<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
APRIL 24, 1998
SECURITY CAPITAL ATLANTIC INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
MARYLAND 1-2303 85-0415503
(STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
SIX PIEDMONT CENTER, SUITE 600 30305
ATLANTA, GEORGIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (404) 237-9292
NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
================================================================================
<PAGE>
ITEM 5. OTHER EVENTS
This Current Report on Form 8-K/A No. 1 is being filed by Security Capital
Atlantic Incorporated ("ATLANTIC") to report significant changes in ATLANTIC's
portfolio of multifamily communities, and contains audited financial information
for certain of the multifamily communities acquired by ATLANTIC. This Form 8-K/A
No. 1 amends the Current Report on Form 8-K that was filed on April 24, 1998 to
include pro forma condensed financial statements as of and for the three months
ended March 31, 1998 and to include one additional community acquisition.
ACQUISITIONS
The following acquisitions of multifamily communities were made by ATLANTIC
from unrelated parties. ATLANTIC acquired the following communities because
ATLANTIC believes that these communities represent excellent opportunities for
long-term growth in per share cash flow.
ATLANTIC acquired Shadowbluff apartments on August 26, 1997. Shadowbluff is
a 220 unit, moderate income community located in Nashville, Tennessee.
Shadowbluff was purchased for approximately $8.1 million. At the date of
purchase, the community's occupancy rate was 95%. ATLANTIC assumed
approximately $5.5 million of mortgage debt in connection with the
acquisition of Shadowbluff.
ATLANTIC acquired Bryn Athyn apartments on September 19, 1997. Bryn Athyn
is a 172 unit, moderate income community located in Raleigh, North
Carolina. Bryn Athyn was purchased for approximately $9.0 million. At the
date of purchase, the community's occupancy rate was 90%.
ATLANTIC acquired Cameron at Palm Harbor apartments (formerly Coral Lakes
Landing) on October 17, 1997. Cameron at Palm Harbor is a 168 unit,
moderate income community located in Tampa, Florida. Cameron at Palm Harbor
was purchased for approximately $7.3 million. At the date of purchase, the
community's occupancy rate was 98%. ATLANTIC assumed approximately $5.3
million of mortgage debt in connection with the acquisition of Cameron at
Palm Harbor.
ATLANTIC acquired Arbors of Dublin apartments on October 22, 1997. Arbors
of Dublin is a 288 unit, moderate income community located in Columbus,
Ohio. Arbors of Dublin was purchased for approximately $14.6 million. At
the date of purchase, the community's occupancy rate was 91%.
ATLANTIC acquired Cameron Hidden Harbor apartments (formerly Hidden Harbor)
on December 2, 1997. Cameron Hidden Harbor is a 200 unit, moderate income
community located in West Palm Beach, Florida. Cameron Hidden Harbor was
purchased for approximately $10.9 million. At the date of purchase, the
community's occupancy rate was 95%. ATLANTIC assumed approximately $5.5
million of mortgage debt in connection with the acquisition of Cameron
Hidden Harbor.
ATLANTIC acquired Cameron Lake II apartments (formerly Cooper's Pond) on
December 4, 1997. Cameron Lake II is a 172 unit, moderate income community
located in Raleigh, North Carolina. Cameron Lake II was purchased for
approximately $9.2 million. At the date of purchase, the community's
occupancy rate was 97%.
ATLANTIC acquired Arbor Green apartments on March 31, 1998. Arbor Green is
a 208 unit, moderate income community located in Indianapolis, Indiana.
Arbor Green was purchased for approximately $10.4 million. At the date of
purchase, the community's occupancy rate was 97%.
ATLANTIC acquired 52 Magnolia apartments on May 7, 1998. 52 Magnolia is a
228 unit, middle income community located in Raleigh, North Carolina. 52
Magnolia was purchased for approximately $18.3 million. At the date of
purchase, the community's occupancy rate was 94%.
2
<PAGE>
PARTNERSHIP AGREEMENT
On May 1, 1998, ATLANTIC acquired a controlling general partnership
interest in Atlantic Multifamily Limited Partnership-I ("Partnership-I"). Also
on May 1, 1998, Partnership-I acquired the following communities from an
unrelated party:
<TABLE>
<CAPTION>
ACTUAL
PRODUCT ACQUISITION ACQUISITION
NAME UNITS LOCATION TYPE COST ($000) DATE OCCUPANCY
- -------------------------- ------- -------------- ---------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Eastover Glen 128 Charlotte, NC Middle 9,303 May 1, 1998 95%
Reafield Ridge I & II 324 Charlotte, NC Middle 19,274 May 1, 1998 94%
Springs at Steele Creek 264 Charlotte, NC Moderate 16,878 May 1, 1998 94%
Cornerstone 302 Raleigh, NC Moderate 24,728 May 1, 1998 90%
Poplar Place 230 Raleigh, NC Middle 14,165 May 1, 1998 91%
Halton Place 246 Greenville, SC Moderate 12,028 May 1, 1998 90%
</TABLE>
Partnership-I has the following operating communities under contract
(probable acquisitions):
<TABLE>
<CAPTION>
ANTICIPATED
PRODUCT ACQUISITION ACQUISITION
NAME UNITS LOCATION TYPE COST ($000) DATE OCCUPANCY
- -------------------------- ------- -------------- ---------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Pinnacle at Northcross 312 Charlotte, NC Moderate 23,841 July 1998 74% (1)
Conifer Glen 186 Raleigh, NC Moderate 14,705 July 1998 79% (1)
Forest at Biltmore I & II 392 Asheville, NC Moderate 26,956 January 1999 89% (2)
</TABLE>
- ---------------------
(1) Community is currently in lease-up.
(2) Occupancy is for Phase I, which has 200 units;Phase II is under
construction.
Upon completion of the three probable acquisitions, Partnership-I will own
nine communities aggregating 2,384 units with a total investment of
approximately $161.9 million. ATLANTIC will have a 71% general partnership
interest in Partnership-I based upon its total cash investment of approximately
$115.0 million. The communities acquired by Partnership-I are not encumbered by
debt.
ATLANTIC, through a wholly owned subsidiary, is the sole general partner of
Partnership-I, which is organized as a Delaware limited partnership. Under the
terms of the partnership agreement, ATLANTIC has sole management power over the
partnership. Should a community owned by Partnership-I be sold, ATLANTIC has
agreed to utilize tax-deferred exchanges in order to mitigate the tax
consequences to the limited partners. At any time after one year from the
contribution date, the limited partners in Partnership-I are entitled to
exchange their partnership units for shares of ATLANTIC common stock, par value
$0.01 per share ("Common Shares") on the basis of one partnership unit for one
Common Share. Limited partners are entitled to receive preferential, cumulative
quarterly distributions equal to the quarterly distribution in respect of Common
Shares. ATLANTIC is entitled to all cash flow in excess of the preferential
return.
DISPOSITIONS
ATLANTIC's real estate investments are made with a view to effective long-
term operation and ownership. Based upon ATLANTIC's market research and in an
effort to optimize its portfolio composition, ATLANTIC disposed of certain
assets in 1997 that no longer met its investment criteria and redeployed the
proceeds therefrom into assets which management believes have better prospects
for long-term growth.
As a result of this asset optimization strategy, ATLANTIC disposed of the
following communities:
ATLANTIC disposed of Park Hill apartments on April 4, 1997. Park Hill is a
264 unit, moderate income community located in Miami, Florida. The gross
proceeds from the Park Hill disposition were approximately $8.7 million. A
loss of approximately $2.7 million was recognized on this disposition, all
of which was recorded as a provision for possible loss in the historical
financial statements.
ATLANTIC disposed of Summer Chase apartments on June 26, 1997. Summer Chase
is a 96 unit, moderate income community located in Tampa, Florida.
The gross proceeds from the Summer Chase disposition were approximately
$3.9 million, and a gain of approximately $0.3 million was recognized.
3
<PAGE>
ATLANTIC disposed of Stonegate apartments and Cameron at Kirby Parkway
apartments on October 30, 1997. Stonegate is a 208 unit, moderate income
community located in Memphis, Tennessee. Cameron at Kirby Parkway is a 324
unit, moderate income community also located in Memphis, Tennessee. The
aggregate gross proceeds from the combined dispositions were approximately
$17.7 million, and an aggregate gain of approximately $1.3 million was
recognized.
ATLANTIC disposed of Woodway at Trinity apartments on July 14, 1997.
Woodway at Trinity is a 504 unit, middle income community located in
Washington, DC. At the time of disposition, Woodway at Trinity was under
development. The gross proceeds from the Woodway at Trinity disposition
were approximately $36.3 million. The proceeds from this disposition were
not materially different from the book value of the asset at the date of
disposition, consequently, no gain or loss was recognized.
4
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements:
Combined Historical Summary of Gross Income and Direct
Operating Expenses with Report of Independent Auditors--Group
F Communities
Historical Summary of Gross Income and Direct Operating
Expenses with Report of Independent Auditors--Arbor Green
Community
b. Pro Forma Financial Information:
Pro Forma Condensed Balance Sheet as of March 31, 1998
(unaudited)
Pro Form Condensed Statement of Earnings for the three months
ended March 31, 1998 (unaudited)
Pro Forma Condensed Statement of Earnings for the year ended
December 31, 1997 (unaudited)
Notes to Pro Forma Condensed Financial Statements
c. Exhibits:
Exhibit 10.1--Agreement of Limited Partnership of
Atlantic Multifamily Limited Partnership-I
dated as of April 30, 1998 among SCA-I
Incorporated, as General Partner, and The
Persons listed on Exhibit A hereto, as Limited
Partners
Exhibit 23.1--Consent of Independent Auditors
5
<PAGE>
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, thereunto duly authorized.
Security Capital Atlantic Incorporated
By: /s/ CONSTANCE B. MOORE
--------------------------------------
Constance B. Moore
CO-CHAIRMAN AND CHIEF OPERATING OFFICER
/s/ WILLIAM KELL
---------------------------------------
William Kell
SENIOR VICE PRESIDENT AND CONTROLLER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
Date: May 20, 1998
6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Security Capital Atlantic Incorporated
We have audited the accompanying combined Historical Summary of Gross
Income and Direct Operating Expenses (the Historical Summary) of the Group F
Communities described in Note 1 for the year ended December 31, 1996. This
combined Historical Summary is the responsibility of the Group F Communities'
management. Our responsibility is to express an opinion on this combined
Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined Historical Summary is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined Historical Summary. An
audit also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall presentation of
the combined Historical Summary. We believe that our audit provides a reasonable
basis for our opinion.
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the report on Form 8-K/A No. 1 of Security
Capital Atlantic Incorporated as described in Note 1 to the combined Historical
Summary of the Group F Communities and is not intended to be a complete
presentation of the income and expenses of the Group F Communities.
In our opinion, the combined Historical Summary referred to above presents
fairly, in all material respects, the combined gross income and direct operating
expenses of the Group F Communities as described in Note 1 for the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
December 31, 1997
7
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP F COMMUNITIES
COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD FROM
JANUARY 1, 1997 THROUGH THE DATE OF ACQUISITION
<TABLE>
<CAPTION>
1996 1997
---------------- --------------
(Unaudited)
<S> <C> <C>
Gross income:
Rental.............................................................. $ 7,350,600 $ 5,971,834
Other............................................................... 221,836 147,292
---------------- --------------
Total gross income.............................................. 7,572,436 6,119,126
---------------- --------------
Direct operating expenses:
Utilities and other operating expenses.............................. 1,291,415 1,172,158
Real estate taxes................................................... 674,299 584,295
Repairs and maintenance............................................. 1,197,579 633,307
Management fees..................................................... 321,777 253,223
Interest on certain obligations assumed............................. 979,142 1,039,188
Advertising......................................................... 142,664 138,817
Insurance........................................................... 141,660 75,012
---------------- --------------
Total direct operating expenses................................. 4,748,536 3,896,000
---------------- --------------
Excess of gross income over direct operating expenses.................. $ 2,823,900 $ 2,223,126
================ ==============
</TABLE>
8
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP F COMMUNITIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD FROM
JANUARY 1, 1997 THROUGH THE DATE OF ACQUISITION (UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined Historical Summary of Gross Income and Direct Operating
Expenses (the "Historical Summary") relates to the operations of the following
Group F Communities which were acquired from unaffiliated parties by Security
Capital Atlantic Incorporated ("ATLANTIC") between January 1, 1997 and December
2, 1997.
<TABLE>
<CAPTION>
Date of Acquisition Community Name Location Acquisition Cost
- ---------------------- ---------------------------- ------------------------ ----------------
(in 000s)
<S> <C> <C> <C>
August 26, 1997 Shadowbluff Nashville, Tennessee $ 8,070
September 19, 1997 Bryn Athyn Raleigh, North Carolina 9,044
October 17, 1997 Cameron at Palm Harbor Tampa, Florida 7,323
(formerly Coral Lakes
Landing)
October 22, 1997 Arbors of Dublin Columbus, Ohio 14,611
December 2, 1997 Cameron Hidden Harbor West Palm Beach, Florida 10,938
(formerly Hidden Harbor)
</TABLE>
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the report on Form 8-K/A No. 1 of ATLANTIC.
The combined Historical Summary is not intended to be a complete presentation of
combined income and expenses of the Group F Communities as certain costs such as
depreciation, amortization, certain mortgage interest, professional fees and
other costs not considered comparable to the future operations of the Group F
Communities have been excluded.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Rental income from leasing activities consists of lease payments earned
from tenants under lease agreements with terms of one year or less.
CAPITALIZATION POLICY
Ordinary repairs and maintenance are expensed as incurred; major
replacements and betterments are capitalized.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred.
9
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP F COMMUNITIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD FROM
JANUARY 1, 1997 THROUGH THE DATE OF ACQUISITION (UNAUDITED)
USE OF ESTIMATES
The preparation of the combined Historical Summary in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined Historical
Summary and accompanying notes. Actual results could differ from those
estimates.
3. RELATED PARTY TRANSACTIONS
Management fees of $233,386 and $181,414 in 1996 and 1997, respectively,
were paid to affiliates of the prior owners under property management contracts.
4. DEBT ASSUMPTION
ATLANTIC assumed outstanding debt in connection with the acquisition of the
Shadowbluff, Cameron at Palm Harbor and Cameron Hidden Harbor communities. An
8.05% mortgage note with an outstanding balance of $5,520,673 at August 26, 1997
(the date of acquisition) collateralized by the Shadowbluff community matures on
December 1, 2005. The note requires monthly principal and interest payments of
$41,286.
An 8.04% mortgage note with an outstanding balance of $5,259,872 at October
17, 1997 (the date of acquisition) collateralized by the Cameron at Palm Harbor
community matures on November 1, 2006. The note requires monthly principal and
interest payments of $39,037.
A 7.93% mortgage note with an outstanding balance of $5,504,439 at December
2, 1997 (the date of acquisition) collateralized by the Cameron Hidden Harbor
community matures on May 12, 2001. The note requires monthly principal and
interest payments of $49,926.
ATLANTIC's assumption of these mortgage notes did not provide for
modification of the original terms of the notes; therefore, interest expense
incurred prior to ATLANTIC's assumption is representative of future interest
expense. Accordingly, 1996 interest expense of $448,805 and $456,950 for
Shadowbluff and Cameron at Hidden Harbor, respectively, is recognized in the
combined Historical Summary. The mortgage note related to Cameron at Palm Harbor
was executed by the prior owner on October 30, 1996 and interest expense of
$73,387 for the two months subsequent is recognized in the combined Historical
Summary. Interest expense of $291,109, $407,286, and $340,793 for the three
communities, respectively, is recognized for the period from January 1, 1997
through the respective Date of Acquisition.
10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Security Capital Atlantic Incorporated
We have audited the accompanying Historical Summary of Gross Income and
Direct Operating Expenses (the Historical Summary) of the Arbor Green Community
(the "Community") for the year ended December 31, 1997. This Historical Summary
is the responsibility of the Community's management. Our responsibility is to
express an opinion on this Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Historical Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary has been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in the report on Form 8-K/A No. 1 of Security Capital
Atlantic Incorporated as described in Note 1 to the Historical Summary and is
not intended to be a complete presentation of the income and expenses of the
Community.
In our opinion, the Historical Summary referred to above presents fairly,
in all material respects, the gross income and direct operating expenses of the
Community as described in Note 1 for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
April 7, 1998
11
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
ARBOR GREEN COMMUNITY
HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Gross income:
Rental........................................................................... $ 1,392,014
Other............................................................................ 102,958
-----------
Total gross income........................................................... 1,494,972
-----------
Direct operating expenses:
Utilities and other expenses..................................................... 282,336
Real estate taxes................................................................ 134,933
Repairs and maintenance.......................................................... 143,528
Management fees.................................................................. 74,397
Advertising...................................................................... 34,952
Insurance........................................................................ 12,811
-----------
Total direct operating expense............................................... 682,957
-----------
Excess of gross income over direct operating expenses............................... $ 812,015
===========
</TABLE>
12
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
ARBOR GREEN COMMUNITY
NOTES TO HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
The Historical Summary of Gross Income and Direct Operating Expenses (the
"Historical Summary") relates to the operations of the Arbor Green Community
(the "Community"), located in Indianapolis, Indiana which was acquired from an
unaffiliated party by Security Capital Atlantic Incorporated ("ATLANTIC") on
March 31, 1998 for $10,439,000.
The accompanying Historical Summary has been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in the report on Form 8-K/A No. 1 of ATLANTIC. The
Historical Summary is not intended to be a complete presentation of income and
expenses of the Community, as certain costs such as depreciation, amortization,
mortgage interest, professional fees and other costs not considered comparable
to the future operations of the Community have been excluded.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Rental income from leasing activities consists of lease payments earned
from tenants under lease agreements with terms of one year or less.
CAPITALIZATION POLICY
Ordinary repairs and maintenance are expensed as incurred; major
replacements and betterments are capitalized.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred.
USE OF ESTIMATES
The preparation of the Historical Summary in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the Historical Summary and
accompanying notes. Actual results could differ from those estimates.
3. RELATED PARTY TRANSACTIONS
Management fees of $74,397 were paid to affiliates of the prior owners
under property management contracts.
13
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying pro forma condensed financial statements for ATLANTIC have
been prepared based on certain pro forma adjustments to ATLANTIC's historical
financial statements. The pro forma condensed financial statements reflect the
multifamily community acquisitions and dispositions disclosed in Item 5 of this
Current Report on Form 8-K/A No. 1 and reflect the transaction whereby ATLANTIC
became an internally managed real estate investment trust ("REIT").
The accompanying pro forma condensed balance sheet as of March 31, 1998 has
been prepared as if the acquisition of the one community acquired by ATLANTIC
subsequent to March 31, 1998 had been acquired as of that date. In addition, the
pro forma condensed balance sheet reflects the acquisition of six communities on
May 1, 1998 and the probable acquisition of three communities, all through the
formation of a partnership entity, as if this transaction had occurred as of
March 31, 1998.
The accompanying pro forma condensed statements of earnings for the three
months ended March 31, 1998 and the year ended December 31, 1997 have been
prepared as if:
(i) the acquisition and disposition by ATLANTIC of all operating
communities acquired or disposed of subsequent to December 31, 1996
as if these communities had been acquired or disposed of as of
January 1, 1997;
(ii) the assumption of certain mortgage debt associated with the
acquisition of the operating communities subsequent to December 31,
1996 as if this mortgage debt had been assumed on January 1, 1997;
(iii) the acquisition of six operating communities and the probable
acquisition of three communities through the formation of a
partnership entity as if the acquisitions and the formation of the
partnership entity had occurred as of January 1, 1997;
(iv) the sale of Common Shares, preferred stock and senior unsecured
notes subsequent to December 31, 1996, necessary to fund pro forma
acquisitions for the year ended December 31, 1997 as if the
securities had been sold as of January 1, 1997;
(v) additional short-term borrowings necessary to fund pro forma
acquisitions for the three months ended March 31, 1998 as if the
borrowings had been outstanding for the entire period; and,
(vi) the transaction, which was consummated on September 9, 1997,
pursuant to which ATLANTIC acquired the operations and business of
Security Capital (Atlantic) Incorporated (the "REIT Manager") and
SCG Realty Services Atlantic Incorporated (the "Property Manager")
in exchange for Common Shares (the "Transaction"), had occurred as
of January 1, 1997.
The pro forma condensed financial statements do not purport to be
indicative of the financial position or results of operations which would
actually have been obtained had the transactions described above been completed
on the dates indicated or which may be obtained in the future. The pro forma
condensed financial statements should be read in conjunction with the Historical
Summaries of Gross Income and Direct Operating Expenses included herein and the
historical financial statements included in ATLANTIC's 1997 Annual Report on
Form 10-K and Quarterly Report on Form 10-Q for the three months ended March 31,
1998. In management's opinion all material adjustments necessary to reflect the
effects of these transactions have been made to the pro forma financial
statements.
14
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS HISTORICAL ACQUISITIONS PRO FORMA
------ ---------------- --------------- ----------------
<S> <C> <C> <C>
Real estate......................................................... $ 1,426,931 $ 180,205 (a) $ 1,607,136
Less accumulated depreciation....................................... 73,396 -- 73,396
---------------- --------------- ----------------
1,353,535 180,205 1,533,740
Homestead Convertible Mortgages..................................... 122,990 -- 122,990
---------------- --------------- ----------------
Net investments.................................................. 1,476,525 180,205 1,656,730
Cash and cash equivalents........................................... 3,247 -- 3,247
Other assets........................................................ 21,965 -- 21,965
--------------- --------------- ----------------
Total assets................................................ $ 1,501,737 $ 180,205 $ 1,681,942
================ =============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Lines of credit................................................ $ 233,088 $ 133,327 (b) $ 366,415
Notes payable.................................................. 150,000 -- 150,000
Mortgages payable.............................................. 163,782 -- 163,782
Accounts payable............................................... 24,456 -- 24,456
Accrued expense and other liabilities.......................... 23,688 -- 23,688
---------------- --------------- ----------------
Total liabilities.......................................... 595,014 133,327 728,341
---------------- --------------- ----------------
Minority interest................................................... -- 46,878 (c) 46,878
Shareholders' equity (250,000,000 total shares authorized):
Series A preferred shares (2,000,000 shares issued and
outstanding at December 31, 1997; stated liquidation
preference of $25 per share).................................. 50,000 -- 50,000
Common Shares (47,760,965 issued and outstanding).............. 478 -- 478
Additional paid-in capital..................................... 904,641 -- 904,641
Employee stock purchase notes.................................. (12,290) -- (12,290)
Unrealized gains on Homestead Convertible Mortgages............ 17,322 -- 17,322
Distributions in excess of net earnings........................ (53,428) -- (53,428)
---------------- --------------- ----------------
Total shareholders' equity................................. 906,723 -- 906,723
--------------- --------------- ----------------
Total liabilities and shareholders' equity................. $ 1,501,737 $ 180,205 $ 1,681,942
================ =============== ================
</TABLE>
The accompanying notes are an integral part of the pro forma
condensed financial statements.
