning set forth in the Preamble to this Agreement.
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"Borrower" means Homestead, in its capacity as maker under the Corporate
Note, the Partnership Borrower or any Subsidiary, whichever entity is the owner
of the subject Project.
"Business Day" means any day other than Saturday, Sunday, or any other day
on which commercial banks in New Mexico are not required to be open for
business.
"Change Order" means a written order executed by a Borrower authorizing a
Contractor to proceed with a change in the work as provided for in the original
Plans for a Project, which change has been made in accordance with the
applicable provisions of this Agreement.
"Completion and Payment Guaranty" means that certain Guaranty of Completion
and Payment of even date herewith from Homestead to Atlantic in the form
attached as Exhibit B.
"Construction Contract" means the contract for construction executed by a
Borrower and the Contractor in connection with the construction of a Project,
and all exhibits, attachments, riders and addenda thereto.
"Consultant" means any civil engineer or other material consultant, other
than the Architect, retained directly by a Borrower to provide design or
engineering services for a Project.
"Consultant's Agreement" means the agreement for engineering or other
consultant services executed by a Borrower and a Consultant in connection with a
Project, and all exhibits, attachments, riders and addenda thereto.
"Consultant's Certificate" means a Certificate from a Consultant for a
Project, in form and substance reasonably acceptable to Atlantic, wherein the
Consultant acknowledges the collateral assignment of the Consultant's Agreement
and the Plans prepared by such Consultant from Borrower to Atlantic pursuant to
this Agreement and agrees to perform all of its obligations under the
Consultant's Agreement in the event Atlantic takes possession of the subject
Project in connection with the exercise of its remedies hereunder or under the
Security Documents after an Event of Default.
"Contractor" means the general contractor retained by a Borrower to provide
construction services for a Project.
"Contractor's Certificate" means a Certificate from the Contractor for a
Project, in form and substance reasonably acceptable to Atlantic, wherein the
Contractor acknowledges the collateral assignment of the Construction Contract
from Borrower to Atlantic pursuant to this
4
<PAGE>
Agreement and agrees to perform all of its obligations under the Construction
Contract in the event Atlantic takes possession of the subject Project in
connection with the exercise of its remedies hereunder or under the Security
Documents after an Event of Default.
"Corporate Loan" has the meaning set forth in Recital A to this Agreement.
"Corporate Note" has the meaning set forth in Recital A to this Agreement.
"Default" means any condition or event that constitutes an Event of Default
or that with the giving of notice or lapse of time or both would, unless cured
or waived, become an Event of Default.
"Development Budget" has the meaning set forth in Section 2.3 of this
Agreement.
"Development Schedule" has the meaning set forth in Section 2.3 of this
Agreement.
"Environmental Laws" means any and all laws, statutes, ordinances, rules,
regulations, orders, or determinations of any governmental authority pertaining
to health or the environment applicable to a Borrower, or a Property owned by
such Borrower, in effect in the jurisdiction in which such Property is located,
or where any hazardous substances generated by or disposed of by a Borrower in
connection with such Property are located, including but not limited to the
Clean Air Act, as amended, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 as amended by the Superfund Amendments
and Reauthorization Act of 1986, as amended ("CERCLA"), the Federal Water
Pollution Control Act, as amended, the Resource Conservation and Recovery Act of
1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal
Act Amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984, as
amended ("RCRA"), the Safe Drinking Water Act, as amended, the Toxic Substances
Control Act, as amended, the Hazardous Materials Transportation Act, as amended
any analogous state law of the state in which the Property is located and other
environmental conservation or protection laws. The terms "hazardous substance,"
"release," and "threatened release" shall have the meanings specified in CERCLA,
and the terms "solid waste" and "disposal" (or "disposed") shall have the
meanings specified in RCRA; provided, however, that (i) in the event either
CERCLA or RCRA is amended so as to broaden the meaning of any term defined
thereby, such broader meaning shall apply subsequent to the effective date of
such amendment and (ii) to the extent the laws of the state in which the
Property is located establish a meaning for "hazardous substance," "release,"
"threatened release," "solid waste," or "disposal" which is broader than that
specified in either CERCLA or RCRA, such broader meaning shall apply.
5
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"Event of Default" means the occurrence of any of the events specified in
Article 7 hereof.
"Existing Corporate Projects" has the meaning set forth in Recital A to
this Agreement.
"Existing Corporate Security Documents" has the meaning set forth in
Recital A to this Agreement.
"Existing Loan Documents" has the meaning set forth in Recital B to this
Agreement.
"Existing Partnership Loan Documents" has the meaning set forth in Recital
B to this Agreement.
"Existing Partnership Projects" has the meaning set forth in Recital B to
this Agreement.
"Existing Partnership Security Documents" has the meaning set forth in
Recital B to this Agreement.
"Existing Projects" means the Existing Corporate Projects and the Existing
Partnership Projects.
"Expiration Date" has the meaning set forth in Section 2.5 of this
Agreement.
"Final Advance" means the final advance of Loan proceeds to a Borrower for
construction of a Project in accordance with the applicable provisions of this
Agreement.
"Final Completion" means that the requirements of Section 5.5 have been
fully satisfied for a Project.
"Final CO" means a final unconditional certificate of occupancy for a
Project issued by the applicable Governmental Authority.
"Force Majeure" means, with respect to any Project, an event entitling a
Contractor to an extension of time in constructing the Improvements as
established in the Construction Contract and any act of God, war, riots,
unusually severe weather, shortages of labor or materials (but not a shortage of
funds), strikes, lock-outs, explosions, the order of any court or governmental
authority or unavailability of or delay in issuance of any Permits despite a
Borrower's reasonable diligence in securing same, which results in any delay in
whole or in part
6
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in the design, engineering or construction of a Project, or the duration of any
inspection, testing, or remediation related to any environmental condition or
aspect of a Project.
"Funding Notice" has the meaning set forth in Section 2.3 of this
Agreement.
"Future Project" has the meaning set forth in Recital D to this Agreement.
"Geographic Area" means the States of Alabama, Florida, Georgia, North
Carolina, Tennessee, Maryland and Virginia and the District of Columbia.
"Governmental Authority" means any Federal, state, county, municipal or
other governmental or quasi-governmental department, commission, board, court,
agency or other instrumentality having jurisdiction over a Borrower and any
Project.
"Governmental Requirement" means any law, statute, code, ordinance, order,
rule, regulation, judgment, decree, injunction, franchise, permit, certificate,
license, authorization or other direction or requirement (including, without
limitation, any of the foregoing that relate to environmental standards or
controls, energy regulations and occupational safety and health standards or
controls) of any Governmental Authority.
"Homestead" has the meaning set forth in the Preamble to this Agreement.
"Homestead Common Stock" has the meaning set forth in Recital D to this
Agreement.
"Homestead Affiliate" means (a) an entity that directly or indirectly
controls, is controlled by or is under common control with Homestead or (b) an
entity at least a majority of whose economic interest is owned by Homestead; and
the term "control" means the power to direct the management of such entity
through voting rights, ownership or contractual obligations; provided, however,
in no event shall PTR, Atlantic, SCG or any wholly-owned subsidiary of any of
the foregoing be deemed a Homestead affiliate.
"Homestead Security Documents" means the deeds of trust, deeds to secured
debt and/or mortgage instruments, substantially in the forms attached as Exhibit
C hereto, to be delivered to Atlantic by Homestead in connection with the
funding of any Project acquired by Homestead after the date of this Agreement,
as security for the Corporate Note, the Partnership Note and any Subsidiary Note
executed and delivered after the date hereof, and any other security instruments
delivered by Homestead from time to time as security for the Corporate Note, the
Partnership Note and any such Subsidiary Note.
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"Improvements" means the buildings, structures, and other improvements to
be constructed on the Land as described on the Plans for the subject Project.
"Inspecting A/E" means the inspecting architect or engineer retained by a
Borrower to inspect, monitor and administer the progress of construction of a
Project.
"Land" means the parcel or parcels of land on which a Project is or is to
be located, together with all easements, rights of way and other appurtenances
thereto.
"Lien Waivers" means a waiver of all liens relating to a Project executed
by any and all contractors, subcontractors and/or suppliers of a Borrower who
have provided any goods or services relating to Improvements.
"Loan" means the Corporate Loan, the Partnership Loan, or any Subsidiary
Loan made after the date hereof, as the context may require; and "Loans" means
the Corporate Loan, the Partnership Loan, and any Subsidiary Loans made after
the date hereof, collectively.
"Loan Documents" means this Agreement, the Notes, the Security Documents,
the Completion and Payment Guaranty and any and all other agreements or
instruments now or hereafter executed and delivered by a Borrower, Homestead or
any other person in connection with, or as security for, the payment or
performance of the Notes.
"Material Adverse Effect" means any material and adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of Homestead and its Subsidiaries, taken as a
whole.
"Material Change" means any change to the Plans or to a Project which would
result in a material increase or decrease in the number of lodging units in such
Project from the number contained in a Prototypical Project, a material increase
or decrease in the overall cost of completing a Project above the costs
contemplated in the Prototypical Project Budget, or would otherwise result in
such Project materially deviating from the product and/or investment concept of
a Prototypical Project as set forth in the Prototypical Plans.
"Maximum Corporate Loan Amount" has the meaning set forth in Recital A to
this Agreement.
"Maximum Loan Amount" means the aggregate of the Maximum Corporate Loan
Amount and the Maximum Partnership Loan Amount.
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"Maximum Partnership Loan Amount" has the meaning set forth in Recital B to
this Agreement.
"Note" means the Corporate Note, the Partnership Note, or any Subsidiary
Note executed and delivered after the date hereof, as the context may require,
and "Notes" means the Corporate Note, the Partnership Note, and any Subsidiary
Notes executed and delivered after the date hereof, collectively.
"Partnership Borrower" has the meaning set forth in the Preamble to this
Agreement.
"Partnership Loan" has the meaning set forth in Recital B to this
Agreement.
"Partnership Note" has the meaning set forth in Recital B to this
Agreement.
