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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported) March 24, 1997
----------------
SECURITY CAPITAL ATLANTIC INCORPORATED
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(Exact Name of Registrant as Specified in its Charter)
Maryland
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(State or Other Jurisdiction of Incorporation)
1-12303 85-0415503
(Commission File Number) (I.R.S. Employer Identification No.)
Six Piedmont Center, Atlanta, Georgia 30305
(Address of Principal Executive Offices) (Zip Code)
(404) 237-9292
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS.
On March 24, 1997, Security Capital Atlantic Incorporated, a Maryland
corporation ("ATLANTIC"), announced that it had entered into a definitive
agreement relating to a transaction (the "Transaction") pursuant to which
ATLANTIC will acquire the operations and business of its REIT manager and
property manager currently being conducted through wholly owned subsidiaries of
Security Capital Group Incorporated ("Security Capital"). A copy of the Merger
and Issuance Agreement, dated as of March 24, 1997, between ATLANTIC and
Security Capital (the "Merger Agreement") is included as an exhibit to this
report and is incorporated herein by reference. Also included as exhibits to
this report and incorporated herein by reference are the following forms of
agreements relating to the Transaction and which will be entered into at the
closing of the Transaction: (i) the Amended and Restated ATLANTIC Investor
Agreement between ATLANTIC and Security Capital, (ii) the Administrative
Services Agreement between ATLANTIC and SC Group Incorporated and (iii) the
Protection of Business Agreement between ATLANTIC and Security Capital. A copy
of the press release announcing the Merger Agreement and describing the
Transaction is included as an exhibit to this report and is incorporated herein
by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
EXHIBIT NO. DOCUMENT DESCRIPTION
----------- --------------------
2.1 Merger and Issuance Agreement, dated as of March 24, 1997,
between Security Capital Atlantic Incorporated and Security
Capital Group Incorporated
10.1 Form of the Amended and Restated ATLANTIC Investor Agreement
between Security Capital Atlantic Incorporated and Security
Capital Group Incorporated
10.2 Form of the Administrative Services Agreement between
Security Capital Atlantic Incorporated and SC Group Incorporated
10.3 Form of the Protection of Business Agreement between Security
Capital Atlantic Incorporated and Security Capital Group
Incorporated
99.1 Press Release dated March 24, 1997
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SECURITY CAPITAL ATLANTIC INCORPORATED
Dated: March 26, 1997 By: /S/ JEFFREY A. KLOPF
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Jeffrey A. Klopf
Senior Vice President and Secretary
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EXHIBIT 2.1
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MERGER AND ISSUANCE AGREEMENT
DATED AS OF MARCH 24, 1997
BY AND BETWEEN
SECURITY CAPITAL ATLANTIC INCORPORATED
AND
SECURITY CAPITAL GROUP INCORPORATED
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TABLE OF CONTENTS
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PAGE
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ARTICLE I DEFINITIONS......................................... 1
SECTION 1.1 DEFINITIONS.................................. 1
ARTICLE II THE MERGERS, WARRANT ISSUANCE AND RIGHTS OFFERING.. 6
SECTION 2.1 THE MERGERS.................................. 6
SECTION 2.2 WARRANT ISSUANCE............................. 7
SECTION 2.3 THE RIGHTS OFFERING.......................... 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ATLANTIC........ 8
SECTION 3.1 ORGANIZATION AND QUALIFICATION............... 8
SECTION 3.2 CAPITALIZATION............................... 8
SECTION 3.3 ISSUANCE OF SECURITIES....................... 9
SECTION 3.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS...... 9
SECTION 3.5 REGISTRATION STATEMENTS AND PROXY
STATEMENT AND PROSPECTUS................... 10
SECTION 3.6 DISCLOSURE, FINANCIAL STATEMENTS AND
ABSENCE OF CERTAIN CHANGES................. 11
SECTION 3.7 ABSENCE OF UNDISCLOSED LIABILITIES........... 11
SECTION 3.8 BROKERS AND FINDERS.......................... 11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SCG.............. 12
SECTION 4.1 ORGANIZATION AND QUALIFICATION............... 12
SECTION 4.2 CAPITALIZATION............................... 12
SECTION 4.3 ISSUANCE OF SECURITIES....................... 13
SECTION 4.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS...... 13
SECTION 4.5 FINANCIAL STATEMENTS......................... 14
SECTION 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS......... 15
SECTION 4.7 REGISTRATION STATEMENTS AND PROXY
STATEMENT AND PROSPECTUSES................. 15
SECTION 4.8 TAXES........................................ 15
SECTION 4.9 ABSENCE OF UNDISCLOSED LIABILITIES........... 17
SECTION 4.10 LITIGATION.................................. 17
SECTION 4.11 NO VIOLATION OF LAW......................... 17
SECTION 4.12 INSURANCE................................... 18
SECTION 4.13 EMPLOYEE BENEFIT PLANS...................... 18
SECTION 4.14 INTELLECTUAL PROPERTY....................... 18
SECTION 4.15 LABOR....................................... 19
SECTION 4.16 BROKERS AND FINDERS......................... 19
SECTION 4.17 INVESTMENT COMPANY ACT...................... 19
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SECTION 4.18 ADEQUACY OF SCG CONSIDERATION............... 19
SECTION 4.19 INVESTMENT IN SECURITIES.................... 19
SECTION 4.20 TITLE TO ASSETS; NO REAL PROPERTY........... 20
SECTION 4.21 PROJECTIONS................................. 20
ARTICLE V CONDUCT OF BUSINESSES PENDING THE MERGER CLOSING.... 21
SECTION 5.1 CONDUCT OF BUSINESSES........................ 21
SECTION 5.2 CONDUCT OF BUSINESS OF ATLANTIC.............. 23
ARTICLE VI ADDITIONAL AGREEMENTS.............................. 23
SECTION 6.1 ACCESS TO INFORMATION........................ 23
SECTION 6.2 PROXY STATEMENT AND REGISTRATION STATEMENT... 24
SECTION 6.3 SHAREHOLDERS' APPROVAL....................... 24
SECTION 6.4 AFFILIATE AGREEMENTS......................... 25
SECTION 6.5 EXCHANGE..................................... 25
SECTION 6.6 EXPENSES..................................... 25
SECTION 6.7 AGREEMENT TO COOPERATE....................... 25
SECTION 6.8 PUBLIC STATEMENTS............................ 25
SECTION 6.9 CORRECTIONS TO THE SCG WARRANT REGISTRATION
STATEMENT AND SCG WARRANT PROSPECTUS....... 26
SECTION 6.10 VOTING OF SHARES............................ 26
SECTION 6.11 CONFIDENTIALITY............................. 26
SECTION 6.12 PERSONNEL................................... 28
SECTION 6.13 PRORATIONS.................................. 28
SECTION 6.14 TAX MATTERS................................. 29
SECTION 6.15 STANDSTILL.................................. 30
ARTICLE VII CONDITIONS........................................ 31
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS....... 31
SECTION 7.2 CONDITIONS TO OBLIGATIONS OF ATLANTIC........ 32
SECTION 7.3 CONDITIONS TO OBLIGATIONS OF SCG............. 33
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER................ 34
SECTION 8.1 TERMINATION.................................. 34
SECTION 8.2 EFFECT OF TERMINATION........................ 35
SECTION 8.3 AMENDMENT.................................... 35
SECTION 8.4 WAIVER....................................... 35
ARTICLE IX SURVIVAL AND REMEDY; INDEMNIFICATION............... 35
SECTION 9.1 INDEMNIFICATION.............................. 35
SECTION 9.2 LIMITATION OF INDEMNIFICATION................ 36
SECTION 9.3 NOTICE OF CLAIMS; ASSUMPTION OF DEFENSE...... 36
SECTION 9.4 SETTLEMENT OR COMPROMISE..................... 37
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SECTION 9.5 FAILURE OF INDEMNIFYING PARTY TO ACT......... 37
SECTION 9.6 SURVIVAL..................................... 37
SECTION 9.7 WAIVER OF COUNTERCLAIMS FOR INDEMNIFICATION.. 37
ARTICLE X GENERAL PROVISIONS.................................. 38
SECTION 10.1 NOTICES..................................... 38
SECTION 10.2 INTERPRETATION.............................. 39
SECTION 10.3 MISCELLANEOUS............................... 39
SECTION 10.4 COUNTERPARTS................................ 39
SECTION 10.5 PARTIES IN INTEREST......................... 39
SECTION 10.6 NO PRESUMPTION AGAINST DRAFTER.............. 39
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EXHIBITS
EXHIBIT I AGREEMENT AND PLAN OF MERGER
EXHIBIT II WARRANT AGREEMENT
EXHIBIT III WARRANT ISSUANCE AGREEMENT
EXHIBIT IV AMENDED AND RESTATED ATLANTIC INVESTOR AGREEMENT
EXHIBIT V ADMINISTRATIVE SERVICES AGREEMENT
EXHIBIT VI LICENSE AGREEMENT
EXHIBIT VII PROTECTION OF BUSINESS
EXHIBIT VIII OPINION OF MAYER, BROWN & PLATT
SCHEDULES
SCHEDULE 3.2(b) SUBSCRIPTIONS, OPTIONS, ETC.
SCHEDULE 3.4(b) ATLANTIC REQUIRED CONSENTS
SCHEDULE 4.4(b) SCG REQUIRED CONSENTS
SCHEDULE 4.10 SCG SUBSIDIARY LITIGATION
SCHEDULE 4.14 SCG SUBSIDIARIES' INTELLECTUAL PROPERTY
SCHEDULE 4.20 ASSETS AND PERSONNEL
SCHEDULE 7.1 AGREEMENTS TO BE TERMINATED
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MERGER AND ISSUANCE AGREEMENT
THIS MERGER AND ISSUANCE AGREEMENT (this "Agreement"), is entered into as
of March 24, 1997 by and between Security Capital Atlantic Incorporated, a
Maryland corporation ("ATLANTIC"), and Security Capital Group Incorporated, a
Maryland corporation ("SCG").
WHEREAS, the Board of Directors of each of SCG and ATLANTIC have approved
this Agreement and the transactions contemplated hereby upon the terms and
subject to the conditions set forth herein; and
WHEREAS, it is intended that pursuant to this Agreement, among other
things, SCG will cause its subsidiaries engaged in the conduct of the businesses
of managing the portfolio of and the properties owned by ATLANTIC to be merged
with and into a subsidiary of ATLANTIC in exchange for certain securities of
ATLANTIC.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Affiliate Agreement" shall have the meaning set forth in Section 6.4.
"Affiliate Group" shall have the meaning set forth in Section 4.8.
"Agreement and Plan of Merger" shall have the meaning set forth in Section
2.1.
"ATLANTIC 10-K" shall have the meaning set forth in Section 3.6.
"ATLANTIC Board" shall mean the Board of Directors of ATLANTIC.
"ATLANTIC Common Shares" shall mean the shares of common stock, $.01 par
value per share, of ATLANTIC.
"ATLANTIC Financial Statements" shall have the meaning set forth in Section
3.6.
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"ATLANTIC Prospectus" shall mean the prospectus, as amended and
supplemented, relating to the offering of ATLANTIC Common Shares pursuant to
Section 2.3, which will form a part of the ATLANTIC Registration Statement.
"ATLANTIC Registration Statement" shall mean the registration statement on
Form S-11 of ATLANTIC, of which the ATLANTIC Prospectus will form a part, which
has been or will be filed with the Commission in order to register the offering
of ATLANTIC Common Shares pursuant to Section 2.3.
"ATLANTIC Required Statutory Approvals" shall have the meaning set forth in
Section 3.4(c).
"ATLANTIC Shareholders' Approval Record Date" shall mean the record date
for determination of the holders of ATLANTIC Common Shares entitled to vote with
respect to obtaining the ATLANTIC Shareholders' Approval.
"ATLANTIC Shareholders' Approval" shall have the meaning set forth in
Section 6.3.
"ATLANTIC Special Committee" shall have the meaning set forth in Section
7.2(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission.
"Confidential Material" shall have the meaning set forth in Section
6.11(a).
"Current Market Price" of the ATLANTIC Common Shares and the SCG Class B
Common Shares for any day shall mean the last reported sales price on such day,
or, if no sale takes place on such day, the average of the reported closing bid
and asked prices on such day, in either case as reported on the New York Stock
Exchange or, if such security is not listed or admitted for trading on the New
York Stock Exchange, on the principal national securities exchange on which such
security is listed or admitted for trading or, if not listed or admitted for
trading on any national securities exchange, on the National Market System of
the National Association of Securities Dealers, Inc. Automated Quotations System
or, if such security is not quoted on such National Market System, the average
of the closing bid and asked prices on such day in the over-the-counter market
as reported by the National Association of Securities Dealers, Inc. Automated
Quotations System or, if bid and asked prices for such security on such day
shall not have been reported through the National Association of Securities
Dealers, Inc. Automated Quotations System, in the case of the ATLANTIC Common
Shares, the average of the bid and asked prices on such day as furnished by any
New York Stock Exchange member firm regularly making a market in ATLANTIC Common
Shares selected for such purpose by a Co-Chairman of the Board of ATLANTIC or
the ATLANTIC Board, or, in the case of the SCG Class B
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Common Shares, the fair market value of the SCG Class B Common Shares as
determined in good faith by the SCG Board.
"Employee Benefit Plans" shall have the meaning set forth in Section 4.13.
"Employees" shall have the meaning set forth in Section 4.13.
"Environmental Laws" means the Resource Conservation and Recovery Act and
the Comprehensive Environmental Response Compensation and Liability Act and
other federal laws governing the environment as in effect on the date of this
Agreement together with their implementing regulations as of the date of this
Agreement, and all state, regional, county, municipal and other local laws,
regulations and ordinances as in effect on the date hereof that are equivalent
or similar to the federal laws recited above or that purport to regulate
Hazardous Materials.
"Exchange" shall mean the New York Stock Exchange, another national
securities exchange or the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotations System.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean the average of the daily Current Market
Prices of an ATLANTIC Common Share during the five (5) consecutive Trading Days
commencing six Trading Days prior to the ATLANTIC Shareholders' Approval Record
Date.
"Hazardous Materials" shall mean (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
polychlorinated biphenyls and, only to the extent it exists at levels which are
considered hazardous to human health, radon gas and (b) any chemicals, materials
or substances defined as or included in the definition of "hazardous
substances," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words of similar import, under any applicable Environmental
Laws.
"Indemnified Parties" shall have the meaning set forth in Section 9.1.
"Indemnifying Parties" shall have the meaning set forth in Section 9.1.
"Intellectual Property" shall mean all United States and foreign patents,
patent applications, patent licenses, trade names, trademarks, trade name and
trademark registrations (and applications therefor), copyrights and copyright
registrations (and applications therefor), trade secrets, inventions, processes,
designs, know-how and formulae.
"Losses" shall have the meaning set forth in Section 9.1.
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"Merger Closing" shall have the meaning set forth in Section 2.1.
"Post-Closing Accrual Statement" shall have the meaning set forth in
Section 6.13.
"Property Management Agreement" shall have the meaning set forth in Section
5.1(a).
"Property Manager" shall mean SCG Realty Services Atlantic Incorporated, a
Delaware corporation.
"Prorated Items" shall have the meaning set forth in Section 6.13.
"Providing Party" shall have the meaning set forth in Section 6.11(a).
"Proxy Statement" shall mean the definitive ATLANTIC proxy statement,
including the SCG Warrant Prospectus, to be filed with the Commission (i) as a
proxy statement by ATLANTIC and (ii) as a part of the SCG Warrant Registration
Statement by SCG.
"Receiving Party" shall have the meaning set forth in Section 6.11(a).
"REIT Management Agreement" shall have the meaning set forth in Section
5.1(a).
"REIT Manager" shall mean Security Capital (Atlantic) Incorporated, a
Nevada corporation.
"Related Agreements" shall mean each of the agreements, instruments and
documents contemplated to be entered into in connection with this Agreement,
including, without limitation, the Agreement and Plan of Merger, the Warrant
Issuance Agreement, the Warrant Agreement, the Amended and Restated ATLANTIC
Investor Agreement, the Administrative Services Agreement, the License Agreement
and the Affiliate Agreements.
"Representatives" shall have the meaning set forth in Section 6.11(a).
"Rights Offering Amount" shall have the meaning set forth in Section 2.3.
"Rights Offering Closing Date" shall mean the third business day following
the Rights Offering Expiration Date.
"Rights Offering Expiration Date" shall have the meaning set forth in
Section 2.3.
"SCG Board" shall mean the Board of Directors of SCG.
"SCG Class B Common Shares" shall mean the shares of Class B common stock,
$.01 par value per share, of SCG.
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"SCG Financial Statements" shall have the meaning set forth in Section 4.5.
"SCG Proxy Statement" shall mean the definitive proxy statement mailed to
shareholders of SCG with respect to the meeting of shareholders of SCG to be
held in connection with the transactions contemplated by this Agreement.
"SCG Required Statutory Approvals" shall have the meaning set forth in
Section 4.4(c).
"SCG Shareholders' Approval" shall have the meaning set forth in Section
6.3.
"SCG Subsidiaries" shall mean the REIT Manager and the Property Manager.
"SCG Warrant Prospectus" shall mean the prospectus relating to the Warrant
Issuance pursuant to Section 2.2 which will form a part of the SCG Warrant
Registration Statement and the Proxy Statement.
"SCG Warrant Registration Statement" shall mean the registration statement
on Form S-4 of SCG, of which the Proxy Statement and the SCG Warrant Prospectus
will form a part, to be filed with the Commission in order to register the
Warrant Issuance pursuant to Section 2.2.
"SCG Warrants" shall have the meaning set forth in Section 2.2.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Subsidiary Financial Statements" shall have the meaning set forth in
Section 4.5.
"Taxes" shall mean all taxes, charges, fees, levies or other assessments,
including, without limitation, income, gross receipts, excise, property, sales,
withholding, social security, occupation, use, service, service use, license,
payroll, franchise, transfer and recording taxes, fees and charges, imposed by
the United States, or any state, local or foreign government or subdivision or
agency thereof whether computed on a separate, consolidated, unitary, combined
or any other basis; and such term shall include any interest, fines, penalties
or additional amounts attributable or imposed on or with respect to any such
taxes, charges, fees, levies or other assessments.
"Tax Returns" shall mean any return, report or other document or
information required to be supplied to a taxing authority in connection with
Taxes.
"Termination Date" shall have the meaning set forth in Section 8.1(b).
"Trading Day" shall mean any day on which the ATLANTIC Common Shares are
traded on the New York Stock Exchange, or if such securities are not listed or
admitted for trading on the New York Stock Exchange, on the principal national
securities exchange on which such
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securities are listed or admitted, or if not listed or admitted for trading on
any national securities exchange, on the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotations System, or if such
securities are not quoted on such National Market System, in the applicable
securities market in which the securities are traded.
"Warrant Agreement" shall mean the Warrant Agreement between SCG and The
First National Bank of Boston, as warrant agent, substantially in the form of
Exhibit II hereto.
"Warrant Issuance" shall have the meaning set forth in Section 2.2.
"Warrant Issuance Agreement" shall mean the Warrant Issuance Agency
Agreement substantially in the form of Exhibit III hereto.
"Warrant Issuance Date" shall mean the date established by the Board of
Directors of SCG as the date on which the SCG Warrants shall be delivered to the
issuance agent pursuant to the Warrant Issuance Agreement, which date shall be
within 30 days following the Warrant Issuance Record Date.
