EXHIBIT 2.1
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MERGER AND ISSUANCE AGREEMENT
DATED AS OF MARCH 24, 1997
BY AND BETWEEN
SECURITY CAPITAL ATLANTIC INCORPORATED
AND
SECURITY CAPITAL GROUP INCORPORATED
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TABLE OF CONTENTS
PAGE
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ARTICLE I DEFINITIONS......................................... 1
SECTION 1.1 DEFINITIONS.................................. 1
ARTICLE II THE MERGERS, WARRANT ISSUANCE AND RIGHTS OFFERING.. 6
SECTION 2.1 THE MERGERS.................................. 6
SECTION 2.2 WARRANT ISSUANCE............................. 7
SECTION 2.3 THE RIGHTS OFFERING.......................... 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ATLANTIC........ 8
SECTION 3.1 ORGANIZATION AND QUALIFICATION............... 8
SECTION 3.2 CAPITALIZATION............................... 8
SECTION 3.3 ISSUANCE OF SECURITIES....................... 9
SECTION 3.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS...... 9
SECTION 3.5 REGISTRATION STATEMENTS AND PROXY
STATEMENT AND PROSPECTUS................... 10
SECTION 3.6 DISCLOSURE, FINANCIAL STATEMENTS AND
ABSENCE OF CERTAIN CHANGES................. 11
SECTION 3.7 ABSENCE OF UNDISCLOSED LIABILITIES........... 11
SECTION 3.8 BROKERS AND FINDERS.......................... 11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SCG.............. 12
SECTION 4.1 ORGANIZATION AND QUALIFICATION............... 12
SECTION 4.2 CAPITALIZATION............................... 12
SECTION 4.3 ISSUANCE OF SECURITIES....................... 13
SECTION 4.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS...... 13
SECTION 4.5 FINANCIAL STATEMENTS......................... 14
SECTION 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS......... 15
SECTION 4.7 REGISTRATION STATEMENTS AND PROXY
STATEMENT AND PROSPECTUSES................. 15
SECTION 4.8 TAXES........................................ 15
SECTION 4.9 ABSENCE OF UNDISCLOSED LIABILITIES........... 17
SECTION 4.10 LITIGATION.................................. 17
SECTION 4.11 NO VIOLATION OF LAW......................... 17
SECTION 4.12 INSURANCE................................... 18
SECTION 4.13 EMPLOYEE BENEFIT PLANS...................... 18
SECTION 4.14 INTELLECTUAL PROPERTY....................... 18
SECTION 4.15 LABOR....................................... 19
SECTION 4.16 BROKERS AND FINDERS......................... 19
SECTION 4.17 INVESTMENT COMPANY ACT...................... 19
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SECTION 4.18 ADEQUACY OF SCG CONSIDERATION............... 19
SECTION 4.19 INVESTMENT IN SECURITIES.................... 19
SECTION 4.20 TITLE TO ASSETS; NO REAL PROPERTY........... 20
SECTION 4.21 PROJECTIONS................................. 20
ARTICLE V CONDUCT OF BUSINESSES PENDING THE MERGER CLOSING.... 21
SECTION 5.1 CONDUCT OF BUSINESSES........................ 21
SECTION 5.2 CONDUCT OF BUSINESS OF ATLANTIC.............. 23
ARTICLE VI ADDITIONAL AGREEMENTS.............................. 23
SECTION 6.1 ACCESS TO INFORMATION........................ 23
SECTION 6.2 PROXY STATEMENT AND REGISTRATION STATEMENT... 24
SECTION 6.3 SHAREHOLDERS' APPROVAL....................... 24
SECTION 6.4 AFFILIATE AGREEMENTS......................... 25
SECTION 6.5 EXCHANGE..................................... 25
SECTION 6.6 EXPENSES..................................... 25
SECTION 6.7 AGREEMENT TO COOPERATE....................... 25
SECTION 6.8 PUBLIC STATEMENTS............................ 25
SECTION 6.9 CORRECTIONS TO THE SCG WARRANT REGISTRATION
STATEMENT AND SCG WARRANT PROSPECTUS....... 26
SECTION 6.10 VOTING OF SHARES............................ 26
SECTION 6.11 CONFIDENTIALITY............................. 26
SECTION 6.12 PERSONNEL................................... 28
SECTION 6.13 PRORATIONS.................................. 28
SECTION 6.14 TAX MATTERS................................. 29
SECTION 6.15 STANDSTILL.................................. 30
ARTICLE VII CONDITIONS........................................ 31
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS....... 31
SECTION 7.2 CONDITIONS TO OBLIGATIONS OF ATLANTIC........ 32
SECTION 7.3 CONDITIONS TO OBLIGATIONS OF SCG............. 33
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER................ 34
SECTION 8.1 TERMINATION.................................. 34
SECTION 8.2 EFFECT OF TERMINATION........................ 35
SECTION 8.3 AMENDMENT.................................... 35
SECTION 8.4 WAIVER....................................... 35
ARTICLE IX SURVIVAL AND REMEDY; INDEMNIFICATION............... 35
SECTION 9.1 INDEMNIFICATION.............................. 35
SECTION 9.2 LIMITATION OF INDEMNIFICATION................ 36
SECTION 9.3 NOTICE OF CLAIMS; ASSUMPTION OF DEFENSE...... 36
SECTION 9.4 SETTLEMENT OR COMPROMISE..................... 37
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SECTION 9.5 FAILURE OF INDEMNIFYING PARTY TO ACT......... 37
SECTION 9.6 SURVIVAL..................................... 37
SECTION 9.7 WAIVER OF COUNTERCLAIMS FOR INDEMNIFICATION.. 37
ARTICLE X GENERAL PROVISIONS.................................. 38
SECTION 10.1 NOTICES..................................... 38
SECTION 10.2 INTERPRETATION.............................. 39
SECTION 10.3 MISCELLANEOUS............................... 39
SECTION 10.4 COUNTERPARTS................................ 39
SECTION 10.5 PARTIES IN INTEREST......................... 39
SECTION 10.6 NO PRESUMPTION AGAINST DRAFTER.............. 39
EXHIBITS
EXHIBIT I AGREEMENT AND PLAN OF MERGER
EXHIBIT II WARRANT AGREEMENT
EXHIBIT III WARRANT ISSUANCE AGREEMENT
EXHIBIT IV AMENDED AND RESTATED ATLANTIC INVESTOR AGREEMENT
EXHIBIT V ADMINISTRATIVE SERVICES AGREEMENT
EXHIBIT VI LICENSE AGREEMENT
EXHIBIT VII PROTECTION OF BUSINESS
EXHIBIT VIII OPINION OF ▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇
SCHEDULES
SCHEDULE 3.2(b) SUBSCRIPTIONS, OPTIONS, ETC.
SCHEDULE 3.4(b) ATLANTIC REQUIRED CONSENTS
SCHEDULE 4.4(b) SCG REQUIRED CONSENTS
SCHEDULE 4.10 SCG SUBSIDIARY LITIGATION
SCHEDULE 4.14 SCG SUBSIDIARIES' INTELLECTUAL PROPERTY
SCHEDULE 4.20 ASSETS AND PERSONNEL
SCHEDULE 7.1 AGREEMENTS TO BE TERMINATED
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MERGER AND ISSUANCE AGREEMENT
THIS MERGER AND ISSUANCE AGREEMENT (this "Agreement"), is entered into as
of March 24, 1997 by and between Security Capital Atlantic Incorporated, a
Maryland corporation ("ATLANTIC"), and Security Capital Group Incorporated, a
Maryland corporation ("SCG").
WHEREAS, the Board of Directors of each of SCG and ATLANTIC have approved
this Agreement and the transactions contemplated hereby upon the terms and
subject to the conditions set forth herein; and
WHEREAS, it is intended that pursuant to this Agreement, among other
things, SCG will cause its subsidiaries engaged in the conduct of the businesses
of managing the portfolio of and the properties owned by ATLANTIC to be merged
with and into a subsidiary of ATLANTIC in exchange for certain securities of
ATLANTIC.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Affiliate Agreement" shall have the meaning set forth in Section 6.4.
"Affiliate Group" shall have the meaning set forth in Section 4.8.
"Agreement and Plan of Merger" shall have the meaning set forth in Section
2.1.
"ATLANTIC 10-K" shall have the meaning set forth in Section 3.6.
"ATLANTIC Board" shall mean the Board of Directors of ATLANTIC.
"ATLANTIC Common Shares" shall mean the shares of common stock, $.01 par
value per share, of ATLANTIC.
"ATLANTIC Financial Statements" shall have the meaning set forth in Section
3.6.
"ATLANTIC Prospectus" shall mean the prospectus, as amended and
supplemented, relating to the offering of ATLANTIC Common Shares pursuant to
Section 2.3, which will form a part of the ATLANTIC Registration Statement.
"ATLANTIC Registration Statement" shall mean the registration statement on
Form S-11 of ATLANTIC, of which the ATLANTIC Prospectus will form a part, which
has been or will be filed with the Commission in order to register the offering
of ATLANTIC Common Shares pursuant to Section 2.3.
"ATLANTIC Required Statutory Approvals" shall have the meaning set forth in
Section 3.4(c).
"ATLANTIC Shareholders' Approval Record Date" shall mean the record date
for determination of the holders of ATLANTIC Common Shares entitled to vote with
respect to obtaining the ATLANTIC Shareholders' Approval.
"ATLANTIC Shareholders' Approval" shall have the meaning set forth in
Section 6.3.
"ATLANTIC Special Committee" shall have the meaning set forth in Section
7.2(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission.
"Confidential Material" shall have the meaning set forth in Section
6.11(a).
"Current Market Price" of the ATLANTIC Common Shares and the SCG Class B
Common Shares for any day shall mean the last reported sales price on such day,
or, if no sale takes place on such day, the average of the reported closing bid
and asked prices on such day, in either case as reported on the New York Stock
Exchange or, if such security is not listed or admitted for trading on the New
York Stock Exchange, on the principal national securities exchange on which such
security is listed or admitted for trading or, if not listed or admitted for
trading on any national securities exchange, on the National Market System of
the National Association of Securities Dealers, Inc. Automated Quotations System
or, if such security is not quoted on such National Market System, the average
of the closing bid and asked prices on such day in the over-the-counter market
as reported by the National Association of Securities Dealers, Inc. Automated
Quotations System or, if bid and asked prices for such security on such day
shall not have been reported through the National Association of Securities
Dealers, Inc. Automated Quotations System, in the case of the ATLANTIC Common
Shares, the average of the bid and asked prices on such day as furnished by any
New York Stock Exchange member firm regularly making a market in ATLANTIC Common
Shares selected for such purpose by a Co-Chairman of the Board of ATLANTIC or
the ATLANTIC Board, or, in the case of the SCG Class B
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Common Shares, the fair market value of the SCG Class B Common Shares as
determined in good faith by the SCG Board.
"Employee Benefit Plans" shall have the meaning set forth in Section 4.13.
"Employees" shall have the meaning set forth in Section 4.13.
"Environmental Laws" means the Resource Conservation and Recovery Act and
the Comprehensive Environmental Response Compensation and Liability Act and
other federal laws governing the environment as in effect on the date of this
Agreement together with their implementing regulations as of the date of this
Agreement, and all state, regional, county, municipal and other local laws,
regulations and ordinances as in effect on the date hereof that are equivalent
or similar to the federal laws recited above or that purport to regulate
Hazardous Materials.
"Exchange" shall mean the New York Stock Exchange, another national
securities exchange or the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotations System.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean the average of the daily Current Market
Prices of an ATLANTIC Common Share during the five (5) consecutive Trading Days
commencing six Trading Days prior to the ATLANTIC Shareholders' Approval Record
Date.
"Hazardous Materials" shall mean (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
polychlorinated biphenyls and, only to the extent it exists at levels which are
considered hazardous to human health, radon gas and (b) any chemicals, materials
or substances defined as or included in the definition of "hazardous
substances," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words of similar import, under any applicable Environmental
Laws.
"Indemnified Parties" shall have the meaning set forth in Section 9.1.
"Indemnifying Parties" shall have the meaning set forth in Section 9.1.
"Intellectual Property" shall mean all United States and foreign patents,
patent applications, patent licenses, trade names, trademarks, trade name and
trademark registrations (and applications therefor), copyrights and copyright
registrations (and applications therefor), trade secrets, inventions, processes,
designs, know-how and formulae.
"Losses" shall have the meaning set forth in Section 9.1.
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"Merger Closing" shall have the meaning set forth in Section 2.1.
