<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 11, 1996
REGISTRATION NO. 333-4455
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
ON FORM S-1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HOMESTEAD VILLAGE INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
7011 74-2770966
MARYLAND (PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION OF CLASSIFICATION CODE
NUMBER)
INCORPORATION OR 125 LINCOLN AVENUE
ORGANIZATION) SANTA FE, NEW MEXICO 87501
(505) 982-9292
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JEFFREY A. KLOPF, SECRETARY
HOMESTEAD VILLAGE INCORPORATED
125 LINCOLN AVENUE
SANTA FE, NEW MEXICO 87501
(505) 982-9292
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
EDWARD J. SCHNEIDMAN
MAYER, BROWN & PLATT
190 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
(312) 782-0600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
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<PAGE>
HOMESTEAD VILLAGE INCORPORATED
PROSPECTUS
17,749,735 SHARES
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
10,000,000 WARRANTS TO PURCHASE
COMMON STOCK
----------------
This Prospectus of Homestead Village Incorporated ("Homestead") is being
used in connection with the distribution (the "Distribution") by Security
Capital Pacific Trust ("PTR") and Security Capital Atlantic Incorporated
("ATLANTIC") of all of the shares of Common Stock, $0.01 par value per share,
of Homestead (the "Homestead Common Stock"), and warrants to purchase shares
of Homestead Common Stock (the "Homestead Warrants" and, together with the
Homestead Common Stock, the "Homestead Securities") owned by them. The
Distribution will result in all of the Homestead Securities issuable to PTR
and ATLANTIC in connection with the Transaction (as hereafter defined) being
distributed to holders of PTR common shares of beneficial interest, $1.00 par
value per share (the "PTR Common Shares"), and holders of shares of ATLANTIC
common stock, $0.01 par value per share (the "ATLANTIC Common Stock"), as of
the record date to be established for the Distribution (the "Distribution
Record Date").
There has been no public trading market for the shares of Homestead Common
Stock or the Homestead Warrants. The Homestead Common Stock and the Homestead
Warrants have been approved for listing on the American Stock Exchange,
subject to official notice of issuance.
SEE "RISK FACTORS" AT PAGE 8 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF HOMESTEAD SECURITIES.
----------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROSPECTUS HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
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The date of this Prospectus is October , 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SUMMARY................................................................... 2
RISK FACTORS.............................................................. 8
Significant Influence of Principal Shareholder.......................... 8
Limited Operating History............................................... 8
Risks of Borrowing...................................................... 8
General Real Estate Investment Risks.................................... 9
Development Risks....................................................... 9
Risks Associated with Rapid Growth...................................... 9
Risks Associated with the Lodging Industry.............................. 9
Competition in the Lodging Industry..................................... 10
Need for Additional Capital............................................. 10
Impact of Environmental Regulations..................................... 10
Government Regulation and Compliance with Americans with Disabilities
Act.................................................................... 11
Losses in Excess of Insurance Coverage.................................. 11
Reliance on Key Personnel............................................... 11
Limitations on Changes in Control....................................... 12
Absence of Prior Public Market.......................................... 13
Shares Eligible for Future Sale......................................... 13
Absence of Dividends.................................................... 13
DIVIDEND POLICY........................................................... 13
CAPITALIZATION............................................................ 14
HOMESTEAD PRO FORMA SELECTED FINANCIAL INFORMATION........................ 15
PTR-HOMESTEAD VILLAGE GROUP SELECTED FINANCIAL INFORMATION................ 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF PTR-HOMESTEAD VILLAGE GROUP................................ 18
Overview................................................................ 18
Environmental Matters................................................... 18
Liquidity and Capital Resources......................................... 18
Results of Operations................................................... 18
ATLANTIC-HOMESTEAD VILLAGE GROUP SELECTED FINANCIAL INFORMATION........... 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ATLANTIC-HOMESTEAD VILLAGE GROUP........................... 21
Overview................................................................ 21
Environmental Matters................................................... 21
Liquidity and Capital Resources......................................... 21
Results of Operations................................................... 21
SCG-HOMESTEAD VILLAGE GROUP SELECTED FINANCIAL INFORMATION................ 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF SCG-HOMESTEAD VILLAGE GROUP................................ 23
Overview................................................................ 23
Liquidity and Capital Resources......................................... 23
Results of Operations................................................... 23
</TABLE>
i
<PAGE>
<TABLE>
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PAGE
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<S> <C>
BUSINESS................................................................... 24
Objectives............................................................... 24
History.................................................................. 25
The Facilities........................................................... 26
Growth and Development Strategy.......................................... 27
Operating Strategy....................................................... 27
Homestead Village Properties............................................. 28
Administrative Services Agreement........................................ 28
Industry Overview........................................................ 29
Competition.............................................................. 30
Environmental Matters.................................................... 31
Governmental Regulation.................................................. 31
Trademarks............................................................... 32
Insurance................................................................ 32
Employees................................................................ 32
Legal Proceedings........................................................ 32
MANAGEMENT................................................................. 32
Directors and Executive Officers......................................... 32
Other Officers of Homestead.............................................. 33
Management Philosophy.................................................... 35
Committee of the Board................................................... 36
Management Compensation.................................................. 36
Stock Option Plan........................................................ 37
Outside Directors Plan................................................... 38
RELATIONSHIP WITH SECURITY CAPITAL GROUP INCORPORATED...................... 38
CERTAIN RELATIONSHIPS AND TRANSACTIONS..................................... 39
Protection of Business Agreement......................................... 39
SCG Investor Agreement................................................... 40
Funding Commitment Agreements............................................ 40
ATLANTIC and PTR Investor Agreements..................................... 41
Escrow Agreement......................................................... 41
Finder's Agreements...................................................... 42
PRINCIPAL SHAREHOLDERS..................................................... 43
DESCRIPTION OF HOMESTEAD SECURITIES........................................ 44
General.................................................................. 44
Homestead Common Stock................................................... 44
Preferred Stock.......................................................... 45
Purchase Rights.......................................................... 45
Homestead Warrants....................................................... 47
Convertible Mortgage Notes............................................... 49
CERTAIN PROVISIONS OF MARYLAND LAW AND OF HOMESTEAD'S CHARTER AND BYLAWS... 50
Classification of the Homestead Board.................................... 50
Director Liability Limitation and Indemnification........................ 51
Business Combinations.................................................... 51
Control Share Acquisitions............................................... 52
Advance Notice Provisions................................................ 53
SHARES AVAILABLE FOR FUTURE SALE........................................... 53
INDEPENDENT PUBLIC ACCOUNTANTS AND EXPERTS................................. 54
ADDITIONAL INFORMATION..................................................... 54
LEGAL MATTERS.............................................................. 54
INDEX TO HOMESTEAD FINANCIAL STATEMENTS.................................... F-1
</TABLE>
ii
<PAGE>
SUMMARY
Shareholders are urged to review the entire Prospectus. All references to
Homestead Village Incorporated's operations include PTR, ATLANTIC and Security
Capital Group Incorporated ("SCG") operations with respect to Homestead
Village(R) properties. Homestead Village(R) is a registered trademark of SCG,
which will be assigned to Homestead as a part of the Transaction. The term
"Homestead Village" as used herein shall include a reference to such registered
trademark. All references to the ATLANTIC initial public offering of shares of
ATLANTIC Common Stock (the "ATLANTIC IPO") assumes (i) an estimated initial
public offering price of $24.00 per share (the midpoint of the range of
estimated initial public offering prices for the ATLANTIC IPO) and (ii) no
exercise of the Underwriters' over-allotment option. Unless otherwise
indicated, all ATLANTIC share and per share amounts have been adjusted to give
effect to ATLANTIC's one-for-two reverse stock split, which was effective on
September 10, 1996.
HOMESTEAD VILLAGE INCORPORATED
The first Homestead Village property was opened in 1992 by PTR. Since then
PTR has developed and placed into operation 27 additional Homestead Village
properties and ATLANTIC has developed and placed into operation one Homestead
Village property. Homestead was organized in January 1996 to continue the
operations of PTR, ATLANTIC and SCG with respect to their respective moderate
priced, extended-stay lodging facilities. Homestead will develop, own and
manage moderate priced, extended-stay lodging facilities designed to appeal to
value-conscious customers on temporary assignment, undergoing relocation or in
training.
The objective of Homestead is to be the preeminent developer, owner and
national operator focused on the moderate priced, extended-stay lodging
business. Homestead expects to achieve this objective by:
. participating in high growth markets;
. exercising investment discipline based on research; and
. employing a consistent high quality service standard to property
operations.
At August 31, 1996, Homestead operated 29 facilities, had begun construction
of 18 additional facilities and had an additional 33 properties in pre-
development planning, for a total of 80 properties. Homestead is currently
processing entitlements on 39 additional sites it has under contract, which, if
acquired, would bring Homestead's total number of properties completed or under
development to 119. In addition, its development staff of 55 professionals is
currently reviewing additional development opportunities in 29 cities. The term
"in pre-development planning" means developments owned or under control (land
which is under control through contingent contract) with construction
anticipated to commence within 12 months. Homestead's facilities are designed
and built to uniform plans developed by Homestead. Homestead expects to have a
total of 31 facilities operational and 41 facilities under construction by the
end of 1996 and plans to continue an active development program thereafter.
Homestead's plans call for the average facility to have approximately 136
extended-stay rooms and take approximately eight to ten months to construct.
The average length of stay for a customer is in excess of four weeks. For the
eight months ended August 31, 1996, average physical occupancy and average
weekly rate for 20 stabilized properties was 83% and $213 per week,
respectively, and, for the same period, average physical occupancy and average
weekly rate for nine pre-stabilized properties was 69% and $227 per week,
respectively. Homestead categorizes its operating properties (which include all
properties not under construction or in pre-development planning) as either
"stabilized" or "pre-stabilized." The term "stabilized" means that construction
has been completed and management and marketing programs have been in place for
a sufficient period of time (but in no event longer than 12 months) to achieve
an 80% occupancy level for five consecutive weeks at market rates. Prior to
being "stabilized," an operating property is considered to be "pre-stabilized."
All operating properties have been newly developed by Homestead.
2
<PAGE>
Homestead believes that it is distinguished from its competitors in the
moderate priced, extended-stay lodging business in several respects.
. Homestead has been developing and operating moderate priced, extended-
stay facilities since 1992. It has in place a staff of 66 professionals
who have substantial experience in the real estate and lodging industries
and has 318 site-level employees. Most of these individuals were
previously employed by affiliates of SCG which operated and managed the
Homestead Village properties on behalf of PTR and ATLANTIC in similar
capacities to those they will have with Homestead.
. Homestead currently operates 29 facilities in eight cities and will
operate nationally. It expects to have 31 facilities in eight cities
operating by the end of 1996.
. Homestead has access to substantial financing through (i) the Funding
Commitment Agreements with PTR and ATLANTIC (described herein), under
which PTR and ATLANTIC have agreed to provide funding of $129 million and
$111 million, respectively, and to receive convertible mortgage notes of
$144 million and $98 million, respectively, in respect thereof and (ii)
the Investor Agreement with SCG (described herein) under which SCG has
agreed to exercise upon notice from Homestead all of the Homestead
Warrants it will receive directly and indirectly as part of the
Transaction (as defined below) with an aggregate exercise price of
approximately $48 million. This access to capital should provide
Homestead with sufficient capital to fund its national development
program through mid-1997 without having to seek additional external
financing.
. Homestead is affiliated with SCG, which will be the principal shareholder
of Homestead and will be entitled to representation on the board of
directors of Homestead (the "Homestead Board"). Homestead will be self-
managed but will have access to various services which SCG offers to its
real estate affiliates. These and other services will be available to
Homestead under an Administrative Services Agreement (described herein).
See "Business--Administrative Services Agreement." Homestead believes
that it can purchase these services from SCG at a price which would be
less expensive than hiring the necessary personnel to perform these
services, and that the level of services SCG can provide would be higher
than Homestead could provide internally due to SCG's large, experienced
staff and economies of scale.
Homestead was formed in 1996 as a Maryland corporation and will operate as a
Subchapter C corporation. Its executive offices are located at 125 Lincoln
Avenue, Santa Fe, New Mexico 87501 and its telephone number is (505) 982-9292.
THE TRANSACTION
Assuming that the conditions to the Merger and Distribution Agreement, dated
as of May 21, 1996 (the "Merger Agreement" and, collectively with all of the
transactions contemplated thereby and the Distribution, the "Transaction"),
among PTR, ATLANTIC, SCG and Homestead, have been satisfied or waived, each of
PTR, ATLANTIC and SCG will contribute, through a series of merger transactions
(the "Mergers"), all of their respective assets related to Homestead Village
properties in return for shares of Homestead Common Stock and Homestead
Warrants as follows:
. PTR will contribute 54 properties (or the rights to acquire such
properties) to Homestead in exchange for 9,485,727 shares of Homestead
Common Stock.
. ATLANTIC will contribute 26 properties (or the rights to acquire such
properties) to Homestead in exchange for 4,201,220 shares of Homestead
Common Stock. Pursuant to the Merger Agreement, ATLANTIC will provide an
estimated cash payment of $18.6 million to Homestead at the date of the
closing of the Mergers (the "Closing Date"). This payment is required
because ATLANTIC's Homestead Village properties are in earlier stages of
development than PTR's Homestead Village
3
<PAGE>
properties, therefore ATLANTIC has not funded the same percentage of total
costs as PTR. This payment also assures that ATLANTIC receives all of its
shares of Homestead Common Stock at the Closing Date rather than being
received in smaller increments over time as funds are expended for
Homestead Village properties contributed by ATLANTIC.
. SCG will contribute to Homestead its anticipated future cash flows from
the PTR and ATLANTIC real estate investment trust ("REIT") management
agreements and property management agreements relating to the Homestead
Village properties in exchange for 1,819,750 shares of Homestead Common
Stock, not including 2,243,038 shares which will be placed in escrow and
released as funds are advanced under the Funding Commitment Agreements.
In addition, SCG will contribute the Homestead Village trademark and the
operating system. No separate consideration was attributed to the
Homestead Village trademark or the operating system, as the trademark and
the operating system would be necessary to achieve the anticipated fees.
There are additional Homestead Village facilities which are in early
stages of planning, but which are not owned or under control and are not
included in the 80 facilities which will be contributed in the
Transaction, and are being planned and developed outside the target
markets of PTR and ATLANTIC by SCG with its own funds. SCG will
contribute the rights to certain properties to Homestead for no
additional consideration.
. Simultaneous with the transactions described above, PTR and ATLANTIC will
receive 6,363,789 and 2,818,517 Homestead Warrants, respectively, in
exchange for their entering into the Funding Commitment Agreements. Each
Homestead Warrant is exercisable at $10.00 per share and expires one year
after the Distribution Record Date.
. Pursuant to the applicable Funding Commitment Agreement, PTR and ATLANTIC
will agree to provide secured financing to Homestead of up to $129
million and $111 million, respectively, and to receive convertible
mortgage notes in respect thereof. These notes will have a term of
approximately ten years, will bear interest at 9% per year, will not be
callable for five years and will be convertible into shares of Homestead
Common Stock after March 31, 1997 on the basis of one share of Homestead
Common Stock for every $11.50 of principal amount outstanding, subject to
antidilution adjustment. The PTR mortgage loans and ATLANTIC mortgage
loans will be used to finance the acquisition and development of
properties contributed by PTR and ATLANTIC, respectively. In addition,
PTR subsidiaries currently have $77,289,000 in convertible mortgage loans
with PTR which will be assumed by Homestead at the Closing Date. These
loans have substantially the same terms as the mortgage loans described
above. If all such mortgage loans were made and converted, an additional
19,246,402 and 8,524,215 shares of Homestead Common Stock would be issued
to PTR and ATLANTIC, respectively.
. SCG will receive 817,694 Homestead Warrants in exchange for providing
funding to Homestead during the time between the execution of the Merger
Agreement and the Closing Date and the use of office facilities for one
year.
. The relative percentage ownership interests of PTR, ATLANTIC and SCG in
Homestead, giving effect to the issuance of the Homestead Common Stock at
the Closing Date, the exercise of all Homestead Warrants and the
conversion of all mortgage loans outstanding and which could be made
under the Funding Commitment Agreements, would be 63.21%, 28.00% and
8.79%, respectively (before giving effect to the Distribution of the
Homestead Securities by PTR and ATLANTIC). These percentages are
different than the relative percentage ownership interests described
elsewhere because the convertible mortgage loans issuable to PTR and
ATLANTIC have a conversion price of $11.50 per share rather than the
$10.00 per share used in calculating the original issuance of the
Homestead Common Stock.
. After giving effect to the Atlantic IPO, the Distribution of the
Homestead Securities by PTR and ATLANTIC, the exercise of all Homestead
Warrants, the release of all shares of Homestead Common Stock to SCG from
escrow and the conversion of all mortgage loans and the subsequent
distribution of the Homestead Common Stock issuable upon such conversion
to the shareholders of PTR and ATLANTIC, SCG would own approximately
48.8% of the outstanding Homestead Common Stock.
4
<PAGE>
PTR's and ATLANTIC's respective shareholders approved the Transaction on
September 12, 1996 and September 13, 1996, respectively.
THE DISTRIBUTION
The shares of Homestead Common Stock and Homestead Warrants being distributed
hereby are being issued in connection with the Distribution by PTR and ATLANTIC
of all of the Homestead Securities owned by them to their respective
shareholders. Set forth below is a summary of the number of shares of Homestead
Common Stock and Homestead Warrants being issued in connection with the
Transaction.
<TABLE>
<S> <C>
Homestead Common Stock..................................... 17,749,735 shares(1)
Homestead Warrants......................................... 10,000,000 warrants
Fully Exercised and Converted(2)........................... 55,520,352 shares
</TABLE>
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(1) Including the 2,243,038 shares held in escrow.
(2) Assumes the exercise of all 10,000,000 Homestead Warrants and conversion of
the outstanding $77,289,000 principal amount of convertible mortgage loans
and $242,073,091 principal amount of convertible mortgage loans issuable
pursuant to the Funding Commitment Agreements.
5
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HOMESTEAD PRO FORMA SUMMARY FINANCIAL INFORMATION
The following table sets forth certain unaudited selected pro forma condensed
consolidated financial information for Homestead after giving effect to the
Transaction, as if it had been consummated, with respect to statements of
operations data, as of January 1, 1995, or, with respect to balance sheet data,
as of the date presented. The information presented is derived from, should be
read in conjunction with, and is qualified in its entirety by reference to, the
historical balance sheet data and the notes thereto and the unaudited pro forma
condensed consolidated financial data and the notes thereto appearing elsewhere
in this Prospectus. The unaudited selected pro forma condensed consolidated
financial data have been included for comparative purposes only and do not
purport to be indicative of the results of operations or financial position
which actually would have been obtained if the Transaction had been effected at
the dates indicated or of the financial position or results of operations which
may be obtained in the future. See "Homestead Pro Forma Selected Financial
Information" and "Homestead Pro Forma Financial Statements."
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
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(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATIONS SUMMARY:
Room Revenue....................................... $ 15,133 $ 18,337
Total Revenue...................................... 15,353 18,721
Property Operating Expenses(1)..................... 6,420 7,600
Corporate Operating Expenses....................... 4,145 6,188
Depreciation and Amortization...................... 2,388 5,294
Net (Loss)......................................... (201) (3,808)
<CAPTION>
PRO FORMA
JUNE 30,
1996
-----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
FINANCIAL POSITION:
Property and Equipment, net........................ $ 179,990
Total Assets....................................... 256,209
Convertible Mortgage Notes Payable................. 67,347
Total Liabilities.................................. 76,505
Shareholders' Equity............................... 179,704
Common Stock Outstanding(2)........................ 17,749,735
<CAPTION>
PRO FORMA
-------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
PER SHARE DATA:
Net Income (Loss).................................. $ (.01) $ (.11)
Net Book Value..................................... 5.35 N/A
Weighted Average Number of Shares of Homestead
Common Stock Outstanding(3)....................... 33,605,996 33,605,996
OTHER DATA:
EBITDA(4).......................................... $ 4,788 $ 4,933
Cash Provided by (used in):
Operating Activities............................. 5,439 3,035
Investing Activities............................. (54,519) (54,679)
Financing Activities............................. 47,563 53,001
</TABLE>
6
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(1) Property operating expenses consist of all expenses directly related to the
operation of the properties and do not include an allocation of corporate
operating expenses. Property operating expenses include primarily salaries
and wages, telephone, utilities, insurance, maintenance and supply costs
and property taxes.
(2) On a pro forma basis, this includes 2,289,602 shares held in escrow pending
the resolution of the funding contingency:
<TABLE>
<S> <C>
Total shares to be issued to SCG................................ 4,062,788
Pro forma shares to be issued at the Closing Date (see Note (h)
to the Homestead pro forma financial statements)............... (1,773,186)
----------
Pro forma shares to be held in escrow......................... 2,289,602
==========
</TABLE>
(3) The weighted average shares of Homestead Common Stock outstanding equals
the sum of 17,749,735 shares outstanding, 10,000,000 shares of Homestead
Common Stock equivalents related to the Homestead Warrants and 5,856,261
shares of Homestead Common Stock equivalents related to the convertible
mortgage notes payable.
(4) EBITDA means operating income before mortgage and other interest, income
taxes, depreciation and amortization. EBITDA does not represent cash
generated from operating activities in accordance with GAAP, is not to be
considered as an alternative to net income or any other GAAP measurement as
a measure of operating performance and is not necessarily indicative of
cash available to fund cash needs. Homestead has included EBITDA herein
because Homestead believes that it is one measure used by certain investors
to determine operating cash flow. EBITDA, as calculated above, may not be
comparable to other similarly titled measures of other companies.
7
<PAGE>
RISK FACTORS
Holders of Homestead Securities should consider carefully the specific
factors set forth below as well as the other information contained in either
the PTR Proxy Statement and Prospectus or the ATLANTIC Information Statement
and Prospectus, as appropriate, including this Prospectus.
SIGNIFICANT INFLUENCE OF PRINCIPAL SHAREHOLDER
As of October 8, 1996, SCG beneficially owned approximately 37.6% of the
issued and outstanding PTR Common Shares and 64.1% of the issued and
outstanding shares of ATLANTIC Common Stock (57.8% after giving effect to the
ATLANTIC IPO). Immediately after completion of the Mergers, SCG is expected to
beneficially own 1,819,750 shares of Homestead Common Stock, not including
2,243,038 shares of Homestead Common Stock which will be held in escrow and
released to SCG as funding is made by ATLANTIC and PTR under their Funding
Commitment Agreements. See "Certain Relationships and Transactions--Escrow
Agreement." As a result of the ATLANTIC IPO and the distribution by PTR and
ATLANTIC to their respective shareholders, SCG expects to beneficially own an
additional 3,570,082 and 2,426,656 shares of Homestead Common Stock,
respectively, for a total of 7,816,488 shares of Homestead Common Stock or
approximately 44.0% of the outstanding shares of Homestead Common Stock.
Through its beneficial ownership of Homestead Common Stock, it is expected
that SCG will control 44.0% of the vote on all matters submitted for Homestead
shareholder action. The foregoing share ownership information does not give
effect to the issuance of shares upon exercise of options or other awards
granted under Homestead's Long-Term Incentive Plan. See "Management--Long-Term
Incentive Plan." SCG will also own Homestead Warrants to acquire an additional
4,840,789 shares of Homestead Common Stock, which, if fully exercised, would
increase SCG's beneficial ownership of Homestead Common Stock to 56.0%. SCG
may, over time, dispose of some of the shares of Homestead Common Stock it
acquires in the Transaction to reduce its beneficial ownership in Homestead to
below 50%. In addition, pursuant to an Investor Agreement between SCG and
Homestead, SCG will agree to exercise at the request of Homestead all
Homestead Warrants it receives in the Transaction. In exchange for its
agreement to exercise Homestead Warrants, Homestead will grant SCG the right,
among other things, to nominate up to two directors to the Homestead Board,
depending upon SCG's level of ownership of shares of Homestead Common Stock,
and to be consulted on certain business decisions made by Homestead. In
addition, pursuant to Investor Agreements with PTR and ATLANTIC, each of PTR
and ATLANTIC will have the right to nominate one director to the Homestead
Board. See "Certain Relationships and Transactions--PTR and ATLANTIC Investor
Agreements" and "--SCG Investor Agreement."
LIMITED OPERATING HISTORY
Although the first Homestead Village property was opened in 1992, Homestead
has a limited operating history as a separate entity upon which investors may
evaluate Homestead's performance. In addition, Homestead has no operating
history except during the recent economic expansion. There can be no assurance
that Homestead will be profitable in the future.
RISKS OF BORROWING
As of the Closing Date, Homestead will assume approximately $77 million of
indebtedness secured by convertible mortgages on Homestead's properties and
various accounts and other assets. Homestead will incur additional debt
(including up to approximately $242 million of additional convertible
mortgages from PTR and ATLANTIC) from time to time, including construction
loans to finance the construction of extended-stay lodging facilities and
future acquisitions of land for development. The obligations under the
mortgage loans with PTR and ATLANTIC and the terms thereof, including the
maturity date and interest rate, have been fixed as of the date of the Merger
Agreement. There can be no assurance that Homestead could not obtain better
terms for such mortgage loans, if the terms were to be determined on the date
a mortgage loan is made to Homestead. In addition, leverage increases the
risks to Homestead of any variations in its results of operations,
construction cost overruns or any other factors affecting its cash flow or
liquidity. In addition, Homestead's interest costs could increase as the
result of general market increases in interest rates because Homestead expects
to enter into a revolving credit facility which will bear interest at floating
rates.
8
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GENERAL REAL ESTATE INVESTMENT RISKS
Real property investments are subject to varying degrees of risk. Real
estate cash flows and values are affected by a number of factors, including
changes in the general economic climate, local conditions (such as an
oversupply of extended-stay properties or a reduction in rental demand in an
area), the quality and philosophy of management, competition from other
available extended-stay properties and the ability of the owner to provide
adequate maintenance and insurance and to control operating costs. Although
Homestead seeks to minimize these risks through its market research and asset
management capabilities, these risks cannot be eliminated entirely. Real
estate cash flows and values are also affected by such factors as government
regulations, including zoning and tax laws, interest rate levels, the
availability of financing and potential liability under, and changes in,
environmental and other laws.
Equity real estate investments are relatively illiquid and therefore may
tend to limit the ability of Homestead to react promptly to changes in
economic or other conditions. In addition, certain significant expenditures
associated with equity investments (such as mortgage payments, real estate
taxes and maintenance costs) are generally not reduced when circumstances
cause a reduction in income from the investments. There can be no assurance
that Homestead will be able to dispose of an investment when it finds
disposition advantageous or necessary or that the sale price of any
disposition will recoup or exceed the amount of Homestead's investment.
DEVELOPMENT RISKS
Homestead intends to grow by developing additional company-owned moderate
priced, extended-stay lodging facilities. Development involves substantial
risks, including the risk that development costs will exceed budgeted or
contracted amounts, the risk of delays in completion of construction, the risk
of failing to obtain all necessary zoning and construction permits, the risk
that financing might not be available on favorable terms, the risk that
developed properties will not achieve desired revenue or profitability levels
once opened, the risk of competition for suitable development sites from
competitors which have greater financial resources than Homestead, the risks
of incurring substantial costs in the event a development project must be
abandoned prior to completion, changes in governmental rules, regulations and
interpretations (including interpretations of the requirements of the
Americans with Disabilities Act of 1990 (the "ADA")) and general economic and
business conditions. Although Homestead intends to manage development to
reduce such risks, there can be no assurance that present or future
developments will perform in accordance with Homestead's expectations. At
August 31, 1996, Homestead had 18 facilities under construction, expects to
have 41 facilities under construction at the end of 1996 and plans to continue
an active development program thereafter. All construction will be performed
by third party general contractors overseen by Homestead's development group.
Under the Funding Commitment Agreements with PTR and ATLANTIC, if there are
cost overruns Homestead must complete the development of each property funded
by PTR or ATLANTIC consistent with the development plans for such project with
its own funds. There can be no assurance, however, that Homestead will
complete the development and construction of the facilities, or that any such
developments will be completed in a timely manner or within budget.
RISKS ASSOCIATED WITH RAPID GROWTH
Homestead's rapid development plans will require the implementation of
enhanced operational and financial systems and will require additional
management, operational and financial resources. For example, Homestead will
be required to recruit and train property managers and other personnel for
each new lodging facility as well as additional accounting personnel. There
can be no assurance that Homestead will be able to manage its expanding
operations effectively. The failure to implement such systems and add such
resources on a cost-effective basis could have a material adverse effect on
Homestead's results of operations and financial condition.
RISKS ASSOCIATED WITH THE LODGING INDUSTRY
The moderate priced, extended-stay segment of the lodging industry, in which
Homestead operates, may be adversely affected by changes in national or local
economic conditions and other local market conditions, such
9
<PAGE>
as an oversupply of hotel space or a reduction in demand for hotel space in a
geographic area, changes in travel patterns, extreme weather conditions,
changes in governmental regulations which influence or determine wages, prices
or construction costs, changes in interest rates, the availability of
financing for operating or capital needs and changes in real estate tax rates
and other operating expenses. Homestead's principal assets will consist of
real property, and real estate values are sensitive to changes in local market
and economic conditions and to fluctuations in the economy as a whole. In
addition, due in part to the strong correlation between the lodging industry's
performance and economic conditions, the lodging industry is subject to
cyclical changes in revenue and profits. These risks may be exacerbated by the
relatively illiquid nature of real estate holdings. In addition, Homestead has
no operating history except during the recent economic expansion. The ability
of Homestead to vary its portfolio in response to changes in economic and
other conditions will be limited. There can be no assurance that downturns or
prolonged adverse conditions in real estate or capital markets or in national
or local economies, and the inability of Homestead to dispose of an investment
when it finds disposition to be advantageous or necessary, will not have a
material adverse impact on Homestead.
COMPETITION IN THE LODGING INDUSTRY
There is no single competitor or small number of competitors of Homestead
that is or are dominant in the moderate priced, extended-stay lodging market.
Competition in the U.S. lodging industry is based generally on convenience of
location, price, range of services and guest amenities offered and quality of
customer service. Homestead considers the reasonableness of its room rates,
the location of its lodging facilities and the services and the guest
amenities provided by it to be among the most important factors in its
business. Demographic or other changes in one or more of Homestead's markets
could impact the convenience or desirability of the sites of certain lodging
facilities, which would adversely affect their operations. Further, there can
be no assurance that new or existing competitors will not significantly lower
rates or offer greater convenience, services or amenities or significantly
expand or improve facilities in a market in which Homestead's facilities
compete, thereby adversely affecting Homestead's operations. There have been a
number of recent announcements indicating that a substantial number of
competitors intend to enter the moderate priced or economy extended-stay
lodging market, which could adversely affect Homestead's business. See
"Business--Competition."
NEED FOR ADDITIONAL CAPITAL
PTR and ATLANTIC have agreed to make convertible mortgage loans to Homestead
to develop the properties being contributed by them (see "Certain
Relationships and Transactions--Funding Commitment Agreements") and SCG has
agreed to exercise at the request of Homestead all of its Homestead Warrants
which it will receive in the Transaction. Homestead anticipates that the
proceeds from the loans and exercise of warrants will provide sufficient
capital for its operations through mid-1997. Thereafter, Homestead may need to
procure additional financing over time, the amount of which will depend on a
number of factors including the number of properties Homestead constructs and
the cash flow generated by its properties. If additional financing is needed,
there can be no assurance regarding the availability or terms of such
financing Homestead may be able to procure over time. Any future debt
financings or issuances of preferred stock by Homestead will be senior to the
rights of the holders of Homestead Common Stock, and any future issuances of
Homestead Common Stock will result in the dilution of the then existing
shareholders' proportionate equity interests in Homestead. Although Homestead
is unable to quantify its needs for additional financing, such needs will
depend upon a number of factors, including the pace of Homestead's development
activities and its ability to generate cash from operations.
IMPACT OF ENVIRONMENTAL REGULATIONS
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner, developer or operator of real estate may be liable
for the costs of removal or remediation of certain hazardous or toxic
substances at, on, under or in its property. The costs of such removal or
remediation of such substances could be substantial. Such laws often impose
such liability without regard to whether the owner or operator knew
10
<PAGE>
of, or was responsible for, the release or presence of such hazardous or toxic
substances. The presence of such substances may adversely affect the owner's
ability to sell or rent such real estate or to borrow using such real estate
as collateral. Persons who arrange for the disposal or treatment of hazardous
or toxic substances also may be liable for the costs of removal or remediation
of such substances at the disposal or treatment facility, whether or not such
facility is owned or operated by such person. Certain environmental laws
impose liability for the release of asbestos-containing materials into the
air, pursuant to which third parties may seek recovery from owners or
operators of real properties for personal injuries associated with such
materials, and prescribe specific methods for the removal and disposal of such
materials. Homestead has not been notified by any governmental authority of
any non-compliance, liability or other claim in connection with any of the
properties currently owned or being acquired, and Homestead is not aware of
any environmental condition with respect to any of the properties, which is
likely to be material. Homestead has subjected each of its properties to a
Phase I environmental site assessment ("Phase I Survey") (which does not
involve invasive procedures such as soil sampling or ground water analysis) by
independent consultants. While some of these assessments have led to further
investigation and sampling, none of the environmental assessments has
revealed, nor is Homestead aware of, any environmental liability (including
asbestos-related liability) that management believes would have a material
adverse effect on Homestead's business, financial position or results of
operations. No assurance can be given, however, that these assessments and
investigations reveal all potential environmental liabilities, that no prior
owner or operator created any material environmental condition not known to
Homestead or the independent consultants or that future uses and conditions
(including, without limitation, resident actions or changes in applicable
environmental laws and regulations) will not result in the imposition of
environmental liabilities.
GOVERNMENT REGULATION AND COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT
The lodging industry is subject to numerous federal, state and local
government regulations including those relating to building and zoning
requirements. Also, Homestead is subject to laws governing its relationships
with employees, including minimum wage requirements, overtime, working
conditions and work permit requirements. An increase in the minimum wage rate,
employee benefit costs or other costs associated with employees could
adversely impact Homestead's results of operations or financial condition. In
addition, in accordance with the provisions of the ADA, all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While Homestead believes that its
facilities are in compliance with these requirements, a determination that
Homestead is not in compliance with the ADA could result in the imposition of
fines or an award of damages to private litigants. In addition, changes in
governmental rules and regulations or enforcement policies affecting the use
and operation of the facilities, including changes to building codes and fire
and life-safety codes, may occur. If Homestead were required to make
substantial modifications at its facilities to comply with interpretations of
the ADA or other changes in governmental rules and regulations, Homestead's
financial condition and ability to develop new facilities could be materially
adversely affected.
LOSSES IN EXCESS OF INSURANCE COVERAGE
Homestead intends to maintain comprehensive insurance on each of its
properties, including liability, fire and extended coverage, in the types and
amounts customarily obtained by an owner and operator in Homestead's industry.
Nevertheless, there are certain types of losses, generally of a catastrophic
nature, such as hurricanes, earthquakes and floods, that may be uninsurable or
not economically insurable. Homestead uses its discretion in determining
amounts, coverage limits and deductibility provisions of insurance, with a
view to obtaining appropriate insurance on Homestead's properties at a
reasonable cost and on suitable terms. This may result in insurance coverage
that in the event of a loss would not be sufficient to pay the full current
market value or current replacement value of Homestead's lost investment and
the insurance proceeds received by Homestead might not be adequate to restore
its economic position with respect to such property.
RELIANCE ON KEY PERSONNEL
Homestead's success will depend to a significant extent upon the efforts and
abilities of its senior management and key employees, particularly David C.
Dressler, Jr., Chairman and President, John Patterson and Donald Schultz, each
a Senior Vice President, and, Gary DeLapp, a Vice President. The loss of the
services of
11
<PAGE>
any of these individuals could have a material adverse effect upon Homestead.
See "Management--Directors and Executive Officers." Homestead does not have
employment or consulting agreements with any of its officers nor does it carry
key man life insurance on any of its officers.
LIMITATIONS ON CHANGES IN CONTROL
Shareholder Purchase Rights. On May 16, 1996, the Homestead Board authorized
a dividend of one preferred share purchase right (a "Purchase Right") for each
share of Homestead Common Stock outstanding. Each Purchase Right entitles the
holder under certain circumstances to purchase from Homestead one one-
hundredth of a share of Series A Junior Participating Preferred Stock, par
value $0.01 per share (the "Participating Preferred Shares"), at a price of
$50.00 per one one-hundredth of a Participating Preferred Share, subject to
adjustment. Purchase Rights are exercisable when a person or group of persons
(other than SCG, PTR or ATLANTIC) acquires beneficial ownership of 20% or more
of the outstanding shares of Homestead Common Stock or announces a tender
offer for beneficial ownership of 25% or more of the outstanding shares of
Homestead Common Stock. Under certain circumstances, each Purchase Right
entitles the holder to purchase, at the Purchase Right's then current exercise
price, a number of shares of Homestead Common Stock having a market value of
twice the Purchase Right's exercise price. The acquisition of Homestead
pursuant to certain mergers or other business transactions would entitle each
holder to purchase, at the Purchase Right's then current exercise price, a
number of the acquiring company's common shares having a market value at that
time equal to twice the Purchase Right's exercise price. The Purchase Rights
held by certain 20% shareholders (other than SCG, PTR or ATLANTIC) would not
be exercisable. The Purchase Rights will expire in May 2006 and are subject to
redemption in whole, but not in part, at a price of $0.01 per Purchase Right
payable in cash, shares of Homestead Common Stock or any other form of
consideration determined by the Homestead Board.
The Purchase Rights may have certain anti-takeover effects, may have the
effect of delaying, deferring or preventing a change in control of Homestead
and may adversely affect the voting and other rights of shareholders. See
"Description of Homestead Securities--Purchase Rights."
Preferred Shares. The Homestead charter (the "Homestead Charter") authorizes
the Homestead Board to issue shares of preferred stock and to establish the
preferences and rights of any shares of preferred stock so issued. See
"Description of Homestead Securities--Preferred Stock." The issuance of
preferred stock could have the effect of delaying, deferring or preventing a
change in control of Homestead even if a change in control were in the
shareholders' interests.
Advance Notice Provisions. For nominations or other business to be properly
brought before an annual meeting of shareholders by a shareholder, the
Homestead Bylaws require such shareholder to deliver a notice to the
Secretary, absent specified circumstances, not less than 60 days nor more than
90 days prior to the first anniversary of the preceding year's annual meeting
setting forth: (i) as to each person whom the shareholder proposes to nominate
for election or reelection as a director, all information relating to such
person that is required to be disclosed in solicitations of proxies for the
election of directors pursuant to Regulation 14A of the Securities Exchange
Act of 1934 (the "Exchange Act"); (ii) as to any other business that the
shareholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business at the
meeting and any material interest in such business of such shareholder and of
the beneficial owner, if any, on whose behalf the proposal is made; and (iii)
as to the shareholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made, (x) the name and address of
such shareholder as it appears on Homestead's books and of such beneficial
owner and (y) the number of shares of each class of Homestead Common Stock
which are owned beneficially and of record by such shareholder and such
beneficial owner, if any.
Classified Board. The Homestead Board has been divided into three classes.
At the 1997 annual meeting of shareholders, one class will be elected to hold
office for a term expiring at the annual meeting of shareholders to be held in
1998, another class will be elected to hold office for a term expiring at the
annual meeting of shareholders to be held in 1999 and another class will be
elected to hold office for a term expiring at the annual
12
<PAGE>
meeting of shareholders to be held in 2000. As the term of each class expires,
directors in that class will be elected for a term of three years and until
their successors are duly elected and qualified. Since at least two annual
meetings will generally be required to effect a change in a majority of the
Homestead Board, this provision could have the effect of delaying, deferring
or preventing a change in control of Homestead even if a change in control
were in the shareholders' interests.
Certain Statutory Provisions. Homestead is subject to the Maryland General
Corporation Law (the "MGCL"), which imposes certain restrictions and requires
certain procedures with respect to the acquisition of certain levels of share
ownership and business combinations, including combinations with interested
shareholders. These provisions of the MGCL could have the effect of delaying,
deferring or preventing a change in control of Homestead even if a change in
control were in the shareholders' interest. Additionally, the Homestead
Charter exempts SCG, its affiliates and successors from these provisions,
allowing SCG, its affiliates and successors to take actions that other persons
are prohibited from taking, which actions may not be in the best interests of
the shareholders other than SCG. See "Certain Provisions of Maryland Law and
of Homestead's Charter and Bylaws."
ABSENCE OF PRIOR PUBLIC MARKET
Prior to the consummation of the Transaction, there will be no public market
for the Homestead Securities. The Homestead Common Stock and the Homestead
Warrants have been approved for listing on the American Stock Exchange,
subject to official notice of issuance. There can be no assurance that an
active trading market will develop. In addition, there can be no assurance of
the price at which holders of the Homestead Common Stock or Homestead Warrants
will be able to sell such Homestead Securities. From time to time, the stock
market experiences significant price and volume volatility, which may affect
the market price of the Homestead Common Stock or Homestead Warrants for
reasons unrelated to Homestead's performance.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Homestead Common Stock, or the
perception that such sales could occur, could adversely affect the prevailing
market price for Homestead Common Stock. Upon completion of the Distribution,
Homestead will have 17,749,735 shares of Homestead Common Stock outstanding.
Except for shares issued to SCG, all such shares, as well as 10,000,000 shares
issuable upon exercise of Homestead Warrants (other than those issued to SCG),
may be sold in the public markets without limitation. Additionally, up to
6,720,783 shares of Homestead Common Stock may be issuable upon exercise of
outstanding convertible mortgage notes and up to 21,049,834 shares of
Homestead Common Stock may be issuable upon exercise of convertible mortgage
notes to be issued pursuant to the Funding Commitment Agreements (described
herein). All such shares of Homestead Common Stock may be sold in the public
markets pursuant to registration rights or available exemptions from
registration. See "Shares Available for Future Sale." No prediction can be
made regarding the effect of future sales of Homestead Common Stock on the
market price thereof.
ABSENCE OF DIVIDENDS
Homestead intends to retain its earnings to finance its growth and for
general corporate purposes and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. See "Dividend Policy."
DIVIDEND POLICY
Homestead is a newly organized company. For Federal income tax purposes,
Homestead is organized as a Subchapter C corporation rather than a real estate
investment trust. As a result, it is under no obligation to distribute
substantially all or any of its earnings to shareholders. The declaration and
payment of dividends by Homestead are subject to the discretion of the
Homestead Board. Any determination as to the payment of dividends will depend
upon the results of operations, capital requirements and financial condition
of Homestead and such other factors as the Homestead Board deems relevant. The
Homestead Board intends to follow a policy of retaining earnings to finance
Homestead's growth and for general corporate purposes and, therefore, does not
anticipate paying any cash dividends in the foreseeable future.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Homestead as of June
30, 1996 and as adjusted to give effect to the Transaction. This table should
be read in conjunction with the pro forma selected financial information, the
historical Balance Sheet and Pro Forma Condensed Consolidated Balance Sheet of
Homestead, and the related notes thereto contained elsewhere herein. See
"Homestead Pro Forma Selected Financial Information" and "Index to Homestead
Financial Statements."
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
------ ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Short-term notes payable......................... $-- $ --
Convertible mortgage notes payable............... -- 67,347
Shareholders' equity:
Common Stock, par value $.01 per share, 1,000
shares authorized (250,000,000 shares
authorized pro forma); 1,000 shares issued and
outstanding (17,749,735 shares issued and
outstanding pro forma)........................ -- (1) 178(2)(3)
Additional paid-in capital/contributed capital. 1 200,973(3)
Shares in escrow............................... -- (28,167)(3)
Retained earnings.............................. -- 6,720
---- --------
Total shareholders' equity................... $ 1 179,704(2)
---- --------
Total capitalization......................... $ 1 $247,051(4)
==== ========
</TABLE>
- --------
(1) Homestead was initially capitalized on April 18, 1996 in the amount of
$1,000 in respect of the issuance of 1,000 shares.
(2) Does not include 10,000,000 shares of Homestead Common Stock issuable upon
exercise of outstanding Homestead Warrants or any shares of Homestead
Common Stock which may be issuable upon the conversion of any convertible
mortgage notes payable.