"Warrant Issuance Record Date" shall have the meaning set forth in Section
2.2.
ARTICLE II
THE MERGERS, WARRANT ISSUANCE AND RIGHTS OFFERING
SECTION 2.1 THE MERGERS. The events set forth in this Section 2.1 shall be
effected, upon the terms and subject to the conditions of this Agreement, as
soon as practicable after this Agreement and the transactions contemplated
hereby are approved by the shareholders of each of ATLANTIC and SCG (the "Merger
Closing"). It is the intention of the parties that each of the events set forth
in this Section 2.1 shall occur simultaneously. ATLANTIC and SCG shall each
take all actions necessary to cause the SCG Subsidiaries to be merged with and
into a subsidiary of ATLANTIC, which subsidiary shall be a "qualified REIT
subsidiary" of ATLANTIC within the meaning of Section 856(i)(2) of the Code, on
the terms and conditions set forth in the agreement and plan of merger
substantially in the form of Exhibit I hereto (the "Agreement and Plan of
Merger"). ATLANTIC shall issue that number of ATLANTIC Common Shares in
connection with the mergers described in this Section 2.1 equal to the number
obtained by dividing $54,608,549 by the Fair Market Value of an ATLANTIC Common
Share; provided, however, that in the event that the Fair Market Value of an
ATLANTIC Common Share is less than $20.6367, then the number of ATLANTIC Common
Shares issuable in connection with the mergers described in this Section 2.1
shall be 2,646,186; and provided, further, that in the event that the Fair
Market Value of an ATLANTIC Common Share is more than $25.8633, then the number
of ATLANTIC Common Shares issuable in connection with the mergers described in
this Section 2.1 shall be 2,111,430.
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SECTION 2.2 WARRANT ISSUANCE. SCG shall issue (the "Warrant Issuance")
warrants to purchase SCG Class B Common Shares (the "SCG Warrants") to holders
of ATLANTIC Common Shares (other than those owned by SCG) as of the Warrant
Issuance Record Date on the terms and in the manner described below. The SCG
Warrants shall each (i) be exercisable for one SCG Class B Common Share, (ii)
have an exercise price per SCG Class B Common Share equal to the Current Market
Price of an SCG Class B Common Share on the Warrant Issuance Date, (iii) shall
expire 12 months from the date of issuance and (iv) shall have such other terms
and conditions as set forth in the Warrant Agreement. The record date for
determining the holders entitled to participate in the Warrant Issuance (the
"Warrant Issuance Record Date") shall be the close of business on the date
designated by SCG, which date shall be within the 28-day period following the
Rights Offering Closing Date and which date shall be consistent with any
restrictions in the ruling or opinion described in Section 7.1(d). SCG shall
issue an aggregate number of SCG Warrants determined by dividing $46,926,322 by
the Current Market Price of an SCG Class B Common Share on the Warrant Issuance
Date. The number of SCG Warrants to be issued to each such holder shall be
determined by multiplying (a) the aggregate number of SCG Warrants to be issued
by (b) the number obtained by dividing (i) the aggregate number of ATLANTIC
Common Shares held of record by the holder as of the close of business on the
Warrant Issuance Record Date, by (ii) the total number of ATLANTIC Common Shares
outstanding (other than those owned by SCG) as of the close of business on the
Warrant Issuance Record Date. No certificates or scrip representing fractional
SCG Warrants shall be issued in connection with the Warrant Issuance. The
Warrant Issuance Agreement shall contain appropriate provision to aggregate and
sell all fractional SCG Warrants and remit the net proceeds to the ATLANTIC
shareholders who would otherwise be entitled to such fractions. The Warrant
Issuance shall be made pursuant to and in accordance with the procedures set
forth in the Warrant Issuance Agreement. The Warrant Issuance shall not occur
unless and until all of the conditions set forth in this Agreement have been
satisfied or waived and the mergers described in Section 2.1 have been
consummated.
SECTION 2.3 THE RIGHTS OFFERING. ATLANTIC shall distribute as a dividend
to each holder of record of ATLANTIC Common Shares, as of the close of business
on the ATLANTIC Shareholders' Approval Record Date, rights to purchase ATLANTIC
Common Shares entitling such holder to subscribe for and purchase ATLANTIC
Common Shares during the period commencing on the date the ATLANTIC Prospectus
is mailed to such holders and expiring on the close of business on the date of
the Merger Closing (the "Rights Offering Expiration Date"). The issuance of
such rights and the issuance of ATLANTIC Common Shares upon exercise of such
rights shall be registered under the ATLANTIC Registration Statement and
ATLANTIC shall use its best efforts to cause the rights to be tradeable on the
Exchange on which the ATLANTIC Common Shares are listed. Each holder of
ATLANTIC Common Shares shall receive one (1) right for every one (1) ATLANTIC
Common Share held of record by such holder as of the ATLANTIC Shareholders'
Approval Record Date. The exercise price per ATLANTIC Common Share for such
rights shall be equal to the Fair Market Value of an ATLANTIC Common Share;
provided, that in the event that the Fair Market Value of an ATLANTIC Common
Share is more than $25.8633, then the exercise price per ATLANTIC
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Common Share shall be $25.8633. ATLANTIC shall make available for issuance in
the rights offering, up to a maximum number of ATLANTIC Common Shares equal to
the difference between (X) the amount determined by dividing (A) the number of
ATLANTIC Common Shares issuable pursuant to Section 2.1 by (B) the percentage of
all outstanding ATLANTIC Common Shares owned by SCG on the ATLANTIC
Shareholders' Approval Record Date (the amount determined pursuant to this
clause (X) being the "Rights Offering Amount") and (Y) the number of ATLANTIC
Common Shares issuable to SCG pursuant to Section 2.1. Each holder shall be
entitled to acquire one (1) ATLANTIC Common Share by paying the Fair Market
Value and surrendering that number of rights (rounded down to the nearest one-
one hundredth (1/100th)) equal to the amount determined by dividing the
aggregate number of ATLANTIC Common Shares outstanding on the ATLANTIC
Shareholders' Approval Record Date by the Rights Offering Amount. SCG agrees
that it shall not exercise or sell or otherwise transfer any rights issued to it
pursuant to this Section 2.3 and SCG shall not purchase or otherwise acquire any
rights. ATLANTIC shall not accept subscriptions pursuant to such rights unless
and until all of the conditions set forth in this Agreement have been satisfied
or waived and the mergers described in Section 2.1 have been consummated.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ATLANTIC
ATLANTIC represents and warrants to SCG as follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION. ATLANTIC is duly organized,
validly existing and in good standing under the laws of the State of Maryland
and has the requisite power, corporate or otherwise, and authority to own, lease
and operate its assets and properties and to carry on its business as it is now
being conducted and as it is proposed by it to be conducted, including, without
limitation, the conduct of the businesses currently conducted by the SCG
Subsidiaries. ATLANTIC is qualified to do business and is in good standing in
each jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing would not
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of ATLANTIC. True, accurate and complete copies of each
of the articles of incorporation and bylaws of ATLANTIC as in effect on the date
hereof, including all amendments thereto and proposed amendments thereof, have
heretofore been delivered to SCG.
SECTION 3.2 CAPITALIZATION.
(a) The authorized shares of ATLANTIC consists of 250,000,000 shares of
which 37,891,580 ATLANTIC Common Shares are issued and outstanding as of the
date hereof. All of the issued and outstanding ATLANTIC Common Shares are
validly issued, fully paid and nonassessable and free of preemptive rights.
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(b) Except as contemplated by this Agreement and the Related Agreements or
as set forth in Schedule 3.2(b), as of the date hereof, there are no outstanding
subscriptions, options, calls, contracts, commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement that are presently exercisable obligating ATLANTIC to issue, deliver
or sell, or cause to be issued, delivered or sold, additional ATLANTIC Common
Shares or obligating ATLANTIC to grant, extend or enter into any such agreement
or commitment; provided, however, that the foregoing shall not apply to the
adoption by ATLANTIC of any incentive plan providing for grants of options or
restricted shares to directors and employees nor to any grant of options or
restricted shares thereunder. There are no voting trusts, proxies or other
agreements or understandings to which ATLANTIC is a party or by which ATLANTIC
is bound with respect to the voting of any ATLANTIC Common Shares.
SECTION 3.3 ISSUANCE OF SECURITIES. The ATLANTIC Common Shares issuable
to SCG hereunder, when issued in accordance with the provisions of this
Agreement and the Related Agreements, will be duly and validly authorized and
issued and will be fully paid and nonassessable. The ATLANTIC Common Shares
issuable upon exercise of rights issued pursuant to Section 2.3, when issued in
accordance with the provisions of this Agreement and the Related Agreements,
will be duly and validly authorized and issued and will be fully paid and
nonassessable.
SECTION 3.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) ATLANTIC has full power, corporate or otherwise, and authority to enter
into this Agreement and the Related Agreements to which it is a party and,
subject to ATLANTIC Shareholders' Approval and ATLANTIC Required Statutory
Approvals, to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Related Agreements to which it
is a party, and the consummation by ATLANTIC of the transactions contemplated
hereby and thereby, have been duly authorized by the ATLANTIC Board and no other
proceedings on the part of ATLANTIC are necessary to authorize the execution and
delivery of this Agreement or the Related Agreements and the consummation by
ATLANTIC of the transactions contemplated hereby and thereby, except for
ATLANTIC Shareholders' Approval and the obtaining of ATLANTIC Required Statutory
Approvals. This Agreement has been duly and validly executed and delivered by
ATLANTIC, and, assuming the due authorization, execution and delivery hereof by
SCG, constitutes a valid and binding agreement of ATLANTIC enforceable against
ATLANTIC in accordance with its terms, except that such enforcement may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors' rights
generally, (ii) general equitable principles and (iii) to the extent this
Agreement or any of the Related Agreements contains indemnification provisions
for violations of federal or state securities laws, as enforceability of such
provisions may be limited under federal and state securities laws.
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(b) The execution and delivery of this Agreement and the Related Agreements
by ATLANTIC, to the extent it is a party thereto, do not, and the consummation
by ATLANTIC of the transactions contemplated hereby and thereby will not,
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the assets of ATLANTIC under any of the terms,
conditions or provisions of, (i) subject to obtaining ATLANTIC Shareholders'
Approval, ATLANTIC's articles of incorporation or bylaws, (ii) subject to
obtaining ATLANTIC Required Statutory Approvals and ATLANTIC Shareholders'
Approval, any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to ATLANTIC or any of its properties or (iii) except as set
forth on Schedule 3.4(b) hereto, any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which ATLANTIC is now a party
or by which ATLANTIC or any of its properties may be bound, excluding from the
foregoing clauses (ii) and (iii) such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens, security interests, charges
or encumbrances that would not, in the aggregate, be reasonably expected to have
a material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of ATLANTIC.
(c) Except for (i) the filing of the ATLANTIC Registration Statement, the
Proxy Statement and the SCG Warrant Registration Statement with the Commission
pursuant to the Securities Act and the Exchange Act, and the declaration of the
effectiveness of the ATLANTIC Registration Statement and the SCG Warrant
Registration Statement by the Commission and filings with various state blue sky
authorities, (ii) any required filings by ATLANTIC pursuant to Section 2.1 and
(iii) any required filings with or approvals from applicable federal or state
housing authorities (the filings and approvals referred to in clauses (i)
through (iii) are collectively referred to as the "ATLANTIC Required Statutory
Approvals"), no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement and the
Related Agreements by ATLANTIC or the consummation by ATLANTIC of the
transactions contemplated hereby or thereby, other than such declarations,
filings, registrations, notices, authorizations, consents or approvals which, if
not made or obtained, as the case may be, would not, in the aggregate, be
reasonably expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of ATLANTIC.
SECTION 3.5 REGISTRATION STATEMENTS AND PROXY STATEMENT AND PROSPECTUSES.
None of the information to be supplied by ATLANTIC for inclusion or
incorporation by reference in the SCG Warrant Prospectus and the Proxy Statement
will, at the time it becomes effective, at the time of the mailing of the SCG
Warrant Registration Statement and any amendments thereof or supplements
thereto, and at the time of the meeting of
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shareholders of ATLANTIC to be held in connection with the transactions
contemplated by this Agreement, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Proxy Statement will comply as to form in
all material respects with all applicable laws, including the provisions of the
Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder. No representation is made by ATLANTIC with respect to information
supplied by SCG, or derived therefrom, for inclusion in the SCG Warrant
Registration Statement.
SECTION 3.6 DISCLOSURE, FINANCIAL STATEMENTS AND ABSENCE OF CERTAIN
CHANGES. ATLANTIC's Annual Report on Form 10-K for the year ended December 31,
1996 (the "ATLANTIC 10-K"), and each other report or document filed after
December 31, 1996 by ATLANTIC with the Commission under the Exchange Act, taken
together, do not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. ATLANTIC's audited consolidated financial statements
contained in the ATLANTIC 10-K (the "ATLANTIC Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis and fairly present the consolidated financial position of
ATLANTIC and its subsidiaries as of the dates set forth therein and the results
of their operations and cash flows for the periods set forth therein. Since
December 31, 1996, there has not been any material adverse change or any event
(other than general economic or market conditions) which would reasonably be
expected to result in a material adverse change, individually or in the
aggregate, in the business, operations, properties, assets, liabilities,
condition (financial or other), results of operations or prospects of ATLANTIC.
SECTION 3.7 ABSENCE OF UNDISCLOSED LIABILITIES. ATLANTIC did not have, at
December 31, 1996, and has not incurred since that date, any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of any nature
(other than ordinary and recurring operating expenses), (a) except liabilities,
obligations or contingencies which are accrued or reserved against in the
ATLANTIC Financial Statements with respect to December 31, 1996 or reflected in
the notes thereto and (b) except for any liabilities, obligations or
contingencies which (i) would not, in the aggregate, be reasonably expected to
have a material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of ATLANTIC
or (ii) have been discharged or paid in full prior to the date hereof.
SECTION 3.8 BROKERS AND FINDERS. ATLANTIC has not employed any broker,
finder or other intermediary in connection with the transactions contemplated by
this Agreement which would be entitled to any brokerage, finder's or similar fee
or commission in connection with this Agreement or the transactions contemplated
hereby.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SCG
SCG represents and warrants to ATLANTIC as follows:
SECTION 4.1 ORGANIZATION AND QUALIFICATION. SCG and each of the SCG
Subsidiaries is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization and each has the requisite power,
corporate or otherwise, and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted and as it
is proposed by it to be conducted. Each SCG Subsidiary is qualified to do
business and is in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so qualified
and in good standing would not reasonably be expected to have a material adverse
effect on the business, operations, properties, assets, condition (financial or
other), results of operations or prospects of any such SCG Subsidiary. True,
accurate and complete copies of each of the articles of incorporation and bylaws
of SCG and the certificate of incorporation and bylaws of each SCG Subsidiary as
in effect on the date hereof, including all amendments thereto and proposed
amendments and restatements thereof, have heretofore been delivered to ATLANTIC.
SECTION 4.2 CAPITALIZATION.
(a) The authorized stock of each of the REIT Manager and the Property
Manager consists of 1,000 shares of common stock all of which are issued and
outstanding. All of the issued and outstanding shares of common stock of the
REIT Manager and the Property Manager are owned by SCG, or a wholly owned
subsidiary of SCG, and are validly issued, fully paid and nonassessable. SCG,
or one of its wholly owned subsidiaries, owns good and marketable title to the
issued and outstanding shares of common stock of each of the SCG Subsidiaries,
in each case, free and clear of all liens, encumbrances, claims, security
interests and defects.
(b) There are no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement obligating SCG or any subsidiary of SCG to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
either SCG Subsidiary or obligating SCG or any subsidiary of SCG to grant,
extend or enter into any agreement or commitment with respect to any of the
foregoing. There are no voting trusts, proxies or other agreements or
understandings to which SCG or any subsidiary of SCG is a party or is bound with
respect to the voting of any shares of either SCG Subsidiary. Neither of the
SCG Subsidiaries owns, directly or indirectly, any capital stock or other
ownership interest in any corporation, partnership, business association, joint
venture or other entity.
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SECTION 4.3 ISSUANCE OF SECURITIES. Subject to receiving the SCG
Shareholders' Approval, the SCG Warrants when issued in accordance with the
provisions of this Agreement and the Related Agreements will constitute valid
and binding agreements of SCG enforceable against SCG in accordance with their
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles. Subject to receiving the SCG Shareholders' Approval, the
SCG Class B Common Shares issuable upon exercise of the SCG Warrants, when
issued upon exercise of SCG Warrants and in accordance with the Warrant
Agreement, will be duly and validly authorized and issued and will be fully paid
and nonassessable.
SECTION 4.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) SCG and each of the SCG Subsidiaries has full power, corporate or
otherwise, and authority to enter into this Agreement and the Related Agreements
to which it is a party and, subject to SCG Shareholders' Approval and SCG
Required Statutory Approvals, to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Related
Agreements to which they are parties, and the consummation by SCG and the SCG
Subsidiaries of the transactions contemplated hereby and thereby, have been duly
authorized by the SCG Board and the board of the relevant SCG Subsidiary, and no
other corporate proceedings on the part of SCG or either SCG Subsidiary are
necessary to authorize the execution and delivery of this Agreement or the
Related Agreements and the consummation by SCG and the SCG Subsidiaries of the
transactions contemplated hereby and thereby, except for SCG Shareholders'
Approval and the obtaining of SCG Required Statutory Approvals. This Agreement
has been duly and validly executed and delivered by SCG, and, assuming the due
authorization, execution and delivery hereof by ATLANTIC, constitutes a valid
and binding agreement of SCG enforceable against SCG in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally, (ii) general equitable
principles and (iii) to the extent this Agreement or any of the Related
Agreements contains indemnification provisions for violations of federal or
state securities laws, as enforceability of such provisions may be limited under
federal and state securities laws. As of the date of this Agreement, neither of
the SCG Subsidiaries is in violation of its charter, bylaws or other
organizational documents.
(b) The execution and delivery of this Agreement and the Related
Agreements by SCG and each SCG Subsidiary, to the extent it is a party thereto,
do not, and the consummation by SCG and the SCG Subsidiaries of the transactions
contemplated hereby and thereby will not, violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the assets of either
of the SCG Subsidiaries under any of the terms,
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conditions or provisions of (i) subject to obtaining SCG Shareholders' Approval,
SCG's or such SCG Subsidiary's articles of incorporation or bylaws, (ii) subject
to obtaining SCG Required Statutory Approvals and SCG Shareholders' Approval,
any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority
applicable to SCG or either SCG Subsidiary or any of the assets of either of the
SCG Subsidiaries, (iii) the certificate of incorporation or bylaws of an SCG
Subsidiary or (iv) except as set forth on Schedule 4.4(b) hereto, any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which SCG or either SCG Subsidiary is now a party or by which SCG or
either SCG Subsidiary or any of the assets of either of the SCG Subsidiaries may
be bound, excluding from the foregoing clauses (ii) and (iv) such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances that would not, in the
aggregate, be reasonably expected to have a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of either of the SCG Subsidiaries.
