<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, For Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14(a)-11(c) or Rule 14a-12
SECURITY CAPITAL ATLANTIC INCORPORATED
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transaction applies:
N/A
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
N/A
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
-----------------------------------------------------------------------
(5) Total fee paid:
N/A
-----------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
N/A
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
N/A
-----------------------------------------------------------------------
(3) Filing party:
N/A
-----------------------------------------------------------------------
(4) Date filed:
N/A
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Notes:
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
SIX PIEDMONT CENTER
ATLANTA, GEORGIA 30305
----------------
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 28, 1998
To the shareholders:
The 1998 annual meeting of shareholders of Security Capital Atlantic
Incorporated ("ATLANTIC") will be held on Thursday, May 28, 1998, at the
Renaissance Waverly Hotel, 2450 Galleria Parkway, Atlanta, Georgia, at 10:00
a.m. (Eastern time) for the following purposes:
1. To elect two Class I Directors to serve until the annual meeting of
shareholders in the year 2001 and until their successors are duly elected
and qualify; and
2. To transact such other business as properly may come before the
meeting and any adjournment or postponement thereof.
Further information regarding the business to be transacted at the meeting
is given in the accompanying Proxy Statement.
Shareholders of record at the close of business on April 16, 1998 are
entitled to notice of, and to vote at, the meeting.
Please help ATLANTIC by promptly marking, dating, signing and returning the
enclosed proxy card in the envelope provided for your convenience. If you
attend the meeting and decide to vote in person, you may revoke your proxy.
Jeffrey A. Klopf
Secretary
April 27, 1998
YOUR VOTE IS IMPORTANT.
PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE.
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
SIX PIEDMONT CENTER
ATLANTA, GEORGIA 30305
----------------
PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 28, 1998
----------------
GENERAL INFORMATION
The Board of Directors (the "Board") of Security Capital Atlantic
Incorporated ("ATLANTIC") is soliciting the accompanying proxy for use at the
1998 annual meeting of shareholders to be held on Thursday, May 28, 1998 and
at any and all adjournments or postponements thereof. Any shareholder giving a
proxy has the right to revoke it at any time before it is voted by giving
written notice to the Secretary of ATLANTIC, by delivering to the Secretary of
ATLANTIC a duly executed proxy bearing a later date or by attending and voting
in person at the meeting. The designated proxy holders will vote shares of
ATLANTIC's common stock, par value $0.01 per share ("Common Shares"),
represented by a proxy which is received and not revoked. If the shareholder
specifies a choice with respect to any matter to be acted on and for which a
ballot is provided in the proxy, the Common Shares will be voted in accordance
with his or her specifications. If the shareholder signs and returns a proxy
without specifying choices, the Common Shares will be voted in accordance with
the recommendations of the Board.
This Proxy Statement and the accompanying proxy card are expected to first
be mailed to shareholders on or about April 27, 1998.
If you are a registered owner and plan to attend the meeting in person,
please detach and retain the admission ticket which is attached to your proxy
card. Beneficial owners who plan to attend the meeting in person may obtain
admission tickets in advance by sending written requests, along with proof of
ownership, such as a bank or brokerage firm account statement, to: Lucinda G.
Marker, Assistant Secretary, Security Capital Atlantic Incorporated, 125
Lincoln Avenue, Santa Fe, New Mexico 87501. Record owners and beneficial
owners (including the holders of valid proxies therefrom) who do not present
admission tickets at the meeting will be admitted upon verification of
ownership at the admissions counter at the annual meeting.
The cost of soliciting proxies will be borne by ATLANTIC. In addition to
solicitation by mail, and without additional compensation for those services,
proxies may be solicited personally, or by telephone or telegraph, by officers
or employees of ATLANTIC. ATLANTIC will also request banking institutions,
brokerage firms, custodians, trustees, nominees, fiduciaries and other like
parties to forward the solicitation material to the beneficial owners of
Common Shares held of record by those persons, and ATLANTIC will, upon request
of those record holders, reimburse forwarding charges and expenses.
SHARES OUTSTANDING AND VOTE REQUIRED
At the close of business on April 16, 1998, approximately 47,752,052 Common
Shares were outstanding. Each whole Common Share outstanding on April 16,
1998, the record date for determination of shareholders entitled to notice of,
and to vote at, the meeting, is entitled to one vote, and each fractional
Common Share is entitled to its fraction of one vote. There is no right to
cumulative voting. A majority of the outstanding Common Shares represented in
person or by proxy will constitute a quorum at the meeting.
<PAGE>
Assuming the existence of a quorum, the affirmative vote of a majority of
the Common Shares entitled to vote and represented in person or by proxy at
the meeting is required to elect the nominees for Director. Representatives of
ATLANTIC's transfer agent will assist ATLANTIC in the tabulation of the votes.
Abstentions and broker non-votes are counted as Common Shares represented at
the meeting for purposes of determining a quorum. An abstention has the effect
of a vote "withheld" with respect to the election of Directors.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of April 16, 1998, the beneficial
ownership of Common Shares for (i) each person known to ATLANTIC to have been
the beneficial owner of more than five percent of the outstanding Common
Shares on that date, (ii) each Director of ATLANTIC, (iii) each Named
Executive Officer (as defined below) of ATLANTIC and (iv) all Directors and
executive officers of ATLANTIC as a group. Unless otherwise indicated in the
footnotes, all of the Common Shares are owned directly and the indicated
person or entity has sole voting and dispositive power. The number and percent
of Common Shares beneficially owned by a person assume that all options held
by that person which are exercisable within 60 days have been exercised, but
that no options held by other persons have been exercised.
<TABLE>
<CAPTION>
NUMBER OF COMMON PERCENT OF
SHARES ALL
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON SHARES
------------------------ ------------------ -------------
<S> <C> <C>
Security Capital Group Incorporated...... 23,853,211(1) 49.9%
125 Lincoln Avenue
Santa Fe, NM 87501
Manuel A. Garcia III..................... 12,000(2) *
Ned S. Holmes............................ 59,500(2)(3) *
Constance B. Moore....................... 100,735 *
James C. Potts........................... 102,186 *
John M. Richman.......................... 13,250(2) *
J. Lindsay Freeman....................... 44,568 *
Bradley C. Miller........................ 44,818 *
William Kell............................. 20,055 *
All Directors and executive officers as a
group (9 persons)....................... 397,112 *
</TABLE>
- --------
* Less than 1%.
(1) These Common Shares are owned of record by SC Realty Incorporated, a
wholly owned subsidiary of Security Capital Group Incorporated ("Security
Capital"), and are pledged to secure Security Capital's $700 million
revolving line of credit facility with a syndicate of banks. As of April
16, 1998, there were approximately $351 million of borrowings outstanding
under the line of credit. The line of credit is also secured by securities
owned by Security Capital of Security Capital Pacific Trust ("PTR"), a
publicly traded real estate investment trust ("REIT"), Security Capital
Industrial Trust ("SCI"), a publicly traded REIT, Homestead Village
Incorporated ("Homestead"), a publicly traded extended-stay lodging
company, and Security Capital U.S. Realty, a publicly traded entity based
in Luxembourg which invests in real estate operating companies in the
United States. Security Capital estimates that the aggregate market value
of the pledged securities exceeded $3.6 billion as of April 16, 1998.
Security Capital was in compliance with all covenants under the line of
credit at December 31, 1997.
(2) Includes 2,000 Common Shares each for Messrs. Garcia, Holmes and Richman
which are issuable upon exercise of options granted under the Outside
Directors Plan. See "Election of Directors--Outside Directors Plan."
(3) Mr. Holmes directly owns 7,000 of these Common Shares. Mr. Holmes may be
deemed to beneficially own 52,500 of these Common Shares which are owned
by Mr. Holmes' children and by Holmes Family Venture Ltd., a family entity
with respect to which Mr. Holmes shares voting and dispositive power.
2
<PAGE>
ELECTION OF DIRECTORS
NOMINEES
The Common Shares represented by the accompanying proxy will be voted to
elect Messrs. Garcia and Holmes as Class I Directors, unless otherwise
indicated on the proxy. Messrs. Garcia and Holmes, if elected, will serve as
Directors until the annual meeting of shareholders in the year 2001. Should
Mr. Garcia or Mr. Holmes become unavailable for election, which is not
anticipated, the Common Shares represented by the accompanying proxy will be
voted for the election of another person recommended by the Board. Directors
are elected to serve until the annual meeting of shareholders held in the
third year following the year of their election. The Board recommends that
shareholders vote FOR the election of the nominees for Director.