"Post-Closing Accrual Statement" shall have the meaning set forth in
Section 6.13.
"Property Management Agreement" shall have the meaning set forth in Section
5.1(a).
"Property Manager" shall mean SCG Realty Services Atlantic Incorporated, a
Delaware corporation.
"Prorated Items" shall have the meaning set forth in Section 6.13.
"Providing Party" shall have the meaning set forth in Section 6.11(a).
"Proxy Statement" shall mean the definitive ATLANTIC proxy statement,
including the SCG Warrant Prospectus, to be filed with the Commission (i) as a
proxy statement by ATLANTIC and (ii) as a part of the SCG Warrant Registration
Statement by SCG.
"Receiving Party" shall have the meaning set forth in Section 6.11(a).
"REIT Management Agreement" shall have the meaning set forth in Section
5.1(a).
"REIT Manager" shall mean Security Capital (Atlantic) Incorporated, a
Nevada corporation.
"Related Agreements" shall mean each of the agreements, instruments and
documents contemplated to be entered into in connection with this Agreement,
including, without limitation, the Agreement and Plan of Merger, the Warrant
Issuance Agreement, the Warrant Agreement, the Amended and Restated ATLANTIC
Investor Agreement, the Administrative Services Agreement, the License Agreement
and the Affiliate Agreements.
"Representatives" shall have the meaning set forth in Section 6.11(a).
"Rights Offering Amount" shall have the meaning set forth in Section 2.3.
"Rights Offering Closing Date" shall mean the third business day following
the Rights Offering Expiration Date.
"Rights Offering Expiration Date" shall have the meaning set forth in
Section 2.3.
"SCG Board" shall mean the Board of Directors of SCG.
"SCG Class B Common Shares" shall mean the shares of Class B common stock,
$.01 par value per share, of SCG.
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"SCG Financial Statements" shall have the meaning set forth in Section 4.5.
"SCG Proxy Statement" shall mean the definitive proxy statement mailed to
shareholders of SCG with respect to the meeting of shareholders of SCG to be
held in connection with the transactions contemplated by this Agreement.
"SCG Required Statutory Approvals" shall have the meaning set forth in
Section 4.4(c).
"SCG Shareholders' Approval" shall have the meaning set forth in Section
6.3.
"SCG Subsidiaries" shall mean the REIT Manager and the Property Manager.
"SCG Warrant Prospectus" shall mean the prospectus relating to the Warrant
Issuance pursuant to Section 2.2 which will form a part of the SCG Warrant
Registration Statement and the Proxy Statement.
"SCG Warrant Registration Statement" shall mean the registration statement
on Form S-4 of SCG, of which the Proxy Statement and the SCG Warrant Prospectus
will form a part, to be filed with the Commission in order to register the
Warrant Issuance pursuant to Section 2.2.
"SCG Warrants" shall have the meaning set forth in Section 2.2.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Subsidiary Financial Statements" shall have the meaning set forth in
Section 4.5.
"Taxes" shall mean all taxes, charges, fees, levies or other assessments,
including, without limitation, income, gross receipts, excise, property, sales,
withholding, social security, occupation, use, service, service use, license,
payroll, franchise, transfer and recording taxes, fees and charges, imposed by
the United States, or any state, local or foreign government or subdivision or
agency thereof whether computed on a separate, consolidated, unitary, combined
or any other basis; and such term shall include any interest, fines, penalties
or additional amounts attributable or imposed on or with respect to any such
taxes, charges, fees, levies or other assessments.
"Tax Returns" shall mean any return, report or other document or
information required to be supplied to a taxing authority in connection with
Taxes.
"Termination Date" shall have the meaning set forth in Section 8.1(b).
"Trading Day" shall mean any day on which the ATLANTIC Common Shares are
traded on the New York Stock Exchange, or if such securities are not listed or
admitted for trading on the New York Stock Exchange, on the principal national
securities exchange on which such
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securities are listed or admitted, or if not listed or admitted for trading on
any national securities exchange, on the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotations System, or if such
securities are not quoted on such National Market System, in the applicable
securities market in which the securities are traded.
"Warrant Agreement" shall mean the Warrant Agreement between SCG and The
First National Bank of Boston, as warrant agent, substantially in the form of
Exhibit II hereto.
"Warrant Issuance" shall have the meaning set forth in Section 2.2.
"Warrant Issuance Agreement" shall mean the Warrant Issuance Agency
Agreement substantially in the form of Exhibit III hereto.
"Warrant Issuance Date" shall mean the date established by the Board of
Directors of SCG as the date on which the SCG Warrants shall be delivered to the
issuance agent pursuant to the Warrant Issuance Agreement, which date shall be
within 30 days following the Warrant Issuance Record Date.
"Warrant Issuance Record Date" shall have the meaning set forth in Section
2.2.
ARTICLE II
THE MERGERS, WARRANT ISSUANCE AND RIGHTS OFFERING
SECTION 2.1 THE MERGERS. The events set forth in this Section 2.1 shall be
effected, upon the terms and subject to the conditions of this Agreement, as
soon as practicable after this Agreement and the transactions contemplated
hereby are approved by the shareholders of each of ATLANTIC and SCG (the "Merger
Closing"). It is the intention of the parties that each of the events set forth
in this Section 2.1 shall occur simultaneously. ATLANTIC and SCG shall each
take all actions necessary to cause the SCG Subsidiaries to be merged with and
into a subsidiary of ATLANTIC, which subsidiary shall be a "qualified REIT
subsidiary" of ATLANTIC within the meaning of Section 856(i)(2) of the Code, on
the terms and conditions set forth in the agreement and plan of merger
substantially in the form of Exhibit I hereto (the "Agreement and Plan of
Merger"). ATLANTIC shall issue that number of ATLANTIC Common Shares in
connection with the mergers described in this Section 2.1 equal to the number
obtained by dividing $54,608,549 by the Fair Market Value of an ATLANTIC Common
Share; provided, however, that in the event that the Fair Market Value of an
ATLANTIC Common Share is less than $20.6367, then the number of ATLANTIC Common
Shares issuable in connection with the mergers described in this Section 2.1
shall be 2,646,186; and provided, further, that in the event that the Fair
Market Value of an ATLANTIC Common Share is more than $25.8633, then the number
of ATLANTIC Common Shares issuable in connection with the mergers described in
this Section 2.1 shall be 2,111,430.
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SECTION 2.2 WARRANT ISSUANCE. SCG shall issue (the "Warrant Issuance")
warrants to purchase SCG Class B Common Shares (the "SCG Warrants") to holders
of ATLANTIC Common Shares (other than those owned by SCG) as of the Warrant
Issuance Record Date on the terms and in the manner described below. The SCG
Warrants shall each (i) be exercisable for one SCG Class B Common Share, (ii)
have an exercise price per SCG Class B Common Share equal to the Current Market
Price of an SCG Class B Common Share on the Warrant Issuance Date, (iii) shall
expire 12 months from the date of issuance and (iv) shall have such other terms
and conditions as set forth in the Warrant Agreement. The record date for
determining the holders entitled to participate in the Warrant Issuance (the
"Warrant Issuance Record Date") shall be the close of business on the date
designated by SCG, which date shall be within the 28-day period following the
Rights Offering Closing Date and which date shall be consistent with any
restrictions in the ruling or opinion described in Section 7.1(d). SCG shall
issue an aggregate number of SCG Warrants determined by dividing $46,926,322 by
the Current Market Price of an SCG Class B Common Share on the Warrant Issuance
Date. The number of SCG Warrants to be issued to each such holder shall be
determined by multiplying (a) the aggregate number of SCG Warrants to be issued
by (b) the number obtained by dividing (i) the aggregate number of ATLANTIC
Common Shares held of record by the holder as of the close of business on the
Warrant Issuance Record Date, by (ii) the total number of ATLANTIC Common Shares
outstanding (other than those owned by SCG) as of the close of business on the
Warrant Issuance Record Date. No certificates or scrip representing fractional
SCG Warrants shall be issued in connection with the Warrant Issuance. The
Warrant Issuance Agreement shall contain appropriate provision to aggregate and
sell all fractional SCG Warrants and remit the net proceeds to the ATLANTIC
shareholders who would otherwise be entitled to such fractions. The Warrant
Issuance shall be made pursuant to and in accordance with the procedures set
forth in the Warrant Issuance Agreement. The Warrant Issuance shall not occur
unless and until all of the conditions set forth in this Agreement have been
satisfied or waived and the mergers described in Section 2.1 have been
consummated.
SECTION 2.3 THE RIGHTS OFFERING. ATLANTIC shall distribute as a dividend
to each holder of record of ATLANTIC Common Shares, as of the close of business
on the ATLANTIC Shareholders' Approval Record Date, rights to purchase ATLANTIC
Common Shares entitling such holder to subscribe for and purchase ATLANTIC
Common Shares during the period commencing on the date the ATLANTIC Prospectus
is mailed to such holders and expiring on the close of business on the date of
the Merger Closing (the "Rights Offering Expiration Date"). The issuance of
such rights and the issuance of ATLANTIC Common Shares upon exercise of such
rights shall be registered under the ATLANTIC Registration Statement and
ATLANTIC shall use its best efforts to cause the rights to be tradeable on the
Exchange on which the ATLANTIC Common Shares are listed. Each holder of
ATLANTIC Common Shares shall receive one (1) right for every one (1) ATLANTIC
Common Share held of record by such holder as of the ATLANTIC Shareholders'
Approval Record Date. The exercise price per ATLANTIC Common Share for such
rights shall be equal to the Fair Market Value of an ATLANTIC Common Share;
provided, that in the event that the Fair Market Value of an ATLANTIC Common
Share is more than $25.8633, then the exercise price per ATLANTIC
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Common Share shall be $25.8633. ATLANTIC shall make available for issuance in
the rights offering, up to a maximum number of ATLANTIC Common Shares equal to
the difference between (X) the amount determined by dividing (A) the number of
ATLANTIC Common Shares issuable pursuant to Section 2.1 by (B) the percentage of
all outstanding ATLANTIC Common Shares owned by SCG on the ATLANTIC
Shareholders' Approval Record Date (the amount determined pursuant to this
clause (X) being the "Rights Offering Amount") and (Y) the number of ATLANTIC
Common Shares issuable to SCG pursuant to Section 2.1. Each holder shall be
entitled to acquire one (1) ATLANTIC Common Share by paying the Fair Market
Value and surrendering that number of rights (rounded down to the nearest one-
one hundredth (1/100th)) equal to the amount determined by dividing the
aggregate number of ATLANTIC Common Shares outstanding on the ATLANTIC
Shareholders' Approval Record Date by the Rights Offering Amount. SCG agrees
that it shall not exercise or sell or otherwise transfer any rights issued to it
pursuant to this Section 2.3 and SCG shall not purchase or otherwise acquire any
rights. ATLANTIC shall not accept subscriptions pursuant to such rights unless
and until all of the conditions set forth in this Agreement have been satisfied
or waived and the mergers described in Section 2.1 have been consummated.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ATLANTIC
ATLANTIC represents and warrants to SCG as follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION. ATLANTIC is duly organized,
validly existing and in good standing under the laws of the State of Maryland
and has the requisite power, corporate or otherwise, and authority to own, lease
and operate its assets and properties and to carry on its business as it is now
being conducted and as it is proposed by it to be conducted, including, without
limitation, the conduct of the businesses currently conducted by the SCG
Subsidiaries. ATLANTIC is qualified to do business and is in good standing in
each jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing would not
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of ATLANTIC. True, accurate and complete copies of each
of the articles of incorporation and bylaws of ATLANTIC as in effect on the date
hereof, including all amendments thereto and proposed amendments thereof, have
heretofore been delivered to SCG.
SECTION 3.2 CAPITALIZATION.
(a) The authorized shares of ATLANTIC consists of 250,000,000 shares of
which 37,891,580 ATLANTIC Common Shares are issued and outstanding as of the
date hereof. All of the issued and outstanding ATLANTIC Common Shares are
validly issued, fully paid and nonassessable and free of preemptive rights.
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(b) Except as contemplated by this Agreement and the Related Agreements or
as set forth in Schedule 3.2(b), as of the date hereof, there are no outstanding
subscriptions, options, calls, contracts, commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement that are presently exercisable obligating ATLANTIC to issue, deliver
or sell, or cause to be issued, delivered or sold, additional ATLANTIC Common
Shares or obligating ATLANTIC to grant, extend or enter into any such agreement
or commitment; provided, however, that the foregoing shall not apply to the
adoption by ATLANTIC of any incentive plan providing for grants of options or
restricted shares to directors and employees nor to any grant of options or
restricted shares thereunder. There are no voting trusts, proxies or other
agreements or understandings to which ATLANTIC is a party or by which ATLANTIC
is bound with respect to the voting of any ATLANTIC Common Shares.