(3) Includes the shares of Homestead Common Stock to be issued to and held in
escrow for SCG. As each property is funded under the Funding Commitment
Agreements, an appropriate number of shares of Homestead Common Stock will
be transferred to SCG.
(4) The total capitalization does not reflect the additional funding to be
provided by PTR and ATLANTIC in the form of convertible mortgage notes
pursuant to the Funding Commitment Agreements subsequent to the date of
the Transaction. Therefore, the total capitalization as reflected in the
pro forma above does not reflect the entire Transaction.
14
<PAGE>
HOMESTEAD PRO FORMA SELECTED FINANCIAL INFORMATION
The following table sets forth certain unaudited pro forma selected
condensed consolidated financial information for Homestead after giving effect
to the Transaction, as if it had been consummated, with respect to statements
of operations data, as of January 1, 1995, or, with respect to balance sheet
data, as of the date presented. The information presented is derived from,
should be read in conjunction with, and is qualified in its entirety by
reference to, the historical balance sheet data and the notes thereto and the
unaudited pro forma condensed consolidated financial information and the notes
thereto appearing elsewhere in this Prospectus. The unaudited selected pro
forma condensed consolidated financial data have been included for comparative
purposes only and do not purport to be indicative of the results of operations
or financial position which actually would have been obtained if the
Transaction had been effected at the dates indicated or of the financial
position or results of operations which may be obtained in the future. See
"Homestead Pro Forma Summary Financial Information" and "Homestead Pro Forma
Financial Statements."
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------------
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1996 1995
---------------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATIONS SUMMARY
Room Revenue............................. $ 15,133 $ 18,337
Total Revenue............................ 15,353 18,721
Property Operating Expenses(1)........... 6,420 7,600
Corporate Operating Expenses............. 4,145 6,188
Depreciation and Amortization............ 2,388 5,294
Net Income (Loss)........................ $ (201) $ (3,808)
<CAPTION>
PRO FORMA
JUNE 30, 1996
----------------------
FINANCIAL POSITION: (DOLLARS IN THOUSANDS)
<S> <C> <C>
Property and Equipment, net.............. $ 179,990
Total Assets............................. 256,209
Convertible Mortgage Notes Payable....... 67,347
Total Liabilities........................ 76,505
Shareholders' Equity..................... 179,704
Common Stock Outstanding(2).............. 17,749,735
<CAPTION>
PRO FORMA
-----------------------------------
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1996 1995
---------------------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
PER SHARE DATA:
Net Income (Loss)........................ $ (.01) $ (.11)
Net Book Value........................... 5.35 N/A
Weighted Average Number of Shares of
Homestead Common Stock Outstanding(3)... 33,605,996 33,605,996
OTHER DATA:
EBITDA(4)................................ $ 4,788 $ 4,933
Cash Provided by (used in)
Operating Activities................... 5,439 3,035
Investing Activities................... (54,519) (54,679)
Financing Activities................... 47,563 53,001
</TABLE>
15
<PAGE>
- --------
(1) Property operating expenses consist of all expenses directly related to
the operation of the properties and do not include an allocation of
corporate operating expenses. Property operating expenses include
primarily salaries and wages, telephone, utilities, property taxes,
insurance, maintenance and supply costs.
(2) On a pro forma basis, this includes 2,289,602 shares held in escrow
pending the resolution of the funding contingency:
<TABLE>
<S> <C>
Total shares to be issued to SCG................................ 4,062,788
Pro forma shares to be issued at the Closing Date (see Note (h)
to the Homestead pro forma financial statements)............... (1,773,186)
----------
Pro forma shares to be held in escrow......................... 2,289,602
==========
</TABLE>
(3) The weighted average shares of Homestead Common Stock outstanding equals
the sum of 17,749,735 shares outstanding, 10,000,000 shares of Homestead
common stock equivalents related to the Homestead Warrants and 5,856,261
shares of Homestead common stock equivalents related to the convertible
mortgage notes payable.
(4) EBITDA means operating income before mortgage and other interest, income
taxes, depreciation and amortization. EBITDA does not represent cash
generated from operating activities in accordance with GAAP, is not to be
considered as an alternative to net income or any other GAAP measurement
as a measure of operating performance and is not necessarily indicative of
cash available to fund cash needs. Homestead has included EBITDA herein
because Homestead believes that it is one measure used by certain
investors to determine operating cash flow. EBITDA, as calculated above,
may not be comparable to other similarly titled measures of other
companies.
16
<PAGE>
THE TRANSACTION DESCRIBED HEREIN INVOLVES THE SUBSIDIARIES OF PTR (THE "PTR-
HOMESTEAD VILLAGE GROUP"), ATLANTIC (THE "ATLANTIC-HOMESTEAD VILLAGE GROUP")
AND SCG (THE "SCG-HOMESTEAD VILLAGE GROUP") ENGAGED IN THE DEVELOPMENT,
OWNERSHIP AND MANAGEMENT OF HOMESTEAD VILLAGE FACILITIES. SET FORTH BELOW ARE
SELECTED FINANCIAL INFORMATION ON A COMBINED BASIS FOR SUCH HOMESTEAD RELATED
SUBSIDIARIES PRESENTED SEPARATELY FOR EACH OF THE ABOVE ENTITIES. HOMESTEAD
MANAGEMENT BELIEVES THAT PRESENTING SUCH INFORMATION ON A COMBINED BASIS
RESULTS IN A MORE MEANINGFUL PRESENTATION THAN PRESENTING THE SEPARATE
INFORMATION OF EACH SUBSIDIARY.
PTR-HOMESTEAD VILLAGE GROUP SELECTED FINANCIAL INFORMATION
The selected financial information set forth below has been derived from the
historical combined financial statements of the PTR-Homestead Village Group.
The financial information for the six-month periods is not necessarily
indicative of results for subsequent periods or the full year. This selected
financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
PTR-Homestead Village Group" and the historical combined financial statements
and related notes thereto of the PTR-Homestead Village Group contained
elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------- ----------------------------------
1996 1995 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
Room Revenue............ $ 15,133 $ 7,699 $ 18,337 $ 7,827 $ 2,554 $ 377
Property Operating
Expenses(1)............ 6,420 2,529 7,600 3,146 1,157 232
Property management fees
paid to affiliates..... 1,048 426 1,018 460 145 22
Corporate Operating
Expenses............... 397 333 944 826 304 7
REIT management fees
paid to affiliate...... 822 527 989 332 109 9
Depreciation............ 1,841 845 2,343 845 234 36
Total Expenses.......... 12,868 5,951 15,852 7,018 2,204 367
Net Income.............. 2,475 1,920 2,851 974 409 10
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------------
1996 1995 1994 1993 1992
-------- -------- ------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Property and Equipment, net.......... $135,936 $105,002 $59,099 $23,898 $6,972
Total Assets......................... 141,090 108,965 60,866 24,921 7,076
Current Liabilities.................. 7,246 5,850 3,667 2,529 367
Intercompany Debt.................... 30,110 80,144 45,131 19,290 5,123
Convertible Mortgage Notes Payable... 77,289 -- -- -- --
Total Liabilities.................... 114,645 85,994 48,798 21,818 5,490
Owners' Equity....................... 26,445 22,971 12,068 3,103 1,586
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------ -------------------------------------
1996 1995 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(2) $ 6,656 $ 4,056 $ 8,152 $ 3,228 $ 898 $ 107
Net cash provided by
(used in):
Operating
activities......... 7,111 2,166 6,019 2,381 599 374
Investing
activities......... (35,752) (19,329) (48,116) (35,474) (15,751) (7,007)
Financing
activities......... 28,254 17,034 43,065 33,832 15,275 6,699
</TABLE>
- -------
(1) Property operating expenses consist of all expenses directly related to
the operation of the properties and do not include an allocation of
corporate operating expenses. Property operating expenses include
primarily salaries and wages, telephone, utilities, insurance, maintenance
and supply costs and property taxes.
(2) EBITDA means operating income before mortgage and other interest, income
taxes, depreciation and amortization. EBITDA does not represent cash
generated from operating activities in accordance with GAAP, is not to be
considered as an alternative to net income or any other GAAP measurement
as a measure of operating performance and is not necessarily indicative of
cash available to fund all cash needs. The PTR-Homestead Village Group has
included EBITDA herein because the PTR-Homestead Village Group believes
that it is one measure used by certain investors to determine operating
cash flow. EBITDA, as calculated above, may not be comparable to other
similarly titled measures of other companies.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF PTR-HOMESTEAD VILLAGE GROUP
OVERVIEW
The PTR-Homestead Village Group historical operating results reflect the
growth and evolution of both the Homestead Village concept and the extended-
stay lodging business as a whole. Since the first Homestead Village facility
opened in 1992, the PTR-Homestead Village Group has developed an additional 27
properties in four years.
ENVIRONMENTAL MATTERS
The PTR-Homestead Village Group is not aware of, nor does it expect, any
environmental condition on its properties to have a material adverse effect
upon its business, financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
From inception through June 30, 1996, PTR-Homestead Village Group had
invested $141.2 million for the acquisition and development of 40 Homestead
Village properties, 26 of which were operating, eight of which were under
construction and six of which were in pre-development planning as of June 30,
1996. These investments have been financed through a combination of
intercompany debt borrowed from PTR and contributed capital.
At June 30, 1996, the PTR-Homestead Village Group expected to invest an
additional $142.8 million for those properties under construction, in planning
and for the acquisition, development and construction of 14 additional
properties over the next two years. The foregoing transactions are subject to
a number of conditions, and Homestead cannot predict with certainty that any
of them will be consummated.
The PTR-Homestead Village Group expects to finance construction, development
and land acquisitions primarily with cash on hand, convertible mortgage loans
to be made under the Funding Commitment Agreements, exercise of Homestead
Warrants by SCG pursuant to the SCG Investor Agreement, possible exercise of
Homestead Warrants by other warrantholders and cash from future securities
offerings.
At August 31, 1996, the PTR-Homestead Village Group had unfunded development
commitments for developments under construction of approximately $32.3
million.
RESULTS OF OPERATIONS
1995 Compared to 1994
Total revenue for the year ended December 31, 1995 was $18.7 million,
representing an increase of $10.7 million over the previous year. This
increase was due primarily to (i) a 67% increase in the number of operating
properties from twelve to twenty and (ii) a 14% increase in the average weekly
rate for stabilized properties, from $186 to $212 per week.
Total costs and expenses for the year ended December 31, 1995 were $15.9
million, representing an increase of $8.8 million over the previous twelve
months. Property operating expense and property management fee increases of
approximately $5.0 million can be attributed to (i) the increase in the number
of operating properties noted above, (ii) an increase in property taxes as a
result of the additional operating properties and (iii) refinements in the
number and quality of property-level programs and services. REIT management
fees increased approximately $0.7 million as a result of increased property
cash flow.
Depreciation of the cost of properties and improvements is provided using
the straight-line method over the estimated useful lives. Depreciation expense
increased $1.5 million in 1995 due primarily to the eight new properties
opened in 1995 and the full year of depreciation being charged for the nine
properties opened in 1994.
18
<PAGE>
Interest expense increased $1.5 million over 1994 due primarily to eight
additional properties opening in 1995. Additionally, a full year of interest
was incurred on the nine properties which opened in 1994.
1994 Compared to 1993
PTR-Homestead Village Group ended 1994 with twelve operating properties
versus three operating properties at the end of 1993. These nine new
properties generated a $4.5 million revenue increase over the prior twelve
months. The remaining $0.9 million increase in revenue can be attributed to an
increase in average weekly rates for stabilized properties from $169 to $186
per week or approximately 10%.
Total costs and expenses increased by $4.8 million over the same period,
from $2.2 million to $7.0 million. Most of the $2.3 million increase in
property expenses is attributable to the nine new property openings. The major
component of the increase is due to property taxes that are expensed on
operating properties. Corporate operating expenses and REIT management fees
increased approximately $0.7 million during this period as a result of
additional new property openings and higher property cash flow.
Depreciation expense for December 31, 1994 increased $0.6 million over 1993
due primarily to the addition of nine new properties in 1994. Interest expense
for the period increased $1.2 million due primarily to the completion of the
nine new properties referred to above incurring interest plus a full year of
interest on the properties which opened in 1993.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Total revenue for the six months ended June 30, 1996 was $15.3 million, an
increase of $7.5 million over the six months ended June 30, 1995. This
increase was due to both the addition of 16 properties between January 1995
and June 1996, as well as a 3.8% increase in the average weekly rates for
stabilized properties from $211 to $219 per week.
Total costs and expenses increased from $6.0 million to $12.9 million over
the same period, an increase of $6.9 million. Property operating expenses and
property management fees contributed $4.5 million to this increase, due to a
greater number of operating properties and the addition of certain customer
amenities and property level programs and services. REIT management fees
increased approximately $0.3 million as a result of increased property cash
flow.
The increase in depreciation expense of $1.0 million is due primarily to the
additional 16 properties which were opened between January 1995 and June 1996.
An increase of $1.1 million in interest expense resulted from additional
operating properties and from the issuance of 9.00% convertible mortgage notes
payable to PTR on January 24, 1996, replacing intercompany debt bearing
interest at 7.37%.
19
<PAGE>
ATLANTIC-HOMESTEAD VILLAGE GROUP SELECTED FINANCIAL INFORMATION
The selected financial information set forth below has been derived from the
historical combined financial statements of the Atlantic-Homestead Village
Group. The financial information for the six-month period ended June 30, 1996
is not necessarily indicative of results for subsequent periods or the full
year. This selected financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Atlantic-Homestead Village Group" and the combined historical
financial statements and related notes thereto of the Atlantic-Homestead
Village Group contained elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS INCEPTION
ENDED (APRIL 3, 1995)
JUNE 30, TO
1996 DECEMBER 31, 1995
---------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATIONS SUMMARY:
Corporate operating expenses..................... $ 38 $ 63
Net Loss......................................... (29) (59)
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
FINANCIAL POSITION:
Properties under development............................ $18,584 $2,627
Total Assets............................................ 20,896 4,317
Development Costs Payable............................... 1,165 15
Total Current Liabilities............................... 1,867 155
Intercompany Debt....................................... 17,420 2,627
Total Liabilities....................................... 19,287 2,782
Owners' Equity.......................................... 1,609 1,535
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS INCEPTION
ENDED (APRIL 3, 1995)
JUNE 30, TO
1996 DECEMBER 31, 1995
---------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OTHER DATA:
Net Cash Provided by (used in):
Operating activities........................... $ 533 $ 81
Investing activities........................... (15,457) (4,118)
Financing activities........................... 14,896 4,221
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF ATLANTIC-HOMESTEAD VILLAGE GROUP
OVERVIEW
The Atlantic-Homestead Village Group's historical combined financial
statements reflect the acquisition and development of Homestead Village
properties. As of June 30, 1996, there were no operating properties. As of
June 30, 1996, the Atlantic-Homestead Village Group had one property under
construction and 25 in pre-development planning.
ENVIRONMENTAL MATTERS
The Atlantic-Homestead Village Group is not aware of, nor does it expect,
any environmental condition on its properties to have a material adverse
affect upon its business, financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
From inception through June 30, 1996, the Atlantic-Homestead Village Group
invested $18.6 million for the acquisition and development of Homestead
Village properties. These investments have been financed through intercompany
debt.
At June 30, 1996, the Atlantic-Homestead Village Group planned to invest an
additional $140.1 million for the acquisition, development and construction of
26 Homestead Village properties over approximately the next eighteen months.
The Atlantic-Homestead Village Group expects to finance construction,
development and acquisitions primarily from convertible mortgage loans to be
made under the Funding Commitment Agreements, exercise of Homestead Warrants
by SCG pursuant to the SCG Investor Agreement, possible exercise of Homestead
Warrants by other warrantholders and cash from future securities offerings.
At August 31, 1996, the Atlantic-Homestead Village Group had unfunded
development commitments for developments under construction of approximately
$21.1 million.
RESULTS OF OPERATIONS
Period from April 3, 1995 (date of formation) through December 31, 1995 and
the Six Months Ended June 30, 1996
The Atlantic-Homestead Village Group consists of several entities that are
subsidiaries of ATLANTIC. During 1995 and the six months ended June 30, 1996,
the Atlantic-Homestead Village Group has been developing Atlantic's Homestead
Village properties. As described in the combined financial statements of the
Atlantic-Homestead Village Group, property acquisitions and development costs
are assumed to have been funded via intercompany debt borrowed from ATLANTIC.
All interest related to the intercompany debt during 1995 and the six months
ended June 30, 1996 has been capitalized and included in "Properties under
development." Operating expenses during 1995 and the six months ended June 30,
1996 pertain to pursuit costs relating to abandoned projects and various
administrative expenses.
21
<PAGE>
SCG-HOMESTEAD VILLAGE GROUP SELECTED FINANCIAL INFORMATION
The selected financial information set forth below has been derived from the
historical combined financial statements of the SCG-Homestead Village Group.
The financial information for the six-month period ended June 30, 1996 is not
necessarily indicative of results for subsequent periods or the full year.
This selected financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of SCG-Homestead Village Group" and the historical combined
financial statements and related notes thereto of the SCG-Homestead Village
Group contained elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------- ------------------------------
1996 1995 1995 1994 1993 1992
------- ------- ------- ------- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
REIT and Property
Management Fees Earned
from Affiliates........... $ 1,871 $ 952 $ 2,007 $ 792 $ 254 $ 43
Payroll and Related
Expenses.................. 4,064 1,568 4,276 1,713 707 152
Total Expenses............. 6,371 2,364 7,176 2,454 922 233
Net Loss................... (4,500) (1,407) (5,155) (1,662) (668) (190)
</TABLE>
<TABLE>
<CAPTION>
JUNE DECEMBER 31,
30, --------------------------
1996 1995 1994 1993 1992
------- ------- ----- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
REIT and Property Management Fees
Receivable.............................. $ 526 $ 470 $ 55 $ 10 $16
Furniture and Equipment, net............. 531 228 47 -- --
Total Assets............................. 1,405 779 102 10 16
Intercompany Debt........................ 2,756 1,147 -- -- --
Current Liabilities...................... 3,663 2,046 251 96 --
Total Liabilities........................ 3,663 2,046 251 96 --
Owners' Equity (Deficit)................. (2,258) (1,267) (149) (86) 16
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------- ------------------------------
1996 1995 1995 1994 1993 1992
------- ------- ------- ------- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(1).................. $(4,377) $(1,379) $(5,046) $(1,640) $(668) $(190)
Net Cash Provided by (used
in):
Operating activities..... (4,478) (1,256) (4,951) (1,545) (565) (206)
Investing activities..... (628) (58) (234) (55) -- --
Financing activities..... 5,118 1,314 5,185 1,600 565 206
</TABLE>
- --------
(1) EBITDA means operating income before mortgage and other interest, income
taxes, depreciation and amortization. EBITDA does not represent cash
generated from operating activities in accordance with GAAP, is not to be
considered as an alternative to net income or any other GAAP measurement
as a measure of operating performance and is not necessarily indicative of
cash available to fund all cash needs. The SCG-Homestead Village Group has
included EBITDA herein because the SCG-Homestead Village Group believes
that it is one measure used by certain investors to determine operating
cash flow. EBITDA, as calculated above, may not be comparable to other
similarly titled measures of other companies.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF SCG-HOMESTEAD VILLAGE GROUP
OVERVIEW
The SCG-Homestead Village Group's business consists of providing development
and property and REIT management services for the Homestead Village properties
developed, owned and operated by the PTR-Homestead Village Group and the
Atlantic-Homestead Village Group. SCG-Homestead Village Group earns REIT
management fees which in general are 16% of cash flow (as defined) and
property management fees which are computed as a percentage (5%-7%) of gross
revenues (as defined).
LIQUIDITY AND CAPITAL RESOURCES
The SCG-Homestead Village Group has incurred operating deficits since
inception as a result of performing development services for the PTR-Homestead
Village Group and the Atlantic-Homestead Village Group without compensation.
Under the respective REIT management agreements, fees are paid from the cash
flow of operating Homestead Village properties. Deficits are a result of
having a significant number of properties under development thus incurring
higher development overhead. The deficits have been and are expected to
continue to be funded through intercompany borrowings and contributed capital
from SCG.
From inception through June 30, 1996, SCG-Homestead Village Group invested
$0.5 million in furniture and equipment for the support of the operations and
development of the Homestead Village properties.
RESULTS OF OPERATIONS
1995 Compared to 1994
REIT and property management fees for the year ended December 31, 1995 were
$2.0 million, an increase of $1.2 million, or approximately 153%, over the
year ended December 31, 1994. These additional fees are primarily attributable
to the revenues and cash flow generated by the new Homestead Village
properties opened in 1995 (eight) as well as Homestead Village properties
experiencing their first full year of operations during 1995 (nine).
Costs and expenses increased by $4.7 million, or approximately 192%, to $7.2
million for the year ended December 31, 1995 from $2.5 million for the year
ended December 31, 1994. The additional expenses resulted primarily from
increased payroll, recruiting and relocation and other expenses associated
with increased staffing given (i) the additional Homestead Village properties
receiving property management services and (ii) the additional property
acquisition and development activities applicable to the current and future
growth of the Homestead Village properties.
1994 Compared to 1993
REIT and property management fees for the year ended December 31, 1994 were
$0.8 million, which is an increase of $0.5 million, or approximately 212%,
over the year ended December 31, 1993. These additional fees are primarily
attributable to the revenue and cash flow generated by Homestead Village
properties which opened in 1994 (nine) as well as the effect of one Homestead
Village property experiencing its first full year of operations during 1994.
Costs and expenses increased $1.5 million (166%), to $2.4 million for the
year ended December 31, 1994 from $0.9 million for the year ended December 31,
1993. The additional expenses resulted primarily from increased payroll and
other expenses associated with increased staffing resulting from the growth in
operating properties and property acquisitions and development activity.
23
<PAGE>
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
REIT and property management fees for the six months ended June 30, 1996
were $1.9 million, an increase of $0.9 million, or approximately 97%, over the
six months ended June 30, 1995. These additional fees are primarily
attributable to (i) the increased revenue and cash flow generated by eight
Homestead Village properties which opened during the six months ended June 30,
1996 as well as five Homestead Village properties which opened during the
period July 1, 1995 to December 31, 1995 and (ii) the property management fee
percentage which increased to 7% of gross revenues commencing January 1, 1996.
Costs and expenses increased $4.0 million, or approximately 170%, to $6.4
million for the six months ended June 30, 1996 from $2.4 million for the six
months ended June 30, 1995. The additional expenses resulted primarily from
increased payroll, recruiting and relocation, overhead allocated by SCG and
other expenses associated with increased staffing as a result of the continued
growth in operating Homestead Village properties and property acquisition and
development activities.
BUSINESS
OBJECTIVES
The objective of Homestead is to be the preeminent developer, owner, and
national operator focused on the moderate priced, extended-stay lodging
business. Homestead intends to achieve this objective by:
. participating in high growth markets;
. exercising investment discipline based on research; and
. employing a consistent high quality service standard to property
operations.
At August 31, 1996, Homestead owned and operated 29 facilities in eight
cities, had begun construction on 18 additional facilities and had an
additional 33 properties in pre-development planning, for a total of 80
properties. Homestead is currently processing entitlements on 39 additional
sites it has under contract, which, if acquired, would bring Homestead's total
number of properties completed or under development to 119. In addition, its
development staff of 55 professionals is currently reviewing additional
development opportunities in 29 cities. (See "--Homestead Village
Properties.")
Homestead seeks to offer a purpose-built standardized product for the value-
conscious business customer on temporary assignment, undergoing relocation or
in training. Homestead will offer as its primary amenities price and value.
Secondary amenities include location and site livability--convenience to the
targeted business base and services--in an environment that is attractive,
well landscaped and secure.
Customer research indicates that the primary Homestead Village customer stay
is work-related. The largest proportion of these relate to temporary business
assignments. Average income of Homestead customers exceeds $50,000. Homestead
believes the customer's foremost reason for selecting Homestead is the high
level of value delivered to the customer in relation to the price. Forty-four
percent (44%) of Homestead customers pay for their stay either out-of-pocket
(are not reimbursed) or on a per diem. Twenty-five percent (25%) of Homestead
Village customers are direct employer referrals, in many cases due to
training. The average length of stay for a customer is in excess of four
weeks. Management believes that Homestead will benefit from well-defined
trends in business including an increased focus on cost-efficiency, reduction
in travel expenses, out-sourcing and geographic dispersion of customers and
operations.
Homestead is founded on research. The Homestead product was conceived and
has evolved to meet consumer needs through research, testing and the operating
experience gained through the development and operation of 29 properties over
the past four years. Homestead believes its operating experience and its
affiliation with Security Capital Investment Research Incorporated ("Security
Capital Investment Research") allow it to better target markets where supply
and demand factors permit high occupancies at increasing rental rates.
Homestead targets submarkets that exhibit strong employment and demographic
trends in selecting locations with barriers to extensive competitive
development. Homestead believes it brings a strategic discipline to
determining
24
<PAGE>
an investment focus which provides favorable initial returns and long-term
growth prospects. Through its Investment Committee, described below, and due
diligence process, Homestead employs uniform systems and procedures to achieve
its investment goals.
Homestead believes that the Homestead Village brand identity and the market
opportunity in extended-stay lodging is best served by a property specifically
designed and built to Homestead's standards and specifications. Accordingly,
while Homestead intends to be an active national developer, it has no plans or
intention to acquire existing extended-stay properties or to convert other
existing lodging properties to extended-stay use. To ensure maximum control
over the brand identity and quality of operations, Homestead has no plans or
intention to franchise the Homestead Village concept.
Homestead minimizes development risks by having zoning, site planning,
construction budgets and similar risks resolved or assumed by third parties
prior to Homestead's commitment to a transaction. Homestead incorporates into
its development process certain proprietary technologies, design and
purchasing aimed at enhancing occupancy and rental growth while reducing
ongoing maintenance costs. Homestead has had the opportunity to evaluate and
refine its product through its history of development. Homestead focuses on
the quality of construction, materials and design with a view towards
minimizing long-term operation and maintenance costs. Homestead uses
independent general contractors for the construction of its properties and
intends to use a number of such contractors depending upon the geographic
area, costs of construction and physical capacities of the contractors.
Homestead personnel will oversee the progress of construction on a regular
basis during the development cycle.
HISTORY
Homestead was initially created as a byproduct of the multifamily
development activities of PTR. The PTR REIT Manager (defined herein)
identified a customer need not ideally addressed through its traditional
multifamily garden apartment product or through corporate apartments operated
within a garden apartment context. The PTR REIT Manager believed that a
product which offered greater flexibility of rental term, a fully furnished
studio apartment with cooking facilities and a focused array of services (such
as limited maid service, voice mail, cable or satellite television) at an
affordable price would meet the needs of a significant and growing segment of
demand for those business customers on temporary assignment, training or
relocating.
In conjunction with its research affiliate, Security Capital Investment
Research, the PTR REIT Manager engaged in extensive study to determine an
optimum approach to what it originally termed "Corporate Affordable Housing."
Beginning in 1992, the PTR REIT Manager initiated development projects in
Dallas and Houston, Texas. It was the PTR REIT Manager's express intention to
gain operating experience and to fully understand market characteristics prior
to committing to full-scale Homestead Village development on a broad
geographical basis. SCG funded the early stages of development of the
Homestead Village concept.
Homestead properties which opened in 1992 and 1993 enjoyed substantial
occupancy and customer acceptance. During this period, management reviewed
Homestead Village properties and operations to refine and improve its approach
to serving the Homestead customer. Management believes its initial operating
experience allowed it to not only better understand the depth and scope of the
available market opportunity for Homestead Village but also to create a better
development process and operating system in response to that opportunity.
During 1995, a distinct and separate management team was created to support
and expand the opportunity for Homestead Village in PTR and ATLANTIC. PTR and
ATLANTIC are affiliates of SCG and are REITs which own, operate and develop
multifamily properties. PTR's target market is the western United States and
ATLANTIC's target market is the southeastern United States. Homestead projects
were developed by each entity in its own region. From January 1995 to August
1996 the number of professional employees focused exclusively on Homestead
Village increased from eight to 66 and the number of on-site personnel is
currently 318. Operations and development were organized within PTR and
ATLANTIC to meet the distinct needs of the moderate priced, extended-stay
lodging business. Homestead believes it has not only brought a focused
approach
25
<PAGE>
to the development and operations of moderate priced, extended-stay
properties, but that Homestead currently has superior management depth and
experience in the industry.
As a result of the Mergers, Homestead will become a separate entity. It has
been organized as a Subchapter C corporation and is internally managed.
However, Homestead has a relationship with SCG which it intends to continue
through the Administrative Services Agreement and will enjoy the benefits of
SCG's organization and service. See "--Administrative Services Agreement."
THE FACILITIES
At August 31, 1996, Homestead had developed, owned and operated 29 Homestead
Village properties representing in the aggregate 4,025 units in eight cities
and had 18 Homestead Village properties under construction totaling 2,268
units within four of these cities as well as nine additional cities. In
addition, Homestead owns or controls through contracts 33 development sites
for which it plans to initiate construction within the next 12 months, for a
total of 80 properties. Units operating, under construction, or in pre-
development planning aggregate 10,908 units in 23 cities. Homestead is
currently processing entitlements on 39 additional sites it has under
contract, which, if acquired, would bring Homestead's total number of
properties completed or under development to 119. In addition, its development
staff of 55 professionals is currently reviewing additional developments
opportunities in 29 cities.
The average size and development cost of the initial 80 Homestead Village
properties is 136 units and $40,593 per unit, respectively. It is expected,
however, that the size and cost to develop a property will vary significantly
by geographic location. The 12 Homestead Village properties currently under
construction average 132 units at an average project cost of $5.8 million with
an average cost per unit of $43,486.
Homestead Village properties are designed and built to uniform plans
developed and periodically refined since 1991. Units generally contain 260 to
325 square feet of fully furnished living space, with kitchen facilities
including full-size refrigerator, microwave, sink and cook-top. Generally,
units include combination work station/eating area, chair and features such as
individual voice mail, cable/satellite television, weekly housekeeping,
dataport and free local telephone calls.
For the eight months ended August 31, 1996, the 20 stabilized Homestead
Village properties had an average physical occupancy of 83% with an average
weekly rate of $213 per unit. Average physical occupancy and average weekly
rate for nine pre-stabilized properties were 69% and $227 per week,
respectively.
Each Homestead Village property employs a General Manager who is responsible
for the operations of the particular property. The General Manager shares
duties with and oversees a staff typically consisting of a Guest Services
Manager, Operations Manager, a Maintenance Supervisor, front desk clerk and
housekeeping/laundry staff of five to seven individuals (some of whom are
part-time employees). The office at each property is generally open daily from
7:00 am to 7:00 pm.
Homestead expects that the majority of daily operational decisions will be
made by the General Manager under the supervision of a Regional Manager who
will be responsible for six to twelve properties, depending on geographic
location. The Regional Manager oversees the performance of the General
Managers in such areas as guest service, property maintenance, staffing and
cost control. Each Homestead Village property is measured against a detailed
revenue and expense budget, as well as against the performance of Homestead's
other properties. Homestead employs a series of incentive programs,
encompassing all employees, based on guest service, cleanliness, recruiting
and retaining people and property level performance.
Homestead has invested substantially in training for its regional and on-
site personnel. Twelve separate training modules with subjects ranging from
personal selling and guest service to guest safety are conducted on a regular
basis. Training design and organizational development are administered on a
corporate basis with field implementation personnel located within a
geographic region. Homestead views its investment in training and developing
its site-level personnel as essential to its goal of providing a high
customer-service standard consistent with the objective of becoming the
preeminent operator in the moderate priced, extended-stay lodging business.
26
<PAGE>
GROWTH AND DEVELOPMENT STRATEGY
Homestead's goal is to become a national provider of moderate priced,
extended-stay lodging in its target markets. Homestead intends to achieve this
goal by developing properties in a disciplined manner in its target markets,
providing high value accommodations for its customers, actively managing its
existing properties to increase revenues and reduce operating costs, and
increasing awareness of the moderate priced, extended-stay concept and the
Homestead Village name. At August 31, 1996, Homestead owned and operated 29
properties, had begun construction of 18 additional properties and had an
additional 33 properties in pre-development planning, for a total of 80
properties. Homestead expects to have a total of 31 properties operational by
the end of 1996. Homestead plans to continue an active development program
thereafter. Homestead's plans call for the average facility to have
approximately 136 extended-stay rooms and to take approximately eight to ten
months to construct.
Homestead targets major metropolitan areas which, based on its own research,
it has determined have suitable submarkets with favorable employment and
demographic trends. To achieve and maintain certain management efficiencies,
Homestead has elected not to enter markets where its submarket research
indicates that Homestead is not likely to be successful in achieving multiple
desirable site locations. Homestead employs dedicated site acquisition
professionals who evaluate each site against a set of eighteen separate
criteria where optimum standards have been established.
As part of its development strategy, Homestead employs contingent contracts
which allow it to conduct thorough due diligence and obtain entitlements prior
to taking title to a site. Homestead employs a dedicated due diligence staff
of six experienced professionals which reviews each investment according to
uniform standards concerning environmental, legal, entitlement and
geotechnical risk.
Each investment transaction undergoes a detailed and comprehensive review by
operational and development senior management and a subsequent review by
Homestead's Investment Committee. Members of the Investment Committee include
David Dressler, Jr., Chairman and President, John Patterson and Donald
Schultz, each a Senior Vice President, and Gary DeLapp, a Vice President. The
Investment Committee process is designed to review both the specific
investment as well as to ensure its conformance to Homestead's investment
policies and goals.
Sites for development will be selected by Homestead's real estate
professionals, subject to review and approval of the Investment Committee.
Homestead currently maintains offices in Atlanta, Dallas and Santa Fe.
Homestead expects to open regional offices in other geographic areas in the
future as Homestead increases the number of regions in which it is focusing
its development. Homestead will utilize independent general contractors for
the construction of its lodging facilities and intends to use a number of such
contractors depending upon geographic area, costs of construction and
financial and physical capacities of the contractors. Homestead's personnel
will oversee the progress of construction on a regular basis during the
development cycle.
OPERATING STRATEGY
Homestead's business strategy is to develop moderate priced, extended-stay
facilities providing an affordable and attractive lodging alternative for
value conscious business customers looking for extended-stay accommodations.
Homestead's goal is to provide its customers with a level of amenities needed
to optimize room and occupancy rates while maintaining high operating margins
at its facilities. Homestead attempts to achieve this goal through the
following:
Appeal to Value Conscious Guests. Homestead's facilities are designed to
offer quality accommodations for guests at substantially lower rates than
most other extended-stay lodging providers and hotels. Homestead's
properties currently offer extended-stay accommodations at a standard
weekly rate of between $189 and $239 per week. Room rates at Homestead's
facilities may vary significantly, however, depending upon specific market
factors and the size of the room. These rates contrast with average weekly
rates of approximately $500 for traditional extended-stay hotels.
Lodging Facility Features. Homestead's facilities are designed and built
to uniform plans. Units generally contain 260 to 325 square feet of fully
furnished living space, with kitchen facilities including
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full-size refrigerator, microwave, sink and cook-top. Generally, units
include combination work station/eating area, chair and features such as
individual voice mail, cable/satellite television, weekly housekeeping,
dataport and free local telephone calls.
Standardized Concept. Homestead has developed standardized plans and
specifications for its properties which lower construction and purchasing
costs and establish uniform quality and operational standards.
Operating Efficiencies. Homestead believes that the design and price
level of its properties attract guest stays of several weeks or more, which
result in a more stable revenue stream and, coupled with low-labor
amenities, will in turn lead to reduced administrative and operational
costs and higher operating margins.
HOMESTEAD VILLAGE PROPERTIES
Operating and development properties are located in 23 metropolitan areas in
14 states. The table below demonstrates the geographic distribution of
Homestead's initial 80 property investments at August 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF PROPERTIES
--------------------------------------
UNDER IN PERCENTAGE OF
OPERA- CONSTRUC- PRE-DEVELOPMENT ASSETS BASED
CITY TING TION PLANNING TOTAL ON COST(1)
---- ------ --------- --------------- ----- -------------
<S> <C> <C> <C> <C> <C>
Albuquerque, NM......... 1 1 2 2%
Atlanta, GA............. 1 2 3 6 8%
Austin, TX.............. 2 1 1 4 4%
Dallas, TX.............. 9 9 7%
Denver, CO.............. 2 1 1 4 5%
Houston, TX............. 8 8 7%
Jacksonville, FL........ 1 1 1%
Kansas City, MO......... 1 1 1%
Los Angeles, CA......... 1 1 2%
Miami/Ft. Lauderdale,
FL..................... 2 1 3 5%
Nashville, TN........... 1 1 2 3%
Orange County, CA....... 1 1 2%
Phoenix, AZ............. 3 1 1 5 6%
Portland, OR............ 2 2 3%
Raleigh, NC............. 2 1 3 4%
Richmond, VA............ 1 1 2%
Salt Lake City, UT...... 1 1 2 3%
San Antonio, TX......... 3 3 3%
San Diego, CA........... 2 2 3%
San Francisco, CA....... 3 3 6 9%
Seattle, WA............. 1 3 4 6%
Tampa, FL............... 1 2 3 4%
Washington, DC.......... 7 7 10%
--- --- --- --- ----
Total............... 29 18 33 80 100%
=== === === === ====
</TABLE>
- --------
(1) Represents budgeted development costs, which includes the cost of land,
fees, permits, payments to contractors, architectural and engineering fees
and interest and property taxes to be capitalized during the construction
period, for properties under development.
ADMINISTRATIVE SERVICES AGREEMENT
SCG currently provides certain administrative services to Homestead through
Security Capital Pacific Incorporated (the "PTR REIT Manager") and Security
Capital (Atlantic) Incorporated (the "ATLANTIC REIT Manager") and the property
managers for the Homestead Village properties currently owned and developed by
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<PAGE>
PTR and ATLANTIC. Certain employees of the PTR and ATLANTIC REIT Managers who
performed various services for the Homestead predecessor entities controlled
by PTR and ATLANTIC and who participated in various benefit plans maintained
by SCG will become employees of Homestead and perform similar services.
At or prior to the consummation of the Mergers, Homestead and SCG will enter
into an administrative services agreement (the "Administrative Services
Agreement"), pursuant to which SCG will provide Homestead with administrative
services with respect to certain aspects of Homestead's business. These
services will include, but are not limited to, insurance administration,
accounts payable administration, internal audit, cash management, human
resources, management information systems, tax and legal administration,
research, shareholder communications and investor relations. The fees payable
to SCG will be based on market rates as mutually agreed. The Administrative
Services Agreement will be for an initial term expiring on December 31, 1996
and will automatically be renewed for one-year terms, subject to approval by a
majority of the disinterested members of the Homestead Board and the approval
by the disinterested members of the Homestead Board of the annual compensation
payable to SCG for services rendered to Homestead.
Homestead believes its relationship with SCG under this agreement provides
certain advantages to Homestead. Homestead believes that a properly structured
Administrative Services Agreement provides Homestead with access to greater
quality and depth of management personnel and resources, highly focused
research, information systems, insurance, cash management and legal support
provided at substantial economies of scale, than it could provide internally.
INDUSTRY OVERVIEW
Traditional Lodging Industry
The United States lodging industry is estimated to have generated
approximately $52.7 billion in annual room revenues in 1995 and had
approximately 3.3 million rooms at the end of 1995. Over 62.7% of the
industry's rooms are owned, managed or franchised by the 10 largest lodging
chains.
Industry statistics, which Homestead believes to be reliable, indicate that
the United States lodging industry's performance is strongly correlated to
economic activity. Room supply and demand historically have been sensitive to
shifts in economic growth, which has resulted in cyclical changes in average
daily room and occupancy rates. Overbuilding in the lodging industry in the
mid and late 1980s resulted in an oversupply of rooms. Homestead believes this
oversupply and the general downturn in the economy led to depressed industry
performance and a lack of capital available to the industry in the late 1980s
and early 1990s.
Homestead believes that the lodging industry has benefited from a gradually
improving supply and demand balance, evidenced by increased average daily room
and occupancy rates. Room supply growth in the lodging industry has slowed in
recent years as the industry absorbs the oversupply of rooms that resulted
from an annual room supply growth range of approximately 3% to 4% from 1987 to
1990. According to industry reports, which Homestead believes are reliable,
this growth slowed to 1.0% in 1993, 1.4% in 1994 and 1.6% in 1995. The 4.0%
and 2.7% increases in demand (measured by occupied rooms) from 1993 to 1994
and 1994 to 1995, respectively, as compared to increases in supply during the
same periods reflect an improved supply and demand balance in the industry.
Homestead believes these factors were primarily responsible for the increase
in industry occupancy rates from 63.8% in 1993 to 65.4% in 1994 and to 66.1%
in 1995 and the increase in average daily room rates from $60.35 in 1993 to
$62.62 in 1994 and to $65.62 in 1995.
The lodging industry generally can be segmented by the level of service
provided and the pricing of the rooms. Segmentation by level of service is
divided into the following categories: full service hotels, which offer food
and beverage services, meeting rooms, room service and similar guest services;
limited service hotels, which generally offer only rooms with amenities such
as swimming pools, continental breakfast or similar limited services; and all-
suites, which generally have limited public spaces but provide guests with two
rooms or distinct
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<PAGE>
partitioned areas and which may or may not offer food and beverage service to
guests. Segmentation by price level may generally be divided into the
following categories with the respective average daily room rates for 1995:
budget ($36), economy-priced ($47), mid-price ($61), upscale ($80) and luxury
($118).
The all-suites segment of the lodging industry is a relatively new segment,
having developed largely over the past 10 years, and is principally oriented
toward business travelers in the mid-price to upscale price levels. All-suite
hotels were developed partially in response to the increasing number of
corporate relocations, transfers and temporary assignments and the need of
business travelers for more than just a room. To address those needs, all-
suite hotels began to offer suites with additional space and, in some cases,
an efficiency kitchen, and guests staying for extended periods of time were
offered discounts to daily rates when they paid on a weekly or monthly basis.
Because of the perceived positive price/value relationship, all-suite hotels
have generally outperformed the lodging industry as a whole over the last five
years.
Extended-Stay Market
Homestead believes that the extended-stay market, in which Homestead
participates, is a continuation of the all-suites phenomenon, and that the
same price/value relationship which has enabled the all-suites segment to
achieve higher than industry average occupancy rates and operating margins
will also carry through to the extended-stay market. Demand for extended-stay
lodging has been stimulated by the economic and social changes resulting from
the increased volume of corporate reorganizations and trends toward down-
sizing and out-sourcing of various functions, the break-up and geographic
dispersion of the traditional family and technological improvements which have
allowed businesses to relocate outside of large metropolitan areas. These
changes have created new accommodation needs for, among others, corporate
executives and trainees, consultants, sales representatives, construction
workers and relocating individuals.
Moderate Priced, Extended-Stay Concept
Moderate priced, extended-stay lodging competes on the basis of price and
value compared to the extended-stay market generally, thereby providing an
economic inducement to guests who are already attracted to the extended-stay
concept. In addition, moderate priced, extended-stay lodging provides a new
and affordable lodging alternative for guests who are value conscious, have
lower incomes or are on limited expense accounts. Based on published occupancy
rates for other participants in the extended-stay market, Homestead believes
that there is a strong demand for moderate priced, extended-stay
accommodations and that in certain areas of the country there is no organized
competition for that business. Of the approximately 3.3 million total
available rooms in the United States lodging industry at the end of 1995,
there were approximately 45,000, or 1.4%, dedicated extended-stay rooms at
approximately 390 separate properties. More than 260 of these extended-stay
properties were controlled by only three other competitors, all of which are
priced toward the upscale segment of the extended-stay market.
COMPETITION
The lodging industry is highly competitive. Competitive factors within the
lodging industry include room rates, quality of accommodations, service
levels, convenience of location, reputation, reservation systems, name
recognition and supply and availability of alternative lodging in local
markets, including short-term lease lodging facilities. Homestead's facilities
will compete with a number of competitors, including budget and economy
segment hotels and other companies focusing on the extended-stay market. Each
of Homestead's existing properties is located in a developed area that
includes competing lodging facilities. In addition, each of Homestead's
proposed properties is likely to be located in an area that includes competing
facilities. The number of competitive lodging facilities in a particular area
could have a material adverse effect on the levels of occupancy and average
weekly room rates of Homestead's existing and future properties.