<TABLE>
<CAPTION>
DIRECTOR AGE BUSINESS EXPERIENCE TERM EXPIRES
-------- --- ------------------- ------------
<S> <C> <C> <C>
Manuel A. Garcia III.... 54 Director of ATLANTIC since December 1995 and a 2001
Director of Homestead since April 1997; Chief
Executive Officer of Davgar Restaurants, Inc. since
May 1969, where he is the owner/operator of ten
Burger King Restaurants in central Florida, five
Pebbles Restaurants, Harvey's Bistro and Manuel's on
the 28th Restaurant in Orlando, Florida; Director of
The Foundation for Orange County Public Schools and
National Director of Cities in Schools. Mr. Garcia
is also on the Board of Directors of the National
Conference of Christians and Jews and is an Honorary
Director of the Boys' Clubs and Boy Scouts of
Central Florida. In addition, Mr. Garcia was a
member of former President Bush's Drug Advisory
Council.
Ned S. Holmes........... 53 Director of ATLANTIC since May 1994; President and 2001
Chief Executive Officer of Laing Properties, Inc.
since May 1990; Chairman and President of Parkway
Investment/Texas Inc., a Houston-based real estate
investment and development company which specializes
in residential (apartment and townhouse), commercial
(office and warehouse) and subdivision projects,
since April 1984. Mr. Holmes also serves as a
Director of Commercial Bancshares, Inc. and Heritage
Bank, both based in Houston, Texas. Mr. Holmes is
Chairman of the Port Commission of the Port of
Houston Authority, is a Director of the Institute of
International Education and the Houston
International Protocol Alliance and is Vice Chairman
of the Greater Houston Partnership.
</TABLE>
CONTINUING DIRECTORS
The following persons will continue to hold positions as Directors as
discussed below:
CONSTANCE B. MOORE--42--Co-Chairman, Chief Operating Officer and Director of
ATLANTIC since January 1996, where she has overall responsibility for
operations; from January 1996 to September 1997, held comparable
responsibilities with ATLANTIC's former REIT manager; from May 1994 to
December 1995, Managing Director of PTR and Director and Managing Director of
PTR's former REIT manager; Senior Vice President of Security Capital from
March 1993 to April 1994; Director of the National Multi Housing Council. Ms.
Moore's term as Director expires in 1999.
JAMES C. POTTS--51--Co-Chairman and Chief Investment Officer of ATLANTIC
since January 1996 and Director of ATLANTIC since October 1993, where he has
overall responsibility for investments; Chairman of ATLANTIC from May 1994 to
December 1995; from October 1993 to September 1997, held comparable
responsibilities with ATLANTIC's former REIT manager; from December 1992 to
April 1994, Managing
3
<PAGE>
Director of PTR's former REIT manager, where he supervised the asset
management of all of PTR's multifamily communities and oversaw the
relationship of PTR's REIT manager with SCG Realty Services Incorporated,
which provided onsite management for these communities. Mr. Potts' term as
Director expires in 2000.
JOHN M. RICHMAN--70--Director of ATLANTIC since September 1996; Counsel to
the law firm of Wachtell, Lipton, Rosen & Katz since January 1990. Mr. Richman
is a member of the American, Illinois and New York Bar Associations. He was
Chairman and Chief Executive Officer of Kraft, Inc. from 1979 to 1989, prior
to which he was Senior Vice President--Administration and General Counsel of
that company. He is a Director of BankAmerica Corporation and Bank of America
National Trust and Savings Association, USX Corporation, Evanston Northwestern
Healthcare and Stream International Inc. He is a Trustee of the Chicago
Symphony Orchestra, Northwestern University and The Johnson Foundation. Mr.
Richman is a retired Director of the R.R. Donnelley & Sons Company and served
as Acting Chairman and Chief Executive Officer of that company from October
1996 to April 1997. In addition, Mr. Richman is a Director of The Chicago
Council on Foreign Relations and Lyric Opera of Chicago and a member of The
Business Council, The Commercial Club of Chicago and the Economic Club of
Chicago. Mr. Richman's term as Director expires in 1999.
Security Capital has the right to nominate up to three Directors, depending
on its level of ownership of Common Shares. See "Certain Relationships and
Transactions--Security Capital Investor Agreement." Ms. Moore and Mr. Potts
are deemed to be the nominees of Security Capital. ATLANTIC's charter requires
that a majority of the Directors be independent Directors.
MEETINGS AND COMMITTEES
The Board held seven meetings during 1997, including two telephonic
meetings. The Board has established an Audit Committee consisting of Messrs.
Garcia and Holmes. The Audit Committee is responsible for making
recommendations concerning the engagement of independent public accountants,
reviewing the plans and results of the audit engagement with the independent
public accountants, approving professional services provided by the
independent public accountants, reviewing the independence of the independent
public accountants, considering the range of audit and non-audit fees and
reviewing the adequacy of ATLANTIC's internal accounting controls. During
1997, the Audit Committee held one meeting.
The Board has established an Investment Committee consisting of Messrs.
Holmes and Potts. The Investment Committee is responsible for reviewing and
approving all asset acquisitions and other investment decisions between
meetings of the full Board. Any decisions made by the Investment Committee are
reported to the full Board at its next quarterly meeting. The Investment
Committee receives recommendations from ATLANTIC's management investment
committee. During 1997, the Investment Committee held 13 telephonic meetings.
In January 1997, the Board established a Compensation Committee consisting
of Messrs. Garcia, Holmes and Richman, with Mr. Potts and Ms. Moore serving as
non-voting members, which reviews and approves ATLANTIC's compensation
arrangements and plans. During 1997, the Compensation Committee held three
meetings. ATLANTIC has no standing nominating committee. During 1997, each
Director attended at least 75 percent of the total number of meetings of the
Board and the committees on which he or she served.
DIRECTOR COMPENSATION
ATLANTIC pays an annual retainer of $14,000 to Directors who are not
officers or employees of ATLANTIC. These fees are paid to Directors in cash
(quarterly on each meeting date). Those Directors also receive $1,000 for each
meeting attended (other than telephonic meetings), which is also paid in cash.
Non-employee chairpersons of Board committees (other than the Investment
Committee) receive an additional annual retainer of $1,000 payable in cash and
non-employee members of the Investment Committee receive an additional annual
retainer of $4,000 payable in cash. Officers of ATLANTIC who are Directors are
not paid any Director fees.
4
<PAGE>
In addition, pursuant to the Outside Directors Plan, each Director who is not
an employee or officer of ATLANTIC or Security Capital or any of its affiliates
(the "Outside Directors") is entitled to receive, on the date of each annual
meeting of shareholders, an option to purchase 1,000 Common Shares at a price
per share equal to the closing price of one Common Share on the New York Stock
Exchange (the "NYSE") on that date. See "--Outside Directors Plan."
Directors are reimbursed for any out-of-town travel expenses incurred in
connection with attendance at Board meetings. Ms. Moore and Mr. Potts are not
separately compensated for serving as Directors.
OUTSIDE DIRECTORS PLAN
On March 12, 1996, the Board approved the Security Capital Atlantic
Incorporated Share Option Plan for Outside Directors (the "Outside Directors
Plan"). The purpose of the Outside Directors Plan is to enable the Outside
Directors of ATLANTIC to increase their ownership of ATLANTIC and thereby
increase the alignment of their interests with those of ATLANTIC's other
shareholders.
To achieve the foregoing objective, the Outside Directors Plan provides for
grants of options to purchase Common Shares. The Secretary of ATLANTIC (the
"Administrator") administers the Outside Directors Plan with a view to
ATLANTIC's best interests and the Outside Directors Plan's objectives. The
Administrator has authority to adopt administrative guidelines, rules and
regulations relating to the Outside Directors Plan and to make all
determinations necessary or advisable for the implementation and administration
of the Outside Directors Plan.
The number of Common Shares reserved for issuance upon exercise of options
granted under the Outside Directors Plan is 100,000. Common Shares which are
forfeited will again become available for awards under the Outside Directors
Plan.
In the event of changes in the outstanding Common Shares by reason of any
increase or decrease in the number of issued Common Shares resulting from a
subdivision or consolidation of Common Shares or the payment of a dividend in
Common Shares, or any other increase or decrease in the number of Common
Shares, or merger or consolidation, or recapitalization, reorganization,
spinoff, exchange or other distribution or other similar event, the
Administrator will make appropriate adjustments to the aggregate number of
Common Shares available under the Outside Directors Plan and the type and
number of Common Shares subject to options under the Outside Directors Plan and
the terms of those options (including the exercise price thereof).