15
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
PRO FORMA CONDENSED STATEMENT OF EARNINGS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACQUISITIONS/DISPOSITIONS, NET
------------------------------
ATLANTIC PRO FORMA ATLANTIC
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Rental income..................................... $ 46,148 $ 5,005 (d) $ -- $ 51,153
Homestead Convertible Mortgage interest income.... 2,109 -- -- 2,109
Other interest income............................. 168 -- -- 168
---------- ----------- ----------- ------------
48,425 5,005 -- 53,430
---------- ----------- ----------- ------------
Expenses:
Rental expenses:
Paid to affiliate.............................. 404 -- -- 404
Paid to third parties.......................... 11,980 1,524 (d) (68) (e) 13,436
Real estate taxes................................. 4,600 367 (d) -- 4,967
Depreciation...................................... 7,798 -- 930 (f) 8,728
Interest:
Mortgages...................................... 3,015 -- -- 3,015
Line of credit and notes payable............... 2,894 -- 2,079 (g) 4,973
General and administrative expenses:
Paid to affiliate.............................. 214 -- -- 214
Paid to third parties.......................... 1,210 -- 120 (h) 1,330
Other............................................. 16 -- -- 16
---------- ----------- ----------- ------------
32,131 1,891 3,061 37,083
---------- ----------- ----------- ------------
Earnings from operations before minority
interest, excluding gains on dispositions........... $ 16,294 $ 3,114 $ (3,061) $ 16,347
Minority interest share in net earnings............... -- -- 702 (i) 702
---------- ----------- ----------- ------------
Earnings from operations excluding gains on
dispositions........................................ 16,294 3,114 (3,763) 15,645
Less preferred share dividends.................. 1,078 -- -- 1,078
---------- ----------- ----------- ------------
Net earnings attributable to Common Shares............ $ 15,216 $ 3,114 $ (3,763) $ 14,567
========== =========== =========== ============
Per Common Share amounts:
Basic net earnings attributable to Common
Shares........................................... $ 0.32 $ 0.31
========== ============
Diluted net earnings attributable to Common
Shares........................................... $ 0.32 $ 0.31
========== ============
Weighted-average Common Shares outstanding -
basic............................................ 47,751 -- -- 47,751
========== =========== =========== ============
Weighted-average Common Shares outstanding -
diluted (j)...................................... 47,751 -- -- 47,751
========== =========== =========== ============
Reconciliation of net earnings attributable to
Common Shares to funds from operations:
Net earnings attributable to Common Shares........ $ 15,216 $ 3,114 $ (3,763) $ 14,567
Add (Deduct):
Real estate depreciation.......................... 7,770 -- 930 8,700
Non-cash interest income.......................... (230) -- -- (230)
Minority interest................................. -- -- 702 702
---------- ----------- ----------- ------------
Funds from operations (k)......................... $ 22,756 $ 3,114 $ (2,131) $ 23,739
========== =========== =========== ============
Weighted-average Common Shares outstanding -
basic (l)........................................... 47,751 -- 1,755 49,506
========== =========== =========== ============
Weighted-average Common Shares outstanding -
diluted (l)......................................... 47,751 -- 1,755 49,506
========== =========== =========== ============
Cash Flow Summary:
Net cash provided by operating activities........ $ 19,646 $ 3,114 $ (2,011) $ 20,749
Net cash used by investing activities............ (59,111) -- (133,327) (192,438)
Net cash provided by financing activities........ 41,439 -- 133,327 174,766
</TABLE>
The accompanying notes are an integral part of the pro forma
condensed financial statements.
16
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
PRO FORMA CONDENSED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACQUISITIONS/DISPOSITIONS, NET
--------------------------------
ATLANTIC PRO FORMA THE ATLANTIC
HISTORICAL HISTORICAL ADJUSTMENTS TRANSACTION (m) PRO FORMA
------------ ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income......................... $ 168,459 $ 19,437 (d) $ -- $ -- $ 187,896
Homestead Convertible Mortgage interest
income............................... 4,453 -- -- -- 4,453
Other interest income................. 637 -- -- -- 637
------------ ------------- ------------- --------------- -------------
173,549 19,437 -- -- 192,986
------------ ------------- ------------- --------------- -------------
Expenses:
Rental expenses:
Paid to affiliate.................. 274 -- -- 1,674 (m)(i) 1,948
Paid to third parties.............. 44,488 5,038 (d) (86) (n) 3,778 (m)(i) 53,218
Real estate taxes..................... 14,693 1,157 (d) -- -- 15,850
Property management fees:
Paid to affiliate.................. 3,848 988 (d) (203) (n) (4,633) (m)(ii) --
Paid to third parties.............. 629 -- -- -- 629
Depreciation.......................... 26,994 -- 3,620 (o) 247 (m)(iii) 30,861
Interest:
Mortgages.......................... 11,062 1,039 (p) 15 (p) -- 12,116
Line of credit and notes payable... 9,230 -- 6,689 (q) -- 15,919
REIT management fee paid to affiliate.. 8,548 -- 455 (r) (9,003) (m)(ii) --
General and administrative expenses:
Paid to affiliate................... 316 -- -- 1,059 (m)(iv) 1,375
Paid to third parties............... 2,046 -- -- 2,820 (m)(iv) 4,866
Provision for possible loss on
investments........................... 200 -- -- -- 200
Other.................................. 106 -- -- -- 106
------------ ------------- ------------- --------------- -------------
122,434 8,222 10,490 (4,058) 137,088
------------ ------------- ------------- --------------- -------------
</TABLE>
The accompanying notes are an integral
part of the pro forma condensed financial statements.
(Continued)
17
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
PRO FORMA CONDENSED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACQUISITIONS/DISPOSITIONS, NET
------------------------------
ATLANTIC PRO FORMA THE ATLANTIC
HISTORICAL HISTORICAL ADJUSTMENTS TRANSACTION (m) PRO FORMA
------------ ------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Earnings from operations before minority
interest, excluding gains on
dispositions............................... $ 51,115 $ 11,215 $ (10,490) $ 4,058 $ 55,898
Minority interest share in net earnings...... -- -- 2,173 (s) -- 2,173
------------ ------------- ------------- --------------- -------------
Earnings from operations excluding gains on
dispositions............................... 51,115 11,215 (12,663) 4,058 53,725
Less preferred share dividends........... 1,569 -- 316 (t) -- 1,885
------------ ------------- ------------- --------------- -------------
Net earnings attributable to Common Shares... $ 49,546 $ 11,215 $ (12,979) $ 4,058 $ 51,840
============ ============= ============= =============== =============
Per Common Share amounts:
Basic net earnings attributable to Common
Shares.................................. $ 1.17 $ 1.17
============ =============
Diluted net earnings attributable to
Common Shares........................... $ 1.17 1.17
============ =============
Weighted-average Common Shares
outstanding - basic.................... 42,449 -- 404 (u) 1,586 (m)(v) 44,439
============ ============ ============ ============== =============
Weighted-average Common Shares
outstanding - diluted (j).............. 42,450 -- 404 1,586 (m)(v) 44,440
============= ============= ============= ============== =============
Reconciliation of net earnings attributable to
Common Shares to funds from operations:
Net earnings attributable to Common
Shares.................................. $ 49,546 $ 11,215 $ (12,979) $ 4,058 $ 51,840
Add (Deduct):
Real estate depreciation................. 26,963 -- 3,620 -- 30,583
Provision for possible loss on
investments............................. 200 -- -- -- 200
Non-cash interest income................. (486) -- -- -- (486)
Minority interest........................ -- -- 2,173 -- 2,173
------------ ------------- ------------- --------------- -------------
Funds from operations (k)................ $ 76,223 $ 11,215 $ (7,186) $ 4,058 $ 84,310
============ ============= ============= =============== =============
Weighted-average Common Shares outstanding -
basic (l)................................... 42,449 -- 1,797 1,586 (m)(v) 45,832
============ ============= ============= =============== =============
Weighted-average Common Shares outstanding -
diluted (l)................................. 42,450 -- 1,797 1,586 (m)(v) 45,833
============ ============= ============= =============== =============
Cash Flow Summary:
Net cash provided by operating
activities.............................. $ 83,122 $ 11,215 $ (7,186) $ 4,453 $ 91,604
Net cash used by investing activities.... (295,606) -- (143,766) (2,379) (441,751)
Net cash provided by financing
activities.............................. 209,418 -- 143,766 -- 353,184
</TABLE>
The accompanying notes are an integral part of the pro forma condensed
financial statements.
18
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(a) As described in Item 5 to this Form 8-K/A No. 1, represents (i) the
acquisition of six communities on May 1, 1998; (ii) the acquisition of one
community on May 7, 1998; and, (iii) the probable acquisition of three
communities.
(b) Reflects the use of line of credit borrowings to fund the cash portion of
the acquisitions discussed in note (a).
(c) Represents the minority interest that results from ATLANTIC's acquisition
of a controlling general partnership interest in Atlantic Multifamily
Limited Partnership-I ("Partnership-I") on May 1, 1998. In exchange for
contributing $115.0 million in cash, ATLANTIC will own approximately 71% of
Partnership-I which will own nine communities (six communities were
acquired by Partnership-I on May 1, 1998). The minority interest will be
exchangeable for Common Shares beginning on the first anniversary date of
its issuance.
(d) All of ATLANTIC's acquisitions and probable acquisitions subsequent to
December 31, 1996 were or will be acquired from unaffiliated third parties.
These acquisitions are described in Item 5 of this Current Report on
Form 8-K/A No. 1. These amounts reflect historical gross income and certain
expenses for all communities acquired subsequent to December 31, 1996 for
the period from January 1, 1997 to the earlier of the respective dates of
acquisition, December 31, 1997, or March 31, 1998, as applicable (results
of operations after the date of acquisition are included in ATLANTIC's
historical operating results). The adjustments also reflect the removal
from ATLANTIC's historical balances of gross income and certain expenses
for all communities disposed of subsequent to December 31, 1996 for the
period from January 1, 1997 to the respective dates of disposition, as
applicable. The historical gross income and expenses relating to the period
prior to ATLANTIC's acquisition of the communities exclude amounts which
would not be comparable to the proposed future operations of the
communities.
The following tables summarize the historical income and expense amounts
shown on the pro forma condensed statement of earnings for the three months
ended March 31, 1998 and for the year ended December 31, 1997:
19
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
REAL PROPERTY
RENTAL RENTAL ESTATE MANAGEMENT
INCOME EXPENSES TAXES FEES
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED MARCH 31, 1998:
Arbor Green Community..................... $ 358 $ 134 $ 33 $ --
Community acquisitions and probable
community acquisitions of
Partnership-I........................... 4,129 1,240 302 --
Other community acquired in 1998.......... 518 150 32 --
--------- ---------- ---------- ----------
Net adjustment to ATLANTIC's
historical balances.................. $ 5,005 $ 1,524 $ 367 $ --
========= ========== ========== ==========
FOR THE YEAR ENDED DECEMBER 31, 1997:
Group F Communities (see
reconciliation to audited results
below)............................... $ 7,748 $ 2,404 $ 720 $ 298
Arbor Green Community (audited
results)............................. 1,495 474 135 74
Other community acquired in 1997....... 1,340 356 74 62
Community acquisitions and probable
community acquisitions of
Partnership-I........................ 13,476 3,478 751 724
Other community acquired in 1998....... 2,137 490 126 78
---------- ---------- ---------- ----------
Totals for the year.................. 26,196 7,202 1,806 1,236
Less: Post acquisition amounts
already included in
ATLANTIC's historical
Balances........................ (1,733) (410) (141) (45)
Less: Dispositions.................... (5,026) (1,754) (508) (203)
---------- ---------- ---------- ----------
Net adjustment to ATLANTIC's
historical balances.................. $ 19,437 $ 5,038 $ 1,157 $ 988
========== ========== ========== ==========
</TABLE>
The following analysis reconciles the audited information for the Group F
Communities to the amounts contained in the pro forma condensed statement of
earnings (in thousands):
<TABLE>
<CAPTION>
REAL PROPERTY
RENTAL RENTAL ESTATE MANAGEMENT
INCOME EXPENSES TAXES FEES
------------ ----------- ------------ ----------------
<S> <C> <C> <C> <C>
Group F Communities: Audited results of
Operations for the year ended December
31, 1996................................. $ 7,572 $ 2,773 $ 674 $ 322
Incremental income and expense
amounts necessary to reconcile the
1996 audited results with the 1997
actual results....................... 176 (369) 46 (24)
------------ ----------- ------------- ----------------
Total 1997 Group F................ $ 7,748 $ 2,404 $ 720 $ 298
============ =========== ============ ================
</TABLE>
20
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(e) Represents the adjustment to historical operating expenses to reflect these
expenses at the level they would have been had ATLANTIC owned these
communities as of January 1, 1998.
(f) Reflects the recognition of depreciation expense for the three months ended
March 31, 1998 related to the communities acquired after January 1, 1998
and the probable acquisitions. This depreciation adjustment is based on
ATLANTIC's purchase cost assuming asset lives of ten to 40 years.
Depreciation is computed using a straight-line method.
(g) Represents interest expense for the three months ended March 31, 1998 on
pro forma line of credit borrowings necessary to fund pro forma
acquisitions and probable acquisitions. The adjustment is based on a
weighted-average effective interest rate of 6.68%.
(h) Represents the pro forma reduction of internal costs capitalized in
connection with ATLANTIC's operating community acquisitions for the three
months ended March 31, 1998. The pro forma reduction results from a March
1998 accounting rule requiring that internal acquisition costs be expensed
as incurred.
(i) Represents the limited partners' approximately 29% interest in the net
earnings of Partnership-I for the three months ended March 31, 1998. See
note (c).
(j) Diluted earnings per share ("EPS") has not been calculated assuming
conversion of the limited partners' interest in the Partnership-I because
the effect on EPS would be anti-dilutive. The diluted EPS calculation does
include the effect of dilutive stock options.
(k) Funds from operations represents ATLANTIC's net earnings computed in
accordance with generally accepted accounting principles ("GAAP"), before
minority interest, excluding real estate depreciation, gains (or losses)
from depreciated real estate, provision for possible losses, extraordinary
items, non-cash interest income and significant non-recurring items. Funds
from operations should not be considered as an alternative to net earnings
or any other GAAP measurement of performance as an indicator of ATLANTIC's
operating performance or as an alternative to cash flows from operating,
investing or financing activities as a measure of liquidity. ATLANTIC
believes that funds from operations is helpful to a reader as a measure of
the performance of an equity REIT because, along with cash flow from
operating activities, investing activities and financing activities, it
provides a reader with an indication of the ability of ATLANTIC to incur
and service debt, to make capital expenditures and to fund other cash
needs. The funds from operations measure presented by ATLANTIC, while
consistent with the National Association of Real Estate Investment Trusts'
definition, may not be comparable to similarly titled measures of other
REITs which do not compute funds from operations in a manner consistent
with ATLANTIC. Funds from operations is not intended to represent cash made
available to shareholders. Furthermore, management believes that an
understanding of funds from operations will enhance the reader's
comprehension of the impact of the Transaction to ATLANTIC which was a
specific consideration of ATLANTIC's Board of Directors in approving the
Transaction.
(l) The exchange of the limited partners' interest in Partnership-I for Common
Shares is assumed for purposes of presenting basic and diluted weighted-
average Common Shares outstanding with respect to funds from operations.
21
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(m) On September 9, 1997, ATLANTIC acquired the operations and business of the
REIT Manager and the Property Manager, in exchange for Common Shares. As a
result of the Transaction, ATLANTIC became an internally managed REIT. The
adjustments discussed below reflect ATLANTIC's operating results for 1997
as if the Transaction had been consummated as of January 1, 1997.
(i) Reflects the historical operating expenses of the Property Manager
which were directly related to providing services to ATLANTIC for
the period from January 1, 1997 to September 9, 1997 and certain
pro forma adjustments. The amounts designated as being "paid to
affiliate" represent administrative services provided by Security
Capital Group Incorporated ("Security Capital"), the owner of the
REIT Manager and Property Manager and ATLANTIC's principal
shareholder. Security Capital has been providing these services to
ATLANTIC since September 9, 1997 under an administrative services
agreement;
(ii) Reflects the elimination of ATLANTIC's historical expenses,
including pro forma adjustments, related to REIT management fees
and property management fees;
(iii) Reflects the historical depreciation expense of $184 for the
period from January 1, 1997 to September 9, 1997 directly related
to fixed assets acquired from the REIT Manager and the Property
Manager (primarily computer equipment and software), as adjusted
by $63 for the estimated increase in depreciation expense that
would result from the capitalization of development-related costs
for the period from January 1, 1997 to September 9, 1997 as
discussed below. These capitalized costs will be depreciated
utilizing the same lives and methods currently utilized by
ATLANTIC;
(iv) Reflects the historical general and administrative costs of the
REIT Manager of $5,051 which were associated with providing
services to ATLANTIC for the period from January 1, 1997 to
September 9, 1997, reduced for the pro forma adjustment to
capitalize qualifying direct and incremental costs relating
primarily to the development of real estate investments of $2,379
that would have been capitalized by ATLANTIC under GAAP, had the
Transaction occurred as of January 1, 1997. This amount is net of
a $148 adjustment related to the pro forma reduction of internal
costs capitalized in connection with ATLANTIC's operating
community acquisitions for the period from September 9, 1997 to
December 31, 1997. The pro forma reduction results from a March
1998 accounting rule requiring that internal acquisition costs be
expensed as incurred. Prior to consummation of the Transaction on
September 9, 1997, ATLANTIC was not able, under GAAP, to
capitalize internal development-related costs because the REIT
management fee paid was not a direct reimbursement of these costs.
The amounts designated as being "paid to affiliate" represent
administrative services provided by Security Capital. Security
Capital has been providing these services to ATLANTIC since
September 9, 1997 under an administrative services agreement.
(v) Reflects the increase in weighted-average Common Shares
outstanding that would result if the 2,307 Common Shares issued to
Security Capital as consideration for the purchase of the net
tangible assets of the REIT Manager and the Property Manager had
been issued as of January 1, 1997. The number of shares shown is
based on the 2,307 Common Shares actually issued to Security
Capital on September 9, 1997, calculated as: 2,307 x 251 days /
365 days = 1,586 weighted-average incremental Common Shares.
22
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(n) Represents the adjustment to historical rental and property management
expenses for the year ended December 31, 1997 to reflect these expenses at
the level they would have been had ATLANTIC owned the communities as of
January 1, 1997.
(o) Reflects (i) the removal of $582 of depreciation expense recognized on
communities disposed of subsequent to December 31, 1996 which is included
in ATLANTIC's 1997 historical balances and (ii) the recognition of $4,202
of depreciation expense for the period from January 1, 1997 through the
respective acquisition dates related to the communities acquired subsequent
to December 31, 1996. Depreciation expense after the date of acquisition is
included in ATLANTIC's historical operating results. This depreciation
adjustment is based on ATLANTIC's purchase cost assuming asset lives of ten
to 40 years. Depreciation is computed using a straight-line method.
(p) Reflects historical interest expense of $1,039 for the period from January
1, 1997 through the date the three mortgage notes related to 1997
acquisitions were assumed by ATLANTIC. Additionally, a pro forma adjustment
of $15 has been recognized to reflect interest expense on the three
mortgage notes at ATLANTIC's effective interest rate. The interest rates on
the mortgage notes vary from 7.93% to 8.05%.
(q) Represents the increase in interest expense on the portion of ATLANTIC's
senior unsecured notes issued on August 20, 1997 (the "Notes") that is
assumed to have been issued as of January 1, 1997 to the extent necessary
to fund pro forma acquisitions. The pro forma adjustment assumes that the
community acquisitions and probable acquisitions by Partnership-I as
described in note (d) are funded entirely with proceeds from the Notes. The
remaining pro forma acquisitions by Partnership-I as described in note (d)
are assumed to be funded with proceeds from the sale of Common Shares,
preferred stock and the Notes on a pro rata basis. See notes (t) and (u).
The weighted-average effective interest rate on the Notes of 7.66% was used
to calculate the pro forma adjustment.
(r) Reflects the additional REIT management fee for the year ended December 31,
1997 that would have been incurred had the pro forma acquisitions and
dispositions occurred as of January 1, 1997.
(s) Reflects the limited partners' approximately 29% interest in the net
earnings of Partnership-I for the year ended December 31, 1997. See note
(c).
(t) Reflects an increase in preferred share dividends on the portion of
ATLANTIC's Series A Cumulative Redeemable Preferred Stock issued on August
20, 1997 that is assumed to have been issued as of January 1, 1997 to the
extent necessary to fund pro forma acquisitions. See note (q).
(u) The number of Common Shares used in the calculating of the pro forma basic
net earnings per Common Share was based on the weighted-average number of
Common Shares outstanding during the period, adjusted to give effect to the
Common Shares assumed to have been issued as of January 1, 1997 to the
extent necessary to fund the pro forma acquisitions. See note (q).