SECTION 3.3 ISSUANCE OF SECURITIES. The ATLANTIC Common Shares issuable
to SCG hereunder, when issued in accordance with the provisions of this
Agreement and the Related Agreements, will be duly and validly authorized and
issued and will be fully paid and nonassessable. The ATLANTIC Common Shares
issuable upon exercise of rights issued pursuant to Section 2.3, when issued in
accordance with the provisions of this Agreement and the Related Agreements,
will be duly and validly authorized and issued and will be fully paid and
nonassessable.
SECTION 3.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) ATLANTIC has full power, corporate or otherwise, and authority to enter
into this Agreement and the Related Agreements to which it is a party and,
subject to ATLANTIC Shareholders' Approval and ATLANTIC Required Statutory
Approvals, to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Related Agreements to which it
is a party, and the consummation by ATLANTIC of the transactions contemplated
hereby and thereby, have been duly authorized by the ATLANTIC Board and no other
proceedings on the part of ATLANTIC are necessary to authorize the execution and
delivery of this Agreement or the Related Agreements and the consummation by
ATLANTIC of the transactions contemplated hereby and thereby, except for
ATLANTIC Shareholders' Approval and the obtaining of ATLANTIC Required Statutory
Approvals. This Agreement has been duly and validly executed and delivered by
ATLANTIC, and, assuming the due authorization, execution and delivery hereof by
SCG, constitutes a valid and binding agreement of ATLANTIC enforceable against
ATLANTIC in accordance with its terms, except that such enforcement may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors' rights
generally, (ii) general equitable principles and (iii) to the extent this
Agreement or any of the Related Agreements contains indemnification provisions
for violations of federal or state securities laws, as enforceability of such
provisions may be limited under federal and state securities laws.
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(b) The execution and delivery of this Agreement and the Related Agreements
by ATLANTIC, to the extent it is a party thereto, do not, and the consummation
by ATLANTIC of the transactions contemplated hereby and thereby will not,
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the assets of ATLANTIC under any of the terms,
conditions or provisions of, (i) subject to obtaining ATLANTIC Shareholders'
Approval, ATLANTIC's articles of incorporation or bylaws, (ii) subject to
obtaining ATLANTIC Required Statutory Approvals and ATLANTIC Shareholders'
Approval, any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to ATLANTIC or any of its properties or (iii) except as set
forth on Schedule 3.4(b) hereto, any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which ATLANTIC is now a party
or by which ATLANTIC or any of its properties may be bound, excluding from the
foregoing clauses (ii) and (iii) such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens, security interests, charges
or encumbrances that would not, in the aggregate, be reasonably expected to have
a material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of ATLANTIC.
(c) Except for (i) the filing of the ATLANTIC Registration Statement, the
Proxy Statement and the SCG Warrant Registration Statement with the Commission
pursuant to the Securities Act and the Exchange Act, and the declaration of the
effectiveness of the ATLANTIC Registration Statement and the SCG Warrant
Registration Statement by the Commission and filings with various state blue sky
authorities, (ii) any required filings by ATLANTIC pursuant to Section 2.1 and
(iii) any required filings with or approvals from applicable federal or state
housing authorities (the filings and approvals referred to in clauses (i)
through (iii) are collectively referred to as the "ATLANTIC Required Statutory
Approvals"), no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement and the
Related Agreements by ATLANTIC or the consummation by ATLANTIC of the
transactions contemplated hereby or thereby, other than such declarations,
filings, registrations, notices, authorizations, consents or approvals which, if
not made or obtained, as the case may be, would not, in the aggregate, be
reasonably expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of ATLANTIC.
SECTION 3.5 REGISTRATION STATEMENTS AND PROXY STATEMENT AND PROSPECTUSES.
None of the information to be supplied by ATLANTIC for inclusion or
incorporation by reference in the SCG Warrant Prospectus and the Proxy Statement
will, at the time it becomes effective, at the time of the mailing of the SCG
Warrant Registration Statement and any amendments thereof or supplements
thereto, and at the time of the meeting of
10
shareholders of ATLANTIC to be held in connection with the transactions
contemplated by this Agreement, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Proxy Statement will comply as to form in
all material respects with all applicable laws, including the provisions of the
Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder. No representation is made by ATLANTIC with respect to information
supplied by SCG, or derived therefrom, for inclusion in the SCG Warrant
Registration Statement.
SECTION 3.6 DISCLOSURE, FINANCIAL STATEMENTS AND ABSENCE OF CERTAIN
CHANGES. ATLANTIC's Annual Report on Form 10-K for the year ended December 31,
1996 (the "ATLANTIC 10-K"), and each other report or document filed after
December 31, 1996 by ATLANTIC with the Commission under the Exchange Act, taken
together, do not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. ATLANTIC's audited consolidated financial statements
contained in the ATLANTIC 10-K (the "ATLANTIC Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis and fairly present the consolidated financial position of
ATLANTIC and its subsidiaries as of the dates set forth therein and the results
of their operations and cash flows for the periods set forth therein. Since
December 31, 1996, there has not been any material adverse change or any event
(other than general economic or market conditions) which would reasonably be
expected to result in a material adverse change, individually or in the
aggregate, in the business, operations, properties, assets, liabilities,
condition (financial or other), results of operations or prospects of ATLANTIC.
SECTION 3.7 ABSENCE OF UNDISCLOSED LIABILITIES. ATLANTIC did not have, at
December 31, 1996, and has not incurred since that date, any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of any nature
(other than ordinary and recurring operating expenses), (a) except liabilities,
obligations or contingencies which are accrued or reserved against in the
ATLANTIC Financial Statements with respect to December 31, 1996 or reflected in
the notes thereto and (b) except for any liabilities, obligations or
contingencies which (i) would not, in the aggregate, be reasonably expected to
have a material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of ATLANTIC
or (ii) have been discharged or paid in full prior to the date hereof.
SECTION 3.8 BROKERS AND FINDERS. ATLANTIC has not employed any broker,
finder or other intermediary in connection with the transactions contemplated by
this Agreement which would be entitled to any brokerage, finder's or similar fee
or commission in connection with this Agreement or the transactions contemplated
hereby.
11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SCG
SCG represents and warrants to ATLANTIC as follows:
SECTION 4.1 ORGANIZATION AND QUALIFICATION. SCG and each of the SCG
Subsidiaries is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization and each has the requisite power,
corporate or otherwise, and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted and as it
is proposed by it to be conducted. Each SCG Subsidiary is qualified to do
business and is in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so qualified
and in good standing would not reasonably be expected to have a material adverse
effect on the business, operations, properties, assets, condition (financial or
other), results of operations or prospects of any such SCG Subsidiary. True,
accurate and complete copies of each of the articles of incorporation and bylaws
of SCG and the certificate of incorporation and bylaws of each SCG Subsidiary as
in effect on the date hereof, including all amendments thereto and proposed
amendments and restatements thereof, have heretofore been delivered to ATLANTIC.
SECTION 4.2 CAPITALIZATION.
(a) The authorized stock of each of the REIT Manager and the Property
Manager consists of 1,000 shares of common stock all of which are issued and
outstanding. All of the issued and outstanding shares of common stock of the
REIT Manager and the Property Manager are owned by SCG, or a wholly owned
subsidiary of SCG, and are validly issued, fully paid and nonassessable. SCG,
or one of its wholly owned subsidiaries, owns good and marketable title to the
issued and outstanding shares of common stock of each of the SCG Subsidiaries,
in each case, free and clear of all liens, encumbrances, claims, security
interests and defects.
(b) There are no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement obligating SCG or any subsidiary of SCG to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
either SCG Subsidiary or obligating SCG or any subsidiary of SCG to grant,
extend or enter into any agreement or commitment with respect to any of the
foregoing. There are no voting trusts, proxies or other agreements or
understandings to which SCG or any subsidiary of SCG is a party or is bound with
respect to the voting of any shares of either SCG Subsidiary. Neither of the
SCG Subsidiaries owns, directly or indirectly, any capital stock or other
ownership interest in any corporation, partnership, business association, joint
venture or other entity.
12
SECTION 4.3 ISSUANCE OF SECURITIES. Subject to receiving the SCG
Shareholders' Approval, the SCG Warrants when issued in accordance with the
provisions of this Agreement and the Related Agreements will constitute valid
and binding agreements of SCG enforceable against SCG in accordance with their
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles. Subject to receiving the SCG Shareholders' Approval, the
SCG Class B Common Shares issuable upon exercise of the SCG Warrants, when
issued upon exercise of SCG Warrants and in accordance with the Warrant
Agreement, will be duly and validly authorized and issued and will be fully paid
and nonassessable.
SECTION 4.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) SCG and each of the SCG Subsidiaries has full power, corporate or
otherwise, and authority to enter into this Agreement and the Related Agreements
to which it is a party and, subject to SCG Shareholders' Approval and SCG
Required Statutory Approvals, to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Related
Agreements to which they are parties, and the consummation by SCG and the SCG
Subsidiaries of the transactions contemplated hereby and thereby, have been duly
authorized by the SCG Board and the board of the relevant SCG Subsidiary, and no
other corporate proceedings on the part of SCG or either SCG Subsidiary are
necessary to authorize the execution and delivery of this Agreement or the
Related Agreements and the consummation by SCG and the SCG Subsidiaries of the
transactions contemplated hereby and thereby, except for SCG Shareholders'
Approval and the obtaining of SCG Required Statutory Approvals. This Agreement
has been duly and validly executed and delivered by SCG, and, assuming the due
authorization, execution and delivery hereof by ATLANTIC, constitutes a valid
and binding agreement of SCG enforceable against SCG in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally, (ii) general equitable
principles and (iii) to the extent this Agreement or any of the Related
Agreements contains indemnification provisions for violations of federal or
state securities laws, as enforceability of such provisions may be limited under
federal and state securities laws. As of the date of this Agreement, neither of
the SCG Subsidiaries is in violation of its charter, bylaws or other
organizational documents.
(b) The execution and delivery of this Agreement and the Related
Agreements by SCG and each SCG Subsidiary, to the extent it is a party thereto,
do not, and the consummation by SCG and the SCG Subsidiaries of the transactions
contemplated hereby and thereby will not, violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the assets of either
of the SCG Subsidiaries under any of the terms,
13
conditions or provisions of (i) subject to obtaining SCG Shareholders' Approval,
SCG's or such SCG Subsidiary's articles of incorporation or bylaws, (ii) subject
to obtaining SCG Required Statutory Approvals and SCG Shareholders' Approval,
any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority
applicable to SCG or either SCG Subsidiary or any of the assets of either of the
SCG Subsidiaries, (iii) the certificate of incorporation or bylaws of an SCG
Subsidiary or (iv) except as set forth on Schedule 4.4(b) hereto, any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which SCG or either SCG Subsidiary is now a party or by which SCG or
either SCG Subsidiary or any of the assets of either of the SCG Subsidiaries may
be bound, excluding from the foregoing clauses (ii) and (iv) such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances that would not, in the
aggregate, be reasonably expected to have a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of either of the SCG Subsidiaries.
(c) Except for (i) the filing of the Proxy Statement and the SCG
Warrant Registration Statement with the Commission pursuant to the Securities
Act and the Exchange Act, and the declaration of the effectiveness of the SCG
Warrant Registration Statement by the Commission and filings with various state
blue sky authorities, (ii) any required filings by SCG or an SCG Subsidiary
pursuant to Section 2.1 and (iii) any required filings by SCG of amendments to
its articles of incorporation (the filings and approvals referred to in clauses
(i) through (iii) are collectively referred to as the "SCG Required Statutory
Approvals"), no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement and the
Related Agreements by SCG or either SCG Subsidiary or the consummation by SCG or
either SCG Subsidiary of the transactions contemplated hereby or thereby, other
than such declarations, filings, registrations, notices, authorizations,
consents or approvals which, if not made or obtained, as the case may be, would
not, in the aggregate, be reasonably expected to have a material adverse effect
on the business, operations, properties, assets, condition (financial or other),
results of operations or prospects of either of the SCG Subsidiaries.