On the date of each annual meeting of shareholders of ATLANTIC through and
including 2006, each Outside Director serving on that date (after the election
of Directors in the meeting) will be granted an option to purchase 1,000 Common
Shares at an exercise price equal to the closing price of the Common Shares on
the NYSE on that date. Options for 1,000 Common Shares were awarded under the
Outside Directors Plan to each of Messrs. Garcia, Holmes and Richman in 1997.
Each option will be immediately exercisable, but must be exercised before the
earliest of the following events to occur: the date which is three months after
the date on which the option holder's position as a Director terminates, the
date which is twelve months after the date the Director becomes disabled or
dies or the date which is five years after the date the option is granted.
If fifty percent or more of the outstanding Common Shares are acquired in a
cash tender offer or exchange offer, each option holder will have the right to
exercise his or her option in full or surrender his or her outstanding option
in exchange for a cash payment from ATLANTIC in an amount equal to the excess
of the offer price or value over the option price. If ATLANTIC dissolves, each
option holder will have the right to exercise his or her option in full before
the date of the dissolution.
5
<PAGE>
The Outside Directors Plan may be amended or terminated at any time by the
Board. The provisions relating to the amount, price and timing of grants under
the Outside Directors Plan may not be amended more than once every six months,
other than to comport with changes in the Internal Revenue Code of 1986, as
amended, or the rules thereunder, unless the amendment would not affect the
exemption provided by Rule 16b-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
EXECUTIVE COMPENSATION
The following table presents the compensation for 1997 and 1996 of each of
the Co-Chairmen and the three other most highly compensated executive officers
of ATLANTIC (the "Named Executive Officers"). Each Named Executive Officer was
an employee of Security Capital (Atlantic) Incorporated, ATLANTIC's former
REIT manager (the "REIT Manager"), which was a wholly owned subsidiary of
Security Capital, and was compensated by Security Capital during 1996 and from
January 1, 1997 through the closing of the merger transaction described below
(the "1997 Merger") on September 9, 1997. See "Certain Relationships and
Transactions--The 1997 Merger Transaction".
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
-------------------------- --------------------------------------
SHARES OF
SECURITY CAPITAL
COMMON CLASS A
RESTRICTED SHARES COMMON STOCK
NAME AND PRINCIPAL STOCK UNDERLYING UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($) AWARDS($) OPTIONS(#) OPTIONS(#)(1) COMPENSATION($)
------------------ ---- --------- -------- ---------- ---------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Constance B. Moore...... 1997 230,000 260,000 (2) 191,642 406 --
Co-Chairman and Chief 1996 190,000 185,000 -- -- 571 --
Operating Officer
James C. Potts.......... 1997 230,000 260,000 (2) 191,642 406 --
Co-Chairman and Chief 1996 186,000 199,000 -- -- 571 --
Investment Officer
J. Lindsay Freeman...... 1997 195,000 115,000 (2) 96,957 197 --
Managing Director 1996 160,446 100,000 -- -- 395 --
Bradley C. Miller....... 1997 185,000 120,000 (2) 96,957 197 --
Managing Director 1996(3) 99,205 50,000 -- -- 621 --
William Kell............ 1997 137,500 45,000 (2) 44,455 109 --
Senior Vice President
and 1996 125,000 28,000 -- -- 219 --
Controller
</TABLE>
- --------
(1) These options to acquire shares of Security Capital's Class A common
stock, par value $.01 per share (the "Class A Common Stock") were awarded
by Security Capital under Security Capital's 1995 Option Plan. At the time
of the award of these options, each of the Named Executive Officers was an
employee of the REIT Manager.
(2) Under the share purchase program of the 1997 Long-Term Incentive Plan (the
"Incentive Plan"), the Named Executive Officers purchased Common Shares as
follows in 1997: Ms. Moore, 89,136 Common Shares; Mr. Potts, 89,136 Common
Shares; Mr. Freeman, 44,568 Common Shares; Mr. Miller, 44,568 Common
Shares; and Mr. Kell, 20,055 Common Shares. All of these purchases were at
the price and upon the other terms, conditions and restrictions described
under "--Long-Term Incentive Plan--Share Purchase Program."
(3) Mr. Miller joined ATLANTIC on June 1, 1996 and the compensation
information reflects the portion of the year he was an officer of
ATLANTIC.
6
<PAGE>
LONG-TERM INCENTIVE PLAN
General
In 1997, the Board adopted, and the shareholders approved, the Incentive
Plan, which authorizes the establishment of one or more option programs and
share purchase programs and the award of share grants. No more than 3,000,000
Common Shares in the aggregate may be awarded under the Incentive Plan and no
individual may be granted awards with respect to more than 500,000 Common
Shares in any one-year period. The Compensation Committee administers the
Incentive Plan. Subject to the terms of the Incentive Plan, the Compensation
Committee determines which employees will be eligible to receive awards under
the Incentive Plan, and the amount, price, timing and other terms and
conditions applicable to those awards. Non-employee Directors are not eligible
to participate in the Incentive Plan. All employees of ATLANTIC or any of its
subsidiaries are eligible to participate in the Incentive Plan.
Options awarded under the Incentive Plan may be either incentive share
options or non-qualified share options. Options become exercisable and expire
in accordance with the terms established by the Compensation Committee. Common
Shares transferred to a participant pursuant to the exercise of an option may
be subject to such additional restrictions or limitations as the Compensation
Committee may determine. The Incentive Plan provides generally that
participants who are awarded options will also receive dividend equivalent
units with respect to the options. The dividend equivalent units will be
subject to the same vesting schedule as the options and will be payable when
the options are exercised, unless the participant elects to defer receipt, or
will expire. Each dividend equivalent unit also accumulates additional
dividend equivalent units on an annual basis. All dividend equivalent units
are paid in the form of Common Shares at the rate of one Common Share per
dividend equivalent unit.
The Incentive Plan provides that the Compensation Committee may award
participants performance stock, subject to achievement of performance
objectives. The number of Common Shares and the performance measures and
periods will be established by the Compensation Committee at the time the
award is made, provided that any performance period will be at least one year.
Non-Qualified Options
Concurrently with the consummation of the 1997 Merger transaction, the Named
Executive Officers and other officers and employees of ATLANTIC were granted
options to purchase a total of 93,822 Common Shares at an exercise price of
$22.4375 per share, the average of the high and low sales prices of the Common
Shares on September 8, 1997, the date the Incentive Plan was approved by
shareholders. Also, on December 4, 1997, an employee was granted options to
purchase 2,366 Common Shares at an exercise price of $21.125 per share, the
closing price of the Common Shares on that date. The participants have no
rights as shareholders with respect to the Common Shares subject to their
options until the option is exercised. ATLANTIC ordinarily will be entitled to
claim a federal income tax deduction on account of the exercise of a non-
qualified option and payment of dividend equivalent units. The amount of the
deduction is equal to the ordinary income recognized by a participant.
Share Purchase Program
Concurrently with the consummation of the 1997 Merger transaction, ATLANTIC
permitted the Named Executive Officers and other officers and employees to
purchase a total of 591,346 Common Shares at a price of $22.4375 per share,
the average of the high and low sales prices of the Common Shares on September
8, 1997, the date the Incentive Plan was approved by shareholders, and on
September 18, 1997, ATLANTIC permitted two employees to purchase a total of
674 Common Shares at a price of $22.25 per share, the closing price of the
Common Shares on such date, in each case with two matching options for each
Common Share purchased. Each matching option has an exercise price equal to
the purchase price per share of the corresponding Common Shares. No dividend
equivalent units were issued with respect to those matching options. The
Common Share purchases provide for a one-year restricted period during which
the participants may not, while employed, sell
7
<PAGE>
the Common Shares. If a participant leaves the employment of ATLANTIC prior to
the end of the restricted period, ATLANTIC has the right to repurchase the
Common Shares at their fair market value at the time the participant's
employment is terminated. At the end of the restricted period, the participant
will own the Common Shares without further restriction. However, if the
participant sells the Common Shares after the end of the restricted period,
the participant's matching options may be adversely affected. ATLANTIC made
loans for up to 95% of the purchase price available to participants, as
described under "--Loans to Executive Officers." Each loan is full recourse to
the participant and is secured by the purchased Common Shares.
Option Grants in 1997
The following table sets forth certain information with respect to
individual grants of options during 1997 to each of the Named Executive
Officers.
<TABLE>
<CAPTION>
COMMON SHARES
---------------------------------------------------------
INDIVIDUAL GRANTS
---------------------------------------------
PERCENT OF
TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE GRANT DATE
OPTIONS EMPLOYEES PRICE EXPIRATION PRESENT
NAME GRANTED(#)(1) IN 1997 ($/SHARE) DATE VALUE($)(2)
---- ------------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Constance B.