Homestead anticipates that competition within the moderate priced, extended-
stay lodging market will substantially increase as participants in other
segments of the lodging industry and others focus on this relatively
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<PAGE>
new market. A number of other extended-stay lodging facilities exist, many of
which are oriented toward the upscale segment; however, recent announcements
indicate a substantial number of competitors intend to enter the mid-priced or
economy extended-stay segment. Homestead may compete for development sites
with established entities which have greater financial resources than
Homestead and better relationships with lenders and sellers. These entities
may generally be able to accept more risk than Homestead can prudently manage.
Further, there can be no assurance that new or existing competitors will not
significantly reduce their rates or offer greater convenience, services or
amenities or significantly expand, improve or develop facilities in a market
in which Homestead competes, thereby adversely affecting Homestead's
operations.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation
of certain hazardous or toxic substances on such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of hazardous or toxic substances. Furthermore, a
person that arranges for the disposal or transports for disposal or treatment
a hazardous substance at a property owned by another may be liable for the
costs of removal or remediation of hazardous substances released into the
environment at that property. The costs of remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure to properly remediate such substances, may adversely affect the
owner's ability to sell such real estate or to borrow using such real estate
as collateral. In connection with the ownership and operation of its
properties, Homestead may be potentially liable for any such costs.
Homestead has obtained recent Phase I Surveys on its existing properties and
intends to obtain Phase I Surveys prior to the purchase of any future
properties. The Phase I Surveys are intended to identify potential
environmental contamination and regulatory compliance concerns. Phase I
Surveys generally include historical reviews of the properties, reviews of
certain public records, preliminary investigations of the sites and
surrounding properties and the preparation and issuance of written reports.
Phase I Surveys generally do not include invasive procedures, such as soil
sampling or ground water analysis.
The Phase I Surveys have not revealed any environmental liability or
compliance concern that Homestead believes would have a material adverse
effect on Homestead's business, financial position or results of operations
nor is Homestead aware of any such liability or concern. Nevertheless, it is
possible that Phase I Surveys will not reveal all environmental liabilities or
compliance concerns or that there will be material environmental liabilities
or compliance concerns of which Homestead will not be aware. Moreover, no
assurances can be given that (i) future laws, ordinances or regulations will
not impose any material environmental liability or (ii) the current
environmental condition of Homestead's existing and future properties will not
be affected by the condition of neighboring properties (such as the presence
of leaking underground storage tanks) or by third parties unrelated to
Homestead.
GOVERNMENTAL REGULATION
A number of states regulate the licensing of hotels by requiring
registration, disclosure statements and compliance with specific standards of
conduct. Homestead believes that each of its facilities has the necessary
permits and approvals to operate its respective business and Homestead intends
to continue to obtain such permits and approvals for its new facilities. In
addition, Homestead is subject to laws governing its relationship with
employees, including minimum wage requirements, overtime, working conditions
and work permit requirements. An increase in the minimum wage rate, employee
benefit costs or other costs associated with employees could adversely affect
Homestead. Both at the federal and state level from time to time, there are
proposals under consideration to increase the minimum wage.
Under the ADA, all public accommodations are required to meet certain
federal requirements related to access and use by disabled persons. Although
Homestead has attempted to satisfy ADA requirements in the designs for its
facilities, no assurance can be given that a material ADA claim will not be
asserted against
31
<PAGE>
Homestead, which could result in a judicial order requiring compliance, and
the expenditure of substantial sums to achieve compliance, an imposition of
fines or an award of damages to private litigants. These and other initiatives
could adversely affect Homestead as well as the lodging industry in general.
TRADEMARKS
The Homestead Village name has been registered with the United States Patent
and Trademark office.
INSURANCE
Homestead currently has the types and amounts of insurance coverage that it
considers appropriate for a company in its business. While management believes
that its insurance coverage is adequate, if Homestead were held liable for
amounts exceeding the limits of its insurance coverage or for claims outside
of the scope of its insurance coverage, Homestead's business, results of
operations or financial position could be materially and adversely affected.
EMPLOYEES
Upon consummation of the Mergers, Homestead will employ approximately 66
professionals and 318 on-site personnel. Homestead expects that it will
significantly increase the number of its employees as it expands its business.
Homestead's employees are not subject to any collective bargaining agreements
and management believes that its relationship with its employees is good.
LEGAL PROCEEDINGS
Homestead is not a party to any litigation or claims, other than routine
matters incidental to the operation of the business of Homestead. To date, no
claims have had a material adverse effect on Homestead nor does Homestead
expect that the outcome of any pending claims will have such an effect.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following are Homestead's directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David C.
Dressler, Jr. 43 Chairman, President and Director
Michael D.
Cryan 45 Co-Chairman, Chief Operating Officer and Director(1)
C. Ronald
Blankenship 46 Director(2)
John P. Fra-
zee, Jr. 52 Director
Jeffrey A.
Klopf 48 Senior Vice President and Secretary
John R.
Patterson 45 Senior Vice President
Donald J.
Schultz 42 Senior Vice President
</TABLE>
- --------
(1) Mr. Cryan has agreed to become Co-Chairman, Chief Operating Officer and a
director of Homestead on October 15, 1996.
(2) Mr. Blankenship will become an advisory director after the Closing Date.
He will attend meetings of the Homestead Board but will not have voting
rights.
DAVID C. DRESSLER, JR.--43--Director; Chairman of Homestead since May 1996
and President since January 1996; Director and Chairman of Homestead Village
Managers Incorporated since June 1995; Managing Director of PTR since May 1993
and Director and Managing Director of the PTR and ATLANTIC REIT
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<PAGE>
Managers since April 1992; from 1984 to May 1991, Regional Partner, Trammell
Crow Residential, Boston, Massachusetts (multifamily real estate development
and property management). While with Trammell Crow Residential, Mr. Dressler
was on the Management Board for Trammell Crow Residential Services (managing
90,000 multifamily units nationwide) and was co-founder and a board member of
Trammell Crow Residential Services-North, which managed 10,000 multifamily
units in the Midwest and Northeast. In his various positions prior to his
affiliation with PTR, Mr. Dressler supervised the development of approximately
6,500 multifamily units.
MICHAEL D. CRYAN--45--Will become Director, Co-Chairman and Chief Operating
Officer of Homestead on October 15, 1996, where he will have overall
responsibility for operations; formerly with ITT Sheraton Corporation from
1985 to August 1996 where his most recent position was Executive Vice
President and Chief Financial Officer.
C. RONALD BLANKENSHIP--46--Director; Chairman of PTR and the PTR REIT
Manager and Managing Director of SCG since March 1991; Director of ATLANTIC
and the ATLANTIC REIT Manager since April 1996; from June 1988 to March 1991,
Regional Partner, Trammell Crow Residential, Chicago, Illinois (multifamily
real estate development and property management); prior thereto, Executive
Vice President and Chief Financial Officer, The Mischer Corporation, Houston,
Texas (multibusiness holding company with investments primarily in real
estate). While with Trammell Crow Residential, Mr. Blankenship was on the
Management Board for Trammell Crow Residential Services, a property management
company that managed approximately 90,000 multifamily units nationwide, and
was chief executive officer of Trammell Crow Residential Services-North, which
managed 10,000 multifamily units in the Midwest and Northeast. In his various
positions prior to his affiliation with the PTR REIT Manager, Mr. Blankenship
supervised the development of approximately 9,300 multifamily units. Mr.
Blankenship supervises the overall operations of PTR and the PTR REIT Manager.
JOHN P. FRAZEE, JR.--52--Director; private investor; formerly President and
Chief Operating Officer of Sprint Corporation; prior to the March 1993 merger
with Sprint, Mr. Frazee was the Chairman and Chief Executive Officer of Centel
Corporation (a major telecommunications company he joined in 1972). He is a
member of the Board of Directors of Nalco Chemical Company, Dean Foods
Company, Paging Network Inc., C-Span and SCG. He is a life trustee of Rush-
Presbyterian-St. Luke's Medical Center, a national trustee of The Newberry
Library and a trustee of the Florida State University Foundation.
JEFFREY A. KLOPF--48--Senior Vice President of Homestead since May 1996 and
Secretary since January 1996 and Senior Vice President and Secretary of
Homestead Village Managers Incorporated, PTR, ATLANTIC and SCG since January
1996, where he provides securities offerings and corporate acquisition
services and oversees the provision of legal services for affiliates of the
firm; from January 1988 to December 1995, partner of Mayer, Brown & Platt
where he practiced corporate and securities law.
JOHN R. PATTERSON--45--Senior Vice President of Homestead since May 1996 and
Homestead Village Managers Incorporated since June 1995 where he is a member
of the operations group; Vice President of PTR since January 1995; from July
1993 to January 1995, a Senior Vice President in business development at
NationsBank in Atlanta; prior thereto, Division President and Partner of
Trammell Crow Residential Services.
DONALD J. SCHULTZ--42--Senior Vice President of Homestead since May 1996 and
Homestead Village Managers Incorporated since June 1995 where he is a member
of the development group; from November 1993 to June 1995, Senior Vice
President of Construction with Avalon Properties, Inc.; and from March 1986 to
November 1993, President of Construction for Trammell Crow Residential
(Northwest Region).
OTHER OFFICERS OF HOMESTEAD
LAURIE B. BURNS--34--Vice President of Homestead since May 1996 and
Homestead Village Managers Incorporated since November 1995 where she is a
member of the development group; from March 1994 to November 1995, Director of
the Real Estate division of Apple South, Inc.; and from June 1986 to March
1994, with the Real Estate Division of Taco Bell Corporation where her most
recent position was a Director of the Real Estate Division.
33
<PAGE>
ROBERT E. CLARK--36--Vice President, Treasurer and Controller of Homestead
since May 1996 and Vice President of Homestead Village Managers Incorporated
since September 1995 where he is responsible for accounting and financial
reporting; from September 1990 to August 1995, Director of accounting for the
Residence Inn, Courtyard and Fairfield Inn divisions of Marriott International;
and from February 1989 to September 1990, controller of business travel
programs for Marriott where he was responsible for all accounting and finance
for Marriott's marketing programs.
GARY A. DELAPP--37--Vice President of Homestead since May 1996 and of
Homestead Village Managers Incorporated since February 1996 where he is a
member of the operations group; from July 1983 to February 1996 with Vista Host
Inc. where his most recent position was Senior Vice President of Operations.
ROBERT W. FROST JR.--49--Vice President of Homestead since May 1996 and
Homestead Village Managers Incorporated since November 1995 where he is a
member of the development group; from February 1982 to November 1995, Vice
President of Payless Shoesource, Inc. where he was responsible for the real
estate and construction in a 23-state region. Prior thereto, Mr. Frost was a
Group Development Manager of The Southland Corporation where he was responsible
for expanding Chief Auto Parts stores in California, Nevada and Texas.
FREDRIC A. GOERS--54--Vice President of Homestead since May 1996 and
Homestead Village Managers Incorporated since November 1995 where he is a
member of the development group; from September 1993 to October 1995 Vice
President of Discovery Zone, Inc. where he was responsible for design and
construction; and from May 1990 to August 1993, a partner of Garrison Goers
Associates, Inc., a construction and development firm providing service to
institutional lenders, developers and investors.
BRADLEY P. GRIGGS--38--Vice President of Homestead since May 1996 and
Homestead Village Managers Incorporated since September 1995 where he is a
member of the development group; from November 1990 to September 1995; Project
Manager with The Fieldstone Company where he directed all aspects of project
management; and from November 1987 to November 1990, Operations Manager with
M.J. Brock and Sons, Inc. for Riverside and San Diego Counties.
A. DAVID HALE--38--Vice President of Homestead since May 1996 and Homestead
Village Managers Incorporated since June 1995 where he is a member of the
development group; from May 1992 to June 1995, Director of Human Resources of
Ryland Homes mid-Atlantic region; and from April 1989 to May 1992, Vice
President of Acquisition and Development at Questar Properties.
LAURA L. HAMILTON--33--Vice President of Homestead since May 1996 and
Homestead Village Managers Incorporated since January 1996 where she supervises
Homestead's due diligence group, and a member of the PTR due diligence group
since April 1992; prior thereto Ms. Hamilton was a real estate paralegal with
the law firm of Poole, Kelly & Ramo in Albuquerque, New Mexico.
W. GEOFFREY JEWETT--48--Vice President of Homestead since May 1996 and
Homestead Village Managers Incorporated since January 1996 where he is a member
of the operations group; Vice President of PTR since March 1995; from November
1994 to March 1995, Vice President of Security Capital Pacific Incorporated
which merged into PTR in March 1995 ("PACIFIC"), where he was involved with and
had overall responsibility for acquisitions; from May 1994 to November 1994,
Vice President of ATLANTIC, where he had overall responsibility for the
acquisitions group; from September 1993 to April 1994, member of the
acquisition group of PACIFIC; prior thereto, Vice President of LaSalle Partners
Limited in its acquisitions and property finance group, where he provided
investment property sale, financing and acquisition services on behalf of
corporate and institutional clients throughout the western United States.
JEFFREY A. JONES--37--Vice President of Homestead since May 1996 and
Homestead Village Managers Incorporated since June 1995 where he is a member of
the development group and with PTR since February 1995; from June 1993 to
January 1995, Vice President of SENTRE Partners where he was responsible for
investment acquisitions and development activities in Mexico; and from November
1989 to April l993, a
34
<PAGE>
Development Manager with Stark Companies International where he was responsible
for site acquisitions and entitlement processing for residential and hotel
projects.
ARTHUR G. MAY--36--Vice President of Homestead since May 1996 and Homestead
Village Managers Incorporated since June 1995 where he is a member of the
development group and with PTR since September 1994; from August 1989 to
September 1994, Vice President and Chief Financial Officer at Western
Development Group, Inc. where he was responsible for residential development
projects. Prior thereto, Mr. May was a Project Manager at J.R. Abbott
Construction Co., Inc.
GREGG A. PLOUFF--39--Vice President of Homestead since May 1996 and Homestead
Village Managers Incorporated since June 1995 where he is a member of the
development group; Vice President of PTR since March 1995; from July 1994 to
March 1995, Vice President of PACIFIC; from November 1993 to July 1994, a
member of the acquisitions group of PTR; prior to November 1993, Mr. Plouff
served in an acquisitions consulting capacity for PTR; prior thereto, Mr.
Plouff was with Trammell Crow Residential, most recently as a partner, where he
was involved with residential development in the Dallas, Chicago and Southern
California markets.
MARK E. RILEY--38--Vice President of Homestead since May 1996 and Homestead
Village Managers Incorporated since June 1995 where he is a member of the
development group; from September 1993 to September 1994, co-founder of
Southeast Lodges Development Company where he developed and operated economy
extended-stay facilities across the Southeast; and from May 1990 to September
1993, Vice President of Suburban Lodges of America Inc., where he was
responsible for franchising and financing activities of economy extended-stay
facilities.
WILLIAM C. STEAD--53--Vice President of Homestead since May 1996 and
Homestead Village Managers Incorporated since September 1995 where he is a
member of the development group; from March 1991 to September 1995, Vice
President of Heritage Construction Company where he has managed all development
and construction activities; and from May 1988 to February 1991, Partner of
Morgan-Stead & Associates which complete projects abandoned by financial
institutions in Tennessee, Florida and Georgia.
S. SCOTT STEWART--33--Vice President of Homestead since May 1996 and
Homestead Village Managers Incorporated since June 1995 where he is a member of
the development group; from May 1993 to January 1995, President of Potomac Land
& Development Company; and from November 1991 to May 1993 with Providence
Savings Bank as a Real Estate Owned Manager.
MANAGEMENT PHILOSOPHY
Homestead believes that the quality of management should be assessed in the
light of the following factors:
Management Depth/Succession. Management should have several senior
executives with the leadership, operational, investment and financial
skills and experience to oversee the entire operations of Homestead.
Homestead believes that several of its senior officers could serve as the
principal executive officer and continue Homestead's performance.
Strategic Vision. Management should have the strategic vision to
determine an investment focus that provides both favorable initial yields
and strong long-term growth prospects. Homestead will demonstrate its
strategic vision by focusing Homestead on the extended-stay lodging
business in target markets where demographic and supply factors will permit
high occupancies at increasing rates.
Research Capability. Management should have the means for researching
both markets and product to determine appropriate investment opportunities.
Homestead divides its target markets into multiple submarkets for analysis
purposes. Through its relationship with Security Capital Investment
Research, Homestead will have several professionals devoting substantial
time to research, on a submarket-by-submarket basis, who are closely
supervised by the directors and executive officers of Homestead.
35
<PAGE>
Investment Committee Process. Investment committees should provide
discipline and guidance for the investment activities of Homestead in order
to achieve its long-term strategic objectives. The four members of
Homestead's Investment Committee have a combined 56 years of experience in
the real estate industry. The Investment Committee receives detailed
written analyses and research, in a standardized format, from Homestead's
development and acquisition personnel and evaluates all prospective
investments pursuant to uniform underwriting criteria prior to submission
of investment recommendations to the Homestead Board. The quality of the
Investment Committee's process will be evident from the ability of
Homestead to achieve its investment goals, generally exceeding its
projected initial returns and growth from the extended-stay lodging
business.
Development Capability. Homestead has no plans or intentions of acquiring
existing hotel properties and converting them to the Homestead Village
concept. Homestead's personnel have substantial development experience.
Homestead has 39 full-time professionals committed to development
activities. Homestead has engaged in substantial development at attractive
yields that have generally exceeded projections.
Due Diligence Process. Management should have experienced personnel
dedicated to performing intelligent and thorough due diligence. Homestead
has six full-time due diligence professionals and has developed uniform
systems and procedures for due diligence.
Operating Capability. Management can substantially improve cash flow by
actively and effectively managing assets. Homestead has devoted substantial
personnel and financial resources to developing value-added operating
systems, which control and effectively administer the operation of
Homestead's extended-stay lodging business.
COMMITTEE OF THE BOARD
The Homestead Board will establish an Audit Committee consisting solely of
Independent Directors prior to the consummation of the Transaction. The Audit
Committee makes recommendations concerning the engagement of independent
public accountants, reviews the plans and results of the audit engagement with
the independent public accountants, approves professional services provided by
the independent public accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit
fees and reviews the adequacy of Homestead's internal accounting controls.
The Homestead Charter provides that, immediately following the date on which
Homestead has a class of securities registered pursuant to Section 12 of the
Exchange Act, the Homestead Board shall include a majority of directors
("Independent Directors") each of whom is not an employee or officer of
Homestead, any person or entity primarily controlling Homestead or their
respective affiliates and performs no other services for Homestead, any person
or entity primarily controlling Homestead or any of their respective
affiliates, except as director or trustee.
MANAGEMENT COMPENSATION
Directors' Compensation. Directors who are not employees of Homestead or SCG
will receive $14,000 per year for serving as a director and will be reimbursed
for their travel and other expenses incurred in connection with attending
meetings of the Homestead Board or committees thereof. Outside directors may
also receive grants of options to acquire shares of Homestead Common Stock.
See "--Outside Directors Plan."
Executive Compensation. Homestead was incorporated in January 1996 and did
not conduct any operations prior to that time. Homestead anticipates that
during 1996 its most highly compensated officers, with estimated salary
amounts for each such individual on an annualized basis, will be David C.
Dressler, Jr., $195,000; Michael D. Cryan, $200,000; Robert W. Frost, Jr.,
$160,000; John R. Patterson, $160,000; and Donald J. Schultz, $160,000, (the
"Named Executive Officers"). Each Named Executive Officer will also be
eligible for discretionary bonuses and awards under the Incentive Plan
described below. See "--Long-Term Incentive Plan."
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<PAGE>
STOCK OPTION PLAN
Long-Term Incentive Plan
Prior to consummation of the Mergers, Homestead anticipates adoption of the
Homestead Village Incorporated Long-Term Incentive Plan (the "Incentive
Plan"), subject to approval of Homestead shareholders, which, it is expected,
will contain the following terms and conditions. The number of shares of
Homestead Common Stock which may be awarded under the Incentive Plan shall not
exceed 4,000,000 shares in the aggregate. Shares of Homestead Common Stock
issued under the Incentive Plan may be authorized and unissued shares or
treasury shares. In the event of certain transactions affecting the type or
number of outstanding shares, the number of shares subject to the Incentive
Plan, the number or type of shares subject to outstanding awards and the
exercise price thereof will be appropriately adjusted. The Incentive Plan will
authorize the award of stock grants (which may be subject to restrictions),
and performance stock and authorizes the establishment of one or more stock
purchase programs. A committee of the Homestead Board (the "Committee") will
be appointed to administer the Incentive Plan. Subject to the terms of the
Incentive Plan, the Committee will determine which employees or other
individuals providing services to Homestead shall be eligible to receive
awards under the Incentive Plan, and the amount, price, timing and other terms
and conditions applicable to such awards.
Options awarded under the Incentive Plan may be either incentive stock
options which are intended to satisfy the requirements of Section 422 of the
Code, or non-qualified stock options which are not intended to satisfy Section
422 of the Code. Options will become exercisable in accordance with the terms
established by the Committee, which may include conditions relating to
completion of a specified period of service or achievement of performance
standards. Options will expire on the date determined by the Committee which
shall not be later than the earliest to occur of (i) the tenth anniversary of
the grant date, (ii) the first anniversary of the participant's termination of
employment by reason of death, disability or retirement or (iii) the three
month anniversary of the participant's termination of employment for any other
reason. Shares transferred to a participant pursuant to the exercise of an
option may be subject to such additional restrictions or limitations as the
Committee may determine.
Under the Incentive Plan, the Committee may grant awards of Homestead Common
Stock to participants, which shall be subject to such conditions and
restrictions, if any, as the Committee may determine. During the period a
stock award is subject to restrictions or limitations, the Committee may award
the participant dividend rights with respect to such shares. The Incentive
Plan may also provide that the Committee may establish one or more stock
programs which may permit purchases of Homestead Common Stock.
The Committee may award participants performance stock, the distribution of
which is subject to achievement of performance objectives.The number of shares
and the performance measures and periods shall be established by the Committee
at the time the award is made.
Non Qualified Options
Homestead may grant, prior to the closing of the Mergers, nonqualified
options to acquire shares of Homestead Common Stock, subject to board and
shareholder approval. The Named Executive Officers and certain other officers
of Homestead may receive options to purchase shares of Homestead Common Stock
at $10.00 per share, although the total number of shares subject to these
options has not been determined as of the date of this Prospectus. The options
would become exercisable ten percent in the third year after the date of
grant, an additional twenty percent in the fourth year after the date of
grant, an additional thirty percent in the fifth year after the date of grant
and the remaining forty percent in the sixth year after the date of grant and
would expire ten years after the date of grant. The participants would have no
rights as shareholders with respect to the shares subject to his or her
options until the option is exercised. No income would be recognized by a
participant at the time the options are granted. The exercise of a
nonqualified stock option is generally a taxable event that requires the
participant to recognize, as ordinary income, the difference between the fair
market value of the shares at the time of exercise and the option price.
Homestead ordinarily will be entitled to claim a federal income tax deduction
on account of the exercise of a nonqualified option. The amount of the
deduction is equal to the ordinary income recognized by a participant.
Homestead will adopt Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations in
accounting for its stock options. Therefore, any excess of fair value of the
shares at the date of grant over the option price would be compensation
expense, recorded over the option period.
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Stock Purchase Program
Homestead may, prior to the closing of the Mergers, permit eight senior
officers to purchase shares of Homestead Common Stock under the stock purchase
program portion of the Incentive Plan, subject to board and shareholder
approval. Those officers may be offered the opportunity to purchase up to an
aggregate of 110,000 shares at $10.00 per share. The stock purchases would
provide for a two year restricted period during which the participants must
remain employed by Homestead. If a participant leaves the employ of Homestead
prior to the end of the restricted period, Homestead would have the right to
repurchase the shares at the original purchase price plus an imputed interest
rate. At the end of the two-year period, the participant would own the shares
without further restriction. In accordance with APB 25, any excess fair value
of the shares at the date of sale over the sales price would be compensation
expense, recorded over the restriction period.
OUTSIDE DIRECTORS PLAN
Homestead has adopted an Outside Directors Plan, which has been approved by
Homestead's sole shareholder, under which up to 100,000 shares of Homestead
Common Stock may be subject to options (the "Outside Directors Plan"). Options
granted under the Outside Directors Plan will have a five year term and will
be immediately exercisable in whole or in part. Options to purchase 2,000
shares of Homestead Common Stock will be granted to outside directors under
the Outside Directors Plan as of the Distribution Record Date, at an exercise
price of $10.00 per share, and as of the date of each annual meeting of
shareholders of Homestead commencing in 1997 at an exercise price equal to the
fair market value of the Homestead Common Stock as of those dates. Options
granted under the Outside Directors Plan will provide that the option holder
may, in the event of the acquisition of 50% or more of the outstanding shares
of Homestead Common Stock as the result of any cash tender offer or exchange
offer (other than one made by Homestead), exercise the options immediately or
surrender the options, or any unexercised option thereof, to Homestead and
receive cash from Homestead equal to the difference between the exercise price
of each option and per share price of the tender offer or exchange offer,
multiplied by the number of shares of Homestead Common Stock for which options
are held.
RELATIONSHIP WITH SECURITY CAPITAL GROUP INCORPORATED
Prior to consummation of the Mergers, portions of Homestead's properties,
assets and operations were owned by subsidiaries of each of PTR, ATLANTIC and
SCG. SCG is a private real estate company which owns controlling positions in
several real estate operating companies, including PTR and ATLANTIC, and owns
several REIT managers which direct these operating businesses.
Immediately after completion of the Transaction and the ATLANTIC IPO, SCG is
expected to beneficially own 7,816,488 shares of Homestead Common Stock or
approximately 44.0% of the outstanding shares of Homestead Common Stock, not
including 2,243,038 shares which will be issued to and held in escrow by an
escrow agent pending funding of convertible mortgages loans under the Funding
Commitment Agreements. See "Certain Relationships and Transactions--Escrow
Agreement." Through its beneficial ownership of Homestead Common Stock, SCG
will control 44.0% of the vote on all matters submitted for Homestead
shareholder action. The foregoing share ownership information does not give
effect to the issuance of shares upon exercise of options or other awards
granted under the Incentive Plan. SCG will also own Homestead Warrants to
acquire an additional 4,840,789 shares of Homestead Common Stock, which, if
fully exercised, would increase SCG's beneficial ownership of Homestead Common
Stock to 56.0%. SCG may, over time, dispose of some of the shares of Homestead
Common Stock it acquires in the Transaction to reduce its beneficial ownership
in Homestead to below 50%. In addition, pursuant to an Investor Agreement
between SCG and Homestead, SCG will agree to exercise at the request of
Homestead all Homestead Warrants it receives in the Transaction. In exchange
for its agreement to exercise Homestead Warrants, Homestead will grant SCG the
right, among other things, to nominate up to two directors to the Homestead
Board, depending upon SCG's level of ownership of shares of Homestead Common
Stock, and to be consulted on certain business decisions made by Homestead. In
addition, pursuant to investor agreements with ATLANTIC and PTR, each of
ATLANTIC and PTR will have the right to nominate one director to the Homestead
Board. See "Certain Relationships and Transactions--ATLANTIC and PTR Investor
Agreements" and "--SCG Investor Agreement."
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SCG has funded the development of the Homestead Village concept since 1991.
As part of the Transaction, SCG will contribute, for no additional
consideration, the Homestead Village trademark, the Homestead Village operating
system and Homestead Village properties which it is developing in areas outside
the target markets of PTR and ATLANTIC. SCG will also provide financing to
Homestead for additional developments undertaken between the execution of the
Merger Agreement and the Closing Date.
Prior to the Mergers, Homestead obtained certain services from affiliates of
SCG and the SCG employees who performed services for Homestead under the PTR
and ATLANTIC REIT management agreements and the property management agreements
participated in a number of employee benefit plans maintained by SCG. Prior to
completion of the Transaction, SCG and Homestead will enter into certain
agreements relating to these matters. See "Business--Administrative Services
Agreement" and "Certain Relationships and Transactions."
CERTAIN RELATIONSHIPS AND TRANSACTIONS
PROTECTION OF BUSINESS AGREEMENT
Each of PTR, ATLANTIC and SCG will enter into a protection of business
agreement dated as of the Closing Date (the "Protection of Business Agreement")
with Homestead which will prohibit PTR, ATLANTIC, SCG and their respective
affiliates from engaging, directly or indirectly, in the extended-stay lodging
business in the continental United States except through Homestead and its
subsidiaries. The Protection of Business Agreement also prohibits Homestead
from, directly or indirectly, engaging in the ownership, operation,
development, management or leasing of multifamily properties. The Protection of
Business Agreement does not prohibit any of PTR, ATLANTIC or SCG from: (i)
owning securities of Homestead; (ii) owning up to 5% of the outstanding
securities of another person engaged in owning, operating, developing, managing
or leasing extended-stay lodging properties, so long as they do not actively
participate in the business of such person; (iii) owning the outstanding
securities of another person, a majority owned subsidiary, division, group,
franchise or segment of which is engaged in owning, operating, developing,
managing or leasing extended-stay lodging properties, so long as not more than
5% of such person's consolidated revenues are derived from such properties; and
(iv) owning securities of another person primarily engaged in business other
than a business owning, operating, developing, managing or leasing extended-
stay lodging properties, including a person primarily engaged in business as an
owner, operator or developer of hotel properties, whether or not such person
owns, operates, develops, manages or leases extended-stay lodging properties.
The Protection of Business Agreement does not prohibit Homestead from: (i)
owning securities of ATLANTIC, PTR or SCG; (ii) owning up to 5% of the
outstanding securities of another person engaged in owning, operating,
developing, managing or leasing garden style multifamily properties; and (iii)
owning the outstanding securities of another person, a majority owned
subsidiary, division, group, franchise or segment of which is engaged in
owning, operating, developing, managing or leasing garden style multifamily
properties, so long as not more than 5% of such person's consolidated revenues
are derived from such properties. The Protection of Business Agreement will
terminate in the event of an acquisition, directly or indirectly (other than by
purchase from PTR, ATLANTIC and SCG or their respective affiliates (as defined
in the Protection of Business Agreement)), by any person (or group of
associated persons acting in concert), other than PTR, ATLANTIC, SCG or their
respective affiliates, of 25% or more of the outstanding shares of voting stock
of Homestead, without the prior written consent of the Homestead Board. Subject
to earlier termination pursuant to the preceding sentence, the Protection of
Business Agreement will terminate on the tenth anniversary of the Closing Date.
SCG INVESTOR AGREEMENT
Homestead and SCG will enter into an investor agreement (the "SCG Investor
Agreement"), which will require SCG, upon notice from Homestead, to exercise
all of the Homestead Warrants (at an exercise price of $10.00 per share)
received by SCG in connection with the Transaction. Homestead may call for the
exercise of Homestead Warrants by SCG upon 10 days' prior written notice. The
SCG Investor Agreement, among other things, provides that, without having first
consulted with the nominee of SCG designated in writing, Homestead
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<PAGE>
may not seek Homestead Board approval of (i) Homestead's annual budget, (ii)
incurring expenses in any year exceeding (A) any line item in the annual budget
by 20% and (B) the total expenses set forth in the annual budget by 5%, (iii)
acquisitions or dispositions in a single transaction or group of related
transactions where the aggregate purchase price paid or received exceeds $5
million, (iv) new contracts with a service provider for (A) investment
management, property management or leasing services, or (B) that reasonably
contemplates annual contract payments by Homestead in excess of $200,000, (v)
the declaration or payment of any dividend or other distribution, (vi) the
approval of stock option plans, (vii) the offer or sale of any shares of stock
of Homestead or any securities convertible into shares of stock of Homestead
(other than the sale or grant of any stock or grants of options or exercise of
options granted under any benefit option plan approved by stockholders) and
(viii) the incurrence, restructuring, renegotiation or repayment of
indebtedness for borrowed money in which the aggregate amount involved exceeds
$5 million. The SCG Investor Agreement also provides that, so long as SCG owns
at least 10% of the outstanding shares of Homestead Common Stock, Homestead may
not increase the number of persons serving on the Homestead Board to more than
seven. SCG also will be entitled to designate one or more persons as directors
of Homestead, as follows: (i) so long as SCG owns at least 10% but less than
30% of the outstanding shares of Homestead Common Stock, it is entitled to
nominate one person; and (ii) so long as SCG owns at least 30% of the
outstanding shares of Homestead Common Stock, it is entitled to nominate that
number of persons as shall bear approximately the same ratio to the total
number of members of the Homestead Board as the number of shares of Homestead
Common Stock beneficially owned by SCG bears to the total number of outstanding
shares of Homestead Common Stock, provided that SCG shall be entitled to
designate no more than two persons so long as the Homestead Board consists of
no more than seven members. Any person who is employed by SCG or who is an
employee, a 25% shareholder or a director of any corporation of which SCG is a
25% shareholder (except for Homestead) shall be deemed to be a designee of SCG.
The nominee(s) of SCG may, but need not, be the same person(s) nominated by
either PTR pursuant to the PTR Investor Agreement or ATLANTIC pursuant to the
ATLANTIC Investor Agreement.
In addition, because SCG is an affiliate of Homestead, the SCG Investor
Agreement provides SCG with registration rights pursuant to which, in certain
specified circumstances, SCG may request, at any time after the first
anniversary of the date on which the Homestead Common Stock is registered with
the Securities and Exchange Commission (the "Commission") under either Section
12(b) or 12(g) of the Exchange Act, and on not more than three occasions,
registration of all of SCG's Homestead Common Stock pursuant to Rule 415 under
the Securities Act of 1933 (the "Securities Act").
FUNDING COMMITMENT AGREEMENTS
Pursuant to funding commitment agreements to be dated as of the Closing Date
(the "Funding Commitment Agreements") each of PTR and ATLANTIC will agree to
make mortgage loans to Homestead of up to $144,044,620 and $98,028,471,
respectively. The obligations of PTR and ATLANTIC are limited to a specific
dollar amount for each property identified in the respective Funding Commitment
Agreements. Upon any determination by Homestead to commence development of a
property identified in the Funding Commitment Agreement, Homestead is required
to notify PTR or ATLANTIC, as the case may be, and PTR or ATLANTIC, as the case
may be, is required to endeavor in good faith to fund up to the full amount of
its obligation with respect to such property. Homestead is required to complete
the development of such property consistent with the development plans for such
property. Each mortgage loan issued by Homestead pursuant to a Funding
Commitment Agreement will be convertible into shares of Homestead Common Stock
on the basis of one share of Homestead Common Stock for every $11.50 of
principal outstanding on the mortgage loan. The obligation of Homestead to call
for funding of, and the obligations of PTR and ATLANTIC to provide funding for,
the mortgage loans expires on March 31, 1998, except with respect to properties
for which Homestead has given notice that it intends to develop. Interest on
the mortgage loans accrues at the rate of 9% on the unpaid principal balance,
payable every six months. The mortgages are scheduled to mature on October 31,
2006, and are not callable until five years after the Closing Date. Homestead
has pledged substantially all of its assets as collateral for the mortgage
loans.
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Pursuant to each Funding Commitment Agreement, PTR and ATLANTIC will provide
Homestead aggregate funding on such developments in the amounts of up to
approximately $129 million and $111 million, respectively, which amounts are
anticipated to be sufficient to complete the development of the respective
Homestead Village facilities contributed by them. PTR and ATLANTIC will receive
convertible mortgage notes in respect of such fundings in stated amounts of up
to approximately $144 million and $98 million, respectively. The effect of
these provisions is that PTR will fund $898,000 for each $1,000,000 principal
amount of convertible mortgage loans and ATLANTIC will fund $1,133,535 for each
$1,000,000 principal amount of convertible mortgage loans. The differences
between the funded amounts and the stated amounts of the convertible mortgage
loans arise because the rate of return on the existing Homestead Village
facilities contributed by PTR is projected to exceed the rate of return on the
Homestead Village facilities contributed by PTR and ATLANTIC to Homestead which
are under construction or in pre-development planning. In calculating the
relative ownership interests of PTR and ATLANTIC, SCG assumed that as of July
1, 1996 PTR would have 28 Homestead Village facilities in operation and
generating income, while ATLANTIC would have none. In addition, SCG expects
that the average property development costs for the existing PTR Homestead
Village properties will, on balance, be less than those for the PTR and
ATLANTIC Homestead Village properties projected to be built in the future
because a large portion of the existing PTR Homestead Village properties were
in planning or under development during 1992 and 1993 when land prices and
construction costs were less than they are now and are anticipated to be over
the next 18 months. The stated amount of the convertible mortgage loans was
determined based on a 9% interest rate to provide an effective yield to each of
PTR and ATLANTIC that is reflective of the relative rates of return anticipated
to be realized on all of the facilities contributed by PTR and ATLANTIC,
respectively.
ATLANTIC AND PTR INVESTOR AGREEMENTS
ATLANTIC and PTR will each enter into an investor and registration rights
agreement with Homestead (the "ATLANTIC and PTR Investor Agreements") pursuant
to which ATLANTIC and PTR each are entitled to designate one person for
nomination to the Homestead Board, and Homestead will use its best efforts to
cause the election of such nominee(s), until March 31, 1998 and for so long
thereafter as PTR or ATLANTIC has the right to convert in excess of $20 million
in principal amount of loans made pursuant to the Funding Commitment Agreement.
Such nominee(s) may, but need not, be the same person(s) nominated by SCG
pursuant to the SCG Investor Agreement. In addition, Homestead has granted to
each of ATLANTIC and PTR registration rights with respect to the issuance upon
conversion and the distribution of all of the shares of Homestead Common Stock
issuable upon conversion of the convertible mortgage notes. Prior to the one-
year anniversary of the date the Homestead Common Stock is registered under the
Exchange Act, each of ATLANTIC and PTR may request one registration of those
shares of Homestead Common Stock which are issued upon conversion of any or all
the convertible mortgage notes converted during such one-year period and which
it intends to distribute to its stockholders. After such one-year anniversary,
each of ATLANTIC and PTR may request three additional registrations pursuant to
Rule 415 promulgated under the Securities Act of all shares of Homestead Common
Stock issued or issuable upon conversion of the convertible mortgage notes.
Such registration, except for the fees and disbursements of counsel to ATLANTIC
or PTR, shall be at the expense of Homestead.
ESCROW AGREEMENT
Pursuant to an escrow agreement to be dated the Closing Date (the "Escrow
Agreement") among Homestead, SCG and State Street Bank and Trust Company
("Escrow Agent"), a portion of the shares of Homestead Common Stock issuable to
SCG in the Transaction will be placed in an escrow account maintained with the
Escrow Agent. In general, as PTR and ATLANTIC advance funds to Homestead in
accordance with the terms of their respective Funding Commitment Agreements, a
portion of the shares of Homestead Common Stock in the escrow account will be
released to SCG, together with a proportionate amount of accrued dividends, if
any. On January 1, 2000, unless all of the shares of Homestead Common Stock
placed in the escrow account have been released to SCG sooner in accordance
with the provisions of the Escrow Agreement, the Escrow Agent will release to
Homestead all of the shares of Homestead Common Stock remaining in the escrow
account. All
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dividends or other distributions paid by Homestead in respect of the shares of
Homestead Common Stock held in the escrow account shall be retained by the
Escrow Agent for the benefit of the party to whom the related shares of
Homestead Common Stock are ultimately issued. The Escrow Agent will vote all
shares of Homestead Common Stock held in the escrow account proportionately in
accordance with the vote of all other Homestead shareholders as instructed by
Homestead. In the event that instructions are not received, the Escrow Agent
will not vote such shares.
Because the number of shares of Homestead Common Stock being received by SCG
is based on the anticipated future REIT management fees and property management
fees SCG would have received under existing agreements with PTR and ATLANTIC
for the 80 Homestead Village properties contributed to Homestead, net of
overhead of SCG related to those properties, and since many of the contributed
Homestead Village properties are either in the development or planning stage,
the purpose of the Escrow Agreement is to time SCG's receipt of the shares of
Homestead Common Stock pursuant to the Merger Agreement with the time the
properties are actually funded and supported by a completion guaranty.
FINDER'S AGREEMENTS
Pursuant to a series of agreements between PTR and the unaffiliated person
who brought the Homestead concept to PTR and certain of his affiliates
(collectively, "Finder"), Finder agreed to assist PTR in locating, developing
and operating temporary corporate affordable housing facilities. In accordance
with these agreements, Finder is entitled to receive: (i) with respect to four
Homestead properties currently in operation and located in the Dallas area
(collectively, the "Dallas Properties"), an annual amount of $535,000; (ii)
with respect to the first 35 Homestead facilities constructed by Homestead
(other than the Dallas Properties), an annual amount of $7,500 per property
(such amount subject to proportionate increase or decrease if the property has
less than 120 units or more than 150 units) for each fiscal year beginning on
the date the facility achieves 80% occupancy and provided that Homestead
expects to receive for such fiscal year an annual return from the facility
equal to 12% of its undepreciated cost in the facility; (iii) upon the sale of
any of the Dallas Properties to an unaffiliated third party, 20% of the net
proceeds, which are generally defined as the gain on sale received by Homestead
from the sale of such property (after deducting all closing costs and
commissions and after deducting Homestead's undepreciated cost of all land,
improvements and renovations); and (iv) upon the sale of any of the other 35
properties to an unaffiliated third party, 10% of the net gain on sale received
by Homestead from the sale of such property (after deducting all closing costs
and commissions and after deducting Homestead's undepreciated cost of all land,
improvements and renovations). The annual payments for each facility are
payable until the earliest to occur of the sale of the facility to an
unaffiliated third party, a breach of the agreements by Finder (subject to
various cure provisions), and February 2043. In addition, Finder has agreed,
until December 31, 1996, not to compete, directly or indirectly, with Homestead
in certain states in which Homestead operates. Finder is not affiliated with
Homestead, PTR, ATLANTIC or SCG. Homestead does not currently have an intention
to sell any of its properties.
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PRINCIPAL SHAREHOLDERS
As of October 8, 1996, there were 1,000 shares of Homestead Common Stock
issued and outstanding, which were held of record by SCG. The following table
sets forth, as of October 8, 1996 and as adjusted to give effect to the
ATLANTIC IPO and the Transaction, certain information regarding the beneficial
ownership of Homestead Common Stock by each person who is expected to be the
beneficial owner of five percent or more of the outstanding Homestead Common
Stock, by each of Homestead's directors and Named Executive Officers, and by
all directors and executive officers of Homestead as a group. As of such date,
there are expected to be approximately 3,400 record holders of Homestead
Common Stock.
<TABLE>
<CAPTION>
AMOUNT OF PERCENT OF
NAME AND ADDRESS OR NUMBER OF PERSONS IN BENEFICIAL HOMESTEAD
GROUP OWNERSHIP(1) COMMON STOCK
---------------------------------------- ------------ ------------
<S> <C> <C>
Security Capital Group Incorporated....... 12,657,277(2) 56.0%
125 Lincoln Avenue
Santa Fe, New Mexico 87501
William D. Sanders (Corporate
Ownership)............................. 12,657,277(3) 56.0%
7777 Market Center Avenue
El Paso, Texas 79912
William D. Sanders (Personal Ownership). 63,819(4) *
7777 Market Center Avenue
El Paso, Texas 79912
C . Ronald Blankenship.................... 7,877 *
125 Lincoln Avenue
Santa Fe, New Mexico 87501
David C. Dressler, Jr..................... 878(5) *
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Michael D. Cryan.......................... 0(5) *
125 Lincoln Avenue
Santa Fe, New Mexico 87501
John P. Frazee, Jr........................ 2,837(6) *
9512 Bull Headley Road
Tallahassee, Florida 32312
Robert W. Frost, Jr....................... 0(5) *
Six Piedmont Center
Atlanta, Georgia 30305
John R. Patterson......................... 0(5) *
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Donald J. Schultz......................... 175(5) *
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Directors and Executive Officers as a
group
(6 persons).............................. 11,767(5)(6) *
</TABLE>
- --------
* Less than 1%.
(1) Includes for SCG, Messrs. Sanders, Blankenship, Dressler, Frazee and
Schultz, and all directors and executive officers as a group, 4,840,789,
25,624, 3,162, 352, 1,139 and 70, and 4,723 shares of Homestead Common
Stock, respectively, that may be acquired upon exercise of Homestead
Warrants.