(c) Except for (i) the filing of the Proxy Statement and the SCG
Warrant Registration Statement with the Commission pursuant to the Securities
Act and the Exchange Act, and the declaration of the effectiveness of the SCG
Warrant Registration Statement by the Commission and filings with various state
blue sky authorities, (ii) any required filings by SCG or an SCG Subsidiary
pursuant to Section 2.1 and (iii) any required filings by SCG of amendments to
its articles of incorporation (the filings and approvals referred to in clauses
(i) through (iii) are collectively referred to as the "SCG Required Statutory
Approvals"), no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement and the
Related Agreements by SCG or either SCG Subsidiary or the consummation by SCG or
either SCG Subsidiary of the transactions contemplated hereby or thereby, other
than such declarations, filings, registrations, notices, authorizations,
consents or approvals which, if not made or obtained, as the case may be, would
not, in the aggregate, be reasonably expected to have a material adverse effect
on the business, operations, properties, assets, condition (financial or other),
results of operations or prospects of either of the SCG Subsidiaries.
SECTION 4.5 FINANCIAL STATEMENTS. The audited financial statements
of SCG for the years ended December 31, 1994, 1995 and 1996 (the "SCG Financial
Statements" have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as otherwise set forth in such
financial statements) and fairly present the financial position of SCG as of the
dates presented and the results of its operations and cash flows for the periods
presented. The unaudited balance sheet of each SCG Subsidiary as at February
28, 1997 and Statements of Funds From Operations for the years ending December
31, 1995 and 1996 (the "Subsidiary Financial Statements") fairly present the
financial position of each SCG Subsidiary as of the dates presented and the
results of their respective operations for the periods presented.
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SECTION 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
1996, there has not been any material adverse change or any event (other than
general economic or market conditions) which would reasonably be expected to
result in a material adverse change, individually or in the aggregate, in the
business, operations, properties, assets, liabilities, condition (financial or
other), results of operations or prospects of SCG or of either of the SCG
Subsidiaries. Each of the SCG Subsidiaries have conducted their respective
businesses in the ordinary course during the periods covered by the Subsidiary
Financial Statements.
SECTION 4.7 REGISTRATION STATEMENTS AND PROXY STATEMENT AND
PROSPECTUSES. None of the information to be supplied by SCG for inclusion or
incorporation by reference in the SCG Warrant Registration Statement will, at
the time it becomes effective, at the time of the mailing of the SCG Warrant
Prospectus and the Proxy Statement and any amendments thereof or supplements
thereto, and at the time of the meeting of shareholders of ATLANTIC to be held
in connection with the transactions contemplated by this Agreement, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The SCG
Warrant Registration Statement will comply as to form in all material respects
with all applicable laws, including the provisions of the Securities Act and the
Exchange Act and the rules and regulations promulgated thereunder. No
representation is made by SCG with respect to information supplied by ATLANTIC,
or derived therefrom, for inclusion in the SCG Warrant Registration Statement.
SECTION 4.8 TAXES.
(a) Each SCG Subsidiary has duly and timely filed with the appropriate
governmental authorities all Tax Returns required to be filed by it (either
separately or as a member of any affiliated group within the meaning of Section
1504 of the Code or any similar group defined under a similar provision of
state, local or foreign law (an "Affiliated Group")) for all periods ending on
or prior to the Merger Closing, except to the extent of any Tax Returns for
which an extension of time for filing has been properly filed. Each such return
and filing is true and correct in all respects. All Taxes owed by either SCG
Subsidiary have been paid (whether or not shown on a Tax Return). No material
issues have been raised in any examination by any taxing authority with respect
to the businesses and operations of SCG or either of the SCG Subsidiaries which
(i) reasonably could be expected to result in an adjustment to the liability for
Taxes for such period examined or (ii), by application of similar principles,
reasonably could be expected to result in an adjustment to the liability for
Taxes for any other period not so examined. All Taxes which each SCG Subsidiary
is required by law to withhold or collect, including without limitation Taxes
required to have been withheld in connection with amounts paid or owning to any
employee, independent contractor, creditor, stockholder, or other third party
and sales, gross receipts and use taxes, have been duly withheld or collected
and, to the extent required, have been paid over to the proper governmental
authorities or are held in
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separate bank accounts for such purpose. There are no liens for Taxes upon the
assets of SCG or either of the SCG Subsidiaries except for statutory liens for
Taxes not yet due.
(b) None of SCG, the SCG Subsidiaries or the Affiliated Group has
filed for an extension of a statute of limitations with respect to any Tax and
no governmental authorities have requested an extension of the statute of
limitations with respect to any Tax. The Tax Returns of SCG, each SCG
Subsidiary and the Affiliated Group are not being and have not been examined by
any taxing authority for any past year or periods. None of SCG, the SCG
Subsidiaries or the Affiliated Group is a party to any pending action or any
formal or informal proceeding by any taxing authority for a deficiency,
assessment or collection of Taxes, and no claim for any deficiency, assessment
or collection of Taxes has been asserted, or, to the best knowledge of SCG,
threatened against it, including claims by any taxing authority in a
jurisdiction where SCG and the SCG Subsidiaries do not file tax returns that any
of them is or may be subject to taxation in that jurisdiction.
(c) Each SCG Subsidiary has properly accrued on its respective
Subsidiary Financial Statements all Taxes due for which such SCG Subsidiary may
be liable in its own right (including, without limitation, by reason of being a
member of an Affiliated Group or as a transferee of the assets of, or successor
to, any corporation, person, association, partnership, joint venture or other
entity. Each SCG Subsidiary has established (and until the Closing shall
continue to establish and maintain) on its books and records reserves that are
adequate for the payment of all Taxes not yet due and payable.
(d) Neither SCG Subsidiary (i) has filed a consent under Section
341(f) of the Code concerning collapsible corporations, (ii) is a party to any
Tax allocation or sharing agreement other than a tax sharing agreement between
an SCG Subsidiary and SCG, which such agreement will be terminated as of the
Closing Date, and (iii) has been a member of an Affiliated Group filing a
consolidated federal income Tax Return other than a group, the common parent of
which is SCG.
(e) The Affiliated Group of which each SCG Subsidiary is a member has
duly and timely filed all Tax Returns that it was required to file for each
taxable period during which any SCG Subsidiary was a member of the group. All
such Tax Returns were true, complete and correct in all respects and all Taxes
owed by the Affiliated Group, whether or not shown on any Tax Return, have been
paid for each taxable period during which any SCG Subsidiary was a member of the
group.
(f) Neither SCG Subsidiary has any liability for the Taxes of any
person other than SCG or such SCG Subsidiary (A) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local or foreign law), (B)
as a transferee or successor, (C) by contract, or (D) otherwise.
(g) Neither SCG Subsidiary has made any payments, is obligated to make
any payments, or is a party to an agreement that could obligate it to make any
payments that will not be deductible under Section 280G of the Code. Each SCG
Subsidiary has disclosed to the
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IRS all positions taken on its federal income tax returns which could give rise
to a substantial understatement of tax under Section 6662 of the Code.
SECTION 4.9 ABSENCE OF UNDISCLOSED LIABILITIES. SCG did not have, at
December 31, 1996, and has not incurred since that date, any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of any nature
(other than ordinary and recurring operating expenses) with respect to any of
the assets of either of the SCG Subsidiaries, and neither SCG Subsidiary had, at
December 31, 1996, and none has incurred since that date, any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of any nature
(other than ordinary and recurring operating expenses) (a) except liabilities,
obligations or contingencies which are accrued or reserved against in the SCG
Financial Statements or the Subsidiary Financial Statements or reflected in the
notes thereto and (b) except for any liabilities, obligations or contingencies
which (i) would not, in the aggregate, be reasonably expected to have a material
adverse effect on the business, operations, properties, assets, condition
(financial or other), results of operations or prospects of SCG or either of the
SCG Subsidiaries or (ii) have been discharged or paid in full prior to the date
hereof.
SECTION 4.10 LITIGATION. Except as set forth on Schedule 4.10, there
are no claims, suits, actions or proceedings pending or, to the best of SCG's
knowledge, threatened, against, relating to or affecting either of the SCG
Subsidiaries or any of the assets of either of the SCG Subsidiaries before or by
any court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator that could reasonably be expected, either alone or
in the aggregate with all such claims, actions or proceedings, to affect
materially and adversely the business, operations, properties, assets, condition
(financial or other), results of operations or prospects of either of the SCG
Subsidiaries. Neither SCG Subsidiary is subject to any judgment, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or authority, or any arbitrator which prohibits or
restricts the consummation of the transactions contemplated hereby or by any of
the Related Agreements or would have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of either of the SCG Subsidiaries.
SECTION 4.11 NO VIOLATION OF LAW. Neither of the SCG Subsidiaries is
in violation of or has been given notice or been charged with any violation of
any law, statute, order, rule, regulation, ordinance or judgment (including,
without limitation, any applicable Environmental Laws) of any governmental or
regulatory body or authority, except for violations which, in the aggregate,
would not reasonably be expected to have a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of either of the SCG Subsidiaries. No
investigation or review of either of the SCG Subsidiaries by any governmental or
regulatory body or authority is pending or, to the best knowledge of SCG,
threatened, nor has any governmental or regulatory body or authority indicated
to SCG or either SCG Subsidiary an intention to conduct the same. Each of the
SCG Subsidiaries and each of its officers and employees has all permits,
licenses, franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct its business as
presently conducted and as proposed by such SCG Subsidiary to be conducted,
except for permits, licenses, franchises, variances, exemptions,
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orders, authorizations, consents and approvals the absence of which, alone or in
the aggregate, would not reasonably be expected to have a material adverse
effect on the business, operations, properties, assets, condition (financial or
other), results of operations or prospects of either of the SCG Subsidiaries.
SECTION 4.12 INSURANCE. SCG or the SCG Subsidiaries maintain
insurance coverage for each SCG Subsidiary and their respective assets of the
types, and in amounts, typical of similar companies engaged in the respective
businesses in which such SCG Subsidiary is engaged. All such insurance policies
are in full force and effect, and with respect to all policies, none of SCG nor
either SCG Subsidiary is delinquent in the payment of any premiums thereon, and
no notice of cancellation or termination has been received with respect to any
such policy. All such policies are sufficient for compliance with all
requirements of law and of all agreements to which either of the SCG
Subsidiaries is a party or otherwise bound and are valid, outstanding,
collectable, and enforceable policies and will remain in full force and effect
through their respective policy periods ending after the Merger Closing
(assuming payment of any applicable premiums arising after the Merger Closing).
Neither SCG nor either SCG Subsidiary has received written notice within the
last 12 months from any insurance company or board of fire underwriters of any
conditions, defects or inadequacies that would materially adversely affect the
insurability of, or cause any material increase in the premiums for insurance
covering, either of the SCG Subsidiaries or any of the assets of either of the
SCG Subsidiaries that have not been cured or repaired to the satisfaction of the
party issuing the notice.
SECTION 4.13 EMPLOYEE BENEFIT PLANS. SCG has previously provided or
made available to ATLANTIC a copy of each written employee benefit plan
maintained by SCG and/or its affiliates ("Employee Benefit Plans") that provides
retirement, pension, health care, long-term disability income, workers
compensation, life insurance and any other postretirement benefits that, as of
the date hereof, covers any employee of an SCG Subsidiary ("Employees") and a
copy of each plan, contract, or arrangement constituting an employment or
severance agreement with any director or Employee of an SCG Subsidiary. Each
Employee Benefit Plan complies and has been administered in form and in
operation in all material respects with all applicable requirements of law and
no notice has been issued by any governmental authority questioning or
challenging such compliance. Neither the execution or delivery of this
Agreement or any of the Related Agreements nor the consummation of the
transactions contemplated hereby or thereby constitutes or will constitute an
event under any Employee Benefit Plan or any such employment or severance
agreement that may result in any payment by ATLANTIC or any SCG Subsidiary, any
restriction or limitation upon the assets of any Employee Benefit Plan, any
acceleration of payment or vesting, increase in benefits or compensation, or
forgiveness of any loan or other commitment to ATLANTIC or an SCG Subsidiary.
SECTION 4.14 INTELLECTUAL PROPERTY. Schedule 4.14 is a true and
complete list of all of the Intellectual Property used in the conduct of the
businesses of the SCG Subsidiaries. All the Intellectual Property listed on
Schedule 4.14 is either owned or being licensed by one of the SCG Subsidiaries.
With respect to the Intellectual Property indicated on Schedule 4.14 as being
owned by one of the SCG Subsidiaries, the respective SCG Subsidiary indicated as
owning such Intellectual Property owns all right, title and interest in such
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Intellectual Property, free and clear of all liens, encumbrances, claims,
security interests and defects. With respect to the Intellectual Property
indicated on Schedule 4.14 as being licensed by one of the SCG Subsidiaries, the
respective SCG Subsidiary indicated as licensing such Intellectual Property (i)
has the right under the applicable license agreement to use the relevant
Intellectual Property in the manner in which it is being used in the conduct of
the business of the SCG Subsidiary and (ii) is in compliance with all terms and
conditions of each such license agreement except where such failure to be in
compliance could not reasonably be expected to have any material adverse effect
on the business, operations, properties, assets, condition (financial or other),
results of operations or prospects of either SCG Subsidiary. None of the
Intellectual Property has been or is the subject of any pending adverse claim,
or to the best knowledge of SCG, any threatened litigation or claim of
infringement based on the use thereof by either one of the SCG Subsidiaries or a
third party. Neither SCG nor either of the SCG Subsidiaries has received any
notice contesting SCG's or the SCG Subsidiaries' right to use any of the
Intellectual Property and, to the knowledge and SCG, neither of the SCG
Subsidiaries has infringed upon or misappropriated any intellectual property
rights of third parties.
SECTION 4.15 LABOR. None of SCG or any of the SCG Subsidiaries is a
party to, or bound by, an collective bargaining agreement, contract or other
understanding with a labor union or labor union organization. There is no
unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of SCG, threatened against the SCG Subsidiaries. To the knowledge of
SCG, there are no organizational efforts with respect to the formation of a
collective bargaining unit presently being made or threatened involving
employees of either SCG Subsidiary.
SECTION 4.16 BROKERS AND FINDERS. SCG has not employed any broker,
finder or other intermediary in connection with the transactions contemplated by
this Agreement which would be entitled to any brokerage, finder's or similar fee
or commission in connection with this Agreement or the transactions contemplated
hereby.
SECTION 4.17 INVESTMENT COMPANY ACT. None of SCG and the SCG
Subsidiaries and as of the date of the Merger Closing they will not be, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, nor an "investment adviser" within the meaning of the Investment
Advisers Act of 1940, as amended.
SECTION 4.18 ADEQUACY OF SCG CONSIDERATION. Except for the
Intellectual Property described on Schedule 4.14, no part of the respective
businesses conducted by the SCG Subsidiaries is conducted through any entity
other than the respective SCG Subsidiary.
SECTION 4.19 INVESTMENT IN SECURITIES.
(a) SCG understands that (i) no Federal or state agency has passed
upon the ATLANTIC Common Shares to be issued in connection with the mergers
described in Section 2.1 or made any finding or determination as to the fairness
of SCG's investment therein or the terms of the offer and the sale thereof
pursuant to this Agreement and the Related Agreements and (ii) SCG must bear the
economic risk of its investment in the ATLANTIC Common Shares
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to be issued in connection with the mergers described in Section 2.1 for an
indefinite period of time because such shares will not be registered under the
Securities Act or any state securities laws, and, therefore, cannot be sold or
transferred unless either they are subsequently registered under the Securities
Act and applicable state securities laws or an exemption from such registrations
is available.
(b) The ATLANTIC Common Shares to be issued in connection with the
mergers described in Section 2.1 are being acquired for SCG's own account and
not with any view toward the resale or distribution thereof, or with any present
intention of selling or distributing any such shares.
(c) SCG has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of an investment
in the ATLANTIC Common Shares to be issued in connection with the mergers
described in Section 2.1.
(d) SCG has carefully reviewed all documents that it has requested
copies of, has been furnished with all other materials that it considers
relevant to an investment in the ATLANTIC Common Shares to be issued in
connection with the mergers described in Section 2.1 and has had a full
opportunity to ask questions of and receive answers from ATLANTIC or a person or
persons acting on behalf of ATLANTIC concerning the terms and conditions of an
investment in the ATLANTIC Common Shares to be issued in connection with the
mergers described in Section 2.1.
SECTION 4.20 TITLE TO ASSETS; NO REAL PROPERTY. Set forth on
Schedule 4.20 is a complete list of all of the assets currently owned by each
SCG Subsidiary which are materially important in the conduct of its business as
it is being currently conducted and a list of all officers and key employees of
each such SCG Subsidiary. The SCG Subsidiaries have good, valid and marketable
title to, or a leasehold interest in, (a) all of their material properties and
assets (tangible and intangible) reflected in the Subsidiary Financial
Statements, except as indicated in the notes thereto and except for properties
and assets disposed of in the ordinary course of business, and (b) all of the
material properties and assets purchased by an SCG Subsidiary since the date of
such financial statements, except for properties and assets disposed of in the
ordinary course of business, in each case subject to no lien, claim, or
encumbrance other than (i) liens reflected in such financial statements, (ii)
liens for current Taxes, assessments or governmental charges or levies not yet
due and delinquent, and (iii) liens that could not reasonably be expected to
have any material adverse effect on the business, operations, properties,
assets, condition (financial or other), results of operations or prospects of
either SCG Subsidiary. Neither SCG Subsidiary owns, in whole or in part, or
holds as record title holder, or is the holder of any mortgage or deed of trust
with respect to, any real property.
SECTION 4.21 PROJECTIONS. The projections prepared by SCG and
furnished to ATLANTIC have been prepared in good faith and with all available
information regarding the current operations of ATLANTIC and the SCG
Subsidiaries and the operations of ATLANTIC as proposed to be conducted and are
based upon assumptions which SCG believes to be reasonable. However, no
representation or warranty is made by SCG that the results set
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forth in such projections or the assumptions underlying such projections will in
fact be realized. SCG has previously caused Ernst & Young LLP to deliver to
ATLANTIC a report verifying the mathematical accuracy of the methodology used by
SCG in preparing the projections. All of the information supplied by SCG to
Ernst & Young LLP for purposes of preparing such report has been provided or
made available to ATLANTIC or, if not so provided or made available, is
consistent with the information set forth in the projections in all material
respects.