Moore.......... 191,642 15.2% 22.4375 9/8/07 340,624
James C. Potts.. 191,642 15.2% 22.4375 9/8/07 340,624
J. Lindsay
Freeman........ 96,957 7.7% 22.4375 9/8/07 172,331
Bradley C.
Miller......... 96,957 7.7% 22.4375 9/8/07 172,331
William Kell.... 44,455 3.5% 22.4375 9/8/07 79,014
<CAPTION>
SHARES OF SECURITY CAPITAL CLASS A COMMON STOCK
---------------------------------------------------------
INDIVIDUAL GRANTS
---------------------------------------------
PERCENT OF
TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE GRANT DATE
OPTIONS EMPLOYEES PRICE EXPIRATION PRESENT
NAME GRANTED(#)(3) IN 1997 ($/SHARE) DATE VALUE($)(4)
---- ------------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Constance B.
Moore.......... 406 0.77% 1,600.00 12/4/07 252,851
James C. Potts.. 406 0.77% 1,600.00 12/4/07 252,851
J. Lindsay
Freeman........ 197 0.37% 1,600.00 12/4/07 122,536
Bradley C.
Miller......... 197 0.37% 1,600.00 12/4/07 122,536
William Kell.... 109 0.21% 1,600.00 12/4/07 68,075
</TABLE>
- -------
(1) The options vest 25% on the second anniversary of the date of grant and an
additional 25% on each of the third, fourth and fifth anniversaries of the
date of the grant. As described under "--General," the following number of
these options granted to the Named Executive Officers in 1997 have
dividend equivalent units: Ms. Moore, 13,370 options; Mr. Potts, 13,370
options; Mr. Freeman, 7,821 options; Mr. Miller, 7,821 options; and Mr.
Kell, 4,345 options. The remaining options granted to the Named Executive
Officers in 1997 were matching options granted pursuant to the Share
Purchase Program and do not have matching dividend equivalent units, as
described under "--Share Purchase Program."
(2) The amounts shown are based on the Black-Scholes option pricing model. The
material assumptions incorporated in the Black-Scholes model in estimating
the value of the options include the following: a weighted-average
expected option life of 9.66 years; a risk-free interest rate of 6.35%; an
expected dividend yield of 7.99%; and expected volatility of 17.55%. The
actual value, if any, an optionee will realize upon exercise of an option
will depend on the excess of the market value of the Common Shares over
the exercise price on the date the option is exercised. There can be no
assurance that the value realized by an optionee will be at or near the
value estimated by using the Black-Scholes model.
(3) The options vest 25% on the second anniversary of the date of grant and an
additional 25% on each of the third, fourth and fifth anniversaries of the
date of grant.
(4) The amounts shown are based on the Black-Scholes option pricing model. The
material assumptions incorporated in the Black-Scholes model in estimating
the value of the options include the following: a weighted-average
expected option life of 6.75 years; a risk-free interest rate of 5.87%; no
expected dividend yield; and expected volatility of 22.09%. The actual
value, if any, an optionee will realize upon exercise of an option will
depend on the excess of the market value of the shares over the exercise
price on the date the option is exercised. There can be no assurance that
the value realized by an optionee will be at or near the value estimated
by using the Black-Scholes model.
8
<PAGE>
Aggregated Option Exercises in 1997 and Year-End Option Values
The following table sets forth certain information concerning exercises of
options during 1997 by each of the Named Executive Officers and the year-end
value of unexercised options owned by those executive officers.
<TABLE>
<CAPTION>
COMMON SHARES SHARES OF SECURITY CAPITAL CLASS A COMMON STOCK
--------------------------------------------------- ---------------------------------------------------
SECURITIES UNDERLYING VALUE OF UNEXERCISED SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
YEAR-END(#) AT YEAR-END($) YEAR-END(#) AT YEAR-END($)
------------------------- ------------------------- ------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Constance B.
Moore........... -- 191,642 -- -- 1,257 2,201 1,388,370 1,284,619
James C. Potts... -- 191,642 -- -- 2,050 2,703 2,202,227 1,839,349
J. Lindsay
Freeman......... -- 96,957 -- -- 852 1,632 940,013 1,159,341
Bradley C.
Miller.......... -- 96,957 -- -- -- 818 -- 277,151
William Kell..... -- 44,455 -- -- 98 703 104,178 396,063
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
ATLANTIC has not entered into any employment contracts with any Named
Executive Officer and there are no plans or arrangements by which any of those
executive officers will be compensated as a result of his or her resignation
or retirement or any other termination of his employment with ATLANTIC or in
connection with a change in control of ATLANTIC, except that if a "Change in
Control," as that term is defined in the Incentive Plan, occurs, options to
purchase Common Shares granted under the Incentive Plan will become
immediately exercisable and restrictions on purchased Common Shares will
lapse.
LOANS TO EXECUTIVE OFFICERS
ATLANTIC made loans to the Named Executive Officers as follows during 1997
for the purchase price of Common Shares pursuant to the Share Purchase
Program: Ms. Moore, $1,900,000; Mr. Potts, $1,900,000; Mr. Freeman, $950,000;
Mr. Miller, $950,000; and Mr. Kell, $427,000. Each loan is full recourse to
the executive officer and is secured by the purchased Common Shares. The loans
bear interest at the lower of 6.0% per annum or the dividend yield of a Common
Share determined based on the fair market value of a Common Share on the
purchase date and have a ten-year term. The loans will become due and payable
(i) immediately upon the sale of the purchased Common Shares or ATLANTIC's
termination of the executive officer's employment for cause, (ii) 180 days
after ATLANTIC's termination of the executive officer's employment following a
change in control, (iii) 365 days after termination of the executive officer's
employment by reason of death, disability or retirement or (iv) 90 days after
termination of the executive officer's employment for any other reason.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee consists entirely of non-employee directors and
is responsible for acting on behalf of the Board with respect to (i)
ATLANTIC's compensation practices, (ii) ATLANTIC's benefits programs, (iii)
review and approval of salaries and other compensation of ATLANTIC's senior
executive officers and (iv) adopting, administering and approving awards under
incentive compensation and stock plans. The Compensation Committee determines
the Chief Investment Officer's compensation, the Chief Operating Officer's
compensation and the compensation of the Named Executive Officers and other
executive officers of ATLANTIC based on the recommendations of senior
management. Payment of cash compensation and option grants by ATLANTIC to its
executive officers began on September 9, 1997, the date the 1997 Merger
occurred. See "Certain Relationships and Transactions--The 1997 Merger
Transaction." Grants of options to purchase Security Capital Class A Common
Stock were made by Security Capital to the Chief Investment Officer, the Chief
Operating Officer and the other Named Executive Officers while they were
employed by the REIT Manager.
9
<PAGE>
COMPENSATION PHILOSOPHY
ATLANTIC's compensation program is designed to:
. Attract, reward and retain highly qualified executives.
. Align shareholder and employee interests.
. Reward long-term career contributions to ATLANTIC.
. Emphasize the variable portion of total compensation (cash and stock) as
an individual's level of responsibility increases.
The Compensation Committee is committed to a compensation philosophy which
rewards employees on the basis of ATLANTIC's success in attaining corporate
financial objectives as well as on the basis of the employees' success in
attaining individual financial and qualitative performance objectives.
COMPENSATION PRACTICES
ATLANTIC's compensation practices regarding its executive officers have the
following components:
. Individual performance reviews every 12 months.
. Base salary which is paid annually and reviewed every 24 months.
. A target bonus which is set after review every 24 months, with an actual
bonus being paid in varying percentages of the target bonus (based on
individual and company performance) every 12 months.
. Option awards at fair market value which are annual awards based on the
responsibility band of the executive and an individual performance
assessment.
Executive officers of ATLANTIC who had been employed by the REIT Manager
were paid by Security Capital prior to the 1997 Merger. Security Capital
established base salaries and target bonuses for 1997, which remained in
effect after the 1997 Merger.
Performance Reviews
With respect to 1997 bonus and option compensation for individual executive
officers, the Compensation Committee reviewed ATLANTIC's financial
performance, as well as objective factors and a subjective assessment of the
executive's performance. In the case of particular individuals, circumstances
unique to such individual, such as increased responsibilities or extraordinary
effort, were also considered.