"Partnership Security Documents" means the deeds of trust, deeds to secure
debt and/or mortgage instruments, substantially in the forms attached as Exhibit
D hereto, to be delivered to Atlantic by the Partnership Borrower in connection
with the funding of any Project acquired by the Partnership after the date of
this Agreement, as security for the Partnership Note, the Corporate Note and any
Subsidiary Note executed and delivered after the date hereof, and any other
security instruments delivered by the Partnership Borrower from time to time as
security for the Corporate Note, the Partnership Note and any such Subsidiary
Note.
"Permits" shall mean all permits, licenses, registrations, certificates,
authorizations and approvals now or hereafter issued or required to be issued by
any governmental or quasi-Governmental Authority for the lawful ownership,
construction, use and operation of a Project.
"Personalty" means all items of tangible or intangible personal property
owned by a Borrower, or in which a Borrower has any interest, to the extent of
such interest, that now are or hereafter may be purchased, prepared, constructed
or placed for, upon or in a Project owned by such Borrower.
"Plans" means the final plans and specifications for the construction of
the Improvements comprising a Project, together with any modifications or
additions to the same subsequently permitted under the terms of this Agreement
or, to the extent required hereunder, approved by Atlantic in accordance with
the provisions of this Agreement.
"Project" means each Existing Project and each Future Project for which an
Acquisition Notice has been delivered to Atlantic prior to the Expiration Date.
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"Project Budget" means the budget for a Project delivered by a Borrower to
Atlantic.
"Project Schedule" means the schedule for the design and construction of
the Improvements encompassed within a Project delivered by a Borrower to
Atlantic.
"Property" means any property from time to time subject to any of the
Security Documents, including the Land and all Improvements now or hereafter
located thereon and all Personalty associated therewith.
"Proposed Substitute Future Project" has the meaning set forth in Section
2.7 of this Agreement.
"Prototypical Project Budget" means the due diligence, development
approval, land acquisition, design and construction budget for a Prototypical
Project heretofore delivered to, and approved by, Atlantic.
"Prototypical Project Schedule" means the due diligence, development
approval, design and construction schedule for a Prototypical Project heretofore
delivered to, and approved by, Atlantic.
"Prototypical Plans" means the standard plans and specifications for a
Homestead Village extended-stay lodging facility heretofore delivered to, and
approved by, Atlantic.
"Prototypical Project" means a Homestead Village extended-stay lodging
facility designed and constructed in substantial accordance with the
Prototypical Plans.
"PTR" has the meaning set forth in the Preamble to this Agreement.
"Pursuit Costs" has the meaning set forth in Section 2.3 of this Agreement.
"Quarterly Statement" has the meaning set forth in Section 4.14 of this
Agreement.
"Rejected Project" has the meaning set forth in Section 2.7 of this
Agreement.
"Security Documents" means the Homestead Security Documents, the Existing
Corporate Security Documents, the Existing Partnership Security Documents, the
Partnership Security Documents, and any Subsidiary Security Documents,
collectively.
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"Subcontractor" means all persons performing labor or services, or
providing materials, equipment or furnishings in connection with the
construction of Improvements, other than Contractor.
"Subsidiary" means any entity now or hereafter in existence including the
Partnership Borrower, all of the outstanding equity securities of which are
owned by Homestead.
"Subsidiary Loan" means any portion of the Corporate Loan or Partnership
Loan which Homestead may direct Atlantic to advance to a Subsidiary instead of
to Homestead or the Partnership Borrower in accordance with the provisions of
this Agreement.
"Subsidiary Note" means any promissory note, substantially in the form of
the Partnership Note, which a Subsidiary executes and delivers to Atlantic after
the date hereof to evidence a Subsidiary Loan made by Atlantic to such
Subsidiary.
"Subsidiary Security Documents" means the deed of trust or mortgage
instrument to be delivered to Atlantic by a Subsidiary, substantially in the
form of the Homestead Security Documents, in connection with the funding of any
Future Project owned by Subsidiary as security for the Corporate Note, the
Partnership Note and any Subsidiary Note executed and delivered after the date
hereof, and any other security instruments delivered by such Subsidiary from
time to time as security for the Corporate Note, the Partnership Note and any
such Subsidiary Note.
"Title Insurer" means Chicago Title Insurance Company or any other
nationally recognized title insurance company issuing a Title Policy.
"Title Policy" means the lender's policy of title insurance for a Property
issued by the Title Insurer for the benefit of Atlantic and all endorsements
thereto, which insures the lien priority of the Security Documents applicable to
such Property.
"UCC" means the Uniform Commercial Code as in force in the state in which a
Project is located.
Section 1.2. OTHER DEFINITIONAL PROVISIONS.
(a) Except as otherwise specified herein, all references herein (i) to any
person or entity shall be deemed to include such person's or entity's heirs,
legal representatives, successors and assigns, as appropriate, (ii) to any
Governmental Requirement defined or referred to herein shall be deemed
references to such Governmental Requirement as the same may have been or
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may be amended or supplemented from time to time and (iii) to any Loan Document
or other agreement defined or referred to herein shall be deemed references to
such Loan Document or agreement (and, in the case of the Notes or other
instruments, any instrument issued in substitution therefor) as the terms
thereof may have been or may be amended, supplemented, waived or otherwise
modified from time to time in writing.
(b) Whenever the context so requires, the neuter gender includes the
masculine or feminine, the masculine gender includes the feminine, and the
singular number includes the plural, and vice versa.
ARTICLE 2.
THE LOANS
Section 2.1. THE HOMESTEAD LOAN. Subject to the limitations set forth in
Sections 2.5, 2.6 and 2.7 below, Atlantic hereby agrees, upon the terms and
conditions set forth herein and in the other applicable Loan Documents, to
advance to Homestead (or, as Homestead may direct, to any Subsidiary) up to the
amount of the Maximum Corporate Loan Amount for the purpose of paying the costs
and expenses incurred by Homestead (or by any such Subsidiary, as the case may
be) in completing the design and construction of the Existing Projects and in
performing its due diligence review, obtaining all Permits required for
development of and otherwise acquiring the Land for, and completing the design
and construction of, such of the Future Projects hereafter pursued by Homestead
or any such Subsidiary as may be funded under the provisions of this Agreement.
Principal and accrued interest on the Corporate Note shall be due and payable in
accordance with the terms and conditions set forth therein and herein.
Section 2.2. THE PARTNERSHIP LOAN. Subject to the limitations set forth
in Sections 2.5, 2.6 and 2.7 below, Atlantic hereby agrees, upon the terms and
conditions set forth herein and in the other applicable Loan Documents, to
advance to the Partnership Borrower (or, as Homestead may direct, to Homestead
or any Subsidiary) up to the amount of the Maximum Partnership Loan Amount for
the purpose of paying the costs and expenses incurred by the Partnership
Borrower (or by Homestead or any such Subsidiary, as the case may be) in
completing the design and construction of the Existing Projects and in
performing its due diligence review, obtaining all Permits required for
development of and otherwise acquiring the Land for, and completing the design
and construction of the Future Projects hereafter pursued by Homestead, the
Partnership Borrower or any other Subsidiary as may be funded under the
provisions of this Agreement. Principal and accrued interest on the Partnership
Note shall be due and payable in accordance with the terms and conditions set
forth therein and herein.
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Section 2.3. FUTURE PROJECTS. The parties acknowledge and agree that the
Future Projects identified in Exhibit A hereto are in differing stages of
consideration by Homestead and that, at any point in the process of its due
diligence review, the negotiation of definitive acquisition and related
documents and its efforts to obtain all Permits required for development of any
such Future Project, Homestead may determine, in its sole and absolute
discretion, either to proceed with the acquisition of the land for, and
development of, any such Future Project or to discontinue its efforts in respect
of any such Future Project. Requests for advances of Loan proceeds hereunder
may include amounts required to reimburse Homestead for the costs and expenses
incurred by Homestead in its due diligence review of any such Future Project, as
well as all costs incurred in connection with its efforts to secure the Permits
required for development of any such Future Project. Whenever such pursuit
costs ("Pursuit Costs") are to be funded with Loan proceeds, prior to the first
advance in respect of a Future Project, Homestead will provided Atlantic with a
notice (a "Funding Notice") identifying the Future Project, together with a
development budget (a "Development Budget") indicating the anticipated costs
that are likely to be incurred prior to the acquisition of such Future Project
by Homestead or a Subsidiary, the amount of such costs to be funded by Loan
proceeds, which amount shall in no event exceed $100,000 per Future Project, and
a schedule setting forth the anticipated time-frames for completing the due
diligence review and obtaining required Permits (a "Development Schedule").
If Homestead elects to proceed with a Future Project, then Homestead shall
provide Atlantic at least 10 Business Days' prior written notice (an
"Acquisition Notice") of the anticipated closing date for the acquisition of the
subject Land, the identity of the Borrower for such transaction, and the
estimated amount of Loan proceeds that will need to be advanced at such closing.
From and after delivery of an Acquisition Notice to Atlantic, the subject
project shall, for all purposes under this Agreement, be deemed a "Project".
Notwithstanding anything to the contrary in the foregoing, funding of the first
advance of Loan proceeds in respect of any such Project shall require the
recordation of Security Documents adding such Project as security for the Loan
and the satisfaction of the other conditions set forth in Section 5.2 as to such
Project.
In the event, however, that Homestead determines from time to time that any
Future Project is unacceptable to it and that Homestead will not expend further
efforts with respect to such Future Project, Homestead shall provide written
notice to Atlantic identifying any such Future Project. In such event, any
Pursuit Costs theretofore funded with Loan proceeds, together with accrued and
unpaid interest thereon due under the terms of the Corporate Note, shall be
repaid by Homestead to Atlantic within 30 days after delivery of such notice to
Atlantic.