23
<PAGE>
EXHIBIT 10.1
AGREEMENT OF LIMITED PARTNERSHIP
OF
ATLANTIC MULTIFAMILY LIMITED PARTNERSHIP-I
dated as of April 30, 1998
among
SCA-I INCORPORATED,
as General Partner,
and
The Persons listed on Exhibit A hereto,
as Limited Partners
================================================================================
THE PARTNERSHIP INTERESTS AND UNITS IN ATLANTIC MULTIFAMILY LIMITED PARTNERSHIP-
I (THE "UNITS") ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER AND OTHER TERMS AND
CONDITIONS SET FORTH IN ARTICLE XI OF THIS AGREEMENT AND MAY NOT BE OFFERED FOR
SALE, PLEDGED, HYPOTHECATED, SOLD, ASSIGNED OR TRANSFERRED AT ANY TIME EXCEPT IN
COMPLIANCE WITH THE TERMS AND CONDITIONS THEREOF. THEREFORE, PURCHASERS OF THE
UNITS WILL BE REQUIRED TO BEAR THE RISK OF THEIR INVESTMENTS FOR AN INDEFINITE
PERIOD OF TIME. THE UNITS HAVE NOT BEEN REGISTERED (i) UNDER ANY STATE
SECURITIES LAWS (THE "STATE ACTS"), OR (ii) UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE "FEDERAL ACT"), IN RELIANCE UPON EXEMPTIONS
PROVIDED THEREIN, AND NEITHER THE UNITS NOR ANY PART THEREOF MAY BE OFFERED FOR
SALE, PLEDGED, HYPOTHECATED, SOLD, ASSIGNED, OR TRANSFERRED AT ANY TIME EXCEPT
IN COMPLIANCE WITH THE TERMS AND CONDITIONS OF ARTICLE XI OF THIS AGREEMENT AND
(1) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER ANY APPLICABLE STATE
ACTS OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER SUCH STATE ACTS
OR WHICH IS OTHERWISE IN COMPLIANCE WITH SUCH STATE ACTS, AND (2) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE FEDERAL ACT OR IN A TRANSACTION WHICH
IS EXEMPT FROM REGISTRATION UNDER THE FEDERAL ACT OR WHICH IS OTHERWISE IN
COMPLIANCE WITH THE FEDERAL ACT. IN ADDITION, ANY UNITS ACQUIRED BY NON-U.S.
PERSONS MAY NOT, DIRECTLY OR INDIRECTLY, BE OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, SOLD, ASSIGNED, OR TRANSFERRED IN THE UNITED STATES OR TO OR FOR
THE ACCOUNT OF A U.S. PERSON EXCEPT IN COMPLIANCE WITH THIS AGREEMENT AND THE
FEDERAL ACT AND ALL APPLICABLE STATE ACTS. AS USED HEREIN, "UNITED STATES" MEANS
THE UNITED STATES OF AMERICA, ITS TERRITORIES AND POSSESSIONS, AND ALL AREAS
SUBJECT TO ITS JURISDICTION, AND A "U.S. PERSON" MEANS A CITIZEN OR RESIDENT OF
THE UNITED STATES (INCLUDING THE ESTATE OF ANY SUCH PERSON), A CORPORATION,
PARTNERSHIP, OR OTHER PERSON CREATED OR ORGANIZED UNDER THE LAWS OF THE UNITED
STATES OR ANY POLITICAL SUBDIVISION THEREOF OR THEREIN, AND AN ESTATE OR TRUST
THE INCOME OF WHICH IS SUBJECT TO UNITED STATES FEDERAL INCOME TAXATION
REGARDLESS OF ITS SOURCE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINED TERMS............................................................ 1
Section 1.1 Certain Defined Terms........................................... 1
Section 1.2 Currency........................................................ 12
Section 1.3 Schedules and Exhibits.......................................... 12
Section 1.4 Certain Accounts................................................ 12
Section 1.5 Interest Calculations........................................... 13
Section 1.6 Other Terms..................................................... 13
ARTICLE II ORGANIZATIONAL MATTERS.................................................. 13
Section 2.1 Organization and Formation; Application of Act.................. 13
Section 2.2 Name............................................................ 13
Section 2.3 Registered Office and Agent; Principal Office................... 13
Section 2.4 Term............................................................ 14
ARTICLE III PURPOSE................................................................ 14
Section 3.1 Purpose and Business............................................ 14
Section 3.2 Powers.......................................................... 14
ARTICLE IV CAPITAL CONTRIBUTIONS; ISSUANCE OF UNITS;
CAPITAL ACCOUNTS................................................................... 14
Section 4.1 Capital Contributions of the Partners........................... 14
Section 4.2 Issuances of Additional Partnership Interests................... 15
Section 4.3 No Preemptive Rights............................................ 17
Section 4.4 Capital Accounts of the Partners................................ 17
ARTICLE V DISTRIBUTIONS............................................................ 20
Section 5.1 Requirement and Characterization of Distributions............... 20
Section 5.2 Amounts Withheld................................................ 21
Section 5.3 Distributions Upon Liquidation.................................. 21
ARTICLE VI ALLOCATIONS............................................................. 21
Section 6.1 Allocations For Capital Account Purposes........................ 21
Section 6.2 Special Allocation Rules........................................ 22
Section 6.3 Allocations for Tax Purposes.................................... 23
ARTICLE VII MANAGEMENT AND OPERATIONS OF BUSINESS.................................. 24
Section 7.1 Management...................................................... 24
Section 7.2 Certificate of Limited Partnership.............................. 28
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
Section 7.3 Restrictions on General Partner's Authority.............29
Section 7.4 Responsibility for Expenses.............................29
Section 7.5 Outside Activities of the General Partner...............30
Section 7.6 Contracts with Affiliates...............................30
Section 7.7 Indemnification.........................................30
Section 7.8 Liability of the General Partner........................31
Section 7.9 Other Matters Concerning the General Partner............32
Section 7.10 Title to Partnership Assets.............................33
Section 7.11 Reliance by Third Parties...............................33
ARTICLE VIII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS......................34
Section 8.1 Limitation of Liability.................................34
Section 8.2 Management of Business..................................34
Section 8.3 Outside Activities of Limited Partners..................34
Section 8.4 Priority Among Limited Partners.........................35
Section 8.5 Rights of Limited Partners Relating to the Partnership..35
Section 8.6 Redemption Right........................................36
ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS............................36
Section 9.1 Records and Accounting..................................36
Section 9.2 Fiscal Year.............................................37
Section 9.3 Reports.................................................37
ARTICLE X TAX MATTERS........................................................37
Section 10.1 Preparation of Tax Returns..............................37
Section 10.2 Tax Elections...........................................37
Section 10.3 Tax Matters Partner.....................................38
Section 10.4 Organizational Expenses.................................39
Section 10.5 Withholding.............................................39
ARTICLE XI TRANSFERS AND WITHDRAWALS.........................................40
Section 11.1 Transfer................................................40
Section 11.2 Transfer of General Partner's Partnership Interest......40
Section 11.3 Limited Partners' Rights to Transfer....................41
Section 11.4 Substituted Limited Partners............................43
Section 11.5 Assignees...............................................44
Section 11.6 General Provisions......................................44
ARTICLE XII ADMISSION OF PARTNERS............................................45
Section 12.1 Admission of Successor General Partner..................45
Section 12.2 Admission of Additional Limited Partners................45
Section 12.3 Amendment of Agreement and Certificate..................45
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE XIII DISSOLUTION AND LIQUIDATION.....................................46
Section 13.1 Dissolution.............................................46
Section 13.2 Winding Up..............................................47
Section 13.3 Compliance with Timing Requirements of Regulations;
Allowance for Contingent or Unforeseen Liabilities or
Obligations.............................................48
Section 13.4 Deemed Distribution and Recontribution..................48
Section 13.5 Rights of Limited Partners..............................49
Section 13.6 Notice of Dissolution...................................49
Section 13.7 Cancellation of Certificate of Limited Partnership......49
Section 13.8 Reasonable Time for Winding-Up..........................49
ARTICLE XIV AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS.....................49
Section 14.1 Amendments..............................................49
ARTICLE XV GENERAL PROVISIONS................................................51
Section 15.1 Addresses and Notice....................................51
Section 15.2 Titles and Captions.....................................51
Section 15.3 Pronouns and Plurals....................................51
Section 15.4 Further Action..........................................51
Section 15.5 Binding Effect..........................................51
Section 15.6 Waiver of Partition.....................................51
Section 15.7 Entire Agreement........................................52
Section 15.8 Securities Law Provisions...............................52
Section 15.9 Remedies Not Exclusive..................................52
Section 15.10 Time....................................................52
Section 15.11 Creditors...............................................52
Section 15.12 Waiver..................................................52
Section 15.13 Execution Counterparts..................................52
Section 15.14 Applicable Law..........................................52
Section 15.15 Invalidity of Provisions................................52
Section 15.16 Limitation of Liability.................................52
ARTICLE XVI POWER OF ATTORNEY................................................53
Section 16.1 Power of Attorney.......................................53
</TABLE>
iii
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF
ATLANTIC MULTIFAMILY LIMITED PARTNERSHIP-I
THIS AGREEMENT OF LIMITED PARTNERSHIP OF ATLANTIC MULTIFAMILY LIMITED
PARTNERSHIP-I (the "Partnership"), made as of the ___ day of _______, 1998, made
among SCA-I INCORPORATED, a Delaware corporation (the "General Partner"), as the
General Partner, and the Persons whose names are set forth on Exhibit A attached
hereto, as the Limited Partners, together with any other Persons who become
Partners in the Partnership as provided herein;
W I T N E S S E T H: That,
- - - - - - - - - - ----
WHEREAS, the Limited Partners have entered into the Contribution Agreements
pursuant to which, among other things, they agreed to establish the Partnership
formed hereby and the formation of the Partnership is a condition precedent to
the closing of certain of the transactions contemplated by the Contribution
Agreements; and
WHEREAS, the Partners desire to form a limited partnership under the
Revised Uniform Limited Partnership Act of the State of Delaware, and to set
forth their respective rights and duties relating to the Partnership, as
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises, the mutual promises and
agreements herein made, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the General Partner and the
Limited Partners, intending to be legally bound, have agreed and do hereby agree
as follows:
ARTICLE I
DEFINED TERMS
Section 1.1 Certain Defined Terms. Unless otherwise clearly indicated to
the contrary, the following terms shall have the following meanings (covenants
contained in this Section shall be considered agreed to by the Partners to the
same extent as if incorporated into the covenants of this Agreement):
"Accrual Account" means an account maintained with respect to each
Limited Partnership Unit to which shall be credited (except as otherwise
provided in the last sentence of this paragraph) on a monthly basis an
amount, calculated like interest at a per annum rate equal to the Prime
Rate (as said rate may change from time to time), plus one percentage
point, on the average daily balance of such Limited Partnership Unit's
Unpaid Distribution Account, and from which shall be debited the amount of
any distributions of Available Cash or Capital Transaction Proceeds with
respect to such Accrual Account pursuant to clause (i) of Section 5.1(a) or
clause (i) of Section 5.1(b)
<PAGE>
hereof. The amount to be credited to each Accrual Account shall be
cumulative and shall compound annually, if unpaid. No amounts shall be
credited to any Accrual Account maintained with respect to any Limited
Partnership Units held by an obligor on account of the Indemnity
Obligations during any period in which there are any unpaid Indemnity
Obligations.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as
it may be amended from time to time, and any successor to such statute.
"Additional Limited Partner" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 4.2(a) hereof and who
is shown as such on the books and records of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for
each Partner as of the end of each Partnership Year (a) increased by any
amounts which such Partner is obligated to restore pursuant to any
provision of this Agreement or is deemed to be obligated to restore
pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1)
and 1.704-2(i)(5) and (b) decreased by the items described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-
1(b)(2)(ii)(d)(6). The foregoing definition of Adjusted Capital Account is
intended to comply with the provisions of Regulations Section 1.704-
1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any Partner,
the deficit balance, if any, in such Partner's Adjusted Capital Account as
of the end of the relevant Partnership Year.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 4.4 hereof.
"Affiliate" means, with respect to any Person, (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
percent or more of the outstanding voting interests of such Person, (c) any
Person as to which such Person directly or indirectly owns or controls 10
percent or more of the voting interests, or (d) any officer, director,
general partner or trustee of such Person or any Person referred to in
clauses (a), (b), and (c) above. As used herein, "control" shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agreed Value" means (a) in the case of any Contributed Property set
forth in Exhibit B and as of the time of its contribution to the
Partnership, the Agreed Value of
2
<PAGE>
such property as set forth on Exhibit B, (b) in the case of any Contributed
Property not set forth on Exhibit B and as of the time of its contribution
to the Partnership the 704(c) Value of such property or other
consideration, reduced by any liabilities either assumed by the Partnership
upon such contribution or to which such property is subject when
contributed and (c) in the case of any property distributed to a Partner by
the Partnership, the Partnership's Carrying Value of such property at the
time such property is distributed, reduced by any indebtedness either
assumed by such Partner upon such distribution or to which such property is
subject at the time of distribution as determined under Section 752 of the
Code and the regulations thereunder.
"Agreement" means this Agreement of Limited Partnership, as it may be
amended, supplemented or restated from time to time.
"Articles of Incorporation" means the Amended and Restated Articles of
Incorporation of the General Partner, as filed with the Maryland State
Department of Assessments and Taxation, as further amended or restated from
time to time.
"Assignee" means a Person to whom one or more Partnership Units have
been transferred in a manner permitted under this Agreement, but who has
not become a Substituted Limited Partner, and who has the rights set forth
in Section 11.5.
"ATLANTIC" means Security Capital Atlantic Incorporated, a Maryland
corporation, and its successors and assigns.
"Available Cash" means with respect to any period for which such
calculation is being made, (a) all cash revenues and funds received by the
Partnership from whatever source, excluding, however, the proceeds of any
Capital Contribution to the Partnership and excluding Capital Transaction
Proceeds, plus the amount of any reduction (including, without limitation,
a reduction resulting because the General Partner determines such amounts
are no longer necessary) in reserves of the Partnership, which reserves are
referred to in clause (b)(iv) below;
(b) less the sum of the following (except to the extent made
with the proceeds of any Capital Contribution and except to the extent
taken into account in determining Capital Transaction Proceeds):
(i) all interest, principal and other debt payments made
during such period by the Partnership,
(ii) all cash expenditures (including capital expenditures)
made by the Partnership during such period,
3
<PAGE>
(iii) investments in any entity (including loans made
thereto) to the extent that such investments are permitted under
this Agreement and are not otherwise described in clauses (b)(i)
or (ii), and
(iv) the amount of any increase in reserves established
during such period which the General Partner determines is
necessary or appropriate in its sole and absolute discretion.
Notwithstanding the foregoing, Available Cash shall not include any
cash received or reductions in reserves, or take into account any
disbursements made or reserves established, after commencement of the
dissolution and liquidation of the Partnership.
"Book-Tax Disparities" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or
Adjusted Property and the adjusted basis thereof for federal income tax
purposes as of such date. A Partner's share of the Partnership's Book-Tax
Disparities in all of its Contributed Property and Adjusted Property will
be reflected by the difference between such Partner's Capital Account
balance as maintained pursuant to Section 4.4 and the hypothetical balance
of such Partner's Capital Account computed as if it had been maintained
strictly in accordance with federal income tax accounting principles.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York, New York, are authorized or
required by law to close.
"Capital Account" means the Capital Account maintained for a Partner
pursuant to Section 4.4 hereof.
"Capital Contribution" means, with respect to any Partner, any cash,
cash equivalents or the Agreed Value of Contributed Property which such
Partner contributes or is deemed to contribute to the Partnership pursuant
to Section 4.1 or 4.2 hereof and which shall be treated as a contribution
to the Partnership pursuant to Section 721(a) of the Code.
"Capital Transaction" means a sale, exchange or other disposition
(other than in liquidation of the Partnership) or a financing or
refinancing by the Partnership (which shall not include any loan or
financing to the General Partner as permitted by Section 7.1(a)(3)) of a
Partnership asset or any portion thereof, that under generally accepted
accounting principles the proceeds of which are deemed attributable to
capital.
4
<PAGE>
"Capital Transaction Proceeds" means the net cash proceeds of a
Capital Transaction, after deducting all reasonable expenses incurred in
connection therewith and after application of any proceeds, at the sole
discretion of the General Partner, toward the payment of any indebtedness
of the Partnership secured by the property that is the subject of that
Capital Transaction, the purchase or financing of any improvements or an
expansion of Partnership property or the establishment of any reserves
deemed reasonably necessary by the General Partner; provided, however, that
if the Partnership obtains financing for Partnership properties for which
no permanent financing has previously existed, the proceeds of such
financing shall not be deemed to be Capital Transaction Proceeds if and to
the extent that the General Partner determines to reinvest such proceeds in
additional and existing real property investments of the Partnership.
"Capital Transaction Record Date" has the meaning set forth in Section
5.1(b).
"Carrying Value" means (a) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property (or in the case of an
Adjusted Property, the fair market value of such property at the time of
its latest adjustment under Section 4.4(d)) reduced (but not below zero) by
all Depreciation with respect to such property charged to the Partners'
Capital Accounts and (b) with respect to any other Partnership property,
the adjusted basis of such property for federal income tax purposes, all as
of the time of determination. The Carrying Value of any property shall be
adjusted from time to time in accordance with Section 4.4 hereof, and to
reflect changes, additions or other adjustments to the Carrying Value for
dispositions and acquisitions of Partnership properties, as deemed
appropriate by the General Partner, in order to comply with the Regulations
or to prevent unintended distortions of the economic understanding among
the Partners.
"Certificate" means the Certificate of Limited Partnership relating to
the Partnership filed in the office of the Secretary of State of the State
of Delaware, as amended from time to time in accordance with the terms
hereof and the Act.
"Code" means the Internal Revenue Code of 1986, as amended. Any
reference herein to a specific section or sections of the Code shall be
deemed to include a reference to any corresponding provision of future law.
"Contributed Property" means each property or other asset (but
excluding cash and cash equivalents), in such form as may be permitted by
the Act contributed or deemed contributed to the Partnership. Once the
Carrying Value of a Contributed Property is adjusted pursuant to Section
4.4(d) hereof, such property shall no longer constitute a Contributed
Property for purposes of Section 4.4(d) hereof, but shall be deemed an
Adjusted Property for such purposes.
5
<PAGE>
"Contribution Agreements" means those certain Contribution Agreements
relating to the contribution of certain properties or interests therein to
the Partnership, by and among ATLANTIC, the Partnership and certain
individuals and entities, including the Limited Partners.
"Conversion Right" shall have the meaning set forth in Section 4.2(b)
hereof.
"Converting Partner" has the meaning set forth in Section 4.2(b)
hereof.
"Debt" means, as to any Person, as of any date of determination, but
without duplication (a) all indebtedness of such Person for money borrowed
or for the deferred purchase price of property or services, which purchase
price is due more than six months after the date of placing such property
in service or taking delivery and title thereto or the completion of such
services; (b) all amounts owed by such Person to banks or other Persons in
respect of reimbursement obligations under letters of credit, surety bonds
and other similar instruments guaranteeing payment or other performance of
obligations by such Person; (c) all indebtedness for money borrowed or for
the deferred purchase price of property or services secured by any lien on
any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed
or become liable for the payment thereof; (d) lease obligations of such
Person which, in accordance with generally accepted accounting principles,
should be capitalized; and (e) all guarantees and other obligations of such
Person with respect to Debt of others.
"Depreciation" means for each fiscal year or other period, an amount
equal to the federal income tax depreciation, amortization, or other cost
recovery deduction allowable with respect to an asset for such year or
other period, except that if the Carrying Value of an asset differs from
its adjusted basis for federal income tax purposes at the beginning of such
year or other period, Depreciation shall be an amount which bears the same
ratio to such beginning Carrying Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such year
bears to such beginning adjusted tax basis; provided, however, that if the
federal income tax depreciation, amortization, or other cost recovery
deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method
selected by the General Partner.
"Event of Dissolution" has the meaning set forth in Section 13.1.
"Funds from Operations" means, with respect to any period for which
such calculation is being made, the net income of ATLANTIC (computed in
accordance with generally accepted accounting principles), excluding gains
(or losses) from debt restructuring and sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for
6
<PAGE>
unconsolidated partnerships and joint ventures will be calculated to
reflect Funds from Operations on a consistent basis.
"General Partner" means SCA-I Incorporated, a Delaware corporation, or
its permitted successors as a general partner in the Partnership.
"General Partnership Interest" means a Partnership Interest held by a
General Partner (including any Partnership interest acquired by the General
Partner pursuant to Sections 4.2 and 8.6 as described in Section 4.1(a))
that is a general partnership interest and includes any and all benefits to
which the General Partner may be entitled and all obligations of the
General Partner hereunder. A General Partnership Interest may be expressed
as number of Partnership Units.
"Incapacity" or "Incapacitated" means (a) as to any individual
Partner, death, total physical disability or entry by a court of competent
jurisdiction adjudicating him incompetent to manage his Person or his
estate; (b) as to any corporation which is a Partner, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter; (c) as to any partnership which is a Partner,
the dissolution and commencement of winding up of the partnership; (d) as
to any estate which is a Partner, the distribution by the fiduciary of the
estate's entire interest in the Partnership; (e) as to any trustee of a
trust which is a Partner, the termination of the trust (but not the
substitution of a new trustee); or (f) as to any Partner, the bankruptcy of
such Partner. For purposes of this definition, bankruptcy of a Partner
shall be deemed to have occurred when the Partner (i) makes an assignment
for the benefit of creditors, (ii) files a voluntary petition in
bankruptcy, (iii) is adjudged a bankrupt or insolvent, or has entered
against him an order of relief in any bankruptcy or insolvency proceeding,
(iv) files a petition or answer seeking for himself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation, (v) files an answer or other
pleading admitting or failing to contest the material allegations of a
petition filed against him in any proceeding of this nature, (vi) seeks,
consents to or acquiesces in the appointment of a trustee, receiver or
liquidator of the Partner or of all or any substantial part of his
properties, (vii) the Partner is the debtor in any proceeding seeking
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law or regulation, which
has not been dismissed within 120 days after the commencement thereof,
(viii) the appointment without the Partner's consent or acquiescence of a
trustee, receiver or liquidator has not been vacated or stayed within 90
days after the appointment or such appointment is not vacated within 90
days after the expiration of any such stay.