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(2) These shares of Homestead Common Stock will be owned of record by SC
Realty Incorporated, a wholly owned subsidiary of SCG, and will be pledged
to secure SCG's $300 million revolving line of credit facility with a
syndicate of banks. As of October 8, 1996, there were $87 million of
borrowings outstanding under the line of credit. The line of credit is
also secured by securities owned by SCG of PTR, ATLANTIC, Security Capital
Industrial Trust, a publicly-traded REIT affiliated with SCG, and Security
Capital U.S. Realty, an entity based in Luxembourg that is affiliated with
SCG and which invests in real estate operating companies in the United
States. SCG estimates that the aggregate market value of the pledged
securities exceeded $2.0 billion as of October 8, 1996. SCG was in
compliance with all covenants under the line of credit as of June 30,
1996. Does not include up to 2,243,038 shares of Homestead Common Stock
which may be issued to SCG pursuant to the Escrow Agreement. See "Certain
Relationships and Transactions--Escrow Agreement."
(3) Mr. Sanders may be deemed to beneficially own these shares of Homestead
Common Stock, which will be owned by SCG, because Mr. Sanders, as Chairman
and Chief Executive Officer of SCG, shares voting and dispositive power
with respect to all shares of Homestead Common Stock owned by SCG. SCG and
Mr. Sanders in his capacity as Chairman and Chief Executive Officer of
SCG, intend to play a major role in the direction of Homestead for the
purpose of maximizing the value of Homestead.
(4) 3,154 of these shares of Homestead Common Stock will be owned by Mr.
Sanders directly. Mr. Sanders may be deemed to beneficially own 57,943 of
these shares of Homestead Common Stock which will be owned by Sanders
Partners Incorporated and CAMPR Partners Limited, family entities with
respect to which Mr. Sanders shares voting and dispositive power, and
2,722 of these shares of Homestead Common Stock will be owned by a
foundation of which Mr. Sanders is a director.
(5) Does not include shares of Homestead Common Stock which may be issued
under the Incentive Plan. See "Management--Long-Term Incentive Plan."
(6) Does not include shares of Homestead Common Stock which may be issued
under the Outside Directors Plan. See "Management--Outside Directors
Plan."
DESCRIPTION OF HOMESTEAD SECURITIES
The following summary of the terms of the securities of Homestead does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Homestead Charter and Bylaws, copies of which have been filed
as exhibits to the Registration Statement of which this Prospectus forms a
part.
GENERAL
The authorized stock of Homestead consists of 250,000,000 shares of common
stock, $0.01 par value per share. The Homestead Board may classify or
reclassify any unissued shares of stock from time to time by setting or
changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends and other distributions,
qualifications or terms or conditions of redemption of such stock. No holder
of any class of stock of Homestead will have any preemptive right to subscribe
to any securities of Homestead except as may be granted by the Homestead Board
in authorizing the issuance of a class of preferred stock. Under Maryland law,
stockholders are generally not liable for Homestead's debts or obligations.
For a description of certain provisions that could have the effect of
delaying, deferring or preventing a change in control, see "Risk Factors--
Limitations on Changes in Control," "Certain Relationships and Transactions--
SCG Investor Agreement" and "Certain Provisions of Maryland Law and of
Homestead's Charter and Bylaws."
The transfer agent and registrar for the Homestead Common Stock is The First
National Bank of Boston, 150 Royall Street, Canton, Massachusetts 02021.
HOMESTEAD COMMON STOCK
The outstanding shares of Homestead Common Stock are fully paid and
nonassessable. Each share of Homestead Common Stock entitles the holder to one
vote on all matters requiring a vote of stockholders, including the election
of directors. Stockholders do not have the right to cumulate their votes in
the election of directors, which means that the holders of a majority of the
outstanding shares of Homestead Common Stock can elect all of the directors
then standing for election. Stockholders are entitled to such dividends as may
be authorized from time to time by the directors out of assets legally
available therefor.
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In the event of any liquidation, dissolution or winding-up of the affairs of
Homestead, holders of Homestead Common Stock will be entitled, subject to the
preferential rights of holders of preferred stock, if any, to share ratably in
the assets of Homestead remaining after provision for payment of liabilities
to creditors.
All shares of Homestead Common Stock have equal distribution, liquidation
and other rights, and shall have no preference, appraisal, conversion or
exchange rights. Upon completion of the Distribution, 17,749,735 shares of
Homestead Common Stock will be issued and outstanding (including the 2,243,038
shares held in escrow).
PREFERRED STOCK
The Homestead Board is empowered by the Homestead Charter, without the
approval of stockholders, to cause shares of preferred stock to be issued in
one or more series and to determine, among other things, the number of
preferred shares of each series and the rights, preferences, powers and
limitations of each series which may be senior to the rights of Homestead
Common Stock. The issuance of preferred stock could have the effect of
delaying, deferring or preventing a change in control of Homestead and may
adversely affect the voting and other rights of stockholders. Upon completion
of the Transaction, no shares of preferred stock will be outstanding and
Homestead has no present plans to issue any preferred stock following
completion of the Distribution other than as contemplated by the Rights
Agreement (as defined below).
PURCHASE RIGHTS
On May 16, 1996, the Board of Directors authorized a dividend of one
Purchase Right for each share of Homestead Common Stock outstanding at the
close of business on May 16, 1996 (the "Rights Record Date") to the holders of
Homestead Common Stock of record as of the Rights Record Date. The dividend
was paid on the Rights Record Date. The holders of any additional shares of
Homestead Common Stock issued after the Rights Record Date and before the
redemption or expiration of the Purchase Rights will also be entitled to one
Purchase Right for each such additional share. Each Purchase Right entitles
the registered holder under certain circumstances to purchase from Homestead
one-hundredth of a Participating Preferred Share of Homestead at a price of
$50.00 per one-hundredth of a Participating Preferred Share (the "Purchase
Price"), subject to adjustment. The description and terms of the Purchase
Rights are set forth in the Rights Agreement dated as of May 16, 1996 between
Homestead and The First National Bank of Boston, as rights agent (the "Rights
Agreement").
The Purchase Rights will be exercisable and will be evidenced by separate
certificates only after the earliest to occur of: (1) 10 business days
following a public announcement that a person or group of affiliated or
associated persons (excluding certain affiliates of Homestead) has acquired
beneficial ownership of 20% or more of the outstanding shares of Homestead
Common Stock (thereby becoming an "Acquiring Person"); (2) 15 business days
(or such later date as may be determined by action of the Homestead Board
prior to such time as any person or group of affiliated persons becomes an
Acquiring Person) following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of persons
(excluding certain affiliates of Homestead) of 25% or more of the outstanding
shares of Homestead Common Stock or (3) 15 business days (or such later date
as may be determined by action of the Homestead Board prior to such time as
any person becomes an Acquiring Person) after the date of filing by any person
of, or the first public announcement of the intention of any person to file,
any application, request, submission or other document with any federal or
state regulatory authority seeking approval of, attempting to rebut any
presumption of control upon, or otherwise indicating an intention to enter
into, any transaction or series of transactions (other than a transaction in
which newly issued Homestead Common Stock is issued directly by Homestead) the
consummation of which would result in any person (excluding certain affiliates
of Homestead) becoming the beneficial owner of Homestead Common Stock
aggregating 25% or more of the then outstanding shares of Homestead Common
Stock (the first to occur of such dates being called the "Rights Distribution
Date"). With respect to any of the stock certificates outstanding as of the
Rights Record Date, until the Rights Distribution Date the Purchase Rights
will be evidenced by such stock certificate. Until the Rights Distribution
Date (or earlier redemption or expiration of the Purchase
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Rights), new stock certificates issued after the Rights Record Date upon
transfer or new issuance of shares of Homestead Common Stock will contain a
notation incorporating the Rights Agreement by reference. Notwithstanding the
foregoing, if the Homestead Board in good faith determines that a person who
would otherwise be an Acquiring Person under the Rights Agreement has become
such inadvertently, and such person divests as promptly as practicable a
sufficient number of shares of Homestead Common Stock so that such person
would no longer be an Acquiring Person, then such person shall not be deemed
to be an Acquiring Person for purposes of the Rights Agreement.
The Purchase Rights will expire on May 16, 2006 (the "Final Expiration
Date"), unless the Final Expiration Date is extended or unless the Purchase
Rights are earlier redeemed or exchanged by Homestead, in each case as
described below.
The Purchase Price payable, and the number of Participating Preferred Shares
or other securities or property issuable, upon exercise of the Purchase Rights
are subject to adjustment under certain circumstances from time to time to
prevent dilution. With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an adjustment of at
least 1% in such Purchase Price.
Participating Preferred Shares purchasable upon exercise of the Purchase
Rights will not be redeemable. Each Participating Preferred Share will be
entitled to a minimum preferential quarterly distribution payment equal to the
greater of (i) $1 per share or (ii) 100 times the distribution declared per
share of Homestead Common Stock. Each Participating Preferred Share will have
100 votes, voting together with the shares of Homestead Common Stock. If
dividends payable on Participating Preferred Shares are in arrears in an
amount equal to at least six full quarterly dividends (whether or not declared
and whether or not consecutive), the holders of record of the outstanding
Participating Preferred Shares shall have the exclusive right, voting
separately as a single class, to elect two directors of Homestead until such
time as all arrears in dividends (whether or not declared) on the
Participating Preferred Shares shall have been paid or declared and set apart
for payment. In the event of liquidation, the holders of the Participating
Preferred Shares will be entitled to a minimum preferential liquidation
payment of $1 per share (plus any accrued and unpaid dividends) but will be
entitled to an aggregate payment of 100 times the payment made per share of
Homestead Common Stock. In the event of any merger, consolidation or other
transaction in which shares of Homestead Common Stock are exchanged, each
Participating Preferred Share will be entitled to receive 100 times the amount
received per share of Homestead Common Stock. In the event of issuance of
Participating Preferred Shares upon exercise of the Purchase Rights, in order
to facilitate trading, a depositary receipt may be issued for each one-
hundredth of a Participating Preferred Share. The Purchase Rights will be
protected by customary antidilution provisions.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision will be made so that each holder
of a Purchase Right, other than Purchase Rights beneficially owned by the
Acquiring Person (which will thereafter be void), will thereafter have the
right to receive upon exercise a number of shares of Homestead Common Stock
having a market value (determined in accordance with the Rights Agreement) of
twice the Purchase Price. In lieu of the issuance of shares of Homestead
Common Stock upon exercise of Purchase Rights, the Homestead Board may under
certain circumstances, and if there is an insufficient number of shares of
Homestead Common Stock authorized but unissued or held by Homestead to permit
the exercise in full of the Purchase Rights, the Homestead Board is required
to, take such action as may be necessary to cause Homestead to issue or pay
upon the exercise of Purchase Rights, cash (including by way of a reduction of
purchase price), property, other securities or any combination of the
foregoing having an aggregate value equal to that of the shares of Homestead
Common Stock which otherwise would have been issuable upon exercise of
Purchase Rights.
In the event that, after any person or group becomes an Acquiring Person,
Homestead is acquired in a merger or other business combination transaction or
50% or more of its consolidated assets or earning power are sold, proper
provision will be made so that each holder of a Purchase Right will thereafter
have the right to receive, upon the exercise thereof at the then current
Purchase Price, a number of shares of common stock of the acquiring company
having a market value (determined in accordance with the Rights Agreement) of
twice the Purchase Price.
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At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by that person or group of 50% or more of the outstanding
shares of Homestead Common Stock, the Homestead Board may exchange the
Purchase Rights (other than Purchase Rights owned by that person or group
which will have become void), in whole or in part, at an exchange ratio of one
share of Homestead Common Stock (or one-hundredth of a Participating Preferred
Share) per Purchase Right (subject to adjustment).
As soon as practicable after a Rights Distribution Date, Homestead is
obligated to use its best efforts to file a registration statement under the
Securities Act relating to the securities issuable upon exercise of Purchase
Rights and to cause such registration statement to become effective as soon as
practicable.
At any time prior to the time a person or group of persons becomes an
Acquiring Person, the Homestead Board may redeem the Purchase Rights in whole,
but not in part, at a price of $0.01 per Purchase Right (the "Redemption
Price") payable in cash, shares of Homestead Common Stock or any other form of
consideration deemed appropriate by the Homestead Board. The redemption of the
Purchase Rights may be made effective at such time, on such basis and with
such conditions as the Homestead Board in its sole discretion may establish.
Immediately upon the effectiveness of any redemption of the Purchase Rights,
the right to exercise the Purchase Rights will terminate and the only right of
the holders of Purchase Rights will be to receive the Redemption Price.
The terms of the Purchase Rights may be amended by the Homestead Board
without the consent of the holders of the Purchase Rights, except that from
and after the time any person or group of affiliated or associated persons
becomes an Acquiring Person no such amendment may adversely affect the
interests of the holders of the Purchase Rights and in no event shall any such
amendment change the 20% threshold at which a person acquiring beneficial
ownership of shares of Homestead Common Stock becomes an Acquiring Person.
The Purchase Rights have certain anti-takeover effects. The Purchase Rights
will cause substantial dilution to a person or group that attempts to acquire
Homestead on terms not approved by the Homestead Board, except pursuant to an
offer conditioned on a substantial number of Purchase Rights being acquired.
The Purchase Rights should not interfere with any merger or other business
combination approved by the Homestead Board since the Purchase Rights may be
redeemed by Homestead at the Redemption Price prior to the time that a person
or group has acquired beneficial ownership of 20% or more of the shares of
Homestead Common Stock. The form of Rights Agreement specifying the terms of
the Purchase Rights has been incorporated by reference into the Registration
Statement (of which this Prospectus forms a part) and is incorporated herein
by reference. The foregoing description of the Purchase Rights does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Rights Agreement, including the definitions therein of
certain terms.
HOMESTEAD WARRANTS
The Homestead Warrants are to be issued under a Warrant Agreement (the
"Warrant Agreement") between Homestead and The First National Bank of Boston,
as Warrant Agent (the "Warrant Agent"), a copy of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
The following is a summary of the material terms of the Homestead Warrants and
the Warrant Agreement. The summary is subject to, and is qualified in its
entirety by reference to, all the provisions of the Homestead Warrants and the
Warrant Agreement, including the definitions therein of certain terms.
General
Each Homestead Warrant will entitle the registered holder thereof, subject
to and upon compliance with the provisions thereof and of the Warrant
Agreement, at such holder's option, to purchase at an exercise price of $10.00
per share from Homestead one share of Homestead Common Stock. The number of
shares of Homestead Common Stock for which a Homestead Warrant may be
exercised is subject to adjustment as set forth in the Warrant Agreement.
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Homestead Warrants may be exercised at any time by surrendering the
certificate evidencing such Homestead Warrants (the "Warrant Certificates")
with the form of election to purchase shares set forth on the reverse side
thereof duly completed and executed by the holder thereof and paying in full
the exercise price for such Homestead Warrant at the office or agency
designated for such purpose, which will initially be the corporate trust
office of the Warrant Agent in New York, New York. Each Homestead Warrant may
be exercised only in whole and the exercise price may be paid only in cash or
by certified or official bank check. The Homestead Warrants will expire at
5:00 p.m., New York time, on the first anniversary of the Distribution Record
Date.
The Warrant Certificates evidencing the Homestead Warrants may be
surrendered for exercise or exchange, and the transfer of Warrant Certificates
will be registrable, at the office or agency of Homestead maintained for such
purpose, which initially will be the corporate trust office of the Warrant
Agent in New York, New York. The Warrant Certificates will be issued only in
fully registered form. No service charge will be made for any exercise,
exchange or registration of transfer of Warrant Certificates, but Homestead
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
Fractional shares of Homestead Common Stock will not be issued upon exercise
of Homestead Warrants. In lieu thereof Homestead will pay a cash adjustment
based on the difference between the Current Market Value (as defined in the
Warrant Agreement) of a share of Homestead Common Stock on the date the
Warrant Certificate is surrendered for conversion and the exercise price of
the Homestead Warrants.
Holders of Homestead Warrants will not be entitled, by virtue of being such
holders, to receive dividends, vote, receive notice of any meetings of
stockholders or otherwise have any right of stockholders of Homestead.
Adjustments
The number of shares of Homestead Common Stock issuable upon exercise of a
Homestead Warrant (the "Exercise Rate") is subject to adjustment upon the
occurrence of certain events, including (a) dividends or distributions on
Homestead Common Stock payable in Homestead Common Stock or certain other
stock of Homestead; (b) subdivisions, combinations or certain
reclassifications of Homestead Common Stock; (c) distributions to all holders
of Homestead Common Stock of rights, warrants or options entitling them to
subscribe for Homestead Common Stock at a price per share less than 94% of the
Current Market Value at the Time of Determination (each as defined in the
Warrant Agreement); (d) sales by Homestead of Homestead Common Stock or of
securities convertible into or exchangeable or exercisable for Homestead
Common Stock (other than pursuant to (1) the exercise of the Homestead
Warrants (2) any security convertible into, or exchangeable or exercisable
for, Homestead Common Stock as to which the issuance thereof has previously
been the subject of any required adjustment pursuant to the Warrant Agreement
and (3) the conversion of any convertible notes issued or issuable pursuant to
the Funding Commitment Agreements) at a price per share less than the Current
Market Value at the Time of Determination; and (e) distributions to
stockholders of assets or debt securities of Homestead or certain rights,
warrants or options to purchase assets or debt securities or other securities
of Homestead (excluding cash dividends or other cash distributions from
consolidated retained earnings other than any Extraordinary Cash Dividend (as
defined in the Warrant Agreement)). No adjustment in the Exercise Rate will be
required unless such adjustment would require an increase or decrease of at
least one percent (1%) in the Exercise Rate; provided that any adjustment that
is not made will be carried forward and taken into account in any subsequent
adjustment.
If Homestead is a party to a consolidation or merger, or certain transfers
of all or substantially all of its assets occur, a Homestead Warrant for
Homestead Common Stock shall automatically become exercisable for the kind and
amount of securities, cash or other assets which the holder of Homestead
Warrants would have received immediately after the consolidation, merger or
transfer if the holder exercised the Homestead Warrant immediately before the
effective date of the transaction.
In the event of a taxable distribution to holders of Homestead Common Stock
which results in an adjustment to the number of shares of Homestead Common
Stock or other consideration for which a Homestead Warrant
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may be exercised, the holders of the Homestead Warrants may, in certain
circumstances, be deemed to have received a distribution subject to United
States Federal income tax.
CONVERTIBLE MORTGAGE NOTES
As of the Closing Date, Homestead will assume the $77,289,000 principal
amount of promissory notes of its predecessors in connection with funding the
acquisition and construction costs and expenses incurred in connection with
acquiring and developing various real properties as Homestead Village
properties. Pursuant to the Funding Commitment Agreements, PTR and ATLANTIC
have agreed to provide Homestead aggregate funding on the respective Homestead
Village properties contributed by them in the amounts of up to approximately
$129 million and $111 million, respectively. PTR and ATLANTIC will receive
convertible mortgage notes in respect of such fundings in stated amounts of up
to approximately $144 million and $98 million, respectively. The convertible
mortgage notes issued to PTR will be recorded for financial reporting purposes
by Homestead at a premium of approximately $15 million and the convertible
mortgage notes issued to ATLANTIC will be recorded by Homestead at a discount
of approximately $13 million, each of which will be amortized as an adjustment
to interest expense over the ten-year term of the mortgage notes using the
effective interest method. As described above, the relative ownership
percentages of PTR, ATLANTIC and SCG in Homestead were determined based upon
the relative value of the contributed assets assuming that all of the
properties to be contributed have been developed and are fully operating. PTR
and ATLANTIC have agreed to fund convertible mortgages to provide for the
development of the Homestead Village properties and to achieve their
respective ownership allocations. The funded amounts of PTR and ATLANTIC under
the convertible mortgages therefore are in amounts that are anticipated,
pursuant to currently existing development budgets, to be sufficient to
complete the development of the Homestead Village properties being contributed
by them, respectively. To determine the difference between the funded and
stated amounts of the convertible mortgage notes, SCG calculated a value of
the Homestead's assets contributed in the Transaction by each of PTR, ATLANTIC
and SCG as of the end of 1998 assuming all properties were completely
developed. Such value ($496.9 million) was determined by SCG consistent with
the accounting treatment for the Transaction as described in the Pro Forma
Financial Statements included elsewhere herein. In particular, such value was
based on the assumption that only the 80 properties currently operating, under
construction or in pre-development planning are completed by 1998 and did not
take into account Homestead's plans to continue an active development,
developing properties in a disciplined manner in its target market. Such value
was calculated solely for the purposes described herein and should not be
relied upon as an indication of the actual fair market value of Homestead's
assets. For purposes of determining the amount of securities to be issued to
PTR and ATLANTIC in the Transaction based on the methodology used in
determining the relative ownership percentages (described herein), 63.64% of
the value of Homestead was allocated to PTR (approximately $316.2 million) and
28.18% of the value of Homestead was allocated to ATLANTIC (approximately
$140.0 million). As described elsewhere, SCG determined that 70% of the value
allocated to PTR and ATLANTIC would be issuable in convertible debt of
Homestead and 30% would be issuable in common equity. Therefore, the total
value of the convertible mortgage notes issuable to PTR was determined to be
approximately $221.3 million (which amount includes the approximately $77.3
million of convertible mortgage notes currently outstanding) and the total
value of the convertible mortgage notes issuable to ATLANTIC was determined to
be approximately $98.0 million. SCG estimated that the total cost of the
Homestead Village properties to be contributed by PTR and ATLANTIC will be
approximately $284.0 million and $158.7 million, respectively. Seventy percent
of these costs are attributable to the convertible mortgage notes issuable to
PTR (approximately $198.8 million) and ATLANTIC (approximately $111.1
million), respectively. The difference between the $221.3 million of the value
of the mortgages and the $198.8 million of the expected costs equals the
difference between the funded and stated amounts of the convertible mortgage
notes issuable to PTR. The difference between the $98.0 million of the value
of the mortgages and the $111.0 million of the expected costs equals the
difference between the funded and stated amounts of the convertible mortgage
notes issuable to ATLANTIC. The differences between the funded amounts and the
stated amounts of the convertible mortgage loans arise because the rate of
return on the existing Homestead Village facilities contributed by PTR is
projected to exceed the rate of return on the Homestead Village facilities
contributed by PTR and ATLANTIC to Homestead which are under construction or
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in pre-development planning. This expected difference in the rates of return
arises because, as of July 1, 1996, PTR was expected to have 28 Homestead
Village facilities in operation and generating income, while ATLANTIC was
expected to have none and the average property development costs for the
existing PTR Homestead Village properties, on balance, was expected to be less
than those for the PTR and ATLANTIC Homestead Village properties projected to
be built in the future because a large portion of the existing PTR Homestead
Village properties were in planning or under development during 1992 and 1993
when land prices and construction costs were less than they are now and are
anticipated to be over the next 18 months. Because of the foregoing factors,
and as a result of Homestead's desire to issue a single class of convertible
mortgage notes, bearing a 9% per annum interest rate, the stated amounts of the
convertible mortgage notes were adjusted to provide an effective yield (after
giving effect to the premium due to the issuance of the Homestead Warrants and
the convertibility of the mortgage notes--see footnote (j) to Homestead's Pro
Forma Condensed Consolidated Balance Sheet) to each of PTR (12.42% on a fully
funded basis) and ATLANTIC (8.46% on a fully funded basis) that is reflective
of the relative rates of return anticipated to be realized on all of the
facilities contributed by PTR and ATLANTIC, respectively.
Interest on the promissory notes accrues at the rate of 9% on the unpaid
principal balance payable every six months. The promissory notes are scheduled
to mature on October 31, 2006. Homestead has pledged substantially all of its
assets as collateral for the promissory notes. PTR and ATLANTIC have the right,
beginning on or after March 31, 1997, to convert all of the outstanding
principal amount of the promissory notes into shares of Homestead Common Stock
on the basis of one share of Homestead Common Stock for each $11.50 aggregate
principal amount outstanding on the promissory notes being converted. This
conversion rate is subject to adjustment on substantially the same terms as the
Homestead Warrants.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF
HOMESTEAD'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and the
Homestead Charter and Bylaws. The summary does not purport to be complete and
is subject to and qualified in its entirety by reference to Maryland law and
the Homestead Charter and Bylaws, copies of which have been filed as exhibits
to the Registration Statement of which this Prospectus forms a part.
CLASSIFICATION OF THE HOMESTEAD BOARD
Homestead's Bylaws provide that the number of directors may be established by
the Homestead Board but may not be fewer than three nor more than fifteen. Any
vacancy will be filled, at any regular meeting or at any special meeting called
for that purpose, by a majority of the remaining directors, except that a
vacancy resulting from an increase in the number of directors will be filled by
a majority of the entire Homestead Board. Pursuant to the Homestead Charter,
the directors are divided into three classes. At the 1997 annual meeting of
shareholders, one class will be elected to hold office initially for a term
expiring at the annual meeting of shareholders to be held in 1998, another
class will be elected to hold office initially for a term expiring at the
annual meeting of shareholders to be held in 1999 and another class will be
elected to hold office initially for a term expiring at the annual meeting of
shareholders to be held in 2000. As the term of each class expires, directors
in that class will be elected for a term of three years and until their
successors are duly elected and qualify. Homestead believes that classification
of the Homestead Board will help to assure the continuity and stability of
Homestead's business strategies and policies as determined by the Homestead
Board.
The classified director provision could have the effect of making the
replacement of incumbent directors more time-consuming and difficult, which
could discourage a third party from making a tender offer or otherwise
attempting to obtain control of Homestead, even though such an attempt might be
beneficial to Homestead and its shareholders. At least two annual meetings of
shareholders, instead of one, will generally be required to effect a change in
a majority of the Homestead Board. Thus, the classified board provision could
increase the likelihood that incumbent directors will retain their positions.
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DIRECTOR LIABILITY LIMITATION AND INDEMNIFICATION
Maryland law permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except to liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Homestead Charter
contains such a provision which eliminates such liability to the maximum
extent permitted by Maryland law.
Homestead's officers and directors are and will be indemnified under the
Homestead Charter against certain liabilities. The Homestead Charter provides
that Homestead will, to the maximum extent permitted by Maryland law in effect
from time to time, indemnify and pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any individual who is a
present or former director or officer of Homestead or (b) any individual who,
while a director of Homestead and at the request of Homestead, serves or has
served another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise. Homestead has the power, with the approval
of the Homestead Board, to provide such indemnification and advancement of
expenses to a person who served a predecessor of Homestead in any of the
capacities described in (a) or (b) above and to any employee or agent of
Homestead or its predecessors.
Maryland law requires a corporation (unless its charter provides otherwise,
which the Homestead Charter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he or she is made a party by reason of his or her service
in that capacity. Maryland law permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. Maryland law permits Homestead to advance
reasonable expenses to a director or officer upon Homestead's receipt of (a) a
written affirmation by the director or officer of his or her good faith belief
that he or she has met the standard of conduct necessary for indemnification
by Homestead as authorized by Homestead's Bylaws and (b) a written statement
by or on his or her behalf to repay the amount paid or reimbursed by Homestead
if it shall ultimately be determined that the standard of conduct was not met.
Additionally, Homestead has entered into indemnity agreements with each of
its officers and directors which provide for reimbursement of all expenses and
liabilities of such officer or director, arising out of any lawsuit or claim
against such officer or director due to the fact that he or she was or is
serving as an officer or director, except for such liabilities and expenses
(a) the payment of which is judicially determined to be unlawful, (b) relating
to claims under Section 16(b) of the Exchange Act or (c) relating to
judicially determined criminal violations.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Homestead
pursuant to the foregoing provisions, Homestead has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
51
<PAGE>
corporation and any person who beneficially owns 10% or more of the voting
power of the corporation's shares or an affiliate of the corporation who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then-outstanding
voting stock of the corporation (an "Interested Stockholder") or an affiliate
of such an Interested Stockholder are prohibited for five years after the most
recent date on which the Interested Stockholder becomes an Interested
Stockholder. Thereafter, any such business combination must be recommended by
the board of directors of such corporation and approved by the affirmative
vote of at least (a) 80% of the votes entitled to be cast by holders of
outstanding voting shares of the corporation and (b) two-thirds of the votes
entitled to be cast by holders of outstanding voting shares of the corporation
other than shares held by the Interested Stockholder with whom (or with whose
affiliate) the business combination is to be effected, unless, among other
conditions, the corporation's common stockholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in
cash or in the same form as previously paid by the Interested Stockholder for
its shares. These provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. The Homestead Board has exempted from these provisions
of the MGCL any business combination with SCG and its affiliates and
successors. As a result, SCG and its affiliates and successors may be able to
enter into business combinations with Homestead that may not be in the best
interests of its stockholders without compliance by Homestead with the super-
majority vote requirements and other provisions of the statute.
CONTROL SHARE ACQUISITIONS
Maryland law provides that "Control Shares" of a Maryland corporation
acquired in a "Control Share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on
the matter, excluding shares of stock owned by the acquiror or by officers or
directors who are employees of the corporation. "Control Shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by the acquiror, or in respect of which the acquiror is
able to exercise or direct the exercise of voting power, would entitle the
acquiror to exercise voting power in electing directors within one of the
following ranges of voting power (except solely by virtue of a revocable
proxy): (i) one-fifth or more but less than one-third, (ii) one-third or more
but less than a majority, or (iii) a majority or more of all voting power.
Control Shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A
"Control Share acquisition" means the acquisition of Control Shares, subject
to certain exceptions.
A person who has made or proposes to make a Control Share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors to call a special meeting of stockholders to
be held within 50 days of demand to consider the voting rights of the shares.
If no request for a meeting is made, the corporation may itself present the
question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the corporation may
redeem any or all of the Control Shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to
the absence of voting rights for the Control Shares, as of the date of the
last Control Share acquisition or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for Control Shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the Control Share acquisition.
The Control Share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction or to acquisitions approved or exempted by the charter or bylaws
of the corporation.
52
<PAGE>
Homestead's Bylaws contain a provision exempting SCG and its affiliates and
successors from the provisions of the Control Share acquisition statute.
ADVANCE NOTICE PROVISIONS
For nominations or other business to be properly brought before an annual
meeting of stockholders by a stockholder, the Homestead Bylaws require such
stockholder to deliver a notice to the Secretary, absent specified
circumstances, not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting setting forth: (i) as to
each person whom the stockholder proposes to nominate for election or
reelection as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for the election of
directors, pursuant to Regulation 14A of the Exchange Act; (ii) as to any
other business that the stockholder proposed to bring before the meeting, a
brief description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meeting and any material
interest in such business of such stockholder and of the beneficial owner, if
any, on whose behalf the nomination or proposal is made; and (iii) as to the
stockholder giving the notice and beneficial owner, if any, on whose behalf
the nomination or proposal is made, (x) the name and address of such
stockholder as they appear on Homestead's books, and of such beneficial owner
and (y) the number of shares of each class of stock of Homestead which are
owned beneficially and of record by such stockholder and such beneficial
owner, if any.
SHARES AVAILABLE FOR FUTURE SALE
Upon completion of the Mergers, Homestead will have 17,749,735 shares of
Homestead Common Stock (including the 2,243,038 shares held in escrow) and
Homestead Warrants to purchase 10,000,000 shares of Homestead Common Stock
issued and outstanding. All of the shares to be issued in the Distribution,
other than any shares purchased by affiliates, will be tradeable without
restriction under the Securities Act. The shares of Homestead Common Stock
currently issued and outstanding or reserved for issuance upon conversion of
the convertible mortgage notes or exercise of options will be eligible for
sale, subject to the volume resale, manner of sale and notice limitations of
Rule 144 of the Securities Act.
In general, under Rule 144, a person (or persons whose shares are aggregated
in accordance with the Rule) who has beneficially owned his or her shares of
Homestead Common Stock for at least two years, including any such persons who
may be deemed "affiliates" of Homestead (as defined in the Securities Act),
would be entitled to sell within any three-month period a number of shares of
Homestead Common Stock that does not exceed the greater of 1% of the then
outstanding number of shares or the average weekly trading volume of the
shares during the four calendar weeks preceding each such sale. After shares
are held for three years, a person who is not deemed an "affiliate" of
Homestead is entitled to sell such shares under Rule 144 without regard to the
volume limitations described above. Sales of shares of Homestead Common Stock
by affiliates will continue to be subject to the volume limitations. As
defined in Rule 144, an "affiliate" of an issuer is a person that directly or
indirectly, through the use of one or more intermediaries, controls, is
controlled by or is under common control with, such issuer.
Homestead has granted SCG, which will beneficially own 7,816,488 shares of
Homestead Common Stock after the ATLANTIC IPO and the Transaction, and each of
PTR and ATLANTIC, certain registration rights. See "Certain Relationships and
Transactions--SCG Investor Agreement" and "--ATLANTIC and PTR Investor
Agreements."
No prediction can be made as to the effect, if any, that future sales of
shares or the availability of shares for future sale will have on the market
price prevailing from time to time. Sales of substantial amounts of shares
(including shares issued upon the exercise of warrants and options), or the
perception that such sales could occur, could adversely affect the prevailing
market price of the shares.
53
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS AND EXPERTS
The following financial statements have been included herein and in the
registration statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing:
(i) the combined balance sheets of the PTR-Homestead Village Group as of
December 31, 1994 and 1995, the related combined statements of
operations, owners' equity and cash flows for each of the years in the
three-year period ended December 31, 1995 and the related combined
schedule as of December 31, 1995;
(ii) the combined balance sheet of the Atlantic-Homestead Village Group as
of December 31, 1995, the related combined statements of operations,
owners' equity and cash flows for the period from April 3, 1995 (date
of formation) through December 31, 1995 and the related combined
schedule as of December 31, 1995;
(iii) the combined balance sheets of the SCG-Homestead Village Group as of
December 31, 1994 and 1995 and the related combined statements of
operations, shareholder's equity and cash flows for each of the years
in the three-year period ended December 31, 1995.
The balance sheet of Homestead Village Incorporated at June 30, 1996
appearing in the Prospectus of Homestead included in the Homestead
Registration Statement has been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
is included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
ADDITIONAL INFORMATION
Homestead has filed with the Commission the Homestead Registration Statement
under the Securities Act with respect to the Homestead Securities being
distributed hereby. This Prospectus omits certain information contained in the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to Homestead and the
Homestead Securities being distributed hereby, reference is made to the
Registration Statement including the exhibits thereto. Statements herein
concerning the contents of any contract or other document are not necessarily
complete and in each instance reference is made to such contract or other
documents filed with the Commission as an exhibit to the Registration
Statement, or otherwise, each such statement being qualified by and subject to
such reference in all respects.
As a result of the Mergers, Homestead will become subject to the
informational requirements of the Exchange Act, and in accordance therewith
will file reports and other information with the Commission. Reports,
registration statements, proxy statements and other information filed by
Homestead with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: 7 World Trade Center, Suite 1300, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
In addition, such material can also be obtained from the Commission's web site
at http://www.sec.gov.
Homestead intends to furnish its stockholders with annual reports containing
consolidated financial statements audited by its independent certified public
accountants and with quarterly reports containing unaudited condensed
consolidated financial statements for each of the first three quarters of each
fiscal year.
LEGAL MATTERS
The validity of the Homestead Common Stock and the Homestead Warrants
offered hereby has been passed upon for Homestead by Mayer, Brown & Platt,
Chicago, Illinois. Mayer, Brown & Platt has relied upon the opinion of Ballard
Spahr Andrews & Ingersoll, Baltimore, Maryland, as to certain matters of
Maryland law. Mayer, Brown & Platt has represented and is currently
representing ATLANTIC, PTR, SCG and Homestead and certain of their respective
affiliates.
54
<PAGE>
INDEX TO HOMESTEAD FINANCIAL STATEMENTS
<TABLE>
<S> <C>
HOMESTEAD VILLAGE INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
PRO FORMA (UNAUDITED):
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1996........ F-4
Pro Forma Condensed Consolidated Statement of Operations for the six
months ended June 30, 1996 .............................................. F-9
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1995 ................................................. F-10
THE PTR--HOMESTEAD VILLAGE GROUP
HISTORICAL COMBINED FINANCIAL STATEMENTS:
Independent Auditors' Report.............................................. F-11
Combined Balance Sheets as of December 31, 1994 and 1995 and the unaudited
Combined Balance Sheet as of June 30, 1996............................... F-12
Combined Statements of Operations for the years ended December 31, 1993,
1994 and 1995 and the unaudited Combined Statements of Operations for the
six months ended June 30, 1995 and 1996.................................. F-13
Combined Statements of Owners' Equity for the years ended December 31,
1993, 1994 and 1995 and the unaudited Combined Statement of Owners'
Equity for the six months ended June 30, 1996............................ F-14
Combined Statements of Cash Flows for the years ended December 31, 1993,
1994 and 1995 and the unaudited Combined Statements of Cash Flows for the
six months ended June 30, 1995 and 1996.................................. F-15
Notes to Combined Financial Statements.................................... F-16
Schedule III--Real Estate and Accumulated Depreciation as of December 31,
1995..................................................................... F-21
THE ATLANTIC--HOMESTEAD VILLAGE GROUP
HISTORICAL COMBINED FINANCIAL STATEMENTS:
Independent Auditors' Report.............................................. F-23
Combined Balance Sheet as of December 31, 1995 and the unaudited Combined
Balance Sheet as of June 30, 1996........................................ F-24
Combined Statement of Operations for the period from April 3, 1995 (date
of formation) through December 31, 1995 and the unaudited Combined
Statement of Operations for the six months ended June 30, 1996........... F-25
Combined Statement of Owners' Equity for the period from April 3, 1995
(date of formation) through December 31, 1995 and the unaudited Combined
Statement of Owners' Equity for the six months ended June 30, 1996....... F-26
Combined Statement of Cash Flows for the period from April 3, 1995 (date
of formation) through December 31, 1995 and the unaudited Combined
Statement of Cash Flows for the six months ended June 30, 1996........... F-27
Notes to Combined Financial Statements.................................... F-28
Schedule III--Real Estate and Accumulated Depreciation as of December 31,
1995..................................................................... F-31
THE SCG--HOMESTEAD VILLAGE GROUP
HISTORICAL COMBINED FINANCIAL STATEMENTS:
Independent Auditors' Report.............................................. F-32
Combined Balance Sheets as of December 31, 1994 and 1995 and the unaudited
Combined Balance Sheet as of June 30, 1996............................... F-33
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Combined Statements of Operations for the years ended December 31, 1993,
1994 and 1995 and the unaudited Combined Statements of Operations for the
six months ended June 30, 1995 and 1996.................................. F-34
Combined Statements of Shareholder's Equity (Deficit) for the years ended
December 31, 1993, 1994 and 1995 and the unaudited Combined Statement of
Shareholder's Equity (Deficit) for the six months ended June 30, 1996.... F-35
Combined Statements of Cash Flows for the years ended December 31, 1993,
1994 and 1995 and the unaudited Combined Statements of Cash Flows for the
six months ended June 30, 1995 and 1996.................................. F-36
Notes to Combined Financial Statements.................................... F-37
HOMESTEAD VILLAGE INCORPORATED
BALANCE SHEET:
Report of Independent Auditors............................................ F-40
Balance Sheet as of June 30, 1996......................................... F-41
Notes to Balance Sheet.................................................... F-42
</TABLE>
F-2
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(UNAUDITED)
The unaudited Pro Forma Condensed Consolidated Balance Sheet is presented as
if the following transactions had occurred on June 30, 1996; (I) the PTR-
Homestead Village Group including land parcels which were under contract as of
June 30, 1996 and expected to be acquired prior to the date of the
transaction, merged with and into Homestead; (II) the acquisition of net
assets of the Atlantic-Homestead Village Group including land parcels which
were under contract as of June 30, 1996 and expected to be acquired prior to
the Closing Date had been completed; (III) the acquisition of the net assets
of SCG-Homestead Village Group had occurred. Such pro forma information is
based in part on the historical Combined Balance Sheets of the PTR-Homestead
Village Group, the Atlantic-Homestead Village Group and the SCG-Homestead
Village Group. It should be read in conjunction with the financial statements
listed in the index page F-1 of this Prospectus. In management's opinion, all
adjustments necessary to reflect the effects of these transactions have been
made.
In accordance with the Merger Agreement and the Funding Commitment Agreement
the PTR-Homestead Village Group will contribute a total of 54 facilities
either in operation, under construction or in pre-development planning.
Similarly, the Atlantic-Homestead Village Group will contribute a total of 26
facilities either in operation, under construction or in pre-development
planning. Subsequent to the Closing Date, PTR and Security Capital Atlantic
Incorporated ("ATLANTIC") will be obligated to provide the additional funding
to complete the development of the facilities contributed. The Pro Forma
Condensed Consolidated Balance Sheet excludes expected development costs
related to the properties under development or planned to be developed and the
related convertible mortgage notes for the period July 1, 1996 through
ultimate completion of the facilities and therefore is not reflective of the
entire transaction.
The unaudited Pro Forma Condensed Consolidated Balance Sheet is not
necessarily indicative of what the actual financial position would have been
assuming these transactions had been completed as of June 30, 1996, nor does
it purport to represent the future financial position of Homestead.
F-3
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
CAPITALIZATION ACQUISITION
OF HOMESTEAD OF THE ACQUISITION
THE PTR- AND MERGER HOMESTEAD ATLANTIC- OF THE SCG-
HOMESTEAD WITH THE PTR- VILLAGE HOMESTEAD HOMESTEAD OTHER PRO PRO FORMA
VILLAGE GROUP PRO FORMA HOMESTEAD INCORPORATED VILLAGE VILLAGE FORMA CONDENSED
HISTORICAL(A) ADJUSTMENTS VILLAGE GROUP PRO FORMA GROUP (G) GROUP (H) ADJUSTMENTS CONSOLIDATED
------------- ----------- -------------- ------------ ----------- ----------- ----------- ------------
ASSETS
- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents....... $ 1,509 $ -- $ 1 (e) $ 1,510 $19,722 $ 12 $(1,500)(i) $ 19,744
Accounts
receivable........ 868 -- -- 868 -- 526 -- 1,394
Other current
assets............ 172 -- -- 172 -- 13 -- 185
-------- ------- ------- -------- ------- ------- ------- --------
Total current
assets.......... 2,549 -- 1 2,550 19,722 551 (1,500) 21,323
Property and
equipment, net..... 135,936 11,835 (c) -- 147,771 31,688 531 -- 179,990
Other assets....... 2,605 -- -- 2,605 2,156 323 1,500 (i) 6,584
Trademark and other
intangible assets.. -- -- -- -- -- 20,468 -- 20,468
Deferred financing
costs.............. -- -- -- -- -- -- 27,844 (j) 27,844
-------- ------- ------- -------- ------- ------- ------- --------
Total assets.... $141,090 $11,835 $ 1 $152,926 $53,566 $21,873 $27,844 $256,209
======== ======= ======= ======== ======= ======= ======= ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS'
EQUITY
- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current
liabilities:
Development costs
payable........... $ 1,739 $ -- $ -- $ 1,739 $ 1,165 $ -- $ -- $ 2,904
Accrued real
estate taxes...... 1,335 -- -- 1,335 5 -- -- 1,340
Accounts payable.. 448 -- -- 448 281 39 -- 768
Other accrued
expenses.......... 807 -- -- 807 416 6 -- 1,229
Accrued interest
payable........... 2,917 -- -- 2,917 -- -- -- 2,917
-------- ------- ------- -------- ------- ------- ------- --------
Total current
liabilities..... 7,246 -- -- 7,246 1,867 45 -- 9,158
Intercompany
debt.............. 30,110 (30,110)(d) -- -- -- -- -- --
Convertible
mortgage notes
payable........... 77,289 (9,942)(b) -- 67,347 -- -- -- 67,347
-------- ------- ------- -------- ------- ------- ------- --------
Total
liabilities..... 114,645 (40,052) -- 74,593 1,867 45 -- 76,505
Shareholders'
Equity: --
Common stock...... -- -- 95 (f) 95 42 18 23 (k) 178
Additional paid
in
capital/Contributed
capital........... 19,725 11,835 (c) 1 (e)
9,942 (b) 71,517 (f) 28,144 (k)
30,110 (d) (71,612)(f) 71,518 51,657 21,810 27,844 (j) 200,973
Shares in escrow.. -- -- -- -- -- -- (28,167)(k) (28,167)
Retained
earnings.......... 6,720 -- -- 6,720 -- -- -- 6,720
-------- ------- ------- -------- ------- ------- ------- --------
Total
shareholders'
equity.......... 26,445 51,887 1 78,333 51,699 21,828 27,844 179,704
-------- ------- ------- -------- ------- ------- ------- --------
Total liabilities
and shareholders'
equity............. $141,090 $11,835 $ 1 $152,926 $53,566 $21,873 $27,844 $256,209
======== ======= ======= ======== ======= ======= ======= ========
</TABLE>
F-4
<PAGE>
- --------
(a) Reflects the historical combined balance sheet of the PTR-Homestead
Village Group as of June 30, 1996, which is presented elsewhere in this
registration statement.