Section 2.4. SUBSIDIARY LOANS. With respect to any Future Project for
which an Acquisition Notice is delivered to Atlantic in accordance with Section
2.3 above, Homestead
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shall have the right to determine, in its sole and absolute discretion, that a
Subsidiary acquire the subject Project, in which event, the subject Subsidiary
shall, at such time as it acquires the subject Future Project, execute and
deliver to Atlantic Subsidiary Security Documents in connection therewith
together with an agreement in form and substance satisfactory to Atlantic
pursuant to which such Subsidiary agrees to be bound by the terms of this
Agreement as to such Project. In addition, at the election of Homestead, the
subject Subsidiary shall execute a Subsidiary Note in the amount of the Loan
determined by Homestead to be allocable to such Project and the Maximum
Corporate Loan Amount and/or the Maximum Partnership Loan Amount (as Homestead
may elect) shall be decreased by the amount of any such Subsidiary Note.
Alternatively, Homestead may elect to have funds advanced with respect to such
Project under the Corporate Loan or Partnership Loan and either loan or
contribute, or cause the Partnership Borrower to loan or contribute, the funds
so advanced to the subject Subsidiary. In the event any Subsidiary executes a
Subsidiary Note and/or any Subsidiary Security Documents as contemplated under
this Section 2.4, the parties shall, contemporaneously therewith, execute,
deliver, and, if appropriate, record, such amendments to the Loan Documents as
may reasonably be necessary or appropriate to properly document any resulting
changes in the Maximum Corporate Loan Amount and/or the Maximum Partnership Loan
Amount.
Section 2.5. DURATION OF FUNDING COMMITMENT. The obligation of Atlantic
to advance Loan proceeds in respect of Future Projects for which an Acquisition
Notice has not yet been delivered to Atlantic shall expire on March 31, 1998
(the "Expiration Date"). Notwithstanding anything to the contrary in the
foregoing, Atlantic shall continue to be obligated, subject to and upon the
terms and conditions set forth herein and in the other Loan Documents, to
continue to make advances of Loan proceeds after such date for each Project for
which an Acquisition Notice has theretofore been delivered to Atlantic under the
terms of this Agreement, but shall not have any obligation to make further
advances in respect of Pursuit Costs for any Future Project for which only a
Funding Notice has been delivered to Atlantic. On or before April 30, 1998,
Homestead shall repay, or cause to be repaid, to Atlantic any advances of Loan
proceeds in respect of Pursuit Costs (together with accrued and unpaid interest
thereon) that have not been repaid pursuant to Section 2.3 hereof as of the
Expiration Date.
Section 2.6. PROJECT SPECIFIC FUNDING COMMITMENT. Atlantic's obligation
under this Agreement to make advances of Loan proceeds in respect of a
designated Project shall not exceed the lesser of (i) the actual aggregate hard
and soft costs incurred by the applicable Borrower in connection with the
acquisition, development, design and construction of such Project, or (ii),
except as provided in Section 6.6, the amount allocated to such Project in
Exhibit A hereto, and all costs in respect of a Project in excess of the Loan
amount allocated to such Project shall, except as provided in such Section 6.6,
be funded by Homestead as and when needed. In addition, Atlantic's obligation
to make advances in respect of a designated
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Project shall expire on the second anniversary of the date on which the subject
Land was acquired by Homestead or the applicable Subsidiary. In the event Final
Completion of such Project has not been achieved by such date, Atlantic shall
have no obligation to make any further advances of Loan proceeds in connection
with such Project and all costs required to complete such Project shall be
funded by Homestead as and when required in order to assure that such Project is
completed and placed in operation as soon as is reasonably practicable. If,
however, Final Completion of such Project has not been achieved by the date
which is 30 months after the date of acquisition of the subject Land, then, at
the election of Atlantic, exercised by delivering written notice to Homestead,
Homestead shall repay, or cause the applicable Subsidiary to repay, within 30
days after receipt of such notice the amount of Loan proceeds advanced in
respect of such Project (together with accrued and unpaid interest on such
amount), and upon receipt of such payment, this Agreement, solely as it relates
to such Project, shall terminate and Atlantic shall cause to be released the
Security Documents recorded or filed against such Project.
Section 2.7. REPLACEMENT PROJECTS. Homestead agrees that for each Future
Project rejected by Homestead pursuant to Section 2.3 (a "Rejected Project"),
Homestead will propose to Atlantic in writing a proposed substitute future
project (a "Proposed Substitute Future Project") to take the place of such
Rejected Project. Any such Proposed Substitute Future Project shall be located
within the Geographic Area and, except as specifically noted in writing by
Homestead, shall conform, to Homestead's then current knowledge, to the
Prototypical Project requirements. Homestead may select a Proposed Substitute
Future Project from its then contemplated Homestead Village projects which
Homestead is considering pursuing or, if all such contemplated projects are then
already included within the list of Future Projects under this Agreement, then
Homestead may delay in identifying a Proposed Substitute Future Project until,
in the ordinary course of its business, a new site for a contemplated Homestead
Village project is identified within the Geographic Area. Homestead shall not,
however, be obligated to identify a new potential Homestead Village site solely
for the purposes of presenting to Atlantic a Proposed Substitute Future Project.
Atlantic shall have a period of 20 Business Days after receipt of any such
Proposed Substitute Project to approve or reject, in its sole and absolute
discretion, any such proposal, and failure of Atlantic to provide Homestead with
written notice within such 20-Business Day period shall be deemed a rejection by
Atlantic of the subject Proposed Substitute Future Project. If Atlantic timely
approves a Proposed Substitute Future Project, then such project shall be
substituted in the place and stead of the Rejected Project in Exhibit A hereto,
and shall for all purposes under this Agreement thereafter be deemed a Future
Project. The maximum amount of Loan proceeds that will be available to fund
such Future Project (if Homestead thereafter
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delivers an Acquisition Notice for such Project) shall be equal to the Loan
amount originally allocated to the applicable Rejected Project in Exhibit A.
In the event that any Proposed Substitute Future Project is rejected or
deemed rejected by Atlantic, Homestead shall be free to pursue the Proposed
Substitute Future Project on its own. For each Rejected Project, Homestead
shall be required (subject to the limitations set forth above) to propose to
Atlantic up to a maximum of three (3) Proposed Substitute Future Projects. If
Atlantic rejects all three (3) Proposed Substitute Future Projects submitted by
Homestead in respect of a particular Rejected Project, then the Maximum Loan
Amount, and Atlantic's funding commitment hereunder, shall be reduced by the
amount allocated to the Rejected Project in Exhibit A hereto. The obligation of
Homestead to propose to Atlantic Proposed Substitute Future Projects shall in
any event terminate on the Expiration Date.
Section 2.8. RELEASE OF SECURITY DOCUMENTS. The parties acknowledge and
agree that the Notes are convertible, in whole or in part, into shares of
Homestead Common Stock up to the maximum amount of the unpaid principal amount
of such Notes outstanding from time to time and otherwise pursuant and subject
to the terms and conditions of such Notes. Any such conversion shall reduce the
amount of the debt evidenced by the Notes and secured by the Security Documents
by the amount determined in accordance with the conversion provisions of the
Notes. In connection with any partial conversion of the Notes, Homestead may
request that, in lieu of or in addition to reducing the amount secured by the
Security Documents, Atlantic release any one or more of the Projects then
subject to the Security Documents and having a value equivalent to or less than
the amount of the debt reduction resulting from such conversion. The release
of any Projects from the lien of the Security Documents shall, however, be
subject to the approval of Atlantic, which approval shall not to be unreasonably
withheld or delayed.
At such time as all amounts owing to Atlantic under or in respect of any of
the Loan Documents have been paid in accordance with the provisions of the Loan
Documents or if not paid then, to the extent permitted under the Notes,
converted into Homestead Common Stock, and when Atlantic has no further
obligation to make any advance, disbursement or payment of any kind or to extend
credit under or with respect to any of the Loan Documents, then this Agreement
shall terminate and upon receipt of demand therefor from Homestead, Atlantic
shall execute and deliver to Homestead appropriate instruments of release or
reconveyance of any Security Documents then in effect.
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ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
To induce Atlantic to enter into this Agreement, Homestead and each
Borrower represents and warrants to Atlantic (each representation and warranty
herein being given as of the date of this Agreement and deemed repeated and
reaffirmed on the date of each advance of funds by Atlantic) as follows:
Section 3.1. EXISTENCE AND POWER. Homestead and each Borrower is
duly organized, validly existing and in good standing under the laws of the
State of its organization and to the extent required is qualified to do business
in and is in good standing in each jurisdiction in which it owns property; has
full power and authority to own its assets, to conduct the activities in which
it is engaged, and to own and develop each Project which it owns.
Section 3.2. AUTHORIZATION AND BINDING OBLIGATIONS. The borrowing
evidenced by the Notes and the execution, delivery and performance of this
Agreement and all other Loan Documents by Homestead and each Borrower (i) are
within the power of the subject entity and (ii) have been duly authorized. Each
of the Loan Documents executed by Homestead and/or any Borrower, when executed
and delivered, will constitute the legal, valid and binding obligations of such
entity and are enforceable against such entity in accordance with its respective
terms, subject to bankruptcy and insolvency laws, equitable principles, and laws
affecting creditors rights generally.
Section 3.3. NO LEGAL BAR OR RESULTANT LIEN. None of the (i)
execution and delivery of, (ii) fulfillment of the terms and conditions of, or
(iii) the consummation of the transactions contemplated by the Loan Documents to
which Homestead and/or any Borrower is a party (a) violate any provisions of the
articles or certificate of incorporation, bylaws or partnership agreement of
such entity, (b) violate or constitute a default under any contract, agreement
or instrument, or any law, ordinance, rule or regulation of any Governmental
Authority, to which such entity is subject, (c) to such entity's knowledge,
violate or constitute a default under any Governmental Requirement so as to
create a Material Adverse Effect or (d) to such entity's knowledge, result in
the creation or imposition of any lien upon any property of such entity, other
than those permitted by this Agreement.
Section 3.4. NO CONSENT. The execution, delivery and performance of
the Loan Documents to which Homestead and/or each Borrower is a party does not
require the consent or approval of any other person, including, without
limitation, any financial institution or other creditor of such entity, any
trustee, conservator, receiver or administrator, or any regulatory
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authority or governmental body of the United States of America or any state
thereof or any Governmental Authority.