SECTION 4.5 FINANCIAL STATEMENTS. The audited financial statements
of SCG for the years ended December 31, 1994, 1995 and 1996 (the "SCG Financial
Statements" have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as otherwise set forth in such
financial statements) and fairly present the financial position of SCG as of the
dates presented and the results of its operations and cash flows for the periods
presented. The unaudited balance sheet of each SCG Subsidiary as at February
28, 1997 and Statements of Funds From Operations for the years ending December
31, 1995 and 1996 (the "Subsidiary Financial Statements") fairly present the
financial position of each SCG Subsidiary as of the dates presented and the
results of their respective operations for the periods presented.
14
SECTION 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
1996, there has not been any material adverse change or any event (other than
general economic or market conditions) which would reasonably be expected to
result in a material adverse change, individually or in the aggregate, in the
business, operations, properties, assets, liabilities, condition (financial or
other), results of operations or prospects of SCG or of either of the SCG
Subsidiaries. Each of the SCG Subsidiaries have conducted their respective
businesses in the ordinary course during the periods covered by the Subsidiary
Financial Statements.
SECTION 4.7 REGISTRATION STATEMENTS AND PROXY STATEMENT AND
PROSPECTUSES. None of the information to be supplied by SCG for inclusion or
incorporation by reference in the SCG Warrant Registration Statement will, at
the time it becomes effective, at the time of the mailing of the SCG Warrant
Prospectus and the Proxy Statement and any amendments thereof or supplements
thereto, and at the time of the meeting of shareholders of ATLANTIC to be held
in connection with the transactions contemplated by this Agreement, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The SCG
Warrant Registration Statement will comply as to form in all material respects
with all applicable laws, including the provisions of the Securities Act and the
Exchange Act and the rules and regulations promulgated thereunder. No
representation is made by SCG with respect to information supplied by ATLANTIC,
or derived therefrom, for inclusion in the SCG Warrant Registration Statement.
SECTION 4.8 TAXES.
(a) Each SCG Subsidiary has duly and timely filed with the appropriate
governmental authorities all Tax Returns required to be filed by it (either
separately or as a member of any affiliated group within the meaning of Section
1504 of the Code or any similar group defined under a similar provision of
state, local or foreign law (an "Affiliated Group")) for all periods ending on
or prior to the Merger Closing, except to the extent of any Tax Returns for
which an extension of time for filing has been properly filed. Each such return
and filing is true and correct in all respects. All Taxes owed by either SCG
Subsidiary have been paid (whether or not shown on a Tax Return). No material
issues have been raised in any examination by any taxing authority with respect
to the businesses and operations of SCG or either of the SCG Subsidiaries which
(i) reasonably could be expected to result in an adjustment to the liability for
Taxes for such period examined or (ii), by application of similar principles,
reasonably could be expected to result in an adjustment to the liability for
Taxes for any other period not so examined. All Taxes which each SCG Subsidiary
is required by law to withhold or collect, including without limitation Taxes
required to have been withheld in connection with amounts paid or owning to any
employee, independent contractor, creditor, stockholder, or other third party
and sales, gross receipts and use taxes, have been duly withheld or collected
and, to the extent required, have been paid over to the proper governmental
authorities or are held in
15
separate bank accounts for such purpose. There are no liens for Taxes upon the
assets of SCG or either of the SCG Subsidiaries except for statutory liens for
Taxes not yet due.
(b) None of SCG, the SCG Subsidiaries or the Affiliated Group has
filed for an extension of a statute of limitations with respect to any Tax and
no governmental authorities have requested an extension of the statute of
limitations with respect to any Tax. The Tax Returns of SCG, each SCG
Subsidiary and the Affiliated Group are not being and have not been examined by
any taxing authority for any past year or periods. None of SCG, the SCG
Subsidiaries or the Affiliated Group is a party to any pending action or any
formal or informal proceeding by any taxing authority for a deficiency,
assessment or collection of Taxes, and no claim for any deficiency, assessment
or collection of Taxes has been asserted, or, to the best knowledge of SCG,
threatened against it, including claims by any taxing authority in a
jurisdiction where SCG and the SCG Subsidiaries do not file tax returns that any
of them is or may be subject to taxation in that jurisdiction.
(c) Each SCG Subsidiary has properly accrued on its respective
Subsidiary Financial Statements all Taxes due for which such SCG Subsidiary may
be liable in its own right (including, without limitation, by reason of being a
member of an Affiliated Group or as a transferee of the assets of, or successor
to, any corporation, person, association, partnership, joint venture or other
entity. Each SCG Subsidiary has established (and until the Closing shall
continue to establish and maintain) on its books and records reserves that are
adequate for the payment of all Taxes not yet due and payable.
(d) Neither SCG Subsidiary (i) has filed a consent under Section
341(f) of the Code concerning collapsible corporations, (ii) is a party to any
Tax allocation or sharing agreement other than a tax sharing agreement between
an SCG Subsidiary and SCG, which such agreement will be terminated as of the
Closing Date, and (iii) has been a member of an Affiliated Group filing a
consolidated federal income Tax Return other than a group, the common parent of
which is SCG.
(e) The Affiliated Group of which each SCG Subsidiary is a member has
duly and timely filed all Tax Returns that it was required to file for each
taxable period during which any SCG Subsidiary was a member of the group. All
such Tax Returns were true, complete and correct in all respects and all Taxes
owed by the Affiliated Group, whether or not shown on any Tax Return, have been
paid for each taxable period during which any SCG Subsidiary was a member of the
group.
(f) Neither SCG Subsidiary has any liability for the Taxes of any
person other than SCG or such SCG Subsidiary (A) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local or foreign law), (B)
as a transferee or successor, (C) by contract, or (D) otherwise.
(g) Neither SCG Subsidiary has made any payments, is obligated to make
any payments, or is a party to an agreement that could obligate it to make any
payments that will not be deductible under Section 280G of the Code. Each SCG
Subsidiary has disclosed to the
16
IRS all positions taken on its federal income tax returns which could give rise
to a substantial understatement of tax under Section 6662 of the Code.
SECTION 4.9 ABSENCE OF UNDISCLOSED LIABILITIES. SCG did not have, at
December 31, 1996, and has not incurred since that date, any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of any nature
(other than ordinary and recurring operating expenses) with respect to any of
the assets of either of the SCG Subsidiaries, and neither SCG Subsidiary had, at
December 31, 1996, and none has incurred since that date, any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of any nature
(other than ordinary and recurring operating expenses) (a) except liabilities,
obligations or contingencies which are accrued or reserved against in the SCG
Financial Statements or the Subsidiary Financial Statements or reflected in the
notes thereto and (b) except for any liabilities, obligations or contingencies
which (i) would not, in the aggregate, be reasonably expected to have a material
adverse effect on the business, operations, properties, assets, condition
(financial or other), results of operations or prospects of SCG or either of the
SCG Subsidiaries or (ii) have been discharged or paid in full prior to the date
hereof.
SECTION 4.10 LITIGATION. Except as set forth on Schedule 4.10, there
are no claims, suits, actions or proceedings pending or, to the best of SCG's
knowledge, threatened, against, relating to or affecting either of the SCG
Subsidiaries or any of the assets of either of the SCG Subsidiaries before or by
any court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator that could reasonably be expected, either alone or
in the aggregate with all such claims, actions or proceedings, to affect
materially and adversely the business, operations, properties, assets, condition
(financial or other), results of operations or prospects of either of the SCG
Subsidiaries. Neither SCG Subsidiary is subject to any judgment, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or authority, or any arbitrator which prohibits or
restricts the consummation of the transactions contemplated hereby or by any of
the Related Agreements or would have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of either of the SCG Subsidiaries.
SECTION 4.11 NO VIOLATION OF LAW. Neither of the SCG Subsidiaries is
in violation of or has been given notice or been charged with any violation of
any law, statute, order, rule, regulation, ordinance or judgment (including,
without limitation, any applicable Environmental Laws) of any governmental or
regulatory body or authority, except for violations which, in the aggregate,
would not reasonably be expected to have a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of either of the SCG Subsidiaries. No
investigation or review of either of the SCG Subsidiaries by any governmental or
regulatory body or authority is pending or, to the best knowledge of SCG,
threatened, nor has any governmental or regulatory body or authority indicated
to SCG or either SCG Subsidiary an intention to conduct the same. Each of the
SCG Subsidiaries and each of its officers and employees has all permits,
licenses, franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct its business as
presently conducted and as proposed by such SCG Subsidiary to be conducted,
except for permits, licenses, franchises, variances, exemptions,
17
orders, authorizations, consents and approvals the absence of which, alone or in
the aggregate, would not reasonably be expected to have a material adverse
effect on the business, operations, properties, assets, condition (financial or
other), results of operations or prospects of either of the SCG Subsidiaries.
SECTION 4.12 INSURANCE. SCG or the SCG Subsidiaries maintain
insurance coverage for each SCG Subsidiary and their respective assets of the
types, and in amounts, typical of similar companies engaged in the respective
businesses in which such SCG Subsidiary is engaged. All such insurance policies
are in full force and effect, and with respect to all policies, none of SCG nor
either SCG Subsidiary is delinquent in the payment of any premiums thereon, and
no notice of cancellation or termination has been received with respect to any
such policy. All such policies are sufficient for compliance with all
requirements of law and of all agreements to which either of the SCG
Subsidiaries is a party or otherwise bound and are valid, outstanding,
collectable, and enforceable policies and will remain in full force and effect
through their respective policy periods ending after the Merger Closing
(assuming payment of any applicable premiums arising after the Merger Closing).
Neither SCG nor either SCG Subsidiary has received written notice within the
last 12 months from any insurance company or board of fire underwriters of any
conditions, defects or inadequacies that would materially adversely affect the
insurability of, or cause any material increase in the premiums for insurance
covering, either of the SCG Subsidiaries or any of the assets of either of the
SCG Subsidiaries that have not been cured or repaired to the satisfaction of the
party issuing the notice.
SECTION 4.13 EMPLOYEE BENEFIT PLANS. SCG has previously provided or
made available to ATLANTIC a copy of each written employee benefit plan
maintained by SCG and/or its affiliates ("Employee Benefit Plans") that provides
retirement, pension, health care, long-term disability income, workers
compensation, life insurance and any other postretirement benefits that, as of
the date hereof, covers any employee of an SCG Subsidiary ("Employees") and a
copy of each plan, contract, or arrangement constituting an employment or
severance agreement with any director or Employee of an SCG Subsidiary. Each
Employee Benefit Plan complies and has been administered in form and in
operation in all material respects with all applicable requirements of law and
no notice has been issued by any governmental authority questioning or
challenging such compliance. Neither the execution or delivery of this
Agreement or any of the Related Agreements nor the consummation of the
transactions contemplated hereby or thereby constitutes or will constitute an
event under any Employee Benefit Plan or any such employment or severance
agreement that may result in any payment by ATLANTIC or any SCG Subsidiary, any
restriction or limitation upon the assets of any Employee Benefit Plan, any
acceleration of payment or vesting, increase in benefits or compensation, or
forgiveness of any loan or other commitment to ATLANTIC or an SCG Subsidiary.
SECTION 4.14 INTELLECTUAL PROPERTY. Schedule 4.14 is a true and
complete list of all of the Intellectual Property used in the conduct of the
businesses of the SCG Subsidiaries. All the Intellectual Property listed on
Schedule 4.14 is either owned or being licensed by one of the SCG Subsidiaries.
With respect to the Intellectual Property indicated on Schedule 4.14 as being
owned by one of the SCG Subsidiaries, the respective SCG Subsidiary indicated as
owning such Intellectual Property owns all right, title and interest in such
18
Intellectual Property, free and clear of all liens, encumbrances, claims,
security interests and defects. With respect to the Intellectual Property
indicated on Schedule 4.14 as being licensed by one of the SCG Subsidiaries, the
respective SCG Subsidiary indicated as licensing such Intellectual Property (i)
has the right under the applicable license agreement to use the relevant
Intellectual Property in the manner in which it is being used in the conduct of
the business of the SCG Subsidiary and (ii) is in compliance with all terms and
conditions of each such license agreement except where such failure to be in
compliance could not reasonably be expected to have any material adverse effect
on the business, operations, properties, assets, condition (financial or other),
results of operations or prospects of either SCG Subsidiary. None of the
Intellectual Property has been or is the subject of any pending adverse claim,
or to the best knowledge of SCG, any threatened litigation or claim of
infringement based on the use thereof by either one of the SCG Subsidiaries or a
third party. Neither SCG nor either of the SCG Subsidiaries has received any
notice contesting SCG's or the SCG Subsidiaries' right to use any of the
Intellectual Property and, to the knowledge and SCG, neither of the SCG
Subsidiaries has infringed upon or misappropriated any intellectual property
rights of third parties.