"Indemnitee" means (a) any Person made a party to a proceeding by
reason of his status as (i) the General Partner, (ii) a Limited Partner or
(iii) a director, officer, trustee, employee or shareholder of the
Partnership or a Partner, and (b) such other
7
<PAGE>
Persons (including Affiliates of the General Partner or the Partnership)
the General Partner may designate from time to time, in its sole and
absolute discretion.
"IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States.
"Limited Partner" means any Person named as a Limited Partner in
Exhibit A attached hereto, as such Exhibit may be amended from time to
time, or any Substituted Limited Partner or Additional Limited Partner, in
such Person's capacity as a Limited Partner in the Partnership.
"Limited Partner Consent" means the written consent of Limited
Partners owning more than 50% of the Limited Partner Interests at the time
in question.
"Limited Partnership Interest" means a Partnership Interest of a
Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Limited Partners and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled
as provided in this Agreement, together with all obligations of such Person
to comply with the terms and provisions of this Agreement. A Limited
Partnership Interest may be expressed as a number of Partnership Units.
"Liquidating Transaction" means any sale or other disposition of all
or substantially all of the assets of the Partnership or a related series
of transactions that, taken together, results in the sale or other
disposition of all or substantially all of the assets of the Partnership.
"Liquidator" has the meaning set forth in Section 13.2.
"Net Income" means for any taxable period, the excess, if any, of the
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The
items included in the calculation of Net Income shall be determined in
accordance with Section 4.4(b). Once an item of income, gain, loss or
deduction that has been included in the initial computation of Net Income
is subjected to the special allocation rules in Sections 6.2 and 6.3, Net
Income or the resulting Net Loss, whichever the case may be, shall be
recomputed without regard to such item.
"Net Loss" means for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance
with Section 4.4(b). Once an item of income, gain, loss or deduction that
has been included in the initial computation of Net Loss is subjected to
the special allocation rules in Sections 6.2 and 6.3, Net Loss or the
8
<PAGE>
resulting Net Income, whichever the case may be, shall be recomputed
without regard to such item.
"Nonrecourse Built-in Gain" means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or
negative pledge securing a Nonrecourse Liability, the amount of any taxable
gain that would be allocated to the Partners pursuant to Section 6.3(b) if
such properties were disposed of in a taxable transaction in full
satisfaction of such liabilities and for no other consideration.
"Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership Year shall be determined in accordance with the rules of
Regulations Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations
Section 1.752-1(a)(2).
"Notice of Conversion" means the Notice of Conversion substantially in
the form of Exhibit C to this Agreement.
"Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result
if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership
Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act and
continued pursuant to this Agreement, and any successor thereto.
"Partnership Interest" means an ownership interest in the Partnership
representing a Capital Contribution by either a Limited Partner or the
General Partner and includes any and all benefits to which the holder of
such a Partnership Interest may be entitled as provided in this Agreement,
together with all obligations of such Person to
9
<PAGE>
comply with the terms and provisions of this Agreement. A Partnership
Interest may be expressed as a number of Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well
as any net increase or decrease in Partnership Minimum Gain, for a
Partnership Year shall be determined in accordance with the rules of
Regulations Section 1.704-2(d).
"Partnership Record Date" means the record date established by the
General Partner for the distribution of Available Cash pursuant to Section
5.1 hereof, which record date shall be the same as the record date
established by the General Partner for a dividend to its shareholders and
also means any record date established by the General Partner in connection
with any vote or consent of the Limited Partners pursuant to this
Agreement.
"Partnership Unit" or "Unit" means a fractional, undivided share of
the Partnership Interests of all Partners issued pursuant to Sections 4.1
and 4.2, in such number as set forth on Exhibit A attached hereto, as such
Exhibit may be amended from time to time in accordance with the terms of
this Agreement.
"Partnership Year" means the fiscal year of the Partnership, which
shall be the calendar year.
"Percentage Interest" means, as to a Partner, its interest in the
Partnership as determined by dividing the Partnership Units owned by such
Partner by the total number of Partnership Units then outstanding and as
specified in Exhibit A attached hereto, as such Exhibit may be amended from
time to time.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"Prime Rate" means, on any date, a fluctuating rate of interest per
annum equal to the rate of interest most recently established by Morgan
Guaranty Trust Company of New York (or its successor), at its New York City
office, as its prime or base rate of interest for loans in United States of
America dollars.
"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Section 734 or
Section 743 of the Code) upon the disposition of any property or asset of
the Partnership, which gain is characterized as ordinary income for federal
income tax purposes because it represents the recapture of deductions
previously taken with respect to such property or asset.
10
<PAGE>
"Recourse Liabilities" has the meaning set forth in Regulations
Section 1.752-1(a)(1).
"Redemption Amount" means an amount of cash per Partnership Unit equal
to the Value on the Valuation Date of the Shares that the Partner
delivering the Notice of Conversion would have been entitled to receive
under Section 4.2(b) plus the unreturned balances in the Accrual Accounts
and Unpaid Distribution Accounts maintained for the Partnership Units that
are the subject of such Notice of Conversion.
"Registration Rights Agreement" means any of those Transfer and
Registration Rights Agreements between ATLANTIC and the other parties
identified therein entered into in connection with the Contribution
Agreements.
"Regulations" means the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"REIT" means a real estate investment trust under Section 856 of the
Code.
"Residual Gain" or "Residual Loss" means any item of gain or loss, as
the case may be, of the Partnership recognized for federal income tax
purposes resulting from a sale, exchange or other disposition of
Contributed Property or Adjusted Property, to the extent such item of gain
or loss is not allocated pursuant to Section 6.3(b)(1)(i) or 6.3(b)(2)(i)
to eliminate Book-Tax Disparities.
"Securities Act" means the Securities Act of 1933, as amended.
"704(c) Value" of any Contributed Property means the Agreed Value of
such property as set forth in Exhibit B, or if no value is set forth on
Exhibit B, the fair market value of such property or other consideration at
the time of contribution as determined by the General Partner using such
reasonable method of valuation as it may adopt; provided, however, that the
704(c) Value of any property deemed contributed to the Partnership for
federal income tax purposes upon termination and reconstitution thereof
pursuant to Section 708 of the Code shall be determined in accordance with
Section 4.4 hereof. Subject to Section 4.4 hereof, the General Partner
shall use such method as it deems reasonable and appropriate to allocate
the aggregate of the 704(c) Value of Contributed Properties among each
separate property on a basis proportional to its fair market value.
"Shares" means the shares of common stock, $0.01 par value, of
ATLANTIC.
"Specified Conversion Date" means the tenth Business Day after receipt
by the General Partner of a Notice of Conversion.
11
<PAGE>
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of (a) the voting power of the voting
equity securities or (b) the outstanding equity interests is owned,
directly or indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.4.
"Transaction" has the meaning set forth in Section 11.2(b).
"Unit Adjustment Factor" means initially 1.0; provided that in the
event that ATLANTIC (i) declares or pays a dividend on its outstanding
Shares in Shares or makes a distribution to all holders of its outstanding
Shares in Shares, (ii) subdivides its outstanding Shares, or (iii) combines
its outstanding Shares into a smaller number of Shares, the Unit Adjustment
Factor shall be adjusted by multiplying the Unit Adjustment Factor by a
fraction, the numerator of which shall be the number of Shares issued and
outstanding on the record date (assuming for such purposes that such
dividend, distribution, subdivision or combination has occurred as of such
time), and the denominator of which shall be the actual number of Shares
(determined without the above assumption) issued and outstanding on the
record date for such dividend, distribution, subdivision or combination.
Any adjustment to the Unit Adjustment Factor shall be carried forward to
successive adjustments.
"Unpaid Distribution Account" means an account maintained with respect
to each Limited Partnership Unit to which shall be credited on a quarterly
basis, but only to the extent not distributed currently in accordance with
clause (iii) of Section 5.1(a) hereof, an amount per Limited Partnership
Unit (multiplied by the Unit Adjustment Factor) equal to the dividend per
Share paid by the General Partner for such quarter, and from which shall be
debited the amount of any distributions of Available Cash or Capital
Transaction Proceeds with respect of such Unpaid Distribution Account
pursuant to clause (ii) of Section 5.1(a) or clause (ii) of Section 5.1(b)
hereof.
"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the fair
market value of such property (as determined under Section 4.4 hereof) as
of such date, over (b) the Carrying Value of such property (prior to any
adjustment to be made pursuant to Section 4.4 hereof) as of such date.
"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the
Carrying Value of such property (prior to any adjustment to be made
pursuant to Section 4.4 hereof) as of such date, over (b) the fair market
value of such property (as determined under Section 4.4 hereof) as of such
date.
12
<PAGE>
"Valuation Date" means the date of receipt by the General Partner of a
Notice of Conversion or, if such date is not a Business Day, the first
Business Day thereafter.
"Value" means, with respect to a Share, the average of the daily
market price for the ten (10) consecutive trading days immediately
preceding the Valuation Date. The market price for each such trading day
shall be: (a) if the Shares are listed or admitted to trading on any
securities exchange or the NASDAQ-National Market System, the closing
price, regular way, on such day, or if no such sale takes place on such
day, the average of the closing bid and asked prices on such day, (b) if
the Shares are not listed or admitted to trading on any securities exchange
or the NASDAQ-National Market System, the last reported sale price on such
day or, if no sale takes place on such day, the average of the closing bid
and asked prices on such day, as reported by a reliable quotation source
designated by ATLANTIC, or (c) if the Shares are not listed or admitted to
trading on any securities exchange or the NASDAQ-National Market System and
no such last reported sale price or closing bid and asked prices are
available, the average of the reported high bid and low asked prices on
such day, as reported by a reliable quotation source designated by
ATLANTIC, or if there shall be no bid and asked prices on such day, the
average of the high bid and low asked prices, as so reported, on the most
recent day (not more than 10 days prior to the date in question) for which
prices have been so reported; provided, that if there are no bid and asked
prices reported during the 10 days prior to the date in question, the Value
of the Shares shall be determined by the board of directors of ATLANTIC
acting in good faith on the basis of such quotations and other information
as it considers, in its reasonable judgment, appropriate.
Section 1.2 Currency. All payments, advances and cash contributions of
capital to be made by a Partner to or on behalf of the Partnership and all cash
distributions and other payments made by the Partnership to a Partner shall be
made in lawful money of the United States of America, which shall at the time of
payment be legal tender in payment of all debts and dues, public and private.
All references in this Agreement to "dollars ($)" shall mean United States of
America dollars.
Section 1.3 Schedules and Exhibits. All schedules and exhibits annexed
or attached hereto are expressly incorporated into and made a part of this
Agreement.
Section 1.4 Certain Accounts. The Accrual Accounts and the Unpaid
Distribution Accounts do not constitute capital accounts, but are established
and maintained solely for the purpose of computing various distributions to be
made hereunder.
Section 1.5 Interest Calculations. Any interest (or other amounts
calculated like interest under this Agreement) which is to be calculated under
this Agreement shall be computed on the daily outstanding balance of the amount
on which interest accrues hereunder. All interest calculations under this
Agreement, including the determination of accruals on the various
13
<PAGE>
accounts, shall be made monthly (but compounding, if any, would occur only on an
annual basis) and shall be computed on the basis of a fraction the denominator
of which is the actual number of days in the particular calendar year and the
numerator of which is the actual number of days in the month for which interest
is being calculated.
Section 1.6 Other Terms. All terms used in this Agreement which are not
defined in this Article I shall have the meanings set forth elsewhere in this
Agreement.
ARTICLE II
ORGANIZATIONAL MATTERS
Section 2.1 Organization and Formation; Application of Act
(a) Organization and Formation of Partnership. The General Partner
and the Limited Partners do hereby form the Partnership as a limited
partnership according to all of the terms and provisions of this Agreement
and otherwise in accordance with the Act. The General Partner is the sole
general partner and the Limited Partners are the only limited partners in
the Partnership.
(b) Application of Act. The Partnership is a limited partnership
pursuant to the provisions of the Act and upon the terms and conditions set
forth in this Agreement. Except as expressly provided herein to the
contrary, the rights and obligations of the Partners and the administration
and termination of the Partnership shall be governed by the Act. No Partner
has any interest in any Partnership property, and the Partnership Interest
of each Partner shall be personal property for all purposes.
Section 2.2 Name. The name of the Partnership is Atlantic Multifamily
Limited Partnership-I. The Partnership's business may be conducted under any
other name or names deemed advisable by the General Partner, including the name
of the General Partner or any Affiliate thereof. The words "Limited
Partnership," "L.P.," "Ltd." or similar words or letters shall be included in
the Partnership's name where necessary for the purposes of complying with the
laws of any jurisdiction that so requires. The General Partner in its sole and
absolute discretion may change the name of the Partnership at any time and from
time to time and shall promptly notify the Limited Partners of such change;
provided, that the name of the Partnership may not be changed to include the
name, or any variant thereof, of any Limited Partner without the written consent
of that Limited Partner.
Section 2.3 Registered Office and Agent; Principal Office. The address of
the registered office of the Partnership in the State of Delaware is located at
c/o Corporation Service Company, 1013 Centre Road, City of Wilmington, County of
New Castle, and the registered agent for service of process on the Partnership
in the State of Delaware at such registered office is Corporation Service
Company. The principal office of the Partnership is Six Piedmont Center, Suite
600, Atlanta, Georgia 30305, or such other place as the General Partner may from
time to
14
<PAGE>
time designate by notice to the Limited Partners. The Partnership may maintain
offices at such other place or places within or outside the State of Delaware as
the General Partner deems advisable.
Section 2.4 Term. The term of the Partnership shall commence on the date
hereof and shall continue until December 31, 2098, unless it is dissolved sooner
pursuant to the provisions of Article XIII or as otherwise provided by law.
ARTICLE III
PURPOSE
Section 3.1 Purpose and Business. The purpose and nature of the business
to be conducted by the Partnership is (a) to conduct any business that may be
lawfully conducted by a limited partnership organized pursuant to the Act and in
connection therewith to sell or otherwise dispose of Partnership assets, (b) to
enter into any partnership, joint venture or other similar arrangement to engage
in any of the foregoing or the ownership of interests in any entity engaged in
any of the foregoing and (c) to do anything necessary or incidental to the
foregoing which, in each case, is not in breach of this Agreement; provided,
however, that each of the foregoing clauses (a), (b), and (c) shall be limited
and conducted in such a manner as to permit ATLANTIC at all times to be
classified as a REIT, unless ATLANTIC provides notice to the Partnership that it
intends to cease or has ceased to qualify as a REIT.
Section 3.2 Powers. The Partnership is empowered to do any and all acts
and things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of the purposes and business
described herein and for the protection and benefit of the Partnership;
provided, that the Partnership shall not take, or refrain from taking, any
action which, in the judgment of the General Partner, in its sole and absolute
discretion, (a) could adversely affect the ability of ATLANTIC to continue to
qualify as a REIT, (b) could subject ATLANTIC to any additional taxes under
Section 857 or Section 4981 of the Code or (c) could violate any law or
regulation of any governmental body or agency having jurisdiction over the
General Partner, ATLANTIC or their respective securities, unless such action (or
inaction) shall have been specifically consented to by ATLANTIC in writing.
ARTICLE IV
CAPITAL CONTRIBUTIONS; ISSUANCE OF UNITS;
CAPITAL ACCOUNTS
Section 4.1 Capital Contributions of the Partners.
(a) Initial Capital Contributions. At the time of the execution of
this Agreement, the Partners shall make or shall have made the Capital
Contributions set forth in Exhibit A to this Agreement. The Partners shall
own Partnership Units in the amounts set forth in Exhibit A and shall have
a Percentage Interest in the Partnership as
15
<PAGE>
set forth in Exhibit A, which Percentage Interest shall be adjusted in
Exhibit A from time to time by the General Partner to the extent necessary
to reflect accurately redemptions, conversions, Capital Contributions, the
issuance of additional Partnership Units, or similar events having an
effect on a Partner's Percentage Interest. Partnership Units held by the
General Partner (including those acquired under Section 4.2 and Section
8.6) shall be deemed to be General Partner's units and shall constitute the
General Partnership Interest.
(b) Additional Capital Contributions or Assessments. No Partner
shall be assessed or, except for any such amounts which a Limited Partner
may be obligated to repay under Section 10.5, be required to contribute
additional funds, except as provided in Section 7.1(a)(3), or other
property to the Partnership. Any additional funds required by the
Partnership, as determined by the General Partner in its sole discretion
may, at the option of the General Partner and without an obligation to do
so, be contributed by the General Partner as additional Capital
Contributions. If and as the General Partner or any other Partner makes
additional Capital Contributions to the Partnership, each such Partner
shall receive additional Partnership Units, but only as provided for in
Section 4.2.
(c) Return of Capital Contributions. Except as otherwise expressly
provided herein, the Capital Contribution of each Partner will be returned
to that Partner only in the manner and to the extent provided in Article V
and Article XIII hereof, and no Partner may withdraw from the Partnership
or otherwise have any right to demand or receive the return of its Capital
Contribution to the Partnership (as such), except as specifically provided
herein. Under circumstances requiring a return of any Capital Contribution,
no Partner shall have the right to receive property other than cash, except
as specifically provided herein. No Partner shall be entitled to interest
on any Capital Contribution or Capital Account notwithstanding any
disproportion therein as between the Partners. Except as specifically
provided herein, the General Partner shall not be liable for the return of
any portion of the Capital Contribution of any Limited Partner, and the
return of such Capital Contributions shall be made solely from Partnership
assets.
(d) Liability of Limited Partners. No Limited Partner shall have any
further personal liability to contribute money to, or in respect of, the
liabilities or the obligations of the Partnership, nor shall any Limited
Partner be personally liable for any obligations of the Partnership, except
as otherwise provided in Section 4.1(b) or in the Act. No Limited Partner
shall be required to make any contributions to the capital of the
Partnership other than its Capital Contribution.
Section 4.2 Issuances of Additional Partnership Interests.
16
<PAGE>
(a) General. The General Partner is hereby authorized to cause the
Partnership to issue such additional Partnership Interests in the form of
Partnership Units for any Partnership purpose at any time or from time to
time, to the Partners or to other Persons for such consideration and on
such terms and conditions as shall be established by the General Partner in
its sole and absolute discretion; provided, however, any issuance of
additional Limited Partnership Units to any Person other than in connection
with the transactions contemplated by the Contribution Agreements shall
require Limited Partner Consent.
(b) Conversion of Units.
(1) Subject to the further provisions of this Section 4.2(b) and
subject to Section 8.6, beginning on the date hereof (except as
otherwise contractually restricted), each Limited Partner shall have
the right (the "Conversion Right") to exchange any or all of the
Partnership Units held by that Partner for Shares, with one
Partnership Unit being exchangeable for one Share. The Conversion
Right may be exercised by a Limited Partner (a "Converting Partner")
with respect to any Partnership Unit owned by such Limited Partner at
any time after the first anniversary date of the date of issuance of
such Partnership Unit and from time to time thereafter by delivering a
Notice of Conversion to the Partnership. Upon receipt by the
Partnership of a Notice of Conversion, on the Specified Conversion
Date (i) the Converting Partner shall transfer to the Partnership the
number of Partnership Units to be exchanged, (ii) the Partnership will
further transfer such Partnership Units to ATLANTIC in exchange for a
number of Shares equal to the number of Partnership Units being
exchanged (multiplied by the Unit Adjustment Factor), (iii) ATLANTIC
will contribute such Partnership Units to the General Partner
whereupon such Partnership Units shall become a part of the General
Partnership Interest and (iv) upon receipt by the Partnership of the
Shares, the Partnership will deliver such Shares to the Converting
Partner. ATLANTIC shall at all times reserve and keep available out of
its authorized but unissued Shares, solely for the purpose of
effecting the exchange of Partnership Units for Shares, such number of
Shares as shall from time to time be sufficient to effect the
conversion of all outstanding Partnership Units not owned by the
General Partner. No Limited Partner shall, solely by virtue of being
the holder of one or more Partnership Units, be deemed to be a
shareholder of or have any other interest in ATLANTIC.
(2) For purposes of this Section 4.2(b), the number of
Partnership Units exchanged by any Partner shall be proportionately
adjusted by multiplying the number of Partnership Units being
exchanged by such Partner by the Unit Adjustment Factor; the intent of
this provision is that one Partnership Unit remains exchangeable for
one Share without dilution
17
<PAGE>
(including any securities for which Shares are exchanged in a
transaction contemplated by Section 11.2(b)). In the event ATLANTIC
issues any Shares in exchange for Partnership Units pursuant to this
Section 4.2(b), any such Partnership Units so acquired by ATLANTIC and
contributed to the General Partner shall thereafter be owned by the
General Partner as General Partnership Units for all purposes of this
Agreement. Each Converting Partner agrees to execute such documents as
the General Partner may reasonably require in connection with the
issuance of Shares upon exercise of the Conversion Right.
Notwithstanding the foregoing provisions of this Section 4.2(b), a
Limited Partner shall not have the right to exchange Partnership Units
for Shares if (i) in the opinion of counsel for ATLANTIC, ATLANTIC
would, as a result thereof, no longer qualify (or there is a material
risk ATLANTIC no longer would qualify) as a REIT; or (ii) such
exchange would, in the opinion of counsel for ATLANTIC, constitute or
be more likely than not to constitute a violation of applicable
securities laws.
(c) On any Specified Conversion Date, the Partnership shall pay to
any Converting Partner the then unreturned balances in the Accrual Accounts
and Unpaid Distribution Accounts maintained for the Partnership Units that
are the subject of the Notice of Conversion.
(d) Prior to making application to cause the Shares to cease to be
listed or quoted on any national securities exchange or interdealer
quotation system, ATLANTIC shall give written notice thereof to each
Limited Partner.
Section 4.3 No Preemptive Rights. Except as specifically provided in this
Agreement, no Person shall have any preemptive, preferential or other similar
right with respect to (a) additional Capital Contributions or loans to the
Partnership or (b) issuance or sale of any Partnership Units.