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER CLOSING
SECTION 5.1 CONDUCT OF BUSINESSES OF SCG SUBSIDIARIES. After the
date hereof and prior to the Merger Closing or earlier termination of this
Agreement, except as ATLANTIC shall otherwise agree in writing or as may be
otherwise specifically contemplated by this Agreements and the Related
Agreements, SCG shall cause each of the SCG Subsidiaries to:
(a) conduct the businesses conducted by it in the ordinary and usual
course of business and consistent with past practice and, as to the REIT
Manager, the requirements of the Second Amended and Restated REIT Management
Agreement dated as of June 30, 1996, between ATLANTIC and it (the "REIT
Management Agreement"), and as to the Property Manager, each of the management
agreements between ATLANTIC and it (collectively, the "Property Management
Agreement");
(b) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of, capital stock of an SCG Subsidiary
of any class or any debt or equity securities convertible into or exchangeable
for such stock or amend or modify the terms and conditions of any of the
foregoing;
(c) not (i) incur or become contingently liable with respect to any
additional indebtedness for borrowed money, (ii) take any action which would
jeopardize ATLANTIC's status as a real estate investment trust under the Code,
(iii) sell or otherwise dispose of any of its assets, (iv) prepay or cause to be
prepaid any principal amount outstanding with respect to indebtedness for
borrowed money or (vi) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(d) use reasonable efforts to preserve intact its businesses,
organization and goodwill, keep available the services of its present officers
and employees and preserve the goodwill and business relationships with all
lessees, operators, suppliers, distributors, customers and others having
business relationships with it and ATLANTIC and not engage in any action,
directly or indirectly, with the intent to adversely impact the transactions
contemplated by this Agreement;
(e) confer with one or more representatives of ATLANTIC when requested
to report on material operational matters and the general status of ongoing
operations of its respective businesses;
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(f) maintain, in full force and effect, with all premiums due thereon
paid, policies of insurance covering all of its respective insurable assets and
businesses in amounts and as to foreseeable risks usually insured against by
persons operating similar businesses under valid and enforceable policies of
insurance issued by nationally recognized insurers;
(g) except as may be required to distribute earnings and profits, not
declare, set aside or pay any dividends on, or make any other distributions in
respect of, any of their capital stock, or purchase, redeem or otherwise acquire
any shares of their capital stock;
(h) not acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial portion of the stock or assets of, or by any
other manner, any business or any corporation, partnership, joint venture,
association, or other business organization or division thereof;
(i) not acquire or agree to acquire any assets that are material,
individually or in the aggregate, to either of the SCG Subsidiaries, or make or
agree to make any capital expenditures except in the ordinary course of business
consistent with past practice;
(j) not adopt or amend in any material respect any bonus, profit
sharing, compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or other
arrangement for the benefit or welfare of any present or former director or
employee or, other than increases for individuals (other than officers and
directors) in the ordinary course of business consistent with past practice,
increase the compensation of fringe benefits of any present or former director
or employee; and not pay any benefit not required by an existing plan,
arrangement or agreement, or grant any new or modified severance or termination
arrangement or increase or accelerate any benefits payable under its severance
or termination pay policies;
(k) not take any action that would, or is reasonably likely to, result
in any of its or ATLANTIC's representations and warranties in this Agreement
becoming untrue, or in any of the conditions to the Merger set forth in Article
VII not being satisfied;
(l) not pay, discharge or satisfy any claims (including claims of
shareholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment, discharge or
satisfaction, of (i) liabilities or obligations in the ordinary course of
business consistent with past practice or in accordance with their terms as in
effect on the date hereof, (ii) liabilities reflected or reserved against in, or
contemplated by, the Subsidiary Financial Statements, or waive, release, grant,
or transfer any rights of material value or modify or change in any material
respect any existing license, lease, contract or other documents, other than as
contemplated by this Agreement or in the ordinary course of business consistent
with past practice;
(m) not (i) adopt a plan of complete or partial liquidation; (ii)
adopt any amendment to its charter or bylaws; (iii) enter into any contract,
agreement or arrangement involving more than $500,000 annually, except for
agreements entered into in the ordinary course of business
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and with prior written consent; (iv) authorize or enter into any agreement
relating to property management services to be provided by it to a third party
property owners on other than customary terms; (v) modify or change in any
material respect any existing material agreements, except in the ordinary course
and consistent with past practice; (vi) engage in any conduct the nature of
which is materially different that the business in which it is currently
engaged; or (vi) enter into any agreement providing for acceleration of payment
or performance or other consequences as a result of a change of control of it;
and
(n) not authorize any of, or commit or agree to take any of, the
foregoing actions set forth in subsections (b), (c), and (g) through (m).
SECTION 5.2 CONDUCT OF BUSINESS OF ATLANTIC. After the date hereof
and prior to the Merger Closing or earlier termination of this Agreement, except
as SCG shall otherwise agree in writing or as may be otherwise specifically
contemplated by this Agreement and the Related Agreements, ATLANTIC shall:
(a) conduct the businesses conducted by it in the ordinary and usual
course of business and consistent with past practice;
(b) not take any action which would jeopardize its status as a real
estate investment trust under the Code; and
(c) operate in compliance with the terms and conditions of the
Investor Agreement, dated October 28, 1993, between ATLANTIC and SCG, as amended
or supplemented.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 ACCESS TO INFORMATION. Each of the parties shall afford
to the other party hereto and such other party's accountants, counsel, financial
advisors and other representatives full access, during normal business hours
throughout the period prior to the Merger Closing or earlier termination of this
Agreement, to all properties, books, contracts, commitments and records
(including, but not limited to, Tax Returns) of such party and, in the case of
SCG, of the SCG Subsidiaries, as appropriate, and, during such period, each
shall furnish promptly to the other (a) a copy of each report, schedule and
other document filed or received pursuant to the requirements of federal or
state securities laws or filed with the Commission in connection with the
transactions contemplated by this Agreement and (b) such other information
concerning their respective businesses, properties and personnel which are the
subject of this Agreement or the Related Agreements as shall be reasonably
requested; provided that no investigation pursuant to this Section 6.1 shall
affect any representation or warranty made herein or the conditions to the
obligations of the respective parties hereto to consummate the transactions
contemplated hereby or thereby. Each party shall promptly advise each other
party in writing of any change or the occurrence of any event after the date of
this Agreement or the Related Agreements having, or which, insofar as can
reasonably be foreseen, in the future may have, any material adverse effect on
the business, operations, properties, assets, condition
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(financial or other), results of operations or prospects of such party or, in
the case of SCG, either of the SCG Subsidiaries.
SECTION 6.2 PROXY STATEMENT AND REGISTRATION STATEMENT. SCG shall
file with the Commission as soon as is reasonably practicable after the date
hereof the SCG Warrant Registration Statement. SCG shall also take any action
required to be taken under applicable state blue sky or securities laws in
connection with the issuance of securities pursuant to Sections 2.2. To the
extent the ATLANTIC Registration Statement shall not have been filed and/or
declared effective prior to the date of this Agreement, ATLANTIC shall (i) file
as soon as is reasonably practicable after the date hereof the ATLANTIC
Registration Statement and use all reasonable efforts to have the ATLANTIC
Registration Statement declared effective by the Commission as promptly as
practicable, (ii) use all reasonable efforts to continue the effectiveness of
the ATLANTIC Registration Statement and (iii) keep available for issuance under
the ATLANTIC Registration Statement such number of shares as would be required
to satisfy rights issued pursuant to Section 2.3 assuming that each shareholder
of ATLANTIC (other than SCG) elects to subscribe for the maximum number of
shares for which it is entitled to subscribe. To the extent the ATLANTIC
Registration Statement shall have been filed and declared effective prior to the
date of this Agreement, ATLANTIC shall use all reasonable efforts to continue
the effectiveness of the ATLANTIC Registration Statement and shall keep
available for issuance under the ATLANTIC Registration Statement such number of
shares as would be required to satisfy rights issued pursuant to Section 2.3
assuming that each shareholder of ATLANTIC (other than SCG) elects to subscribe
for the maximum number of shares for which it is entitled to subscribe.
ATLANTIC shall also take any action required to be taken under applicable state
blue sky or securities laws in connection with the issuance of securities
pursuant to Sections 2.1 and 2.3. ATLANTIC and SCG shall promptly furnish to
each other all information, and take such other actions as may reasonably be
requested in connection with any action by any of them in connection with this
Section 6.2 and shall cooperate with one another and use their respective best
efforts to facilitate the expeditious consummation of the transactions
contemplated by this Agreement and the Related Agreements.
SECTION 6.3 SHAREHOLDERS' APPROVAL. Each of ATLANTIC and SCG shall
promptly take such action as may be required by its declaration of trust or
articles of incorporation, as applicable, its bylaws and applicable law and
promptly seek, and use its best efforts to obtain, the requisite shareholder
approval of this Agreement and the transactions contemplated hereby, including
amendments to ATLANTIC's declaration of trust necessary to consummate the
transactions contemplated hereby and any amendments to SCG's articles of
incorporation necessary to consummate the transactions contemplated hereby (as
appropriate, the "ATLANTIC Shareholders' Approval" and "SCG Shareholders'
Approval"). The ATLANTIC Board and SCG Board shall recommend to their
respective shareholders the approval of this Agreement and of the transactions
contemplated by this Agreement; provided, however, that prior to the respective
meetings of shareholders of ATLANTIC and SCG, the ATLANTIC Board or SCG Board,
as the case may be, may withdraw, modify or amend such recommendation to the
extent that the ATLANTIC Board or the ATLANTIC Special Committee or the SCG
Board, as the case may be, deems it necessary to do so in the exercise of its
fiduciary obligations to ATLANTIC or SCG, as the case may be, after being so
advised by nationally recognized
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counsel not having an interest in the transactions contemplated by this
Agreement or the Related Agreements.
SECTION 6.4 AFFILIATE AGREEMENTS. ATLANTIC shall use its best
efforts to cause each principal executive officer, director and each other
person who is an "affiliate," as that term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act, of ATLANTIC to execute and deliver to SCG on
or prior to the Warrant Issuance Date a written agreement (an "Affiliate
Agreement") to the effect that such person will not offer to sell, sell or
otherwise dispose of any SCG Warrants (or the SCG Class B Common Share issuable
upon exercise thereof) issued in the Warrant Issuance and received by such
person, except, in each case, pursuant to an effective registration statement or
in compliance with Rule 145, as amended from time to time, or in a transaction
which, in the opinion of legal counsel satisfactory to SCG, is exempt from the
registration requirements of the Securities Act.
SECTION 6.5 EXCHANGE. SCG shall use its best efforts to effect, at
or before the Warrant Issuance Date, authorization for listing or quotation of
the SCG Warrants on the New York Stock Exchange or another Exchange upon
official notice of issuance of the SCG Warrants pursuant to the Warrant
Issuance.
SECTION 6.6 EXPENSES. All costs and expenses incurred in connection
with this Agreement, the Related Agreements and the transactions contemplated
hereby and thereby shall be paid by the party incurring such expenses; provided,
however, that (i) all costs and expenses of the ATLANTIC Special Committee
(including fees and expenses of counsel and its financial advisors), and all
fees and expenses in connection with filing, printing and distributing the
ATLANTIC Registration Statement, the ATLANTIC Prospectus and the Proxy Statement
shall be paid by ATLANTIC and (ii) all costs and expenses in connection with
filing, printing and distributing the SCG Warrant Registration Statement and the
SCG Warrant Prospectus and all fees and expenses in connection with the listing
of the SCG Warrants (and the SCG Class B Common Shares issuable upon exercise
thereof) on any Exchange shall be paid by SCG.
SECTION 6.7 AGREEMENT TO COOPERATE. Subject to the terms and
conditions herein provided, each of the parties hereto shall cooperate and use
its respective best efforts to take, or cause to be taken, all action and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement and the Related Agreements, including using its
best efforts to identify and obtain all necessary or appropriate waivers,
consents and approvals to effect all necessary registrations, filings and
submissions (including, but not limited to, ATLANTIC Required Statutory
Approvals, SCG Required Statutory Approvals and any filings under federal and
state securities laws) and to lift any injunction or other legal bar to the
transactions contemplated hereby and thereby (and, in such case, to proceed with
such transactions as expeditiously as possible), subject, however, to obtaining
ATLANTIC Shareholders' Approval and SCG Shareholders' Approval.
SECTION 6.8 PUBLIC STATEMENTS. The parties hereto shall consult with
each other prior to issuing any press release or any written public statement
with respect to this
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Agreement and the Related Agreements or the transactions contemplated hereby and
thereby and shall not issue any such press release or written public statement
prior to review and approval by the other party, except that prior review and
approval shall not be required if, in the reasonable judgment of the party
seeking to issue such release or public statement, prior review and approval
would prevent the timely dissemination of such release or announcement in
violation of any applicable law, rule or regulation or rule or policy of the New
York Stock Exchange or another Exchange.
SECTION 6.9 CORRECTIONS TO THE SCG WARRANT REGISTRATION STATEMENT AND
SCG WARRANT PROSPECTUS. Prior to the date of ATLANTIC Shareholders' Approval,
each of ATLANTIC and SCG shall correct promptly any information provided by it
to be used specifically in the SCG Warrant Registration Statement or the
ATLANTIC Registration Statement, or incorporated by reference into either such
document, that shall have become false or misleading in any material respect and
shall take all steps necessary to file with the Commission and have declared
effective or cleared by the Commission any amendment or supplement to the SCG
Warrant Registration Statement or the ATLANTIC Registration Statement so as to
correct the same and to cause the SCG Warrant Registration Statement and the
ATLANTIC Registration Statement as so corrected to be disseminated to the
shareholders of ATLANTIC, in each case to the extent required by applicable law.
SECTION 6.10 VOTING OF SHARES. SCG will vote all ATLANTIC Common
Shares owned by it in favor of the approval and adoption of this Agreement, the
Related Agreements and the transactions contemplated hereby and thereby;
provided, however, that SCG shall not be obligated to vote any ATLANTIC Common
Shares in favor of such matters in the event that the ATLANTIC Board, the
ATLANTIC Special Committee or the SCG Board withdraws, modifies or amends its
recommendation pursuant to Section 6.3.
SECTION 6.11 CONFIDENTIALITY
(a) As used herein, "Confidential Material" means, with respect to
either party hereto (the "Providing Party"), all information, whether oral,
written or otherwise, furnished to the other party hereto (the "Receiving
Party") or the Receiving Party's directors, officers, partners, Affiliates (as
defined in Rule 12b-2 under the Exchange Act), employees, agents or
representatives (collectively, "Representatives"), by the Providing Party and
all reports, analyses, compilations, studies and other material prepared by the
Receiving Party or its Representatives (in whatever form maintained, whether
documentary, computer storage or otherwise) containing, reflecting or based
upon, in whole or in part, any such information. The term "Confidential
Material" does not include information which (i) is or becomes generally
available to the public other than as a result of a disclosure by the Receiving
Party, its Representatives or anyone to whom the Receiving Party or any of its
Representatives transmit any Confidential Material in violation of this
Agreement, (ii) is or becomes known or available to the Receiving Party on a
nonconfidential basis from a source (other than the Providing Party or one of
its Representatives) who is not, to the knowledge of the Receiving Party after
reasonable inquiry, prohibited from transmitting the information to the
Receiving Party or its Representatives by a contractual, legal, fiduciary or
other obligation or (iii) is contained in the
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ATLANTIC Registration Statement, the ATLANTIC Prospectus, the Proxy Statement,
the SCG Warrant Registration Statement or the SCG Warrant Prospectus.
(b) Subject to paragraph (c) below or except as required by applicable
laws, regulations or legal process, the Confidential Material will be kept
confidential and will not, without the prior written consent of the Providing
Party, be disclosed by the Receiving Party or its Representatives, in whole or
in part, and will not be used by the Receiving Party or its Representatives,
directly or indirectly, for any purpose other than in connection with this
Agreement, the Related Agreements and the transactions contemplated hereby or
thereby or evaluating, negotiating or advising with respect to such matters.
Moreover, the Receiving Party agrees to transmit Confidential Material to its
Representatives only if and to the extent that such Representatives need to know
the Confidential Material for purposes of such transactions and are informed by
the Receiving Party of the confidential nature of the Confidential Material and
of the terms of this Section 6.11. In any event, the Receiving Party will be
responsible for any actions by its Representatives which are not in accordance
with the provisions hereof.
(c) In the event that the Receiving Party, its Representatives or
anyone to whom the Receiving Party or its Representatives supply the
Confidential Material are requested (by oral questions, interrogatories,
requests for information or documents, subpoena, civil or criminal investigative
demand, any informal or formal investigation by any government or governmental
agency or authority or otherwise in connection with legal process) to disclose
any Confidential Material, the Receiving Party agrees (i) to immediately notify
the Providing Party of the existence, terms and circumstances surrounding such a
request, (ii) to consult with the Providing Party on the advisability of taking
legal available steps to resist or narrow such request and (iii) if disclosure
of such information is required, to furnish only that portion of the
Confidential Material which, in the opinion of the Receiving Party's counsel,
the Receiving Party is legally compelled to disclose and to cooperate with any
action by the Providing Party to obtain an appropriate protective order or other
reliable assurance that confidential treatment will be accorded the Confidential
Material (it being agreed that the Providing Party shall reimburse the Receiving
Party for all reasonable out-of-pocket expenses incurred by the Receiving Party
in connection with such cooperation).
(d) In the event of the termination of this Agreement in accordance
with its terms, promptly upon request from the Providing Party, the Receiving
Party shall, except to the extent prohibited by applicable laws, regulations or
legal process, redeliver to the Providing Party or destroy all tangible
Confidential Material and will not retain any copies, extracts or other
reproductions thereof in whole or in part. Any such destruction shall be
certified in writing to the Providing Party by an authorized officer of the
Receiving Party supervising the same. Notwithstanding the foregoing, the
Receiving Party and one Representative designated by the Receiving Party shall
be permitted to retain one permanent file copy of each document constituting
Confidential Material to be used only in connection with litigation arising from
the transactions contemplated by this Agreement.
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SECTION 6.12 PERSONNEL.
(a) SCG Liability for Employee Obligations. SCG shall indemnify and
hold harmless ATLANTIC for any and all obligations, debts or liabilities
relating to or arising from any Employee's employment with SCG or an SCG
Subsidiary, which obligation, debt or liability arises prior to the Merger
Closing date. SCG shall honor or cause its insurance carriers to honor all
claims for benefits by the Employees under each Employee Benefit Plan with
respect to claims incurred by the Employees or their covered dependents before
the Merger Closing date.
(b) Employee Benefit Plans. ATLANTIC shall establish or cause to be
established employee benefit plans for the respective Employees who become
employees of ATLANTIC or any subsidiary thereof after the Merger Closing that
are substantially similar to the Employee Benefit Plans, which plans shall
recognize service of the Employees with ATLANTIC and SCG and their affiliates to
the same extent such service has been recognized under the Employee Benefit
Plans. The medical plans established by ATLANTIC shall recognize any
deductibles and copayments Employees have made under the SCG medical plan in the
current plan year.
(c) Nonassumption of Employee Benefit Plan Liability. ATLANTIC shall
not incur any liability with respect to an Employee Benefit Plan.
SECTION 6.13 PRORATIONS. No later than ninety (90) days after the
date of the Merger Closing, SCG shall prepare and deliver a statement (a "Post-
Closing Accrual Statement") prorating all of the items listed in this Section
6.13 ("Prorated Items") through the date of the Merger Closing. SCG shall be
liable for or entitled to the benefit of the Prorated Items to the extent the
Prorated Items relate to any time period up to the date of the Merger Closing,
and ATLANTIC shall be liable for or entitled to the benefit of the Prorated
Items to the extent Prorated Items relate to periods from and subsequent to the
date of the Merger Closing. Prorated Items shall be settled between SCG and
ATLANTIC in cash. The Prorated Items are as follows:
(a) all Taxes relating to the businesses of the SCG Subsidiaries which
shall have accrued and become payable prior to the date of the Merger
Closing shall be paid by SCG. All Taxes which shall be (or should be)
accrued but unpaid or which have been paid in advance shall be properly
prorated as of the date of the Merger Closing between SCG and ATLANTIC. In
connection with such proration of Taxes, in the event that actual tax
figures are not available at the time of delivery of the Post-Closing
Accrual Statement, the taxes to be prorated shall be based upon the actual
taxes for the preceding year for which actual tax amounts are available and
such taxes shall be reprorated upon request of either party made within
sixty (60) days of the date that the actual amounts become available,
provided that the actual amount is at least 5% more or 5% less than the
amount on which the original proration was based, and appropriate payment
shall be made within thirty (30) days after such reproration;
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(b) rents, taxes and other items payable by either of the SCG
Subsidiaries under any agreement;
(c) the amount of any license or registration fees with respect to any
licenses or registrations of either of the SCG Subsidiaries;
(d) the amount of charges for water, telephone, electricity and other
utilities and fuel;
(e) all accrued vacation, termination and severance pay and accrued
sickness benefits for all Employees including related, social security
taxes, unemployment compensation taxes, workers compensation taxes and
premiums and other employment taxes relating to the same;
(f) all other operating expenses, including without limitation
insurance premiums and amounts payable to service providers, of the SCG
Subsidiaries;
(g) all management fees, commissions and other fees and income of the
SCG Subsidiaries; and
(h) all other items not specifically described in subsections (a)-(g)
above which are normally prorated in connection with similar transactions.