SECTION 4.15 LABOR. None of SCG or any of the SCG Subsidiaries is a
party to, or bound by, an collective bargaining agreement, contract or other
understanding with a labor union or labor union organization. There is no
unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of SCG, threatened against the SCG Subsidiaries. To the knowledge of
SCG, there are no organizational efforts with respect to the formation of a
collective bargaining unit presently being made or threatened involving
employees of either SCG Subsidiary.
SECTION 4.16 BROKERS AND FINDERS. SCG has not employed any broker,
finder or other intermediary in connection with the transactions contemplated by
this Agreement which would be entitled to any brokerage, finder's or similar fee
or commission in connection with this Agreement or the transactions contemplated
hereby.
SECTION 4.17 INVESTMENT COMPANY ACT. None of SCG and the SCG
Subsidiaries and as of the date of the Merger Closing they will not be, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, nor an "investment adviser" within the meaning of the Investment
Advisers Act of 1940, as amended.
SECTION 4.18 ADEQUACY OF SCG CONSIDERATION. Except for the
Intellectual Property described on Schedule 4.14, no part of the respective
businesses conducted by the SCG Subsidiaries is conducted through any entity
other than the respective SCG Subsidiary.
SECTION 4.19 INVESTMENT IN SECURITIES.
(a) SCG understands that (i) no Federal or state agency has passed
upon the ATLANTIC Common Shares to be issued in connection with the mergers
described in Section 2.1 or made any finding or determination as to the fairness
of SCG's investment therein or the terms of the offer and the sale thereof
pursuant to this Agreement and the Related Agreements and (ii) SCG must bear the
economic risk of its investment in the ATLANTIC Common Shares
19
to be issued in connection with the mergers described in Section 2.1 for an
indefinite period of time because such shares will not be registered under the
Securities Act or any state securities laws, and, therefore, cannot be sold or
transferred unless either they are subsequently registered under the Securities
Act and applicable state securities laws or an exemption from such registrations
is available.
(b) The ATLANTIC Common Shares to be issued in connection with the
mergers described in Section 2.1 are being acquired for SCG's own account and
not with any view toward the resale or distribution thereof, or with any present
intention of selling or distributing any such shares.
(c) SCG has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of an investment
in the ATLANTIC Common Shares to be issued in connection with the mergers
described in Section 2.1.
(d) SCG has carefully reviewed all documents that it has requested
copies of, has been furnished with all other materials that it considers
relevant to an investment in the ATLANTIC Common Shares to be issued in
connection with the mergers described in Section 2.1 and has had a full
opportunity to ask questions of and receive answers from ATLANTIC or a person or
persons acting on behalf of ATLANTIC concerning the terms and conditions of an
investment in the ATLANTIC Common Shares to be issued in connection with the
mergers described in Section 2.1.
SECTION 4.20 TITLE TO ASSETS; NO REAL PROPERTY. Set forth on
Schedule 4.20 is a complete list of all of the assets currently owned by each
SCG Subsidiary which are materially important in the conduct of its business as
it is being currently conducted and a list of all officers and key employees of
each such SCG Subsidiary. The SCG Subsidiaries have good, valid and marketable
title to, or a leasehold interest in, (a) all of their material properties and
assets (tangible and intangible) reflected in the Subsidiary Financial
Statements, except as indicated in the notes thereto and except for properties
and assets disposed of in the ordinary course of business, and (b) all of the
material properties and assets purchased by an SCG Subsidiary since the date of
such financial statements, except for properties and assets disposed of in the
ordinary course of business, in each case subject to no lien, claim, or
encumbrance other than (i) liens reflected in such financial statements, (ii)
liens for current Taxes, assessments or governmental charges or levies not yet
due and delinquent, and (iii) liens that could not reasonably be expected to
have any material adverse effect on the business, operations, properties,
assets, condition (financial or other), results of operations or prospects of
either SCG Subsidiary. Neither SCG Subsidiary owns, in whole or in part, or
holds as record title holder, or is the holder of any mortgage or deed of trust
with respect to, any real property.
SECTION 4.21 PROJECTIONS. The projections prepared by SCG and
furnished to ATLANTIC have been prepared in good faith and with all available
information regarding the current operations of ATLANTIC and the SCG
Subsidiaries and the operations of ATLANTIC as proposed to be conducted and are
based upon assumptions which SCG believes to be reasonable. However, no
representation or warranty is made by SCG that the results set
20
forth in such projections or the assumptions underlying such projections will in
fact be realized. SCG has previously caused Ernst & Young LLP to deliver to
ATLANTIC a report verifying the mathematical accuracy of the methodology used by
SCG in preparing the projections. All of the information supplied by SCG to
Ernst & Young LLP for purposes of preparing such report has been provided or
made available to ATLANTIC or, if not so provided or made available, is
consistent with the information set forth in the projections in all material
respects.
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER CLOSING
SECTION 5.1 CONDUCT OF BUSINESSES OF SCG SUBSIDIARIES. After the
date hereof and prior to the Merger Closing or earlier termination of this
Agreement, except as ATLANTIC shall otherwise agree in writing or as may be
otherwise specifically contemplated by this Agreements and the Related
Agreements, SCG shall cause each of the SCG Subsidiaries to:
(a) conduct the businesses conducted by it in the ordinary and usual
course of business and consistent with past practice and, as to the REIT
Manager, the requirements of the Second Amended and Restated REIT Management
Agreement dated as of June 30, 1996, between ATLANTIC and it (the "REIT
Management Agreement"), and as to the Property Manager, each of the management
agreements between ATLANTIC and it (collectively, the "Property Management
Agreement");
(b) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of, capital stock of an SCG Subsidiary
of any class or any debt or equity securities convertible into or exchangeable
for such stock or amend or modify the terms and conditions of any of the
foregoing;
(c) not (i) incur or become contingently liable with respect to any
additional indebtedness for borrowed money, (ii) take any action which would
jeopardize ATLANTIC's status as a real estate investment trust under the Code,
(iii) sell or otherwise dispose of any of its assets, (iv) prepay or cause to be
prepaid any principal amount outstanding with respect to indebtedness for
borrowed money or (vi) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(d) use reasonable efforts to preserve intact its businesses,
organization and goodwill, keep available the services of its present officers
and employees and preserve the goodwill and business relationships with all
lessees, operators, suppliers, distributors, customers and others having
business relationships with it and ATLANTIC and not engage in any action,
directly or indirectly, with the intent to adversely impact the transactions
contemplated by this Agreement;
(e) confer with one or more representatives of ATLANTIC when requested
to report on material operational matters and the general status of ongoing
operations of its respective businesses;
21
(f) maintain, in full force and effect, with all premiums due thereon
paid, policies of insurance covering all of its respective insurable assets and
businesses in amounts and as to foreseeable risks usually insured against by
persons operating similar businesses under valid and enforceable policies of
insurance issued by nationally recognized insurers;
(g) except as may be required to distribute earnings and profits, not
declare, set aside or pay any dividends on, or make any other distributions in
respect of, any of their capital stock, or purchase, redeem or otherwise acquire
any shares of their capital stock;
(h) not acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial portion of the stock or assets of, or by any
other manner, any business or any corporation, partnership, joint venture,
association, or other business organization or division thereof;
(i) not acquire or agree to acquire any assets that are material,
individually or in the aggregate, to either of the SCG Subsidiaries, or make or
agree to make any capital expenditures except in the ordinary course of business
consistent with past practice;
(j) not adopt or amend in any material respect any bonus, profit
sharing, compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or other
arrangement for the benefit or welfare of any present or former director or
employee or, other than increases for individuals (other than officers and
directors) in the ordinary course of business consistent with past practice,
increase the compensation of fringe benefits of any present or former director
or employee; and not pay any benefit not required by an existing plan,
arrangement or agreement, or grant any new or modified severance or termination
arrangement or increase or accelerate any benefits payable under its severance
or termination pay policies;
(k) not take any action that would, or is reasonably likely to, result
in any of its or ATLANTIC's representations and warranties in this Agreement
becoming untrue, or in any of the conditions to the Merger set forth in Article
VII not being satisfied;
(l) not pay, discharge or satisfy any claims (including claims of
shareholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment, discharge or
satisfaction, of (i) liabilities or obligations in the ordinary course of
business consistent with past practice or in accordance with their terms as in
effect on the date hereof, (ii) liabilities reflected or reserved against in, or
contemplated by, the Subsidiary Financial Statements, or waive, release, grant,
or transfer any rights of material value or modify or change in any material
respect any existing license, lease, contract or other documents, other than as
contemplated by this Agreement or in the ordinary course of business consistent
with past practice;
(m) not (i) adopt a plan of complete or partial liquidation; (ii)
adopt any amendment to its charter or bylaws; (iii) enter into any contract,
agreement or arrangement involving more than $500,000 annually, except for
agreements entered into in the ordinary course of business
22
and with prior written consent; (iv) authorize or enter into any agreement
relating to property management services to be provided by it to a third party
property owners on other than customary terms; (v) modify or change in any
material respect any existing material agreements, except in the ordinary course
and consistent with past practice; (vi) engage in any conduct the nature of
which is materially different that the business in which it is currently
engaged; or (vi) enter into any agreement providing for acceleration of payment
or performance or other consequences as a result of a change of control of it;
and
(n) not authorize any of, or commit or agree to take any of, the
foregoing actions set forth in subsections (b), (c), and (g) through (m).
SECTION 5.2 CONDUCT OF BUSINESS OF ATLANTIC. After the date hereof
and prior to the Merger Closing or earlier termination of this Agreement, except
as SCG shall otherwise agree in writing or as may be otherwise specifically
contemplated by this Agreement and the Related Agreements, ATLANTIC shall:
(a) conduct the businesses conducted by it in the ordinary and usual
course of business and consistent with past practice;
(b) not take any action which would jeopardize its status as a real
estate investment trust under the Code; and
(c) operate in compliance with the terms and conditions of the
Investor Agreement, dated October 28, 1993, between ATLANTIC and SCG, as amended
or supplemented.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 ACCESS TO INFORMATION. Each of the parties shall afford
to the other party hereto and such other party's accountants, counsel, financial
advisors and other representatives full access, during normal business hours
throughout the period prior to the Merger Closing or earlier termination of this
Agreement, to all properties, books, contracts, commitments and records
(including, but not limited to, Tax Returns) of such party and, in the case of
SCG, of the SCG Subsidiaries, as appropriate, and, during such period, each
shall furnish promptly to the other (a) a copy of each report, schedule and
other document filed or received pursuant to the requirements of federal or
state securities laws or filed with the Commission in connection with the
transactions contemplated by this Agreement and (b) such other information
concerning their respective businesses, properties and personnel which are the
subject of this Agreement or the Related Agreements as shall be reasonably
requested; provided that no investigation pursuant to this Section 6.1 shall
affect any representation or warranty made herein or the conditions to the
obligations of the respective parties hereto to consummate the transactions
contemplated hereby or thereby. Each party shall promptly advise each other
party in writing of any change or the occurrence of any event after the date of
this Agreement or the Related Agreements having, or which, insofar as can
reasonably be foreseen, in the future may have, any material adverse effect on
the business, operations, properties, assets, condition
23
(financial or other), results of operations or prospects of such party or, in
the case of SCG, either of the SCG Subsidiaries.
SECTION 6.2 PROXY STATEMENT AND REGISTRATION STATEMENT. SCG shall
file with the Commission as soon as is reasonably practicable after the date
hereof the SCG Warrant Registration Statement. SCG shall also take any action
required to be taken under applicable state blue sky or securities laws in
connection with the issuance of securities pursuant to Sections 2.2. To the
extent the ATLANTIC Registration Statement shall not have been filed and/or
declared effective prior to the date of this Agreement, ATLANTIC shall (i) file
as soon as is reasonably practicable after the date hereof the ATLANTIC
Registration Statement and use all reasonable efforts to have the ATLANTIC
Registration Statement declared effective by the Commission as promptly as
practicable, (ii) use all reasonable efforts to continue the effectiveness of
the ATLANTIC Registration Statement and (iii) keep available for issuance under
the ATLANTIC Registration Statement such number of shares as would be required
to satisfy rights issued pursuant to Section 2.3 assuming that each shareholder
of ATLANTIC (other than SCG) elects to subscribe for the maximum number of
shares for which it is entitled to subscribe. To the extent the ATLANTIC
Registration Statement shall have been filed and declared effective prior to the
date of this Agreement, ATLANTIC shall use all reasonable efforts to continue
the effectiveness of the ATLANTIC Registration Statement and shall keep
available for issuance under the ATLANTIC Registration Statement such number of
shares as would be required to satisfy rights issued pursuant to Section 2.3
assuming that each shareholder of ATLANTIC (other than SCG) elects to subscribe
for the maximum number of shares for which it is entitled to subscribe.