(b) Reflects the conversion of convertible mortgage notes of the PTR-Homestead
Village Group to capital contributed as a result of the transaction. In
accordance with the Merger Agreement, PTR will receive all of its shares
of Homestead Common Stock at the Closing Date (representing 30% of the
fair market value of its assets contributed at full funding). Based on the
pro forma costs at the Closing Date, the face value of the convertible
mortgages would be limited to $67,347. Therefore, the balance of
convertible mortgage notes payable at June 30, 1996 ($77,289) less the
maximum convertible mortgage notes payable at the Closing Date ($67,347)
equals the convertible mortgage notes converted to capital ($9,942).
(c) Reflects the land to be acquired by the PTR-Homestead Village Group
subsequent to June 30, 1996 and prior to the Closing Date. The land
consists of nine separate parcels of developed land that will be
contributed to Homestead unencumbered by any mortgage or other financial
obligation at the Closing Date. The PTR-Homestead Village Group intends to
acquire these parcels utilizing capital contributed by its parent company,
PTR.
(d) Reflects the conversion of intercompany debt of the PTR-Homestead Village
Group to contributed capital in accordance with the Merger Agreement.
(e) Reflects the capitalization of Homestead through the issuance of 1,000
shares of Homestead Common Stock in exchange for $1.
(f) Reflects the issuance of 9,485,727 shares of Homestead Common Stock to PTR
in exchange for the net assets of the PTR-Homestead Village Group. This
transaction is accounted for as a reorganization of entities under common
control and accordingly, assets and liabilities are reflected at the PTR-
Homestead Village Group's historical cost. Additionally, PTR would receive
6,363,789 warrants to purchase additional shares of Homestead Common Stock
at the exercise price of $10 per share for its commitment to provide
funding under the Funding Commitment Agreement. Management of PTR,
ATLANTIC and other affiliates of SCG ("Management") determined the
exercise price of the warrants and believes that $10 per share represents
adequate consideration for a share of Homestead Common Stock. See (j)
below for determination of the value and accounting treatment of the
Homestead Warrants described herein.
(g) Reflects the acquisition of the net assets of the Atlantic-Homestead
Village Group by Homestead based on the estimated fair market value of the
net assets acquired through the issuance to ATLANTIC of Homestead Common
Stock. Estimated fair market value for all parties in the transaction is
based on the relative fair value of the net assets received by Homestead
as used in determining the relative ownership percentage of PTR, ATLANTIC
and SCG in Homestead. The methodology used was based upon the present
values of the cash flows of the contributions made by each such party.
With respect to each of PTR and ATLANTIC, SCG prepared those present
values by discounting the future net cash flows for the 80 identified
Homestead Village properties in operation, under construction or in pre-
development planning at July 1, 1996 which will be contributed by each of
them to Homestead in connection with the Mergers. With respect to SCG, SCG
calculated the present value of the cash flows from the PTR and ATLANTIC
REIT management fees and property management fees which SCG would have
received from such 80 Homestead Village properties, net of operating
overhead. Listed below is a reconciliation of the historical cost of the
net assets acquired to the pro forma estimated fair market value
acquisition cost, followed by explanations of the pro forma acquisition
adjustments.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ACQUISITION ACQUISITION
BALANCE SHEET CAPTION COST ADJUSTMENTS COST
--------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Property and equipment, net.......... $18,584 $13,104(i) $31,688
Cash and cash equivalents............ 156 19,566(ii) 19,722
Other assets......................... 2,156 -- 2,156
------- ------- -------
Total assets....................... $20,896 $32,670 $53,566
======= ======= =======
Accounts payable..................... $ 281 $ -- $ 281
Accrued expenses and other
liabilities......................... 1,586 -- 1,586
Intercompany debt.................... 17,420 (17,420)(iii) --
------- ------- -------
Total liabilities.................. 19,287 (17,420) 1,867
------- ------- -------
Total shareholders' equity......... 1,609 50,090(iv) 51,699
------- ------- -------
Total liabilities and shareholders'
equity............................ $20,896 $32,670 $53,566
======= ======= =======
</TABLE>
F-5
<PAGE>
(i) Reflects estimated costs of $9,028 relating to the acquisition of
eight parcels of land under contract to be acquired for cash,
subsequent to June 30, 1996 and prior to the Closing Date. Also
included is $4,076 which represents the amount by which the estimated
fair market value of the net assets acquired exceeds the historical
cost basis. This excess has been attributed to property and equipment
as management believes that the carrying amount of the remaining assets
and liabilities approximates fair value because of the short maturity
of these instruments. The acquisition cost was determined by
Management. The fair market value of the property and equipment was
estimated using a premium over cost, which Management believes is
reasonable considering value added during the development process.
(ii) Reflects, for pro forma purposes, cash of $19,566 contributed by
Atlantic as partial consideration for the Homestead stock received. The
cash payment is necessary to facilitate ATLANTIC's receipt of its
entire share of common stock on the Closing Date in accordance with the
Merger Agreement (The actual cash dollar amount paid is expected to be
reduced to approximately $18,600 by the Closing Date as a result of
development costs incurred between June 30, 1996 and the Closing Date).
(iii) Reflects the conversion of all intercompany debt into contributed
capital immediately prior to the Transaction.
(iv) Reflects the impact on shareholders' equity of adjustments (i),
(ii) and (iii), above. Based upon the Merger Agreement, ATLANTIC will
receive 4,201,220 shares of Homestead Common Stock having a value of
$51,699. Such value was determined based on the assumed value of the
Homestead Common Stock of approximately $12.31 per share (the "Assumed
Value"), which is based solely on the estimated fair market value of
the net assets contributed by PTR, ATLANTIC, and SCG. This per share
amount is not intended as an indication of the price at which shares of
Homestead Common Stock may actually trade and no assurance can be given
as to the price at which the shares of Homestead Common Stock will
trade. Additionally, ATLANTIC will receive 2,818,517 Homestead Warrants
to purchase additional shares of Homestead Common Stock at the exercise
price of $10 per share in exchange for entering into the Funding
Commitment Agreement. Management determined the exercise price of the
Homestead Warrants and concluded that $10 per share represents adequate
consideration for a share of Homestead Common Stock. See (j) below for
determination of the value and accounting treatment of the Homestead
Warrants described herein.
(h) Reflects the acquisition of the net assets of the SCG-Homestead Village
Group by Homestead based on the estimated fair market value of the net
assets acquired through the issuance to SCG of Homestead Common Stock. For
a description of the determination of the estimated fair market value of
the net assets acquired, see (g) above. Listed below is a reconciliation
of the historical cost of the net assets acquired to the pro forma
estimated fair market value acquisition cost, followed by explanations of
the pro forma acquisition adjustments.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ACQUISITION ACQUISITION
BALANCE SHEET CAPTION COST ADJUSTMENTS COST
--------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Property and equipment, net.......... $ 531 $ -- $ 531
Cash and cash equivalents............ 12 -- 12
Accounts receivable.................. 526 -- 526
Other assets......................... 336 20,468(i) 20,804
------ ------- -------
Total assets....................... $1,405 $20,468 $21,873
====== ======= =======
Accounts payable..................... $ 39 $ -- $ 39
Accrued expenses and other
liabilities......................... 868 (862)(ii) 6
Intercompany debt.................... 2,756 (2,756)(iii) --
------ ------- -------
Total liabilities.................. 3,663 (3,618) 45
------ ------- -------
Total shareholders' equity......... (2,258) 24,086(iv) 21,828
------ ------- -------
Total liabilities and shareholders'
equity............................ $1,405 $20,468 $21,873
====== ======= =======
</TABLE>
(i) The net assets acquired primarily consist of trademarks,
tradenames, development and property management expertise, as well as
operating systems necessary to conduct the business of developing,
F-6
<PAGE>
owning and operating the Homestead Village properties. The estimated
fair market value of the net assets acquired is approximately $49,995
for which Homestead will issue 4,062,788 shares of $.01 par value
common stock. At the Closing Date, SCG will receive a pro rata portion
(1,773,186) of the total shares, based upon the ratio (43.66%) of
actual funding provided by PTR and ATLANTIC to Homestead as of June 30,
1996 to the total expected funding to be provided, as more fully
described in the Transaction (the 1,773,186 shares issued to SCG is
expected to increase to 1,819,750 shares issued at the Closing Date as
a result of development costs incurred between June 30, 1996 and the
Closing Date). Correspondingly, the proportional amount of the
estimated fair market value recorded at the Closing Date is
approximately $21,828, of which approximately $20,468 has been
attributed to the trademarks and other intangible assets listed above.
Management intends to amortize the intangible assets on a straight-line
basis over a period of 20 years. The $20,468 has been attributed to
these intangibles as management believes that the carrying amount of
the remaining assets and liabilities approximates fair value because of
the short maturity of these instruments. The $1,360 ($21,828-$20,468)
difference represents the historical cost of the net assets of SCG
after adjustment for (ii) and (iii) below. The identification of the
trademark and other intangible assets listed above and the
determination of the acquisition cost of the net assets was made by
Management. A discounted cash flow method was used by management to
estimate fair market value.
(ii) Reflects an adjustment to reduce accrued expenses and other
liabilities for employee-related liabilities which will not be assumed
by Homestead. Such adjustment is reflected as an addition to
contributed capital.
(iii) Reflects the conversion of all intercompany debt into contributed
capital immediately prior to the Transaction.
(iv) Reflects the impact on shareholders' equity of adjustments (i),
(ii) and (iii) above. Additionally, SCG will receive 817,694 Homestead
Warrants to purchase additional shares of Homestead Common Stock at the
exercise price of $10 per share in exchange for the commitment to
provide funding to Homestead during the time between the execution of
the Merger Agreement and the Closing Date and the use of office
facilities for one year. Management determined the exercise price of
the Homestead Warrants and concluded that $10 per share represents
adequate consideration for a share of stock of Homestead. See (j) below
for determination of the value and accounting treatment of the
Homestead Warrants described herein.
(i) Reflects estimated expenses of consummating the Transaction.
(j) Reflects the financing costs incurred by Homestead as a result of the
Funding Commitment Agreements with PTR and ATLANTIC and the other
consideration received from SCG described in (iv) above. The 10,000,000
Homestead Warrants to be issued to PTR, ATLANTIC and SCG were valued based
on the difference between the Assumed Value of Homestead Common Stock and
the $10 exercise price of the Warrants ($23,100). Additional financing
costs were incurred by Homestead equal to the difference in the Assumed
Value of the Homestead Common Stock and the $11.50 conversion price of the
convertible mortgages to be assumed by Homestead at the Closing Date
($4,744). $25,955 of these costs will be amortized by Homestead using the
effective interest rate method at an effective combined yield of 11.05%
over the 10 year term of the convertible mortgages. The deferred costs
related to the consideration provided by SCG ($1,889) will be amortized
over a period not to exceed one year.
(k) The remaining 2,289,602 shares of Homestead Common Stock will be issued to
an escrow agent and held for SCG. As each property is funded under the
Funding Commitment Agreements, the shares of Homestead Common Stock will
be transferred to SCG. See "Certain Relationships and Transactions--Escrow
Agreement."
F-7
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited Pro Forma Condensed Consolidated Statements of Operations for
the year ended December 31, 1995 and for the six months ended June 30, 1996 of
Homestead Village Incorporated ("Homestead") are presented as if: I) Homestead
was capitalized and the PTR-Homestead Village Group merged into Homestead; II)
the PTR-Homestead Village Group acquired land parcels which were under
contract as of June 30, 1996 and expected to close prior to the Closing Date;
and III) Homestead acquired the net assets of the Atlantic-Homestead Village
Group and the SCG-Homestead Village Group through the issuance of shares of
Homestead Common Stock and Homestead Warrants as of January 1, 1995. The
financial statements and related footnotes of the PTR-Homestead Village Group,
the Atlantic-Homestead Village Group and the SCG-Homestead Village Group are
presented elsewhere in this registration statement. The statements also
include estimated incremental expenses related to operating a publicly held
company as if it were publicly held as of January 1, 1995. Such pro forma
information is based in part upon the Historical Combined Statements of
Operations of the PTR-Homestead Village Group, the Atlantic-Homestead Village
Group and the SCG-Homestead Village Group. It should be read in conjunction
with the financial statements listed in the index on page F-1 of this
Prospectus. In management's opinion, all adjustments necessary to reflect the
effects of these transactions have been made.
The unaudited Pro Forma Condensed Consolidated Statements of Operations are
not necessarily indicative of what Homestead's actual results of operations
would have been assuming such transactions had been completed as of January 1,
1995, nor do they purport to present the results of operations for future
periods. Results of operations and the related earnings or loss per share will
be affected by a number of factors including, but not limited to, the total
number of extended-stay lodging facilities opened and operated and the related
operating results thereon, interest cost incurred on indebtedness, corporate
operating and management expenses, development and acquisition costs and the
number of shares issued. Additionally, the Pro Forma Condensed Consolidated
Statement of Operations for the six months ended June 30, 1996 is not
necessarily indicative of the results of operations for the full year.
F-8
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE PTR- THE ATLANTIC- THE SCG-
HOMESTEAD HOMESTEAD HOMESTEAD PRO FORMA
VILLAGE GROUP VILLAGE GROUP VILLAGE GROUP ELIMINATION COMBINED PRO FORMA CONDENSED
HISTORICAL(A) HISTORICAL(A) HISTORICAL(A) ENTRIES HISTORICAL ADJUSTMENTS CONSOLIDATED
------------- ------------- ------------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Room revenue........... $15,133 $-- $ -- $ -- $15,133 $ -- $15,133
Other.................. 210 9 1,871 (1,870)(b) 220 -- 220
------- ---- ------- ------- ------- ------- -------
Total Revenue........ 15,343 9 1,871 (1,870) 15,353 -- 15,353
COSTS AND EXPENSES:
Property operating
expenses.............. 6,420 -- -- -- 6,420 -- 6,420
Property management
fees paid to
affiliates............ 1,048 -- -- (1,048)(b) -- -- --
Corporate operating
expenses.............. 397 38 6,229 -- 6,664 (2,682)(c)
163 (d) 4,145
REIT management fees
paid to affiliates.... 822 -- -- (822)(b) -- -- --
Depreciation and
amortization.......... 1,841 -- 35 -- 1,876 512 (e) 2,388
Interest expense....... 2,340 -- 107 -- 2,447 (705)(f)
663 (i) 2,405
------- ---- ------- ------- ------- ------- -------
Total costs and
expenses............ 12,868 38 6,371 (1,870) 17,407 (2,049) 15,358
------- ---- ------- ------- ------- ------- -------
Income (loss) before
income tax expense.... 2,475 (29) (4,500) -- (2,054) 2,049 (5)
Income tax expense..... -- -- -- -- -- (196)(g) (196)
------- ---- ------- ------- ------- ------- -------
NET INCOME (LOSS)....... $ 2,475 $(29) $(4,500) $ -- $(2,054) $ 1,853 $ (201)
======= ==== ======= ======= ======= ======= =======
PRO FORMA NET INCOME PER COMMON SHARE................................................................ $ (.01)
=======
PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING NOTE (H)............................................... 33,606
=======
</TABLE>
- -------
(a) Reflects the historical combined statements of operations of the PTR-
Homestead Village Group, the Atlantic-Homestead Village Group and the SCG-
Homestead Village Group, which are presented elsewhere in this
registration statement.
(b) Reflects the elimination of intercompany REIT and property management fee
income and expense which will no longer be paid since Homestead will be
self-managed.
(c) Reflects the adjustment for development overhead costs incurred by the
SCG-Homestead Village Group in conjunction with the acquisition of land
and the development of the extended-stay lodging facilities that will now
be incurred and capitalized by Homestead in accordance with generally
accepted accounting principles. Development overhead costs consisted
primarily of payroll and related benefits and are included in the
historical financial statements of the SCG-Homestead Village Group.
(d) Reflects the additional costs of operating as a public company for the six
months ended June 30, 1996 including additional salaries and benefits,
($88) and legal, accounting and other professional fees ($75).
(e) Depreciation is computed utilizing the straight-line method over the
estimated useful lives of 20 to 40 years for buildings and improvements
and 2 to 7 years for equipment. This treatment is consistent with the
historical financial statements and, therefore, no pro forma adjustment is
necessary. Trademark and other intangible assets are being amortized over
a period of 20 years. Amortization totaled $512 for the six months ended
June 30, 1996. Upon release of the escrowed shares to SCG additional
trademark and other intangibles of $28,167 would be recorded and
amortization for the six months would increase by $704. Net loss for the
six months ended June 30, 1996, as adjusted for the increase in
amortization, would be $(905) or $(.03) per common share.
(f) Reflects the adjustment to reduce interest expense as a result of the
conversion of $9,942 of convertible mortgage notes, bearing interest at 9%
and $30,110 of intercompany debt, bearing interest at rates between 8% and
8.25% to contributed capital.
(g) Prior to the proposed transaction, the PTR-Homestead Village Group and the
Atlantic-Homestead Village Group were taxed as qualified real estate
investment trust subsidiaries under the Internal Revenue Code of 1986, as
amended. The SCG-Homestead Village Group was a subsidiary of a Subchapter
C corporation, which has experienced operating losses since its inception.
Therefore, as described further in the historical combined financial
statements of the PTR-Homestead Village Group, the Atlantic-Homestead
Village Group and the SCG-Homestead Village Group, which appear elsewhere
in this registration statement, no provision was required for federal or
state income taxes.
Homestead will be taxed as a Subchapter C corporation and, as such, will be
subject to federal and any applicable state income taxes. The components of
the pro forma adjustment for income taxes consist of the following:
<TABLE>
<S> <C>
Income before income tax expenses................................. $ (5)
Amortization of trademark and other intangible assets acquired
from the SCG-Homestead Village Group not deductible for tax
purposes......................................................... 512
----
507
Assumed federal and state income tax rate......................... 38.6%
----
Pro forma adjustment.............................................. $196
====
</TABLE>
(h) Reflects the assumed number of weighted average common shares of Homestead
Common Stock outstanding during the six months ended June 30, 1996 based
upon the assumed issuance of 17,750 total shares of Homestead Common
Stock, including the shares in escrow, at the beginning of the period.
Additionally, reflects the assumed conversion of the 9% convertible mortgage
notes into 5,856 shares of Homestead Common Stock at the conversion price of
$11.50 per share which is less than the assumed value of the Homestead
Common Stock. Similarly, the 10,000 Homestead Warrants, which are
exercisable at $10 per share were considered common stock equivalents since
the exercise price is less than the assumed value of the Homestead Common
Stock.
(i) Reflects the amortization of deferred financing costs described in note
(j) to the Homestead Proforma Condensed Consolidated Balance Sheet.
F-9
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE PTR- THE ATLANTIC- THE SCG-
HOMESTEAD HOMESTEAD HOMESTEAD PRO FORMA
VILLAGE GROUP VILLAGE GROUP VILLAGE GROUP ELIMINATION COMBINED PRO FORMA CONDENSED
HISTORICAL(A) HISTORICAL(A) HISTORICAL(A) ENTRIES HISTORICAL ADJUSTMENTS CONSOLIDATED
------------- ------------- ------------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Room revenue........... $18,337 $ -- $ -- $ -- $18,337 $ -- $18,337
Other.................. 366 4 2,021 (2,007)(b) 384 -- 384
------- ----- ------- ------- ------- ------- -------
Total Revenue........ 18,703 4 2,021 (2,007) 18,721 -- 18,721
COSTS AND EXPENSES:
Property operating
expenses.............. 7,600 -- -- -- 7,600 -- 7,600
Property management
fees paid to
affiliates............ 1,018 -- -- (1,018)(b) -- -- --
Corporate operating
expenses.............. 944 63 7,067 -- 8,074 (2,211)(c) 6,188
325 (d) --
REIT management fees
paid to affiliates.... 989 -- -- (989)(b) -- -- --
Depreciation and
amortization.......... 2,343 -- 39 -- 2,382 1,023 (e) 5,294
1,889 (j)
Interest expense....... 2,958 -- 70 -- 3,028 (530)(f) 3,447
949 (i)
------- ----- ------- ------- ------- ------- -------
Total costs and
expenses............ 15,852 63 7,176 (2,007) 21,084 1,445 22,529
------- ----- ------- ------- ------- ------- -------
Income (loss) before
income tax expense.... 2,851 (59) (5,155) -- (2,363) (1,445) (3,808)
Income tax expense..... -- -- -- -- -- -- (g) --
------- ----- ------- ------- ------- ------- -------
NET INCOME (LOSS)....... $ 2,851 $ (59) $(5,155) $ -- $(2,363) $(1,445) $(3,808)
======= ===== ======= ======= ======= ======= =======
PRO FORMA NET LOSS PER COMMON SHARE.................................................................. $ (.11)
=======
PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING NOTE (H)............................................... 33,606
=======
</TABLE>
- -------
(a) Reflects the historical combined statements of operations of the PTR-
Homestead Village Group, the Atlantic-Homestead Village Group and the SCG-
Homestead Village Group, which are presented elsewhere in this
registration statement.
(b) Reflects the elimination of intercompany REIT and property management fee
income and expense which will no longer be paid since Homestead will be
self-managed.
(c) Reflects the adjustment for development overhead costs incurred by the
SCG-Homestead Village Group in conjunction with the acquisition of land
and the development of the extended-stay lodging facilities that will now
be incurred and capitalized by Homestead in accordance with generally
accepted accounting principles. Development overhead costs consisted
primarily of payroll and related benefits and are included in the
historical financial statements of the SCG-Homestead Village Group.
(d) Reflects the additional costs of operating as a public company for the
year ended December 31, 1995 including additional salaries and benefits,
($175) and legal, accounting and other professional fees ($150).
(e) Depreciation is computed utilizing the straight-line method over the
estimated useful lives of 20 to 40 years for buildings and improvements
and 2 to 7 years for equipment. This treatment is consistent with the
historical financial statements and, therefore, no pro forma adjustment is
necessary. Trademark and other intangible assets are being amortized over
a period of 20 years. Amortization totaled $1,023 for the year ended
December 31, 1995. Upon release of the escrowed shares to SCG additional
trademark and other intangibles of $28,167 would be recorded and annual
amortization would increase by $1,408. Net loss for the year ended
December 31, 1995, as adjusted for the increase in amortization, would be
$(5,216) or $(.16) per Common Share.
(f) Reflects the adjustment to reduce interest expense as a result of the
conversion of $9,942 of convertible mortgage notes, bearing interest at 9%
and $30,110 of intercompany debt bearing interest at rates between 8% and
8.25% to contributed capital.
(g) Prior to the proposed transaction, the PTR-Homestead Village Group and the
Atlantic-Homestead Village Group were taxed as qualified real estate
investment trust subsidiaries under the Internal Revenue Code of 1986, as
amended. The SCG-Homestead Village Group was a subsidiary of a Subchapter
C corporation, which has experienced operating losses since its inception.
Therefore, as described further in the historical combined financial
statements of the PTR-Homestead Village Group, the Atlantic-Homestead
Village Group, and the SCG-Homestead Village Group which appear elsewhere
in this registration statement, no provision was required for federal or
state income taxes.
Homestead will be taxed as a Subchapter C corporation and, as such, will be
subject to federal and any applicable state income taxes. However, no
proforma income tax adjustment is required for the year ended December 31,
1995.
(h) Reflects the assumed number of weighted average shares of Homestead Common
Stock outstanding during the twelve months ended December 31, 1995 based
upon the assumed issuance of 17,750 total shares of Homestead Common
Stock, including the shares in escrow, at the beginning of the period.
Additionally, reflects the assumed conversion of the 9% convertible mortgage
notes into 5,856 shares of Homestead Common Stock at the conversion price of
$11.50 per share is less than the assumed value of the Homestead Common
Stock. Similarly, the 10,000 Homestead Warrants, which are exercisable at
$10 per share were considered common stock equivalents since the strike
price is less than the assumed value of the Homestead Common Stock.
(i) Reflects the amortization of deferred financing costs described in note
(j) to the Homestead Proforma Condensed Consolidated Balance Sheet.
(j) Reflects the amortization of deferred costs related to the consideration
provided by SCG as described in note (j) to the Homestead Proforma
Condensed Consolidated Balance Sheet.
F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Owners of
The PTR-Homestead Village Group:
We have audited the accompanying combined balance sheets of the PTR-
Homestead Village Group (as described in Note 1) as of December 31, 1994 and
1995 and the related combined statements of operations, owners' equity and
cash flows for each of the years in the three-year period ended December 31,
1995. In connection with our audits, we also have audited the accompanying
Schedule III, Real Estate and Accumulated Depreciation. These combined
financial statements and combined financial statement schedule are the
responsibility of the PTR-Homestead Village Group's management. Our
responsibility is to express an opinion on these combined financial statements
and combined financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the PTR-Homestead
Village Group as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also in our opinion, the related combined financial statement
schedule, when considered in relation to the basic combined financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG Peat Marwick LLP
Chicago, Illinois
May 1, 1996
F-11
<PAGE>
THE PTR-HOMESTEAD VILLAGE GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------- -----------
1994 1995 1996
------- -------- -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 928 $ 1,896 $ 1,509
Accounts receivable.............................. 111 436 868
Other current assets............................. 145 353 172
------- -------- --------
Total current assets........................... 1,184 2,685 2,549
Property and equipment, net........................ 59,099 105,002 135,936
Other assets....................................... 583 1,278 2,605
------- -------- --------
Total assets....................................... $60,866 $108,965 $141,090
======= ======== ========
<CAPTION>
LIABILITIES AND OWNERS' EQUITY
------------------------------
<S> <C> <C> <C>
Current liabilities:
Development costs payable........................ $ 2,564 $ 3,389 $ 1,739
Accrued real estate taxes........................ 272 1,056 1,335
Accounts payable................................. 349 578 448
Other accrued expenses........................... 482 827 807
Accrued interest payable......................... -- -- 2,917
------- -------- --------
Total current liabilities...................... 3,667 5,850 7,246
Intercompany debt.................................. 45,131 80,144 30,110
Convertible mortgage notes payable................. -- -- 77,289
------- -------- --------
Total liabilities.............................. 48,798 85,994 114,645
------- -------- --------
Commitments and contingencies
Owners' equity:
Contributed capital.............................. 10,674 18,726 19,725
Retained earnings................................ 1,394 4,245 6,720
------- -------- --------
Total owners' equity........................... 12,068 22,971 26,445
------- -------- --------
Total liabilities and owners' equity............... $60,866 $108,965 $141,090
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-12
<PAGE>
THE PTR-HOMESTEAD VILLAGE GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER ENDED
31, JUNE 30,
--------------------- --------------
1993 1994 1995 1995 1996
------ ------ ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Room revenue............................ $2,554 $7,827 $18,337 $7,699 $15,133
Other revenue........................... 59 165 366 172 210
------ ------ ------- ------ -------
Total revenue......................... 2,613 7,992 18,703 7,871 15,343
------ ------ ------- ------ -------
COSTS AND EXPENSES:
Property operating expenses............. 1,157 3,146 7,600 2,529 6,420
Property management fees paid to
affiliates............................. 145 460 1,018 426 1,048
Corporate operating expenses............ 304 826 944 333 397
REIT management fees paid to affiliates. 109 332 989 527 822
Depreciation............................ 234 845 2,343 845 1,841
Interest expense........................ 255 1,409 2,958 1,291 2,340
------ ------ ------- ------ -------
Total costs and expenses.............. 2,204 7,018 15,852 5,951 12,868
------ ------ ------- ------ -------
NET INCOME................................ $ 409 $ 974 $ 2,851 $1,920 $ 2,475
====== ====== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-13
<PAGE>
THE PTR-HOMESTEAD VILLAGE GROUP
COMBINED STATEMENTS OF OWNERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
CONTRIBUTED RETAINED OWNERS'
CAPITAL EARNINGS EQUITY
----------- -------- -------
<S> <C> <C> <C>
Balance at December 31, 1992...................... $ 1,576 $ 11 $ 1,587
Contributed capital............................. 1,107 -- 1,107
Net income...................................... -- 409 409
------- ------ -------
Balance at December 31, 1993...................... 2,683 420 3,103
Contributed capital............................. 7,991 -- 7,991
Net income...................................... -- 974 974
------- ------ -------
Balance at December 31, 1994...................... 10,674 1,394 12,068
Contributed capital............................. 8,052 -- 8,052
Net income...................................... -- 2,851 2,851
------- ------ -------
Balance at December 31, 1995...................... 18,726 4,245 22,971
Contributed capital (unaudited)................. 999 -- 999
Net income (unaudited).......................... -- 2,475 2,475
------- ------ -------
Balance at June 30, 1996 (unaudited).............. $19,725 $6,720 $26,445
======= ====== =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-14
<PAGE>
THE PTR-HOMESTEAD VILLAGE GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------- ------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income................. $ 409 $ 974 $ 2,851 $ 1,920 $ 2,475
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation............. 234 845 2,343 845 1,841
Change in:
Accounts receivable...... (31) (62) (325) (352) (432)
Accounts payable and
accrued expenses........ (17) 752 1,358 (272) 3,046
Other current assets..... 4 (128) (208) 25 181
-------- -------- -------- -------- --------
Net cash provided by
operating activities.. 599 2,381 6,019 2,166 7,111
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Other assets............... (769) (186) (695) (265) (1,327)
Investment in property and
equipment, net of
development costs payable. (14,982) (35,288) (47,421) (19,064) (34,425)
-------- -------- -------- -------- --------
Net cash used in investing
activities................ (15,751) (35,474) (48,116) (19,329) (35,752)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from intercompany
debt...................... 15,275 33,832 43,065 17,034 28,254
-------- -------- -------- -------- --------
Net cash provided by
financing activities...... 15,275 33,832 43,065 17,034 28,254
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS... 123 739 968 (129) (387)
BEGINNING BALANCE OF CASH AND
CASH EQUIVALENTS............ 66 189 928 928 1,896
-------- -------- -------- -------- --------
ENDING BALANCE OF CASH AND
CASH EQUIVALENTS............ $ 189 $ 928 $ 1,896 $ 799 $ 1,509
======== ======== ======== ======== ========
NON-CASH TRANSACTIONS:
Conversion of intercompany
debt to owners' equity.... $ 1,107 $ 7,991 $ 8,052 $ 9,798 $ 999
======== ======== ======== ======== ========
Conversion of intercompany
debt to convertible
mortgage notes payable.... $ -- $ -- $ -- $ -- $ 77,289
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-15
<PAGE>
THE PTR-HOMESTEAD VILLAGE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED AS TO INTERIM PERIODS)
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS:
The accompanying combined financial statements have been prepared by
combining the accounts of PTR Homestead Village Incorporated and its
consolidated limited partnership, PTR Homestead Village Limited Partnership,
hereinafter collectively referred to as the PTR-Homestead Village Group. PTR
Homestead Village Incorporated directly owns a 99% limited partner interest in
PTR Homestead Village Limited Partnership and through a wholly-owned
subsidiary, also owns a 1% general partner interest. PTR Homestead Village
Incorporated is a wholly-owned subsidiary of Security Capital Pacific Trust, a
real estate investment trust, ("PTR"). Each of the entities comprising the
PTR-Homestead Village Group were formed in 1995. Prior to formation, the
activities of these entities were performed within PTR. Such activities have
been carved out of PTR for purposes of inclusion in the accompanying combined
financial statements.
The accompanying historical financial statements of the PTR-Homestead
Village Group are being presented on a combined basis as PTR Homestead Village
Incorporated is expected to be subject to a merger transaction with certain
affiliated groups of entities in which Homestead Village Incorporated will own
and operate these properties subsequent to the merger transaction. (See the
Prospectus for a description of the merger transaction.) Management of PTR
believes that the combined financial statements results in a more meaningful
presentation than presenting the separate historical financial statements of
each entity.
The PTR-Homestead Village Group develops, owns and manages extended-stay
lodging facilities located primarily in the western part of the United States
designed to appeal to value-conscious guests. Rooms are generally rented on a
weekly basis to guests such as business travelers, professionals and others,
with most guests staying multiple weeks.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in bank accounts and cash invested
in money market funds.
Property and Equipment
Property and equipment is carried at cost, which is not in excess of
estimated fair market value. Costs directly related to the acquisition,
renovation or development of real estate are capitalized. Repairs and
maintenance costs are expensed as incurred.
Depreciation is computed utilizing a straight-line method over the estimated
economic lives of depreciable property. Properties are depreciated principally
over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements............ 20-40 years
Furniture, fixtures and equipment and
other................................ 2-7 years
</TABLE>
Interest
The PTR-Homestead Village Group capitalizes interest incurred during the
land development or construction period for qualifying projects. Interest
capitalized is included in the cost of properties in the accompanying combined
financial statements. Total interest capitalized amounted to $426,529,
$1,038,815 and $2,142,628 for the years ended December 31, 1993, 1994 and
1995, respectively, and $881,138 and $1,234,166 for the six months ended June
30, 1995 and 1996, respectively. Interest paid amounted to approximately
$681,500, $2,447,800 and $5,100,600 for the years ended December 31, 1993,
1994 and 1995, respectively, and $2,172,015 and $657,139 for the six months
ended June 30, 1995 and 1996, respectively.
F-16
<PAGE>
THE PTR-HOMESTEAD VILLAGE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Other Assets
Other assets consist primarily of costs incurred in connection with the
pursuit of land to be acquired for development including refundable earnest
money deposits of $175,000 and $795,000 at December 31, 1994 and 1995,
respectively and $1,075,000 at June 30, 1996. Costs incurred in connection
with the pursuit of unsuccessful acquisitions or developments are expensed at
the time the pursuit is abandoned.
Revenue Recognition
Room revenue and other income are recognized when earned, utilizing the
accrual method of accounting. A provision for possible bad debts is made when
collection of receivables is considered doubtful.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
The companies comprising the PTR-Homestead Village Group are qualified
subsidiaries of PTR, which has elected to be taxed as a real estate investment
trust ("REIT").
REITs are not required to pay federal income taxes if minimum distribution
and income, asset and shareholder tests are met. PTR has met each of those
tests for each of the years and interim periods for which combined financial
statements are presented. Accordingly, no income tax provision or benefit has
been reflected in the combined financial statements of the PTR-Homestead
Village Group for the periods presented.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable, other
assets, development costs payable, accounts payable and accrued expenses
approximates fair value as of December 31, 1994, 1995 and June 30, 1996
because of the short maturity of these instruments. Similarly, the carrying
value of the intercompany debt and convertible mortgage notes payable
approximates fair value as of those dates as the interest rates approximate
market rates for similar debt instruments.
Unaudited Interim Statements
The combined financial statements as of June 30, 1996 and for the six months
ended June 30, 1995 and 1996 are unaudited. In the opinion of management all
adjustments (consisting solely of normal recurring adjustments) necessary for
a fair presentation of such combined financial statements have been included.
The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the PTR-Homestead Village Group future results of
operations for the full year ending December 31, 1996.
F-17
<PAGE>
THE PTR-HOMESTEAD VILLAGE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment is comprised of land held for future development,
properties under construction and income producing Homestead Village extended-
stay lodging facilities, located in the following markets:
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL COST AT
-----------------------------
DECEMBER 31, JUNE 30,
--------------- -----------
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
MARKET:
Dallas, TX.................................. 38% 29% 23%
Houston, TX................................. 41 29 22
San Antonio, TX............................. 13 12 10
Austin, TX.................................. 3 9 9
Phoenix, AZ................................. 2 8 12
Denver, CO.................................. 3 6 8
Albuquerque, NM............................. -- 4 4
Bay Area, CA................................ -- 3 7
Kansas City, KA............................. -- -- 1
Seattle, WA................................. -- -- 3
Salt Lake City, UT.......................... -- -- 1
------ ------ ---
100% 100% 100%
====== ====== ===
</TABLE>
The following summarizes property and equipment (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------- -----------
1994 1995 1996
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT:
Land.................................... $ 7,044 $ 14,812 $ 19,815
Buildings and improvements.............. 29,611 52,697 73,683
Furniture, fixtures and equipment....... 4,973 10,760 13,487
------- -------- --------
Operating properties.................. 41,628 78,269 106,985
Construction in progress, excluding
land................................... 9,296 26,577 15,645
Land held for and under development..... 9,289 3,613 18,604
------- -------- --------
60,213 108,459 141,234
Less: accumulated depreciation........ (1,114) (3,457) (5,298)
------- -------- --------
Property and equipment, net............... $59,099 $105,002 $135,936
======= ======== ========
</TABLE>
The PTR-Homestead Village Group's strategy is to focus on the ownership of
extended-stay lodging facilities. Properties are periodically evaluated for
impairment by comparing the sum of the expected undiscounted future cash flows
to the carrying value of the assets and in the event the carrying value
exceeds such cash flows, provisions for possible losses, measured as the
amount by which the carrying value exceeds such cash flows, are made if
required. No such impairment losses have been recognized to date. Statement of
Financial Accounting Standards No. 121 entitled "Accounting For The Impairment
Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of" has been
adopted by the PTR-Homestead Village Group, as required by the statement
effective January 1, 1996. The adoption of the statement had no impact on the
combined financial statements at the date of adoption.
4. INTERCOMPANY DEBT AND CONTRIBUTED CAPITAL:
The combined financial statements of the PTR-Homestead Village Group reflect
intercompany debt assumed to have been borrowed from PTR to fund the
acquisition and development of the Homestead Village properties.
F-18
<PAGE>
THE PTR-HOMESTEAD VILLAGE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Acquisition and development costs were assumed to have been financed through
borrowings from PTR up through the completion date of each respective
property. Upon completion of a property, 30% of the intercompany debt
associated with the property was assumed to have been converted to contributed
capital. This assumption was made to reflect the ultimate leverage ratio (70%
convertible mortgage debt and 30% common equity) expected to exist within
Homestead after the funding commitment is fulfilled. Borrowings were assumed
to bear interest at the weighted average interest rate of PTR's line of credit
and unsecured long term debt which rates ranged from 6.3% to 9.25% for the
period from January 1, 1993 through June 30, 1996. Interest costs were either
expensed or capitalized in accordance with the PTR-Homestead Village Group's
accounting policy for capitalization of interest cost discussed above.
Approximately $77,289,000 of intercompany debt was converted to convertible
mortgage notes payable in January 1996 (Note 5).
5. CONVERTIBLE MORTGAGE NOTES PAYABLE:
On January 24, 1996, the entities comprising the PTR-Homestead Village Group
(the "Borrower") executed convertible mortgage notes payable in favor of PTR.
Approximately $77 million of these notes are outstanding at June 30, 1996 and
are secured by currently owned Homestead Village properties. Additionally,
these notes will further be secured by land to be acquired and developed. The
terms of the notes provide for interest only payments of 9% per annum with
payments beginning six months from the date of the note. The notes are due and
payable on or before October 31, 2006.
The mortgage notes are convertible, at the option of PTR, into common shares
of the Borrower at any time beginning April 1, 1997. The conversion price is
equal to 115% of the value of the common shares at the date of the note, as
determined by the Board of Directors of the Borrower.
6. REIT MANAGEMENT AND PROPERTY MANAGEMENT AGREEMENTS:
PTR has a REIT management agreement with Security Capital Pacific
Incorporated (the "REIT Manager"), a subsidiary of Security Capital Group
Incorporated ("SCG"), which is a significant shareholder of PTR. The REIT
Manager provides both strategic and day-to-day management of PTR, including
research, investment analysis, acquisition and development, asset management,
capital markets, and legal and accounting services. All officers of PTR are
employees of the REIT Manager and PTR has no employees.
The REIT management agreement requires PTR to pay a stipulated base annual
fee plus 16% of cash flow, as defined in the agreement. The PTR-Homestead
Village Group's allocable share of the REIT management fee was based on 16% of
its properties defined cash flow. Such fees, which are included in corporate
operating expenses in the accompanying statements of operations, were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------
<S> <C>
1993................. $109,032
1994................. 332,252
1995................. 989,471
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
- ----------------
<S> <C>
June 30, 1995........ $526,697
June 30, 1996........ 822,117
</TABLE>
Additionally, in 1995, the PTR-Homestead Village Group entered into property
management agreements with Homestead Realty Services Incorporated ("Homestead
Realty") to manage its operating properties. Prior to 1995, such agreements
were with SCG Realty Services Incorporated ("SCG Realty"). Both Homestead
Realty and SCG Realty are wholly-owned subsidiaries of SCG. Fees for such
services are computed as a percentage (5.0%-7.0%) of gross revenues, as
defined. Such fees, which are included in property operating expenses in the
accompanying statements of operations, were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------
<S> <C>
1993............... $ 144,942
1994............... 459,513
1995............... 1,018,223
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
- ----------------
<S> <C>
June 30, 1995....... $ 425,666
June 30, 1996....... 1,048,244
</TABLE>
F-19
<PAGE>
THE PTR-HOMESTEAD VILLAGE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONCLUDED)
Accrued expenses include $55,000 and $470,000 at December 31, 1994 and 1995,
respectively and $526,000 at June 30, 1996 payable to these affiliates for the
REIT and property management services including amounts owed for reimbursement
of out-of-pocket expenses incurred by the REIT Manager.
7. COMMITMENTS AND CONTINGENCIES:
Finder's Agreements
Pursuant to a series of agreements between PTR and an unaffiliated person
("Finder") who developed the Homestead Village concept, Finder has performed
certain services. The agreements which expire February 5, 2043, provide for
the payment of fees to Finder as follows: (i) $535,000 annually with respect
to the four properties for which Finder assisted in the location, development
and initial operations; (ii) an annual amount of $7,500 per property (subject
to certain conditions as defined in the agreements) for assistance in site
location with respect to the first 35 properties constructed (other than the
four properties referred to in (i) above); (iii) 20% of the net proceeds as
defined per the agreements, upon the sale of the four properties to an
unaffiliated third party; and (iv) 10% of the net proceeds as defined per the
agreement, upon the sale of the additional 35 properties to an unaffiliated
third party. No such sales have occurred to date. Fees paid under this
agreement and reflected in the accompanying combined statements of operations
for the years ended December 31, 1993, 1994 and 1995 aggregated approximately
$120,000, $646,000 and $611,000, respectively, and $300,000 and $320,000 for
the six months ended June 30, 1995 and 1996, respectively. Effective December
1994, the agreement to assist in the site location of any additional
properties beyond the 39 properties was terminated. Additionally, Finder has
agreed not to compete, directly or indirectly, with the Homestead Village
properties in certain states in which PTR does business through December 31,
1996.
Other
At June 30, 1996, the PTR-Homestead Village Group had unfunded development
commitments for developments under construction of approximately $24.3
million.
The PTR-Homestead Village Group is subject to environmental regulations
related to the ownership, operation, development and acquisition of real
estate. As part of its due diligence procedures, the PTR-Homestead Village
Group has conducted Phase I environmental assessments on each property prior
to acquisition. The cost of complying with environmental regulations was not
material to PTR-Homestead Village Group's results of operations for any of the
periods presented. The PTR-Homestead Village Group is not aware of any
environmental condition on any of its properties which is likely to have a
material adverse effect on its financial condition or results of operations.