Section 3.5. COMPLIANCE WITH LAWS. All Plans, Projects, Properties,
Improvements and their intended use presently comply, and throughout the term of
this Agreement will continue to comply, in all material respects with all
Governmental Requirements and all public and private restrictions or other
agreements affecting each such Property, including, without limitation, building
codes, special use permits, zoning codes, Environmental Laws, applicable
requirements of fire underwriters, restrictive covenants, easements and other
agreements affecting the Property. All Permits currently required by
Governmental Requirements to be obtained for the Projects now subject to this
Agreement have been obtained, and neither Homestead nor any Borrower has any
reason to believe that any Permits that subsequently may be required to enable
it to construct, occupy, operate, use or sell any of the Property will not be
obtained in due course.
Section 3.6. LITIGATION. Except as disclosed to Atlantic in writing,
at the date of this Agreement there is no litigation, legal, administrative, or
arbitral proceeding, investigation or other action of any nature pending or, to
the knowledge of Homestead or any Borrower, threatened against or affecting any
Borrower or Homestead that involves the possibility of any judgment or liability
(not fully covered by insurance) that would have a Material Adverse Effect.
Section 3.7. DEFAULTS. To the knowledge of Homestead and each
Borrower, neither Homestead nor any Borrower is in default, and no event or
circumstance has occurred that, but for the passage of time or the giving of
notice, or both, would constitute a default, in any respect under any agreement
of instrument that may have a Material Adverse Effect. No Event Default has
occurred hereunder.
Section 3.8. STATUS OF PROPERTY. The Borrower delivering any
Security Documents to Atlantic is the fee simple owner of the subject Property
free and clear of all restrictions, covenants, easements, liens and
encumbrances, including, without limitation, mechanics', materialmen's and
suppliers' liens (except liens securing Atlantic and matters reflected in the
Title Policy). To Homestead and each Borrower's knowledge: each Property is a
legal lot under applicable laws, statutes, ordinances and regulations of the
governing jurisdiction; each Property is carried, or is in the process of being
changed so as to be carried, on the tax rolls of the governing jurisdiction as a
separate, subdivided parcel; each Property has, or will have upon completion of
construction, full access to the public highways and to the services of all
utilities, including water, storm sewer, sanitary sewer, electricity and
telephone, required to serve the intended use of the Property; each Property
under construction or completed is zoned under applicable zoning laws and
ordinances so as to permit the construction and development of the
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Project planned for such Property and the use and occupancy of the Property as
contemplated under this Agreement; and each Property under construction or
completed currently complies in all material respects with such laws and
ordinances and with all private restrictions applicable thereto and any special
use permit, variance, exception, or other special zoning authorization
applicable thereto; each Property currently complies in all material respects
with all Governmental Requirements applicable thereto. To Borrower's knowledge,
the liens of the Security Documents executed by it are valid liens covering the
subject Properties.
Section 3.9. USE OF PROCEEDS. None of the proceeds of the Loans has
been or shall be used to purchase or carry, or to reduce or retire or refinance
any credit incurred to purchase or carry, any margin stock (within the meaning
of Regulations G and U of the Board of Governors of the Federal Reserve System)
or to extend credit to others for the purpose of purchasing or carrying any
margin stock.
Section 3.10. REAL PROPERTY ENVIRONMENTAL MATTERS. To the actual
knowledge of Homestead and each Borrower, except as disclosed in the
environmental audits prepared for Homestead and/or any such Borrower and
delivered to Atlantic, no hazardous substances or solid waste are located at or
on or have been disposed of or otherwise released on or to any of the Properties
in violation of any Environmental Laws.
Section 3.11. FINANCIAL CONDITION. All financial statements
delivered to Atlantic concerning Homestead and each Borrower fairly and
accurately present the financial condition of such entities as of the date of
such statements and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, and there are no contingent
liabilities not disclosed thereby which would have a Material Adverse Effect.
Since the close of the period covered by the latest financial statements
delivered to Atlantic with respect to Homestead's and each Borrower's assets,
liabilities, or financial condition, no event has occurred (including, without
limitation, any litigation or administrative proceedings) and no change in such
entities' financial condition exists or, to the knowledge of Homestead or any
Borrower, is threatened, which (i) materially adversely affects a Borrower's
ability to perform its obligations under the Loan Documents, (ii) constitutes or
which after notice or lapse of time, or both, would constitute a Default
hereunder, or (iii) materially adversely affects the validity or priority of the
lien of the Security Documents on any Borrower's Property or the financial
condition of Homestead or any Borrower.
Section 3.12. NO CONDEMNATION. No taking of any Property or any
material part thereof, through eminent domain, conveyance in lieu thereof,
condemnation or similar proceeding is pending or, to the best of Homestead's and
each Borrower's knowledge, threatened by any governmental agency.
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Section 3.13. NO ACTIONS. There is no action, proceeding or
investigation pending or, to the best of Homestead's and each Borrower's
knowledge, threatened (or any basis therefor) which questions, directly or
indirectly, the validity of this Agreement, the Notes, the Security Documents,
or any other Loan Document or any action taken or to be taken pursuant hereto or
thereto.
Section 3.14. NO ADVERSE CONDITIONS. To the best of Homestead's and
each Borrower's knowledge, there are no existing, pending or threatened events
which could materially adversely affect any of the Properties or the operation
thereof.
ARTICLE 4.
COVENANTS
Each Borrower will, at all times, comply with the covenants contained
in this Article 4 from the date hereof and for so long as any part of the Loans
is outstanding.
Section 4.1. CONSTRUCTION OF IMPROVEMENTS. Each Borrower will
proceed with the design, engineering and construction of its Improvements with
reasonable diligence and continuity and will endeavor in good faith to complete
the design, engineering and construction of its Improvements substantially in
accordance with the applicable Project Schedule, subject to Force Majeure, and
substantially in accordance with the Plans for such Improvement and applicable
Governmental Requirements.
Section 4.2. PLANS; PROJECT BUDGETS; PROJECT SCHEDULES AND MATERIAL
CHANGES. Prior to the date hereof, Homestead has delivered to Atlantic and
Atlantic has approved Homestead's Prototypical Plans, Prototypical Project
Budget and Prototypical Project Schedule. So long as the Plans and Project
Budget (including the Development Budget which is a part of the overall Project
Budget) for a given Project do not contain any Material Change and the Project
Schedule does not deviate in any material respect from the Prototypical
Schedule, no further approval by Atlantic of the Plans, Project Schedule or
Project Budget for a Project shall be required. Borrower shall not, however,
make any Material Change in the Plans for any of its Projects or construct any
Improvements which are not substantially in accordance with the Prototypical
Plans or make any change to any Plans or install any material or equipment which
would constitute a Material Change, without Homestead's obtaining in each
instance Atlantic's prior written consent, which consent shall not be
unreasonably withheld or delayed. Homestead shall promptly notify Atlantic in
writing of any Material Change desired by a Borrower, which notice shall be
accompanied by such plans or other information as may reasonably be necessary
for
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Atlantic to evaluate the proposed Material Change. Atlantic shall deliver
written notice to Homestead within 10 Business Days after receipt of the
requested Material Change stating whether such Material Change has been approved
or disapproved by Atlantic.
Section 4.3. INSPECTION AND EXAMINATION. Borrower will permit
representatives and agents of Atlantic to enter each Property owned by such
Borrower at all reasonable times to inspect the progress of the construction of
the subject Improvements and all materials to be used therein and to examine all
detailed plans and shop drawings which are or may be kept at the construction
site, and such Borrower will use reasonable efforts to cause the Contractor and
all Subcontractors to cooperate with Atlantic or its representatives in such
inspections or examinations. Homestead and each other Borrower shall also
permit representatives and agents of Atlantic to examine their respective books,
records and accounting data applicable to the Loans and the subject Projects
(and to make extracts therefrom or copies thereof) and, to the extent Homestead
or such Borrower has such right, all Contractor's and Subcontractors' books,
records and accounting data applicable to the subject Project.
Section 4.4. PERMITS AND APPROVALS. Borrower will comply in all
material respects with, and keep in full force and effect, all Permits necessary
for ownership, development and operation of the Projects owned or operated by
it.
Section 4.5. GOVERNMENTAL REQUIREMENTS. Borrower will cause all
Governmental Requirements and all restrictive covenants affecting its Projects
to be complied with in all material respects (except matters contested in good
faith by appropriate proceedings).
Section 4.6. BOOKS AND RECORDS. Borrower will implement and maintain
payment and accounting systems which will assure accurate and complete records
of all amounts owed and paid in connection with the completion of each Project.
Borrower shall require each Contractor and each Subcontractor having a
subcontract in excess of $100,000 to deliver lien waivers or releases as a
condition to receiving payments. Contractor lien waivers shall cover the amount
paid to the Contractor under its application for payment for the month or other
payment period just ending; Subcontractor lien waivers shall cover the amount
paid to such Subcontractor pursuant to the Contractor's application for payment
for the immediately preceding month or other payment period.
Section 4.7. TITLE TO PROPERTY AND IMPROVEMENTS. Neither the legal
or beneficial title and ownership of a Borrower in the Property(ies) and
Improvements or any portion thereof owned by it will be conveyed, pledged or
encumbered in any way other than to Homestead or a Homestead Affiliate without
the consent of Atlantic, which may be granted or denied in Atlantic's sole and
absolute discretion. Borrower will promptly pay and discharge prior to the
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date when any interest or penalties shall accrue thereon, all taxes, levies,
charges, impositions, water and sewer rents, and assessments of every kind or
nature, whether foreseen or unforeseen and whether general or special, which are
now or shall hereafter be charged or assessed against the Property(ies) or the
Improvements owned by it, or any part thereof, or which may become a lien
thereon (except matters contested in good faith by appropriate proceedings and
for which adequate reserves have been provided).
Section 4.8. COSTS AND EXPENSES. Borrower shall pay any out-of-
pocket expenses reasonably incurred by Atlantic in the enforcement or collection
of the Loans, including without limitation, attorneys' fees and expenses,
records searches, documentary stamps, transfer taxes and recording taxes and
court costs.