ATLANTIC shall also take any action required to be taken under applicable state
blue sky or securities laws in connection with the issuance of securities
pursuant to Sections 2.1 and 2.3. ATLANTIC and SCG shall promptly furnish to
each other all information, and take such other actions as may reasonably be
requested in connection with any action by any of them in connection with this
Section 6.2 and shall cooperate with one another and use their respective best
efforts to facilitate the expeditious consummation of the transactions
contemplated by this Agreement and the Related Agreements.
SECTION 6.3 SHAREHOLDERS' APPROVAL. Each of ATLANTIC and SCG shall
promptly take such action as may be required by its declaration of trust or
articles of incorporation, as applicable, its bylaws and applicable law and
promptly seek, and use its best efforts to obtain, the requisite shareholder
approval of this Agreement and the transactions contemplated hereby, including
amendments to ATLANTIC's declaration of trust necessary to consummate the
transactions contemplated hereby and any amendments to SCG's articles of
incorporation necessary to consummate the transactions contemplated hereby (as
appropriate, the "ATLANTIC Shareholders' Approval" and "SCG Shareholders'
Approval"). The ATLANTIC Board and SCG Board shall recommend to their
respective shareholders the approval of this Agreement and of the transactions
contemplated by this Agreement; provided, however, that prior to the respective
meetings of shareholders of ATLANTIC and SCG, the ATLANTIC Board or SCG Board,
as the case may be, may withdraw, modify or amend such recommendation to the
extent that the ATLANTIC Board or the ATLANTIC Special Committee or the SCG
Board, as the case may be, deems it necessary to do so in the exercise of its
fiduciary obligations to ATLANTIC or SCG, as the case may be, after being so
advised by nationally recognized
24
counsel not having an interest in the transactions contemplated by this
Agreement or the Related Agreements.
SECTION 6.4 AFFILIATE AGREEMENTS. ATLANTIC shall use its best
efforts to cause each principal executive officer, director and each other
person who is an "affiliate," as that term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act, of ATLANTIC to execute and deliver to SCG on
or prior to the Warrant Issuance Date a written agreement (an "Affiliate
Agreement") to the effect that such person will not offer to sell, sell or
otherwise dispose of any SCG Warrants (or the SCG Class B Common Share issuable
upon exercise thereof) issued in the Warrant Issuance and received by such
person, except, in each case, pursuant to an effective registration statement or
in compliance with Rule 145, as amended from time to time, or in a transaction
which, in the opinion of legal counsel satisfactory to SCG, is exempt from the
registration requirements of the Securities Act.
SECTION 6.5 EXCHANGE. SCG shall use its best efforts to effect, at
or before the Warrant Issuance Date, authorization for listing or quotation of
the SCG Warrants on the New York Stock Exchange or another Exchange upon
official notice of issuance of the SCG Warrants pursuant to the Warrant
Issuance.
SECTION 6.6 EXPENSES. All costs and expenses incurred in connection
with this Agreement, the Related Agreements and the transactions contemplated
hereby and thereby shall be paid by the party incurring such expenses; provided,
however, that (i) all costs and expenses of the ATLANTIC Special Committee
(including fees and expenses of counsel and its financial advisors), and all
fees and expenses in connection with filing, printing and distributing the
ATLANTIC Registration Statement, the ATLANTIC Prospectus and the Proxy Statement
shall be paid by ATLANTIC and (ii) all costs and expenses in connection with
filing, printing and distributing the SCG Warrant Registration Statement and the
SCG Warrant Prospectus and all fees and expenses in connection with the listing
of the SCG Warrants (and the SCG Class B Common Shares issuable upon exercise
thereof) on any Exchange shall be paid by SCG.
SECTION 6.7 AGREEMENT TO COOPERATE. Subject to the terms and
conditions herein provided, each of the parties hereto shall cooperate and use
its respective best efforts to take, or cause to be taken, all action and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement and the Related Agreements, including using its
best efforts to identify and obtain all necessary or appropriate waivers,
consents and approvals to effect all necessary registrations, filings and
submissions (including, but not limited to, ATLANTIC Required Statutory
Approvals, SCG Required Statutory Approvals and any filings under federal and
state securities laws) and to lift any injunction or other legal bar to the
transactions contemplated hereby and thereby (and, in such case, to proceed with
such transactions as expeditiously as possible), subject, however, to obtaining
ATLANTIC Shareholders' Approval and SCG Shareholders' Approval.
SECTION 6.8 PUBLIC STATEMENTS. The parties hereto shall consult with
each other prior to issuing any press release or any written public statement
with respect to this
25
Agreement and the Related Agreements or the transactions contemplated hereby and
thereby and shall not issue any such press release or written public statement
prior to review and approval by the other party, except that prior review and
approval shall not be required if, in the reasonable judgment of the party
seeking to issue such release or public statement, prior review and approval
would prevent the timely dissemination of such release or announcement in
violation of any applicable law, rule or regulation or rule or policy of the New
York Stock Exchange or another Exchange.
SECTION 6.9 CORRECTIONS TO THE SCG WARRANT REGISTRATION STATEMENT AND
SCG WARRANT PROSPECTUS. Prior to the date of ATLANTIC Shareholders' Approval,
each of ATLANTIC and SCG shall correct promptly any information provided by it
to be used specifically in the SCG Warrant Registration Statement or the
ATLANTIC Registration Statement, or incorporated by reference into either such
document, that shall have become false or misleading in any material respect and
shall take all steps necessary to file with the Commission and have declared
effective or cleared by the Commission any amendment or supplement to the SCG
Warrant Registration Statement or the ATLANTIC Registration Statement so as to
correct the same and to cause the SCG Warrant Registration Statement and the
ATLANTIC Registration Statement as so corrected to be disseminated to the
shareholders of ATLANTIC, in each case to the extent required by applicable law.
SECTION 6.10 VOTING OF SHARES. SCG will vote all ATLANTIC Common
Shares owned by it in favor of the approval and adoption of this Agreement, the
Related Agreements and the transactions contemplated hereby and thereby;
provided, however, that SCG shall not be obligated to vote any ATLANTIC Common
Shares in favor of such matters in the event that the ATLANTIC Board, the
ATLANTIC Special Committee or the SCG Board withdraws, modifies or amends its
recommendation pursuant to Section 6.3.
SECTION 6.11 CONFIDENTIALITY
(a) As used herein, "Confidential Material" means, with respect to
either party hereto (the "Providing Party"), all information, whether oral,
written or otherwise, furnished to the other party hereto (the "Receiving
Party") or the Receiving Party's directors, officers, partners, Affiliates (as
defined in Rule 12b-2 under the Exchange Act), employees, agents or
representatives (collectively, "Representatives"), by the Providing Party and
all reports, analyses, compilations, studies and other material prepared by the
Receiving Party or its Representatives (in whatever form maintained, whether
documentary, computer storage or otherwise) containing, reflecting or based
upon, in whole or in part, any such information. The term "Confidential
Material" does not include information which (i) is or becomes generally
available to the public other than as a result of a disclosure by the Receiving
Party, its Representatives or anyone to whom the Receiving Party or any of its
Representatives transmit any Confidential Material in violation of this
Agreement, (ii) is or becomes known or available to the Receiving Party on a
nonconfidential basis from a source (other than the Providing Party or one of
its Representatives) who is not, to the knowledge of the Receiving Party after
reasonable inquiry, prohibited from transmitting the information to the
Receiving Party or its Representatives by a contractual, legal, fiduciary or
other obligation or (iii) is contained in the
26
ATLANTIC Registration Statement, the ATLANTIC Prospectus, the Proxy Statement,
the SCG Warrant Registration Statement or the SCG Warrant Prospectus.
(b) Subject to paragraph (c) below or except as required by applicable
laws, regulations or legal process, the Confidential Material will be kept
confidential and will not, without the prior written consent of the Providing
Party, be disclosed by the Receiving Party or its Representatives, in whole or
in part, and will not be used by the Receiving Party or its Representatives,
directly or indirectly, for any purpose other than in connection with this
Agreement, the Related Agreements and the transactions contemplated hereby or
thereby or evaluating, negotiating or advising with respect to such matters.
Moreover, the Receiving Party agrees to transmit Confidential Material to its
Representatives only if and to the extent that such Representatives need to know
the Confidential Material for purposes of such transactions and are informed by
the Receiving Party of the confidential nature of the Confidential Material and
of the terms of this Section 6.11. In any event, the Receiving Party will be
responsible for any actions by its Representatives which are not in accordance
with the provisions hereof.
(c) In the event that the Receiving Party, its Representatives or
anyone to whom the Receiving Party or its Representatives supply the
Confidential Material are requested (by oral questions, interrogatories,
requests for information or documents, subpoena, civil or criminal investigative
demand, any informal or formal investigation by any government or governmental
agency or authority or otherwise in connection with legal process) to disclose
any Confidential Material, the Receiving Party agrees (i) to immediately notify
the Providing Party of the existence, terms and circumstances surrounding such a
request, (ii) to consult with the Providing Party on the advisability of taking
legal available steps to resist or narrow such request and (iii) if disclosure
of such information is required, to furnish only that portion of the
Confidential Material which, in the opinion of the Receiving Party's counsel,
the Receiving Party is legally compelled to disclose and to cooperate with any
action by the Providing Party to obtain an appropriate protective order or other
reliable assurance that confidential treatment will be accorded the Confidential
Material (it being agreed that the Providing Party shall reimburse the Receiving
Party for all reasonable out-of-pocket expenses incurred by the Receiving Party
in connection with such cooperation).
(d) In the event of the termination of this Agreement in accordance
with its terms, promptly upon request from the Providing Party, the Receiving
Party shall, except to the extent prohibited by applicable laws, regulations or
legal process, redeliver to the Providing Party or destroy all tangible
Confidential Material and will not retain any copies, extracts or other
reproductions thereof in whole or in part. Any such destruction shall be
certified in writing to the Providing Party by an authorized officer of the
Receiving Party supervising the same. Notwithstanding the foregoing, the
Receiving Party and one Representative designated by the Receiving Party shall
be permitted to retain one permanent file copy of each document constituting
Confidential Material to be used only in connection with litigation arising from
the transactions contemplated by this Agreement.
27
SECTION 6.12 PERSONNEL.
(a) SCG Liability for Employee Obligations. SCG shall indemnify and
hold harmless ATLANTIC for any and all obligations, debts or liabilities
relating to or arising from any Employee's employment with SCG or an SCG
Subsidiary, which obligation, debt or liability arises prior to the Merger
Closing date. SCG shall honor or cause its insurance carriers to honor all
claims for benefits by the Employees under each Employee Benefit Plan with
respect to claims incurred by the Employees or their covered dependents before
the Merger Closing date.
(b) Employee Benefit Plans. ATLANTIC shall establish or cause to be
established employee benefit plans for the respective Employees who become
employees of ATLANTIC or any subsidiary thereof after the Merger Closing that
are substantially similar to the Employee Benefit Plans, which plans shall
recognize service of the Employees with ATLANTIC and SCG and their affiliates to
the same extent such service has been recognized under the Employee Benefit
Plans. The medical plans established by ATLANTIC shall recognize any
deductibles and copayments Employees have made under the SCG medical plan in the
current plan year.
(c) Nonassumption of Employee Benefit Plan Liability. ATLANTIC shall
not incur any liability with respect to an Employee Benefit Plan.