Section 4.4 Capital Accounts of the Partners.
(a) General. The Partnership shall maintain for each Partner a
separate Capital Account in accordance with the rules of Regulations
Section 1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i)
the amount of all Capital Contributions made by such Partner to the
Partnership pursuant to this Agreement and (ii) all items of Partnership
income and gain (including income and gain exempt from tax) computed in
accordance with Section 4.4(b) hereof and allocated to such Partner
pursuant to Sections 6.1 and 6.2 of this Agreement, and decreased by (x)
the amount of cash or Agreed Value of all actual and deemed distributions
of cash or property made to such Partner pursuant to this Agreement and (y)
all items of Partnership deduction and loss computed in accordance with
Section 4.4(b) hereof and allocated to such Partner pursuant to Sections
6.1 and 6.2 of this Agreement.
18
<PAGE>
(b) Income, Gains, Deductions, and Losses. For purposes of computing
the amount of any item of income, gain, loss or deduction to be reflected
in the Partners' Capital Accounts, unless otherwise specified in this
Agreement, the determination, recognition and classification of any such
item shall be the same as its determination, recognition and classification
for federal income tax purposes determined in accordance with Section
703(a) of the Code (for this purpose all items of income, gain, loss or
deduction required to be stated separately pursuant to Section 703(a)(1) of
the Code shall be included in taxable income or loss), with the following
adjustments:
(1) Except as otherwise provided in Regulations Section 1.704-
1(b)(2)(iv)(m), the computation of all items of income, gain, loss and
deduction shall be made without regard to any election under Section
754 of the Code which may be made by the Partnership; provided, that
the amounts of any adjustments to the adjusted bases of the assets of
the Partnership made pursuant to Section 734 of the Code as a result
of the distribution of property by the Partnership to a Partner (to
the extent that such adjustments have not previously been reflected in
the Partners' Capital Accounts) shall be reflected in the Capital
Accounts of the Partners in the manner and subject to the limitations
prescribed in Regulations Section 1.704-1(b)(2)(iv)(m).
(2) The computation of all items of income, gain, loss and
deduction shall be made without regard to the fact that items
described in Sections 705(a)(1)(b) or 705(a)(2)(b) of the Code are not
includable in gross income or are neither currently deductible nor
capitalized for federal income tax purposes.
(3) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as if the
adjusted basis of such property as of such date of disposition were
equal in amount to the Partnership's Carrying Value with respect to
such property as of such date.
(4) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for
such fiscal year.
(5) In the event the Carrying Value of any Partnership asset is
adjusted pursuant to Section 4.4 hereof, the amount of any such
adjustment shall be taken into account as gain or loss from the
disposition of such asset.
(6) Any items specially allocated under Section 6.3 hereof shall
not be taken into account.
19
<PAGE>
(c) Transfers of Partnership Units. A transferee of a Partnership Unit
shall succeed to a pro rata portion of the Capital Account of the
transferor; provided, however, that, if the transfer causes a termination
of the Partnership under Section 708(b)(1)(b) of the Code, the
Partnership's properties shall be deemed to have been distributed in
liquidation of the Partnership to the Partners (including the transferee
of Partnership Units) and recontributed by such Partners in reconstitution
of the Partnership. In such event, the Carrying Values of the Partnership
properties shall be adjusted immediately prior to such deemed distribution
pursuant to Section 4.4.(d)(2) hereof. The Capital Accounts of such
reconstituted Partnership shall be maintained in accordance with the
principles of this Section 4.4.
(d) Unrealized Gains and Losses.
(1) Consistent with the provisions of Regulations Section 1.704-
1(b)(2)(iv)(f), and as provided in Section 4.4(d)(2), the Carrying
Values of all Partnership assets shall be adjusted upward or downward
to reflect any Unrealized Gain or Unrealized Loss attributable to such
Partnership property, as of the times of the adjustments provided in
Section 4.4(d)(2) hereof, as if such Unrealized Gain or Unrealized
Loss had been recognized on an actual sale of each such property and
allocated pursuant to Section 6.1 of the Agreement.
(2) Such adjustments shall be made as of the following times: (i)
immediately prior to the acquisition of an additional interest in the
Partnership by any new or existing Partner in exchange for more than a
de minimis Capital Contribution; (ii) immediately prior to the
distribution by the Partnership to a Partner of more than a de minimis
amount of Property as consideration for an interest in the
Partnership; and (iii) immediately prior to the liquidation of the
Partnership or the General Partner's interest in the Partnership
within the meaning of Regulations Section 1.704-l(b)(2)(ii)(g);
provided, however, that adjustments pursuant to clauses (i) and (ii)
above shall be made only if the General Partner reasonably determines
that such adjustments are necessary or appropriate to reflect the
relative economic interests of the Partners in the Partnership.
(3) In accordance with Regulations Section 1.704-1(b)(2)(iv)(e)
the Carrying Value of Partnership assets distributed in kind shall be
adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property, as of the
time any such asset is distributed.
(4) In determining such Unrealized Gain or Unrealized Loss the
aggregate cash amount and fair market value of all Partnership assets
(including cash or cash equivalents) shall be determined by the
General Partner
20
<PAGE>
using such reasonable method of valuation as it may adopt, or in the
case of a liquidating distribution pursuant to Article XIII of this
Agreement, be determined and allocated by the Liquidator using such
reasonable methods of valuation as it may adopt. The General Partner,
or the Liquidator, as the case may be, shall allocate such aggregate
value among the assets of the Partnership (in such manner as it
determines in its sole and absolute discretion to arrive at a fair
market value for individual properties).
(e) Modification by General Partner. The provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a
manner consistent with such Regulations. In the event the General Partner
shall determine that it is prudent to modify the manner in which the
Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are assumed by the
Partnership, the General Partner, or any Limited Partners) are computed in
order to comply with such Regulations, the General Partner may make such
modification; provided, however, that it will not have a material effect on
the amounts distributable to any Person pursuant to Article XIII of this
Agreement upon the liquidation of the Partnership; and provided, further,
that prior to making such modification, the General Partner will notify the
Limited Partners thereof and such modification will not be made if Limited
Partners holding a majority of the Limited Partnership Units object in
writing to such modification within 20 days after the General Partner gives
the Limited Partners notice of such modification. The General Partner also
shall (i) make any adjustments that are necessary or appropriate to
maintain equality between the Capital Accounts of the Partners and the
amount of Partnership capital reflected on the Partnership's balance sheet,
as computed for book purposes, in accordance with Regulations Section
1.704-1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the
event unanticipated events might otherwise cause this Agreement not to
comply with Regulations Section 1.704-1(b).
ARTICLE V
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions.
(a) Subject to Sections 5.2 and 5.4 hereof, the General Partner shall
distribute quarterly an amount equal to one hundred percent (100%) of
Available Cash generated by the Partnership during such quarter to the
Partners who are Partners on the Partnership Record Date with respect to
such quarter in the following order of priority and to the extent of such
Available Cash: (i) first, to each Limited Partner to the extent of and in
proportion to the then unreturned balance of the Accrual Account maintained
with respect to each Partnership Unit held by such Limited Partner; (ii)
second, to each
21
<PAGE>
Limited Partner to the extent of and in proportion to the then unreturned
balance of the Unpaid Distribution Account maintained with respect to each
Partnership Unit held by such Limited Partner; (iii) third, to each Limited
Partner to the extent of and in proportion to an amount per Partnership
Unit (multiplied by the Unit Adjustment Factor) held by such Limited
Partner equal to the dividend per Share paid by ATLANTIC for such quarter;
and (iv) fourth, the balance, if any, of the Available Cash for such
quarter shall be distributed to the General Partner in respect of its
Partnership Units. No distribution shall be made for any distribution
period in respect of Partnership Units held by the General Partner unless
all distributions due the Limited Partners in accordance with clauses (i),
(ii) and (iii) of this Section 5.1(a) shall have been paid for all prior
periods. Notwithstanding anything to the contrary contained herein, in no
event may a Partner receive a distribution of Available Cash with respect
to a Unit if such Partner is entitled to receive a dividend out of Funds
from Operations with respect to a Share for which such Unit has been
redeemed or exchanged (it being understood that such Partner will in any
event be entitled to receive the full amount payable in respect of such
Units and/or Shares for such period).
(b) Subject to Sections 5.2 and 5.4 hereof, the General Partner shall
distribute Capital Transaction Proceeds received by the Partnership within
thirty (30) days after the date on which such Capital Transaction occurs
(the "Capital Transaction Record Date") to the Partners who are Partners on
the Capital Transaction Record Date in the following order of priority and
to the extent of such Capital Transaction Proceeds: (i) first, to each
Limited Partner to the extent of and in proportion to the then unreturned
balance of the Accrual Account maintained with respect to each Partnership
Unit held by such Limited Partner, (ii) second, to each Limited Partner to
the extent of and in proportion to the then unreturned balance of the
Unpaid Distribution Account maintained with respect to each Partnership
Unit held by such Limited Partner, and (iii) third, the balance, if any, of
the Capital Transaction Proceeds shall be distributed to the General
Partner in respect of its Partnership Units.
Section 5.2 Amounts Withheld. All amounts withheld pursuant to the Code
or any provisions of any state or local tax law and Section 10.5 hereof with
respect to any allocation, payment or distribution to the General Partner, or
any Limited Partners or Assignees shall be treated as amounts distributed to the
General Partner or such Limited Partners, or Assignees pursuant to Section 5.1
for all purposes under this Agreement.
Section 5.3 Distributions Upon Liquidation. Proceeds from a Liquidating
Transaction shall be distributed to the Partners in accordance with Section
13.2.
22
<PAGE>
ARTICLE VI
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes. For purposes of
maintaining the Capital Accounts and in determining the rights of the Partners
among themselves, the Partnership's items of income, gain, loss and deduction
(computed in accordance with Section 4.4 hereof) shall be allocated among the
Partners for each taxable year (or portion thereof) as provided herein below.
(a) Net Income. After giving effect to the special allocations set
forth in Section 6.2 below, Net Income shall be allocated (i) first, to
each Limited Partner to the extent that, on a cumulative basis, Net Losses
previously allocated to the Limited Partners pursuant to Section 6.1(b)
exceed Net Income previously allocated to the Limited Partners pursuant to
this clause (i) of this Section 6.1(a), (ii) second, to each Limited
Partner until each Limited Partner has been allocated, on a cumulative
basis, Net Income equal to the sum of the distributions paid to such
Limited Partner and the unreturned balances in the Accrual Accounts and the
Unpaid Distribution Accounts maintained with respect to the Partnership
Units held by such Limited Partner, and (iii) thereafter, to the General
Partner.
(b) Net Losses. After giving effect to the special allocations set
forth in Section 6.2 below, Net Losses shall be allocated to the Partners
in accordance with their respective Percentage Interests; provided, that
Net Losses shall not be allocated to any Limited Partner pursuant to this
Section 6.1(b) to the extent that such allocation would cause such Limited
Partner to have an Adjusted Capital Account Deficit at the end of such
taxable year (or increase any existing Adjusted Capital Account Deficit).
All Net Losses in excess of the limitations set forth in the preceding
sentence of this Section 6.1(b) shall be allocated to the General Partner.
(c) Nonrecourse Liabilities. For purposes of Regulations Section
1.752-3(a), the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the sum of (i) the amount of Partnership Minimum
Gain and (ii) the total amount of Nonrecourse Built-in Gain shall be
allocated among the Partners in accordance with their respective Percentage
Interests.
(d) Gains. Any gain allocated to the Partners upon the sale or other
taxable disposition of any Partnership asset shall to the extent possible,
after taking into account other required allocations of gain pursuant to
Section 6.2 below, be characterized as Recapture Income in the same
proportions and to the same extent as such Partners have been allocated any
deductions directly or indirectly giving rise to the treatment of such
gains as Recapture Income.
23
<PAGE>
Section 6.2 Special Allocation Rules. Notwithstanding any other
provision of the Agreement, the following special allocations shall be made in
the following order:
(a) Minimum Gain Chargeback. Notwithstanding any other provisions of
Article VI, if there is a net decrease in Partnership Minimum Gain during
any Partnership Year, each Partner shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent
years) in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, as determined under Regulations Section 1.704-
2(g). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each
Partner pursuant thereto. The items to be so allocated shall be determined
in accordance with Regulations Section 1.704-2(f)(6). This Section 6.2(a)
is intended to comply with the minimum gain chargeback requirements in
Regulations Section 1.704-2(f) and for purposes of this Section 6.2(a)
only, each Partner's Adjusted Capital Account Deficit shall be determined
prior to any other allocations pursuant to Section 6.1 of the Agreement
with respect to such fiscal year and without regard to any decrease in
Partner Minimum Gain during such fiscal year.
(b) Partner Minimum Gain Chargeback. Notwithstanding any other
provision of Article VI (except Section 6.2(a) hereof), if there is a net
decrease in Partner Minimum Gain attributable to a Partner Nonrecourse
Debt during any Partnership fiscal year, each Partner who has a share of
the Partner Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i)(5), shall be
specially allocated items of Partnership income and gain for such year
(and, if necessary, subsequent years) in an amount equal to such Partner's
share of the net decrease in Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations
Section 1.704-2(i)(5). Allocations pursuant to the previous sentence shall
be made in proportion to the respective amounts required to be allocated
to each Partner pursuant thereto. The items to be so allocated shall be
determined in accordance with Regulations Section 1.704-2(i)(4). This
Section 6.2(b) is intended to comply with the minimum gain chargeback
requirement in such Section of the Regulations and shall be interpreted
consistently therewith. Solely for purposes of this Section 6.2(b), each
Partner's Adjusted Capital Account Deficit shall be determined prior to
any other allocations pursuant to Article VI of this Agreement with
respect to such fiscal year, other than allocations pursuant to Section
6.2(a) hereof.
(c) Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), and after giving effect to the allocations
required under Sections 6.2(a) and 6.2(b) hereof, such Partner has an
Adjusted Capital Account Deficit, items of Partnership income and gain
shall be specially allocated to such Partner in an amount and manner
sufficient to
24
<PAGE>
eliminate, to the extent required by the Regulations, its Adjusted Capital
Account Deficit created by such adjustments, allocations or distributions
as quickly as possible.
(d) Nonrecourse Deductions. Nonrecourse Deductions for any taxable
period shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the General Partner determines in its
good faith discretion that the Partnership's Nonrecourse Deductions must be
allocated in a different ratio to satisfy the safe harbor requirements of
the Regulations promulgated under Section 704(b) of the Code, the General
Partner is authorized, upon notice to the Limited Partners in accordance
with Section 4.4(e) hereof, to revise the prescribed ratio to the
numerically closest ratio which does satisfy such requirements.
(e) Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions for any fiscal year shall be specially allocated to the Partner
who bears the economic risk of loss with respect to the Partner Nonrecourse
Debt to which such Partner Nonrecourse Deductions are attributable in
accordance with Regulations Section 1.704-2(i)(2).
(f) Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or
743(b) of the Code is required, pursuant to Regulations Section 1.704-
1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
the amount of such adjustment to the Capital Accounts shall be treated as
an item of gain (if the adjustment increases the basis of the asset) or
loss (if the adjustment decreases such basis), and such item of gain or
loss shall be specially allocated to the Partners in a manner consistent
with the manner in which their Capital Accounts are required to be adjusted
pursuant to such Section of the Regulations.
Section 6.3 Allocations for Tax Purposes
(a) General. Except as otherwise provided in this Section 6.3, for
federal income tax purposes, each item of income, gain, loss and deduction
shall be allocated among the Partners in the same manner as its correlative
item of "book" income, gain, loss or deduction is allocated pursuant to
Sections 6.1 and 6.2 of this Agreement.
(b) To Eliminate Book-Tax Disparities. In an attempt to eliminate
Book-Tax Disparities attributable to a Contributed Property or Adjusted
Property, items of income, gain, loss, and deduction shall be allocated for
federal income tax purposes among the Partners as follows:
(1) (i) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners consistent
with the principles of Section 704(c) of the Code in a manner that
takes into account the
25
<PAGE>
variation between the 704(c) Value of such property and its adjusted
basis at the time of contribution; and (ii) any item of Residual Gain
or Residual Loss attributable to a Contributed Property shall be
allocated among the Partners in the same manner as its correlative
item of "book" gain or loss is allocated pursuant to Sections 6.1 and
6.2 of this Agreement.
(2) (i) In the case of an Adjusted Property, such items shall
(a) first, be allocated among the Partners in a manner consistent with
the principles of Section 704(c) of the Code to take into account the
Unrealized Gain or Unrealized Loss attributable to such property and
the allocations thereof pursuant to Section 4.4 and (b) second, in the
event such property was originally a Contributed Property, be
allocated among the Partners in a manner consistent with Section
6.3(b)(1)(i); and (ii) any item of Residual Gain or Residual Loss
attributable to an Adjusted Property shall be allocated among the
Partners in the same manner as its correlative item of "book" gain or
loss is allocated pursuant to Sections 6.1 and 6.2 of this Agreement.
(3) All other items of income, gain, loss and deduction shall be
allocated among the Partners in the same manner as their correlative
item of "book" gain or loss is allocated pursuant to Sections 6.1 and
6.2 of this Agreement.
(4) Power of General Partner to Elect Method. To the extent Treasury
Regulations promulgated pursuant to Section 704(c) of the Code permit a
partnership to utilize alternative methods to eliminate the disparities
between the agreed value of property and its adjusted basis, the General
Partner shall elect the traditional method without curative allocations to
be used by the Partnership and such election shall be binding on all
Partners.
ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management
(a) Powers of General Partner. Except as otherwise expressly provided
in this Agreement, all management powers over the business and affairs of
the Partnership are exclusively vested in the General Partner, and no
Limited Partner shall have any right to participate in or exercise control
or management power over the business and affairs of the Partnership.
Notwithstanding anything to the contrary in this Agreement, the General
Partner may not be removed by the Limited Partners with or without cause.
In addition to the powers now or hereafter granted a general partner of a
limited partnership under applicable law or which are granted to the
General Partner under any other provision of this Agreement, the General
Partner, subject to Section 7.3 hereof,
26
<PAGE>
shall have full power and authority to do all things deemed necessary or
desirable by it to conduct the business of the Partnership, to exercise all
powers set forth in Section 3.2 hereof and to effect the purposes set forth
in Section 3.1 hereof, including, without limitation:
(1) subject to Section 7.1(a)(3), the making of any
expenditures, the lending or borrowing of money (including, without
limitation, making prepayments on loans and borrowing money to permit
the Partnership to make distributions to its Partners in such amounts
as will permit ATLANTIC (so long as ATLANTIC desires to qualify as a
REIT) to avoid the payment of any federal income tax (including, for
this purpose, any excise tax pursuant to Section 4981 of the Code) and
to make distributions to its shareholders sufficient to permit
ATLANTIC to maintain REIT status), the assumption or guarantee of, or
other contracting for, indebtedness and other liabilities, the
issuance of evidences of indebtedness (including the securing of same
by mortgage, deed of trust or other lien or encumbrance on the
Partnership's assets) and the incurring of any obligations it deems
necessary for the conduct of the activities of the Partnership
provided, however, that if the Partnership lends or borrows any money
or is required to make any payments under any guaranties, indemnities
or similar agreements (A) which (i) are not in the ordinary course of
business for the operation, maintenance, repair or replacement of the
Properties or (ii) are not done to enable the Partnership to make
distributions to its Limited Partners and (B) by having lent such
funds or having made such debt service payments on such borrowings or
having incurred closing costs with respect to such borrowings or
having made such payments under guaranties, indemnities or similar
agreements the Partnership is unable to pay the maximum amount payable
with respect to any quarterly distributions to the Limited Partners
pursuant to Section 5.1, then the General Partner shall make such
additional Capital Contributions as are necessary to enable the
Partnership to pay the maximum amount payable with respect to any
quarterly distributions to Limited Partners pursuant to Section 5.1,
provided that the General Partner shall have no obligation to make
such additional Capital Contributions in an amount exceeding the
amount of the funds so lent, payment of debt service and closing costs
actually paid and payments under such guaranties, indemnities or
similar agreements;
(2) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or other
agencies having jurisdiction over the business or assets of the
Partnership;
(3) the acquisition, disposition, conveyance, mortgage, pledge,
encumbrance, hypothecation or exchange of any assets of the
Partnership or the merger or other combination of the Partnership with
or into another entity on
27
<PAGE>
such terms as the General Partner deems proper, which powers shall
include, without limitation, the power to pledge any or all of the
assets of the Partnership to secure a loan or other financing to the
General Partner or ATLANTIC (the proceeds of which are not required to
be contributed or loaned to this Partnership), provided, however, that
to the extent that any payment of debt service on and closing costs in
connection with, any such mortgage, pledge, encumbrance or
hypothecation shall result in the Partnership being unable to pay the
maximum amount payable with respect to any quarterly distributions to
Limited Partners pursuant to Section 5.1, then the General Partner
shall make such additional Capital Contributions as are necessary to
enable the Partnership to pay the maximum amount payable with respect
to any quarterly distributions to Limited Partners pursuant to Section
5.1 (provided that the General Partner shall have no obligation to
make such additional Capital Contributions in an amount exceeding the
amount of debt service and closing costs actually paid), and provided,
further, that the General Partner shall and does hereby indemnify the
Limited Partners to the extent any foreclosure or deed in lieu thereof
on any such mortgage, pledge, encumbrance or hypothecation results in
a loss in the value of the Limited Partnership Interests;
(4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with the terms of
this Agreement and on any terms it sees fit, including, without
limitation, the financing of the conduct of the operations of the
General Partner or ATLANTIC, the Partnership or any of the
Partnership's Subsidiaries, the lending of funds to other Persons
(including the Partnership's Subsidiaries) and the repayment of
obligations of the Partnership and its Subsidiaries and any other
Person in which it has an equity investment and the making of capital
contributions to its Subsidiaries, the holding of any real, personal
and mixed property of the Partnership in the name of the Partnership
or in the name of a nominee or trustee (subject to Section 7.10), the
creation, by grant or otherwise, of easements or servitudes, and the
performance of any and all acts necessary or appropriate to the
operation of the Partnership assets, including, but not limited to,
applications for rezoning, objections to rezoning, constructing,
altering, improving, repairing, renovating, rehabilitating, razing,
demolishing or condemning any improvements or property of the
Partnership; provided, however, that to the extent that any of the
foregoing shall result in the Partnership being unable to pay the
maximum amount payable with respect to any quarterly distributions to
Limited Partners pursuant to Section 5.1, then the General Partner
shall make such additional Capital Contributions as are necessary to
enable the Partnership to pay the maximum amount payable with respect
to any quarterly distributions to Limited Partners pursuant to Section
5.1 (provided that the General Partner shall have no obligation to
make
28
<PAGE>
such additional Capital Contributions in an amount exceeding the
amount of debt service and closing costs actually paid);
(5) the negotiation, execution, and performance of any
contracts, conveyances or other instruments (including with Affiliates
of the Partnership to the extent provided in Section 7.6) that the
General Partner considers useful or necessary to the conduct of the
Partnership's operations or the implementation of the General
Partner's powers under this Agreement, including, without limitation,
the execution and delivery of leases on behalf of or in the name of
the Partnership (including the lease of Partnership property for any
purpose and without limit as to the term thereof, whether or not such
term (including renewal terms) shall extend beyond the date of
termination of the Partnership and whether or not the portion so
leased is to be occupied by the lessee or, in turn, subleased in whole
or in part to others);
(6) the opening and closing of bank accounts, the investment of
Partnership funds in securities, certificates of deposit and other
instruments, and the distribution of Partnership cash or other
Partnership assets in accordance with this Agreement;
(7) the selection and dismissal of employees of the Partnership
or the General Partner (including, without limitation, employees
having titles such as "president," "vice president," "secretary" and
"treasurer"), and the engagement and dismissal of agents, outside
attorneys, accountants, engineers, appraisers, consultants,
contractors and other professionals on behalf of the General Partner
or the Partnership and the determination of their compensation and
other terms of employment or hiring;
(8) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate;
(9) the formation of, or acquisition of an interest in, and the
contribution of property to, any further limited or general
partnerships, joint ventures or other relationships that it deems
desirable (including, without limitation, the acquisition of interests
in, and the contribution of property to, its Subsidiaries and any
other Person in which it has an equity investment from time to time),
provided that the Partnership is entitled to share in substantially
all of the cash flow generated by such entities and no adverse tax
consequences result to the Limited Partners due to such formation or
acquisition;
(10) the control of any matters affecting the rights and
obligations of the Partnership, including the conduct of litigation
and the incurring of legal
29
<PAGE>
expense and the settlement of claims and litigation, and the
indemnification of any Person against liabilities and contingencies to
the extent permitted by law;
(11) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its subsidiaries or any
other Person (including, without limitation, the contribution or loan
of funds by the Partnership to such Persons);
(12) the determination of the fair market value of any
Partnership property distributed in kind using such reasonable method
of valuation as it may adopt and as is consistent with Section 4.4
hereof; and
(13) the execution, acknowledgment and delivery of any and all
documents and instruments to effect any or all of the foregoing.