In addition to the Prorated Items, the Post-Closing Accrual Statement shall also
reflect any payments made by SCG or either of the SCG Subsidiaries prior to
Merger Closing with respect to any Prorated Items. SCG agrees to furnish
ATLANTIC with such documents and other records as ATLANTIC reasonably requests
in order to confirm all adjustment and proration calculations reflected on the
Post-Closing Accrual Statement.
SECTION 6.14 TAX MATTERS.
(a) Tax Reporting. The parties agree that they will report, and will cause
the SCG Subsidiaries and the surviving corporation in the mergers pursuant to
Section 2.1 to report, the Merger on all Tax Returns and other filings as fax-
free reorganizations under Section 368(a) of the Code.
(b) Tax Sharing Agreements. Any Tax sharing agreement between SCG and an
SCG Subsidiary will be terminated as of the Merger Closing and will have no
further effect for any taxable year.
(c) Returns for Periods Through the Closing Date. SCG will include the
income of each of the SCG Subsidiaries (including any deferred income triggered
into income by Section 1.1502-13 of the Treasury Regulations and any excess loss
accounts taken into income under Section 1.1502-19 of the Treasury Regulations)
on the SCG consolidated Tax Returns for all periods through the Merger Closing
and pay any Taxes attributable to such income. Each SCG
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Subsidiary will furnish Tax information to SCG for inclusion in SCG's
consolidated Tax Returns for the period which includes the date of the Merger
Closing in accordance with each SCG Subsidiary's past custom and practice. SCG
will allow ATLANTIC a reasonable opportunity to review and comment upon such Tax
Returns (including any amended returns) prior to their being filed to the extent
that they relate to any SCG Subsidiary. Without the consent of ATLANTIC, SCG
will take no position on such returns that relate to any SCG Subsidiary that
would be inconsistent with prior positions taken by SCG. The income of each SCG
Subsidiary will be apportioned to the period up to and including the Merger
Closing date and the period after the Merger Closing date by closing the books
of each SCG Subsidiary as of the end of the Merger Closing date.
(d) Cooperation. SCG and ATLANTIC will cooperate fully with each other in
connection with (i) the preparation and filing of any Federal, state or local
tax returns that include the business and operations of the SCG Subsidiaries for
any period prior to and including the date of the Merger Closing, and (ii) any
audit examination by any government taxing authority of the returns referred to
in clause (i). Such cooperation shall include, without limitation, the
furnishing or making available of records, books of account or other materials
of the SCG Subsidiaries necessary or helpful for the defense against assertions
of any taxing authority as to any tax returns which include operations of the
SCG Subsidiaries for any period prior to and including the date of the Merger
Closing.
(e) Claims. In a case in which ATLANTIC or its subsidiaries receives any
inquiry, whether oral or written, from any taxing authority relating to any
matter which could result in the indemnification of ATLANTIC by SCG under
Section 9.1, ATLANTIC will promptly give SCG written notice (the "Tax Inquiry
Notice") of such inquiry. If such Tax Inquiry Notice is not given to SCG within
30 days after the receipt by ATLANTIC or its subsidiaries of such an inquiry and
ATLANTIC's failure to give such Tax Inquiry Notice materially and substantially
adversely affects the ability of SCG to contest any claim made by such taxing
authority, SCG shall not be liable to ATLANTIC under Section 9.1 for such claim.
(f) Notice 88-19 Election. ATLANTIC will make an election to be subject to
rules similar to the rules of Section 1374 of the Code in accordance with
Internal Revenue Service Notice 88-19, 1988-1 C.B. 486, or any future applicable
administrative rules or treasury regulations.
(g) Settlement or Compromise. ATLANTIC will not settle or otherwise
compromise any claim or issue subject to indemnification under Section 9.1
without SCG's prior written consent, which SCG shall not unreasonably withhold.
Nothing contained herein shall require ATLANTIC to contest a claim if ATLANTIC
shall waive the payment by SCG of any amount that might otherwise be payable by
SCG pursuant to Section 9.1 hereof in respect of such claim.
SECTION 6.15 STANDSTILL. SCG agrees that, during the period beginning on
the Closing Date and ending 180 days thereafter, it will not sell or cause to be
sold any ATLANTIC Common Shares beneficially owned by SCG.
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ARTICLE VII
CONDITIONS
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligation of each party to effect the transactions contemplated hereby and by
the Related Agreements shall be subject to the fulfillment at or prior to the
Merger Closing of the following conditions:
(a) The other party shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Merger Closing, and the representations and warranties of each such other
party shall be true and correct in all material respects on and as of (i) the
date made and (ii) the Merger Closing date with the same effect as if made on
that date; and each party shall have received a certificate of an executive
officer of each such party to that effect;
(b) This Agreement, the Related Agreements and the transactions
contemplated hereby and thereby shall have been approved by the affirmative vote
of a majority of the ATLANTIC Common Shares and the SCG shareholders' Approval
shall have been obtained;
(c) The ATLANTIC Registration Statement and the SCG Warrant Registration
Statement shall each have become effective in accordance with the provisions of
the Securities Act, and no stop order suspending such effectiveness shall have
been issued and remain in effect and no proceeding for that purpose shall have
been initiated or threatened by the Commission;
(d) ATLANTIC and SCG shall have received a study from Arthur Andersen LLP
or another nationally recognized independent certified public accounting firm
concluding that the accumulated earnings and profits for the SCG Subsidiaries as
of December 31, 1996 and the projected earnings and profits of the SCG
Subsidiaries for the period beginning January 1, 1997 and ending on the Merger
Closing date are in the aggregate less than $5,000,000;
(e) Each of ATLANTIC and SCG shall have received a favorable opinion of
Mayer, Brown & Platt (substantially in the form set forth in Exhibit VIII
hereto) to the effect that the mergers described in Section 2.1 each will
qualify as a reorganization within the meaning of Section 368 of the Code and
that each of ATLANTIC, the SCG Subsidiaries, and the subsidiary of ATLANTIC that
shall be the surviving corporation in such mergers will be a party to the
reorganization within the meaning of Section 368(b) of the Code will constitute
a transaction subject to the reorganization provisions of the Code and related
provisions;
(f) ATLANTIC and SCG shall have received (i) an opinion from Mayer, Brown &
Platt (substantially in the form set forth in Exhibit VIII hereto) that the
performance of this Agreement will not jeopardize the status of ATLANTIC as a
"real estate investment trust" under the Code or (ii) a favorable ruling from
the Internal Revenue Service to the effect that the Warrant Issuance will be
respected for federal income tax purposes as a direct issuance of the SCG
Warrants by SCG to the shareholders of ATLANTIC and an opinion from Mayer, Brown
& Platt (substantially in the form set forth in Exhibit VIII hereto) that the
performance of this
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Agreement will not jeopardize the status of ATLANTIC as a "real estate
investment trust" under the Code;
(g) No preliminary or permanent injunction or other order or decree by any
federal or state court which prevents the consummation of the transactions
contemplated by this Agreement and the Related Agreements shall have been issued
and remain in effect (each party agreeing to use its best efforts to have any
such injunction, order or decree lifted);
(h) All governmental consents, orders and approvals legally required for
the consummation of the transactions contemplated by this Agreement and the
Related Agreements shall have been obtained and be in effect at the Merger
Closing (including ATLANTIC Required Statutory Approvals and SCG Required
Statutory Approvals), and all consents, orders and approvals legally required
for the consummation of the transactions contemplated by this Agreement and the
Related Agreements shall have been obtained;
(i) Each of the parties shall have acquired all material consents required
from third parties necessary to consummate the transactions contemplated by this
Agreement;
(j) All agreements set forth on Schedule 7.1 shall have been terminated
effective as of the Closing; and
(k) SCG shall have forgiven all indebtedness owing to it from each SCG
Subsidiary.
SECTION 7.2 CONDITIONS TO OBLIGATIONS OF ATLANTIC. Unless waived by
ATLANTIC, the obligation of ATLANTIC to effect the transactions contemplated
hereby and by the Related Agreements shall be subject to the fulfillment at or
prior to the Merger Closing of the following additional conditions:
(a) The Special Committee of the ATLANTIC Board (the "ATLANTIC Special
Committee") shall have received from J.P. Morgan Securities Inc., or another
investment banking firm satisfactory to the ATLANTIC Special Committee, a
written opinion to the effect that, as of the date of the Proxy Statement and
the SCG Warrant Prospectus, the consideration to be received in the transactions
contemplated by this Agreement and by the Related Agreements is fair, from a
financial point of view, to ATLANTIC and its shareholders (other than SCG), and
such opinion shall not have been withdrawn, revoked or modified;
(b) SCG shall have executed and delivered to ATLANTIC an Amended and
Restated ATLANTIC Investor Agreement substantially in the form of Exhibit IV
hereto;
(c) SCG shall have executed and delivered to ATLANTIC an Administrative
Services Agreement substantially in the form of Exhibit V hereto;
(d) SCG Realty Services Incorporated shall have distributed all of the
outstanding shares of the Property Manager to its sole shareholder;
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(e) SCG shall have executed and delivered to ATLANTIC a License Agreement
with respect to the name "Security Capital" substantially in the form of Exhibit
VI hereto;
(f) SCG shall have executed and delivered to ATLANTIC the Protection of
Business Agreement substantially in the form of Exhibit VII hereto;
(g) ATLANTIC shall have received a "comfort letter" from the independent
public accountants of SCG, dated as of the effective date of the SCG Warrant
Registration Statement, with respect to financial information of SCG included or
incorporated by reference in the Proxy Statement and the SCG Warrant
Registration Statement in form and substance reasonably satisfactory to ATLANTIC
and customary in scope and substance for "comfort letters" delivered by
independent public accountants in connection with registration statements and
proxy statements;
(h) The SCG Warrants to be issued pursuant to the Warrant Issuance shall
have been authorized, upon official notice of issuance, for listing or quotation
on the Exchange, if any, on which the SCG Class B Common Shares are authorized
for listing or quotation; and
(i) No governmental consent, order or approval legally required for the
consummation of the transactions contemplated by this Agreement and by the
Related Agreements shall have any terms which in the reasonable judgment of
ATLANTIC, when taken together with the terms of all such consents, orders or
approvals, would materially impair the value to ATLANTIC and the shareholders of
ATLANTIC of the transactions contemplated by this Agreement and the Related
Agreements (including, without limitation, the value of the SCG Warrants to be
received by the shareholders of ATLANTIC pursuant to Section 2.2), and no
governmental authority shall have promulgated any statute, rule or regulation
which, when taken together with all such promulgations, would materially impair
the value to ATLANTIC and the shareholders of ATLANTIC of the transactions
contemplated by this Agreement and the Related Agreements (including, without
limitation, the value of the SCG Warrants to be received by the shareholders of
ATLANTIC pursuant to Section 2.2).
SECTION 7.3 CONDITIONS TO OBLIGATIONS OF SCG. Unless waived by SCG, the
obligation of SCG to effect the transactions contemplated hereby and by the
Related Agreements shall be subject to the fulfillment at or prior to the Merger
Closing of the additional following conditions:
(a) The Affiliate Agreements required to be executed and delivered by
affiliates of ATLANTIC pursuant to Section 6.4 shall have been executed and
delivered as required by Section 6.4;
(b) ATLANTIC shall have executed and delivered to SCG an Amended and
Restated ATLANTIC Investor Agreement substantially in the form of Exhibit IV
hereto;
(c) ATLANTIC shall have executed and delivered to SCG an Administrative
Services Agreement substantially in the form of Exhibit V hereto;
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(d) ATLANTIC shall have executed and delivered to SCG a License Agreement
with respect to the name "Security Capital" substantially in the form of Exhibit
VI hereto;
(e) SCG shall have received a "comfort letter" from the independent public
accountants of ATLANTIC, dated as of the effective date of the SCG Warrant
Registration Statement, with respect to financial information of ATLANTIC
included or incorporated by reference in the Proxy Statement and the SCG Warrant
Registration Statement in form and substance reasonably satisfactory to SCG and
customary in scope and substance for "comfort letters" delivered by independent
public accountants in connection with registration statements and proxy
statements; and
(f) No governmental consent, order or approval legally required for the
consummation of the transactions contemplated by this Agreement and by the
Related Agreements shall have any terms which in the reasonable judgment of SCG,
when taken together with the terms of all such consents, orders or approvals,
would materially impair the value to SCG of the transactions contemplated by
this Agreement and the Related Agreements (including, without limitation, the
value of the ATLANTIC Common Shares to be received by SCG pursuant to Section
2.1), and no governmental authority shall have promulgated any statute, rule or
regulation which, when taken together with all such promulgations, would
materially impair the value to SCG and the shareholders of SCG of the
transactions contemplated by this Agreement and the Related Agreements
(including, without limitation, the value of the ATLANTIC Common Shares to be
received by SCG pursuant to Section 2.1).
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 TERMINATION. This Agreement may be terminated at any time
prior to the Merger Closing, whether before or after approval by the
shareholders of ATLANTIC and SCG:
(a) by mutual consent of each of the parties hereto;
(b) unilaterally by either of the parties hereto, so long as such party has
not breached any of its obligations hereunder (except for such breaches as are
immaterial), if the transactions contemplated hereby shall not have been
consummated on or before December 31, 1997 (the "Termination Date");
(c) unilaterally by either of the parties hereto (i) if the other party (A)
fails to perform any covenant or agreement in this Agreement in any material
respect, and does not cure the failure, in all material respects within 15
business days after the terminating party delivers written notice of the alleged
failure or (B) fails to fulfill or complete a condition to the obligations of
the terminating party (which condition is not waived) by reason of a breach by
the non-terminating party of its obligations hereunder or (ii) if any condition
to the obligations of the terminating party is not satisfied (other than by
reason of a breach by that party of its
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obligations hereunder), and it reasonably appears that the condition cannot be
satisfied prior to the Termination Date;
(d) unilaterally by SCG if ATLANTIC, through the ATLANTIC Board or ATLANTIC
Special Committee, either fails to recommend to ATLANTIC's shareholders the
approval of this Agreement and the transactions contemplated hereby or
withdraws, modifies or amends such recommendation; and
(e) unilaterally by ATLANTIC if SCG, through the SCG Board, either fails to
recommend to SCG's shareholders the approval of this Agreement and the
transactions contemplated hereby or withdraws, modifies or amends such
recommendation.
SECTION 8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement, as provided in Section 8.1, this Agreement shall forthwith become
void, and there shall be no further obligation on the part of any party hereto
or their respective officers or directors or (except as set forth in this
Section 8.2 and in Sections 6.6 and 6.11 and Article IX, which shall survive
such termination). Nothing in this Section 8.2 shall relieve any party from
liability for any breach of this Agreement. Upon any termination pursuant to
Section 8.1(d), ATLANTIC shall pay to SCG all of the documented, out-of-pocket
expenses incurred by SCG after the date hereof in connection with the
transactions contemplated by this Agreement. Upon any termination pursuant to
Section 8.1(e), SCG shall pay to ATLANTIC all of the documented, out-of-pocket
expenses incurred by ATLANTIC after the date hereof in connection with the
transactions contemplated by this Agreement.
SECTION 8.3 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto and in
compliance with applicable law; provided, however, this Agreement may not be
amended in any material respect following the ATLANTIC Shareholders' Approval or
SCG Shareholders' Approval.
SECTION 8.4 WAIVER. At any time prior to the Merger Closing, each party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein except ATLANTIC Shareholders' Approval or the SCG
Shareholders' Approval. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE IX
SURVIVAL AND REMEDY; INDEMNIFICATION
SECTION 9.1 INDEMNIFICATION. Each party hereto agrees to indemnify (each
an "Indemnifying Party") the other party hereto and each of such other party's
affiliates (each an "Indemnified Party" and collectively, the "Indemnified
Parties") against, and agrees to hold it and them harmless from, any and all
liabilities, losses, costs, damages, penalties or expenses
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(including, without limitation, reasonable attorneys' fees and expenses and
costs of investigation and litigation) (collectively, "Losses") incurred or
suffered by an Indemnified Party arising out of or in connection with any breach
of, or inaccuracy in, (i) to the extent SCG is the Indemnifying Party, any of
the representations and warranties or agreements of SCG under this Agreement and
(ii) to the extent ATLANTIC is the Indemnifying Party, the representations and
warranties of the ATLANTIC set forth in Section 3.3 and Section 3.4(a) of this
Agreement. In addition, SCG agrees to indemnify ATLANTIC and each of ATLANTIC's
affiliates (other than SCG, but including, after the Merger Closing, the
surviving corporation in the merger pursuant to Section 2.1) (ATLANTIC and such
included affiliates being included within the terms "Indemnified Party" and
"Indemnified Parties" as used in the other sections of this Article IX) against,
and agrees to hold it and them harmless from, any and all Losses incurred or
suffered by it or them arising out of or in connection with (X) any breach of,
or inaccuracy in, any of the representations and warranties of ATLANTIC set
forth in this Agreement other than those set forth in Section 3.3 or Section
3.4(a), (Y) any acts or omissions of either of the SCG Subsidiaries in their
respective capacities as REIT Manager and Property Manager prior to the Merger
Closing, but only to the extent that such breach, inaccuracy, act, or omission
arises out of or results from the gross negligence, bad faith, or willful
misconduct of either SCG Subsidiary or (Z) any income tax liabilities arising
pursuant to Treasury Regulations section 1.1502-6 or any analogous state or
local tax provisions.
SECTION 9.2 LIMITATION OF INDEMNIFICATION. An Indemnified Party shall not
be entitled to indemnification under this Article IX until the aggregate of all
Losses with respect to which such Indemnified Party would otherwise be entitled
to indemnification under this Article IX exceeds $250,000, in which event the
Indemnified Party shall be entitled to all such Losses including such $250,000;
provided, however, that none of the indemnification obligations hereunder (other
than for Losses arising in connection with a breach of the representations and
warranties set forth in Section 4.8 or under clause (Z) of Section 9.1) shall
exceed the Fair Market Value of the ATLANTIC Common Shares received by SCG
pursuant to Section 2.1.
SECTION 9.3 NOTICE OF CLAIMS; ASSUMPTION OF DEFENSE. The Indemnified
Party shall give prompt notice to the Indemnifying Party, in accordance with the
terms of Section 10.1 and in the case of a tax inquiry in compliance with the
terms of Section 6.14(e), of the assertion of any claim, or the commencement of
any suit, action or proceeding by any party in respect of which indemnity may be
sought hereunder, specifying with reasonable particularity the basis therefor
and giving the Indemnifying Party such information with respect thereto as the
Indemnifying Party may reasonably request. The Indemnifying Party may, at its
own expense, (a) participate in and (b) upon notice to the Indemnified Party and
upon the Indemnifying Party's written agreement that the Indemnified Party is
entitled to indemnification pursuant to Section 9.1 for Losses arising out of
such claim, suit, action or proceeding, at any time during the course of any
such claim, suit, action or proceeding, assume the defense thereof; provided
that (x) the Indemnifying Party's counsel is reasonably satisfactory to the
Indemnified Party and (y) the Indemnifying Party shall thereafter consult with
the Indemnified Party upon its reasonable request from time to time with respect
to such claim, suit, action or proceeding; provided, however, that the
Indemnified Party shall have the right to retain its own counsel, with
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the reasonable fees and expenses to be paid by the Indemnifying Party, if the
Indemnified Party reasonably believes that representation of it by the counsel
retained by the Indemnifying Party would be inappropriate due to actual or
potential differing interest between the Indemnified Party and any other party
represented by such counsel in such proceeding. If the Indemnifying Party
assumes such defense, the Indemnified Party shall have the right (but not the
duty) to participate in the defense thereof and to employ counsel, at its own
expense, separate from the counsel employed by the Indemnifying Party. Whether
or not the Indemnifying Party chooses to defend or prosecute any such claim,
suit, action or proceeding, all of the parties hereto shall cooperate in the
defense or prosecution thereof.