F-20
<PAGE>
SCHEDULE III
THE PTR-HOMESTEAD VILLAGE GROUP
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL
COST TO GROSS AMOUNT AT WHICH
THE PTR- COSTS CARRIED AT DECEMBER 31, 1995
HOMESTEAD CAPITALIZED -----------------------------
VILLAGE SUBSE- BUILDINGS ACCUMU- CON-
GROUP: QUENT TO AND LATED DE- STRUCTION YEAR
PROPERTIES LAND ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ACQUIRED
---------- --------- ----------- ---- ------------ -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Albuquerque, New Mexico:
Osuna.................. $ 832 $ 3,039 $ 840 $ 3,031 $ 3,871 (a) (a) 1995
Austin, Texas:
Burnet Road............ 525 3,543 723 3,345 4,068 66 1995 1994
Mid Town............... 600 3,135 645 3,090 3,735 (a) (a) 1995
Pavilion (c)........... 693 120 693 120 813 (a) (a) 1995
Dallas, Texas:
Skillman............... 400 2,683 400 2,683 3,083 278 1993 1992
Stemmons Freeway....... 356 4,136 424 4,068 4,492 296 (b) (b)
Tollway................ 275 2,443 353 2,365 2,718 340 1993 1993
North Richland Hills... 470 3,020 544 2,946 3,490 300 1994 1993
Coit Road.............. 425 2,961 496 2,890 3,386 300 1994 1993
West Arlington......... 585 3,400 652 3,333 3,985 118 1995 1993
South Arlington........ 550 3,274 642 3,182 3,824 120 1995 1994
Fort Worth............. 350 2,296 372 2,274 2,646 (a) (a) 1994
Las Colinas............ 800 3,562 805 3,557 4,362 (a) (a) 1994
Denver, Colorado:
Denver Tech Center..... 876 2,622 921 2,577 3,498 (a) (a) 1994
Iliff.................. 615 2,910 624 2,901 3,525 (a) (a) 1994
Houston, Texas:
West by Northwest...... 519 2,913 568 2,864 3,432 283 1994 1993
Fuqua.................. 416 2,929 491 2,854 3,345 250 1994 1993
Westheimer............. 796 3,205 897 3,104 4,001 208 1994 1993
Park Ten............... 791 3,102 860 3,033 3,893 172 1994 1993
Stafford............... 575 3,092 665 3,002 3,667 168 1994 1993
Bammel-Westfield....... 516 2,959 595 2,880 3,475 162 1994 1993
Medical Center......... 1,530 3,765 1,669 3,626 5,295 18 1995 1994
Willowbrook............ 575 3,350 669 3,256 3,925 51 1995 1994
Phoenix, Arizona
Baseline (c)........... 808 1,692 830 1,670 2,500 (a) (a) 1995
Dunlap (c)............. 915 1,153 933 1,135 2,068 (a) (a) 1995
Scottsdale............. 883 3,376 975 3,284 4,259 37 1995 1994
San Antonio:
Fredricksburg.......... 800 3,239 892 3,147 4,039 170 1994 1993
I-10/De Zavala......... 844 3,587 983 3,448 4,431 55 1995 1994
281/Bitters............ 1,000 3,729 1,198 3,531 4,729 65 1995 1994
San Francisco (Bay Area),
California:
San Mateo.............. 1,510 142 1,510 142 1,652 (a) (a) 1995
Sunnyvale.............. 1,274 87 1,277 84 1,361 (a) (a) 1995
Austin, Texas:
Round Rock (d)......... 808 83 828 63 891 -- -- 1995
------- ------- ------- ------- -------- ------
Total.................. $22,912 $85,547 $24,974 $83,485 $108,459 $3,457
======= ======= ======= ======= ======== ======
</TABLE>
- --------
(a) As of December 31, 1995, the property was undergoing development.
(b) Phase I (132 units) was developed in 1992 and Phase II (57 units) was
developed in 1995.
F-21
<PAGE>
(c) Represents properties owned by third party developers that are subject to
presale agreements with PTR to acquire such properties. The investment as
of December 31, 1995 represents development loans made by PTR to such
developers.
(d) 53.1 acres of undeveloped land.
The following is a reconciliation of the carrying amount and related
accumulated depreciation of the PTR-Homestead Village Group's investment in
property and equipment, at cost (in thousands):
<TABLE>
<CAPTION>
PROPERTY AND EQUIPMENT
----------------------
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
Balance at January 1,........................... $ 7,007 $24,168 $ 60,213
Development expenditures including land
acquisition.................................. 17,161 36,045 48,246
------- ------- --------
Balance at December 31,......................... $24,168 $60,213 $108,459
======= ======= ========
<CAPTION>
ACCUMULATED DEPRECIATION
------------------------
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
Balance at January 1,........................... $ 35 $ 269 $ 1,114
Depreciation for the year..................... 234 845 2,343
------- ------- --------
Balance at December 31,......................... $ 269 $ 1,114 $ 3,457
======= ======= ========
</TABLE>
As of December 31, 1995 the aggregate cost and net investment cost for
federal income tax purposes of PTR-Homestead Village Group's investment in
property and equipment amounted to $107,623 and $104,972, respectively.
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Owners of
The Atlantic-Homestead Village Group:
We have audited the accompanying combined balance sheet of the Atlantic-
Homestead Village Group (as described in Note 1) as of December 31, 1995 and
the related combined statements of operations, owners' equity and cash flows
for the period from April 3, 1995 (date of formation) through December 31,
1995. In connection with our audit, we also have audited the accompanying
Schedule III, Real Estate and Accumulated Depreciation. These combined
financial statements and combined financial statement schedule are the
responsibility of the Atlantic-Homestead Village Group's management. Our
responsibility is to express an opinion on these combined financial statements
and combined financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Atlantic-
Homestead Village Group as of December 31, 1995, and the results of their
operations and their cash flows for the period from April 3, 1995 (date of
formation) through December 31, 1995, in conformity with generally accepted
accounting principles. Also in our opinion, the related combined financial
statement schedule, when considered in relation to the basic combined
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Chicago, Illinois
May 1, 1996
F-23
<PAGE>
THE ATLANTIC-HOMESTEAD VILLAGE GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 184 $ 156
------ -------
Total current assets............................... 184 156
Properties under development........................... 2,627 18,584
Other assets........................................... 1,506 2,156
------ -------
Total assets....................................... $4,317 $20,896
====== =======
<CAPTION>
LIABILITIES AND OWNERS' EQUITY
------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable..................................... $ 93 $ 281
Development costs payable............................ 15 1,165
Accrued real estate taxes............................ 3 5
Accrued expenses..................................... 44 416
------ -------
Total current liabilities.......................... 155 1,867
Intercompany debt...................................... 2,627 17,420
------ -------
Total liabilities.................................. 2,782 19,287
------ -------
Commitments and Contingencies
Owners' Equity:
Contributed capital.................................. 1,594 1,697
Retained earnings (deficit).......................... (59) (88)
------ -------
Total owners' equity............................... 1,535 1,609
------ -------
Total liabilities and owners' equity................... $4,317 $20,896
====== =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-24
<PAGE>
THE ATLANTIC-HOMESTEAD VILLAGE GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 3, 1995
(DATE OF FORMATION) SIX MONTHS
THROUGH ENDED
DECEMBER 31, 1995 JUNE 30, 1996
------------------- -------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Miscellaneous............................... $ 4 $ 9
---- ----
Total revenue............................. 4 9
---- ----
Costs and Expenses:
Corporate operating expenses................ 63 38
---- ----
Total costs and expenses.................. 63 38
---- ----
Net loss...................................... $(59) $(29)
==== ====
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-25
<PAGE>
THE ATLANTIC-HOMESTEAD VILLAGE GROUP
COMBINED STATEMENTS OF OWNERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED TOTAL
CONTRIBUTED EARNINGS OWNERS'
CAPITAL (DEFICIT) EQUITY
----------- --------- -------
<S> <C> <C> <C>
Balance at April 3, 1995 (date of formation)..... $ -- $-- $ --
Contributed capital............................ 1,594 -- 1,594
Net loss....................................... -- (59) (59)
------ ---- ------
Balance at December 31, 1995..................... $1,594 $(59) $1,535
Contributed capital (unaudited)................ 103 -- 103
Net loss (unaudited)........................... -- (29) (29)
------ ---- ------
Balance at June 30, 1996 (unaudited)............. $1,697 $(88) $1,609
====== ==== ======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-26
<PAGE>
THE ATLANTIC-HOMESTEAD VILLAGE GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 3, 1995 SIX MONTHS
(DATE OF FORMATION) ENDED
THROUGH JUNE 30,
DECEMBER 31, 1995 1996
------------------- -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss..................................... $ (59) $ (29)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Change in accounts payable and accrued
expenses.................................. 140 562
------- --------
Net cash provided by operating
activities.............................. 81 533
------- --------
Cash flows from investing activities:
Other assets................................. (1,506) (650)
Investment in properties, net of development
costs payable............................... (2,612) (14,807)
------- --------
Net cash used in investing activities.... (4,118) (15,457)
------- --------
Cash flows from financing activities:
Proceeds from intercompany debt.............. 2,627 14,793
Capital contributions........................ 1,594 103
------- --------
Net cash provided by financing
activities.............................. 4,221 14,896
------- --------
Net increase (decrease) in cash and cash
equivalents................................... 184 (28)
Beginning balance of cash and cash equivalents. -- 184
------- --------
Ending balance of cash and cash equivalents.... $ 184 $ 156
======= ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-27
<PAGE>
THE ATLANTIC-HOMESTEAD VILLAGE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED AS TO INTERIM PERIOD)
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS:
The accompanying combined financial statements have been prepared by
combining the accounts of Alabama Homestead Incorporated, Atlantic Homestead
Village Incorporated and its consolidated limited partnership, Atlantic
Homestead Village Limited Partnership, hereinafter collectively referred to as
the Atlantic-Homestead Village Group. Through various wholly-owned
subsidiaries, Atlantic Homestead Village Incorporated owns a 99% limited
partner and a 1% general partner interest in Atlantic Homestead Village
Limited Partnership. Alabama Homestead Incorporated and Atlantic Homestead
Village Incorporated are wholly-owned subsidiaries of Security Capital
Atlantic Incorporated, a real estate investment trust ("ATLANTIC"). The
entities comprising the Atlantic-Homestead Village Group were formed
commencing April 3, 1995.
The accompanying historical financial statements of the Atlantic-Homestead
Village Group are being presented on a combined basis as Alabama Homestead
Incorporated and Atlantic Homestead Village Incorporated are expected to be
subject to a merger transaction with certain affiliated groups of entities in
which Homestead Village Incorporated will own and operate the properties
subsequent to the merger transaction (See the Prospectus for a description of
the merger transaction). Management of ATLANTIC believes that the combined
financial statements result in a more meaningful presentation than presenting
the separate historical financial statements of each entity.
The Atlantic-Homestead Village Group develops, owns and manages extended-
stay lodging facilities located in the southeastern region of the United
States designed to appeal to value-conscious guests. Rooms are generally
rented on a weekly basis to guests such as business travelers, professionals
and others, with most guests staying multiple weeks.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in bank accounts and cash invested
in money market funds.
Properties Under Development
As of December 31, 1995 and June 30, 1996, the Atlantic-Homestead Village
Group had three properties and 11 properties under development, respectively.
Costs directly related to the acquisition, development or improvement of real
estate are capitalized. Property under development is carried at cost, which
is not in excess of estimated fair market value.
Interest
The Atlantic-Homestead Village Group capitalizes interest incurred during
the land development or construction period for qualifying projects. Interest
capitalized is included in the cost of properties in the accompanying combined
financial statements. All interest incurred was capitalized and amounted to
$35,528 for the period ended December 31, 1995 and $365,696 for the six months
ended June 30, 1996. No interest was paid through June 30, 1996. All interest
was added to the intercompany debt balance as incurred.
Other Assets
Other assets consist primarily of costs incurred in connection with the
pursuit of land to be acquired for development including refundable earnest
money deposits of $950,000 and $1,319,000 at December 31, 1995 and June 30,
1996, respectively. Costs incurred in connection with the pursuit of
unsuccessful acquisitions or developments are expensed at the time the pursuit
is abandoned.
F-28
<PAGE>
THE ATLANTIC-HOMESTEAD VILLAGE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO INTERIM PERIOD)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
The companies comprising the Atlantic-Homestead Village Group are qualified
subsidiaries of ATLANTIC, a corporation which has elected to be taxed as a
real estate investment trust ("REIT").
REITs are not required to pay federal income taxes if minimum distribution
and income, asset and shareholder tests are met. ATLANTIC has met each of
those tests for each of the periods for which combined financial statements
are presented. Accordingly, no income tax provision or benefit has been
reflected in the combined financial statements of the Atlantic-Homestead
Village Group for the periods presented.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, development costs payable and accrued expenses approximates
fair value as of December 31, 1995 and June 30, 1996 because of the short
maturity of these instruments. Similarly, the carrying value of the
intercompany debt approximates fair value as of those dates as the weighted
average interest rates approximate market rates for similar debt instruments.
Unaudited Interim Statements
The combined financial statements as of June 30, 1996 and for the six months
ended June 30, 1996 are unaudited. In the opinion of management all
adjustments (consisting solely of normal recurring adjustments) necessary for
a fair presentation of such combined financial statements have been included.
The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the Atlantic-Homestead Village Group future results
of operations for the full year ending December 31, 1996.
3. INTERCOMPANY DEBT AND CONTRIBUTED CAPITAL:
The combined financial statements of the Atlantic-Homestead Village Group
reflect intercompany debt assumed to have been borrowed from ATLANTIC to fund
the acquisition and development of the Homestead Village properties.
Borrowings were assumed to bear interest at the weighted average interest rate
of ATLANTIC's debt, which was approximately 8.00% and 7.5% at December 31,
1995 and June 30, 1996, respectively. Interest costs were capitalized in
accordance with the Atlantic-Homestead Village Group's accounting policy for
capitalization of interest cost discussed above. All net operating costs and
expenses incurred were assumed to have been financed through capital
contributed by ATLANTIC.
4. CONVERTIBLE MORTGAGE NOTES PAYABLE:
On January 24, 1996, the Atlantic-Homestead Village Group (the "Borrower")
executed convertible mortgage notes payable in favor of ATLANTIC. These notes
are secured by the currently owned Homestead Village properties and will
further be secured by land to be acquired and developed. The terms of the
notes provide for interest only payments of 9% per annum with payments
beginning six months from the issue date of each note. The notes are due and
payable on or before October 31, 2006. There were no borrowings under these
notes during the period ended June 30, 1996.
F-29
<PAGE>
THE ATLANTIC-HOMESTEAD VILLAGE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO INTERIM PERIOD)
The mortgage notes are convertible, at the option of ATLANTIC, into common
shares of the Borrower at any time beginning April 1, 1997. The conversion
price is equal to 115% of the value of the common shares at the date of the
note, as determined by the Board of Directors of the Borrower.
5. REIT MANAGEMENT AND PROPERTY MANAGEMENT AGREEMENTS
ATLANTIC has a REIT management agreement with Security Capital (Atlantic)
Incorporated (the "REIT Manager"), a subsidiary of Security Capital Group
Incorporated ("SCG"), which is a majority shareholder of ATLANTIC. The REIT
Manager provides both strategic and day-to-day management of ATLANTIC,
including research, investment analysis, acquisition and development, asset
management, capital markets, and legal and accounting services. All officers
of ATLANTIC are employees of the REIT Manager and ATLANTIC has no employees.
The REIT management agreement requires ATLANTIC to pay an annual fee of 16%
of cash flow, as defined in the agreement. The Atlantic-Homestead Village
Group's allocable share of the REIT management fee is based on 16% of its
properties defined cash flow. No fees were payable for the periods ended
December 31, 1995 or June 30, 1996 as no properties were operating during such
periods.
6. COMMITMENTS AND CONTINGENCIES:
At June 30, 1996, the Atlantic-Homestead Village Group had unfunded
development commitments for developments under construction of approximately
$16.4 million.
The Atlantic-Homestead Village Group is subject to environmental regulations
related to the ownership, operation, development and acquisition of real
estate. As part of its due diligence procedures, the Atlantic-Homestead
Village Group has conducted Phase I environmental assessments on each property
prior to acquisition. The cost of complying with environmental regulations was
not material to the Atlantic-Homestead Village Group's results of operations
for the periods presented. The Atlantic-Homestead Village Group is not aware
of any environmental condition on any of its properties which is likely to
have a material adverse effect on its financial condition or results of
operations.
F-30
<PAGE>
SCHEDULE III
THE ATLANTIC-HOMESTEAD VILLAGE GROUP
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
INITIAL CARRIED AT DECEMBER 31,
COST TO 1995
ATLANTIC- COSTS
HOMESTEAD CAPITALIZED --------------------------
VILLAGE SUBSE- BUILDINGS ACCUMU- CON-
GROUP: QUENT TO AND LATED DE- STRUCTION YEAR
PROPERTIES LAND ACQUISITION LAND TOTALS IMPROVEMENTS PRECIATION YEAR ACQUIRED
---------- --------- ----------- ------ ------ ------------ ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Atlanta, Georgia:
Peachtree Corners...... 889 310 889 310 1,199 -- (a) 1995
Raleigh, North Carolina:
Research Triangle Park. 805 38 805 38 843 -- (b) 1995
Tampa/St. Petersburg,
Florida:
North Airport.......... 511 74 511 74 585 -- (b) 1995
------ ---- ------ ---- ------ ----
Total.................. $2,205 $422 $2,205 $422 $2,627 $ 0
====== ==== ====== ==== ====== ====
</TABLE>
(a) As of December 31, 1995, the property was undergoing development.
(b) As of December 31, 1995, the property was undergoing planning.
As of December 31, 1995 the aggregate cost and net investment cost for
federal income tax purposes of Atlantic-Homestead Village Group's investment
in property under development approximates its book value.
F-31
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholder of
The SCG-Homestead Village Group:
We have audited the accompanying combined balance sheets of the SCG-
Homestead Village Group (as described in Note 1) as of December 31, 1994 and
1995 and the related combined statements of operations, shareholder's equity
(deficit) and cash flows for each of the years in the three-year period ended
December 31, 1995. These combined financial statements are the responsibility
of the SCG-Homestead Village Group's management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the SCG-Homestead
Village Group as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
May 1, 1996
F-32
<PAGE>
THE SCG-HOMESTEAD VILLAGE GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------- -----------
1994 1995 1996
------- ------- -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash........................................... $ -- $ -- $ 12
REIT and property management fees receivable... 55 470 526
Other current assets........................... -- 67 13
------- ------- --------
Total current assets......................... 55 537 551
Furniture and equipment, net................... 47 228 531
Other assets................................... -- 14 323
------- ------- --------
Total assets................................. $ 102 $ 779 $ 1,405
======= ======= ========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
----------------------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable............................... $ 13 $ 92 $ 39
Accrued expenses............................... 238 807 868
Intercompany debt.............................. -- 1,147 2,756
------- ------- --------
Total current liabilities.................... 251 2,046 3,663
------- ------- --------
Commitments and contingencies
Shareholder's equity (deficit):
Contributed capital............................ 2,371 6,408 9,917
Retained earnings (deficit).................... (2,520) (7,675) (12,175)
------- ------- --------
Total shareholder's equity (deficit)......... (149) (1,267) (2,258)
------- ------- --------
Total liabilities and shareholder's equity
(deficit)....................................... $ 102 $ 779 $ 1,405
======= ======= ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-33
<PAGE>
THE SCG-HOMESTEAD VILLAGE GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
----------------------- ----------------
1993 1994 1995 1995 1996
----- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
REIT and property management fees. $ 254 $ 792 $ 2,007 $ 952 $ 1,871
Other revenue..................... -- -- 14 5 --
----- ------- ------- ------- -------
Total revenue................... 254 792 2,021 957 1,871
----- ------- ------- ------- -------
Costs and Expenses:
Payroll and related expenses...... 707 1,713 4,276 1,568 4,064
Office expenses................... 22 67 273 82 308
Travel and entertainment.......... 14 60 232 69 156
Recruiting and relocation......... 53 85 822 262 304
Other expenses.................... 57 187 601 130 654
Allocation of SCG overhead........ 69 342 972 253 885
----- ------- ------- ------- -------
Total costs and expenses........ 922 2,454 7,176 2,364 6,371
----- ------- ------- ------- -------
Net loss............................ $(668) $(1,662) $(5,155) $(1,407) $(4,500)
===== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-34
<PAGE>
THE SCG-HOMESTEAD VILLAGE GROUP
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
RETAINED SHAREHOLDER'S
CONTRIBUTED EARNINGS EQUITY
CAPITAL (DEFICIT) (DEFICIT)
----------- --------- -------------
<S> <C> <C> <C>
Balance at December 31, 1992................ $ 206 $ (190) $ 16
Contributed capital....................... 565 -- 565
Net loss.................................. -- (668) (668)
------ -------- -------
Balance at December 31, 1993................ 771 (858) (87)
Contributed capital....................... 1,600 -- 1,600
Net loss.................................. -- (1,662) (1,662)
------ -------- -------
Balance at December 31, 1994................ 2,371 (2,520) (149)
Contributed capital....................... 4,037 -- 4,037
Net loss.................................. -- (5,155) (5,155)
------ -------- -------
Balance at December 31, 1995................ 6,408 (7,675) (1,267)
Contributed capital (unaudited)........... 3,509 -- 3,509
Net loss (unaudited)...................... -- (4,500) (4,500)
------ -------- -------
Balance at June 30, 1996 (unaudited)........ $9,917 $(12,175) $(2,258)
====== ======== =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-35
<PAGE>
THE SCG-HOMESTEAD VILLAGE GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER SIX MONTHS
31, ENDED JUNE 30,
----------------------- ----------------
1993 1994 1995 1995 1996
----- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.......................... $(668) $(1,662) $(5,155) $(1,407) $(4,500)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization... -- 8 39 6 16
Change in:
REIT and property management
fees receivable................ 6 (45) (416) (54) (56)
Accounts payable and accrued
expenses....................... 97 154 648 217 8
Other current assets............ -- -- (67) (18) 54
----- ------- ------- ------- -------
Net cash used by operating
activities................... (565) (1,545) (4,951) (1,256) (4,478)
----- ------- ------- ------- -------
Cash flows from investing
activities:
Other assets...................... -- -- (14) (2) (309)
Investment in furniture and
equipment........................ -- (55) (220) (56) (319)
----- ------- ------- ------- -------
Net cash used in investing
activities................... -- (55) (234) (58) (628)
----- ------- ------- ------- -------
Cash flows from financing
activities:
Intercompany debt................. -- -- 1,148 122 1,609
Capital contributions............. 565 1,600 4,037 1,192 3,509
----- ------- ------- ------- -------
Net cash provided by financing
activities................... 565 1,600 5,185 1,314 5,118
----- ------- ------- ------- -------
Net increase in cash................ -- -- -- -- 12
Cash at beginning of period......... -- -- -- -- --
----- ------- ------- ------- -------
Cash at end of period............... $ -- $ -- $ -- $ -- $ 12
===== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-36
<PAGE>
THE SCG-HOMESTEAD VILLAGE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED AS TO INTERIM PERIODS)
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS:
The accompanying combined financial statements have been prepared by
combining the accounts of Homestead Village Managers Incorporated and
Homestead Realty Services Incorporated, each incorporated in June 1995 and
SCG-Homestead Village Incorporated, incorporated in February, 1996. These
entities are wholly-owned subsidiaries of Security Capital Group Incorporated
("SCG") and are hereinafter collectively referred to as the SCG-Homestead
Village Group. Prior to incorporation, the activities of these entities were
performed within other subsidiaries of SCG. Such activities have been carved
out of those subsidiaries for purposes of inclusion in the accompanying
combined financial statements.
The accompanying historical financial statements of the SCG-Homestead
Village Group are presented on a combined basis as these entities are expected
to be subject to a merger transaction with certain affiliated groups of
entities in which Homestead Village Incorporated will operate and manage
properties subsequent to the merger transaction. (See the Prospectus for a
description of the merger transaction.) Management of SCG believes that the
combined financial statements result in a more meaningful presentation than
presenting the separate historical financial statements of each subsidiary.
The SCG-Homestead Village Group provides fee-based strategic and day-to-day
advisory services to affiliated real estate investment trusts (REITs) which
develop, own and operate extended-stay lodging facilities ("Homestead Village
Properties") designed to appeal to value-conscious guests. The services
provided include research, investment analysis, acquisition and development,
asset management, capital markets, property management and legal and
accounting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in bank accounts and cash invested
in money market funds.
Furniture and Equipment
Furniture and equipment is carried at cost, which is not in excess of
estimated fair market value. Depreciation is computed utilizing a straight-
line method over the estimated economic lives of depreciable property,
generally five to seven years.
The following summarizes furniture and equipment as of December 31, 1994,
1995 and June 30, 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------- -----------
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and equipment............................. $ 54 $ 274 $593
Less: accumulated depreciation.................... (7) (46) (62)
----- ------ ----
Furniture and equipment, net........................ $ 47 $ 228 $531
===== ====== ====
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-37
<PAGE>
THE SCG-HOMESTEAD VILLAGE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO INTERIM PERIODS)
Income Taxes
None of the entities within the SCG-Homestead Village Group have generated
taxable income since incorporation. The total net operating loss carryforward
of these entities is approximately $378,000 and $1,359,000 as of December 31,
1995 and June 30, 1996, respectively, and expire in varying amounts through
2016. The deferred tax asset resulting from these net operating loss
carryforwards has been fully reserved due to its uncertain realizability.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximates their fair value as of
December 31, 1994, 1995 and June 30, 1996 because of the short maturity of
these instruments. Similarly, the carrying value of the intercompany debt
approximates fair value as of those dates as the interest rates approximate
market rates for similar debt instruments.
Unaudited Interim Statements
The combined financial statements as of June 30, 1996 and for the six months
ended June 30, 1995 and 1996 are unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of such combined financial
statements have been included. The results of operations for the six months
ended June 30, 1996 are not necessarily indicative of the SCG-Homestead
Village Group's future results of operations for the full year ending December
31, 1996.
3. INTERCOMPANY DEBT AND CONTRIBUTED CAPITAL:
The operating expenses incurred by the SCG-Homestead Village Group were
assumed to have been financed through capital contributed by SCG through 1994.
Commencing in 1995, such costs were financed in part through unsecured
borrowings from SCG which are due on demand. The advances include interest at
prime plus 1/4%, (8.75% and 8.5% at December 31, 1995 and June 30, 1996,
respectively). No interest was paid, all interest was added to the
intercompany debt balance as incurred. Interest expense was $69,843 and
$106,984 for the year ended December 31, 1995 and the six months ended June
30, 1996, respectively, and is included in the "Other expense" caption in the
combined statements of operations.
4. REIT MANAGEMENT AND PROPERTY MANAGEMENT FEES
SCG, the parent of the entities comprising the SCG-Homestead Village Group
has entered into agreements with affiliated real estate investment trusts,
Security Capital Pacific Trust ("PTR") and Security Capital Atlantic,
Incorporated ("ATLANTIC") to provide REIT management services. The services
with respect to the Homestead Village Properties are provided by the employees
of the SCG-Homestead Village Group and, therefore, the fees earned from
providing such services have been included in the accompanying combined
financial statements.
The REIT management fees are generally based on 16% of cash flow, as defined
in the agreements. The fees earned by the SCG-Homestead Village Group which
were based on the cash flow (as defined) of the Homestead Village Properties
operated by PTR (no ATLANTIC properties were operational as of June 30, 1996)
were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
<S> <C>
June 30, 1995....... $526,697
June 30, 1996....... $822,117
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1993................ $109,032
1994................ $332,252
1995................ $989,471
</TABLE>
F-38
<PAGE>
THE SCG-HOMESTEAD VILLAGE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO INTERIM PERIODS)
Additionally, in 1995 Homestead Realty Services Incorporated ("Homestead
Realty") entered into property management agreements with PTR's Homestead
Village subsidiaries to manage their operating properties. Prior to 1995 such
agreements were with SCG Realty Services Incorporated ("SCG Realty"), a
subsidiary of SCG and a predecessor of Homestead Realty. Fees for such
services are computed as a percentage (5.0%-7.0%) of gross revenues, as
defined. Property management fees earned for each period were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
<S> <C>
June 30, 1995..... $ 425,666
June 30, 1996..... $1,048,244
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1993.............. $ 144,942
1994.............. $ 459,513
1995.............. $1,018,223
</TABLE>
5. TRANSACTIONS WITH SCG
SCG serves as cash manager for the entities in the SCG-Homestead Village
Group. In this capacity SCG collects all cash attributable to the SCG-
Homestead Village Group business activities and makes all cash disbursements
on behalf of the SCG-Homestead Village Group. Additionally, the SCG-Homestead
Village Group is allocated overhead expenses and certain other costs from SCG
related to occupancy and other services provided to the SCG-Homestead Village
Group by SCG. In the opinion of management, the allocation of costs and
expenses have been made on a basis which is believed to be reasonable however,
the allocation is not necessarily indicative of the costs and expenses the
SCG-Homestead Village Group may have incurred on its own account.
F-39
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Homestead Village Incorporated
We have audited the accompanying balance sheet of Homestead Village
Incorporated as of June 30, 1996. This balance sheet is the responsibility of
the company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Homestead Village Incorporated as
of June 30, 1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
August 22, 1996
F-40
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
BALANCE SHEET
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS
Cash.................................................................... $1,000
======
LIABILITIES AND SHAREHOLDER'S EQUITY
Commitments and contingencies
Shareholder's Equity:
Common Stock, $.01 par value, 250,000,000 shares authorized, 1,000
shares issued and outstanding........................................ $ 10
Additional paid in capital............................................ 990
------
Total shareholder's equity.......................................... 1,000
------
Total liabilities and shareholder's equity.............................. $1,000
======
</TABLE>
See accompanying notes.
F-41
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO BALANCE SHEET
JUNE 30, 1996
1. ORGANIZATION AND BASIS OF FINANCIAL PRESENTATION
Homestead Village Incorporated (formerly Homestead Village Properties
Incorporated), a Maryland corporation ("Homestead"), was formed on January 26,
1996 to develop, own and manage extended-stay lodging facilities under the
Homestead Village tradename. Homestead's extended-stay lodging rooms are
designed to appeal to value-conscious guests such as business travelers,
professionals and others on a weekly basis, with most guests staying multiple
weeks. The issuance of the initial shares was funded on April 18, 1996. There
have been no operations since the date of funding through June 30, 1996.
Homestead was formed to acquire, through a series of merger transactions,
all of the extended-stay lodging assets operating or to be operated under the
Homestead Village tradename. The net assets related to the Homestead Village
properties are to be acquired through the merger of various wholly-owned
subsidiaries of Security Capital Group Incorporated ("SCG"), Security Capital
Pacific Trust ("PTR") and Security Capital Atlantic Incorporated ("ATLANTIC"),
all affiliates of Homestead, in exchange for common stock of Homestead. PTR
had 28 operating Homestead Village properties, six properties under
construction and 20 in pre-development planning (as defined) as of August 1,
1996. ATLANTIC had one Homestead Village property in operation, six under
construction and 19 in pre-development planning as of August 1, 1996. SCG will
provide the trademark and development and property management expertise as
well as operating systems necessary to develop, own and operate the
properties.
Homestead was initially capitalized through the issuance of 1,000 shares of
$.01 par value common stock for $1,000 to SCG. As of June 30, 1996, Homestead
has 250,000,000 shares of common stock, $.01 par value authorized.
Income Taxes
Homestead was formed as a Subchapter C corporation and, as such, will be
subject to federal and any applicable state income taxes.
2. TRANSACTIONS WITH AFFILIATES
Homestead has entered into various agreements with affiliated companies in
order to complete the transaction discussed above and to conduct the business
of developing, owning and operating Homestead Village properties.
Merger and Distribution Agreement
On May 21, 1996, Homestead entered into a Merger and Distribution Agreement
with PTR, ATLANTIC and SCG (collectively, the "Affiliated Companies") which
provides for certain subsidiaries of the Affiliated Companies to be merged
with and into Homestead in exchange for common stock. The subsidiaries of the
Affiliated Companies develop, own and manage the Homestead Village properties.
Pursuant to the agreement, PTR will merge with and into Homestead the net
assets related to Homestead Village properties in exchange for 9,485,727
shares of Homestead common stock. ATLANTIC will contribute net assets in
exchange for 4,201,220 shares of Homestead common stock. Homestead will issue
4,062,788 shares of Homestead common stock in exchange for certain net assets
of SCG which consist primarily of the Homestead Village trademark, and
development and management expertise, as well as operating systems utilized in
the ongoing development and operations of the extended-stay lodging
facilities. Homestead will not assume any obligations related to the employees
of the SCG subsidiaries including unpaid salaries, wages, benefits and any
expense reimbursements.
F-42
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO BALANCE SHEET--(CONTINUED)
PTR and ATLANTIC will receive all of their shares of Homestead Common Stock
at the date of the transaction. SCG is to receive 1,819,750 shares of
Homestead Common Stock based on the ratio of actual funding provided by PTR
and ATLANTIC to the total expected funding to be provided at the date of the
transaction. The remaining 2,243,038 shares of Homestead Common Stock will be
issued to and held in escrow by an appointed escrow agent. The escrowed shares
will be transferred to SCG pro rata based on the completion of PTR's and
ATLANTIC's remaining funding commitments. In the event not all of the funding
commitments are provided to Homestead by PTR or Atlantic, the remaining shares
of Homestead Common Stock not transferred to SCG will be returned to Homestead
along with any dividends paid. The Escrow Agent will vote all shares of
Homestead Common Stock held in the escrow account proportionately in
accordance with the vote of all other Homestead shareholders as instructed by
Homestead. In the event that instructions are not received, the Escrow Agent
will not vote such shares.
In conjunction with the Merger and Distribution Agreement, described above,
Homestead, SCG, PTR and ATLANTIC entered into a Warrant Purchase Agreement
dated May 21, 1996 whereby SCG, PTR and ATLANTIC are to receive warrants based
on the relative fair value of the assets each is to contribute in the
transaction. A total of 10,000,000 warrants are to be issued. The Homestead
Warrants may be used to purchase Homestead Common Stock for $10 per share, may
be exercised at any time and will expire twelve months from the record date
for the distribution of the Homestead Common Stock and Homestead Warrants to
the shareholders of PTR and ATLANTIC. As consideration for the Homestead
Warrants issued, PTR and Atlantic have agreed to provide additional funding to
Homestead for the development of properties and SCG will provide financing for
the purchase of properties to be used as extended-stay facilities for the
period from the date of the Merger and Distribution Agreement through the date
of the transaction.
All shares of Homestead Common Stock and Homestead Warrants issued to PTR
and ATLANTIC in connection with the transaction will be issued directly to a
distribution agent for the benefit of the holders of PTR and ATLANTIC common
stock on the record date of the distribution. The remaining shares of
Homestead Common Stock and Homestead Warrants will be issued directly to SCG
and the escrow agent.
The costs associated with the transaction are to be paid by each party
incurring the expense, except for those costs related to filing, printing and
distributing proxy and prospectus materials will be paid 63.64%, 28.18%, and
8.18% by PTR, ATLANTIC and SCG, respectively.
In conjunction with the agreement, Homestead will assume contractual
obligations including development contracts. At June 30, 1996, the PTR
subsidiary had approximately $24.3 million and at June 30, 1996 the ATLANTIC
subsidiary had approximately $16.4 million of unfunded development commitments
for developments under construction.
3. COMMITMENTS AND CONTINGENCIES
Finder's Agreements
In conjunction with the Merger and Distribution Agreement, PTR will assign
its rights and obligations pursuant to a series of agreements with an
unaffiliated person ("Finder") who developed the Homestead Village concept,
and has performed certain services. The agreements which expire February 5,
2043, provide for the payment of fees to Finder as follows: (i) $535,000
annually with respect to the four properties for which Finder assisted in the
location, development and initial operations; (ii) an annual amount of $7,500
per property (subject to certain conditions as defined in the agreements) for
assistance in site location with respect to the first 35 properties
constructed (other than the four properties referred to in (i) above; (iii)
20% of the net proceeds as defined per the agreements, upon the sale of the
four properties noted in (i) above to an unaffiliated third party; and (iv)
10% of the net proceeds as defined per the agreement, upon the sale of the
additional 35 properties to an unaffiliated third party. No such sales have
occurred to date. Effective December 1994, the agreement to assist in the site
location of any additional properties beyond the 35 properties was terminated.
Additionally, Finder has agreed not to compete, directly or indirectly, with
the Homestead Village properties in certain states in which PTR and ATLANTIC
do business through December 31, 1996.
F-43
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO BALANCE SHEET--(CONTINUED)
Rights Agreement
On May 16, 1996 the Homestead Board of Directors declared and paid a
dividend of one purchase right as defined per the Rights Agreement for each
share of Homestead Common Stock outstanding to the holders of Homestead common
stock of record on this date. The shares of Homestead common stock issued
after May 16, 1996 and before the expiration of the purchase rights (May 16,
2006), will also be entitled to one purchase right for each share issued. Each
purchase right entitles the holder to purchase one-hundredth of a
participating preferred share of Homestead at $50, subject to adjustment as
defined in the agreement. The Board of Directors of Homestead through its
Articles of Incorporation is authorized to issue one or more series and to
determine the number of preferred shares of each series and the rights of each
series. The purchase rights will be exercisable only after a person or group
of affiliated persons acquires 20% or more of the outstanding shares of common
stock or offers to acquire 25% or more.
F-44
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Seventh of the Registrant's charter provides as follows with respect
to indemnification of its directors and officers:
"The Corporation shall have the power, to the maximum extent permitted by
Maryland law in effect from time to time, to obligate itself to indemnify
and to pay or reimburse reasonable expenses in advance of final disposition
of a proceeding to (a) any individual who is a present or former director
or officer of the Corporation or (b) any individual who, while a director
or officer of the Corporation and at the request of the Corporation, serves
or has served as a director, officer, partner or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or
any other enterprise from and against any claim or liability which such
person may incur by reason of his or her status as a present or former
director or officer of the Corporation. The Corporation shall have the
power, with the approval of its Board of Directors, to provide such
indemnification and advancement of expenses to a person who served a
predecessor of the Corporation in any of the capacities described in (a) or
(b) above and to any employee or agent of the Corporation or a predecessor
of the Corporation."
Article Eleventh of the Registrant's charter provides as follows with
respect to limitation of liability of its directors and officers:
"To the maximum extent that Maryland law in effect from time to time
permits limitation of the liability of directors and officers of a Maryland
corporation, no director or officer of the Corporation shall be liable to
the Corporation or its stockholders for money damages. Neither the
amendment nor repeal of this Article ELEVENTH, nor the adoption or
amendment of any other provision of the charter or Bylaws of the
Corporation inconsistent with this Article ELEVENTH, shall apply to or
affect in any respect the applicability of the preceding sentence with
respect to any act or failure to act which occurred prior to such
amendment, repeal or adoption."
Article XII of the Registrant's Bylaws provides as follows with respect to
indemnification of its directors and officers:
"To the maximum extent permitted by Maryland law in effect from time to
time, the Corporation, without requiring a preliminary determination of the
ultimate entitlement to indemnification, shall indemnify and shall pay or
reimburse reasonable expenses in advance of final disposition of a
proceeding to (a) any individual who is a present or former director or
officer of the Corporation and who is made a party to the proceeding by
reason of his service in that capacity or (b) any individual who, while a
director of the Corporation and at the request of the Corporation, serves
or has served another corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer,
partner or trustee of such corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity. The Corporation may,
with the approval of its Board of Directors, provide such indemnification
and advance for expenses to a person who served a predecessor of the
Corporation in any of the capacities described in (a) or (b) above and to
any employee or agent of the Corporation or a predecessor of the
Corporation."
"Neither the amendment nor repeal of this Article, nor the adoption or
amendment of any other provision of the Bylaws or charter of the
Corporation inconsistent with this Article, shall apply to or affect in any
respect the applicability of the preceding paragraph with respect to any
act or failure to act which occurred prior to such amendment, repeal or
adoption."
II-1
<PAGE>
In addition, the Registrant has entered into indemnity agreements with each
of its officers and Directors which provide for reimbursement of all expenses
and liabilities of such officer or Director, arising out of any lawsuit or
claim against such officer or Director due to the fact that he was or is
serving as an officer or Director, except for such liabilities and expenses
(a) the payment of which is judicially determined to be unlawful, (b) relating
to claims under Section 16(b) of the Securities Exchange Act of 1934, or (c)
relating to judicially determined criminal violations.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS.
(a) Refer to Index to Exhibits.
(b) Refer to Index to Financial Statements included as part of the
Prospectus.
(c) Refer to Annex II to the Prospectus.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes: (1) to file, during any period
in which offers or sales are being made, a post-effective amendment to this
registration statement: (i) to include any prospectus required by section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereto) which, individually or
in the aggregate, represent a fundamental change in the information set forth
in the registration statement; (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement; (2) that, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof; and (3) to remove from registration
by means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of any
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities being offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
The registrant undertakes that every prospectus: (1) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF SANTA FE, STATE OF NEW MEXICO ON THE 9TH DAY OF OCTOBER, 1996.
Homestead Village Incorporated
/s/ Jeffrey A. Klopf
By: _________________________________
Jeffrey A. Klopf
Senior Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David C. Dressler, Jr.* Chairman (Principal
____________________________________ Executive Officer) and
David C. Dressler, Jr. Director
/s/ Robert E. Clark* Vice President (Principal
____________________________________ Financial and Accounting
Robert E. Clark Officer)
/s/ C. Ronald Blankenship* Director
____________________________________
C. Ronald Blankenship
/s/ John P. Frazee, Jr.* Director
____________________________________
John P. Frazee, Jr.
</TABLE>
/s/ Jeffrey A. Klopf
*By: __________________________ October 9,
Jeffrey A. Klopf 1996
Attorney-in-fact
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
* 2 Merger and Distribution Agreement, dated as of May 21, 1996, by
and among Security Capital Pacific Trust, Security Capital
Atlantic Incorporated, Security Capital Group Incorporated and
Homestead Village Properties Incorporated
* 2.1 Form of Articles of Merger
* 3.1 Restated Homestead Charter
* 3.2 Amended and Restated Bylaws
* 4.1 Form of Warrant Agreement by and between Homestead Village
Properties Incorporated and The First National Bank of Boston,
as warrant agent, including form of warrant certificate
* 4.2 Rights Agreement, dated as of May 16, 1996, between Homestead
Village Properties Incorporated and The First National Bank of
Boston, as rights agent
4.3 Amended and Restated Promissory Note by PTR Homestead Village
Incorporated in favor of Security Capital Pacific Trust
4.4 Amended and Restated Promissory Note by PTR Homestead Village
Limited Partnership in favor of Security Capital Pacific Trust
4.5 Additional Corporate Promissory Note by Atlantic Homestead
Village Incorporated in favor of Security Capital Atlantic
Incorporated
4.6 Consolidated Amended and Restated Promissory Note by Atlantic
Homestead Village Incorporated in favor of Security Capital
Atlantic Incorporated
4.7 Amended and Restated Promissory Note by Atlantic Homestead
Village Limited Partnership in favor of Security Capital
Atlantic Incorporated
* 4.8 Form of common stock certificate
* 5.1 Opinion of Mayer, Brown & Platt
* 8 Opinion of Mayer, Brown & Platt
*10.1 Form of Protection of Business Agreement by and among Security
Capital Atlantic Incorporated, Security Capital Pacific Trust,
Security Capital Group Incorporated and Homestead Village
Incorporated
*10.2 Form of Investor Agreement by and between Homestead Village
Incorporated and Security Capital Group Incorporated
*10.3 Form of Funding Commitment Agreement between Homestead Village
Incorporated and Security Capital Pacific Trust
*10.4 Form of Funding Commitment Agreement between Homestead Village
Incorporated and Security Capital Atlantic Incorporated
*10.5 Form of Guaranty of Completion and Payment from Homestead
Village Incorporated to Security Capital Pacific Trust
*10.6 Warrant Purchase Agreement, dated as of May 21, 1996, among
Homestead Village Properties Incorporated, Security Capital
Atlantic Incorporated, Security Capital Pacific Trust and
Security Capital Group Incorporated
*10.7 Form of Investor and Registration Rights Agreement between
Homestead Village Incorporated and Security Capital Atlantic
Incorporated
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
*10.8 Form of Investor and Registration Rights Agreement between
Homestead Village Incorporated and Security Capital Pacific
Trust
*10.9 Form of Escrow Agreement among Homestead Village Incorporated,
Security Capital Group Incorporated, and State Street Bank and
Trust Company, as escrow agent
*10.10 Form of Guaranty of Completion and Payment from Homestead
Village Incorporated to Security Capital Atlantic Incorporated
*15 Letter regarding unaudited interim financial information.
*23.1 Consent of Mayer, Brown & Platt (included in Exhibits 5.1 and 8)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Ernst & Young, LLP, Dallas, Texas
*23.5 Consent of Goldman, Sachs & Co.
*23.6 Consent of J.P. Morgan Securities Inc.
23.7 Consent of Michael D. Cryan to be named as a director
*24 Power of Attorney
*27 Financial Data Schedule
*99.1 Security Capital Pacific Trust Form of Proxy
</TABLE>
- --------
*Previously filed.