Section 4.9. USE OF ADVANCES. Borrower shall not apply any advances
of Loan proceeds to costs other than those incurred in connection with the
subject Future Project or Project for which the advance has been made. Borrower
shall not apply such advances to the cost of acquiring any additional real
property other than a Project. Borrower shall not receive or apply advances of
Loan proceeds except to the purposes for which such proceeds have been advanced
by Atlantic, and in accordance with the provisions of the Loan Documents
generally.
Section 4.10. INSURANCE. Borrower shall keep in full force and
effect at all times the policies of insurance applicable to the Property owned
by it and required by the Security Documents, and Borrower shall provide
Atlantic with evidence of such insurance upon receipt or request therefor.
Section 4.11. ENVIRONMENTAL MATTERS. Borrower shall not, by any act
or omission, cause or permit any hazardous substances, solid wastes or other
pollutants to exist on or about any Project in violation of Environmental Laws.
In the event of a breach of the foregoing provision, Homestead and the subject
Borrower shall remove the same (or if removal is prohibited by law, take
whatever action is required by law) promptly upon discovery at Homestead's and
such Borrower's sole expense. Homestead will promptly notify Atlantic in
writing of any existing, pending or threatened action, investigation or inquiry
by any Governmental Authority of which it has knowledge relating to any Property
in connection with any Environmental Laws.
Section 4.12. SELECTION OF ARCHITECTS; CONTRACTORS; INSPECTING A/E'S.
Prior to the date hereof, Homestead has delivered to Atlantic and Atlantic has
approved, a list of potential Contractors, Architects, Consultants and
Inspecting A/E's that Homestead, or any of its Subsidiaries, has or may retain
in connection with any Project funded, or to be funded, under this Agreement.
Homestead may, from time to time, subject to the prior written approval of
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Atlantic, add Contractor, Architect, Consultant and Inspecting A/E names to such
list. So long as any Contractor, Architect, Consultant and Inspecting A/E
retained by Homestead or a Subsidiary in connection with a Project is on such
pre-approved list, no further approval of such hiring by Atlantic shall be
required. If Homestead or any Subsidiary desires to retain a Contractor,
Architect, Consultant or Inspecting A/E not on the current pre-approved list,
then prior to retaining such individual or entity, Homestead shall be required
to obtain the prior written approval of Atlantic, such approval not to be
unreasonably withheld or delayed, and such approval shall be deemed given if
Atlantic does not deliver written notice of objection to Homestead within 10
Business Days after receipt by Atlantic of a request for approval from
Homestead.
Section 4.13. FURTHER ASSURANCES. Homestead and each Borrower shall
execute such further documents, agreements and instruments, and take all other
actions, as may reasonably be necessary to carry out the purposes of the Loan
Documents or to protect and enforce the validity and priority of the Security
Documents.
Section 4.14. QUARTERLY STATEMENTS. Within 20 Business Days after
the expiration of each calendar quarter, Homestead shall deliver to Atlantic a
written summary (each, a "Quarterly Statement") containing a status report for
each Future Project or Project then being funded pursuant to this Agreement,
indicating whether and to what extent each such Future Project or Project is
proceeding substantially on schedule and on budget or, if not, the amount of any
overrun and/or schedule slippage and setting forth in reasonable detail any
efforts being undertaken to remedy any noted material problems. Each Quarterly
Statement shall also include any pertinent information in respect of Future
Projects and the anticipated timing of when any such Future Projects may be
acquired and construction commenced and such other information as Homestead may
deem appropriate, or Atlantic may reasonably request, to keep Atlantic
reasonably apprised of the status of the Future Projects.
Section 4.15. CONTINUED EXISTENCE. Homestead and each Borrower shall
at all times preserve and keep in full force and effect its existence and rights
and franchises material to its business and rights and franchises material to
its business and properties.
Section 4.16. DEFAULTS UNDER OTHER LOANS. Borrower shall notify
Atlantic in writing within fifteen (15) days following Borrower's receipt of
notice of a default under any document or instrument governing, evidencing,
securing, or otherwise relating to any loan (other than the Loan) made to
Borrower.
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ARTICLE 5.
ADVANCE CONDITIONS
Section 5.1. CONDITIONS PRECEDENT TO FIRST ADVANCE UNDER THIS
AGREEMENT. Atlantic shall not be obligated to advance funds pursuant to this
Agreement until each of the following conditions is fulfilled:
(a) Receipt by Atlantic of each of the following:
(i) evidence reasonably satisfactory to Atlantic that Homestead,
either directly or through one or more of its Subsidiaries, has
expended at least $16,824,509 of its own funds in developing and
placing in operation Homestead Village projects in the
Geographic Area (the "Equity Projects");
(ii) duly executed Security Documents creating first and prior liens
on all of the Equity Projects;
(iii) a fully executed copy of this Agreement;
(iv) duly executed copies of each of the Notes from any Subsidiaries
owning Projects for which a Funding Notice or Acquisition Notice
has been delivered to Atlantic and Security Documents for any
Land then owned or to be acquired with such initial funding by
Homestead or any Subsidiary for which the subject Project is to
be financed with Loan proceeds, the Completion and Payment
Guaranty and all other Loan Documents Atlantic may reasonably
require to be executed and delivered in connection with the
first advance hereunder;
(v) Title Policies for all Properties then subject to Security
Documents or to be made subject to Security Documents
contemporaneously with the first advance of Loan proceeds (or an
irrevocable commitment to issue each such Title Policy),
effective as of the date of the Notes, in form and substance
satisfactory to Atlantic in its reasonable judgment, confirming
the first priority status and validity of the lien of the
Security Documents on the Property to secure the obligations
under the Notes, the Security Documents and the other Loan
Documents;
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(vi) for each Project then subject to this Agreement, a survey of
the subject Land, and a geotechnical report and environmental
audit, satisfactory to Atlantic, in its reasonable judgment;
(vii) opinions of counsel reasonably satisfactory to Atlantic
addressing the following matters:
(A) each Borrower then executing and delivering any Loan
Documents is duly organized and validly existing, and in
good standing and authorized to do business in each state
in which it owns a Project, with power and authority to
own its Projects and to perform its obligations under the
Loan Documents to which it is a party and to carry on its
business as it is now being conducted;
(B) the execution, delivery and performance of the Loan
Documents delivered by each such Borrower have been duly
and validly authorized by all necessary action of such
Borrower; and
(C) the Loan Documents executed by each such Borrower
constitute valid and binding obligations of such Borrower,
enforceable against such Borrower in accordance with their
respective terms, except as such enforcement may be
limited by applicable bankruptcy laws and other customary
exceptions;
(viii) for each Project then under construction or completed,
certificates of insurance confirming the existence of all
insurance required by Section 4.9 hereof;
(ix) Copies of the Plans, Project Budget and Project Schedule for
each Project then under construction or then being added to
this Agreement; and
(x) Certification from Homestead that any Property(ies) then being
added to this Agreement either contain no Material Changes or
any Material Changes have previously been approved by Atlantic.
(b) The Title Insurer shall have been paid all title insurance premiums,
filing fees, recording fees and taxes required for proper recording of the
Security Documents to be recorded at such time and any other Loan Document to be
filed or recorded at such time.
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(c) There shall not have occurred and be continuing any Default.
(d) There shall be no actual or threatened condemnation of all or any
portion of the Land comprising any Property then subject to any of the Security
Documents.
(e) Neither Homestead nor any Borrower shall be the subject of any
bankruptcy or similar proceeding.
(f) There shall not have occurred and be continuing beyond any applicable
cure or grace period any default under any of the Prior Loan Documents.
(g) The representations and warranties set forth in Article 3 hereof shall
be true and correct in all material respects with respect to each Project then
subject to the Security Documents.
Section 5.2. CONDITIONS PRECEDENT TO FIRST ADVANCE FOR NEW PROJECT.
Atlantic shall not be obligated to advance funds in respect of a new Future
Project for which Pursuit Costs are to be funded or for any Project to be
acquired by Homestead or any Subsidiary until each of the following conditions
is fulfilled:
(a) The conditions precedent set forth in Section 5.1 shall remain
satisfied.
(b) Receipt by Atlantic of each of the following for each Future Project
for which Pursuit Costs are to be funded:
(i) a Funding Notice for the subject Future Project;
(ii) if applicable, a fully executed copy of any agreement to be
delivered by a Subsidiary in connection with such Future
Project whereby such Subsidiary agrees to be bound by the terms
of this Agreement with respect to the subject Future Project;
and
(iii) a Development Budget and Development Schedule for the subject
Future Project.
(c) Receipt by Atlantic of each of the following for each Project:
(i) an Acquisition Notice for the subject Project;
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(ii) if applicable, a fully executed copy of any agreement to be
delivered by a Subsidiary in connection with such Project
whereby such Subsidiary agrees to be bound by the terms of this
Agreement with respect to the subject Project;
(iii) duly executed copies of any Homestead Security Documents,
Partnership Security Documents or Subsidiary Security
Documents, any Subsidiary Note, and any other Loan Documents
which Atlantic may reasonably require to be executed and
delivered in connection with such Project;
(iv) an opinion of counsel addressing, as to the subject Borrower
and the Loan Documents then being executed by such Borrower,
the matters set forth in Section 5.1(a)(viii) above;
(v) the Title Policy for the subject Property (or irrevocable
commitment to issue such Title Policy), effective as of the
date of the first advance in respect of such Project, in form
and substance satisfactory to Atlantic in its reasonable
judgment, confirming the first priority status and validity of
the lien of the Security Documents on the Property to secure
the obligations under the Notes, the Security Documents and the
other Loan Documents;
(vi) a survey of the subject Land, and a soils report, geotechnical
report and environmental audit of the Land, satisfactory to
Atlantic, in its reasonable judgment; and
(vii) Copies of the Plans, Project Budget and Project Schedule for
the subject Project.
(d) With respect to each Project, the Title Insurer shall have been paid
all title insurance premiums, filing fees, recording fees and taxes required for
proper recording of the Security Documents to be recorded at such time and any
other Loan Document to be filed or recorded at such time.
(e) There shall not have occurred and be continuing any Default.