SECTION 9.4 SETTLEMENT OR COMPROMISE. Any settlement or compromise made
or caused to be made by the Indemnified Party or the Indemnifying Party, as the
case may be, of any claim, suit, action or proceeding of the kind referred to in
Section 9.3 shall also be binding upon the Indemnifying Party or the Indemnified
Party, as the case may be, in the same manner as if a final judgment or decree
had been entered by a court of competent jurisdiction in the amount of such
settlement or compromise. No party shall settle or compromise any such claim,
suit, action or proceeding without the prior written consent of the other party,
which shall not be unreasonably withheld.
SECTION 9.5 FAILURE OF INDEMNIFYING PARTY TO ACT. In the event that the
Indemnifying Party does not elect to assume the defense of any claim, suit,
action or proceeding within a reasonable time of being notified by the
Indemnified Party, then any failure of the Indemnified Party to defend or to
participate in the defense of any such claim, suit, action or proceeding or to
cause the same to be done, shall not relieve the Indemnifying Party of its
obligations hereunder.
SECTION 9.6 SURVIVAL. The indemnification provided by this Article IX
shall be a continuing right to indemnification and shall survive the closing of
the transactions contemplated hereby and the expiration or termination of this
Agreement (i) for a period of two years following the Merger Closing with
respect to any indemnification not in connection with a breach of the
representations and warranties set forth in Section 4.8 and (ii) until the
expiration of the statute of limitations (as it may be extended) with respect to
each tax year or period pertinent to the representations and warranties set
forth in Section 4.8 with respect to any indemnification in connection with a
breach thereof; and the Indemnified Party shall be entitled to bring an action
thereon only if the Indemnified Party has given the Indemnifying Party written
notice within such two-year period, or statute-of-limitations period, as the
case may be.
SECTION 9.7 WAIVER OF COUNTERCLAIMS FOR INDEMNIFICATION. If and to the
extent that SCG, by virtue of being an Indemnifying Party hereunder, would have
a claim against any Indemnified Party for indemnification against Losses under
the REIT Management Agreement or Property Management Agreement, SCG hereby
waives and forever releases the Indemnified Parties from any such claim.
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ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 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):
(a) If to ATLANTIC, to:
Security Capital Atlantic Incorporated
Six Piedmont Center
Atlantic, Georgia 30305
Attention: Constance B. Moore
Fax: (404) 233-2379
with copies to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Edward J. Schneidman
Fax: (312) 701-7711
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, NW
Washington, D.C. 20004
Attention: J. Warren Gorrell, Jr.
Fax: (202) 657-5910
(b) If to SCG, to:
Security Capital Group Incorporated
125 Lincoln Avenue, Suite 300
Santa Fe, New Mexico 87501
Attention: Jeffrey A. Klopf
Fax: (505) 988-8920
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with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Edward J. Schneidman
Fax: (312) 701-7711
SECTION 10.2 INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.3 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof and
thereof; (b) shall not be assigned by operation of law or otherwise; and (c)
shall be governed in all respects, including validity, interpretation and
effect, by the laws of the State of Maryland (without giving effect to the
provisions thereof relating to conflicts of law).
SECTION 10.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 10.5 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of the parties hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 10.6 NO PRESUMPTION AGAINST DRAFTER. Each of the parties hereto
has 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.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
SECURITY CAPITAL ATLANTIC INCORPORATED
By: /s/ CONSTANCE B. MOORE
----------------------------------
Constance B. Moore
Co-Chairman
SECURITY CAPITAL GROUP INCORPORATED
By: /s/ JEFFREY A. KLOPF
----------------------------------
Jeffrey A. Klopf
Senior Vice President
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EXHIBIT 10.1
AMENDED AND RESTATED INVESTOR AGREEMENT
THIS AMENDED AND RESTATED INVESTOR AGREEMENT (this "Agreement"), dated as
of __________, 1997, is by and between Security Capital Atlantic Incorporated, a
Maryland corporation (the "Company"), and Security Capital Group Incorporated, a
Maryland corporation ("SCG").
W I T N E S S E T H
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WHEREAS, the Company and SCG have entered into that certain Merger and
Issuance Agreement, dated as of March 24, 1997, (the "Merger Agreement"),
pursuant to which, among other things, SCG will cause certain of its
subsidiaries to be merged into a subsidiary of the Company in exchange for the
Company's shares of common stock, $0.01 par value per share (the "Common
Shares");
WHEREAS, the Company and SCG are parties to that certain Investor
Agreement, dated October 28, 1993 (the "Original Agreement");
WHEREAS, the Company and SCG desire to update and to amend and restate the
Original Agreement to reflect their continuing relationship after the
consummation of the transactions contemplated by the Merger Agreement (the
"Transaction"); and
WHEREAS, the execution and delivery of this Agreement is a condition to the
consummation of the Transaction.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. In addition to the terms defined elsewhere herein, the
following terms shall have the following meanings:
"Approval Rights" shall have the meaning set forth in Section 5(d) of this
Agreement.
"Beneficial Owner" shall mean any Person deemed to be a "Beneficial Owner"
of or to "Beneficially Own" any Common Shares in accordance with the term
"beneficial ownership" as defined in Rule 13d-3 under the Exchange Act.
"Board" shall mean the Board of Directors of the Company.
"Bylaws" shall mean the Company's Second Amended and Restated Bylaws, as
now in effect or as amended from time to time.
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"Capital Expenditures" shall mean, on an annual basis, an amount equal to
the product of (a) the sum of the total square footage with respect to all
completed properties of the Company and its consolidated subsidiaries as of the
last day of each of the immediately preceding five calendar quarters, divided by
five, and (b) $0.15.
"Commission" shall mean the Securities and Exchange Commission or any
successor agency or entity thereto.
"Common Shares" shall have the meaning set forth in the preamble of this
Agreement.
"Company" shall have the meaning set forth in the first paragraph of this
Agreement.
"Charter" shall mean the Company's Amended and Restated Articles of
Incorporation, as amended and supplemented, as now in effect or as amended from
time to time.
"Disqualified Shares" shall mean any of the Company's shares of stock which
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable or exercisable) (a) matures or is subject to
mandatory redemption, pursuant to a sinking fund obligation or otherwise, (b) is
convertible into or exchangeable or exercisable for a Liability or Disqualified
Shares during the term of this Agreement, (c) is redeemable during the term of
this Agreement at the option of the holder of such security or (d) otherwise
requires any payments by the Company during the term of this Agreement.
"Distribution" shall mean, with respect to any shares of beneficial
interest or other equity security of the Company, (a) the retirement,
redemption, purchase or other acquisition for value of those securities by the
Company, (b) the declaration or payment of any dividend on or with respect to
those securities by the Company, (c) any loan or advance by the Company to, or
other investment by the Company in, the holder of any of those securities and
(d) any other payment by the Company with respect to those securities.
"Fixed Charge Coverage Ratio" shall mean, as of any date, the ratio of
(a)(i) Funds from Operations, plus (ii) Interest Expense, minus (iii) Capital
Expenditures, to (b) the sum of (i) Interest Expense, plus (ii) Distributions of
any kind or character or other proceeds paid or payable with respect to
Disqualified Shares, plus (iii) any regularly scheduled principal payments on
Total Indebtedness (excluding (1) any regularly scheduled principal payments on
Company's revolving line of credit with Morgan Guaranty Trust Company of New
York, or any renewals, extensions or replacements thereof, and (2) any regularly
scheduled principal payments on any Total Indebtedness which pays such Total
Indebtedness in full, but only to the extent that the amount of such final
payment is greater than the scheduled principal payment immediately preceding
such final payment), in each case for the four fiscal quarters ending on the
date of determination.
"Funds from Operations" shall mean for the Company and its consolidated
subsidiaries, net income plus depreciation and amortization (exclusive of
amortization of financing costs), all as determined in accordance with generally
accepted accounting principles; provided, that there
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shall not be included in such calculation (a) any proceeds of any insurance
policy other than rental or business interruption insurance received by the
Company, (b) any gain or loss which is classified as "extraordinary" in
accordance with generally accepted accounting principles or (c) capital gains
and taxes on capital gains (in each case exclusive of such amounts that are
attributable to Atlantic Development Services Incorporated). Funds from
Operations shall be calculated as if all minority interests in the Company's
consolidated subsidiaries have been converted into capital securities of the
Company. Funds from Operations shall not be increased or decreased by gains or
losses from sales of properties (in each case exclusive of amounts that are
attributable to Atlantic Development Services Incorporated).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Group" shall have the meaning assigned thereto in Section 13(d)(3) of the
Exchange Act.
"Interest Expense" shall mean all of the Company's paid, accrued or
capitalized interest expense on it Total Indebtedness (whether direct, indirect,
or contingent, and including interest on all convertible liabilities), but
excluding Interest Expense that is not paid or payable in cash and excluding
Interest Expense for the construction of Company projects which is capitalized
in accordance with generally accepted accounting principles.
"Interest Expense Coverage Ratio" shall mean, as of any date, the ratio of
(a) the sum of (i) the Company's Funds from Operations and (ii) the Company's
Interest Expense to (b) the sum of (i) Interest Expense and (ii) Distributions
of any kind or character or other proceeds paid or payable with respect to
Disqualified Shares, of the Company and is consolidated subsidiaries for the
four fiscal quarters ending on the date of determination.
"Liabilities" shall mean, without duplication, (a) any obligations required
by generally accepted accounting principles to be classified upon the Company's
balance sheet as liabilities, (b) any liabilities secured (or for which the
holder of the Liability has an existing right, remedy, power or privilege,
contingent or otherwise, to be so secured) by any Lien existing on property
owned or acquired by the Company, (c) any obligations that have been (or under
generally accepted accounting principles should be) capitalized for financial
reporting purposes and (d) any guaranties, endorsements and other contingent
obligations with respect to Liabilities or obligations of others.
"Lien" shall mean any lien, mortgage, security interest, pledge,
assignment, charge, title retention, agreement or encumbrance of any kind and
any other substantially similar arrangement for a creditor's claim to be
satisfied from assets or proceeds prior to the claims of other creditors or the
owners.
"Lender" shall have the meaning set forth in Section 6(i) of this
Agreement.
"Member" shall have the meaning set forth in Section 4 of this Agreement.
"Nominee" shall have the meaning set forth in Section 5(a) of this
Agreement.
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"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization, or other entity.
"Registrable Securities" shall have the meaning set forth in Section 6(h)
of this Agreement.
"SCG" shall have the meaning set forth in the first paragraph of this
Agreement.
"SCG Group" shall have the meaning set forth in Section 4 of this
Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Senior Officer" shall mean any Senior Vice President, Managing Director,
President, Chairman or Co-Chairman of the Company.
"Total Indebtedness" shall mean all Liabilities of the Company that are (a)
a Liability for borrowed money, (b) evidenced by bonds, debentures, notes or
similar instruments, (c) an obligation to pay the deferred purchase price of
property or services, except trade payables arising in the ordinary course of
business, (d) secured by a Lien existing on any property or any interest
therein, whether or not such Liability shall have been assumed by the Company,
(e) any capital lease or sublease that has been (or under generally accepted
accounting principles should be) capitalized on a balance sheet, (f) a guaranty,
endorsement or other contingent obligation (other than endorsements in the
ordinary course of business of negotiable or documents for deposit or
collection) and (g) accounts payable, dividends of any kind or character or
other proceeds payable with respect to any shares, accrued expenses and other
liabilities which in the aggregate are in excess of 5% of the amount of the
Company's total assets (determined in accordance with generally accepted
accounting principles) plus the amount of any accumulated depreciation with
respect to such assets, as of the date of determination.
"Transaction" shall have the meaning set forth in the preamble of this
Agreement.
"Value" shall mean the reported last sale price of a unit of security
regular way on a given day or, in case no such sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in each case
on the New York Stock Exchange Composite Tape, or, if such securities are not
listed or admitted to trading on such exchange, on the principal national
securities exchange on which such securities are listed or admitted to trading;
or, if such securities are not listed or admitted to trading on any national
securities exchange, the closing sales price, or, if there is no closing sales
price, the average of the closing bid and asked prices, in the over-the-counter
market as reported by the National Association of Securities Dealers Automated
Quotation System, or, if not so reported, as reported by the National Quotation
Bureau, Incorporated, or any successor thereof; or, if not so reported, the
average of the closing bid and asked prices as furnished by any member of the
National Association of Securities Dealers, Inc. selected from time to time by
the Company for that purpose; or, if no such prices are furnished, the fair
market value of such security as estimated by a nationally
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recognized investment banking firm selected by SCG (subject to the Company's
approval, which will not be unreasonably withheld), which estimate shall be
prepared at the expense of the Company; provided, however, that any
determination of the "Value" of a security hereunder shall be based on the
assumption that such security is freely transferable without registration under
the Securities Act.
"Violation" shall have the meaning set forth in Section 6(f)(i) of this
Agreement.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to SCG as follows:
(a) Organization and Standing. The Company has been duly organized
and is validly existing as a corporation in good standing under the laws of
the State of Maryland, with full power and authority to own its properties
and conduct its business as now conducted and as proposed by it to be
conducted.
(b) No Defaults. The performance of this Agreement and the
consummation of the transactions herein contemplated will not conflict with
the Charter, Bylaws or other governing documents of the Company.
(c) Authority. The Company has full right, power and authority to
enter into this Agreement and to carry out its obligations hereunder. This
Agreement has been duly authorized, executed and delivered by the Company
and constitutes a valid and binding agreement of the Company enforceable
against it in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally and judicial limitations on the right of specific performance or
by general equitable principles, and except as enforceability of
indemnification provisions hereof may be limited by federal securities
laws.
(d) Investment Company Act. The Company is not required to be
registered under the Investment Company Act of 1940, as amended.
3. Representations and Warranties of SCG. SCG hereby represents and
warrants to the Company as follows:
(a) Organization and Standing. SCG has been duly organized and is
validly existing as a corporation in good standing under the laws of the
State of Maryland, with corporate power and authority to own its properties
and conduct its business as now conducted.
(b) Authorization. SCG has full right, power and authority to enter
into this Agreement and to carry out its obligations hereunder. This
Agreement has been duly authorized, executed and delivered by SCG and
constitutes a valid and binding agreement of SCG enforceable against it in
accordance with its terms, except to the extent that its
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enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally and judicial limitations on the right of specific performance or
by general equitable principles. The performance by SCG of all of its
obligations under this Agreement and the consummation of the transactions
herein contemplated will not conflict with or result in a breach of any of
the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which SCG is a party or by which SCG is bound or to which any
of the property or assets of SCG is subject, nor will any such action
result in any violation of the provisions of the Articles of Incorporation
or the By-Laws of SCG or any applicable law or statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over SCG or any of its properties.
(c) Investment Company Act. SCG is not required to be registered
under the Investment Company Act of 1940, as amended.
4. Corporate Configuration. SCG and its affiliates, including the
Company (collectively, the "SCG Group" and each, a "Member"), constitute a group
of businesses engaged in real estate research, investment and management. Since
inception, the SCG Group has compiled an excellent record of growth in its
business. The parties recognize that the SCG Group has a distinct character
that is reflected in its objectives, principles, operating policies and
management style and that the SCG Group's overall objective is to create the
maximum value for Members and the shareholders thereof. The parties further
recognize that an important element of the SCG Group's success has been its
ability to attract, motivate, develop and retain talented individuals.
Historically, this has been accomplished by combining the operational aspects of
a Member with the organizational, management, technical and financial strengths
of SCG. Following the consummation of the Transaction, the parties desire that
the distinctive character of the SCG Group continue as between the Company, SCG
and the other Members and, accordingly, agree to the following provisions of
this Section 4.
(a) Statement of Purpose and Objectives. The parties believe that the
creation of value for the shareholders of the Company and the other Members
is dependent in large part on the ability of the Members to attract,
motivate, develop and retain talented individuals. The parties further
recognize that each Member enjoys the benefits and support derived from its
affiliates within the SCG Group and that these benefits and support are
important for the continued success of each of the Members. In that
regard, the Company and SCG agree that the provisions of this Section 4 are
necessary to continue the development of a corporate structure and depth of
management capable of sustaining a high rate of value-creation over a long
period of time. Further, the Company and SCG agree that it is critical to
the accomplishment of its goals to (i) recognize the intrinsic value of
each employee as an individual, (ii) treat each employee and applicant for
employment without discrimination as to race, creed, color, sex, age,
orientation or national origin, (iii) maintain an atmosphere that combines
professional achievement with personal enjoyment, (iv) provide training
opportunities that permit employees to perform their jobs in a better and
more meaningful manner, (v) provide
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each employee with opportunity for career growth and advancement within the
SCG Group based upon individual ability and performance, (v) recognize the
value and potential of self-motivation of people who thoroughly understand
their jobs so that individual initiative and thought will be encouraged in
the accomplishment of all tasks, (vi) compensate employees fairly and
competitively and (vii) maintain and enhance the strengths of each Member.
(b) Transferability of Employees. To accomplish the foregoing
objectives, each of the parties hereto agrees that SCG may notify the
Company's officers and employees of employment opportunities with other
Members of the SCG Group (including SCG) and may make such opportunities
available to such officers and employees; provided, that prior to making
any such opportunity available to any Senior Officer, SCG shall first give
the Board written notice of its intention to make any such opportunity
available to a Senior Officer at least 14 days prior to any discussions
with a Senior Officer regarding such opportunity. No Member (or any
director, trustee, officer, employee or shareholder of such Member) shall
have any liability to any other Member (or any director, trustee, officer,
employee or shareholder of such Member) as a result of the compliance by
such Member with the provisions of this Section 4. In the event that any
claims are made by any Person as a result of the compliance by a Member
with the provisions of this Section 4, each Member shall be responsible for
its own costs of defending against such claim.
(c) Termination. The provisions of this Section 4 shall continue and
remain in full force and effect until such time as the Company shall cease
to be a Member.
5. Covenants of the Company. The Company covenants and agrees with SCG
as follows:
(a) Board Representation. From and after the date hereof and for so
long thereafter as SCG Beneficially Owns 10% or more of the outstanding
Common Shares, the Company shall not increase the number of members of its
Board to more than seven (7), and SCG shall be entitled to designate one or
more Persons for nomination to the Board (such Person, a "Nominee") as
follows and the Company will use its best efforts to cause the election of
such Nominee or Nominees:
(i) So long as SCG Beneficially Owns at least 10% but less than
25% of the outstanding Common Shares, one (1) Nominee;
(ii) So long as SCG Beneficially Owns 25% or more of the
outstanding Common Shares, that number of Nominees as shall bear
approximately the same ratio (rounded down to the nearest whole
number) to the total number of members of the Board as the number of
Common Shares Beneficially Owned by SCG bears to the total number of
outstanding Common Shares, provided, that (A) SCG shall be entitled to
designate not more than three (3) Nominees so long as the Board
consists of not more than seven (7) members; and (B) any Person who is
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employed by SCG or who is an employee or a director of any corporation
of which SCG is a 25% shareholder (except for the Company) shall be
deemed to be a designee of SCG.