Base Salary
Security Capital set the base salary for ATLANTIC's executive officers for
1997 prior to the 1997 Merger. In the future, base salary will be established
when an executive officer joins ATLANTIC and will be reviewed in December of
even years. The next salary review will occur in late 1998, and will become
effective in January 1999. With respect to the executive officers of ATLANTIC,
the Compensation Committee will base its salary compensation decisions
primarily on its overall assessment of the executive's potential contribution
to ATLANTIC on both a short-term and long-term basis and competitive market
perspectives for the executive officer's compensation.
Annual Bonus
Security Capital set the target bonus for ATLANTIC's executive officers for
1997 prior to the 1997 Merger. In the future, the Compensation Committee will
establish target bonuses for each executive officer every 24 months (at the
same time that base salary is established). The actual percentage of target
bonus for each year is up to the discretion of the Compensation Committee. The
actual amount of a bonus is based primarily on the individual's performance in
the prior year. The Compensation Committee made the determination for actual
bonuses paid for 1997.
10
<PAGE>
Option Awards and Share Purchase Awards
The Compensation Committee believed it was appropriate in 1997 to make long-
term incentive awards to ATLANTIC's executive officers. Option awards to
purchase shares of Security Capital Class A Common Stock had been awarded
annually to the officers and employees of the REIT Manager and ATLANTIC's
property manager since ATLANTIC was founded and constituted a major component
of senior executive compensation. In connection with the 1997 Merger, the
Compensation Committee granted option awards and share purchase awards for
ATLANTIC Common Shares. In arriving at the 1997 award levels, the Compensation
Committee gave consideration to the executive's relative position,
responsibilities and performance, the change from being employees of Security
Capital to being employees of ATLANTIC, as well as option awards for Security
Capital Class A Common Stock granted in 1997. After the 1997 Merger, employees
of ATLANTIC will no longer receive option awards from Security Capital.
The purpose of the awards is to furnish long-term incentives to executive
officers to build shareholder value and to motivate and retain the personnel
critical to ATLANTIC's long-term success. Awards vest over a five-year period,
with no awards vested until the end of the second anniversary of the grant. It
is the intention of the Compensation Committee to continue to emphasize long-
term incentives in the compensation provided to ATLANTIC's executive officers.
CHIEF INVESTMENT OFFICER AND CHIEF OPERATING OFFICER COMPENSATION
The Compensation Committee met this year and plans to meet annually without
the Chief Investment Officer or the Chief Operating Officer present to
evaluate their individual performance and to determine their compensation. In
considering Mr. Potts' and Ms. Moore's compensation, the Compensation
Committee considers their principal responsibilities, which are to provide the
overall vision and strategic direction for ATLANTIC, to attract and retain
highly qualified employees and to develop and maintain key capital
relationships for ATLANTIC.
In reviewing and determining Mr. Potts' and Ms. Moore's compensation for
1997, the Compensation Committee reviewed the overall performance of ATLANTIC
and their respective individual performances. During 1997, ATLANTIC had a
variety of financial and operational achievements for which the Compensation
Committee believed Mr. Potts and Ms. Moore were instrumental. In 1997,
ATLANTIC generated funds from operations of $76.2 million, an increase of
$22.4 million over 1996 (as adjusted for 1996 to give effect to the Homestead
spin off). In addition, on September 9, 1997, ATLANTIC became an internally
managed REIT when it acquired the operations and business of its REIT
management and property management companies. Each of these developments was
considered by the Compensation Committee in determining Mr. Potts' and Ms.
Moore's compensation.
Based on their individual contributions as well as ATLANTIC's performance,
during 1997, Mr. Potts received a base salary of $230,000 and a bonus of
$260,000 and Ms. Moore received a base salary of $230,000 and a bonus of
$260,000. Of those amounts, $158,164 and $128,509, respectively, for Mr.
Potts, and $158,164 and $128,509, respectively, for Ms. Moore, were paid by
Security Capital. The Compensation Committee determined to award Mr. Potts and
Ms. Moore options to acquire 191,642 Common Shares each and share purchase
awards of 89,136 Common Shares each and to lend each of them $1,900,000 to
assist in the purchase of these Common Shares. In addition, Mr. Potts and Ms.
Moore each received options to purchase 406 shares of Security Capital Class A
Common Stock. The long-term incentives received by Mr. Potts and Ms. Moore
from ATLANTIC are in the form of share options and share purchase awards which
are identical in structure to those which are offered to ATLANTIC's other
officers and key employees.
The Compensation Committee expects to conduct a complete review of
ATLANTIC's compensation practices during 1998 to determine whether the
compensation philosophy, general amounts and combination of base salary,
target bonus and options should be materially changed.
11
<PAGE>
SECTION 162(M)
The Committee is aware of the limitations imposed by Section 162(m) of the
Internal Revenue Code of 1986, as amended, on the deductibility of compensation
paid to certain senior executives to the extent it exceeds $1 million per
executive. The law exempts compensation paid under plans which relate
compensation to performance. Although ATLANTIC's plans are designed to relate
compensation to performance, certain elements of the plans do not meet the tax
law's requirements because they allow the Compensation Committee to exercise
discretion in setting compensation. It may be appropriate in the future to
recommend changes in ATLANTIC's compensation program to take account of the tax
law. However, the Compensation Committee is of the opinion that it is better to
retain discretion than to give it up in exchange for the tax deduction.
* * * * *
This report is submitted by the members of the Compensation Committee: Manuel
A. Garcia III, Ned S. Holmes and John M. Richman.
The Compensation Committee Report on Executive Compensation and related
disclosure, including the Performance Graph, shall not be deemed incorporated
by reference by any general statement incorporating this Proxy Statement into
any filing under the Securities Act of 1933, as amended (the "Securities Act"),
or under the Exchange Act, except to the extent ATLANTIC specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under those Acts.
12
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in the
cumulative total shareholder return on Common Shares against the cumulative
total return of the Standard & Poor's Composite-500 Stock Index and the
National Association of Real Estate Investment Trusts ("NAREIT") Equity REIT
Index for the period commencing October 15, 1996, the date on which the Common
Shares began trading on the NYSE, and ended December 31, 1997. The Common Share
price performance shown on the graph is not necessarily indicative of future
price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN(1)
ATLANTIC COMMON SHARES, S&P COMPOSITE-500 STOCK INDEX
& NAREIT EQUITY REIT INDEX
LOGO
[Graph appears here]
<TABLE>
<CAPTION>
OCTOBER 15, DECEMBER 31, DECEMBER 31,
1996 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
ATLANTIC............................ $100.00 $129.07 $122.12
S&P 500............................. 100.00 105.91 141.24
NAREIT.............................. 100.00 118.85 142.93
</TABLE>
- --------
(1) Assumes that the value of the investment in Common Shares and each index
was $100.00 on October 15, 1996 and that all dividends were reinvested. For
purposes of calculating total return on the Common Shares, (i) the
Homestead Distribution described below in "Certain Relationships and
Transactions--Homestead Transaction" was valued based on the closing prices
of the securities distributed on the American Stock Exchange on November
12, 1996, the date of the distribution; and (ii) the Warrant Issuance
described below in "Certain Relationships and Transactions--The 1997 Merger
Transaction" was valued based on the closing price of the warrants
distributed on the NYSE on September 18, 1997, the date the warrants were
issued to the distribution agent.
13
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
REIT MANAGEMENT AGREEMENT
Prior to the 1997 Merger, ATLANTIC had a REIT management agreement pursuant
to which the REIT Manager provided management services to ATLANTIC. The REIT
Manager provided both strategic and day-to-day management of ATLANTIC,
including research, investment analysis, acquisition, development, marketing,
disposition of assets, asset management, due diligence, capital markets, legal
and accounting services.
The REIT management agreement required ATLANTIC to pay an annual fee of 16%
of cash flow as defined in the agreement, payable monthly. Cash flow was
calculated by reference to ATLANTIC's cash flow from operations plus (i) fees
paid to the REIT Manager, (ii) extraordinary expenses incurred at the request
of the independent Directors of ATLANTIC (of which there were none) and (iii)
33% of any interest paid by ATLANTIC on convertible subordinated debentures (of
which there were none); and after deducting (i) regularly scheduled principal
payments (excluding prepayments or balloon payments) for debt with commercially
reasonable amortization schedules, (ii) assumed principal and interest payments
on senior unsecured debt treated as having regularly scheduled principal and
interest payments like a 20-year level-payment, fully amortizing mortgage and
(iii) distributions actually paid with respect to any non-convertible preferred
stock. Cash flow did not include: (i) realized gains or losses from disposition
of investments, (ii) interest income from cash equivalent investments and the
Homestead convertible mortgage notes, (iii) provisions for possible losses on
investments, and (iv) extraordinary items.