(f) There shall be no actual or threatened condemnation of all or any
portion of the Land comprising the Property.
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(g) The Completion and Payment Guaranty shall be in full force and effect.
Section 5.3. INITIAL IMPROVEMENT ADVANCE CONDITIONS. Atlantic's initial
obligation to advance any of the Loan proceeds to a Borrower for construction of
Improvements is conditioned upon the conditions precedent set forth in Sections
5.1 and 5.2 remaining satisfied and, if requested by Atlantic, receipt of the
following:
(a) Evidence of the issuance of all Permits required by any Governmental
Authority as a condition to the commencement of construction of the subject
Improvements.
(b) A copy of the Construction Contract, Architect's Agreement and any
Consultants' Agreements for the subject Project.
(c) Certificates of insurance and other certificates or information in form
and substance reasonably satisfactory to Atlantic confirming the existence of
all insurance required by Section 4.9 hereof.
(d) An executed Contractor's Certificate, Architect's Certificate and
Consultants' Certificates from the Contractor, Architect and Consultants
performing services to the subject Project.
(e) Such further financing statements and security agreements, executed and
acknowledged by the subject Borrower, relating to construction materials for the
subject Project as Atlantic may reasonably require.
(f) Evidence of the availability of utilities and access to and from the
subject Project sufficient for its intended use.
Section 5.4. ADDITIONAL IMPROVEMENT ADVANCE CONDITIONS. After the initial
advance, additional advances made for the purpose of constructing any subject
Improvements shall be subject to the following conditions:
(a) The conditions precedent set forth in Sections 5.1, 5.2 and 5.3 shall
remain satisfied.
(b) All Permits required under Governmental Requirements for construction
of the subject Improvements shall be legally valid and in force and effect.
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(c) The subject Property and Improvements shall not have suffered any
damage or deterioration without provision for arrangements satisfactory to
Atlantic for the restoration and replacement of the damage or deterioration to
such Property or Improvements.
Section 5.5. FINAL-ADVANCE CONDITIONS. Atlantic's obligation to advance
any of the Loan proceeds to a Borrower for the Final Advance for the
Improvements comprising a Project is conditioned upon the following and, if
requested by Atlantic, receipt by Atlantic of evidence reasonably satisfactory
to Atlantic that such conditions have been satisfied:
(a) The completion of all Improvements in substantial accordance with the
Plans.
(b) Receipt by the Borrower of all Final CO's issued by the appropriate
Governmental Authorities for the Improvements and all other Permits necessary
for use of the subject Improvements and Property.
(c) The Inspecting A/E for the Project shall have executed a certificate of
final completion with respect to all of the Improvements required under the
applicable Construction Contract.
(d) The Contractor, all Subcontractors and other parties (including
Architects and Consultants, if applicable) who performed work for the subject
Project have been paid (or with the application of the final advance of Loan
proceeds for such Project, will have been paid) in full, except for amounts
which the Borrower in good faith disputes and/or amounts which Homestead and/or
the subject Borrower intends to pay with its own funds provided any liens filed
against the Project have been released or bonded over.
(e) Receipt by Borrower of an as-built survey showing the location of all
Improvements, including parking areas, streets and the location of all utilities
and other easements, encroachments and building set back lines, if any, together
with delivery to Atlantic of an endorsement to the Title Policy removing any
exception for matters of survey.
(f) All remaining punchlist items have been completed by the Contractor and
approved by the Borrower.
(g) All conditions precedent to the "Final Payment" required under the
Construction Contract shall have been satisfied.
(h) The Project is otherwise ready for immediate occupancy by guests.
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ARTICLE 6.
PROCEDURE FOR ADVANCES; RESERVES
Section 6.1. GENERAL. Atlantic will disburse the proceeds of the Loans on
a monthly basis for the cost categories set forth in the applicable Development
Budgets and Project Budgets. Homestead shall submit a written request for
advance in a form approved by Atlantic by the 25th day of each month and,
provided Atlantic determines that all conditions precedent to the advance have
been satisfied, disbursements will be made by the 1st day of the immediately
following month. Each request for advance shall set forth, on a Project-by-
Project basis, Homestead's reasonable estimate of the hard and soft costs and
expenses incurred during the month just ending and for which reimbursement is
being sought. With each request for advance after the first, Homestead shall
also provide a reconciliation indicating the amount by which the immediately
preceding advance made by Atlantic exceeded the actual hard and soft costs for
the period covered by such advance and the amount by which the request for
advance for the month just ending has been adjusted on account of any over- or
underpayment by Atlantic for the preceding month. With respect to the final
advance of Loan proceeds in respect of a Project, if the final reconciliation
submitted in the month following such advance reflects that Loan proceeds in
excess of actual costs were advanced, such overpayment (together with accrued
and unpaid interest thereon) shall be repaid by Borrower to Atlantic within 15
days after such reconciliation is delivered to Atlantic. Any additional Loan
proceeds owing to Borrower on the basis of such final reconciliation shall be
advanced by Atlantic with the balance of the monthly advance made by Atlantic
under this Section 6.1.
All disbursements with respect to any request for an advance submitted
other than on the 25th day of a month will be made within ten (10) business days
after the later of (i) receipt by Atlantic of a written request for an advance
from Homestead in a form approved by Atlantic and (ii) Atlantic's determination
that all conditions precedent to the advance have been satisfied.
All disbursements shall be made in accordance with any instructions
contained in the Homestead request for advance.
Section 6.2. PAYMENTS TO ATLANTIC. Notwithstanding any other provisions
of this Agreement, Atlantic may, at it's option and without notice or
authorization by Homestead or any Borrower, use any Loan proceeds to pay, as and
when due, any interest on the Loans. The parties acknowledge that the Loans
provide for interest reserves in amounts sufficient to pay all interest due and
payable in respect of each Project through completion of same, and Homestead and
each Borrower specifically authorizes Atlantic to advance portions of such
interest reserves to pay interest on the Loans as and when the same comes due.
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Section 6.3. RETAINAGE AND CONTRACTOR'S FEE HOLDBACK. The parties
acknowledge that Atlantic shall retain, and Homestead shall not request
disbursement, of any retainages provided for under any Construction Contract,
which amounts shall be retained by Atlantic to secure full and complete
performance of all construction obligations hereunder (hereinafter, the
"Retainage Holdback"). Provided no Default exists hereunder, Atlantic shall
disburse the Retainage Holdback in accordance with the provisions of the
applicable Construction Contract as requested by Homestead in its requests for
advances. Upon the occurrence of a Default hereunder, Atlantic shall have no
obligation to make further disbursements from the Retainage Holdback, and no
Borrower shall be entitled to any such disbursements, until such Default is
cured. Upon the occurrence of an Event of Default hereunder, Atlantic may apply
the Retainage Holdback against any of the obligations secured by the Security
Documents as Atlantic sees fit or, in Atlantic's discretion, to the completion
of any incomplete Improvements. Subject to the foregoing terms and provisions,
to the extent not theretofore disbursed, Atlantic will disburse the amounts in
the Retainage Holdback in respect of a Project concurrently with the Final
Advance for such Project.
Section 6.4. INTEREST RESERVE. Atlantic shall, on the date hereof,
withhold from the proceeds of the Loans available for distribution the amount of
Six Million, Eight Hundred Thirty-Five Thousand, Seven Hundred Thirty-Six
Dollars ($6,835,736) (the "Interest Reserve"). Provided no Default exists
hereunder, the Interest Reserve shall be disbursed for the payment of interest
on the Loans as such interest becomes due and payable. Upon the occurrence of a
Default hereunder, Atlantic shall have no obligation to make further
disbursements from the Interest Reserve, and no Borrower shall be entitled to
any such disbursements, until such Default is cured. Should interest payable on
the Loans exceed the amount of the Interest Reserve, the Borrowers shall
promptly pay such amounts. Upon the occurrence of an Event of Default, Atlantic
may apply any undisbursed portion of the foregoing reserve against any of the
obligations secured by the Security Documents as it sees fit or, at Atlantic's
discretion, to the completion of and incomplete Improvements.
Section 6.5. OWNER'S CONTINGENCY. The parties acknowledge that each
Project Budget shall contain an owner's contingency (an "Owner's Contingency")
equal to no less than 2% of Project hard and soft costs contained within the
Project Budget. Provided no Default exists hereunder, the Owner's Contingency
for a Project shall be disbursed by Atlantic to the subject Borrower to cover
unanticipated Project costs, costs associated with change orders and hard and
soft cost overruns (before such Borrower or Homestead, as guarantor under the
Completion and Payment Guaranty, shall be required to cover such additional
costs pursuant to the provisions of Section 6.6 hereinbelow or the Completion
and Payment Guaranty) as and when such payments are due and payable. Requests
for disbursement of portions of the Owner's Contingency shall be made with
Homestead's monthly requests for advance of Loan proceeds.
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Upon the occurrence of a Default hereunder, Atlantic shall have no obligation to
advance any portion of the Owner's Contingency until such Default is cured.
Upon the occurrence of an Event of Default, Atlantic may apply the Owner's
Contingency against any of the obligations secured by the Security Documents as
Atlantic sees fit, or at Atlantic's option, to the completion of any incomplete
Improvements.
Section 6.6. COST OVERRUNS AND SAVINGS; CHANGE ORDER RESERVE. In the
event that the costs to acquire and complete any Project in its entirety,
including, without limitation, the furnishing thereof, exceed the amount of Loan
proceeds available for the subject Project (including the applicable Owner's
Contingency), then the subject Borrower shall with its own funds pay all costs
and expenses which may be required to complete the subject Project as and when
such costs and expenses become due and payable. In the event the costs to
acquire and complete any Project are less than the amount of Loan proceeds
allocated to the subject Project, then the unapplied portion of the Loan
proceeds (including any unexpended portion of the applicable Owner's Contingency
and amounts required to be refunded by Borrower under Section 6.1 for any
overpayments of Loan proceeds made in the final advance for a Project) shall be
retained by Atlantic as a reserve for Change Orders on other Projects which are
made in accordance with the requirements of this Agreement (the "Change Order
Reserve"). Provided no Default exists hereunder, the Change Order Reserve shall
be disbursed by Atlantic to any Borrower from time to time to cover the costs of
Change Orders to the extent any such Change Order results in Project costs
exceeding the Project Budget, including the Owner's Contingency, for such
Project (before such Borrower or Homestead, as guarantor under the Completion
and Payment Guaranty, shall be required to cover such additional costs pursuant
to the provisions of this Section 6.6 or the Completion and Payment Guaranty).