(b) File Reports. For as long as SCG shall continue to Beneficially
Own any Common Shares, the Company shall file on a timely basis all annual,
quarterly and other reports required to be filed by it under Sections 13
and 15(d) of the Exchange Act, and the Rules and Regulations of the
Commission thereunder, as amended from time to time.
(c) Advice of Actions. Without first having consulted with the
Nominee or Nominees of SCG designated by SCG in writing, the Company will
not seek approval by the Board of any proposal relating to:
(i) Budget. The Company's annual budget.
(ii) Expenses. Incurring expenses in any year exceeding (A) any
line item in the annual budget by the greater of $500,000 or 20% and
(B) the total expenses set forth in the annual budget by 15%.
(iii) Assets. The acquisition or sale of any assets in any
single transaction or any series of related transactions in the
ordinary course of the Company's business where the aggregate purchase
price paid or received by the Company exceeds $25,000,000.
(iv) Contracts. Entering into any new contract with a service
provider (A) for investment management, property management, or
leasing services or (B) that reasonably contemplates annual contract
payments by the Company in excess of $1,000,000.
Notwithstanding the foregoing, the Company shall have no obligation to
accept or comply with any advice offered by SCG or its designated Nominees
in any consultation pursuant to this Section 5(c).
(d) Approval Rights. So long as SCG Beneficially Owns 25% or more of
the Common Shares outstanding, SCG shall have the right (each, an "Approval
Right") to approve the following matters as proposed by the Company:
(i) Equity Securities. The (A) issuance or sale of any Common
Shares, (B) grant of any rights, options or warrants to subscribe for
or purchase Common Shares or any security convertible into or
exchangeable for Common Shares or (C) the issuance or sale of any
security convertible into or exchangeable for Common Shares, in any
such case, at a price per share less than the Value of a Common Share
on the date of such issuance, sale or grant. For purposes of the
preceding sentence Common Shares shall be deemed to be issued at less
than Value if the price per share for which Common Shares issuable
upon exercise of
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rights, options or warrants or upon conversion or exchange of
convertible or exchangeable securities is less than the Value on the
date of issuance. The provisions of this Section 5(d)(i) shall not
apply to (A) the sale or grant of any options to purchase shares of
stock of the Company pursuant to the provisions of any benefit plan
approved by the shareholders of the Company, (B) the issuance or sale
of shares of stock upon the exercise of any rights, options or
warrants granted, or upon the conversion or exchange of any
convertible or exchangeable security issued or sold, prior to the date
of this Agreement or in accordance with the provisions of this Section
5, (C) the issuance and sale of any shares of stock of the Company
pursuant to any dividend reinvestment and stock purchase plan approved
by the Board or (D) the issuance, grant or distribution of rights,
options or warrants to all holders of Common Shares entitling them to
subscribe for or purchase shares of stock of the Company or securities
convertible into or exercisable for shares of stock.
(ii) Fixed Charges. The issuance and sale of any Disqualified
Shares if, as a result thereof, the Company's Fixed Charge Coverage
Ratio would be less than 1.4 to 1.0.
(iii) Benefit Plans and Compensation. The adoption of any
employee benefit plan pursuant to which shares of stock of the Company
or any securities convertible into shares of stock of the Company may
be issued and any action with respect to the compensation of the
Senior Officers (including the granting or award of any bonuses or
stock-based incentive awards); provided, however, that SCG will not
have an Approval Right as to any action with respect to the
compensation of a Senior Officer as to whom SCG has delivered a notice
under Section 4, for so long as the employment opportunity that is the
subject of such notice is available to such Senior Officer.
(iv) Indebtedness. The incurrence of any additional indebtedness
(including guarantees and including renegotiations and restructurings
of existing indebtedness) if, as a result thereof, the Company's
Interest Expense Coverage Ratio would be less than 2.0 to 1.0.
Notwithstanding anything to the contrary contained herein, the Approval
Rights of SCG shall terminate and be of no further force or effect at such
time as SCG Beneficially Owns less than 25% of the Common Shares
outstanding.
(e) Approval Right Procedures. The Company shall submit any proposed
action with respect to any Approval Right for consideration by SCG,
together with information which sets forth in reasonable detail the
background and reasons for such action, reasonably in advance of the date
any action would be required to be taken by or on behalf of the Company to
permit SCG to review the information and make an informed decision. The
approval of SCG pursuant to Section 5(d), other than where written approval
is expressly required, shall be deemed to have been received if SCG
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does not communicate otherwise to the Company by the fifteenth day after
SCG shall have received a written request for such approval.
(f) Company Support. If there is a final judicial determination
before any court of competent jurisdiction that any or all of the Approval
Rights are not enforceable or exercisable in any manner by SCG, whether by
reason of Maryland statutory or common law or otherwise, the Company agrees
to defer any action proposed by the Company which is the subject of any of
the Approval Right which was so determined not to be enforceable or
exercisable and SCG shall have the right to cause the Company to call a
special meeting of shareholders at which meeting SCG may present an
alternative slate of directors for election (which slate may include some
of the same nominees as the then current Board). The Company and SCG agree
that they will each use their best efforts to prepare and file with the
Commission definitive proxy material, to have such material cleared by the
Commission and to mail such material to the Company's shareholders, as soon
as practicable. The Company shall in any event provide SCG with a list of
the shareholders of record for such meeting and a complete list of non-
objecting beneficial holders and deposits in securities positions listings
as of such date. The Company and SCG shall not, and their respective
directors, officers, employees and agents shall not, take any action that
would have the effect of delaying, preventing or impeding the special
meeting of shareholders or the mailing of proxy materials in respect of
such meeting, including the commencement of any action, suit or proceeding
at law or in equity seeking to enjoin, delay or impede the special meeting
or the mailing of proxy materials in respect of such meeting. The parties
shall each bear their own costs in connection with any special meeting of
shareholders pursuant to this Section 5(f); provided, that the Company
shall bear all costs typically borne by companies in connection with annual
meetings of shareholders.
(g) Non-interference. The Company shall not provide any Person with
rights which are similar or more extensive than the Approval Rights
provided to SCG hereunder and shall not grant to any Person or Group the
right to nominate a greater number of members to the Company's Board than
the number SCG is entitled to designate pursuant to Section 5(a), in each
case, without the prior approval of SCG, which may be withheld in SCG's
sole and absolute discretion; the Company shall not enter into any
agreement or arrangement with any Person which shall impede or impair the
Approval Rights in any manner.
(h) Inspection. At any time during regular business hours and as
often as reasonably requested of the Company's officers, the Company will
permit SCG or any authorized employee, agent or representative of SCG to
examine and make copies and abstracts from the records and books of account
of, and to visit the properties of, the Company and to discuss the affairs,
finances, and accounts of the Company with any of its officers or
directors; provided, that all costs and expenses of such inspection shall
be borne by SCG.
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6. Registration Rights.
(a) Demand. At any time after the date hereof and for so long
thereafter as SCG shall continue to own any Registrable Securities, SCG may
request registration of all or any part of its Registrable Securities
pursuant to Rule 415 under the Securities Act by delivering written notice
to the Company specifying the number of Registrable Securities that SCG
desires to sell, and the Company shall use its reasonable efforts to effect
the registration of such Registrable Securities under the Securities Act.
(b) Registration Procedures. If and whenever the Company is required
by any of the provisions of this Section 6 to use its reasonable efforts to
effect the registration of any of the Registrable Securities under the
Securities Act, the Company shall:
(i) prepare and file with 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 at least 90% 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 therewith, as may be necessary to keep such registration
statement effective for so long as shall be necessary to complete the
distribution of at least 90% 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 SCG shall desire to
sell or otherwise dispose of the same within such period;
(iii) furnish to SCG 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 may be reasonably requested in order to facilitate the
sale or other disposition of the Registrable Securities owned by SCG;
(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 SCG shall
reasonably request, and do any and all other acts and things
reasonably requested by SCG to assist the public sale or other
disposition by SCG in such jurisdictions of the securities owned by
SCG, except that the Company 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;
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(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 the
Company are then listed, if the listing of such securities is then
permitted under the rules of such exchange or quotation system; and
(vii) notify SCG, 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.
(c) Number of Registrations. SCG shall be entitled to request one
registration of its Registrable Securities pursuant to Section 6(a) for
each $100 million in Value of Registrable Securities Beneficially Owned by
SCG on the date of such request.
(d) Company's Ability to Postpone. The Company shall have the right
to postpone the filing of a registration statement under this Section 6 for
a reasonable period of time (not exceeding 60 days) if the Company
furnishes SCG with a certificate signed by any Senior Officer stating that,
in its good faith judgment, the Board has determined that effecting the
registration at such time would adversely affect a material financing,
acquisition, disposition of assets or shares, merger or other comparable
transaction or would require the Company to make public disclosure of
information the public disclosure of which would have a material adverse
effect upon the Company.
(e) Expenses. All expenses incurred in the registration of
Registrable Securities under this Agreement shall be paid by the Company.
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 SCG shall be responsible
for paying the fees and disbursements of its own counsel and any
underwriting discounts, commissions and fees.
(f) Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 6:
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(i) Indemnity by Company. Without limitation of any other
indemnity provided to SCG, to the extent permitted by law, the Company
will indemnify and hold harmless SCG and its officers, directors and
each Person, if any, who controls SCG (within the meaning of the
Securities Act or the Exchange Act), against any losses, claims,
damages, liabilities and expenses (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages,
liabilities and expenses (or actions in respect thereof) arise out of
or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in any
registration statement (including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements
thereto), (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading, or (iii) any violation or alleged violation
by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law, and the
Company will reimburse SCG and its officers, directors and any
controlling person thereof for any reasonable legal or other expenses
incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, expense or action; provided,
however, that the Company shall not be liable in any such case for any
such loss, claim, damage, liability, expense or action to the extent
that it arises out of or is based upon a Violation that occurs in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by SCG or any
officer, director or controlling person thereof.
(ii) Indemnity by SCG. In connection with any registration
statement in which SCG is participating, SCG will furnish to the
Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, will
indemnify the Company, its directors and officers and each Person who
controls the Company (within the meaning of the Securities Act or
Exchange Act) against any losses, claims, damages, liabilities and
expenses resulting from any Violation, but only to the extent that
such Violation is contained in any information or affidavit so
furnished in writing by SCG; 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 SCG 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 6(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 6(f), deliver to the
indemnifying party a written notice of the commencement
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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 6(f) only if and to the extent that such failure is
prejudicial to its ability to defend such action, and the omission to
deliver written notice to the indemnifying party will not relieve it
of any liability that it may have to any indemnified party other than
under this Section 6(f).
(iv) Contribution. If the indemnification provided for in this
Section 6(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 SCG shall be obligated to contribute pursuant to
this Section 6(f)(iv) shall be limited to an amount equal to the
proceeds to SCG of the Registrable Securities sold pursuant to the
registration statement which gives rise to such obligation to
contribute (less the aggregate amount of any damages which SCG has
otherwise been required to pay in respect of such loss, claim, damage,
liability or action or any substantially similar loss, claim, damage,
liability or action arising from the sale of such Registrable
Securities).
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(v) Survival of Indemnity. The indemnification provided by this
Section 6(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) The Company shall not, without the prior written consent of
SCG, include in any registration in which SCG has a right to
participate pursuant to this Agreement any securities of any Person
other than SCG.
(ii) SCG shall not, without the prior written consent of the
Company, effect any public sale or distribution (including sales
pursuant to Rule 144 under the Securities Act) of securities of the
Company during any period commencing 30 days prior to and ending 60
days after the effective date of any registration statement filed by
the Company on behalf of any Person (including the Company), other
than a registration statement on Form S-8 or any successor form.
(h) Registrable Securities. The term "Registrable Securities" means
(i) any Common Shares now owned or hereafter acquired by SCG and (ii) any
Common Shares or other securities that may subsequently be issued with
respect to such Common Shares as a result of a stock split or dividend or
any sale, transfer, assignment or other transaction by the Company
involving the Common Shares and any securities into which the Common Shares
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.
(i) Assignment. SCG may assign without the consent of the Company its
rights under this Section 6 with respect to any Registrable Securities to
any party (a "Lender") to whom it provides a bona fide pledge, assignment
or hypothecation of such Registrable Securities. If (i) SCG assigns its
rights under this Section 6 with respect to Registrable Securities having
an aggregate offering value of at least $100,000,000 to a Lender and (ii)
any Event of Default occurs and is continuing under the related loan
agreement between SCG (or one of its subsidiaries) and the Lender, the
Lender may request one registration of all or part of its Registrable
Securities having an aggregate offering value of at least $100,000,000 on
Form S-3 (or any successor form) under the Securities Act by delivering
written notice to the Company specifying the number of Registrable
Securities that the Lender desires to sell and the Company shall use its
reasonable efforts to effect the registration of such Registrable
Securities under the Securities Act in accordance with and subject to the
provisions of this Section 6.
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<PAGE>
7. Miscellaneous.
(a) Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants contained herein shall survive the
execution of this Agreement and shall remain in full force and effect until
terminated in accordance with the provisions of 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, but (except as provided in
Section 6(i)) shall not be assignable by any party hereto without the prior
written consent of the other party hereto.
(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 such other address for a party as
shall be specified by like notice):
If to the Company:
Security Capital Atlantic Incorporated
Six Piedmont Center, Suite 600
Atlanta, Georgia 30305
Attention: Constance B. Moore
Facsimile: (404) 233-2379
If to SCG:
Security Capital Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Attention: Jeffrey A. Klopf
Facsimile: (505) 988-8920
(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 the Company and SCG.
(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.
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<PAGE>
(g) 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.
(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.
(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.
(l) Specific Performance. Each of the parties hereto acknowledges that the
obligations undertaken by it pursuant to this Agreement are unique and that the
other party 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 the other party 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 either party hereto
may have at law or in equity, SCG shall have the right to have all obligations,
covenants, agreements and other provisions of this Agreement specifically
performed by the 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 the other party.
* * * * *
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the day and year first above written.
SECURITY CAPITAL ATLANTIC INCORPORATED
By:
------------------------------------
Constance B. Moore
Co-Chairman
SECURITY CAPITAL GROUP INCORPORATED
By:
------------------------------------
Jeffrey A. Klopf
Senior Vice President and Secretary
18
<PAGE>
EXHIBIT 10.2
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement") is made and
entered into as of this _____ day of __________, 1997, by and between Security
Capital Atlantic Incorporated, a Maryland corporation (the "Company"), and SC
Group Incorporated, a Texas corporation ("SC Group"), and a wholly owned direct
or indirect subsidiary of Security Capital Group Incorporated.
WHEREAS, the Company wishes to purchase from SC Group certain
administrative services designed to assist the Company in the cost-efficient
management of the Company's corporate and business affairs in the manner and
pursuant to terms and conditions as more specifically described herein; and
WHEREAS, SC Group desires to provide or cause to be provided those services
requested by the Company under such terms and conditions; and
WHEREAS, SC Group will perform similar administrative services for other
entities (collectively "SC Group Clients") which may vary from time to time; and
WHEREAS, the Company will retain the sole and absolute right and authority
to fully and completely operate and manage its business and properties.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
Section 1. Services.
1.1 Services to be Rendered. SC Group shall provide the Company with
the services described below (each, a "Service", and collectively, the
"Services") as selected by the Company from time to time:
(a) Insurance Administration. Assistance in securing all forms of
insurance, including property, casualty, workers' compensation and
directors' and officers' liability coverage; managing insurance policies;
negotiation of premiums; arranging payment terms; managing claims; and
preparation of loss fund analysis. The amount and levels of insurance
shall be determined in the sole and absolute discretion of the Company.
(b) Accounts Payable. Provision of all accounts payable functions
(currently all non site-level invoices); processing of all employee expense
reports and reimbursements of travel and entertainment expenses; and
maintenance of accounts payable and cash disbursement systems, including
reasonable internal controls.
<PAGE>
(c) Internal Audit. Provision of internal audit coverage and audit
support, including property audits, financial audits, operational audits
and information system audits, as requested and authorized in advance by
the Company.
(d) Cash Management. Operation and maintenance of collection systems,
concentration systems, and electronic disbursements (including wire
transfers, ACH payments and short term investing); maintenance of bank
accounts, including opening and closing of operating, security deposits,
local depository and petty cash accounts; bank administration, and
maintenance of bank relationships.
(e) Human Resources.
(i) Benefit Administration. Negotiation and administration of
all health, dental, vision, life and long-term and short-term
disability insurance plans as well as 401(k) and flexible spending
plans; and administration of other miscellaneous employee benefits.
(ii) Human Resources Information Systems. Administration and
employee and labor relations including statutory compliance with all
governmental agencies, affirmative action, work force demographics;
processing wage and hour claims and utilization and EEO charges; and
compliance with annual reporting requirements.
(iii) Payroll. Production of payroll and related items;
maintenance of required records; compliance with federal and state
wage and hour regulations; tracking benefit hours; tracking and paying
wage garnishments and related orders; maintenance of Forms W-2; and
production and processing of special payroll checks.
(iv) Pre-Employment. Development of employment policies and
procedures; verification of applicant information such as drivers
license numbers, social security numbers, education, criminal
offenses, and past employment; and drug testing.
(v) Recruiting. Recruiting and retaining employees of the
Company for the El Paso Operations Center who will perform services
for the Company, including placement of newspaper advertisements,
contracting and negotiating with search consultants, screening of
candidates, interviews and employee orientation; processing new hires,
terminations, transfers, leaves of absence and miscellaneous status
changes as requested and authorized in advance by the Company.
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(f) Management Information Systems.
(i) Applications Development. Development, maintenance and
continuing evolution of system applications to provide technology
solutions to business needs and problems, as requested and authorized
in advance by the Company.
(ii) Telecommunications. Design, operation and maintenance of
network infrastructure, including telephone and data transmission
lines, voice mail, facsimile machines, cellular phones, pager, etc.;
negotiation of contracts with third party vendors and suppliers; and
local area network and wide area network communications support.
(iii) Operations/Technical Support and User Support. Design,
maintenance and operation of the computing environment, including
business specific applications, network wide applications, electronic
mail and other systems; purchase and maintenance of equipment,
including hardware and software; configuration, installation and
support of computer equipment; and education and training of the user
community.
(g) Tax Administration. Supervision and direction of the preparation,
review and filing of all federal, state and other required tax returns;
supervision and direction of ad hoc requests for assistance on tax related
matters; and coordination of all activities with the Company's outside tax
preparer, as requested and authorized in advance by the Company. All tax
matters shall be determined by the Company in its absolute and sole
discretion.
(h) Special Projects. Direction and support of all special projects,
as requested and authorized in advance by the Company.
(i) Legal. Coordination and supervision of all third party legal
services; assistance in the preparation of public filings and registration
statements; and oversight of processing of claims against the Company.
(j) Research. Provision of periodic market research reports and
special research assignments as requested by the Company.
(k) Investor Relations/Communications.
(i) Capital Markets. Advice and services relating to capital
raising transactions and relationship with shareholders, but not
including solicitation of investors as a broker, dealer or underwriter
in any capital raising transactions of the Company.
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<PAGE>
(ii) Communications. Preparation and coordination of annual and
quarterly reports to shareholders; presentations to public; public
relations; preparation of marketing materials; and investor relations
services.