The REIT Manager also received a fee of 0.20% per year on the average daily
balance of cash equivalent investments. The REIT Management fee aggregated $8.5
million for 1997.
PROPERTY MANAGEMENT COMPANY
Prior to the 1997 Merger, SCG Realty Services Atlantic Incorporated ("SCG
Realty Services"), an affiliate of the REIT Manager, provided property
management services for certain of ATLANTIC's communities. The agreement
provided for a fee to SCG Realty Services of 3.5% per annum of community
revenues for communities located in Atlanta and Washington, D.C. markets and
3.75% per annum of community revenues for all other communities, paid monthly,
which aggregated $3.8 million for 1997.
HOMESTEAD TRANSACTION
In October 1996, ATLANTIC, PTR and Security Capital sold, through a series of
merger transactions, all of their respective assets relating to Homestead
Village(R) properties to Homestead, and ATLANTIC and PTR entered into funding
commitment agreements (see "--Funding Commitment Agreement"). The Homestead
transaction resulted in ATLANTIC (a) owning 4,201,220 shares of Homestead
common stock, (b) owning 2,818,517 warrants to purchase one share of Homestead
common stock at $10.00 per share, (c) owning up to $98.0 million in convertible
mortgage notes as described below (see "--Funding Commitment Agreement"), and
(d) providing a cash payment of $16.6 million to Homestead on the closing date.
ATLANTIC distributed the Homestead common stock and warrants which it received
to its shareholders pro rata on November 12, 1996 (the "Homestead
Distribution"). Each holder of record of a Common Share on October 29, 1996
received 0.110875 shares of Homestead common stock and warrants to purchase
0.074384 shares of Homestead common stock. The Homestead common stock trades on
the NYSE under the symbol "HSD".
FUNDING COMMITMENT AGREEMENT
Pursuant to a funding commitment agreement entered into at the closing of the
Homestead transaction, ATLANTIC agreed to fund up to $111.1 million to
Homestead, which amount was anticipated to be sufficient to complete the
development of the Homestead Village(R) properties contributed by ATLANTIC.
ATLANTIC
14
<PAGE>
received 2,818,517 warrants, each to purchase one share of Homestead common
stock, in exchange for its entering into the funding commitment agreement,
which ATLANTIC subsequently distributed pro rata to its shareholders in the
Homestead Distribution. Each Homestead warrant was exercisable at $10.00 per
share and expired October 27, 1997. ATLANTIC receives convertible mortgage
notes in respect of fundings under the funding commitment agreement in stated
amounts of up to $98.0 million. The effect of these provisions of the funding
commitment agreement is that ATLANTIC funds $1,133,535 for each $1,000,000
principal amount of convertible mortgage loans. The convertible mortgage loans
are recorded for financial reporting purposes at a premium of approximately
$13.1 million which is being amortized and recorded as an adjustment to
interest income over the ten-year term of the mortgage loans using the
effective interest method. The stated amounts of the convertible mortgage notes
have been adjusted to provide an effective yield (after giving effect to the
premium due to the issuance of the Homestead warrants and the convertibility of
the mortgage notes) to ATLANTIC of 8.46% on a fully funded basis which is
reflective of the relative rate of return anticipated to be realized on all of
the properties contributed by ATLANTIC. Homestead is required to endeavor in
good faith to complete the development of that property consistent with the
development plans for that property. Each mortgage note issued by Homestead
pursuant to the funding commitment agreement is convertible into shares of
Homestead common stock on the basis of one share of Homestead common stock for
every $11.50 of principal outstanding on the mortgage loan. Interest on the
mortgage notes accrues at the rate of 9% per annum on the unpaid principal
balance, payable every six months. The mortgage notes are scheduled to mature
on October 31, 2006, and are not callable until October 27, 2001. Homestead has
pledged the assets being contributed by ATLANTIC as collateral for the mortgage
loans being made by ATLANTIC. At December 31, 1997, ATLANTIC had advanced
$106.0 million under the funding commitment agreement and $93.5 million
principal amount of mortgage notes was outstanding.
PROTECTION OF BUSINESS AGREEMENT
ATLANTIC entered into a protection of business agreement with Homestead at
the closing of the Homestead transaction which prohibits ATLANTIC and its
affiliates from engaging, directly or indirectly, in the extended-stay lodging
business except through Homestead and its subsidiaries. The agreement also
prohibits Homestead from, directly or indirectly, engaging in the ownership,
operation, development, management or leasing of multifamily properties. The
agreement does not prohibit ATLANTIC from: (i) owning securities of Homestead;
(ii) owning up to 5% of the outstanding securities of another person engaged in
owning, operating, developing, managing or leasing extended-stay lodging
properties, so long as it does not actively participate in the business of that
person; (iii) owning the outstanding securities of another person, a majority-
owned subsidiary, division, group, franchise or segment of which is engaged in
owning, operating, developing, managing or leasing extended-stay lodging
properties, so long as not more than 5% of that person's consolidated revenues
are derived from those properties; and (iv) owning securities of another person
primarily engaged in a business other than owning, operating, developing,
managing or leasing extended-stay lodging properties, including a person
primarily engaged in business as an owner, operator or developer of hotel
properties, whether or not that person owns, operates, develops, manages or
leases extended-stay lodging properties. The agreement does not prohibit
Homestead from: (i) owning securities of ATLANTIC, PTR or Security Capital;
(ii) owning up to 5% of the outstanding securities of another person engaged in
owning, operating, developing, managing or leasing garden-style multifamily
properties; and (iii) owning the outstanding securities of another person, a
majority-owned subsidiary, division, group, franchise or segment of which is
engaged in owning, operating, developing, managing or leasing garden-style
multifamily properties, so long as not more than 5% of that person's
consolidated revenues are derived from those properties. The agreement will
terminate in the event of an acquisition, directly or indirectly (other than by
purchase from ATLANTIC, PTR or Security Capital or any of their respective
affiliates), by any person (or group of associated persons acting in concert),
other than ATLANTIC, PTR or Security Capital or their respective affiliates, of
25% or more of the outstanding voting stock of Homestead, without the prior
written consent of Homestead's board of directors. Subject to earlier
termination pursuant to the preceding sentence, the protection of business
agreement will terminate on October 17, 2006.
15
<PAGE>
HOMESTEAD INVESTOR AGREEMENT
ATLANTIC entered into an investor and registration rights agreement with
Homestead at the closing of the Homestead transaction pursuant to which
ATLANTIC is entitled to designate one person for nomination to the Homestead
board of directors, and Homestead will use its best efforts to cause the
election of that nominee for so long as ATLANTIC has the right to convert in
excess of $20 million in principal amount of loans made pursuant to its funding
commitment agreement. ATLANTIC's nominee may, but need not, include the same
person(s) nominated by Security Capital pursuant to Security Capital's investor
agreement with Homestead. In addition, Homestead has granted to ATLANTIC
registration rights with respect to the distribution of all of the shares of
Homestead common stock issuable upon conversion of the convertible mortgage
notes. ATLANTIC may request three registrations pursuant to Rule 415
promulgated under the Securities Act, of all shares of Homestead common stock
issued or issuable upon conversion of the convertible mortgage notes. That
registration, except for the fees and disbursements of counsel to ATLANTIC,
will be at the expense of Homestead.
DEVELOPMENT AGREEMENTS
ATLANTIC is a party to several development agreements with unaffiliated
third-party developer/managers, which provide that ATLANTIC will make certain
earnout payments to the developer/managers either in the form of cash, Common
Shares or shares of Security Capital's common stock, as determined in the sole
discretion of the developer/managers. The amount of those payments will be
determined on a per site basis and will be a percentage of the amount by which
annualized net operating income, capitalized at a rate as provided by the
agreement, exceeds the total actual project costs. ATLANTIC paid $0.8 million
in February 1997 with respect to one community and $4.0 million in August 1997
with respect to four communities to one of those developer/managers. The
aggregate amount of earnout payments for the two remaining communities cannot
exceed $2.2 million. The developer/managers were not entitled to receive any
earnout payments at December 31, 1997 on the two remaining communities.