SECTION 6.13 PRORATIONS. No later than ninety (90) days after the
date of the Merger Closing, SCG shall prepare and deliver a statement (a "Post-
Closing Accrual Statement") prorating all of the items listed in this Section
6.13 ("Prorated Items") through the date of the Merger Closing. SCG shall be
liable for or entitled to the benefit of the Prorated Items to the extent the
Prorated Items relate to any time period up to the date of the Merger Closing,
and ATLANTIC shall be liable for or entitled to the benefit of the Prorated
Items to the extent Prorated Items relate to periods from and subsequent to the
date of the Merger Closing. Prorated Items shall be settled between SCG and
ATLANTIC in cash. The Prorated Items are as follows:
(a) all Taxes relating to the businesses of the SCG Subsidiaries which
shall have accrued and become payable prior to the date of the Merger
Closing shall be paid by SCG. All Taxes which shall be (or should be)
accrued but unpaid or which have been paid in advance shall be properly
prorated as of the date of the Merger Closing between SCG and ATLANTIC. In
connection with such proration of Taxes, in the event that actual tax
figures are not available at the time of delivery of the Post-Closing
Accrual Statement, the taxes to be prorated shall be based upon the actual
taxes for the preceding year for which actual tax amounts are available and
such taxes shall be reprorated upon request of either party made within
sixty (60) days of the date that the actual amounts become available,
provided that the actual amount is at least 5% more or 5% less than the
amount on which the original proration was based, and appropriate payment
shall be made within thirty (30) days after such reproration;
28
(b) rents, taxes and other items payable by either of the SCG
Subsidiaries under any agreement;
(c) the amount of any license or registration fees with respect to any
licenses or registrations of either of the SCG Subsidiaries;
(d) the amount of charges for water, telephone, electricity and other
utilities and fuel;
(e) all accrued vacation, termination and severance pay and accrued
sickness benefits for all Employees including related, social security
taxes, unemployment compensation taxes, workers compensation taxes and
premiums and other employment taxes relating to the same;
(f) all other operating expenses, including without limitation
insurance premiums and amounts payable to service providers, of the SCG
Subsidiaries;
(g) all management fees, commissions and other fees and income of the
SCG Subsidiaries; and
(h) all other items not specifically described in subsections (a)-(g)
above which are normally prorated in connection with similar transactions.
In addition to the Prorated Items, the Post-Closing Accrual Statement shall also
reflect any payments made by SCG or either of the SCG Subsidiaries prior to
Merger Closing with respect to any Prorated Items. SCG agrees to furnish
ATLANTIC with such documents and other records as ATLANTIC reasonably requests
in order to confirm all adjustment and proration calculations reflected on the
Post-Closing Accrual Statement.
SECTION 6.14 TAX MATTERS.
(a) Tax Reporting. The parties agree that they will report, and will cause
the SCG Subsidiaries and the surviving corporation in the mergers pursuant to
Section 2.1 to report, the Merger on all Tax Returns and other filings as fax-
free reorganizations under Section 368(a) of the Code.
(b) Tax Sharing Agreements. Any Tax sharing agreement between SCG and an
SCG Subsidiary will be terminated as of the Merger Closing and will have no
further effect for any taxable year.
(c) Returns for Periods Through the Closing Date. SCG will include the
income of each of the SCG Subsidiaries (including any deferred income triggered
into income by Section 1.1502-13 of the Treasury Regulations and any excess loss
accounts taken into income under Section 1.1502-19 of the Treasury Regulations)
on the SCG consolidated Tax Returns for all periods through the Merger Closing
and pay any Taxes attributable to such income. Each SCG
29
Subsidiary will furnish Tax information to SCG for inclusion in SCG's
consolidated Tax Returns for the period which includes the date of the Merger
Closing in accordance with each SCG Subsidiary's past custom and practice. SCG
will allow ATLANTIC a reasonable opportunity to review and comment upon such Tax
Returns (including any amended returns) prior to their being filed to the extent
that they relate to any SCG Subsidiary. Without the consent of ATLANTIC, SCG
will take no position on such returns that relate to any SCG Subsidiary that
would be inconsistent with prior positions taken by SCG. The income of each SCG
Subsidiary will be apportioned to the period up to and including the Merger
Closing date and the period after the Merger Closing date by closing the books
of each SCG Subsidiary as of the end of the Merger Closing date.
(d) Cooperation. SCG and ATLANTIC will cooperate fully with each other in
connection with (i) the preparation and filing of any Federal, state or local
tax returns that include the business and operations of the SCG Subsidiaries for
any period prior to and including the date of the Merger Closing, and (ii) any
audit examination by any government taxing authority of the returns referred to
in clause (i). Such cooperation shall include, without limitation, the
furnishing or making available of records, books of account or other materials
of the SCG Subsidiaries necessary or helpful for the defense against assertions
of any taxing authority as to any tax returns which include operations of the
SCG Subsidiaries for any period prior to and including the date of the Merger
Closing.
(e) Claims. In a case in which ATLANTIC or its subsidiaries receives any
inquiry, whether oral or written, from any taxing authority relating to any
matter which could result in the indemnification of ATLANTIC by SCG under
Section 9.1, ATLANTIC will promptly give SCG written notice (the "Tax Inquiry
Notice") of such inquiry. If such Tax Inquiry Notice is not given to SCG within
30 days after the receipt by ATLANTIC or its subsidiaries of such an inquiry and
ATLANTIC's failure to give such Tax Inquiry Notice materially and substantially
adversely affects the ability of SCG to contest any claim made by such taxing
authority, SCG shall not be liable to ATLANTIC under Section 9.1 for such claim.
(f) Notice 88-19 Election. ATLANTIC will make an election to be subject to
rules similar to the rules of Section 1374 of the Code in accordance with
Internal Revenue Service Notice 88-19, 1988-1 C.B. 486, or any future applicable
administrative rules or treasury regulations.
(g) Settlement or Compromise. ATLANTIC will not settle or otherwise
compromise any claim or issue subject to indemnification under Section 9.1
without SCG's prior written consent, which SCG shall not unreasonably withhold.
Nothing contained herein shall require ATLANTIC to contest a claim if ATLANTIC
shall waive the payment by SCG of any amount that might otherwise be payable by
SCG pursuant to Section 9.1 hereof in respect of such claim.
SECTION 6.15 STANDSTILL. SCG agrees that, during the period beginning on
the Closing Date and ending 180 days thereafter, it will not sell or cause to be
sold any ATLANTIC Common Shares beneficially owned by SCG.
30
ARTICLE VII
CONDITIONS
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligation of each party to effect the transactions contemplated hereby and by
the Related Agreements shall be subject to the fulfillment at or prior to the
Merger Closing of the following conditions:
(a) The other party shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Merger Closing, and the representations and warranties of each such other
party shall be true and correct in all material respects on and as of (i) the
date made and (ii) the Merger Closing date with the same effect as if made on
that date; and each party shall have received a certificate of an executive
officer of each such party to that effect;
(b) This Agreement, the Related Agreements and the transactions
contemplated hereby and thereby shall have been approved by the affirmative vote
of a majority of the ATLANTIC Common Shares and the SCG shareholders' Approval
shall have been obtained;
(c) The ATLANTIC Registration Statement and the SCG Warrant Registration
Statement shall each have become effective in accordance with the provisions of
the Securities Act, and no stop order suspending such effectiveness shall have
been issued and remain in effect and no proceeding for that purpose shall have
been initiated or threatened by the Commission;
(d) ATLANTIC and SCG shall have received a study from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP
or another nationally recognized independent certified public accounting firm
concluding that the accumulated earnings and profits for the SCG Subsidiaries as
of December 31, 1996 and the projected earnings and profits of the SCG
Subsidiaries for the period beginning January 1, 1997 and ending on the Merger
Closing date are in the aggregate less than $5,000,000;
(e) Each of ATLANTIC and SCG shall have received a favorable opinion of
▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇ (substantially in the form set forth in Exhibit VIII
hereto) to the effect that the mergers described in Section 2.1 each will
qualify as a reorganization within the meaning of Section 368 of the Code and
that each of ATLANTIC, the SCG Subsidiaries, and the subsidiary of ATLANTIC that
shall be the surviving corporation in such mergers will be a party to the
reorganization within the meaning of Section 368(b) of the Code will constitute
a transaction subject to the reorganization provisions of the Code and related
provisions;
(f) ATLANTIC and SCG shall have received (i) an opinion from ▇▇▇▇▇, ▇▇▇▇▇ &
▇▇▇▇▇ (substantially in the form set forth in Exhibit VIII hereto) that the
performance of this Agreement will not jeopardize the status of ATLANTIC as a
"real estate investment trust" under the Code or (ii) a favorable ruling from
the Internal Revenue Service to the effect that the Warrant Issuance will be
respected for federal income tax purposes as a direct issuance of the SCG
Warrants by SCG to the shareholders of ATLANTIC and an opinion from ▇▇▇▇▇, ▇▇▇▇▇
& ▇▇▇▇▇ (substantially in the form set forth in Exhibit VIII hereto) that the
performance of this
31
Agreement will not jeopardize the status of ATLANTIC as a "real estate
investment trust" under the Code;
(g) No preliminary or permanent injunction or other order or decree by any
federal or state court which prevents the consummation of the transactions
contemplated by this Agreement and the Related Agreements shall have been issued
and remain in effect (each party agreeing to use its best efforts to have any
such injunction, order or decree lifted);
(h) All governmental consents, orders and approvals legally required for
the consummation of the transactions contemplated by this Agreement and the
Related Agreements shall have been obtained and be in effect at the Merger
Closing (including ATLANTIC Required Statutory Approvals and SCG Required
Statutory Approvals), and all consents, orders and approvals legally required
for the consummation of the transactions contemplated by this Agreement and the
Related Agreements shall have been obtained;
(i) Each of the parties shall have acquired all material consents required
from third parties necessary to consummate the transactions contemplated by this
Agreement;
(j) All agreements set forth on Schedule 7.1 shall have been terminated
effective as of the Closing; and
(k) SCG shall have forgiven all indebtedness owing to it from each SCG
Subsidiary.
SECTION 7.2 CONDITIONS TO OBLIGATIONS OF ATLANTIC. Unless waived by
ATLANTIC, the obligation of ATLANTIC to effect the transactions contemplated
hereby and by the Related Agreements shall be subject to the fulfillment at or
prior to the Merger Closing of the following additional conditions:
(a) The Special Committee of the ATLANTIC Board (the "ATLANTIC Special
Committee") shall have received from ▇.▇. ▇▇▇▇▇▇ Securities Inc., or another
investment banking firm satisfactory to the ATLANTIC Special Committee, a
written opinion to the effect that, as of the date of the Proxy Statement and
the SCG Warrant Prospectus, the consideration to be received in the transactions
contemplated by this Agreement and by the Related Agreements is fair, from a
financial point of view, to ATLANTIC and its shareholders (other than SCG), and
such opinion shall not have been withdrawn, revoked or modified;
(b) SCG shall have executed and delivered to ATLANTIC an Amended and
Restated ATLANTIC Investor Agreement substantially in the form of Exhibit IV
hereto;
(c) SCG shall have executed and delivered to ATLANTIC an Administrative
Services Agreement substantially in the form of Exhibit V hereto;
(d) SCG Realty Services Incorporated shall have distributed all of the
outstanding shares of the Property Manager to its sole shareholder;
32
(e) SCG shall have executed and delivered to ATLANTIC a License Agreement
with respect to the name "Security Capital" substantially in the form of Exhibit
VI hereto;
(f) SCG shall have executed and delivered to ATLANTIC the Protection of
Business Agreement substantially in the form of Exhibit VII hereto;
(g) ATLANTIC shall have received a "comfort letter" from the independent
public accountants of SCG, dated as of the effective date of the SCG Warrant
Registration Statement, with respect to financial information of SCG included or
incorporated by reference in the Proxy Statement and the SCG Warrant
Registration Statement in form and substance reasonably satisfactory to ATLANTIC
and customary in scope and substance for "comfort letters" delivered by
independent public accountants in connection with registration statements and
proxy statements;
(h) The SCG Warrants to be issued pursuant to the Warrant Issuance shall
have been authorized, upon official notice of issuance, for listing or quotation
on the Exchange, if any, on which the SCG Class B Common Shares are authorized
for listing or quotation; and
(i) No governmental consent, order or approval legally required for the
consummation of the transactions contemplated by this Agreement and by the
Related Agreements shall have any terms which in the reasonable judgment of
ATLANTIC, when taken together with the terms of all such consents, orders or
approvals, would materially impair the value to ATLANTIC and the shareholders of
ATLANTIC of the transactions contemplated by this Agreement and the Related
Agreements (including, without limitation, the value of the SCG Warrants to be
received by the shareholders of ATLANTIC pursuant to Section 2.2), and no
governmental authority shall have promulgated any statute, rule or regulation
which, when taken together with all such promulgations, would materially impair
the value to ATLANTIC and the shareholders of ATLANTIC of the transactions
contemplated by this Agreement and the Related Agreements (including, without
limitation, the value of the SCG Warrants to be received by the shareholders of
ATLANTIC pursuant to Section 2.2).