(b) No Approval Required for Above Powers. Each of the Limited
Partners agrees that the General Partner is authorized to execute, deliver
and perform the above-mentioned agreements and transactions on behalf of
the Partnership without any further act, approval or vote of the Partners,
notwithstanding any other provision of this Agreement (except as provided
in Section 7.3 and except where Limited Partner Consent is expressly
required herein), the Act or any applicable law, rule or regulation. The
execution, delivery or performance by the General Partner or the
Partnership of any agreement authorized or permitted under this Agreement
shall not constitute a breach by the General Partner of any duty that the
General Partner may owe the Partnership or the Limited Partners or any
other Persons under this Agreement or of any duty stated or implied by law
or equity.
(c) Insurance. At all times from and after the date hereof, the
General Partner may cause the Partnership to obtain and maintain casualty,
liability and other insurance on the properties of the Partnership and
liability insurance for the Indemnitees hereunder as described in Section
7.7(d).
(d) Working Capital Reserves. At all times from and after the date
hereof, the General Partner may cause the Partnership to establish and
maintain working capital reserves in such amounts as the General Partner,
in its sole and absolute discretion, deems appropriate and reasonable from
time to time.
(e) No Obligation to Consider Tax Consequences to Limited Partners.
In exercising its authority under this Agreement, the General Partner may,
but shall be under no obligation to, take into account the tax consequences
to any Partner of any action taken by it. The General Partner and the
Partnership shall not have liability to a Limited Partner under any
circumstances as a result of an income tax liability incurred
30
<PAGE>
by such Limited Partner as a result of an action (or inaction) by the
General Partner pursuant to its authority under this Agreement.
Section 7.2 Certificate of Limited Partnership. To the extent that such
action is determined by the General Partner to be reasonable and necessary or
appropriate, the General Partner shall file amendments to and restatements of
the Certificate and do all the things to maintain the Partnership as a limited
partnership (or a partnership in which the limited partners have limited
liability) under the laws of the State of Delaware and each other jurisdiction
in which the Partnership may elect to do business or own property. The General
Partner shall promptly after filing deliver or mail a copy of the Certificate,
as it may be amended or restated from time to time, to any Limited Partner. The
General Partner shall use all reasonable efforts to cause to be filed such other
certificates or documents as may be reasonable and necessary or appropriate for
the formation, continuation, qualification and operation of a limited
partnership (or a partnership in which the Limited Partners have limited
liability) in the State of Delaware and any other jurisdiction in which the
Partnership may elect to do business or own property.
Section 7.3 Restrictions on General Partner's Authority. The General
Partner may not, without the written consent of all of the Limited Partners,
take any action in contravention of this Agreement, including, without
limitation:
(a) take any action that would make it impossible to carry on the
ordinary business of the Partnership, except as otherwise provided in this
Agreement;
(b) possess Partnership property, or assign any rights in specific
Partnership property, for other than a Partnership purpose except as
otherwise provided in this Agreement;
(c) admit a Person as a Partner, except as otherwise provided in this
Agreement;
(d) perform any act that would subject a Limited Partner to liability
as a general partner in any jurisdiction or any other liability except as
expressly provided herein or under the Act; or
(e) subject to clause (c) of Section 3.2, take any action that would
cause the Partnership to be taxed as a corporation under the Code.
Section 7.4 Responsibility for Expenses.
(a) No Compensation. Except as provided in this Section 7.4 and
elsewhere in this Agreement (including the provisions of Articles V and VI
regarding distributions, payments, and allocations to which it may be
entitled), the General Partner shall not be compensated for its services as
general partner of the Partnership.
31
<PAGE>
(b) Ownership and Operation Expenses. The Partnership shall be
responsible for and shall pay all expenses relating to the Partnership's
ownership of its assets, and the operation of, or for the benefit of, the
Partnership, and the General Partner shall be reimbursed on a monthly
basis, or such other basis as the General Partner may determine in its sole
and absolute discretion, for all expenses it incurs relating to the
Partnership's ownership of its assets and the operation of, or for the
benefit of, the Partnership; provided, that the amount of any such
reimbursement shall be reduced by any interest or other amounts earned by
the General Partner with respect to bank accounts or other instruments held
by it as permitted in Section 7.10. Such reimbursements shall be in
addition to any reimbursement to the General Partner as a result of
indemnification pursuant to Section 7.7 hereof.
(c) Organization Expenses. The Partnership shall be responsible for
and shall pay all expenses incurred relating to the organization of the
Partnership.
Section 7.5 Outside Activities of the General Partner. Nothing herein
contained shall prevent or prohibit the General Partner or any employee or other
Affiliate of the General Partner from entering into, engaging in or conducting
any other activity or performing for a fee any service, including engaging in
any business dealing with real property of any type or location; owning,
managing, leasing or disposing of any real property of any type or location;
acting as a director, officer or employee of any corporation, as a trustee of
any trust, as a general partner of any partnership, or as an administrative
official of any other business entity; or receiving compensation for services
to, or participating in profits derived from, the investments of any such
business, property, corporation, trust, partnership or other entity, regardless
of whether such activities are competitive with the Partnership, and nothing
herein shall require the General Partner or any employee or Affiliate thereof to
offer any interest in such activities to the Partnership or any Partner.
Section 7.6 Contracts with Affiliates. Except as otherwise expressly
contemplated pursuant to Section 7.1, neither the General Partner nor any of its
Affiliates shall (i) sell, transfer or convey any property to, or purchase any
property from, the Partnership, directly or indirectly, or (ii) enter into any
agreement for the provision of services to the Partnership, except, in both such
cases, pursuant to transactions or agreements that are on terms that are fair
and reasonable and no less favorable to the Partnership than would be obtained
from an unaffiliated third party in connection therewith. In entering into such
transactions with Affiliates the General Partner shall not allocate expenses and
similar items disproportionately between the General Partner and the
Partnership.
Section 7.7 Indemnification.
(a) General. The Partnership shall indemnify an Indemnitee from and
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including legal fees and expenses), judgments, fines,
settlements, and other amounts
32
<PAGE>
arising from any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative, that relate to the
operations of the Partnership as set forth in this Agreement in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, unless it is established that: (i) the act or omission of the
Indemnitee was material to the matter giving rise to the proceeding and
either was committed in bad faith or was the result of active and
deliberate dishonesty; (ii) the Indemnitee actually received an improper
personal benefit in money, property or services; or (iii) in the case of
any criminal proceeding, the Indemnitee had reasonable cause to believe
that the act or omission was unlawful. The termination of any proceeding by
judgment, order or settlement does not create a presumption that the
Indemnitee did not meet the requisite standard of conduct set forth in this
Section 7.7(a). The termination of any proceeding by conviction or upon a
plea of nolo contendere or its equivalent, or an entry of an order of
probation prior to judgment, creates a rebuttable presumption that the
Indemnitee acted in a manner contrary to that specified in this Section
7.7(a). Any indemnification pursuant to this Section 7.7 shall be made only
out of the assets of the Partnership.
(b) In Advance of Final Disposition. Reasonable expenses incurred by
an Indemnitee who is a party to a proceeding may be paid or reimbursed by
the Partnership in advance of the final disposition of the proceeding upon
receipt by the Partnership of (i) a written affirmation by the Indemnitee
of the Indemnitee's good faith belief that the standard of conduct
necessary for indemnification by the Partnership as authorized in this
Section 7.7 has been met and (ii) a written undertaking by or on behalf of
the Indemnitee to repay the amount if it shall ultimately be determined
that the standard of conduct has not been met.
(c) Other Than by This Section. The indemnification provided by this
Section 7.7 shall be in addition to any other rights to which an Indemnitee
or any other Person may be entitled under any agreement, pursuant to any
vote of the Partners, as a matter of law or otherwise, and shall continue
as to an Indemnitee who has ceased to serve in such capacity.
(d) Insurance. The Partnership may purchase and maintain insurance,
on behalf of the Indemnitees and such other Persons as the General Partner
shall determine, against any liability that may be asserted against or
expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have
the power to indemnify such Person against such liability under the
provisions of this Agreement; provided, that in maintaining such insurance,
the Partnership shall be allocated the cost thereof on a fair and equitable
basis as determined by the General Partner. The right to procure such
insurance on behalf of the Indemnitees shall in no way mitigate or
otherwise affect the right of any Indemnitees to indemnification under this
Section 7.7.
33
<PAGE>
(e) No Personal Liability for Limited Partners. In no event may an
Indemnitee subject the Limited Partners to personal liability by reason of
the indemnification provisions set forth in this Agreement.
(f) Interested Transactions. An Indemnitee shall not be denied
indemnification in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise expressly
permitted by the terms of this Agreement.
(g) Binding Effect. The provisions of this Section 7.7 are for the
benefit of the Indemnitees, their heirs, successors, assigns and
administrators and shall not be deemed to create any rights for the benefit
of any other Persons.
Section 7.8 Liability of the General Partner.
(a) General. Notwithstanding anything to the contrary set forth in
this Agreement, the General Partner shall not be liable for monetary
damages to the Partnership, any Partners or any Assignees for losses
sustained or liabilities incurred as a result of errors in judgment or of
any act or omission unless, (i) the General Partner actually received an
improper benefit in money, property or services (in which case, such
liability shall be for the amount of the benefit in money, property or
services actually received), or (ii) the General Partner's action or
failure to act was the result of active and deliberate dishonesty and was
material to the cause of action being adjudicated; provided however, that
in connection with any transaction which may result in dilution of a
Limited Partner's Conversion Right, the General Partner shall owe the same
duty of care to the Limited Partners that ATLANTIC owes to holders of its
Shares.
(b) No Obligation to Consider Interests of Limited Partners. The
Limited Partners expressly acknowledge that the General Partner is acting
on behalf of the Partnership and the General Partner, collectively, that,
except as provided in Section 7.8(a), the General Partner is under no
obligation to consider the separate interests of the Limited Partners
(including, without limitation, the tax consequences to Limited Partners or
Assignees) in deciding whether to cause the Partnership to take (or decline
to take) any actions which the General Partner has undertaken in good faith
on behalf of the Partnership, and that the General Partner shall not be
liable for monetary damages for losses sustained, liabilities incurred, or
benefits not derived by Limited Partners in connection with such decisions,
(i) unless the General Partner actually received an improper benefit in
money, property or services (in which case, such liability shall be for the
amount of the benefit in money, property or services actually received) or
(ii) the General Partner's action or failure to act was the result of
active and deliberate dishonesty and was material to the cause of action
being adjudicated. For purposes
34
<PAGE>
hereof, a Person acting in a manner which is in the best interests of the
shareholders of ATLANTIC shall be deemed to satisfy the standards of
conduct hereunder.
(c) Acts of Agents. Subject to its obligations and duties as General
Partner set forth in Section 7.1(a) hereof, the General Partner may
exercise any of the powers granted to it by this Agreement and perform any
of the duties imposed upon it hereunder either directly or by or through
its agents. The General Partner shall not be responsible for any misconduct
or negligence on the part of any such agent appointed by it in good faith.
(d) Effect of Amendment. Any amendment, modification or repeal of
this Section 7.8 or any provision hereof shall be prospective only and
shall not in any way affect the limitations on the General Partner's
liability to the Partnership and the Limited Partners under this Section
7.8 as in effect immediately prior to such amendment, modification or
repeal with respect to claims arising from or relating to matters
occurring, in whole or in part, prior to such amendment, modification or
repeal, regardless of when such claims may arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner.
(a) Reliance on Documents. The General Partner may rely and shall be
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
consent, order, bond, debenture, or other paper or document reasonably
believed by it to be genuine and to have been signed or presented by the
proper party or parties.
(b) Reliance on Consultants and Advisers. The General Partner may
consult with legal counsel, accountants, appraisers, management
consultants, investment bankers and other consultants and advisers selected
by it, and, in performing its duties, the General Partner shall be entitled
to rely upon any information, opinion, report or statement prepared or
presented by any of such Persons as to matters which such General Partner
reasonably believes to be within such Person's professional or expert
competence unless the General Partner has any knowledge concerning the
matter in question which would cause such reliance to be unwarranted.
(c) Action Through Officers and Attorneys. The General Partner shall
have the right, in respect of any of its powers or obligations hereunder,
to act through any of its duly authorized officers and a duly appointed
attorney or attorneys-in-fact. Each such attorney shall, to the extent
provided by the General Partner in the power of attorney, have full power
and authority to do and perform all and every act and duty which is
permitted or required to be done by the General Partner hereunder.
35
<PAGE>
(d) Actions to Maintain REIT Status or Avoid Taxation of the General
Partner. Notwithstanding any other provisions of this Agreement or the
Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or
omission is necessary or advisable in order (i) to protect the ability of
ATLANTIC to continue to qualify as a REIT or (ii) to avoid ATLANTIC
incurring any taxes under Section 857 or Section 4981 of the Code, is
expressly authorized under this Agreement and is deemed approved by all of
the Limited Partners.
Section 7.10 Title to Partnership Assets. Title to Partnership assets,
whether real, personal or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, individually
or collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby declares and warrants that any Partnership assets for
which legal title is held in the name of the General Partner or any nominee or
Affiliate of the General Partner shall be held by the General Partner, such
nominee or Affiliate for the use and benefit of the Partnership in accordance
with the provisions of this Agreement; provided, however, that the General
Partner shall use its best efforts to cause beneficial and record title to such
assets to be vested in the Partnership as soon as reasonably practicable. All
Partnership assets shall be recorded as the property of the Partnership in its
books and records, irrespective of the name in which legal title to such
Partnership assets is held.
Section 7.11 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority to
encumber, sell or otherwise use in any manner any and all assets of the
Partnership (including, without limitation, in connection with any pledge of
Partnership assets to secure a loan or other financing to the General Partner or
ATLANTIC as provided by Section 7.1(a)(3) and to enter into any contracts on
behalf of the Partnership, and such Person shall be entitled to deal with the
General Partner as if it were the Partnership's sole party in interest, both
legally and beneficially. Each Limited Partner hereby waives any and all
defenses or other remedies which may be available against such Person to
contest, negate or disaffirm any action of the General Partner in connection
with any such dealing. In no event shall any Person dealing with the General
Partner or its representatives be obligated to ascertain that the terms of this
Agreement have been complied with or to inquire into the necessity or expedience
of any act or action of the General Partner or its representatives. Each and
every certificate, document or other instrument executed on behalf of the
Partnership by the General Partner or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (a) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in full force and effect, (b) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (c)
such certificate, document or
36
<PAGE>
instrument was duly executed and delivered in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability. The Limited Partners shall have no
liability under this Agreement except as expressly provided in Section 10.5
hereof or under the Act.
Section 8.2 Management of Business. No Limited Partner or Assignee
(other than the General Partner, any of its Affiliates or any officer, director,
employee, partner, agent or trustee of the General Partner, the Partnership or
any of their Affiliates, in their capacities as such) shall take part in the
operation, management or control (within the meaning of the Act) of the
Partnership's business, transact any business in the Partnership's name or have
the power to sign documents for or otherwise bind the Partnership. The
transaction of any such business by the General Partner, any of its Affiliates
or any officer, director, employee, partner, agent or trustee of the General
Partner, the Partnership or any of their Affiliates, in their capacities as
such, shall not affect, impair or eliminate the limitations on the liability of
the Limited Partners or Assignees under this Agreement.
Section 8.3 Outside Activities of Limited Partners. Subject to any
agreements entered into pursuant to Section 7.6 hereof and subject to any other
agreements entered into by a Limited Partner or its Affiliates with the General
Partner, the Partnership or a Subsidiary, the following rights shall govern
outside activities of Limited Partners: (a) any Limited Partner and any officer,
director, employee, agent, trustee, Affiliate, partner, beneficiary or
shareholder of any Limited Partner shall be entitled to and may have business
interests and engage in business activities in addition to those relating to the
Partnership, including business interests and activities in direct competition
with the Partnership, the General Partner or their Affiliates; (b) neither the
Partnership nor any Partners shall have any rights by virtue of this Agreement
in any business ventures of any Partner or Assignee; (c) none of the Partners
nor any other Person shall have any rights by virtue of this Agreement or the
partnership relationship established hereby in any business ventures of any
other Person, other than the General Partner, and such Person shall have no
obligation pursuant to this Agreement to offer any interest in any such business
ventures to the Partnership, any Limited Partner or any such other Person, even
if such opportunity is of a character which, if presented to the Partnership,
any Limited Partner or such other Person, could be taken by such Person; (d) the
fact that a Limited Partner may encounter opportunities to purchase, otherwise
acquire, lease, sell or otherwise dispose of real or personal property and may
take advantage of such opportunities itself or introduce such opportunities to
entities in which it has or has not any interest, shall not subject such Partner
to liability to the Partnership or any of the other Partners on account of the
lost opportunity; and (e) except as otherwise specifically provided herein,
nothing contained in this Agreement shall be deemed to prohibit a Limited
Partner or any Affiliate of a Limited Partner from dealing, or otherwise
engaging in business, with Persons transacting business with the Partnership or
from providing
37
<PAGE>
services relating to the purchase, sale, rental, management or operation of real
or personal property (including real estate brokerage services) and receiving
compensation therefor, from any Persons who have transacted business with the
Partnership or other third parties.
Section 8.4 Priority Among Limited Partners. No Partner (Limited or
General) or Assignee shall have priority over any other Partner (Limited or
General) or Assignee either as to the return of Capital Contributions or, except
to the extent provided by Sections 5.1, 6.2 or 6.3 hereof, or otherwise
expressly provided in this Agreement, as to profits, losses or distributions.
Section 8.5 Rights of Limited Partners Relating to the Partnership.
(a) Copies of Business Records. In addition to other rights provided
by this Agreement or by the Act, and except as limited by Section 8.5(c)
hereof, each Limited Partner shall be provided the following without
demand, except as otherwise provided below, at the Partnership's expense:
(1) promptly after becoming available, a copy of the most recent
annual, quarterly and current reports and proxy statements filed with
the Securities and Exchange Commission by the General Partner pursuant
to the Securities Exchange Act of 1934, if any;
(2) promptly after becoming available (but in any event within
90 days after the end of each Partnership Year), a copy of the
Partnership's federal, state and local income tax returns for each
Partnership Year;
(3) upon demand, a current list of the name and last known
business, residence or mailing address of each Partner;
(4) a copy of this Agreement and the Certificate and all
amendments hereto and thereto, together with executed copies of all
powers of attorney pursuant to which this Agreement, the Certificate
and all amendments hereto and thereto have been executed; and
(5) upon demand, true and full information regarding the amount
of cash and a description and statement of any other property or
services contributed by each Partner and which each Partner has agreed
to contribute in the future, and the date on which each became a
partner.
(b) Notification of Changes in Unit Adjustment Factor. The
Partnership shall notify each Limited Partner in writing of any change made
to the Unit Adjustment Factor within 10 Business Days of the date such
change becomes effective.
38
<PAGE>
(c) Confidential Information. Notwithstanding any other provision of
this Section 8.5, the General Partner may keep confidential from the
Limited Partners, for such period of time as the General Partner determines
in its sole and absolute discretion to be reasonable, any information that
(i) the General Partner believes to be in the nature of trade secrets or
other information the disclosure of which the General Partner, in good
faith believes is not in the best interests of the Partnership or (ii) the
Partnership is required by law or by agreements with unaffiliated third
parties to keep confidential.