Requests for disbursement of portions of the Change Order Reserve shall be made
with Homestead's monthly requests for advance of Loan proceeds. Upon the
occurrence of a Default hereunder, Atlantic shall have no obligation to advance
any portion of the Change Order Reserve until such Default is cured. Upon the
occurrence of an Event of Default, Atlantic may apply the Change Order Reserve
against any of the obligations secured by the Security Documents as Atlantic
sees fit or, at Atlantic's option, to the completion of any incomplete
Improvements.
ARTICLE 7.
EVENTS OF DEFAULT
The occurrence of any one or more of the following shall constitute an
Event of Default under this Agreement:
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Section 7.1. FAILURE TO PAY. The failure by a Borrower to pay when due
any sums required to be paid under the Notes, the Security Documents, this
Agreement or any other Loan Documents, and such failure is not cured within 10
days after receipt of written notice from Atlantic.
Section 7.2. OTHER LOAN DOCUMENT DEFAULTS. To the extent any such
failure, breach or inaccuracy has, or would have, a Material Adverse Effect, the
failure by a Borrower or Homestead to perform or observe, as and when required,
any covenant, agreement, obligation or condition required to be performed or
observed under this Agreement or under any of the other Loan Documents other
than as set forth elsewhere in this Article 7 (for which no additional grace or
cure period is given by this Section 7.2, or the existence of any breach or
inaccuracy in any of the representations, covenants or warranties set forth in
this Agreement or in any of the other Loan Documents, provided, however, that
(i) no Event of Default shall exist hereunder on account of a breach of any
representation, warranty or covenant set forth in any of the other Loan
Documents (other than this Agreement) until Homestead or such Borrower, as
applicable, shall have failed to cure such breach within any applicable notice
and cure period therein provided; and (ii) no Event of Default shall exist
hereunder on account of a breach of any representation, warranty or covenant
contained herein unless and until Atlantic shall provide written notice of such
breach to Homestead or such Borrower and such entity shall fail to cure the same
within 30 days after receipt of such notice, provided if such breach is of such
a nature that it cannot be cured within such 30 day period, it shall not
constitute an Event of Default hereunder so long as Homestead or such Borrower,
as applicable, commences its cure of such breach within such 30 day period and
thereafter diligently and continuously proceeds with the curing of same within a
reasonable period of time not to exceed 180 days.
Section 7.3. JUDGMENT OR ATTACHMENT. The entry by any court of a final
judgment in excess of $500,000 against Homestead or a Borrower that is not
satisfactorily stayed or discharged within 30 days from the date thereof, or any
attachment of any of the Properties or any of the proceeds of the Loans that
shall not be released, stayed or otherwise provided for to Atlantic's
satisfaction within 30 days after the occurrence thereof; provided that in the
case of a stay, Homestead or the subject Borrower, as applicable, shall have
reserved for the full amount thereof.
Section 7.4. VIOLATION OF GOVERNMENTAL REQUIREMENTS. The institution of
any judicial or administrative proceeding alleging that any of the Improvements
violate any Governmental Requirements if such violation gives rise to a Material
Adverse Effect and the failure to have such proceeding dismissed or such
violation corrected within 30 days after the institution thereof, except that
Homestead or the applicable Borrower shall have the right to contest any such
proceeding beyond such 30 day period, provided that Atlantic is satisfied that
the prosecution
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of such proceeding will neither have any Material Adverse Effect nor materially
impair Atlantic's security.
Section 7.5. INSOLVENCY, ETC. The occurrence of any of the following:
(a) Homestead or any Borrower shall generally not pay its debts as they
become due or shall admit in writing its inability to pay its debts, or shall
make a general assignment for the benefit of creditors;
(b) Homestead or any Borrower shall commence any case, proceeding or other
action seeking reorganization, arrangement, adjustment, liquidation, dissolution
or composition of it or its debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, or seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or any
substantial part of its property;
(c) Homestead or any Borrower shall take any corporate action to authorize
any of the actions set forth above in paragraphs (a) or (b); or
(d) Any case, proceeding or other action against Homestead or any Borrower
shall be commenced seeking to have an order for relief entered against it as
debtor, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, or seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its property, and such case, proceeding or
other action (i) results in the entry of an order for relief against it which is
not fully stayed within 15 Business Days after the entry thereof or (ii) remains
undismissed for a period of 60 days.
Section 7.6. UNAPPROVED TRANSFER. Any sale, conveyance, transfer,
disposition, alienation, hypothecation, leasing (except in the ordinary course
of business) or further encumbrancing of a Project, or any portion thereof or
any interest therein, by any Borrower, other than any conveyance of a portion of
the unimproved land associated with such Project which is in excess of what is
needed for such Project (which conveyance is permitted), or a sale, conveyance,
transfer, disposition, alienation, hypothecation or encumbrancing of any legal
or equitable interest in a Borrower or Homestead in violation of the Loan
Documents shall be an Event of Default as of the date of such transfer, without
any right to cure. In the case of a permitted conveyance of excess land, as
hereinbefore provided, Lender shall, upon request of Homestead, execute a
partial release, releasing the lien of any Security Documents applicable to such
excess land.
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ARTICLE 8.
REMEDIES
Section 8.1. GENERAL. Upon the occurrence of any Event of Default an
defined in Article 7 of this Agreement, Atlantic, at its option, shall have the
following rights and remedies:
(a) Atlantic may declare any one or more of the Notes to be immediately due
and payable, whereupon the Notes shall become forthwith due and payable without
presentment, demand, protest or further notice of any kind.
(b) Atlantic may bring a foreclosure action with respect to the Security
Documents, take possession of any one or more of the Properties or exercise any
other remedy provided for in the Security Documents.
(c) Atlantic shall be entitled to proceed simultaneously, or selectively
and successively, to enforce its rights and remedies under the Notes, the
Security Documents, the Completion and Payment Guaranty or this Agreement, and
to exercise any or all other rights and remedies available to Atlantic at law or
in equity.
(d) In the event Atlantic shall elect to enforce its rights selectively
under any one or more of the Loan Documents, such action shall not be deemed a
waiver or discharge of any lien or encumbrance securing payment of the Notes
until such time as Atlantic shall have been paid in full all sums due under the
Notes or secured by the Security Documents, including any sums advanced or
disbursed pursuant to this Agreement. The foreclosure of any lien provided
pursuant to this Agreement or the Security Documents, without the simultaneous
foreclosure of all such liens, shall not merge the liens granted which are not
foreclosed with any interest which Atlantic might obtain as a result of such
selective and successive foreclosure.
(e) Atlantic shall have the right, but not the obligation, to take
possession of any one or more of the Properties and proceed to complete the
Improvements thereto according to the applicable Plans. For this purpose, each
Borrower hereby conditionally assigns to Atlantic as additional security for the
repayment of the Loans all of each such Borrower's rights to the Plans for the
Projects owned by it, any contracts pertaining to the Project owned by such
Borrower, whether for construction, sale or otherwise, and any Permits
pertaining to the subject Property(ies); provided, Atlantic shall, upon
occurrence of an Event of Default, have the option to exercise this assignment,
but shall not be obligated to accept this assignment or to assume any liability
of any Borrower under any such Plans, contracts or Permits. Furthermore, each
Borrower hereby constitutes and appoints Atlantic as its true and lawful
attorney-in-fact with full
35
<PAGE>
power of substitution to complete, or cause to be completed, the Improvements
owned by such Borrower in the name of such Borrower and hereby empowers said
attorney or attorneys as follows: (i) to use any funds of Borrower, including
any balance that may be held in escrow and any funds which may remain unadvanced
hereunder, for the purpose of completing the Improvements being built by such
Borrower; (ii) to make such additional changes and corrections in the Plans for
such Improvements as may reasonably be necessary or desirable to complete such
Improvements in substantially the manner contemplated by the Plans for such
Improvements and in a good and workmanlike manner; (iii) to employ such
contractors, subcontractors, agents, architects and inspectors as shall be
required for said purposes; (iv) to pay, settle or compromise all existing bills
and claims that are or may become liens against the subject Property(ies) or any
part thereof or may be necessary or desirable for the completion of the subject
Improvements or the clearance of title; (v) to execute all applications and
certificates in the name of Borrower which may be required by law or by any
contract relating to the subject Improvements; and (vi) to do any and every act
with respect to the applicable Property(ies) which such Borrower may do in its
own behalf. It is understood and agreed that this power of attorney shall be
deemed to be a power coupled with an interest which cannot be revoked.
Atlantic, as attorney-in-fact, shall also have the power to defend, to the
extent Atlantic reasonably deems necessary, at such Borrower's cost, all actions
or proceedings in connection with the subject Improvements and Property(ies).
At the time Atlantic takes possession of a Property(ies), or any part thereof,
all materials on such Property owned by Borrower shall become the property of
Atlantic for the purpose of completing the subject Improvements. In addition,
any materials or equipment paid for with the proceeds of the Notes but stored at
a location other than the subject Property(ies) shall become the property of
Atlantic when it takes possession of the subject Property(ies). Such Borrower
shall pay Atlantic the cost of completion. Each Borrower hereby authorizes
Atlantic to add such costs to the indebtedness of the Borrowers to Atlantic,
which costs shall be secured by the Security Documents. Any of the foregoing
actions by Atlantic shall not relieve the Borrowers of their responsibility to
repay the Notes. The foregoing provision shall not be construed as creating any
third party beneficiary contract and nothing in the foregoing shall be construed
as giving or conferring any rights or benefits whatsoever to or upon any other
person or entities other than the parties to this Agreement. Homestead shall
indemnify, defend and hold harmless Atlantic from and against any and all
claims, liabilities, loss, damages, suits, actions, expenses (including
reasonable attorneys' fees) and costs arising from any actions taken by Atlantic
in accordance with the power of attorney herein granted except to the extent
attributable to the gross negligence or willful misconduct of Atlantic.