THE 1997 MERGER TRANSACTION
In January 1997, Security Capital made a proposal to the Board that Security
Capital exchange the REIT Manager and SCG Realty Services for Common Shares,
with the result that ATLANTIC would become an internally managed REIT. On March
24, 1997, Security Capital and ATLANTIC entered into a Merger and Issuance
Agreement, as amended, pursuant to which Security Capital caused the REIT
Manager and SCG Realty Services to be merged into a newly formed subsidiary of
ATLANTIC. On September 8, 1997, ATLANTIC's shareholders voted to approve the
1997 Merger, which closed on September 9, 1997. The employees of the REIT
Manager and SCG Realty Services became employees of ATLANTIC as a result of the
1997 Merger. In exchange for the transfer of those businesses, ATLANTIC issued
to Security Capital 2,306,591 Common Shares valued at approximately $54.6
million. The number of Common Shares issued to Security Capital was based on
the average closing price of the Common Shares over the five-day period prior
to the record date for determining ATLANTIC's shareholders entitled to vote at
the meeting in connection with the 1997 Merger, subject to a maximum and
minimum number of Common Shares. The average closing price of the Common Shares
over the five-day period prior to that record date was $23.675 per Common
Share.
In order to allow holders of Common Shares (other than Security Capital) the
opportunity to maintain their relative ownership in ATLANTIC, concurrently with
the proxy solicitation seeking approval of the 1997 Merger, ATLANTIC conducted
a rights offering entitling holders of Common Shares (other than Security
Capital) to purchase up to 2,552,770 additional Common Shares. The subscription
price for Common Shares in the rights offering was $22.375 per Common Share,
which was equal to 94.5% of the price at which Common Shares were issued to
Security Capital in the 1997 Merger. In addition, as part of the 1997 Merger
transaction, Security Capital issued warrants to purchase 1,675,940 shares of
Security Capital's Class B common stock, par value $.01 per share (the "Class B
Common Stock"), pro rata directly to holders of Common Shares (the "Warrant
Issuance"), other than Security Capital. The Warrant Issuance was made by
Security Capital in order to induce
16
<PAGE>
holders of Common Shares to vote in favor of the 1997 Merger transaction, to
broaden Security Capital's shareholder base, to enable Security Capital to
raise additional equity capital at a relatively low cost through exercises of
warrants and to enable Security Capital to raise additional equity capital in
the long run by preserving and enhancing its goodwill with the shareholders of
ATLANTIC. The number of shares of Class B Common Stock subject to the warrants
was based on the closing price of the Class B Common Stock on September 18,
1997, the date the warrants were issued to the agent for the Warrant Issuance
for subsequent distribution to holders of Common Shares, other than Security
Capital. The warrants will expire on September 18, 1998 and contain customary
provisions to protect shareholders from dilution in certain events, including
certain distributions and sales of shares of Class B Common Stock at less than
market price.
SECURITY CAPITAL INVESTOR AGREEMENT
As part of the 1997 Merger transaction, ATLANTIC and Security Capital amended
and restated an investor agreement. The investor agreement provides that,
without first having consulted with the nominees of Security Capital designated
in writing, ATLANTIC may not seek Board approval of (i) ATLANTIC's annual
budget; (ii) incurring expenses in any year exceeding (a) any line item in the
annual budget by the greater of $500,000 or 20% and (b) the total expenses set
forth in the annual budget by 15%; (iii) the acquisition or sale of any assets
in any single transaction or series of related transactions in the ordinary
course of ATLANTIC's business where the aggregate purchase price paid or
received by ATLANTIC exceeds $25.0 million; and (iv) entering into any new
contract with a service provider (a) for investment management, property
management or leasing services or (b) which reasonably contemplates annual
contract payments by ATLANTIC in excess of $1.0 million. ATLANTIC is under no
obligation to accept or comply with any advice offered by Security Capital with
respect to the foregoing matters.
Additionally, so long as Security Capital beneficially owns at least 25% of
the Common Shares, Security Capital has the right to approve the following
matters proposed by ATLANTIC: (i) the issuance or sale of any Common Shares
(including the 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 the issuance or sale of any security convertible into or
exchangeable for Common Shares), at a price per share less than the fair market
value of a Common Share on the date of that issuance or sale; (ii) the issuance
and sale of any disqualified shares (as defined) if, as a result thereof,
ATLANTIC's Fixed Charge Coverage Ratio (as defined) would be less than 1.4 to
1.0; (iii) the adoption of any employee benefit plan pursuant to which shares
of ATLANTIC or any securities convertible into shares of ATLANTIC may be issued
and any action with respect to the compensation of the senior officers of
ATLANTIC (including the granting or award of any bonuses or share-based
incentive awards); and (iv) the incurrence of any additional indebtedness
(including guarantees and including renegotiations and restructurings of
existing indebtedness) if, as a result thereof, ATLANTIC's Interest Expense
Coverage Ratio (as defined) would be less than 2.0 to 1.0. The restriction
referred to in clause (i) above does not apply to (A) the sale or grant of any
options to purchase shares of ATLANTIC pursuant to the provisions of any
benefit plan approved by the shareholders of ATLANTIC, (B) the issuance or sale
of shares of ATLANTIC upon the exercise of any rights, options or warrants
granted, or upon the conversion or exchange of any convertible or exchangeable
security issued or sold, prior to the closing date of the 1997 Merger or in
accordance with the provisions of the investor agreement, (C) the issuance and
sale of any shares of ATLANTIC pursuant to any dividend reinvestment and share
purchase plan approved by the Board or (D) the issuance, grant or distribution
of rights, options or warrants to all holders of Common Shares entitling them
to subscribe for or purchase shares of ATLANTIC or securities convertible into
or exercisable for shares of ATLANTIC.
The agreement also provides that, so long as Security Capital owns at least
10% of the outstanding Common Shares, ATLANTIC may not increase the number of
persons serving on the Board to more than seven. Security Capital also is
entitled to designate one or more persons to be nominated for election to the
Board, as follows: (i) so long as Security Capital owns at least 10% but less
than 25% of the outstanding Common Shares, it is entitled to nominate one
person; and (ii) so long as Security Capital owns at least 25% of the
outstanding Common Shares, it is entitled to nominate that number of persons as
bears approximately the same ratio to the
17
<PAGE>
total number of members of the Board as the number of Common Shares
beneficially owned by Security Capital bears to the total number of outstanding
Common Shares, provided that Security Capital is entitled to designate no more
than three persons so long as the Board consists of no more than seven members.
As part of the investor agreement, Security Capital is permitted to make
employment opportunities with Security Capital or its affiliates available to
the officers and employees of ATLANTIC. Prior to commencing discussions with a
senior officer of ATLANTIC about any such opportunity, Security Capital is
required to give the Board 14 days' prior written notice.
In addition, the agreement provides Security Capital with registration rights
pursuant to which, in certain specified circumstances, Security Capital is
permitted to request, at any time, registration of all of Security Capital's
Common Shares pursuant to Rule 415 under the Securities Act. Security Capital
is permitted to request one registration for every $100 million (based on
market value) of Common Shares it owns.
ADMINISTRATIVE SERVICES AGREEMENT
Upon consummation of the 1997 Merger transaction, ATLANTIC and Security
Capital entered into an administrative services agreement, pursuant to which
Security Capital provides ATLANTIC with certain administrative and other
services with respect to certain aspects of ATLANTIC's business, as selected
from time to time by ATLANTIC at its option. These services include, but are
not limited to, payroll and tax administration services, cash management and
accounts payable services, data processing and other computer services, human
resources, research, insurance administration and legal administration. The
fees payable to Security Capital are equal to Security Capital's direct cost of
providing those services, plus an overhead factor of 20%. For the initial term
of the agreement (September 9, 1997 through December 31, 1998), the fees
payable to Security Capital will not exceed approximately $5.2 million, but may
be less than that amount as any cost savings will accrue to ATLANTIC. For the
period from September 9, 1997 to December 31, 1997, ATLANTIC's costs under the
agreement were limited to $1.5 million and ATLANTIC actually incurred $0.7
million of costs for that period. For 1998, ATLANTIC's costs under the
agreement cannot exceed $3.7 million. The agreement will be automatically
renewed for consecutive one-year terms, subject to approval by a majority of
the independent members of the Board.
LICENSE AGREEMENT
ATLANTIC and Security Capital entered into a license agreement on the closing
date of the 1997 Merger pursuant to which Security Capital granted ATLANTIC a
non-exclusive license to use Security Capital's registered logo and the non-
exclusive right to use the name "Security Capital". The term of the license is
for a period of 15 years, subject to ATLANTIC's right to extend the license for
up to two additional five-year periods.