Section 8.6 Redemption Right. Notwithstanding the provisions of Section
4.2(b), ATLANTIC may satisfy the Conversion Right exercised by a Converting
Partner set forth in a Notice of Conversion by paying to such Converting Partner
the Redemption Amount on the Specified Conversion Date, whereupon ATLANTIC shall
acquire such Partnership Units and contribute such Partnership Units to the
General Partner and the General Partner shall own such Partnership Units for all
purposes of this Agreement. ATLANTIC may elect to pay the Redemption Amount for
Partnership Units only upon a receipt by the Partnership of a Notice of
Conversion and only to the extent of the Units to be exchanged. In the event
ATLANTIC shall exercise its right to satisfy the Conversion Right in the manner
described in this Section 8.6, the Partnership shall have no obligation to pay
any amount to the Converting Partner with respect to such Converting Partner's
exercise of the Conversion Right, and each of the Converting Partner, the
Partnership, ATLANTIC and the General Partner shall treat the transaction among
the General Partner, ATLANTIC and the Converting Partner as a sale of the
Converting Partner's Partnership Units to ATLANTIC for federal income tax
purposes; each Converting Partner which the General Partner has elected to pay
the Redemption Amount agrees to execute such documents as the General Partner,
ATLANTIC and such Converting Partner may reasonably require in connection with
the payment of the Redemption Amount.
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting. The General Partner shall keep or
cause to be kept at the principal office of the Partnership appropriate books
and records with respect to the Partnership's business, including all books and
records necessary to provide to the Limited Partners any information, lists and
copies of documents required to be provided pursuant to Sections 8.5 or 9.3
hereof. Any records maintained by or on behalf of the Partnership in the regular
course of its business may be kept on, or be in the form of, magnetic tape,
photographs, micrographics or any other information storage device; provided,
that the records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained for financial purposes on an accrual basis in accordance with
generally accepted accounting principles and for tax reporting purposes on the
accrual basis.
Section 9.2 Fiscal Year. The fiscal year of the Partnership shall be the
calendar year.
39
<PAGE>
Section 9.3 Reports.
(a) Annual Reports. As soon as practicable, but in no event later
than the date when mailed to the shareholders of ATLANTIC, the General
Partner shall cause to be mailed to each Limited Partner an annual report,
as of the close of the Partnership Year, containing financial statements of
the Partnership, or of ATLANTIC if such statements are prepared solely on a
consolidated basis with ATLANTIC for such Partnership Year, presented in
accordance with generally accepted accounting principles, such statements
to be audited by a nationally recognized firm of independent public
accountants selected by ATLANTIC.
(b) Quarterly Reports. As soon as practicable, but in no event later
than the date when mailed to the shareholders of ATLANTIC, the General
Partner shall cause to be mailed to each Limited Partner a report, as of
the last day of the calendar quarter (except the last calendar quarter of
each year), containing unaudited financial statements of the Partnership,
or of ATLANTIC, if such statements are prepared solely on a consolidated
basis with ATLANTIC, and such other information as may be required by
applicable law or regulation, or as the General Partner determines to be
appropriate.
ARTICLE X
TAX MATTERS
Section 10.1 Preparation of Tax Returns. The General Partner shall
arrange for the preparation and timely filing of all returns of Partnership
income, gains, deductions, losses and other items required of the Partnership
for federal and state income tax purposes and shall use all reasonable efforts
to furnish, within 90 days of the close of each taxable year, the tax
information reasonably required by Limited Partners for federal and state income
tax reporting purposes.
Section 10.2 Tax Elections. Except as otherwise provided herein, the
General Partner shall, in its sole and absolute discretion, determine whether to
make any available election pursuant to the Code, including, without limitation,
the election under Section 754 of the Code in accordance with applicable
regulations thereunder. The General Partner shall have the right to seek to
revoke any such election (including the election under Section 754 of the Code)
upon the General Partner's determination in its sole and absolute discretion
that such revocation is in the best interests of the Partners.
Section 10.3 Tax Matters Partner.
(a) General. The General Partner shall be the "tax matters partner"
of the Partnership for federal income tax purposes. Pursuant to Section
6223(c) of the Code, upon receipt of notice from the IRS of the beginning
of an administrative proceeding with respect to the Partnership, the tax
matters partner shall furnish the IRS with the name, address and profit
interest of each of the Limited Partners; provided, however,
40
<PAGE>
that such information is provided to the Partnership by the Limited
Partners. The Limited Partners shall provide such information to the
Partnership as the General Partner shall reasonably request.
(b) Powers. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to
any administrative or judicial proceedings for the adjustment of
Partnership items required to be taken into account by a Partner for
income tax purposes (such administrative proceedings being referred to
as a "tax audit" and such judicial proceedings being referred to as
"judicial review"), and in the settlement agreement the tax matters
partner may expressly state that such agreement shall bind all
Partners, except that such settlement agreement shall not bind any
Partner (i) who (within the time prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing that the tax
matters partner shall not have the authority to enter into a
settlement agreement on behalf of such Partner or (ii) who is a
"notice partner" (as defined in Section 6231 of the Code) or a member
of a "notice group" (as defined in Section 6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item required to be taken
into account by a Partner for tax purposes (a "final adjustment") is
mailed or otherwise given to the tax matters partner, to seek judicial
review of such final adjustment, including the filing of a petition
for readjustment with the Tax Court or the United States Claims Court,
or the filing of a complaint for refund with the District Court of the
United States for the district in which the Partnership's principal
place of business is located;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the
IRS at any time and, if any part of such request is not allowed by the
IRS, to file an appropriate pleading (petition, complaint or other
document) for judicial review with respect to such request;
(5) to enter into an agreement with the IRS to extend the period
for assessing any tax which is attributable to any item required to be
taken into account by a Partner for tax purposes, or an item affected
by such item; and
41
<PAGE>
(6) to take any other action on behalf of the Partners or the
Partnership in connection with any tax audit or judicial review
proceeding to the extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the
extent required by law, is a matter in the sole and absolute discretion of
the tax matters partner, and the provisions relating to indemnification of
the General Partner set forth in Section 7.7 of this Agreement shall be
fully applicable to the tax matters partner in its capacity as such.
(c) Reimbursement. The tax matters partner shall receive no
compensation for its services. All third-party costs and expenses incurred
by the tax matters partner in performing its duties as such (including
legal and accounting fees) shall be borne by the Partnership. Nothing
herein shall be construed to restrict the Partnership from engaging an
accounting firm and a law firm to assist the tax matters partner in
discharging his duties hereunder, so long as the compensation paid by the
Partnership for such services is reasonable.
Section 10.4 Organizational Expenses. The Partnership shall elect to
deduct expenses, if any, incurred by it in organizing the Partnership ratably
over a 60 month period as provided in Section 709 of the Code.
Section 10.5 Withholding. Each Limited Partner hereby authorizes the
Partnership to withhold from or pay on behalf of or with respect to such Limited
Partner any amount of federal, state, local, or foreign taxes that the General
Partner determines that the Partnership is required to withhold or pay with
respect to any amount distributable or allocable to such Limited Partner
pursuant to this Agreement, including any taxes required to be withheld or paid
by the Partnership pursuant to Section 1441, 1442, 1445, or 1446 of the Code.
Any amount paid on behalf of or with respect to a Limited Partner shall
constitute a loan by the Partnership to such Limited Partner, which loan shall
be repaid by such Limited Partner within 15 days after notice from the General
Partner that such payment must be made unless (a) the Partnership withholds such
payment from a distribution which would otherwise be made to the Limited Partner
or (b) the General Partner determines, in its sole and absolute discretion, that
such payment may be satisfied out of the available funds of the Partnership
which would, but for such payment, be distributed to the Limited Partner. Any
amounts withheld pursuant to the foregoing clauses (a) or (b) shall be treated
as having been distributed to such Limited Partner and shall timely be paid by
the General Partner to the appropriate taxing authority out of Partnership
funds. Each Limited Partner hereby unconditionally and irrevocably grants to the
Partnership a security interest in such Limited Partner's Partnership Interest
to secure such Limited Partner's obligation to pay to the Partnership any
amounts required to be paid pursuant to this Section 10.5. In the event that a
Limited Partner fails to pay any amounts owed to the Partnership pursuant to
this Section 10.5 when due, the General Partner may, in its sole and absolute
discretion, elect to make the payment to the Partnership on behalf of such
defaulting Limited Partner, and in such event shall be
42
<PAGE>
deemed to have loaned such amount to such defaulting Limited Partner and shall
succeed to all rights and remedies of the Partnership as against such defaulting
Limited Partner (including, without limitation, the right to receive
distributions which would otherwise be made to such Limited Partner until such
loan, with interest, has been paid in full). Any amounts payable by a Limited
Partner hereunder shall bear interest at a per annum rate of interest equal to
the Prime Rate, plus two percentage points (but not higher than the maximum
lawful rate) from the date such amount is due (i.e., 15 days after demand) until
such amount is paid in full. Each Limited Partner shall take such actions as the
Partnership or the General Partner shall request in order to perfect or enforce
the security interest created hereunder.
ARTICLE XI
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer.
(a) Definition. The term "transfer," when used in this Article 11
with respect to a Partnership Unit, shall be deemed to refer to a
transaction by which the General Partner purports to assign its General
Partnership Interest to another Person or by which a Limited Partner
purports to assign its Limited Partnership Interest to another Person, and
includes a sale, assignment, gift, pledge, encumbrance, hypothecation,
mortgage, exchange or any other disposition by law or otherwise. The term
"transfer" when used in this Article XI does not include any exchange of
Partnership Units by a Limited Partner pursuant to Section 4.2(b) or
acquisition of Partnership Units from a Limited Partner by the General
Partner pursuant to Section 8.6.
(b) Requirements. No Limited Partnership Interest or General Partner
Interest shall be transferred, in whole or in part, except in accordance
with the terms and conditions set forth in this Article XI. Any transfer or
purported transfer of a Limited Partnership Interest not made in accordance
with this Article XI shall be null and void.
Section 11.2 Transfer of General Partner's Partnership Interest.
(a) General. The General Partner may not transfer any of its General
Partnership Interest (other than any transfer to an Affiliate of the
General Partner) or withdraw as General Partner (other than pursuant to a
permitted transfer), other than in connection with a transaction described
in Section 11.2(b). Any transfer or purported transfer of the General
Partner's Partnership Interest not made in accordance with this Section
11.2 shall be null and void. Notwithstanding any permitted transfer of its
General Partnership Interest or withdrawal as General Partner hereunder
(other than in connection with a transaction described in Section 11.2(b)),
the General Partner shall remain subject to Sections 4.2(b), 7.1(a)(3), 7.8
and 8.6 of this Agreement unless such transferee General Partner provides
substantially similar rights to the Limited Partners and the Limited
Partners owning more than fifty percent (50%) of the Limited Partner
43
<PAGE>
Interests at such time expressly approve such rights in writing. Nothing
contained in this Section 11.2(a) shall entitle the General Partner to
withdraw as General Partner unless a successor General Partner has been
appointed and approved with Limited Partner Consent.
(b) Transfer in Connection With Reclassification, Recapitalization,
or Business Combination Involving ATLANTIC. ATLANTIC shall not engage in
any merger, consolidation or other business combination with or into
another Person or sale of all or substantially all of its assets, or any
reclassification, or recapitalization or change of outstanding Shares
(other than a change in par value, or from par value to no par value, or as
a result of a subdivision or combination as described in the definition of
Unit Adjustment Factor) ("Transaction"), unless as a result of the
Transaction each Limited Partner thereafter remains entitled to exchange
each Partnership Unit owned by such Limited Partner (after application of
the Unit Adjustment Factor) for an amount of cash, securities, or other
property equal to the greatest amount of cash, securities or other property
which such Limited Partner would have received from such Transaction, if
such Limited Partner had exercised its Conversion Right immediately prior
to the Transaction, provided that if, in connection with the Transaction, a
purchase, tender or exchange offer shall have been made to and accepted by
the holders of more than 50 percent of the outstanding Shares, the holders
of Partnership Units shall receive the greatest amount of cash, securities,
or other property which a Limited Partner would have received had it
exercised the Conversion Right and received Shares in exchange for its
Partnership Units immediately prior to the expiration of such purchase,
tender or exchange offer. In connection with any merger, consolidation or
business combination described in this Section 11.2(b) in which the Shares
were exchanged for securities of the acquiring Person, the Limited Partners
shall (unless Limited Partner Consent is obtained) remain entitled to
exercise their Conversion Right with respect to such securities and the
Unit Adjustment Factor continues to apply with respect to such securities.
Section 11.3 Limited Partners' Rights to Transfer.
(a) General. No transfer of a Limited Partnership Interest by a
Limited Partner is permitted without the prior written consent of the
General Partner, which it may withhold in its sole and absolute discretion;
provided that a Limited Partner may transfer Units in accordance with a
Registration Rights Agreement. In order to effect any transfer under this
Section 11.3, the Limited Partner must deliver to the General Partner a
duly executed copy of the instrument making such transfer and such
instrument must evidence the written acceptance by the assignee of all of
the terms and conditions of this Agreement and represent that such
assignment was made in accordance with all applicable laws and regulations.
44
<PAGE>
(b) Incapacitated Limited Partners. If a Limited Partner is subject
to Incapacity, the executor, administrator, trustee, committee, guardian,
conservator or receiver of such Limited Partner's estate shall have all the
rights of a Limited Partner, but not more rights than those enjoyed by
other Limited Partners for the purpose of settling or managing the estate
and such power as the Incapacitated Limited Partner possessed to transfer
all or any part of his or its interest in the Partnership. The Incapacity
of a Limited Partner, in and of itself, shall not dissolve or terminate the
Partnership.
(c) Transfers Resulting in Corporation Status; Transfers Through
Established Securities or Secondary Markets. Regardless of whether the
General Partner is required to provide or has provided its consent under
Section 11.3(a), no transfer by a Limited Partner of his Partnership Units
(or any economic or other interest, right or attribute therein) may be made
to any Person if (i) legal counsel for the Partnership renders an opinion
letter that it would result in the Partnership's being treated as an
association taxable as a corporation or (ii) such transfer is effectuated
through an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" within the meaning of Section 7704 of the
Code. All interests in the Partnership have been or will be issued in a
transaction or transactions that were not required to be registered under
the Securities Act of 1933 (the "1933 Act"), and to the extent such
offerings or sales were not required to be registered under the 1933 Act by
reason of Regulation S (17 CFR 230.901 through 230.904) or any successor
thereto, such offerings or sales would not have been required to be
registered under the 1933 Act if the interests so offered or sold had been
offered and sold within the United States.
No admission (or purported admission) of a Partner, and no transfer
(or purported transfer) of all or any part of a Partner's interest in the
Partnership (or any economic interest therein), whether to another Partner
or to a person who is not a Partner, shall be effective, and any such
admission or transfer (or purported admission or transfer) shall be void ab
initio, and no person shall otherwise become a Partner if (i) at the time
of such admission or transfer (or purported admission or transfer) any
interest in the Partnership (or economic interest therein) is traded on an
established securities market or readily tradeable on a secondary market or
the substantial equivalent thereof or (ii) after such admission or transfer
(or purported admission or transfer) the Partnership would have more than
100 Partners. For purposes of clause (i) of the preceding sentence, an
established securities market is a national securities exchange that is
either registered under Section 6 of the Securities Exchange Act of 1934
(the "1934 Act") or exempt from registration because of the limited volume
of transactions, a foreign securities exchange that, under the law of the
jurisdiction where it is organized, satisfies regulatory requirements that
are analogous to the regulatory requirements of the 1934 Act, a regional or
local exchange, or an interdealer quotation system that regularly
disseminates firm buy or sell quotations by identified brokers or dealers
by electronic means or otherwise. For purposes of such clause (i),
interests in
45
<PAGE>
the Partnership (or interests therein) are readily tradeable on a secondary
market or the substantial equivalent thereof if (a) interests in the
Partnership (or interests therein) are regularly quoted by any person, such
as a broker or dealer, making a market in the interests; (b) any person
regularly makes available to the public (including customers or
subscribers) bid or offer quotes with respect to interests in the
Partnership (or interests therein) and stands ready to effect buy or sell
transactions at the quoted prices for itself or on behalf of others; (c)
the holder of an interest in the Partnership has a readily available,
regular and ongoing opportunity to sell or exchange such interest (or
interests therein) through a public means of obtaining or providing
information of offers to buy, sell, or exchange such interests; or (d)
prospective buyers and sellers otherwise have the opportunity to buy, sell,
or exchange interests in the Partnership (or interests therein) in a time
frame and with the regularity and continuity that is comparable to that
described in clauses (a), (b) and (c) of this sentence. For purposes of
determining whether the Partnership will have more than 100 Partners, each
person indirectly owning an interest in the Partnership through a
partnership (including any entity treated as a partnership for federal
income tax purposes), a grantor trust or an S corporation (each such entity
a "flow-through entity") shall be treated as a Partner unless the Managing
Partner determines in its sole and absolute discretion that less than
substantially all of the value of the beneficial owner's interest in the
flow-through entity is attributable to the flow-through entity's interest
(direct or indirect) in the Partnership.
(d) Transfers to Holders of Nonrecourse Liabilities. Regardless of
whether the General Partner is required to provide or has provided its
consent under Section 11.3(a), no transfer of any Partnership Units may be
made to a lender to the Partnership or any Person who is related (within
the meaning of Section 1.752-4(b) of the Regulations) to any lender to the
Partnership whose loan constitutes a Nonrecourse Liability without the
consent of the General Partner, in its sole and absolute discretion;
provided, that as a condition to such consent the lender will be required
to enter into an arrangement with the Partnership and the General Partner
to exchange or redeem for the Redemption Amount any Partnership Units in
which a security interest is held simultaneously with the time at which
such lender would be deemed to be a partner in the Partnership for purposes
of allocating liabilities to such lender under Section 752 of the Code.
(e) Transfers Causing Termination. Regardless of whether the General
Partner is required to provide or has provided its consent under Section
11.3(a), no transfer of any Partnership Units shall be effective if such
transfer would, in the opinion of counsel for the Partnership, result in
the termination of the Partnership for federal income tax purposes, in
which event such transfer shall be made effective as of the first fiscal
quarter in which such termination would not occur, if the Limited Partner
making such transfer continues to desire to effect the transfer.
Section 11.4 Substituted Limited Partners.
46
<PAGE>
(a) Substitution. Any transferee of the interest of a Limited Partner
that is so designated by the transferor and who has so agreed in writing
shall be a Substituted Limited Partner.
(b) Rights and Duties of Substituted Limited Partners. A transferee
who has been admitted as a Substituted Limited Partner in accordance with
this Article XI shall have all the rights and powers and be subject to all
the restrictions and liabilities of a Limited Partner under this Agreement.
(c) Amendment of Exhibit A. Upon the admission of a Substituted
Limited Partner, the General Partner shall amend Exhibit A to reflect the
name, address, number of Partnership Units, and Percentage Interest of such
Substituted Limited Partner and to eliminate or adjust, if necessary, the
name, address and interest of the predecessor of such Substituted Limited
Partner.
Section 11.5 Assignees. If a transferee under Section 11.4(a) is not a
Substituted Limited Partner, such transferee shall be considered an Assignee for
purposes of this Agreement. An Assignee shall be entitled to all the rights of
an assignee of a limited partnership interest under the Act, including the right
to exchange Units for Shares under Section 4.2(b), the right to receive
distributions from the Partnership and the share of Net Income, Net Losses,
gain, loss and Recapture Income attributable to the Partnership Units assigned
to such transferee, but shall not be deemed to be a holder of Partnership Units
for any other purpose under this Agreement, and shall not be entitled to vote
such Partnership Units in any matter presented to the Limited Partners for a
vote (such Partnership Units being deemed to have been voted on such matter in
the same proportion as all Partnership Units held by Limited Partners are
voted). In the event any such transferee desires to make a further assignment of
any such Partnership Units, such transferee shall be subject to all the
provisions of this Article XI to the same extent and in the same manner as any
Limited Partner desiring to make an assignment of Partnership Units.
Section 11.6 General Provisions
(a) Withdrawal of Limited Partner. No Limited Partner may withdraw
from the Partnership other than as a result of a permitted transfer of all
of such Limited Partner's Partnership Units in accordance with this Article
XI or pursuant to the exchange of all of its Partnership Units under
Section 4.2(b) or the purchase of its Partnership Units under Section 8.6.
(b) Transfer of All Partnership Units by Limited Partner. Any Limited
Partner who shall transfer all of his Partnership Units in a transfer
permitted pursuant to this Article XI or pursuant to the exchange of all of
its Partnership Units under Section 4.2(b) or pursuant to the purchase of
all of its Partnership Units under Section 8.6 shall cease to be a Limited
Partner.
47
<PAGE>
(c) Timing of Transfers. Transfers pursuant to this Article XI may
only be made effective as of the first day of a calendar month, unless the
General Partner otherwise agrees.
(d) Allocation When Transfer Occurs. If any Partnership Interest is
transferred during any quarterly segment of the Partnership's fiscal year
in compliance with the provisions of this Article XI or converted pursuant
to Section 4.2(b) or purchased pursuant to Section 8.6, Net Income, Net
Losses, each item thereof and all other items attributable to such interest
for such fiscal year shall be divided and allocated between the transferor
Partner and the transferee Partner by taking into account their varying
interests during the fiscal year in accordance with Section 706(d) of the
Code, using the interim closing of the books method (other than Net Income
attributable to a Capital Transaction, which shall be allocated as of the
Capital Transaction Record Date). Solely for purposes of making such
allocations, each of such items for the calendar month in which the
transfer or redemption occurs shall be allocated to the Person who is a
Partner as of midnight on the last day of said month. All distributions of
Available Cash or Capital Transaction Proceeds with respect to which the
Partnership Record Date or the Capital Transaction Record Date is before
the date of such transfer or redemption shall be made to the transferor
Partner, and all distributions of Available Cash or Capital Transaction
Proceeds thereafter shall be made to the transferee Partner.