<PAGE>
Exhibit 4.3
AMENDED AND RESTATED PROMISSORY NOTE
$142,042,725 May 28, 1996
This Amended and Restated Promissory Note (this "Note") is made and
delivered as of May 28, 1996, to Security Capital Pacific Trust a Maryland real
estate investment trust ("Lender"), by PTR Homestead Village Incorporated, a
Maryland corporation ("Borrower"), under the following circumstances:
RECITALS
A. Pursuant to that certain promissory note (the "Prior Corporate Note")
dated January 24, 1996 from Borrower to Lender, in the original principal amount
of $84,850,391 (the "Prior Corporate Loan Amount") and various deeds of trust
and mortgages (the "Prior Corporate Security Documents"), delivered by the
Borrower to Lender to secure payment of the Prior Corporate Note and the Prior
Partnership Note (as defined below), prior to the date hereof, Lender has agreed
to advance funds to fund, among other matters, acquisition and construction
costs and expenses incurred by Borrower in connection with acquiring and
developing various real properties as Homestead Village projects. (The Prior
Corporate Note, the Prior Corporate Security Documents and all other instruments
delivered by Borrower in connection therewith to secure the Prior Corporate Note
and the Prior Partnership Note are herein called the "Prior Corporate Loan
Documents.")
B. Pursuant to that certain promissory note (the "Prior Partnership Note")
dated January 24, 1996 from PTR Homestead Village Limited Partnership (the
"Partnership") to Lender, in the original principal amount of $63,314,441 (the
"Prior Partnership Loan Amount") and various deeds of trust and mortgages (the
"Prior Partnership Security Documents"), delivered by the Partnership to Lender
to secure payment of the Prior Partnership Note and the Prior Corporate Note,
prior to the date hereof, Lender has agree to advance funds to fund, among other
matters, acquisition and construction costs and expense incurred by the
Partnership in connection with acquiring and developing various real properties
as Homestead Village projects. (The Prior Partnership Note, the Prior
Partnership Security Documents and all other instruments delivered by the
Partnership in connection therewith to secure the Prior Partnership Note and the
Prior Corporate Note are herein called the "Prior Partnership Loan Documents."
The Prior Corporate Loan Documents and Prior Partnership Loan Documents are
collectively referred to herein as the "Prior Loan Documents.")
C. Borrower, the Partnership and Lender desire to continue the funding
provided under the Prior Loan Documents and in consideration of execution and
delivery by Borrower and the Partnership of certain amended and restated Prior
Loan Documents being delivered to Lender contemporaneously with this Note,
Lender is willing to provide funds to Borrower and
<PAGE>
Partnership for the costs incurred in connection with performing due diligence
investigations, securing required development approvals and otherwise completing
the acquisition and development of Homestead Village projects, to increase the
Prior Corporate Loan Amount to $142,042,725, to increase the Prior Partnership
Loan Amount to $79,290,895, and to amend and restate the Prior Loan Documents in
connection therewith. Contemporaneously herewith, the Partnership is executing
that certain Amended and Restated Note in the original principal amount of the
Partnership Loan (the "Partnership Note"). The amended and restated Prior Loan
Documents being executed and delivered contemporaneously herewith, and any and
all other agreements or instruments now or hereafter executed by Borrower, the
Partnership or any other person or entity to evidence, or in connection with, or
as security for the payment of this Note and/or the Partnership Note are herein
collectively, with such notes, referred to as the "Loan Documents".
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender agree to amend and restate the Prior Corporate
Note as follows:
1. Promise to Pay.
On or before October 31, 2006 (the "Due Date"), the undersigned Borrower,
hereby promises to pay to the order of Lender in lawful money of the United
States of America, the lesser of (i) ONE HUNDRED FORTY TWO MILLION FORTY TWO
THOUSAND SEVEN HUNDRED TWENTY FIVE DOLLARS ($142,042,725) and (ii) the aggregate
unpaid principal amount of all advances made by Lender to Borrower under this
Note (the amount so determined being herein called the "Adjusted Principal
Amount"), together with interest on the Adjusted Principal Amount at a rate
equal to 9.0% (the "Interest Rate"). Interest shall be calculated on the basis
of a 360-day year and shall be computed on the actual number of days elapsed.
2. Payments.
Accrued interest on the unpaid Adjusted Principal Amount shall be payable
in arrears every six months beginning with the date that is six months after the
date of this Note, in an amount equal to all of the interest accrued during the
immediately preceding six month period. Borrower shall make a payment of the
total Adjusted Principal Amount of advances then outstanding, together with
accrued and unpaid interest to such date, on the Due Date. Borrower shall have
no obligation to pay the Adjusted Principal Amount, or any portion thereof,
until the Due Date or such earlier date upon which the loan is accelerated.
Borrower shall make each payment hereunder not later than 11:00 a.m. (Mountain
Standard Time) on the day when due in U.S. dollars at Lender's office at 7777
Market Center Avenue, El Paso, Texas 79912. Each payment shall first be applied
to late charges, costs of collection or enforcement and other similar amounts
due, if any, under this Note, then to interest due and payable hereunder and the
remainder to the Adjusted Principal Amount due and payable hereunder. The
aggregate unpaid
2
<PAGE>
Adjusted Principal Amount shown on the records of Lender shall be rebuttable
presumptive evidence of the Adjusted Principal Amount owing and unpaid on this
Note.
3. Conversion. Subject to the terms of this Note, the holder of this Note
shall have the right, beginning on any Business Day (as defined below) on or
after March 31, 1997, (the "Exercisability Date") and on or prior to the date on
which this Note is fully paid, to convert to shares of Common Stock all or any
portion of the principal amount outstanding on this Note, on the basis of one
fully paid, registered and nonassessable share of Common Stock for each $11.50
aggregate Adjusted Principal Amount outstanding on this Note. The number of
shares of Common Stock into which this Note may be converted, as adjusted
pursuant hereto, is referred to herein as the "Exercise Rate". For purposes of
this Note, certain capitalized terms used below are defined in Section 4 of this
Note.
(a) The conversion rights under this Section 3 of this Note may be
exercised from time to time on and after the Exercisability Date and on or
prior to the Due Date by surrendering this Note at the principal office of
Borrower with the form of conversion election set forth as Exhibit A hereto
(the "Conversion Exercise") duly completed and signed by the holder of this
Note.
(b) Except as otherwise provided in Section 3(h)(vi) no payment shall
be made on Common Stock issuable upon conversion of this Note on account of
any dividend or distribution declared on Borrower's Common Stock to holders
of such Common Stock of record as of a date prior to the Exercise Date.
(c) The "Exercise Date" shall be the date when all of the items
referred to in subsection (a) of this Section 3 are received by Borrower at
or prior to 2:00 p.m., New York, New York time, on a Business Day and the
conversion of this Note will be effective as of such Exercise Date. If any
items referred to in subsection (a) are received after 2:00 p.m., New York,
New York time, on a Business Day, the conversion of this Note will be
effective on the next succeeding Business Day. Notwithstanding the
foregoing, in the case of a conversion of this Note on the Expiration Date,
if all of the items referred to in the preceding subsection are received by
Borrower at or prior to 5:00 p.m. New York, New York time, on such
Expiration Date, the conversion of this Note will be effective on the
Expiration Date.
(d) Upon the conversion of this Note in accordance with the terms
hereof Borrower shall issue and cause to be delivered with all reasonable
dispatch to or upon the written order of the holder of this Note, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of this Note, in fully registered form,
registered in such name or names as may be directed by such holder pursuant
to the Conversion Exercise, together with cash as provided in Section 3(i)
hereof and shall deliver to holder a duly executed replacement note
representing the aggregate principal amount of this Note outstanding less
any amount previously converted (in each case, without the adjustment
provided for in Section 1 of this Note), but
3
<PAGE>
otherwise in the same form as this Note; provided, however, that if any
consolidation, merger or lease or sale of assets is proposed to be effected
by Borrower as described in Section 3(h)(x) hereof, or a tender offer or an
exchange offer for shares of Common Stock of Borrower shall be made, upon
such surrender of this Note as aforesaid, Borrower shall, as soon as
possible, but in any event not later than two Business Days thereafter,
issue and cause to be delivered the full number of shares of Common Stock
issuable upon the conversion of this Note in the manner described in this
sentence together with cash as provided in Section 3(i) hereof. Such
certificate or certificates shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a
holder of record or such shares of Common Stock as of the date of the
surrender of this Note. No fractional shares shall be issued upon
conversion of this Note in accordance with Section 3(i) hereof.
(e) Borrower will pay all documentary stamp taxes attributable to the
initial issuance of this Note and the issuance of shares of Common Stock
upon conversion of this Note; provided, however, that Borrower shall not be
required to pay any tax or taxes which may be payable in respect of any
transfer involved in the issuance of this Note or any certificates for
shares of Common Stock in a name other than that of the registered holder
of this Note surrendered upon the exercise hereof, and Borrower shall not
be required to issue or deliver such Note unless or until the person or
persons requesting the issuance thereof shall have paid to Borrower the
amount of such tax or shall have established to the satisfaction of
Borrower that such tax has been paid.
(f) Borrower will at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued
shares of Common Stock, for the purpose of enabling it to satisfy any
obligation to issue shares of Common Stock upon conversion of this Note,
the maximum number of shares of Common Stock which may then be deliverable
upon the conversion of this Note. Borrower or the transfer agent for the
Common Stock (the "Transfer Agent") and every subsequent transfer agent for
any shares of Borrower's capital stock issuable upon the exercise of any of
the conversion rights aforesaid will be irrevocably authorized and directed
at all times to reserve such number of authorized shares as shall be
required for such purpose. Before taking any action which would cause an
adjustment pursuant to this Section 3 to reduce the Exercise Price below
the then par value (if any) of the shares issuable upon conversion of this
Note, Borrower will take any corporate action which may, in the opinion of
its counsel (which may be counsel employed by Borrower), be necessary in
order that Borrower may validly and legally issue fully paid and
nonassessable shares of Common Stock at the Exercise Price as so adjusted.
(g) At any such time as Common Stock is listed or quoted on any
national securities exchange or inter-dealer quotation system, Borrower
will, at its expense, obtain promptly and maintain the approval for listing
or quotation on each such exchange or inter-dealer quotation system, upon
official notice of issuance after notice of conversion of this Note, the
shares of Common Stock issuable hereunder and maintain the listing or
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<PAGE>
quotation of such shares after their issuance; and Borrower will also, upon
official notice of issuance after notice of conversion of this Note, list
or quote on such national securities exchange, will register under the
Securities Exchange Act of 1934, as amended, and will maintain such listing
or quotation of, any Other Securities (as defined below) that at any time
are issuable upon conversion of this Note, if and at the time that any
securities of the same class shall be listed or quoted on such national
securities exchange or inter-dealer quotation system by Borrower.
(h) The Exercise Rate is subject to adjustment from time to time upon
the occurrence of the events enumerated in this Section 3(h). For purposes
of this Section 3(h), "Common Stock" means the Common Stock and any other
stock of Borrower, however designated, issuable upon conversion of this
Note.
(i) Adjustment for Change in Capital Stock. If Borrower:
a. pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock;
b. subdivides its outstanding shares of Common Stock into a
greater number of shares;
c. combines its outstanding shares of Common Stock into a
smaller number of shares;
d. makes a distribution on its Common Stock in shares of
its capital stock other than Common Stock; or
e. issues by reclassification of its Common Stock any
shares of its capital stock,
then the Exercise Rate in effect immediately prior to such action
shall be proportionately adjusted so that the holder of this Note may
receive the aggregate number and kind of shares of capital stock of
Borrower which such holder would have owned immediately following such
action if this Note had been exercised immediately prior to such
action or immediately prior to the record date applicable thereto, if
any.
The adjustment shall become effective immediately after the
record date in the case of a dividend or distribution and immediately
after the effective date in the case of a subdivision, combination or
reclassification.
If, after an adjustment, a holder of this Note, upon conversion,
may receive shares of two or more classes of capital stock of
Borrower, the Exercise
5
<PAGE>
Rate of each class of capital stock shall thereafter be subject to
adjustment on terms comparable to those applicable to Common Stock in
this Section 3(h).
Such adjustment shall be made successively whenever any event
listed above shall occur.
(ii) Adjustment for Rights Issue or Sale of Common Stock Below
Current Market Value. If Borrower (i) distributes any rights,
warrants or options to all holders of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock at a price per
share less than 94% (100% if a stand-by underwriter is used and
charges Borrower a commission) of the Current Market Value at the Time
of Determination (each as defined in Section 4) or (ii) sells any
Common Stock or any securities convertible into or exchangeable or
exercisable for the Common Stock (other than pursuant to (1) the
exercise of this Note (or any other note issued by Borrower pursuant
to or in connection with that certain Merger and Distribution
Agreement dated of even date herewith among Lender Security Capital
Atlantic Incorporated ("Atlantic"), Security Capital Group
Incorporated ("SCG") and Homestead Village Properties Incorporated
("Homestead") or (2) upon exercise of outstanding warrants to acquire
shares of Common Stock, which warrants were issued pursuant to a
Warrant Agreement executed in connection with that certain Warrant
Purchase Agreement of even date herewith among Lender, Atlantic, SCG
and Homestead or (3) any security convertible into, or exchangeable or
exercisable for, the Common Stock as to which the issuance thereof has
previously been the subject of any required adjustment (whether or not
actually made) pursuant to this Section 3(h)) at a price per share
less than the Current Market Value, the Exercise Rate shall be
adjusted in accordance with the formula:
E ' = E x (O + N)
-------------------
(O + (N x P/M))
where:
E ' = the adjusted Exercise Rate;
E = the current Exercise Rate;
O = the number of shares of Common Stock outstanding on the record
date for the distribution to which this subsection (ii) is being
applied or on the date of sale of Common Stock at a price per
share less than the Current Market Value to which this
subsection (ii) applies, as the case may be;
N = the number of additional shares of Common Stock issuable upon
exercise of all rights, warrants and options so distributed or
the number of shares of Common Stock so sold or the maximum
stated number of shares of
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<PAGE>
Common Stock issuable upon the conversion, exchange or exercise
of any such convertible, exchangeable or exercisable securities,
as the case may be;
P = the offering price per share of the additional shares of Common
Stock upon the exercise of any such rights, options or warrants
so distributed or pursuant to any such convertible, exchangeable
or exercisable securities so sold or the sale price of the shares
so sold, as the case may be; and
M = the Current Market Value as of the Time of Determination or at
the time of sale, as the case may be.
The adjustment shall be made successively whenever any such
rights, warrants or options are issued and shall become effective
immediately after the record date for the determination of
stockholders entitled to receive the rights, warrants or options. If
at the end of the period during which such rights, warrants or options
are exercisable, not all rights, warrants or options shall have been
exercised, the Exercise Rate shall be immediately readjusted to what
it would have been if "N" in the above formula had been the number of
shares actually issued.
No adjustment shall be made under this subsection (ii) if the
application of the formula stated above in this subsection (ii) would
result in a value of E 'that is lower than the value of E.
(iii) Adjustment for Other Distributions. If Borrower
distributes to all holders of its Common Stock any of its assets or
debt securities or any rights, warrants or options to purchase any of
its debt securities or assets, the Exercise Rate shall be adjusted in
accordance with the formula:
E ' = E x M
---
M-F
where:
E ' = the adjusted Exercise Rate;
E = the current Exercise Rate;
M = the Current Market Value; and
F = the fair market value (on the record date for the
distribution to which this subsection (iii)
applies) of the assets, securities, rights,
warrants or options to be distributed in respect
of each share of Common Stock in the distribution
to which this subsection (iii) is
7
<PAGE>
being applied (including, in the case of cash dividends or
other cash distributions giving rise to an adjustment, all
such cash distributed concurrently).
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the
record date for the determination of stockholders entitled to receive
the distribution. If at the end of the period during which such
rights, warrants or options are exercisable, not all rights, warrants
or options shall have been exercised, the Exercise Rate shall be
immediately readjusted to what it would have been if such rights,
warrants or options which are not exercised had not been issued.
This subsection (iii) does not apply to cash dividends or cash
distributions paid out of consolidated retained earnings as shown on
the books of Borrower prepared in accordance with generally accepted
accounting principles other than any Extraordinary Cash Dividend (as
defined below). An "Extraordinary Cash Dividend" shall be that
portion, if any, of the aggregate amount of all cash dividends paid in
any fiscal year which exceeds the sum of (A) Borrower cumulative
undistributed earnings on the date of this Agreement, plus (B) the
cumulative amount of earnings, as determined by the Board of
Directors, after such date, minus (C) the cumulative amount of
dividends accrued or paid in respect of the Common Stock. In all
cases, Borrower shall give the holder of this Note advance notice of a
record date for any dividend payment on the Common Stock which notice
is delivered on a date at least as early as the date of notice to the
holders of Common Stock.
(iv) Consideration Received. For purposes of any computation
respecting consideration received pursuant to subsection (ii) of
Section 3(h), the following shall apply:
a. in the case of the issuance of shares of Common Stock
for cash, the consideration shall be the amount of such cash,
provided that in no case shall any deduction be made for any
commissions, discounts or other expenses incurred by Borrower for
any underwriting of the issue or otherwise in connection
therewith;
b. in the case of the issuance of shares of Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
market value thereof as determined in good faith by the Board of
Directors (irrespective of the accounting treatment thereof),
whose determination shall be conclusive, and described in a Board
resolution which shall be filed with the records of Borrower; and
8
<PAGE>
c. in the case of the issuance of securities convertible
into or exchangeable for shares, the aggregate consideration
received therefor shall be deemed to be the consideration
received by Borrower for the issuance of such securities plus the
additional minimum consideration, if any, to be received by
Borrower upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as
provided in clauses (1) and (2) of this subsection).
(v) When De Minimis Adjustment May Be Deferred. No adjustment
in the Exercise Rate need be made unless the adjustment would require
an increase or decrease of at least 1% in the Exercise Rate. Any
adjustments that are not made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this
Section 3(h) shall be made to the nearest 1/100th of a share.
(vi) When No Adjustment Required. No adjustment need be made
for a transaction referred to in subsections (i), (ii) or (iii) of
this Section 3(h) if the holder of this Note is offered the
opportunity to participate in the transaction on a basis and with
notice that the Board of Directors determines to be fair and
appropriate in light of the basis and notice on which holders of
Common Stock participate in the transaction. To the extent this Note
becomes convertible into cash, no adjustment need be made thereafter
as to the cash. Interest will not accrue on the cash.
(vii) Notice of Adjustment. Whenever the Exercise Rate is
adjusted, Borrower shall provide the notices required by Section 3(j)
hereof.
(viii) Voluntary Adjustment. Borrower from time to time may, as
the Board of Directors deems appropriate, increase the Exercise Rate
by any amount for any period of time if the period is at least 20 days
and if the increase is irrevocable during the period. Whenever the
Exercise Rate is increased, Borrower shall mail to the holder of this
Note a notice of the increase. Borrower shall mail the notice at
least 15 days before the date the increased Exercise Rate takes
effect. The notice shall state the increased Exercise Rate and the
period it will be in effect. An increase of the Exercise Rate
pursuant to this Section 3(h)(viii), other than an increase which
Borrower has irrevocably committed will be in effect for so long as
this Note is outstanding, does not change or adjust the Exercise Rate
otherwise in effect for purposes of subsections (i), (ii) or (iii) of
this Section 3(h).
(ix) Notice of Certain Transactions. If:
a. Borrower takes any action that would require an
adjustment in the Exercise Rate pursuant to subsections (i), (ii)
or (iii) of this Section
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<PAGE>
3(h) and if Borrower does not arrange for the holder of this Note
to participate pursuant to Section 3(h)(vi); or
b. there is a liquidation or dissolution of Borrower,
Borrower shall mail to the holder of this Note a notice stating the
proposed record date for a dividend or distribution or the proposed
effective date of a subdivision, combination, reclassification,
consolidation, merger, transfer, lease, liquidation or dissolution.
Borrower shall mail the notice at least 15 days before such date.
Failure to mail the notice or any defect in it shall not affect the
validity of the transaction.
(x) Reorganization of Borrower. If Borrower consolidates or
merges with or into, or transfers or leases all or substantially all
its assets to, any Person, upon consummation of such transaction this
Note shall automatically become exercisable for the kind and amount of
securities, cash or other assets which the holder of this Note would
have owned immediately after the consolidation, merger, transfer or
lease if the holder had exercised this Note immediately before the
effective date of the transaction. Concurrently with the consummation
of such transaction, the corporation formed by or surviving any such
consolidation or merger if other than Borrower, or the Person to which
such sale or conveyance shall have been made (any such Person, the
"Successor Guarantor"), shall enter into a supplemental Note so
providing and further providing for adjustments which shall be as
nearly equivalent as may be practical to the adjustments provided for
in this Section 3(h). The Successor Guarantor shall mail to the holder
of this Note a notice describing the supplemental Note. If the issuer
of securities deliverable upon conversion of this Note under the
supplemental Note is an Affiliate of the formed, surviving, transferee
or lessee corporation, that issuer shall join in the supplemental
Note. If this subsection (x) applies, subsections (i), (ii) or (iii)
of this Section 3(h) do not apply.
(xi) Borrower Determination Final. Any determination that
Borrower or the Board of Directors must make pursuant to subsection
(i), (ii), (iii), (iv) or (vii) of this Section 3(h) is conclusive.
(xii) When Issuance or Payment May Be Deferred. In any case in
which this Section 3(h) shall require that an adjustment in the
Exercise Rate be made effective as of a record date for a specified
event, Borrower may elect to defer until the occurrence of such event
(i) issuing to the holder of this Note exercised after such record
date the shares of Common Stock and other capital stock of Borrower,
if any, issuable upon such conversion over and above the shares of
Common Stock and other capital stock of Borrower, if any, issuable
upon such conversion on the basis of the Exercise Rate and (ii) paying
to such holder any amount in cash in lieu of a fractional share
pursuant to Section 3(i)
10
<PAGE>
hereof; provided, however, that Borrower shall deliver to such holder
a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares of Common Stock, other capital
stock and cash upon the occurrence of the event requiring such
adjustment.
(xiii) Adjustments to Par Value. Borrower shall from time to
time make such adjustments to the par value of the Common Stock as may
be necessary so that at all times, upon conversion of this Note, the
shares of Common Stock will be fully paid and nonassessable.
(xiv) Priority of Adjustments. If this Section 3(h) requires
adjustments to the Exercise Rate under more than one of subsections
(i), (ii) or (iii), and the record dates for the distributions giving
rise to such adjustments shall occur on the same date, then such
adjustments shall be made by applying, first, the provisions of
subsection (i), second, the provisions of subsection (iii) and, third,
the provisions of subsection (ii).
(xv) Multiple Adjustments. After an adjustment to the Exercise
Rate under this Section 3(h), any subsequent event requiring an
adjustment under this Section 3(h) shall cause an adjustment to the
Exercise Rate as so adjusted.
(i) Fractional Interests; Accrued Interest. Borrower shall not be
required to issue fractional shares on the conversion of this Note. If any
fraction of a share would, except for the provisions of this Section 3(i),
be issuable on the conversion of this Note, Borrower shall pay to the
holder an amount in cash equal to the product of (i) such fraction of a
share and (ii) the Current Market Value of a share of Common Stock as of
the date of conversion of this Note. Upon any conversion of all or any
portion of the Adjusted Principal Amount in accordance with the terms
hereof, Borrower shall pay to the holder in cash all accrued but unpaid
interest to the effective date of conversion with respect to the portion of
the Adjusted Principal Amount of this Note being converted.
(j) Notices to Holder. Upon any adjustment of the Exercise Rate
pursuant to Section 3(h) hereof, Borrower shall promptly thereafter (i)
cause to be prepared a certificate of a firm of independent public
accountants of recognized standing selected by Borrower (who may be the
regular auditors of Borrower) setting forth the Exercise Rate after such
adjustment and setting forth in reasonable detail the method of calculation
and the facts upon which such calculations are based and setting forth the
number of shares (or portion thereof) issuable after such adjustment in the
Exercise Rate, upon conversion of this Note, which certificate shall be
conclusive evidence of the correctness of the matters set forth therein,
and (ii) cause to be given to the holder of this Note at such holder's
address appearing on the Note register written notice of such adjustments
by first-class mail, postage prepaid. Where appropriate, such notice may
be given in advance and included as a part of the notice required to be
mailed under the other provisions of this Section 3(j).
11
<PAGE>
In the event:
(i) Borrower shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for
or purchase shares of Common Stock or of any other subscription rights
or warrants (other than rights, options or warrants issued to all
holders of its Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share not less than 94%
(100% if a stand-by underwriter is used and charges Borrower
commission) of the Current Market Value); or
(ii) Borrower shall authorize the distribution to all holders of
shares of Common Stock of evidences of its indebtedness or assets
(other than cash dividends or cash distributions payable out of
consolidated earnings or earned surplus or dividends payable in shares
of Common Stock or distributions referred to in subsection (i) of
Section 3(h) hereof); or
(iii) of any consolidation or merger to which Borrower is a party
or of the conveyance or transfer of the properties and assets of
Borrower substantially as an entirety, or of any reclassification or
change of Common Stock issuable upon conversion of this Note (other
than a change in par value, or from par value to no par value, or from
no par value to par value, or as a result of a subdivision or
combination), or a tender offer or exchange offer for shares of Common
Stock; or
(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of Borrower; or
(v) Borrower proposes to take any action (other than actions of
the character described in Section 3(h)(i) which would require an
adjustment of the Exercise Rate pursuant to Section 3(h);
then Borrower shall cause to be given to the registered holder of this Note
at its address appearing on the Note register, at least 20 days (or 15 days
in any case specified in clauses (i) or (ii) above) prior to the applicable
record date hereinafter specified, or promptly in the case of events for
which there is no record date, by first-class mail, postage prepaid, a
written notice stating (i) the date as of which the holders of record of
shares of Common Stock to be entitled to receive any such rights, options,
warrants or distribution are to be determined, or (ii) the initial
expiration date set forth in any tender offer or exchange offer for shares
of Common Stock, or (iii) the date on which any such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up is expected to become effective or consummated, and the date as
of which it is expected that holders of record of shares of Common Stock
shall be entitled to exchange such shares for securities or other property,
if any, deliverable upon such reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or
12
<PAGE>
winding up. The failure to give the notice required by this Section 3(j) or
any defect therein shall not affect the legality or validity of any
distribution, right, option, warrant, reclassification, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up, or
the vote upon any action.
Nothing contained in this Note shall be construed as conferring upon
the holder hereof the right to vote or to consent or to receive notice as
shareholders in respect of the meetings of shareholders or the election of
directors of Borrower or any other matter, or any rights whatsoever as
shareholders of Borrower.
4. Definitions. For purposes of Section 3 of this Note, the following
terms shall have the meanings indicated:
"Affiliate" means, with respect to another Person, any Person directly
or indirectly controlling or controlled by or under direct or indirect
common control with such other Person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by"
and "under common control with"), when used with respect to any Person,
means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities,
by contract or otherwise.
"Board of Directors" means the Board of Directors of Borrower.
"Business Day" shall mean any day other than a Saturday or a Sunday or
a day on which commercial banking institutions in The City of New York are
authorized by law to be closed.
"Current Market Value" per share of Common Stock or of any other
security at any date shall be the average of the daily market price, for
the twenty (20) consecutive trading days immediately preceding the day of
such determination. The market price for each such trading day shall be:
(i) the last reported sales price, regular way 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, regular way, in either case as reported on the New York
Stock Exchange ("NYSE") or, (ii) if such security is not listed or admitted
for trading on the NYSE, on the principal national securities exchange on
which such security is listed or admitted for trading or, (iii) 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 ("NASDAQ") or, (iv) 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
NASDAQ or, (v) if bid and asked prices for such security on such day shall
not have been reported through NASDAQ, the average of the bid and asked
prices on such day as furnished by any NYSE member firm regularly making a
market in such security selected for such purpose by the Chairman of the
Board or the Board of Directors or, (vi) if such bid and asked
13
<PAGE>
prices are not so furnished, then the fair market value of the security as
established by the Board of Directors acting in their good faith reasonable
judgment.
"Other Securities" means any stock (other than Common Stock) and other
securities of Borrower or any other Person (corporate or otherwise) which
the holder of this Note at any time shall be entitled to receive, or shall
have received, upon the conversion of this Note, in lieu of or in addition
to Common Stock, or which at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 3(h) hereof or otherwise.
"Person" means any individual, corporation, partnership, joint
venture, trust, estate, unincorporated organization or government or any
agency or political subdivision thereof.
"Time of Determination" means the time and date of the earlier of (i)
the determination of stockholders entitled to receive rights, warrants, or
options or a distribution, in each case, to which Sections 3(h)(ii) or
(iii) apply and (ii) the time ("Ex-Dividend Time") immediately prior to the
commencement of "ex-dividend" trading for such rights, warrants or
distribution on such national or regional exchange or market on which the
Common Stock is then listed or quoted.
5. Call Option.
Except as expressly set forth in this Section 5, Borrower is prohibited
from making any voluntary prepayment of this Note and shall not have any right
to cause the holder to convert any portion of the Adjusted Principal Amount
outstanding from time to time. From and after the fifth anniversary of the date
of this Note and on or prior to the Due Date, Borrower shall have the right (the
"Call Option") to repay the Adjusted Principal Amount then outstanding, in whole
but not in part, without premium or penalty (other than the imposition, if
applicable, of the Default Rate or "late charge" as provided herein). Borrower
may exercise the Call Option by giving the holder of this Note at any time upon
ninety (90) days' prior written notice of Borrower's intention to exercise the
Call Option, which notice shall state the date on which the Call Option is to be
consummated, the then current Adjusted Principal Amount and all accrued interest
and unpaid interest thereon, together with any other sums evidenced by this
Note, to be paid on such date. Upon the receipt of any such notice, the holder
shall have the right at any time prior to the date proposed for such repurchase
to convert any or all of the Adjusted Principal Amount of this Note in
accordance with the provisions of Section 3.
14
<PAGE>
6. Default.
In the event that any one or more of the following events occur, this Note
shall become immediately due and payable at the option of Lender:
(a) Borrower or the Partnership, as applicable, shall fail to pay when
due any sums required to be paid under this Note or any other Loan
Documents, and such failure is not cured within 10 days after receipt of
written notice from Lender.
(b) To the extent any such failure, breach or inaccuracy has a
Material Adverse Effect (as hereinafter defined), the failure by Borrower
or the Partnership to perform or observe, as and when required, any
covenant, agreement, obligation or condition required to be performed or
observed under this Note or any other Loan Documents, or the existence of
any breach or inaccuracy in any of the representations, covenants or
warranties set forth in the Loan Documents, provided, however, that (i) no
default shall exist hereunder on account of a breach of any representation,
covenant or warranty set forth in the Loan Documents (other than this Note)
until either Borrower or Partnership, as applicable, shall have failed to
cure such breach within any applicable notice and cure period therein
provided; and (ii) no default shall exist hereunder on account of a breach
of any representation, covenant or warranty set forth herein unless and
until Lender shall provide written notice of such breach to Borrower, and
Borrower shall fail to cure the same within 30 days after receipt of such
notice, provided if such breach is of such a nature that it cannot be cured
within such 30 day period, it shall not constitute a default hereunder so
long as Borrower commences its cure of such breach within such 30 day
period and thereafter diligently and continuously proceeds with the curing
of same within a reasonable period of time not to exceed 180 days.
"Material Adverse Effect" means any material and adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of Borrower and its affiliates,
subsidiaries and any parent entity, taken as a whole.
7. Default Rate; Late Charge.
Upon the maturity of any portion of this Note, whether by acceleration or
otherwise, Borrower further promises to pay interest at the rate per annum equal
to the sum of 2.0%, plus the Interest Rate, on the then outstanding past-due
amount of principal, until such amount is paid in full. In addition, a late
charge of four percent (4%) of the amount of any installment or the amount due
on the Due Date which is not paid when due shall be due and payable to the
holder of this Note to cover the extra expense involved in handling delinquent
payments. Said "late charge" shall be due and payable upon demand of the Lender.
8. Security; Governing Law.
(a) This Note evidences indebtedness incurred for the purpose of
financing the acquisition and development of real property, and payment of
this Note is secured by the
15
<PAGE>
Loan Documents. It is agreed that, at the election of the holder hereof,
the principal sum remaining unpaid hereon, together with accrued interest
thereon, shall become at once due and payable at the place of payment
aforesaid in the event that a default has occurred under any of the Loan
Documents.
(b) This Note shall be governed by, and construed in accordance with,
the laws of the State of New Mexico, United States.
9. Controlling General Provisions.
The provisions in this Section 9 shall govern and control over any
irreconcilably inconsistent provision, the Loan Documents or any other
instrument contemplated hereunder or thereunder. In no event shall the aggregate
of all interest paid or payable by Borrower to Lender ever exceed the maximum
rate of interest which may lawfully be charged to (or payable by) Borrower under
applicable law on the Adjusted Principal Amount of this Note from time to time
remaining unpaid. In this connection, it is expressly stipulated and agreed that
it is the intent of Lender and Borrower in the execution and delivery of this
Note to contract in strict compliance with any applicable usury laws. In
furtherance of the foregoing, none of the terms of the Loan Documents or any
such other instruments contemplated hereunder or thereunder shall ever be
construed to create a contract to charge or pay for interest in excess of the
maximum interest rate permitted to be contracted for, charged to, or payable by
Borrower under applicable law. Borrower and any guarantors, endorsers or other
parties now or hereafter becoming liable for payment of this Note shall never be
liable for interest in excess of the maximum interest that may be lawfully
charged under applicable law, and the provisions of this Section 9 shall govern
over all other provisions of the Loan Documents, and any other instruments
evidencing or securing the Loan, should such provisions be in apparent conflict
herewith.
Specifically and without limiting the generality of the foregoing
paragraph, it is expressly agreed that:
(a) In the event of the payment of the principal of the Adjusted
Principal Amount of this Note, prior to the due date for payment
thereof, resulting from acceleration of maturity of this Note, if the
aggregate amounts of interest accruing hereunder prior to such payment
plus the amount of any interest accruing after such maturity up to the
date of payment and plus any other amounts paid or accrued in
connection with the Loan Documents, including, if applicable, all or
any portion of the value of any Common Stock issued to Lender under
Section 3 of this Note, and any adjustment to the principal amount
outstanding hereunder from time to time pursuant to Section 1, which
by law are deemed interest under such Loan Documents and which
aggregate amounts paid or accrued (if calculated in accordance with
the provisions of this Note other than pursuant to this Section 9)
would exceed the maximum lawful rate of interest which could be
charged on the principal balance of this Note from the date hereof
16
<PAGE>
to the date of final payment thereof, then in such event the amount of
such excess shall be credited, as of the date paid, toward the payment
of principal of this Note so as to reduce the amount of the final
payments of Adjusted Principal Amount due on this Note;
(b) If under any circumstances the aggregate amounts paid under
the Loan Documents prior to and incident to the final payment hereof,
including, without limitation, if applicable, all or any portion of
the value of any Common Stock issued to Lender under Section 3 of this
Note, include amounts which by applicable law are deemed interest and
which would exceed the maximum amount of interest which could lawfully
have been charged or collected on this Note, Borrower stipulates that
such payment and collection will have been and will be deemed to have
been the result of a mathematical error on the part of both Borrower
and Lender, and Lender shall promptly refund the amount of such excess
(to the extent only of the excess of such payments above the maximum
amount which could lawfully have been collected and retained) upon the
discovery of such error by the party receiving such payment or notice
thereof from the party making such payment; and
(c) All calculations as to the rate of interest contracted for,h
charged or received under this Note or the other Loan Document which
are made for the purposes of determining whether such rate exceeds the
maximum rate of interest which may lawfully be charged shall be made,
to the extent permitted by applicable usury laws, if any, by
amortizing, prorating, allocating and spreading, in equal parts,
during the period of the full stated term of the Loan evidenced
hereby, all interest any time contracted for, charged or received from
Borrower or otherwise by Lender in connection with such indebtedness.
Notwithstanding anything contained in this Note or the other Loan Documents
to the contrary, interest under this Note shall never exceed the lesser of (1)
the highest non-usurious rate allowed by applicable law or (2) seventeen percent
(17%) per annum on a compounded basis.
10. Invalidity.
The parties hereto intend and believe that each provision of this Note
comports with all applicable laws and judicial decisions. However, if any
provision or provisions, or if any portion of any provision or provision, in
this Note is found by a court of law to be in violation of any applicable
ordinance, statute, law, administrative or judicial decision, or public policy,
and if such court should declare such portion, provision or provisions of this
Note to be illegal, invalid, void or unenforceable as written, then it is the
intent of all parties hereto (i) that such portion, provision or provisions
shall be given force to the fullest possible extent that they are legal, valid
and enforceable, (ii) that the remainder of this Note shall be construed as if
such illegal, invalid, void or unenforceable portion, provision or provisions
were not contained
17
<PAGE>
therein, and (iii) that the rights, obligations and interest of Borrower and the
holder hereof under the remainder of this Note shall continue in full force and
effect.
11. Waiver; Expenses.
(a) Borrower hereby waives presentment, demand for payment, notice of
dishonor and all other notices or demands in connection with the delivery,
acceptance, performance, default or enforcement of this Note and hereby
consents to and extensions of time, renewals, waivers or modifications that
may be granted or consented to by the holder of this Note in respect of the
time of payment or any other provision of this Note. Borrower hereby waives
and renounces for itself, its successors and assigns, all rights to the
benefits of any statute of limitations and any moratorium, reinstatement,
marshalling, forbearance, valuation, stay, extension, redemption,
appraisement, or exemption now provided, or which may hereafter be
provided, by the Constitution and laws of the United States and of any
state thereof, both as to itself and in and to all of its property, real
and personal against the enforcement and collection of the obligations
evidenced by this Note.
(b) In the event that the holder hereof shall institute any action
for the enforcement of the collection of this Note, there shall be
immediately due from Borrower in addition to the unpaid interest and
principal, all costs and expenses of such action, including but not limited
to attorneys' fees and expenses.
12. Miscellaneous.
(a) This Note and all provision hereof shall be binding upon Borrower
and its successors and assigns and shall inure to the benefit of Lender,
together with its successors and assigns, including each owner and holder
from time to time of this Note.
(b) Time is of the essence as to all dates set forth herein subject
to any applicable grace or cure period expressly provided herein or the in
the Loan Documents; provided, however, that unless otherwise stated,
whenever any payment to be made under this Note shall be stated to be due
on a day other than a business day, such payment may be made on the
immediately preceding business day. For purposes of this Note, a business
day shall be any day that is not a Saturday, Sunday or national bank
holiday.
(c) All notices, demands or requests relating to any matters set
forth herein shall be in writing and delivered as set forth, and shall be
effective in the time set forth, in the Funding Agreement.
18
<PAGE>
(d) Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS
HEREIN PROVIDED FOR.
19
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this Note as of the date set
forth above.
PTR HOMESTEAD VILLAGE INCORPORATED
By:/s/David C. Dressler, Jr.
-------------------------
Name: David C. Dressler, Jr.
Title: Managing Director
Address: 125 Lincoln Avenue
Santa Fe, New Mexico 87501
20
<PAGE>
EXHIBIT A
Form of Exercise Notice
(To Be Executed Upon Conversion of Note)
The undersigned hereby irrevocably elects to convert the entire outstanding
principal amount of the Note (currently $__________) into __________ shares of
Common Stock in accordance with the terms thereof. The undersigned requests that
a certificate for such shares be registered in the name of ________________,
whose address is _____________________ and that such shares be delivered to
________________________ whose address is __________________.
Date: __________________
_______________________________
Name: _________________________
Title: ________________________
21
<PAGE>
EXHIBIT 4.4
AMENDED AND RESTATED PROMISSORY NOTE
$79,290,895 May 28, 1996
This Amended and Restated Promissory Note (this "Note") is made and
delivered as of May 28, 1996, to Security Capital Pacific Trust, a Maryland real
estate investment trust ("Lender"), by PTR Homestead Village Limited
Partnership, a Delaware limited partnership ("Borrower"), under the following
circumstances:
RECITALS
A. Pursuant to that certain promissory note (the "Prior Partnership Note")
dated January 24, 1996 from Borrower to Lender, in the original principal amount
of $63,314,441 (the "Prior Partnership Loan Amount") and various deeds of trust
and mortgages (the "Prior Partnership Security Documents"), delivered by
Borrower to Lender to secure payment of the Prior Partnership Note and the Prior
Corporate Note (as defined below), prior to the date hereof, Lender has advanced
funds to fund, among other matters, acquisition and construction costs and
expense incurred by Borrower in connection with acquiring and developing various
real properties as Homestead Village projects. (The Prior Partnership Note, the
Prior Partnership Security Documents and all other instruments delivered in
connection therewith to secure the Prior Partnership Note and the Prior
Corporate Note are herein called the "Prior Partnership Loan Documents.")
B. Pursuant to that certain promissory note (the "Prior Corporate Note")
dated January 24, 1996 from PTR Homestead Village Incorporated (the "Corporate
Borrower") to Lender, in the original principal amount of $84,850,391 (the
"Prior Corporate Loan Amount") and various deeds of trust and mortgages (the
"Prior Corporate Security Documents"), delivered by the Corporate Borrower to
Lender to secure payment of the Prior Corporate Note and the Prior Partnership
Note, prior to the date hereof, Lender has advanced funds to fund, among other
matters, acquisition and construction costs and expenses incurred by the
Corporate Borrower in connection with acquiring and developing various real
properties as Homestead Village projects. (The Prior Corporate Note, the Prior
Corporate Security Documents and all other instruments delivered by the
Corporate Borrower in connection therewith to secure the Prior Corporate Note
and Prior Partnership Note are herein called the "Prior Corporate Loan
Documents." The Prior Corporate Loan Documents and Prior Partnership Loan
Documents are collectively referred to herein as the "Prior Loan Documents.")
C. Borrower, the Corporate Borrower and Lender desire to continue the
funding provided for under the Prior Loan Documents, and in consideration of
execution and delivery by Borrower and the Corporate Borrower of certain amended
and restated Prior Loan Documents being delivered to Lender contemporaneously
with this Note, Lender is willing to provide funds
<PAGE>
to Borrower and the Corporate Borrower for the costs incurred in connection with
performing due diligence investigations, securing required development approvals
and otherwise completing the acquisition and development of future Homestead
Village projects, to increase the Prior Corporate Loan Amount to $142,042,725
(the "Corporate Loan"), to increase the Prior Partnership Loan Amount to
$79,290,895 (the "Partnership Loan") and to amend and restate the Prior Loan
Documents in connection therewith (such loans being collectively called the
"Loans"). Contemporaneously herewith the Corporate Borrower is executing and
delivering that certain Amended and Restated Note in the principal amount of the
Corporate Loan (the "Corporate Note"). The amended and restated Prior Loan
Documents being executed and delivered contemporaneously herewith, and any and
all other agreements or instruments now or hereafter executed by Borrower, the
Corporate Borrower or any other person or entity to evidence, or in connection
with, or as security for the payment of this Note and/or the Corporate Note are
herein collectively, with such notes, referred to as the "Loan Documents."
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender agree to amend and restate the Prior
Partnership Note as follows:
1. Promise to Pay.
--------------
On or before October 31, 2006 (the "Due Date"), the undersigned Borrower,
hereby promises to pay to the order of Lender in lawful money of the United
States of America, the lesser of (i) SEVENTY NINE MILLION TWO HUNDRED NINETY
THOUSAND EIGHT HUNDRED NINETY FIVE DOLLARS ($79,290,895) and (ii) the aggregate
unpaid principal amount of all advances made by Lender to Borrower under this
Note (the amount so determined being herein called the "Adjusted Principal
Amount"), together with interest on the Adjusted Principal Amount at a rate
equal to 9.0% (the "Interest Rate"). Interest shall be calculated on the basis
of a 360-day year and shall be computed on the actual number of days elapsed.
2. Payments.
--------
Accrued interest on the unpaid Adjusted Principal Amount shall be payable
in arrears every six months beginning with the date that is six months after the
date of this Note, in an amount equal to all of the interest accrued during the
immediately preceding six month period. Borrower shall make a payment of the
total Adjusted Principal Amount then outstanding, together with accrued and
unpaid interest to such date, on the Due Date. Borrower shall have no obligation
to pay the Adjusted Principal Amount, or any portion thereof, until the Due Date
or such earlier date upon which the loan is accelerated. Borrower shall make
each payment hereunder not later than 11:00 a.m. (Mountain Standard Time) on the
day when due in U.S. dollars at Lender's office at 7777 Market Center Avenue, El
Paso, Texas 79912. Each payment shall first be applied to late charges, costs of
collection or enforcement and other similar amounts due, if any, under this
Note, then to interest due and payable hereunder and the remainder to the
Adjusted Principal Amount due and payable hereunder. The aggregate unpaid
2
<PAGE>
Adjusted Principal Amount shown on the records of Lender shall be rebuttable
presumptive evidence of the Adjusted Principal Amount owing and unpaid on this
Note.