(l) Debt Financing. Advice and services relating to revolving lines
of credit and other issuances of indebtedness.
1.2 Scope of Services and Charges. The parties will agree from time
to time on the Services to be provided, the scope of Services listed in Section
1.1 and the charges for such Services. The scope of Services shall consist of
the estimated amount of items to be processed or hours to be spent for a
category of the Services in any year as agreed to by the parties. The charges
for Services shall consist of an amount equal to SC Group's costs incurred in
providing such Services, multiplied by 120%. If the scope of Services actually
performed by SC Group in any category of Services is different than that agreed
to by the parties, or if the scope of Services is increased at the request of
the Company, then the parties shall negotiate in good faith to revise the scope
of Services and to adjust the charges for such Services. The parties shall
review annually the Services provided, the scope of Services and the charges for
such Services and negotiate in good faith and make appropriate adjustments. The
parties agree to complete each annual review not later than November 30 in each
year of this Agreement.
1.3 Performance of Services. SC Group covenants that it will perform
or cause to be performed the Services in a timely, efficient and workmanlike
manner and in substantially the same manner in which SC Group is providing such
services to the Company currently. SC Group further covenants that it will
maintain or contract for a sufficient staff of trained personnel to enable it to
perform the Services hereunder. SC Group may retain third parties or its
affiliates to provide certain of the Services hereunder. In such cases, and
notwithstanding anything herein to the contrary, the Company shall reimburse SC
Group for only its actual cost for arranging for such Services. Any
arrangements between SC Group and its affiliates for the provision of Services
hereunder shall be commercially reasonable and on terms not less favorable than
those which could be obtained from unaffiliated third parties.
1.4 Payment for Services. SC Group shall bill the Company, at the
end of each calendar month, one-twelfth of the amount agreed to from time to
time pursuant to Section 1.2 for the applicable Service. Such amount shall be
payable by the Company in full within 30 days of receipt thereof by the Company.
On the forty-fifth day following the end of each calendar year, SC Group shall
provide to the Company a statement, certified by a senior officer of SC Group,
setting forth by category of Service the amount and nature of such Services
actually performed during the period covered by such statement. Such statement
shall also set forth the dollar amount, if any, by which the amounts previously
paid by the Company for the provision of each specific category of Services for
such period is greater or less than the charges agreed for such Services (in
each such case, an "excess", and, if a shortfall, a "shortfall"). Any such
excess or shortfall shall be refunded to the Company or paid by the Company, as
applicable, within 30 days of the receipt of the statement. Notwithstanding
anything in this
4
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Agreement to the contrary, the aggregate fees for Services provided by SC Group
to the Company (exclusive of reimbursement of third-party costs) shall not
exceed $5,201,985 during the Initial Term (subject to the actual usage of
Services by the Company not being materially in excess of that set forth in the
budget previously provided by SC Group to the Company).
1.5 Reimbursement. The Company shall reimburse SC Group for all
reasonable third party out-of-pocket expenses it incurs on behalf of the Company
not billed directly to the Company within 30 days of receipt of the invoice
therefor.
Section 2. Facilities. SC Group hereby grants to the Company the right to
use the Facilities set forth on Exhibit A. The Company shall not pay any
additional compensation to SC Group for the use of such Facilities during the
twelve-month period following the date of this Agreement. From and after the
expiration of such twelve-month period, the Company shall pay SC Group rental
for the use of such Facilities as may be agreed between the parties negotiating
in good faith. SC Group and the Company agree that during the term of this
Agreement they shall cooperate and use reasonable efforts in order to allocate
the Facilities in accordance with the reasonable requests (based on their
business needs) of each of SC Group, the Company and other SC Group Clients.
The Company acknowledges and agrees that within 60 days of the expiration of the
term of this Agreement, it shall leave the Facilities in the same condition as
at the commencement of the term of the Agreement, ordinary wear and tear and
damage by casualty excepted.
Section 3. Term. The initial term of this Agreement shall commence on the
date hereof and shall be through December 31, 1998 (the "Initial Term") and
shall be renewable by the Company every year thereafter, subject to approval by
a majority of the Independent Directors (which they may withhold or grant in
their sole discretion). Absent written notice of non-renewal as provided in
this Section 3, this Agreement shall be automatically renewed for successive
one-year terms (each, a "Renewal Term") upon the expiration of the Initial Term
and each Renewal Term. Upon termination of this Agreement, SC Group shall
promptly return to the Company all monies, books, records and other materials
held by it for or on behalf of the Company. Notice of non-renewal, if given,
shall be given in writing by either party hereto not less than ninety (90)
calendar days before the expiration of the Initial Term or any Renewal Term. As
used herein, the term "Independent Directors" means each member of the Company's
Board of Directors who is not affiliated with Security Capital Group
Incorporated ("SCG") or any of its affiliates, directly or indirectly, whether
by ownership of, ownership interest in, employment by, any material business or
professional relationship with, or service as an officer of SCG or any of its
affiliates, and is not serving as a trustee or director for more than three real
estate investment trusts organized by a sponsor of the Company.
Section 4. Audit of Services. At any time during regular business hours
and as often as reasonably requested by the Company's officers, SC Group shall
permit the Company or its authorized representatives to examine and make copies
and abstracts from the records and books of SC Group for the purpose of auditing
the performance of, and the charges of, SC Group
5
<PAGE>
under the terms of this Agreement; provided, that all costs and expenses of such
inspection shall be borne by the Company.
Section 5. Prevention of Performance. SC Group shall not be determined to
be in violation of this Agreement if it is prevented from performing any
Services hereunder for any reason beyond its reasonable control, including
without limitation, acts of God, nature, or of public enemy, strikes, or
limitations of law, regulations or rules of the Federal or of any state or local
government or of any agency thereof.
Section 6. Indemnification.
6.1 By the Company. The Company shall indemnify, defend and hold SC
Group, and its directors, officers, and employees harmless from and against all
damages, losses and reasonable out-of-pocket expenses (including fees) incurred
by them in the course of performing the duties on behalf of the Company and its
subsidiaries as prescribed hereby, except for matters covered by subsection 6.2
hereof.
6.2 By SC Group. SC Group shall indemnify, defend and hold the
Company, its directors, officers and employees harmless from and against all
damages, losses and reasonable out-of-pocket expenses (including fees) caused by
or arising out of any willful misconduct or gross negligence in the performance
of any obligation or agreement of SC Group herein.
6.3 Remedy. Except as otherwise provided in subsection 6.2 hereof,
SC Group does not assume any responsibility under this Agreement other than to
render the services called for under this Agreement in good faith and in a
manner reasonably believed to be in the best interests of the Company. Except
as otherwise provided in subsection 6.2 hereof, the Company's sole remedy on
account of the failure of SC Group to render the services as and when required
hereunder shall be to procure services elsewhere and to charge SC Group the
difference between the reasonable increased cost, if any, to procure new
services, and the current cost to the Company to procure services under this
Agreement.
Section 7. Notices.
7.1 Manner of Delivery. Each notice, demand, request, consent,
report, approval or communication (each a "Notice") which is or may be required
to be given by either party to the other party in connection with this Agreement
and the transactions contemplated hereby, shall be in writing, and given by
telecopy, personal delivery, receipted delivery service, or by certified mail,
return receipt requested, prepaid and properly addressed to the party to be
served.
6
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7.2 Addresses. Notices shall be addressed as follows:
If to the Company:
Security Capital Atlantic Incorporated
Six Piedmont Center, Suite 600
Atlanta, Georgia 30305
Attention: Constance B. Moore
If to SC Group:
SC Group Incorporated
7777 Market Center Avenue
El Paso, Texas 79912
Attention: Gerald R. Morgan, Jr.
7.3 Effective Date. Notices shall be effective on the date sent via
telecopy, the date delivered personally or by receipted delivery service, or
three (3) days after the date mailed.
7.4 Change of Address. Each party may designate by notice to the
others in writing, given in the foregoing manner, a new address to which any
notice may thereafter be so given, served or sent.
Section 8. Entire Agreement. This Agreement, together with the Exhibit
hereto, constitutes and sets forth the entire agreement and understanding of the
parties pertaining to the subject matter hereof, and no prior or contemporaneous
written or oral agreements, understandings, undertakings, negotiations,
promises, discussions, warranties or covenants not specifically referred to or
contained herein or attached hereto shall be valid and enforceable. No
supplement, modification, termination in whole or in part, or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed,
or shall constitute, a waiver of any other provision hereof (whether or not
similar), nor shall any such waiver constitute a continuing waiver unless
otherwise expressly provided.
Section 9. Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto, each of their respective successors
and permitted assigns, but may not be assigned by either party without the prior
written consent of the other party, and no other persons shall have or derive
any right, benefit or obligation hereunder.
Section 10. Headings. The headings and titles of the various paragraphs
of this Agreement are inserted merely for the purpose of convenience, and do not
expressly or by
7
<PAGE>
implication limit, define, extend or affect the meaning or interpretation of
this Agreement or the specific terms or text of the paragraph so designated.
Section 11. Governing Law. This Agreement shall be governed in all
respects, whether as to validity, construction, capacity, performance or
otherwise, by the laws of the State of Texas.
Section 12. Severability. If any provision of this Agreement shall be
held invalid by a court with jurisdiction over the parties to this Agreement,
then and in that event such provision shall be deleted from the Agreement, which
shall then be construed to give effect to the remaining provisions thereof. If
any one or more of the provisions contained in this Agreement or in any other
instrument referred to herein shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, then in that event, to the maximum
extent permitted by law, such invalidity, illegality or enforceability shall not
affect any other provisions of this Agreement or any other such instrument.
Section 13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall be considered one and the same instrument.
8
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SECURITY CAPITAL ATLANTIC INCORPORATED
By:
-------------------------------------
Constance B. Moore
Co-Chairman
SC GROUP INCORPORATED
By:
-------------------------------------
Gerald R. Morgan, Jr.
Vice President
S-1
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EXHIBIT A
DESCRIPTION OF FACILITIES
For purposes of the Administrative Services Agreement, Facilities shall
mean the facilities maintained by SC Group or one of its affiliates at the
following addresses:
7777 Market Center Avenue
El Paso, Texas 79912
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Facilities shall also include any other premises owned, leased or subleased
by SC Group at which the Company desires to utilize such premises as well as the
utilities, fixtures, furniture and equipment used in connection with the
operation of such premises.
<PAGE>
EXHIBIT 10.3
PROTECTION OF BUSINESS AGREEMENT
THIS PROTECTION OF BUSINESS AGREEMENT (this "Agreement") is entered into as
of ________ __, 1997, by and among Security Capital Atlantic Incorporated, a
Maryland corporation ("ATLANTIC"), and Security Capital Group Incorporated, a
Maryland corporation ("Security Capital").
WHEREAS, on the date hereof the parties are consummating a series of
related transactions as described in that certain Merger and Issuance Agreement,
dated as of March __, 1997, between ATLANTIC and Security Capital (the "Merger
Agreement"), pursuant to which, among other things, Security Capital will cause
its subsidiaries engaged in the conduct of the real estate investment trust
("REIT") management and property management businesses relating to the
Multifamily Property business of ATLANTIC to be merged with and into a
subsidiary of ATLANTIC;
WHEREAS, ATLANTIC, Security Capital and their respective affiliates will
continue to engage in certain businesses after the date hereof; and
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 Security Capital and its
affiliates.
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 directly or indirectly owning or controlling 10% or more of the
outstanding voting interests of such Person or (c) any Person of which such
Person directly or indirectly 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.
"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, including real
property that is or is planned to be used primarily for master-planned apartment
neighborhoods.
<PAGE>
"Person" means an individual or any corporation, partnership, trust,
unincorporated association or any other legal entity.
"Restricted Area" means the United States.
Section 2. Agreement not to Engage in Certain Activities. During the term
provided in Section 5 hereof, neither Security Capital nor any REIT management
company (or companies) or property management company (or companies) Affiliated
with it will, directly or indirectly, provide substantially the same advice and
services as those provided by Security Capital (Atlantic) Incorporated pursuant
to the Second Amended and Restated REIT Management Agreement, dated as of June
30, 1996, or by SCG Realty Services Atlantic Incorporated pursuant to the
Management Agreement, dated September 1, 1995, on the day preceding the date of
this Agreement, to any Person owning or operating Multifamily Properties
anywhere within the Restricted Area.
Section 3. Limitations on Protection of Business. Notwithstanding
anything to the contrary contained in this Agreement, each of Security Capital
and its Affiliates may be an owner of securities of any class of ATLANTIC or
Security Capital Pacific Trust.
Section 4. 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 5. Term.
5.1 General. Subject to earlier termination pursuant to Section 5.2, this
Agreement shall be effective from and after the date hereof and shall continue
in effect until the third anniversary of the date hereof.
5.2 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 Security Capital or any of its Affiliates), by any Person
(or group of Persons acting in concert), other than Security Capital or its
Affiliates, of the greater of (i) 25% or more of the outstanding shares of
voting securities of ATLANTIC and (ii) the percentage of outstanding voting
securities of ATLANTIC owned directly or indirectly by Security Capital and its
Affiliates, in either case without the prior written consent of the Board of
Directors of ATLANTIC.
Section 6. Specific Performance. Security Capital acknowledges that the
obligations undertaken by it pursuant to this Agreement are unique and that
ATLANTIC will not have an
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<PAGE>
adequate remedy at law if Security Capital shall fail to perform any of its
obligations hereunder, and Security Capital therefore confirms that the right of
ATLANTIC to specific performance of the terms of this Agreement is essential to
protect the rights and interests of ATLANTIC. Accordingly, in addition to any
other remedies that ATLANTIC may have at law or in equity, ATLANTIC shall have
the right to have all obligations, covenants, agreements and other provisions of
this Agreement specifically performed by Security Capital, and ATLANTIC 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 Security Capital.
Section 7. Operations of Affiliated Parties. Security Capital 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 8. 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.
Section 9. Miscellaneous Provisions.
9.1 Interpretation. The parties hereto acknowledge that the fundamental
policies of this Agreement are to protect ATLANTIC'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 Security Capital, and this
Agreement shall be construed and enforced in a manner consistent with and in
furtherance of these policies.
9.2 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 bind and inure to the benefit of their
respective successors, assigns, heirs, and personal representatives.
9.3 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.
9.4 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.
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<PAGE>
9.5 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.
9.6 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.
9.7 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.
9.8 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.
9.9 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.
9.10 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.
* * * * *
4
<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:
-----------------------------------------
Constance B. Moore
Co-Chairman
SECURITY CAPITAL GROUP INCORPORATED
By:
-----------------------------------------
Jeffrey A. Klopf
Senior Vice President
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<PAGE>
EXHIBIT 99.1
Press Release
- -For Immediate Release-
SECURITY CAPITAL ATLANTIC INCORPORATED
ANNOUNCES
BOARD APPROVAL OF PROPOSAL TO BECOME INTERNALLY MANAGED REIT
March 24, 1997--Security Capital Atlantic Incorporated (ATLANTIC) (New York
Stock Exchange Symbol: SCA) today announced that its Board of Directors has
unanimously approved an agreement with Security Capital Group Incorporated to
exchange Security Capital Group's REIT management and property management
companies for $54.6 million of ATLANTIC common stock. As a result of the
transaction, ATLANTIC will become an internally managed real estate investment
trust (REIT) with Security Capital Group continuing as its largest shareholder.
Personnel employed by the REIT management and property management companies will
become employees of ATLANTIC. Based on ATLANTIC's 1997 forecast, the transaction
will be immediately accretive to ATLANTIC's per share Funds from Operations
(FFO).
ATLANTIC Co-Chairman Constance B. Moore said ATLANTIC's management believes
the proposed transaction will result in several important benefits for ATLANTIC
and its shareholders. "We believe the transaction's positive impact on long-term
growth in FFO will be significant. As ATLANTIC continues to deploy capital,
ATLANTIC shareholders will receive the incremental benefit of economies of
scale. In addition, the transaction will position ATLANTIC to pursue possible
acquisitions during a period of significant REIT consolidation." Ms. Moore added
that ATLANTIC's management believes the market will view an internally managed
structure more favorably, which over time is expected to enhance shareholder
value.
Under the terms of the agreement, ATLANTIC will issue $54.6 million of
ATLANTIC common stock to Security Capital Group in exchange for Security Capital
Group's REIT management and property management companies and operating system.
The price per ATLANTIC common share issued as part of the transaction will be
based on the average closing price of ATLANTIC's common shares reported by the
New York Stock Exchange for the five-day period prior to the ATLANTIC
shareholder record date for voting on the transaction. ATLANTIC and Security
Capital Group have agreed that the number of shares issued to Security Capital
Group will not exceed a maximum of approximately 2.6 million shares (equivalent
to $20.64 per share) or fall below a minimum of approximately 2.1 million shares
(equivalent to $25.86 per share).
ATLANTIC will also conduct a concurrent rights offering during the time
proxies are solicited from ATLANTIC shareholders to allow existing shareholders
to maintain their relative ownership interests in ATLANTIC. Holders of ATLANTIC
common shares will have the right to purchase $41 million of ATLANTIC common
stock at the same price paid by Security Capital Group. However, if the market
price when the rights offering commences is less than $20.64 per share, the
offering will be conducted at the lower price. The rights offering will be
subject to a maximum price of $25.86 per share.
<PAGE>
As part of the transaction, Security Capital Group will issue warrants to
acquire $46.9 million of Security Capital Group Class B common stock to
ATLANTIC common shareholders. The warrants are expected to be publicly traded,
will have a term of 12 months and will have an exercise price equal to the Class
B trading price at the record date established for the warrant distribution. The
issuance of the Security Capital Group warrants will occur within 60 days after
the closing of the proposed transaction. Security Capital Group expects to file
a registration statement with the Securities and Exchange Commission (SEC)
covering the Class B shares within the next several weeks and to conduct an
initial public offering of its Class B shares in the third quarter of 1997.
In January, ATLANTIC's Board of Directors formed a special committee of
independent directors to review the proposed transaction. The special committee
retained its own counsel and engaged the investment banking firm of J.P. Morgan
Securities Inc. to advise the committee on the fairness of the transaction to
ATLANTIC and its shareholders other than Security Capital Group. Following
receipt of the fairness opinion, the special committee unanimously recommended
that the proposed transaction be approved by the full board. The transaction is
subject to approval by holders of a majority of ATLANTIC's outstanding common
shares, receipt of favorable tax opinions and customary closing conditions. The
closing of the rights offering and the warrant distribution will be subject to
the closing of the agreement between ATLANTIC and Security Capital Group.
ATLANTIC and Security Capital Group will file a combined registration statement
and proxy statement relating to the proposed transaction with the SEC. Any
securities issued in connection with the rights offering and the warrant
distribution will be offered only by means of a prospectus. Management expects a
shareholder vote to occur in the third quarter of 1997, and if approved, the
transaction and the rights offering are expected to be concluded during the
third quarter of 1997.
The statement contained in this press release that are not historical facts
are forward-looking statements under the federal securities laws. 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. 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 is focused on becoming the preeminent real estate operating
company for the development, acquisition, operation and long-term ownership of
multifamily properties in its 12-state southeastern target market. ATLANTIC's
primary objective is generating long-term, sustainable growth in per share cash
flow. As of February 28, 1997, ATLANTIC's portfolio included 19,241 operating
multifamily units, 5,095 units under construction and an estimated 3,068 units
in planning.
FOR MORE INFORMATION, CONTACT: K. Scott Canon
(800) 201-0632
or
Gerard de Gunzburg
(212) 838-9292