ARTICLE XII
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner. A successor to all
of the General Partner's General Partnership Interest pursuant to Section 11.2
hereof who is proposed to be admitted as a successor General Partner shall be
admitted to the Partnership as the General Partner, effective upon such
transfer. Any such transferee shall carry on the business of the Partnership
without dissolution. In each case, the admission shall be subject to the
successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission.
Section 12.2 Admission of Additional Limited Partners
(a) General. After the admission to the Partnership of the Limited
Partners on the date hereof and except as contemplated by the Contribution
Agreements and except as otherwise provided in Section 4.2(a) and in
Article XI hereof, a Person who makes a Capital Contribution to the
Partnership in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited Partner only with Limited Partner
Consent and upon furnishing to the General Partner (i) evidence of
acceptance in form satisfactory to the General Partner of all of the terms
and conditions of this
48
<PAGE>
Agreement, including, without limitation, the power of attorney granted in
Article XVI hereof and (ii) such other documents or instruments as may be
required in the discretion of the General Partner in order to effect such
Person's admission as an Additional Limited Partner.
(b) Consent of General Partner Required. Notwithstanding anything to
the contrary in this Section 12.2, except as contemplated by the
Contribution Agreements, no Person shall be admitted as an Additional
Limited Partner without the consent of the General Partner, which consent
may be given or withheld in the General Partner's sole and absolute
discretion. The admission of any Person as an Additional Limited Partner
shall become effective on the date upon which the name of such Person is
recorded on the books and records of the Partnership, following the consent
of the General Partner to such admission.
Section 12.3 Amendment of Agreement and Certificate. For the admission to
the Partnership of any Partner, the General Partner shall take all steps
necessary and appropriate under the Act to amend the records of the Partnership
and, if necessary, to prepare as soon as practical an amendment of this
Agreement (including an amendment of Exhibit A) and, if required by law, shall
prepare and file an amendment to the Certificate and may for this purpose
exercise the power of attorney granted pursuant to Article XVI hereof.
ARTICLE XIII
DISSOLUTION AND LIQUIDATION
Section 13.1 Dissolution. The Partnership shall not be dissolved by the
admission of Substituted Limited Partners or Additional Limited Partners or by
the admission of a successor General Partner in accordance with the terms of
this Agreement. The Partnership shall dissolve, and its affairs shall be wound
up, upon the first to occur of any of the following (each an "Event of
Dissolution"):
(a) Expiration of Term - the expiration of its term as provided in
Section 2.4 hereof;
(b) Withdrawal of General Partner - an event of withdrawal of the
last remaining General Partner, as defined in the Act (other than an event
of bankruptcy), unless, within 90 days after the withdrawal all the
remaining Partners agree in writing to continue the business of the
Partnership and to the appointment, effective as of the date of withdrawal,
of a substitute General Partner;
(c) Dissolution Prior to 2098 - from and after the date of this
Agreement through December 31, 2098, an election to dissolve the
Partnership made by the General Partner, unless any Limited Partner who
holds one or more Limited Partnership Units
49
<PAGE>
objects in writing to such dissolution within thirty (30) days after
receiving prior written notice of such election from the General Partner;
(d) Judicial Dissolution Decree - entry of a decree of judicial
dissolution of the Partnership pursuant to the provisions of the Act;
(e) Sale of Partnership's Assets - the sale, exchange or other
disposition of all or substantially all of the Partnership's assets, unless
such sale or other disposition involves the acquisition of any additional
property or any deferred payment of the consideration for such sale or
disposition, in which latter event the Partnership shall dissolve on the
last day of the calender month during which the balance of such deferred
payment is received by the Partnership;
(f) Bankruptcy or Insolvency of General Partner - the last remaining
General Partner (1) makes an assignment for the benefit of creditors; (2)
files a voluntary petition in bankruptcy; (3) is adjudged a bankrupt or
insolvent, or has entered against him an order of relief in any bankruptcy
or insolvency proceeding; (4) files a petition or answer seeking for
himself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law or
regulation; (5) files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against him in any
proceeding of this nature; or (6) seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of the General Partner or
of all or any substantial part of his properties, unless, in each such
case, within 90 days after the occurrence of any event enumerated in
clauses (1) through (6), all remaining Limited Partners agree in writing to
continue the business of the Partnership and to the appointment, effective
as of the occurrence of such event, of a substitute General Partner; or
(g) Readjustments, etc. - 120 days after the commencement of any
proceeding against the General Partner seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under
any statute, law or regulation, the proceeding has not been dismissed, or
if within 90 days after the appointment without its consent or acquiescence
of a trustee, receiver or liquidator of the General Partner or of all or
any substantial part of its properties, the appointment is not vacated or
stayed, or within 90 days after the expiration of any such stay, the
appointment is not vacated, unless, in any such case, within ninety (90)
days after the occurrence of any such event, all remaining Limited Partners
agree in writing to continue the business of the Partnership and to the
appointment, effective as of the occurrence of such event, of a substitute
General Partner.
50
<PAGE>
Section 13.2 Winding Up
(a) General. Upon the occurrence of an Event of Dissolution, the
Partnership shall continue solely for the purposes of winding up its
affairs in an orderly manner, liquidating its assets, and satisfying the
claims of its creditors and Partners. No Partner shall take any action that
is inconsistent with, or not necessary to or appropriate for, the winding
up of the Partnership's business and affairs. The General Partner (or, in
the event there is no remaining General Partner, any Person elected by a
majority in interest of the Limited Partners (the "Liquidator")) shall be
responsible for overseeing the winding up and dissolution of the
Partnership and shall take full account of the Partnership's liabilities
and property and the Partnership property shall be liquidated as promptly
as is consistent with obtaining the fair value thereof, and the proceeds
therefrom shall be applied and distributed in the following order:
(1) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other than the
Partners;
(2) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the Partners, pro rata in
accordance with amounts owed to each such Partner; and
(3) The balance, if any, to the General Partner and Limited
Partners in accordance with their Capital Accounts, after giving
effect to all contributions, distributions, and allocations for all
periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article XIII.
(b) Where Immediate Sale of Partnership's Assets Impractical.
Notwithstanding the provisions of Section 13.2(a) hereof which require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidator determines that an immediate sale of part or all
of the Partnership's assets would be impractical or would cause undue loss
to the Partners, the Liquidator may, in its sole and absolute discretion,
defer for a reasonable time the liquidation of any assets except those
necessary to satisfy liabilities of the Partnership (including to those
Limited Partners as creditors) or, with the consent of all Limited
Partners, distribute to the Partners, in lieu of cash, as tenants in common
and in accordance with the provisions of Section 13.2(a) hereof, undivided
interests in such Partnership assets as the Liquidator deems not suitable
for liquidation. Any such distributions in kind shall be made only if, in
the good faith judgment of the Liquidator, such distributions in kind are
in the best interest of the Partners, and shall be subject to such
conditions relating to the disposition and management of such properties as
the Liquidator deems reasonable and equitable and to any agreements
governing the
51
<PAGE>
operation of such properties at such time. The Liquidator shall determine
the fair market value of any property distributed in kind using such
reasonable method of valuation as it may adopt.
Section 13.3 Compliance with Timing Requirements of Regulations; Allowance
for Contingent or Unforeseen Liabilities or Obligations. Notwithstanding
anything to the contrary in this Agreement, in the event the Partnership is
"liquidated" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g),
distributions shall be made pursuant to this Article XIII to the General Partner
and Limited Partners who have positive Capital Accounts in compliance with
Regulations Section 1.704-1(b)(2)(ii)(b)(2) (including any timing requirements
therein). In the discretion of the General Partner, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article XIII may be: (i) distributed to a liquidating
trust established for the benefit of the General Partner and Limited Partners
for the purposes of liquidating Partnership assets, collecting amounts owed to
the Partnership, and paying any contingent or unforeseen liabilities or
obligations of the Partnership or of the General Partner arising out of or in
connection with the Partnership (the assets of any such trust shall be
distributed to the General Partner and Limited Partners from time to time, in
the reasonable discretion of the General Partner, in the same proportions as the
amount distributed to such trust by the Partnership would otherwise have been
distributed to the General Partner and Limited Partners pursuant to this
Agreement); or (ii) withheld to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion of
any installment obligations owed to the Partnership; provided, that such
withheld amounts shall be distributed to the General Partner and Limited
Partners as soon as practicable.
Section 13.4 Deemed Distribution and Recontribution. Notwithstanding any
other provision of this Article XIII (but subject to Section 13.3(b)), in the
event the Partnership is liquidated within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g) but no Event of Dissolution has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged, and the Partnership's affairs shall not be wound up.
Instead, the Partnership shall be deemed to have distributed the Property in
kind to the General Partner and Limited Partners, who shall be deemed to have
assumed and taken such property subject to all Partnership liabilities, all in
accordance with their respective Capital Accounts. Immediately thereafter, the
General Partner and Limited Partners shall be deemed to have recontributed the
Partnership property in kind to the Partnership, which shall be deemed to have
assumed and taken such property subject to all such liabilities.
Section 13.5 Rights of Limited Partners. Except as specifically provided
in this Agreement, each Limited Partner shall look solely to the assets of the
Partnership for the return of his Capital Contribution and shall have no right
or power to demand or receive property other than cash from the Partnership.
Except as specifically provided in this Agreement, no Limited Partner shall have
priority over any other Limited Partner as to the return of his Capital
Contributions, distributions, or allocations.
52
<PAGE>
Section 13.6 Notice of Dissolution. In the event an Event of Dissolution
or an event occurs that would, but for provisions of Section 13.1, result in a
dissolution of the Partnership, the General Partner shall, within 10 days
thereafter, provide written notice thereof to each of the Partners and to all
other parties with whom the Partnership regularly conducts business (as
determined in the discretion of the General Partner) and shall publish notice
thereof in a newspaper of general circulation in each place in which the
Partnership regularly conducts business (as determined in the discretion of the
General Partner).
Section 13.7 Cancellation of Certificate of Limited Partnership. Upon the
completion of the liquidation of the Partnership as provided in Section 13.2
hereof, the Partnership shall be terminated and the Certificate and all
qualifications of the Partnership as a foreign limited partnership in
jurisdictions other than the State of Delaware shall be canceled and such other
actions as may be necessary to terminate the Partnership shall be taken.
Section 13.8 Reasonable Time for Winding-Up. A reasonable time shall be
allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of its assets pursuant to Section 13.2 hereof,
in order to minimize any losses otherwise attendant upon such winding-up, and
the provisions of this Agreement shall remain in effect between the Partners
during the period of liquidation.
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments.
(a) General. Amendments to this Agreement may be proposed by the
General Partner or by any Limited Partners holding 25 percent or more in
the aggregate of the Percentage Interests held by all Limited Partners.
Following such proposal, the General Partner shall submit any proposed
amendment to the Limited Partners. The General Partner shall seek the
written vote of the Partners on the proposed amendment or shall call a
meeting to vote thereon and to transact any other business that it may deem
appropriate. For purposes of obtaining a written vote, the General Partner
may require a response within a reasonable specified time, but not less
than 15 days, and failure to respond in such time period shall constitute a
vote which is consistent with the General Partner's recommendation with
respect to the proposal. Except as provided in Section 14.1(b) or 14.1(c),
a proposed amendment shall be adopted and be effective as an amendment
hereto if it is approved by the General Partner and it receives Limited
Partner Consent.
(b) General Partner's Power to Amend. Notwithstanding Section
14.1(a), the General Partner shall have the power, without the consent of
the Limited Partners, to amend this Agreement as may be required to
facilitate or implement any of the following purposes:
53
<PAGE>
(1) to add to the obligations of the General Partner or
surrender any right or power granted to the General Partner or any
Affiliate of the General Partner for the benefit of the Limited
Partners;
(2) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement;
(3) to reflect a change that is of an inconsequential nature and
does not adversely affect the Limited Partners in any material
respect, or to cure any ambiguity, correct or supplement any provision
in this Agreement not inconsistent with law or with other provisions,
or make other changes with respect to matters arising under this
Agreement that will not be inconsistent with law or with the
provisions of this Agreement;
(4) to satisfy any requirements or conditions contained in any
order, directive, opinion, ruling or regulation of a federal or state
agency or contained in federal or state law; and
(5) to reflect adjustments in the respective Percentage
Interests of the Partners in accordance with Section 4.1(a)(3) hereof.
The General Partner will provide 10 days' prior written notice to the
Limited Partners when any action under this Section 14.1(b) is taken.
(c) Consent of Adversely Affected Partner Required. Notwithstanding
Section 14.1(a) hereof, this Agreement shall not be amended without the
consent of each Partner adversely affected if such amendment would (i)
convert a Limited Partner's interest in the Partnership into a general
partner's interest, (ii) modify the limited liability of a Limited Partner,
(iii) alter rights of the Partner to receive distributions pursuant to
Articles V or XIII, the allocations specified in Article VI (except as
permitted pursuant to Section 4.2 hereof), or the General Partner's
obligation to make additional Capital Contributions pursuant to Section
7.1(a)(3), (iv) alter or modify the Conversion Right or the Redemption
Amount as set forth in Sections 4.2(b) and 8.6, and related definitions
thereof, (v) cause the termination of the Partnership prior to the time set
forth in Sections 2.4 or 13.1, or (vi) amend this Section 14.1(c). Further,
no amendment may alter the restrictions on the General Partner's authority
set forth in Section 7.3 without the consent specified in that section.
54
<PAGE>
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notice. All notices and demands under this
Agreement shall be in writing, and may be either delivered by U.S. mail or a
nationally recognized overnight courier, by telefax, telex or other wire
transmission (with request for assurance of receipt in a manner appropriate with
respect to communications of that type; provided, that a confirmation copy is
concurrently sent by a nationally recognized express courier for next Business
Day delivery) or mailed, postage prepaid, by certified or registered mail,
return receipt requested, directed to the parties at their respective addresses
set forth on Exhibit A attached hereto, as it may be amended from time to time,
and, if to the Partnership, such notices and demands sent in the aforesaid
manner must be delivered at its principal place of business set forth above.
Unless delivered personally or by telefax, telex or other wire transmission as
above (which shall be effective on the date of such delivery or transmission),
any notice shall be deemed to have been made upon receipt. Any party hereto may
designate a different address to which notices and demands shall thereafter be
directed by written notice given in the same manner and directed to the
Partnership at its office hereinabove set forth.
Section 15.2 Titles and Captions. All article or section titles or
captions in this Agreement are for convenience only. They shall not be deemed
part of this Agreement and in no way define, limit, extend or describe the scope
or intent of any provisions hereof. Except as specifically provided otherwise,
references to "Articles" and "Sections" are to Articles and Sections of this
Agreement.
Section 15.3 Pronouns and Plurals. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
Section 15.4 Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.
Section 15.6 Waiver of Partition. The Partners hereby agree that the
Partnership properties are not and will not be suitable for partition.
Accordingly, each of the Partners hereby irrevocably waives any and all rights
(if any) that it may have to maintain any action for partition of any of the
Partnership properties.
Section 15.7 Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the matters contained herein; it
supersedes any prior
55
<PAGE>
agreements or understandings among them with respect to the matters contained
herein and it may not be modified or amended in any manner other than pursuant
to Article XIV.
Section 15.8 Securities Law Provisions. The Partnership Units have not
been registered under the federal or state securities laws of any state and,
therefore, may not be resold unless appropriate federal and state securities
laws, as well as the provisions of Article XI hereof, have been complied with.
Section 15.9 Remedies Not Exclusive. Any remedies herein contained for
breaches of obligations hereunder shall not be deemed to be exclusive and shall
not impair the right of any party to exercise any other right or remedy, whether
for damages, injunction or otherwise.
Section 15.10 Time. Time is of the essence of this Agreement.
Section 15.11 Creditors. None of the provisions of this Agreement shall be
for the benefit of, or shall be enforceable by, any creditor of the Partnership.
Section 15.12 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement or
condition.
Section 15.13 Execution Counterparts. This Agreement may be executed in
counterparts, all of which together shall constitute one agreement binding on
all the parties hereto, notwithstanding that all such parties are not
signatories to the original or the same counterpart.
Section 15.14 Applicable Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of law.
Section 15.15 Invalidity of Provisions. If any provision of this Agreement
is or becomes invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not be affected thereby.
Section 15.16 Limitation of Liability. Any obligation or liability
whatsoever of the General Partner which may arise at any time under this
Agreement or any obligation or liability which may be incurred by it pursuant to
any other instrument, transaction or undertaking contemplated hereby shall be
satisfied, if at all, out of the General Partner's assets only. No such
obligation or liability shall be personally binding upon, nor shall resort for
the enforcement thereof be had to, the property of any of its shareholders,
trustees, officers, employees or agents, regardless of whether such obligation
or liability is in the nature of contract, tort or otherwise.
56
<PAGE>
ARTICLE XVI
POWER OF ATTORNEY
Section 16.1 Power of Attorney.
(a) Scope. Each Limited Partner and each Assignee constitutes and
appoints the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case
with full power of substitution, as its true and lawful agent and attorney-
in-fact, with full power and authority in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and record in
the appropriate public offices (i) all certificates, documents and
other instruments (including, without limitation, this Agreement and
the Certificate and all amendments or restatements thereof) that the
General Partner or the Liquidator deems appropriate or necessary to
form, qualify or continue the existence or qualification of the
Partnership as a limited partnership (or a partnership in which the
limited partners have limited liability) in the State of Delaware and
in all other jurisdictions in which the Partnership may conduct
business or own property; (ii) all instruments that the General
Partner reasonably deems appropriate or necessary to reflect any
amendment, change, modification or restatement of this Agreement in
accordance with its terms; (iii) all conveyances and other instruments
or documents that the General Partner deems appropriate or necessary
to reflect the dissolution and liquidation of the Partnership pursuant
to the terms of this Agreement, including, without limitation, a
certificate of cancellation; (iv) all instruments or documents and all
certificates and acknowledgments relating to any mortgage, pledge, or
other form of encumbrance in connection with any loan or other
financing to the General Partner as provided by Section 7.1(a)(3); (v)
all instruments relating to the admission, withdrawal, removal or
substitution of any Partner pursuant to, or other events described in,
Article XI, XII or XIII hereof or the Capital Contribution of any
Partner; and (vi) all certificates, documents and other instruments
relating to the determination of the rights, preferences and
privileges of Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments
appropriate or necessary, in the reasonable discretion of the General
Partner, to make, evidence, give, confirm or ratify any vote, consent,
approval, agreement or other action which is made or given by the
Partners hereunder or is consistent with the terms of this Agreement
or appropriate or necessary, in the reasonable discretion of the
General Partner, to effectuate the terms or intent of this Agreement.
57
<PAGE>
Nothing contained herein shall be construed as authorizing the General
Partner to amend this Agreement except in accordance with Article XIV
hereof or as may be otherwise expressly provided for in this Agreement.
(b) Irrevocability. The foregoing power of attorney is hereby
declared to be irrevocable and a power coupled with an interest, in
recognition of the fact that each of the Partners will be relying upon the
power of the General Partner to act as contemplated by this Agreement in
any filing or other action by it on behalf of the Partnership, and it shall
survive and not be affected by the subsequent Incapacity of any Limited
Partner or Assignee and the transfer of all or any portion of such Limited
Partner's or Assignee's Partnership Units and shall extend to such Limited
Partner's or Assignee's heirs, successors, assigns and personal
representatives. Each such Limited Partner or Assignee hereby agrees to be
bound by any representation made by the General Partner, acting in good
faith pursuant to such power of attorney; and each such Limited Partner or
Assignee hereby waives any and all defenses which may be available to
contest, negate or disaffirm the action of the General Partner, taken in
good faith under such power of attorney. Each Limited Partner or Assignee
shall execute and deliver to the General Partner or the Liquidator, within
15 days after receipt of the General Partner's or Liquidator's request
therefor, such further designations, powers of attorney and other
instruments as the General Partner or Liquidator, as the case may be, deems
necessary to effectuate this Agreement and the purposes of the Partnership;
provided, however, that no such designations, powers of attorney or other
instruments shall obligate any Partner to make any additional Capital
Contribution or increase the personal liability of any Partner for
obligations of the Partnership.
58
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GENERAL PARTNER:
SCA-I INCORPORATED
By: /s/ J. Lindsay Freeman
-----------------------
J. Lindsay Freeman
Managing Director
SECURITY CAPITAL ATLANTIC INCORPORATED,
solely for purposes of Sections 4.2(b), 8.6 and 11.2(b) hereof
By: /s/ J. Lindsay Freeman
-----------------------
J. Lindsay Freeman
Managing Director
LIMITED PARTNERS:
/s/ E.C. GRIFFITH CO.
/s/ WILLIAM A. WHITE, JR.
/s/ WHITE-CAVU LIMITED PARTNERSHIP
/s/ THOMAS A. HUNTER III
/s/ G. DAN PAGE, JR.
/s/ JOSEPH E. KAYLOR
/s/ DEAN R. DEVILLERS
/s/ CLOSE FAMILY PARTNERSHIP
/s/ THE SPRINGS COMPANY
/s/ ELM LAND CO.
/s/ ZEB REA
59
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 333-38477) of Security Capital Atlantic Incorporated ("ATLANTIC") and in
the related Prospectus and the Registration Statements (Form S-8 No. 333-43761,
333-31419, and 333-25993) pertaining to the Security Capital Atlantic
Incorporated 401(K) Savings Plan, the Security Capital Atlantic Incorporated
Long-Term Incentive Plan and the Security Capital Atlantic Incorporated Share
Option Plan for Outside Directors of our report dated December 31, 1997, with
respect to the combined Historical Summary of Gross Income and Direct Operating
Expenses of the Group F Communities and our report dated April 7, 1998, with
respect to the Historical Summary of Gross Income and Direct Operating Expenses
of the Arbor Green Community, both of which are included in the Report on
Form 8-K/A No. 1 to be filed by ATLANTIC on or about May 20, 1998.
ERNST & YOUNG LLP
Dallas, Texas
May 19, 1998