(f) Atlantic shall not have any obligation to make any advances under the
Notes pursuant to this Agreement after the occurrence and during the continuance
of an Event of
36
<PAGE>
Default and at any time during such period, may unilaterally elect to terminate
any obligation of Atlantic to make any future advances under the Notes pursuant
to this Agreement.
Section 8.2. REMEDIES CUMULATIVE. No failure or delay by Atlantic in the
exercise of any rights or remedies available to it under the Loan Documents or
at law or in equity shall operate as a waiver thereof, nor shall any single or
partial exercise by Atlantic of any such right or remedy preclude any further
exercise thereof or of any other right or remedy. The remedies provided in the
Loan Documents or available at law or in equity are cumulative and not
alternative.
ARTICLE 9.
MISCELLANEOUS
Section 9.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations, warranties and covenants contained herein shall survive the
execution of this Agreement, the making of the Loans and the delivery of the
Notes and other Loan Documents and the release of any portion of the liens of
the Security Documents, and shall remain in full force and effect until the
termination of this Agreement in accordance with Section 2.8 hereof.
Section 9.2. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, personal representatives, successors, assigns and affiliates, but shall
not be assignable by any party hereto without the prior written consent of the
other party hereto; provided that Homestead and/or the Partnership Borrower may
assign its rights hereunder in whole or in part to a Homestead Affiliate or
Subsidiary. Other than to a Homestead Affiliate or Subsidiary, no Borrower
shall, without the prior written consent of Atlantic, which consent Atlantic may
withhold in its sole discretion, directly or indirectly assign, transfer or
convey (i) this Agreement or any of the other Loan Documents, (ii) any of
Borrower's rights or obligations under any of the Loan Documents, (iii) any
portion of the proceeds of the Notes, (iv) any legal or equitable interest in
the Property or (v) any legal or equitable interest in such Borrower.
Section 9.3. NOTICES. Any notice or other communication provided for
herein or given hereunder to a party hereto shall be in writing and shall be
given by delivery, by telex, telecopier or by mail (registered or certified
mail, postage prepaid, return receipt requested) to the respective parties as
follows:
37
<PAGE>
If to Homestead:
Homestead Village Incorporated
125 Lincoln Avenue, Suite 300
Santa Fe, New Mexico 87501
Attention: David C. Dressler, Jr.
Facsimile: (505) 982-2925
If to Atlantic:
Security Capital Atlantic Incorporated
7777 Market Center Avenue
El Paso, Texas 79912
Attention: James C. Potts
Facsimile: (915) 877-3301
or to such other address with respect to a party as such party shall notify the
other in writing.
Section 9.4. WAIVER. No party may waive any of the terms or conditions of
this Agreement, except by a duly executed writing referring to the specific
provision to be waived.
Section 9.5. AMENDMENT. This Agreement may be amended only by a writing
duly executed by both Homestead and Atlantic.
Section 9.6. SEVERABILITY. Insofar as is possible, each provision of this
Agreement shall be interpreted so as to render it valid and enforceable under
applicable law and severable from the remainder of this Agreement. A finding
that any such provision is invalid or unenforceable in any jurisdiction shall
not affect the validity or enforceability of any other provision or the validity
or enforceability of such provision under the laws of any other jurisdiction.
Section 9.7. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement, and supersedes all other prior agreements and understandings, both
written and oral, among the parties hereto and their affiliates, with respect to
the subject matter hereof. The provisions of this Agreement supersede any
provisions set forth in the Existing Loan Documents relating to the disbursement
of Loan proceeds for the Projects.
Section 9.8. EXPENSES. Except as otherwise expressly contemplated herein
to the contrary, regardless of whether the transactions contemplated hereby are
consummated, each
38
<PAGE>
party hereto shall pay its own expenses incident to preparing for, entering into
and carrying out this Agreement and the consummation of the transactions
contemplated hereby.
Section 9.9. CAPTIONS. The Article, Section and Paragraph captions herein
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof.
Section 9.10. GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New Mexico.
Section 9.11. NO JOINT VENTURE OR PARTNERSHIP. Nothing contained in this
Agreement or in any of the other Loan Documents and no other aspect of the
relationship between Homestead or any Borrower and Atlantic shall be construed
as creating a partnership, joint venture, or other relationship of or between
Homestead or any Borrower and Atlantic other than the lending relationship of
lender and borrower. All rights and obligations granted to or undertaken by
either of the parties hereto shall be construed as incidents of such lending
relationship.
Section 9.12. NO THIRD PARTY BENEFICIARY RIGHTS CREATED. The parties
hereto expressly declare that it is their joint and mutual intention that this
Agreement and the transactions contemplated hereby shall not be construed as
creating a third party beneficiary contract, and neither this Agreement nor any
of the other Loan Documents shall be construed as giving or conferring any
rights or benefits whatsoever to or upon any other persons or entities other
than Homestead, any Borrower and Atlantic.
Section 9.13. INCORPORATION BY REFERENCE. This Agreement, the Notes and
the Security Documents are intended to be construed as part of the same
transaction, and all of the covenants, agreements, conditions, terms and
provisions contained in any one of the Loan Documents shall be deemed to be
included in each of the other Loan Documents with the same force and effect as
though set forth in full therein. In the event any of the provisions of this
Agreement are in conflict with or inconsistent with the provisions of the
Security Documents, this Agreement shall govern and control.
Section 9.14. COUNTERPARTS. This Agreement may be executed in counterpart
copies, each of which shall constitute an original, and all of which together
shall constitute one and the same document.
Section 9.15. SCOPE OF REVIEW OF PLANS. Neither the approval of the Plans
nor any subsequent inspections or approvals of the Improvements during
construction shall constitute a
39
<PAGE>
warranty or representation by Atlantic or any of its agents, representatives or
designees as to the technical or legal sufficiency, adequacy or safety of the
structures or any of their component parts, including without limitation
fixtures, equipment or furnishings, nor shall such approvals or inspections
constitute such a warranty or representation as to the subsoil conditions
involved in the Property or any other physical condition or feature pertaining
to the Property. All acts, including any failure to act, relating to the
Property by any agents, representatives or designees of Atlantic are performed
solely for the benefit of Atlantic to assure repayment of the Loans and are not
for the benefit of Borrower or any other person, including without limitation
purchasers, guests or other occupants.
Section 9.16. GOVERNMENTAL REGULATION. Anything contained in this
Agreement to the contrary notwithstanding, Atlantic shall not be obligated to
extend credit to Borrower in an amount in violation of any limitation or
prohibition provided by any applicable governmental statute or regulation.
Section 9.17. SUBORDINATION. Each Borrower hereby subordinates all
rights, liens and claims for any of the proceeds and advances under the Notes to
the liens, operation and effect of the Security Documents.
Section 9.18. INDEMNITY. Homestead and each Borrower agree to indemnify,
defend and hold Atlantic harmless from and against any and all claims, injuries,
damages and liabilities that may be asserted or claimed against Atlantic by any
person as a result or by reason of, or that may be incurred or suffered by
Atlantic as a result or by reason of, the construction contemplated herein or
the operation of the ownership or Encumbered Property or any part thereof.
40
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement, or
caused this Agreement to be duly executed on its behalf, as of the date first
set forth above.
HOMESTEAD VILLAGE INCORPORATED
By: /s/ David C. Dressler, Jr.
--------------------------
David C. Dressler, Jr.
Chairman
SECURITY CAPITAL ATLANTIC INCORPORATED
By: /s/ James C. Potts
------------------
James C. Potts
Co-Chairman
S-1
<PAGE>
EXHIBITS
--------
<TABLE>
<CAPTION>
<S> <C>
Exhibit A - Existing Projects, Future Projects and Allocated Maximum Loan
Amount for Existing and Future Projects
Exhibit B - Form of Completion and Payment Guaranty
Exhibit C - Form of Homestead Security Documents
Exhibit D - Form of Partnership Security Documents
</TABLE>
<PAGE>
EXHIBIT 21
The registrant has 18 consolidated wholly owned subsidiaries carrying on the
same line of business and operating in the United States.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of (a) our report dated February 3, 1997, with respect to the financial
statements at December 31, 1996 and 1995 and for each of the three years in the
period ended December 31, 1996 and schedule as of December 31, 1996 of Security
Capital Atlantic Incorporated ("ATLANTIC"), (b) our report dated April 26, 1996
with respect to the combined Historical Summary of Gross Income and Direct
Operating Expenses of the Group C Communities of ATLANTIC, (c) our report dated
August 13, 1996 with respect to the combined Historical Summary of Gross Income
and Direct Operating Expenses of the Group D Communities of ATLANTIC and (d) our
report dated January 31, 1997 with respect to the combined Historical Summary of
Gross Income and Direct Operating Expenses of the Group E Communities of
ATLANTIC, all of which are included in the Registration Statement of ATLANTIC on
Form S-11 and the related Prospectus for the registration of 4,000,000 shares of
its common stock.
Dallas, Texas
February 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,011
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,157,235
<DEPRECIATION> 41,166
<TOTAL-ASSETS> 1,135,065
<CURRENT-LIABILITIES> 0
<BONDS> 155,790
<COMMON> 379
0
0
<OTHER-SE> 698,263
<TOTAL-LIABILITY-AND-EQUITY> 1,135,065
<SALES> 137,729
<TOTAL-REVENUES> 138,156
<CGS> 0
<TOTAL-COSTS> 75,104
<OTHER-EXPENSES> 11,373
<LOSS-PROVISION> 2,500
<INTEREST-EXPENSE> 16,181
<INCOME-PRETAX> 42,569
<INCOME-TAX> 0
<INCOME-CONTINUING> 42,569
<DISCONTINUED> 0
<EXTRAORDINARY> (3,940)
<CHANGES> 0
<NET-INCOME> 38,629
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
</TABLE>