SECTION 7.3 CONDITIONS TO OBLIGATIONS OF SCG. Unless waived by SCG, the
obligation of SCG to effect the transactions contemplated hereby and by the
Related Agreements shall be subject to the fulfillment at or prior to the Merger
Closing of the additional following conditions:
(a) The Affiliate Agreements required to be executed and delivered by
affiliates of ATLANTIC pursuant to Section 6.4 shall have been executed and
delivered as required by Section 6.4;
(b) ATLANTIC shall have executed and delivered to SCG an Amended and
Restated ATLANTIC Investor Agreement substantially in the form of Exhibit IV
hereto;
(c) ATLANTIC shall have executed and delivered to SCG an Administrative
Services Agreement substantially in the form of Exhibit V hereto;
33
(d) ATLANTIC shall have executed and delivered to SCG a License Agreement
with respect to the name "Security Capital" substantially in the form of Exhibit
VI hereto;
(e) SCG shall have received a "comfort letter" from the independent public
accountants of ATLANTIC, dated as of the effective date of the SCG Warrant
Registration Statement, with respect to financial information of ATLANTIC
included or incorporated by reference in the Proxy Statement and the SCG Warrant
Registration Statement in form and substance reasonably satisfactory to SCG and
customary in scope and substance for "comfort letters" delivered by independent
public accountants in connection with registration statements and proxy
statements; and
(f) No governmental consent, order or approval legally required for the
consummation of the transactions contemplated by this Agreement and by the
Related Agreements shall have any terms which in the reasonable judgment of SCG,
when taken together with the terms of all such consents, orders or approvals,
would materially impair the value to SCG of the transactions contemplated by
this Agreement and the Related Agreements (including, without limitation, the
value of the ATLANTIC Common Shares to be received by SCG pursuant to Section
2.1), and no governmental authority shall have promulgated any statute, rule or
regulation which, when taken together with all such promulgations, would
materially impair the value to SCG and the shareholders of SCG of the
transactions contemplated by this Agreement and the Related Agreements
(including, without limitation, the value of the ATLANTIC Common Shares to be
received by SCG pursuant to Section 2.1).
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 TERMINATION. This Agreement may be terminated at any time
prior to the Merger Closing, whether before or after approval by the
shareholders of ATLANTIC and SCG:
(a) by mutual consent of each of the parties hereto;
(b) unilaterally by either of the parties hereto, so long as such party has
not breached any of its obligations hereunder (except for such breaches as are
immaterial), if the transactions contemplated hereby shall not have been
consummated on or before December 31, 1997 (the "Termination Date");
(c) unilaterally by either of the parties hereto (i) if the other party (A)
fails to perform any covenant or agreement in this Agreement in any material
respect, and does not cure the failure, in all material respects within 15
business days after the terminating party delivers written notice of the alleged
failure or (B) fails to fulfill or complete a condition to the obligations of
the terminating party (which condition is not waived) by reason of a breach by
the non-terminating party of its obligations hereunder or (ii) if any condition
to the obligations of the terminating party is not satisfied (other than by
reason of a breach by that party of its
34
obligations hereunder), and it reasonably appears that the condition cannot be
satisfied prior to the Termination Date;
(d) unilaterally by SCG if ATLANTIC, through the ATLANTIC Board or ATLANTIC
Special Committee, either fails to recommend to ATLANTIC's shareholders the
approval of this Agreement and the transactions contemplated hereby or
withdraws, modifies or amends such recommendation; and
(e) unilaterally by ATLANTIC if SCG, through the SCG Board, either fails to
recommend to SCG's shareholders the approval of this Agreement and the
transactions contemplated hereby or withdraws, modifies or amends such
recommendation.
SECTION 8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement, as provided in Section 8.1, this Agreement shall forthwith become
void, and there shall be no further obligation on the part of any party hereto
or their respective officers or directors or (except as set forth in this
Section 8.2 and in Sections 6.6 and 6.11 and Article IX, which shall survive
such termination). Nothing in this Section 8.2 shall relieve any party from
liability for any breach of this Agreement. Upon any termination pursuant to
Section 8.1(d), ATLANTIC shall pay to SCG all of the documented, out-of-pocket
expenses incurred by SCG after the date hereof in connection with the
transactions contemplated by this Agreement. Upon any termination pursuant to
Section 8.1(e), SCG shall pay to ATLANTIC all of the documented, out-of-pocket
expenses incurred by ATLANTIC after the date hereof in connection with the
transactions contemplated by this Agreement.
SECTION 8.3 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto and in
compliance with applicable law; provided, however, this Agreement may not be
amended in any material respect following the ATLANTIC Shareholders' Approval or
SCG Shareholders' Approval.
SECTION 8.4 WAIVER. At any time prior to the Merger Closing, each party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein except ATLANTIC Shareholders' Approval or the SCG
Shareholders' Approval. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE IX
SURVIVAL AND REMEDY; INDEMNIFICATION
SECTION 9.1 INDEMNIFICATION. Each party hereto agrees to indemnify (each
an "Indemnifying Party") the other party hereto and each of such other party's
affiliates (each an "Indemnified Party" and collectively, the "Indemnified
Parties") against, and agrees to hold it and them harmless from, any and all
liabilities, losses, costs, damages, penalties or expenses
35
(including, without limitation, reasonable attorneys' fees and expenses and
costs of investigation and litigation) (collectively, "Losses") incurred or
suffered by an Indemnified Party arising out of or in connection with any breach
of, or inaccuracy in, (i) to the extent SCG is the Indemnifying Party, any of
the representations and warranties or agreements of SCG under this Agreement and
(ii) to the extent ATLANTIC is the Indemnifying Party, the representations and
warranties of the ATLANTIC set forth in Section 3.3 and Section 3.4(a) of this
Agreement. In addition, SCG agrees to indemnify ATLANTIC and each of ATLANTIC's
affiliates (other than SCG, but including, after the Merger Closing, the
surviving corporation in the merger pursuant to Section 2.1) (ATLANTIC and such
included affiliates being included within the terms "Indemnified Party" and
"Indemnified Parties" as used in the other sections of this Article IX) against,
and agrees to hold it and them harmless from, any and all Losses incurred or
suffered by it or them arising out of or in connection with (X) any breach of,
or inaccuracy in, any of the representations and warranties of ATLANTIC set
forth in this Agreement other than those set forth in Section 3.3 or Section
3.4(a), (Y) any acts or omissions of either of the SCG Subsidiaries in their
respective capacities as REIT Manager and Property Manager prior to the Merger
Closing, but only to the extent that such breach, inaccuracy, act, or omission
arises out of or results from the gross negligence, bad faith, or willful
misconduct of either SCG Subsidiary or (Z) any income tax liabilities arising
pursuant to Treasury Regulations section 1.1502-6 or any analogous state or
local tax provisions.
SECTION 9.2 LIMITATION OF INDEMNIFICATION. An Indemnified Party shall not
be entitled to indemnification under this Article IX until the aggregate of all
Losses with respect to which such Indemnified Party would otherwise be entitled
to indemnification under this Article IX exceeds $250,000, in which event the
Indemnified Party shall be entitled to all such Losses including such $250,000;
provided, however, that none of the indemnification obligations hereunder (other
than for Losses arising in connection with a breach of the representations and
warranties set forth in Section 4.8 or under clause (Z) of Section 9.1) shall
exceed the Fair Market Value of the ATLANTIC Common Shares received by SCG
pursuant to Section 2.1.
SECTION 9.3 NOTICE OF CLAIMS; ASSUMPTION OF DEFENSE. The Indemnified
Party shall give prompt notice to the Indemnifying Party, in accordance with the
terms of Section 10.1 and in the case of a tax inquiry in compliance with the
terms of Section 6.14(e), of the assertion of any claim, or the commencement of
any suit, action or proceeding by any party in respect of which indemnity may be
sought hereunder, specifying with reasonable particularity the basis therefor
and giving the Indemnifying Party such information with respect thereto as the
Indemnifying Party may reasonably request. The Indemnifying Party may, at its
own expense, (a) participate in and (b) upon notice to the Indemnified Party and
upon the Indemnifying Party's written agreement that the Indemnified Party is
entitled to indemnification pursuant to Section 9.1 for Losses arising out of
such claim, suit, action or proceeding, at any time during the course of any
such claim, suit, action or proceeding, assume the defense thereof; provided
that (x) the Indemnifying Party's counsel is reasonably satisfactory to the
Indemnified Party and (y) the Indemnifying Party shall thereafter consult with
the Indemnified Party upon its reasonable request from time to time with respect
to such claim, suit, action or proceeding; provided, however, that the
Indemnified Party shall have the right to retain its own counsel, with
36
the reasonable fees and expenses to be paid by the Indemnifying Party, if the
Indemnified Party reasonably believes that representation of it by the counsel
retained by the Indemnifying Party would be inappropriate due to actual or
potential differing interest between the Indemnified Party and any other party
represented by such counsel in such proceeding. If the Indemnifying Party
assumes such defense, the Indemnified Party shall have the right (but not the
duty) to participate in the defense thereof and to employ counsel, at its own
expense, separate from the counsel employed by the Indemnifying Party. Whether
or not the Indemnifying Party chooses to defend or prosecute any such claim,
suit, action or proceeding, all of the parties hereto shall cooperate in the
defense or prosecution thereof.
SECTION 9.4 SETTLEMENT OR COMPROMISE. Any settlement or compromise made
or caused to be made by the Indemnified Party or the Indemnifying Party, as the
case may be, of any claim, suit, action or proceeding of the kind referred to in
Section 9.3 shall also be binding upon the Indemnifying Party or the Indemnified
Party, as the case may be, in the same manner as if a final judgment or decree
had been entered by a court of competent jurisdiction in the amount of such
settlement or compromise. No party shall settle or compromise any such claim,
suit, action or proceeding without the prior written consent of the other party,
which shall not be unreasonably withheld.
SECTION 9.5 FAILURE OF INDEMNIFYING PARTY TO ACT. In the event that the
Indemnifying Party does not elect to assume the defense of any claim, suit,
action or proceeding within a reasonable time of being notified by the
Indemnified Party, then any failure of the Indemnified Party to defend or to
participate in the defense of any such claim, suit, action or proceeding or to
cause the same to be done, shall not relieve the Indemnifying Party of its
obligations hereunder.
SECTION 9.6 SURVIVAL. The indemnification provided by this Article IX
shall be a continuing right to indemnification and shall survive the closing of
the transactions contemplated hereby and the expiration or termination of this
Agreement (i) for a period of two years following the Merger Closing with
respect to any indemnification not in connection with a breach of the
representations and warranties set forth in Section 4.8 and (ii) until the
expiration of the statute of limitations (as it may be extended) with respect to
each tax year or period pertinent to the representations and warranties set
forth in Section 4.8 with respect to any indemnification in connection with a
breach thereof; and the Indemnified Party shall be entitled to bring an action
thereon only if the Indemnified Party has given the Indemnifying Party written
notice within such two-year period, or statute-of-limitations period, as the
case may be.
SECTION 9.7 WAIVER OF COUNTERCLAIMS FOR INDEMNIFICATION. If and to the
extent that SCG, by virtue of being an Indemnifying Party hereunder, would have
a claim against any Indemnified Party for indemnification against Losses under
the REIT Management Agreement or Property Management Agreement, SCG hereby
waives and forever releases the Indemnified Parties from any such claim.
37
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, sent via
a recognized overnight courier with delivery confirmed in writing or sent via
facsimile to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) If to ATLANTIC, to:
Security Capital Atlantic Incorporated
Six ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P.
Columbia Square
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attention: J. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to SCG, to:
Security Capital Group Incorporated
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
38
with a copy to:
▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
SECTION 10.2 INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.3 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof and
thereof; (b) shall not be assigned by operation of law or otherwise; and (c)
shall be governed in all respects, including validity, interpretation and
effect, by the laws of the State of Maryland (without giving effect to the
provisions thereof relating to conflicts of law).
SECTION 10.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 10.5 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of the parties hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 10.6 NO PRESUMPTION AGAINST DRAFTER. Each of the parties hereto
has jointly participated in the negotiation and drafting of this Agreement. In
the event of an ambiguity or a question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by each of the parties hereto
and no presumptions or burdens of proof shall arise favoring any party by virtue
of the authorship of any of the provisions of this Agreement.
* * * * *
39
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
SECURITY CAPITAL ATLANTIC INCORPORATED
By: /s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Co-Chairman
SECURITY CAPITAL GROUP INCORPORATED
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Senior Vice President
40