PROTECTION OF BUSINESS AGREEMENT
ATLANTIC and Security Capital entered into a protection of business agreement
on the closing date of the 1997 Merger, which prohibited Security Capital and
its affiliates from providing, anywhere within the United States, directly or
indirectly, substantially the same services as those previously provided by the
REIT Manager and SCG Realty Services to any entity which owns or operates
multifamily properties. The agreement does not prohibit Security Capital or its
affiliates from owning the securities of any class of ATLANTIC or PTR. The
agreement will terminate in the event of an acquisition, directly or
indirectly, (other than by purchase from Security Capital or any of its
affiliates), by any person (or group of persons acting in concert), other than
Security Capital or any of its affiliates, of the greater of (i) 25% or more of
the outstanding shares of voting securities of ATLANTIC and (ii) the percentage
of outstanding voting securities of ATLANTIC owned directly or indirectly by
Security Capital and its affiliates, in either case without the prior written
consent of the Board. Subject to earlier termination pursuant to the preceding
sentence, the agreement will terminate on September 9, 2000, the third
anniversary of the closing date of the 1997 Merger.
18
<PAGE>
PROPOSED MERGER OF ATLANTIC AND PTR
ATLANTIC and PTR recently announced that they have agreed to merge. The
combined company will operate under the name Archstone Communities Trust. The
merger is expected to be completed in August 1998, subject to the approval of
the shareholders of both companies and certain other conditions. For each
ATLANTIC Common Share held, a shareholder will receive one PTR common share.
ATLANTIC's preferred shareholders will receive comparable preferred shares of
PTR as a result of the merger. In addition, PTR will assume ATLANTIC's debt
(approximately $547 million at March 31, 1998). The transaction has been
structured as a tax-free merger and will be accounted for as a purchase.
Subject to certain terms and conditions, Security Capital has agreed to vote
its ATLANTIC Common Shares and PTR common shares in favor of the merger.
OTHER TRANSACTIONS WITH AFFILIATES
On March 31, 1995, Security Capital entered into an unsecured, full recourse
promissory note with Ms. Moore, then a Managing Director of PTR and PTR's REIT
manager. Under the terms of that promissory note, Security Capital lent Ms.
Moore $245,625, which amount is due on the earlier of January 4, 2005 or 120
days after Ms. Moore is no longer an officer of PTR or any affiliate thereof.
Interest on the unpaid balance accrues at a floating rate per annum equal to
the lowest rate charged by Morgan Guaranty Trust Company of New York to its
most creditworthy corporate customers for unsecured loans having a maturity of
90 days or less, in effect from time to time, plus 0.25%, and is payable
semiannually on each July 4 and January 4. The proceeds of that promissory
note were used by Ms. Moore to purchase common shares of PTR.
On May 10, 1996, Security Capital entered into an unsecured, full recourse
promissory note with Ms. Moore. Under the terms of that promissory note,
Security Capital lent Ms. Moore $250,000, which amount is due on the earlier
of January 5, 2006 or 120 days after Ms. Moore is no longer an officer of
ATLANTIC. Interest on the unpaid balance accrues at a floating rate per annum
equal to the lowest rate charged by Morgan Guaranty Trust Company of New York
to its most creditworthy corporate customers for unsecured loans having a
maturity of ninety days or less, in effect from time to time, plus 0.25%, and
is payable semiannually on each July 5 and January 5. The proceeds of that
promissory note were used by Ms. Moore to purchase Common Shares of ATLANTIC.
On May 17, 1996, Security Capital entered into an unsecured, full recourse
promissory note with Mr. Potts. Under the terms of that promissory note,
Security Capital lent Mr. Potts $180,000, which amount is due on the earlier
of January 5, 2006 or 120 days after Mr. Potts is no longer an officer of
ATLANTIC. Interest on the unpaid balance accrues at a floating rate per annum
equal to the lowest rate charged by Morgan Guaranty Trust Company of New York
to its most creditworthy corporate customers for unsecured loans having a
maturity of ninety days or less, in effect from time to time, plus 0.25%, and
is payable semiannually on each July 5 and January 5. The proceeds of that
promissory note were used by Mr. Potts to purchase Common Shares of ATLANTIC.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires ATLANTIC's Directors, officers
and beneficial owners of more than ten percent of the outstanding Common
Shares to file reports of ownership and changes in ownership of the Common
Shares with the Securities and Exchange Commission and to send copies of those
reports to ATLANTIC. Based solely on a review of those reports and amendments
thereto furnished to ATLANTIC and on written representations of certain of
those persons that they were not required to file certain of those reports,
ATLANTIC believes that no such person failed to file any such report on a
timely basis during 1997.
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<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The Board has selected Ernst & Young LLP, certified public accountants, who
have served as auditors for ATLANTIC since inception, to serve again as the
auditors of ATLANTIC's books and records for the coming year. A representative
of Ernst & Young LLP is expected to be present at the annual meeting, and will
be given an opportunity to make a statement if that representative desires to
do so and will be available to respond to appropriate questions.
ANNUAL REPORT
ATLANTIC's 1997 Annual Report, which includes financial statements, has
previously been mailed to shareholders or is being mailed to shareholders
together with this Proxy Statement. The Annual Report does not constitute a
part of the proxy solicitation material.
SHAREHOLDER PROPOSALS
Any proposal by a shareholder of ATLANTIC intended to be presented at the
1999 annual meeting of shareholders must be received by ATLANTIC at its
principal executive offices not later than December 28, 1998, for inclusion in
ATLANTIC's proxy statement and form of proxy relating to that meeting.
In addition, shareholders may present proposals which are proper subjects for
consideration at an annual meeting, even if the proposal is not submitted by
the deadline for inclusion in the proxy statement. To do so, the shareholder
must comply with the procedures specified by ATLANTIC's bylaws. ATLANTIC's
bylaws require that all shareholders who intend to make proposals at an annual
shareholders' meeting submit their proposals to ATLANTIC during the period 60
to 90 days before the anniversary date of the previous year's annual meeting.
To be eligible for consideration at the 1999 annual meeting, proposals which
have not been submitted by the deadline for inclusion in the proxy statement
must be received by ATLANTIC between February 27 and March 29, 1999.
OTHER MATTERS
ATLANTIC is not aware of any business or matter other than those indicated
above which may properly be presented at the meeting. If, however, any other
matter properly comes before the meeting, the proxy holders will, in their
discretion, vote thereon in accordance with their best judgment.
Jeffrey A. Klopf
Secretary
April 27, 1998
20
<PAGE>
DETACH HERE
PROXY
SECURITY CAPITAL ATLANTIC INCORPORATED
THIS PROXY IS SOLICITED BY AND ON BEHALF OF
THE BOARD OF DIRECTORS
1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 28, 1998
The undersigned hereby appoints each of Constance B. Moore, James C. Potts
and Jeffrey A. Klopf, as proxies with full power of substitution, to represent
the undersigned at the annual meeting of shareholders of Security Capital
Atlantic Incorporated to be held on May 28, 1998, and at any and all
adjournments or postponements thereof, and to vote at such meeting the shares of
common stock which the undersigned would be entitled to vote if present at such
meeting, in accordance with the instructions indicated on the reverse side of
this card; if no instructions are indicated, the shares represented by this
proxy will be voted for the election of the listed nominees for Director and, at
the direction of the proxies named above, on any other matter which may properly
come before the meeting.
The undersigned acknowledges receipt of the Notice of Annual Meeting and
the Proxy Statement together with this Proxy.
You are encouraged to specify your choices by marking the appropriate boxes
- -- SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in
accordance with the Board of Directors' recommendations. The proxies cannot vote
your shares unless you sign and return this card.
(Continued and to be signed and dated on the reverse side.)
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
ANNUAL MEETING OF SHAREHOLDERS
ADMISSION TICKET
Thursday, May 28, 1998
10:00 a.m. (Eastern time)
Renaissance Waverly Hotel
2450 Galleria Parkway
Atlanta, Georgia 30339
Please present this ticket for admittance.
DETACH HERE
[X] Please mark votes as in this example.
<TABLE>
<CAPTION>
<S> <C>
1. The election of the following persons as Class I 2. To vote on any other matters which may properly be
Directors: presented at the meeting according to their best
judgment and in their discretion.
Manuel A. Garcia, III and Ned S. Holmes
FOR WITHHOLD
BOTH FROM BOTH
NOMINEES NOMINEES
[_] [_]
FOR BOTH Nominees except as noted below
[_]_________________________________________
MARK HERE FOR ADDRESS CHANGE AND NOTE
[Insert Recordholder Information] AT LEFT [_]
Please sign, date and return this proxy card promptly
using the enclosed postage-paid envelope whether or
not you plan to attend the meeting.
Please sign exactly as name(s) appears to the left. If
shares are held jointly, each joint tenant should sign. If
signing as attorney, executor, administrator, trustee or
guardian or as officer of a corporation or other entity,
please give full title and capacity in which you are
signing.
Signature:_____________________ Date:___________ Signature:_____________________ Date:__________
</TABLE>