3. Conversion. Subject to the terms of this Note, the holder of this Note
shall have the right, beginning on any Business Day (as defined below) on or
after March 31, 1997 (the "Exercisability Date") and on or prior to the date on
which this Note is fully paid, to convert to shares of Common Stock all or any
portion of the Adjusted Principal Amount outstanding on this Note, on the basis
of one fully paid, registered and nonassessable share of common stock $0.01 par
value per share (the "Common Stock"), of the Corporate Borrower, for each $11.50
aggregate Adjusted Principal Amount outstanding on this Note. The number of
shares of Common Stock into which this Note may be converted, as adjusted
pursuant hereto, is referred to herein as the "Exercise Rate". For purposes of
this Note, certain capitalized terms used below are defined in Section 4 of this
Note.
(a) The conversion rights under this Section 3 of this Note may be
exercised from time to time on and after the Exercisability Date and on or
prior to the Due Date by surrendering this Note at the principal office of
Borrower with the form of conversion election set forth as Exhibit A hereto
(the "Conversion Exercise") duly completed and signed by the holder of this
Note.
(b) Except as otherwise provided in Section 3(h)(vi) no payment shall
be made on Common Stock issuable upon conversion of this Note on account of
any dividend or distribution declared on the Corporate Borrower's Common
Stock to holders of such Common Stock of record as of a date prior to the
Exercise Date.
(c) The "Exercise Date" shall be the date when all of the items
referred to in subsection (a) of this Section 3 are received by Borrower at
or prior to 2:00 p.m., New York, New York time, on a Business Day and the
conversion of this Note will be effective as of such Exercise Date. If any
items referred to in subsection (a) are received after 2:00 p.m., New York,
New York time, on a Business Day, the conversion of this Note will be
effective on the next succeeding Business Day. Notwithstanding the
foregoing, in the case of a conversion of this Note on the Expiration Date,
if all of the items referred to in the preceding paragraph are received by
Borrower at or prior to 5:00 p.m. New York, New York time, on such
Expiration Date, the conversion of this Note will be effective on the
Expiration Date.
(d) Upon the conversion of this Note in accordance with the terms
hereof the Corporate Borrower shall issue and cause to be delivered with
all reasonable dispatch to or upon the written order of the holder of this
Note, a certificate or certificates for the number of full shares of Common
Stock issuable upon the conversion of this Note, in fully registered form,
registered in such name or names as may be directed by such holder pursuant
to the Conversion Exercise, together with cash as provided in Section 3(i)
hereof and shall deliver to holder a duly executed replacement note
representing the aggregate principal amount of this Note outstanding less
any amount previously converted
3
<PAGE>
(in each case, without the adjustment provided for in Section 1 of this
Note), but otherwise in the same form as this Note; provided, however, that
if any consolidation, merger or lease or sale of assets is proposed to be
effected by the Corporate Borrower as described in Section 3(h)(x) hereof,
or a tender offer or an exchange offer for shares of Common Stock of the
Corporate Borrower shall be made, upon such surrender of this Note as
aforesaid, the Corporate Borrower shall, as soon as possible, but in any
event not later than two Business Days thereafter, issue and cause to be
delivered the full number of shares of Common Stock issuable upon the
conversion of this Note in the manner described in this sentence together
with cash as provided in Section 3(i) hereof. Such certificate or
certificates shall be deemed to have been issued and any person so
designated to be named therein shall be deemed to have become a holder of
record or such shares of Common Stock as of the date of the surrender of
this Note. No fractional shares shall be issued upon conversion of this
Note in accordance with Section 3(i) hereof.
(e) Borrower will pay all documentary stamp taxes attributable to the
initial issuance of this Note and the issuance of shares of Common Stock
upon conversion of this Note; provided, however, that Borrower shall not be
required to pay any tax or taxes which may be payable in respect of any
transfer involved in the issuance of this Note or any certificates for
shares of Common Stock in a name other than that of the registered holder
of this Note surrendered upon the exercise hereof, and Borrower shall not
be required to issue or deliver such Note unless or until the person or
persons requesting the issuance thereof shall have paid to Borrower the
amount of such tax or shall have established to the satisfaction of
Borrower that such tax has been paid.
(f) The Corporate Borrower will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its
authorized but unissued shares of Common Stock, for the purpose of enabling
it to satisfy any obligation to issue shares of Common Stock upon
conversion of this Note, the maximum number of shares of Common Stock which
may then be deliverable upon the conversion of this Note. The Corporate
Borrower or the transfer agent for the Common Stock (the "Transfer Agent")
and every subsequent transfer agent for any shares of the Corporate
Borrower's capital stock issuable upon the exercise of any of the
conversion rights aforesaid will be irrevocably authorized and directed at
all times to reserve such number of authorized shares as shall be required
for such purpose. Before taking any action which would cause an adjustment
pursuant to this Section 3 to reduce the Exercise Price below the then par
value (if any) of the shares issuable upon conversion of this Note, the
Corporate Borrower will take any corporate action which may, in the opinion
of its counsel (which may be counsel employed by the Corporate Borrower),
be necessary in order that the Corporate Borrower may validly and legally
issue fully paid and nonassessable shares of Common Stock at the Exercise
Price as so adjusted.
(g) At any such time as Common Stock is listed or quoted on any
national securities exchange or inter-dealer quotation system, the
Corporate Borrower will, at its
4
<PAGE>
expense, obtain promptly and maintain the approval for listing or quotation
on each such exchange or inter-dealer quotation system, upon official
notice of issuance after notice of conversion of this Note, the shares of
Common Stock issuable hereunder and maintain the listing or quotation of
such shares after their issuance; and the Corporate Borrower will also,
upon official notice of issuance after notice of conversion of this Note,
list or quote on such national securities exchange, will register under the
Securities Exchange Act of 1934, as amended, and will maintain such listing
or quotation of, any Other Securities (as defined below) that at any time
are issuable upon conversion of this Note, if and at the time that any
securities of the same class shall be listed or quoted on such national
securities exchange or inter-dealer quotation system by the Corporate
Borrower.
(h) The Exercise Rate is subject to adjustment from time to time upon
the occurrence of the events enumerated in this Section 3(h). For purposes
of this Section 3(h), "Common Stock" means the Common Stock and any other
stock of the Corporate Borrower, however designated, issuable upon
conversion of this Note.
(i) Adjustment for Change in Capital Stock. If the Corporate
--------------------------------------
Borrower:
a. pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock;
b. subdivides its outstanding shares of Common Stock into a
greater number of shares;
c. combines its outstanding shares of Common Stock into a
smaller number of shares;
d. makes a distribution on its Common Stock in shares of
its capital stock other than Common Stock; or
e. issues by reclassification of its Common Stock any
shares of its capital stock,
then the Exercise Rate in effect immediately prior to such action
shall be proportionately adjusted so that the holder of this Note may
receive the aggregate number and kind of shares of capital stock of
the Corporate Borrower which such holder would have owned immediately
following such action if this Note had been exercised immediately
prior to such action or immediately prior to the record date
applicable thereto, if any.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after
the effective date in the case of a subdivision, combination or
reclassification.
5
<PAGE>
If, after an adjustment, a holder of this Note, upon conversion,
may receive shares of two or more classes of capital stock of the
Corporate Borrower, the Exercise Rate of each class of capital stock
shall thereafter be subject to adjustment on terms comparable to those
applicable to Common Stock in this Section 3(h).
Such adjustment shall be made successively whenever any event
listed above shall occur.
(ii) Adjustment for Rights Issue or Sale of Common Stock Below
Current Market Value. If the Corporate Borrower (i) distributes any
rights, warrants or options to all holders of its Common Stock
entitling them to subscribe for or purchase shares of Common Stock at
a price per share less than 94% (100% if a stand-by underwriter is
used and charges the Corporate Borrower a commission) of the Current
Market Value at the Time of Determination (each as defined in Section
4) or (ii) sells any Common Stock or any securities convertible into
or exchangeable or exercisable for the Common Stock (other than
pursuant to (1) the exercise of this Note (or any other note issued by
the Corporate Borrower or one of its subsidiaries pursuant to or in
connection with that certain Merger and Distribution Agreement dated
of even date herewith among Lender Security Capital Atlantic
Incorporated ("Atlantic"), Security Capital Group Incorporated ("SCG")
and Homestead Village Properties Incorporated ("Homestead") or (2)
upon exercise of outstanding warrants to acquire shares of Common
Stock, which warrants were issued pursuant to a Warrant Agreement
executed in connection with that certain Warrant Purchase Agreement of
even date herewith among Lender, Atlantic, SCG and Homestead or (3)
any security convertible into, or exchangeable or exercisable for, the
Common Stock as to which the issuance thereof has previously been the
subject of any required adjustment (whether or not actually made)
pursuant to this Section 3(h)) at a price per share less than the
Current Market Value, the Exercise Rate shall be adjusted in
accordance with the formula:
E '= E x (O + N)
---------------
(O + (N x P/M))
where:
E ' = the adjusted Exercise Rate;
E = the current Exercise Rate;
O = the number of shares of Common Stock outstanding on the record
date for the distribution to which this subsection (ii) is
being applied or on the date of sale of Common Stock at a price
per share less than the Current Market Value to which this
subsection (ii) applies, as the case may be;
6
<PAGE>
N = the number of additional shares of Common Stock issuable upon exercise of
all rights, warrants and options so distributed or the number of shares of
Common Stock so sold or the maximum stated number of shares of Common Stock
issuable upon the conversion, exchange or exercise of any such convertible,
exchangeable or exercisable securities, as the case may be;
P = the offering price per share of the additional shares of Common Stock upon
the exercise of any such rights, options or warrants so distributed or
pursuant to any such convertible, exchangeable or exercisable securities so
sold or the sale price of the shares so sold, as the case may be; and
M = the Current Market Value as of the Time of Determination or at the time of
sale, as the case may be.
The adjustment shall be made successively whenever any such rights,
warrants or options are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the
rights, warrants or options. If at the end of the period during which such
rights, warrants or options are exercisable, not all rights, warrants or options
shall have been exercised, the Exercise Rate shall be immediately readjusted to
what it would have been if "N" in the above formula had been the number of
shares actually issued.
No adjustment shall be made under this subsection (ii) if the application
of the formula stated above in this subsection (ii) would result in a value of
E ' that is lower than the value of E.
(iii) Adjustment for Other Distributions. If the Corporate Borrower
distributes to all holders of its Common Stock any of its assets or debt
securities or any rights, warrants or options to purchase any of its debt
securities or assets, the Exercise Rate shall be adjusted in accordance with the
formula:
<TABLE>
<CAPTION>
E ' = E x M
-
M-F
<S> <C> <C>
where:
E ' = the adjusted Exercise Rate;
E = the current Exercise Rate;
M = the Current Market Value; and
</TABLE>
7
<PAGE>
F = the fair market value (on the record date for the distribution to
which this subsection (iii) applies) of the assets, securities,
rights, warrants or options to be distributed in respect of each share
of Common Stock in the distribution to which this subsection (iii) is
being applied (including, in the case of cash dividends or other cash
distributions giving rise to an adjustment, all such cash distributed
concurrently).
The adjustment shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution. If at the
end of the period during which such rights, warrants or options are exercisable,
not all rights, warrants or options shall have been exercised, the Exercise Rate
shall be immediately readjusted to what it would have been if such rights,
warrants or options which are not exercised had not been issued.
This subsection (iii) does not apply to cash dividends or cash
distributions paid out of consolidated retained earnings as shown on the books
of the Corporate Borrower prepared in accordance with generally accepted
accounting principles other than any Extraordinary Cash Dividend (as defined
below). An "Extraordinary Cash Dividend" shall be that portion, if any, of the
aggregate amount of all cash dividends paid in any fiscal year which exceeds the
sum of (A) the Corporate Borrower's cumulative undistributed earnings on the
date of this Agreement, plus (B) the cumulative amount of earnings, as
determined by the Board of Directors, after such date, minus (C) the cumulative
amount of dividends accrued or paid in respect of the Common Stock. In all
cases, Borrower shall give the holder of this Note advance notice of a record
date for any dividend payment on the Common Stock which notice is delivered on a
date at least as early as the date of notice to the holders of Common Stock.
(iv) Consideration Received. For purposes of any computation respecting
consideration received pursuant to subsection (ii) of Section 3(h), the
following shall apply:
a. in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Corporate Borrower for any underwriting of the
issue or otherwise in connection therewith;
b. in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined
in good faith by the Board of Directors (irrespective of the
8
<PAGE>
accounting treatment thereof), whose determination shall be conclusive, and
described in a Board resolution which shall be filed with the records of
the Corporate Borrower; and
c. in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor
shall be deemed to be the consideration received by the Corporate Borrower
for the issuance of such securities plus the additional minimum
consideration, if any, to be received by the Corporate Borrower upon the
conversion or exchange thereof (the consideration in each case to be
determined in the same manner as provided in clauses (1) and (2) of this
subsection).
(v) When De Minimis Adjustment May Be Deferred. No adjustment in the
Exercise Rate need be made unless the adjustment would require an increase or
decrease of at least 1% in the Exercise Rate. Any adjustments that are not made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 3(h) shall be made to the nearest 1/100th of
a share.
(vi) When No Adjustment Required. No adjustment need be made for a
transaction referred to in subsections (i), (ii) or (iii) of this Section 3(h)
if the holder of this Note is offered the opportunity to participate in the
transaction on a basis and with notice that the Board of Directors determines to
be fair and appropriate in light of the basis and notice on which holders of
Common Stock participate in the transaction. To the extent this Note becomes
convertible into cash, no adjustment need be made thereafter as to the cash.
Interest will not accrue on the cash.
(vii) Notice of Adjustment. Whenever the Exercise Rate is adjusted, the
Corporate Borrower shall provide the notices required by Section 3(j) hereof.
(viii) Voluntary Adjustment. The Corporate Borrower from time to time may,
as the Board of Directors deems appropriate, increase the Exercise Rate by any
amount for any period of time if the period is at least 20 days and if the
increase is irrevocable during the period. Whenever the Exercise Rate is
increased, the Corporate Borrower shall mail to the holder of this Note a notice
of the increase. The Corporate Borrower shall mail the notice at least 15 days
before the date the increased Exercise Rate takes effect. The notice shall state
the increased Exercise Rate and the period it will be in effect. An increase of
the Exercise Rate pursuant to this Section 3(h)(viii), other than an increase
which the Corporate Borrower has irrevocably committed will be in effect for so
long as any this Note is outstanding, does not change or adjust the Exercise
Rate otherwise in effect for purposes of subsections (i), (ii) or (iii) of this
Section 3(h).
9
<PAGE>
(ix) Notice of Certain Transactions. If:
a. The Corporate Borrower takes any action that would require an
adjustment in the Exercise Rate pursuant to subsections (i), (i) or (iii)
of this Section 3(h) and if the Corporate Borrower does not arrange for the
holder of this Note to participate pursuant to Section 3(h)(vi); or
b. there is a liquidation or dissolution of the Corporate
Borrower,
The Corporate Borrower shall mail to the holder of this Note a notice stating
the proposed record date for a dividend or distribution or the proposed
effective date of a subdivision, combination, reclassification, consolidation,
merger, transfer, lease, liquidation or dissolution. The Corporate Borrower
shall mail the notice at least 15 days before such date. Failure to mail the
notice or any defect in it shall not affect the validity of the transaction.
(x) Reorganization of the Corporate Borrower. If the Corporate
Borrower consolidates or merges with or into, or transfers or leases all or
substantially all its assets to, any Person, upon consummation of such
transaction this Note shall automatically become exercisable for the kind and
amount of securities, cash or other assets which the holder of this Note would
have owned immediately after the consolidation, merger, transfer or lease if the
holder had exercised this Note immediately before the effective date of the
transaction. Concurrently with the consummation of such transaction, the
corporation formed by or surviving any such consolidation or merger if other
than the Corporate Borrower, or the Person to which such sale or conveyance
shall have been made (any such Person, the "Successor Guarantor"), shall enter
into a supplemental Note so providing and further providing for adjustments
which shall be as nearly equivalent as may be practical to the adjustments
provided for in this Section 3(h). The Successor Guarantor shall mail to the
holder of this Note a notice describing the supplemental Note. If the issuer of
securities deliverable upon conversion of this Note under the supplemental Note
is an Affiliate of the formed, surviving, transferee or lessee corporation, that
issuer shall join in the supplemental Note. If this subsection (x) applies,
subsections (i), (ii) or (iii) of this Section 3(h) do not apply.
(xi) Corporate Borrower Determination Final. Any determination that the
Corporate Borrower or the Board of Directors must make pursuant to subsection
(i), (ii), (iii), (iv) or (vii) of this Section 3(h) is conclusive.
(xii) When Issuance or Payment May Be Deferred. In any case in which this
Section 3(h) shall require that an adjustment in the Exercise Rate be made
effective as of a record date for a specified event, the Corporate Borrower
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<PAGE>
may elect to defer until the occurrence of such event (i) issuing to the
holder of this Note exercised after such record date the shares of Common
Stock and other capital stock of the Corporate Borrower, if any, issuable
upon such conversion over and above the shares of Common Stock and other
capital stock of the Corporate Borrower, if any, issuable upon such
conversion on the basis of the Exercise Rate and (ii) paying to such holder
any amount in cash in lieu of a fractional share pursuant to Section 3(i)
hereof; provided, however, that the Corporate Borrower shall deliver to
such holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares of Common Stock, other
capital stock and cash upon the occurrence of the event requiring such
adjustment.
(xiii) Adjustments to Par Value. The Corporate Borrower shall from
time to time make such adjustments to the par value of the Common Stock as
may be necessary so that at all times, upon conversion of this Note, the
shares of Common Stock will be fully paid and nonassessable.
(xiv) Priority of Adjustments. If this Section 3(h) requires
adjustments to the Exercise Rate under more than one of subsections (i)(4),
(ii) or (iii), and the record dates for the distributions giving rise to
such adjustments shall occur on the same date, then such adjustments shall
be made by applying, first, the provisions of subsection (i), second, the
provisions of subsection (iii) and, third, the provisions of subsection
(ii).
(xv) Multiple Adjustments. After an adjustment to the Exercise
Rate under this Section 3(h), any subsequent event requiring an adjustment
under this Section 3(h) shall cause an adjustment to the Exercise Rate as
so adjusted.
(i) Fractional Interests; Accrued Interest. The Corporate Borrower shall
not be required to issue fractional shares on the conversion of this Note. If
any fraction of a share would, except for the provisions of this Section 3(i),
be issuable on the conversion of this Note, the Corporate Borrower shall pay to
the holder an amount in cash equal to the product of (i) such fraction of a
share and (ii) the Current Market Value of a share of Common Stock as of the
date of conversion of this Note. Upon any conversion of all or any portion of
the Adjusted Principal Amount in accordance with the terms hereof, Borrower
shall pay to the holder in cash all accrued but unpaid interest to the effective
date of conversion with respect to the portion of the Adjusted Principal Amount
of this Note being converted.
(j) Notices to Holder. Upon any adjustment of the Exercise Rate pursuant
to Section 3(h) hereof, the Corporate Borrower shall promptly thereafter (i)
cause to be prepared a certificate of a firm of independent public accountants
of recognized standing selected by the Corporate Borrower (who may be the
regular auditors of the Corporate Borrower) setting forth the Exercise Rate
after such adjustment and setting forth in
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<PAGE>
reasonable detail the method of calculation and the facts upon which such
calculations are based and setting forth the number of shares (or portion
thereof) issuable after such adjustment in the Exercise Rate, upon conversion of
this Note, which certificate shall be conclusive evidence of the correctness of
the matters set forth therein, and (ii) cause to be given to the holder of this
Note at such holder's address appearing on the Note register written notice of
such adjustments by first-class mail, postage prepaid. Where appropriate, such
notice may be given in advance and included as a part of the notice required to
be mailed under the other provisions of this Section 3(j).
In the event:
(i) The Corporate Borrower shall authorize the issuance to all
holders of shares of Common Stock of rights, options or warrants to
subscribe for or purchase shares of Common Stock or of any other
subscription rights or warrants (other than rights, options or warrants
issued to all holders of its Common Stock entitling them to subscribe for
or purchase shares of Common Stock at a price per share not less than 94%
(100% if a stand-by underwriter is used and charges the Corporate Borrower
commission) of the Current Market Value); or
(ii) The Corporate Borrower shall authorize the distribution to
all holders of shares of Common Stock of evidences of its indebtedness or
assets (other than cash dividends or cash distributions payable out of
consolidated earnings or earned surplus or dividends payable in shares of
Common Stock or distributions referred to in subsection (i) of Section 3(h)
hereof); or
(iii) of any consolidation or merger to which the Corporate
Borrower is a party or of the conveyance or transfer of the properties and
assets of the Corporate Borrower substantially as an entirety, or of any
reclassification or change of Common Stock issuable upon conversion of this
Note (other than a change in par value, or from par value to no par value,
or from no par value to par value, or as a result of a subdivision or
combination), or a tender offer or exchange offer for shares of Common
Stock; or
(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporate Borrower; or
(v) The Corporate Borrower proposes to take any action (other
than actions of the character described in Section 3(h)(i) which would
require an adjustment of the Exercise Rate pursuant to Section 3(h);
then the Corporate Borrower shall cause to be given to the registered holder of
this Note at its address appearing on the Note register, at least 20 days (or 15
days in any case specified in clauses (i) or (ii) above) prior to the applicable
record date hereinafter specified, or promptly in the case of events for which
there is no record date, by first-
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<PAGE>
class mail, postage prepaid, a written notice stating (i) the date as of
which the holders of record of shares of Common Stock to be entitled to
receive any such rights, options, warrants or distribution are to be
determined, or (ii) the initial expiration date set forth in any tender
offer or exchange offer for shares of Common Stock, or (iii) the date on
which any such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up is expected to become
effective or consummated, and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to exchange
such shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up. The failure to give the notice required by this
Section 3(j) or any defect therein shall not affect the legality or
validity of any distribution, right, option, warrant, reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up, or the vote upon any action.
Nothing contained in this Note shall be construed as conferring upon
the holder hereof the right to vote or to consent or to receive notice as
shareholders in respect of the meetings of shareholders or the election of
directors of the Corporate Borrower or any other matter, or any rights
whatsoever as shareholders of the Corporate Borrower.
4. Definitions. For purposes of this Note, the following terms shall
have the meanings indicated:
"Affiliate" means, with respect to another Person, any Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such other Person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), when used with respect to
any Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"Board of Directors" means the Board of Directors of the Corporate
Borrower.
"Business Day" shall mean any day other than a Saturday or a Sunday
or a day on which commercial banking institutions in The City of New York
are authorized by law to be closed.
"Current Market Value" per share of Common Stock or of any other
security at any date shall be the average of the daily market price, for
the twenty (20) consecutive trading days immediately preceding the day of
such determination. The market price for each such trading day shall be:
(i) the last reported sales price, regular way 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, regular way, in either case as reported on the New York
Stock Exchange ("NYSE") or, (ii) if such security is not listed or admitted
for trading on the NYSE, on the principal national securities exchange on
which such security is listed or
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<PAGE>
admitted for trading or, (iii) 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
("NASDAQ") or, (iv) 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 NASDAQ or, (v) if bid and asked
prices for such security on such day shall not have been reported through
NASDAQ, the average of the bid and asked prices on such day as furnished by
any NYSE member firm regularly making a market in such security selected
for such purpose by the Chairman of the Board or the Board of Directors or,
(vi) if such bid and asked prices are not so furnished, then the fair
market value of the security as established by the Board of Directors
acting in their good faith reasonable judgment.
"Other Securities" means any stock (other than Common Stock) and
other securities of the Corporate Borrower or any other Person (corporate
or otherwise) which the holder of this Note at any time shall be entitled
to receive, or shall have received, upon the conversion of this Note, in
lieu of or in addition to Common Stock, or which at any time shall be
issuable or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities pursuant to Section 3(h) hereof or
otherwise.
"Person" means any individual, corporation, partnership, joint
venture, trust, estate, unincorporated organization or government or any
agency or political subdivision thereof.
"Time of Determination" means the time and date of the earlier of
(i) the determination of stockholders entitled to receive rights, warrants,
or options or a distribution, in each case, to which Sections 3(h)(ii) or
(iii) apply and (ii) the time ("Ex-Dividend Time") immediately prior to the
commencement of "ex-dividend" trading for such rights, warrants or
distribution on such national or regional exchange or market on which the
Common Stock is then listed or quoted.
5. Call Option. Except as expressly set forth in this Section 5,
Borrower is prohibited from making any voluntary prepayment of this Note and
shall not have any right to cause the holder to convert any portion of the
Adjusted Principal Amount outstanding from time to time. From and after the
fifth anniversary of the date of this Note and on or prior to the Due Date,
Borrower shall have the right (the "Call Option") to repay the Adjusted
Principal Amount then outstanding, in whole but not in part, without premium or
penalty (other than the imposition, if applicable, of the Default Rate or "late
charge" as provided herein). Borrower may exercise the Call Option by giving
the holder of this Note at any time upon ninety (90) days' prior written notice
of Borrower's intention to exercise the Call Option, which notice shall state
the date on which the Call Option is to be consummated, the then current
Adjusted Principal Amount and all accrued interest and unpaid interest thereon,
together with any other sums evidenced by this Note, to be paid on such date.
Upon the receipt of any such notice, the
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<PAGE>
holder shall have the right at any time prior to the date proposed for such
repurchase to convert any or all of the Adjusted Principal Amount of this Note
in accordance with the provisions of Section 3.
6. Default.
In the event that any one or more of the following events occur, this Note
shall become immediately due and payable at the option of Lender:
(a) Borrower or the Corporate Borrower, as applicable, shall fail
to pay when due any sums required to be paid under this Note or any other
Loan Documents, and such failure is not cured within 10 days after receipt
of written notice from Lender.
(b) To the extent any such failure, breach or inaccuracy has a
Material Adverse Effect (as hereinafter defined), the failure by Borrower
or the Corporate Borrower to perform or observe, as and when required, any
covenant, agreement, obligation or condition required to be performed or
observed under this Note or any other Loan Documents, or the existence of
any breach or inaccuracy in any of the representations, covenants or
warranties set forth in the Loan Documents, provided, however, that (i) no
default shall exist hereunder on account of a breach of any representation,
covenant or warranty set forth in the Loan Documents (other than this Note)
until either Borrower or the Corporate Borrower, as applicable, shall have
failed to cure such breach within any applicable notice and cure period
therein provided; and (ii) no default shall exist hereunder on account of a
breach of any representation, covenant or warranty set forth herein unless
and until Lender shall provide written notice of such breach to Borrower,
and Borrower shall fail to cure the same within 30 days after receipt of
such notice, provided if such breach is of such a nature that it cannot be
cured within such 30 day period, it shall not constitute a default
hereunder so long as Borrower commences its cure of such breach within such
30 day period and thereafter diligently and continuously proceeds with the
curing of same within a reasonable period of time not to exceed 180 days.
"Material Adverse Effect" means any material and adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of Borrower and its affiliates,
subsidiaries and any parent entity, taken as a whole.
7. Default Rate; Late Charge.
Upon the maturity of any portion of this Note, whether by acceleration or
otherwise, Borrower further promises to pay interest at the rate per annum equal
to the sum of (x) 2.0%, plus the Interest Rate, on the then outstanding past-due
Adjusted Principal Amount, until such amount is paid in full. In addition, a
late charge of four percent (4%) of the amount of any installment or the amount
due on the Due Date which is not paid when due shall be due and payable to the
holder of this Note to cover the extra expense involved in handling delinquent
payments. Said "late charge" shall be due and payable upon demand of the
Lender.
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<PAGE>
8. Security; Governing Law.
(a) This Note evidences indebtedness incurred for the purpose of
financing the acquisition and development of real property, and payment of
this Note is secured by the Loan Documents. It is agreed that, at the
election of the holder hereof, the principal sum remaining unpaid hereon,
together with accrued interest thereon, shall become at once due and
payable at the place of payment aforesaid in the event that a default has
occurred under any of the Loan Documents.
(b) This Note shall be governed by, and construed in accordance
with, the laws of the State of New Mexico, United States.
9. Controlling General Provisions. The provisions in this Section 9
shall govern and control over any irreconcilably inconsistent provision
contained in this Note or any of the other Loan Documents or any other
instrument contemplated hereunder or thereunder. In no event shall the
aggregate of all interest paid or payable by Borrower to Lender ever exceed the
maximum rate of interest which may lawfully be charged to (or payable by)
Borrower under applicable law on the Adjusted Principal Amount of this Note from
time to time remaining unpaid. In this connection, it is expressly stipulated
and agreed that it is the intent of Lender and Borrower in the execution and
delivery of this Note to contract in strict compliance with any applicable usury
laws. In furtherance of the foregoing, none of the terms of this Note, the Loan
Documents (other than this Note) or any such other instruments contemplated
hereunder or thereunder shall ever be construed to create a contract to charge
or pay for interest in excess of the maximum interest rate permitted to be
contracted for, charged to, or payable by Borrower under applicable law.
Borrower and any guarantors, endorsers or other parties now or hereafter
becoming liable for payment of this Note shall never be liable for interest in
excess of the maximum interest that may be lawfully charged under applicable
law, and the provisions of this Section 9 shall govern over all other provisions
of the Loan Documents, and any other instruments evidencing or securing the
Loan, should such provisions be in apparent conflict herewith.
Specifically and without limiting the generality of the foregoing
paragraph, it is expressly agreed that:
(a) In the event of the payment of the Adjusted Principal
Amount of this Note, prior to the due date for payment thereof,
resulting from acceleration of maturity of this Note, if the aggregate
amounts of interest accruing hereunder prior to such payment plus the
amount of any interest accruing after such maturity up to the date of
payment and plus any other amounts paid or accrued in connection with
the other Loan Documents, including, if applicable, all or any portion
of the value of any Common Stock issued to Lender under Section 3 of
this Note and any adjustment to the principal amount outstanding
hereunder from time to time pursuant to Section 1, which by law are
deemed interest under such Loan Documents and which aggregate amounts
paid or accrued (if calculated in
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<PAGE>
accordance with the provisions of this Note other than pursuant to
this Section 9) would exceed the maximum lawful rate of interest which
could be charged on the principal balance of this Note from the date
hereof to the date of final payment thereof, then in such event the
amount of such excess shall be credited, as of the date paid, toward
the payment of principal of this Note so as to reduce the amount of
the final payments of Adjusted Principal Amount due on this Note;
(b) If under any circumstances the aggregate amounts paid
under the Loan Documents prior to and incident to the final payment
hereof, including, without limitation, if applicable, all or any
portion of the value of any Common Stock issued to Lender under
Section 3 of this Note, include amounts which by applicable law are
deemed interest and which would exceed the maximum amount of interest
which could lawfully have been charged or collected on this Note,
Borrower stipulates that such payment and collection will have been
and will be deemed to have been the result of a mathematical error on
the part of both Borrower and Lender, and Lender shall promptly refund
the amount of such excess (to the extent only of the excess of such
payments above the maximum amount which could lawfully have been
collected and retained) upon the discovery of such error by the party
receiving such payment or notice thereof from the party making such
payment; and
(c) All calculations as to the rate of interest contracted
for, charged or received under this Note or the other Loan Document
which are made for the purposes of determining whether such rate
exceeds the maximum rate of interest which may lawfully be charged
shall be made, to the extent permitted by applicable usury laws, if
any, by amortizing, prorating, allocating and spreading, in equal
parts, during the period of the full stated term of the Loan evidenced
hereby, all interest any time contracted for, charged or received from
Borrower or otherwise by Lender in connection with such indebtedness.
Notwithstanding anything contained in this Note or the other Loan Documents
to the contrary, interest under this Note shall never exceed the lesser of (1)
the highest non-usurious rate allowed by applicable law or (2) seventeen percent
(17%) per annum on a compounded basis.
10. Invalidity.
The parties hereto intend and believe that each provision of this Note
comports with all applicable laws and judicial decisions. However, if any
provision or provisions, or if any portion of any provision or provision, in
this Note is found by a court of law to be in violation of any applicable
ordinance, statute, law, administrative or judicial decision, or public policy,
and if such court should declare such portion, provision or provisions of this
Note to be illegal, invalid, void or unenforceable as written, then it is the
intent of all parties hereto (i) that such portion, provision or provisions
shall be given force to the fullest possible extent that they are
17
<PAGE>
legal, valid and enforceable, (ii) that the remainder of this Note shall be
construed as if such illegal, invalid, void or unenforceable portion, provision
or provisions were not contained therein, and (iii) that the rights, obligations
and interest of Borrower and the holder hereof under the remainder of this Note
shall continue in full force and effect.
11. Waiver; Expenses.
(a) Borrower hereby waives presentment, demand for payment, notice of
dishonor and all other notices or demands in connection with the delivery,
acceptance, performance, default or enforcement of this Note and hereby
consents to and extensions of time, renewals, waivers or modifications that
may be granted or consented to by the holder of this Note in respect of the
time of payment or any other provision of this Note. Borrower hereby
waives and renounces for itself, its successors and assigns, all rights to
the benefits of any statute of limitations and any moratorium,
reinstatement, marshalling, forbearance, valuation, stay, extension,
redemption, appraisement, or exemption now provided, or which may hereafter
be provided, by the Constitution and laws of the United States and of any
state thereof, both as to itself and in and to all of its property, real
and personal against the enforcement and collection of the obligations
evidenced by this Note.
(b) In the event that the holder hereof shall institute any action for
the enforcement of the collection of this Note, there shall be immediately
due from Borrower in addition to the unpaid interest and the Adjusted
Principal Amount, all costs and expenses of such action, including but not
limited to attorneys' fees and expenses.
12. Miscellaneous.
(a) This Note and all provision hereof shall be binding upon Borrower
and its successors and assigns and shall inure to the benefit of Lender,
together with its successors and assigns, including each owner and holder
from time to time of this Note.
(b) Time is of the essence as to all dates set forth herein subject to
any applicable grace or cure period expressly provided herein or the in the
Loan Documents; provided, however, that unless otherwise stated, whenever
any payment to be made under this Note shall be stated to be due on a day
other than a Business Day, such payment may be made on the immediately
preceding Business Day.
(c) All notices, demands or requests relating to any matters set forth
herein shall be in writing and delivered as set forth, and shall be
effective in the time set forth, in the Funding Agreement.
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<PAGE>
(d) Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS
HEREIN PROVIDED FOR.
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<PAGE>
IN WITNESS WHEREOF, Borrower has executed this Note as of the date set
forth above.
PTR HOMESTEAD VILLAGE LIMITED PARTNERSHIP
By: PTR Homestead Village (1) Incorporated, its
sole general partner
By: /s/ David C. Dressler, Jr.
--------------------------------
Name: David C. Dressler, Jr.
Title: Managing Director
Address: 125 Lincoln Avenue
Santa Fe, New Mexico 87501
For purposes of Sections 3 and 4 only:
PTR HOMESTEAD VILLAGE INCORPORATED
By: /s/ David C. Dressler, Jr.
--------------------------------------
Name: David C. Dressler, Jr.
Title: Managing Director
Address: 125 Lincoln Avenue
Santa Fe, New Mexico 87501
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EXHIBIT A
Form of Exercise Notice
(To Be Executed Upon Conversion of Note)
The undersigned hereby irrevocably elects to convert the entire outstanding
principal amount of the Note (currently $__________) into __________ shares of
Common Stock in accordance with the terms thereof. The undersigned requests
that a certificate for such shares be registered in the name of
________________, whose address is _____________________ and that such shares be
delivered to ________________________ whose address is __________________.
Date:
------------------
------------------------------
Name:
-------------------------
Title:
------------------------
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EXHIBIT 4.5
ADDITIONAL CORPORATE PROMISSORY NOTE
$18,041,687 May 28, 1996
This Additional Corporate Promissory Note (this "Note") is made and
delivered as of May 28, 1996, to Security Capital Atlantic Incorporated, a
Maryland corporation ("Lender"), by Atlantic Homestead Village Incorporated, a
Maryland corporation ("Borrower"), under the following circumstances:
RECITALS
A. Pursuant to that certain promissory note (the "Prior Corporate Note")
dated January 24, 1996 from Borrower to Lender, in the original principal amount
of $62,031,430 (the "Prior Corporate Loan Amount") and various deeds of trust
and mortgages (the "Prior Corporate Security Documents"), delivered by Borrower
to Lender to secure payment of the Prior Corporate Note and the Prior
Partnership Note (as defined below), prior to the date hereof, Lender has agreed
to advance funds to fund, among other matters, acquisition and construction
costs and expenses incurred by Borrower in connection with acquiring and
developing various real properties as Homestead Village projects. (The Prior
Corporate Note, the Prior Corporate Security Documents and all other instruments
delivered by Borrower in connection therewith to secure the Prior Corporate Note
and the Prior Partnership Note are herein called the "Prior Corporate Loan
Documents.")
B. Pursuant to that certain promissory note (the "Prior Partnership
Note") dated January 24, 1996 from Atlantic Homestead Village Limited
Partnership (the "Partnership") to Lender, in the original principal amount of
$19,213,476 (the "Prior Partnership Loan Amount") and various deeds of trust and
mortgages (the "Prior Partnership Security Documents"), delivered by the
Partnership to Lender to secure payment of the Prior Corporate Note and the
Prior Partnership Note, prior to the date hereof, Lender has agreed to advance
funds to fund, among other matters, acquisition and construction costs and
expense incurred by the Partnership in connection with acquiring and developing
various real properties as Homestead Village projects. (The Prior Partnership
Note, the Prior Partnership Security Documents and all other instruments
delivered by the Partnership in connection therewith to secure the Prior
Partnership Note and the Prior Corporate Note are herein called the "Prior
Partnership Loan Documents." The Prior Corporate Loan Documents and Prior
Partnership Loan Documents are collectively referred to herein as the "Prior
Loan Documents.")
C. Borrower, the Partnership and Lender desire to continue the funding
provided for under the Prior Loan Documents, to provide funds to Borrower and
the Partnership for the costs incurred in connection with the acquisition and
development of Homestead Village projects, and Borrower, the Partnership and
Lender have agreed to increase the Prior Corporate Loan Amount
<PAGE>
to $80,073,117 (the "Corporate Loan"), to decrease the Prior Partnership Loan
Amount to $17,955,354 (the "Partnership Loan"), and to amend and restate the
Prior Loan Documents in connection therewith (such loans being collectively
called the "Loans"). Contemporaneously herewith, the Partnership is executing
that certain Amended and Restated Note in the original principal amount of the
Partnership Loan (the "Amended and Restated Partnership Note"). This Note is
being delivered by Borrower to Lender to evidence the increased amount of the
Corporate Loan. The amended and restated Prior Loan Documents being executed and
delivered contemporaneously herewith, and any and all other agreements or
instruments now or hereafter executed by Borrower, the Partnership or any other
person or entity to evidence, or in connection with, or as security for the
payment of this Note and/or the Partnership Note are herein collectively, with
such notes, referred to as the "Loan Documents".
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender agree as follows:
1. Promise to Pay.
On or before October 31, 2006 (the "Due Date"), the undersigned Borrower,
hereby promises to pay to the order of Lender in lawful money of the United
States of America, the lesser of (i) EIGHTEEN MILLION FORTY ONE THOUSAND SIX
HUNDRED EIGHTY SEVEN DOLLARS ($18,041,687) and (ii) the aggregate unpaid
principal amount of all advances made by Lender to Borrower under this Note (the
amount so determined being herein called the "Adjusted Principal Amount"),
together with interest on the Adjusted Principal Amount at a rate equal to 9.0%
per annum (the "Interest Rate"). Interest shall be calculated on the basis of a
360-day year and shall be computed on the actual number of days elapsed.
2. Payments.
Accrued interest on the unpaid Adjusted Principal Amount shall be payable
in arrears every six months beginning with the date that is six months after the
date of this Note, in an amount equal to all of the interest accrued during the
immediately preceding six month period. Borrower shall make a payment of the
total Adjusted Principal Amount of advances then outstanding, together with
accrued and unpaid interest to such date, on the Due Date. Borrower shall have
no obligation to pay the Adjusted Principal Amount, or any portion thereof,
until the Due Date or such earlier date upon which the loan is accelerated.
Borrower shall make each payment hereunder not later than 11:00 a.m. (Mountain
Standard Time) on the day when due in U.S. dollars at Lender's office at 7777
Market Center Avenue, El Paso, Texas 79912. Each payment shall first be applied
to late charges, costs of collection or enforcement and other similar amounts
due, if any, under this Note, then to interest due and payable hereunder and the
remainder to the Adjusted Principal Amount due and payable hereunder. The
aggregate unpaid Adjusted Principal Amount shown on the records of Lender shall
be rebuttable presumptive evidence of the Adjusted Principal Amount owing and
unpaid on this Note.
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3. Conversion. Subject to the terms of this Note, the holder of this Note
shall have the right, beginning on any Business Day (as defined below) on or
after March 31, 1997, (the "Exercisability Date") and on or prior to the date
on which this Note is fully paid, to convert to shares of Common Stock all or
any portion of the principal amount outstanding on this Note, on the basis of
one fully paid, registered and nonassessable share of Common Stock for each
$11.50 aggregate Adjusted Principal Amount outstanding on this Note. The number
of shares of Common Stock into which this Note may be converted, as adjusted
pursuant hereto, is referred to herein as the "Exercise Rate". For purposes of
this Note, certain capitalized terms used below are defined in Section 4 of this
Note.
(a) The conversion rights under this Section 3 of this Note may be
exercised from time to time on and after the Exercisability Date and on or
prior to the Due Date by surrendering this Note at the principal office of
Borrower with the form of conversion election set forth as Exhibit A hereto
(the "Conversion Exercise") duly completed and signed by the holder of this
Note.
(b) Except as otherwise provided in Section 3(h)(vi) no payment shall
be made on Common Stock issuable upon conversion of this Note on account of
any dividend or distribution declared on Borrower's Common Stock to holders
of such Common Stock of record as of a date prior to the Exercise Date.
(c) The "Exercise Date" shall be the date when all of the items
referred to in subsection (a) of this Section 3 are received by Borrower at
or prior to 2:00 p.m., New York, New York time, on a Business Day and the
conversion of this Note will be effective as of such Exercise Date. If any
items referred to in subsection (a) are received after 2:00 p.m., New York,
New York time, on a Business Day, the conversion of this Note will be
effective on the next succeeding Business Day. Notwithstanding the
foregoing, in the case of a conversion of this Note on the Expiration Date,
if all of the items referred to in the preceding subsection are received by
Borrower at or prior to 5:00 p.m. New York, New York time, on such
Expiration Date, the conversion of this Note will be effective on the
Expiration Date.
(d) Upon the conversion of this Note in accordance with the terms
hereof Borrower shall issue and cause to be delivered with all reasonable
dispatch to or upon the written order of the holder of this Note, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of this Note, in fully registered form,
registered in such name or names as may be directed by such holder pursuant
to the Conversion Exercise, together with cash as provided in Section 3(i)
hereof and shall deliver to holder a duly executed replacement note
representing the aggregate principal amount of this Note outstanding less
any amount previously converted (in each case, without the adjustment
provided for in Section 1 of this Note), but otherwise in the same form as
this Note; provided, however, that if any consolidation, merger or lease or
sale of assets is proposed to be effected by Borrower as described in
Section 3(h)(x) hereof, or a tender offer or an exchange offer for shares
of Common
3
<PAGE>
Stock of Borrower shall be made, upon such surrender of this Note as
aforesaid, Borrower shall, as soon as possible, but in any event not later
than two Business Days thereafter, issue and cause to be delivered the full
number of shares of Common Stock issuable upon the conversion of this Note
in the manner described in this sentence together with cash as provided in
Section 3(i) hereof. Such certificate or certificates shall be deemed to
have been issued and any person so designated to be named therein shall be
deemed to have become a holder of record or such shares of Common Stock as
of the date of the surrender of this Note. No fractional shares shall be
issued upon conversion of this Note in accordance with Section 3(i) hereof.
(e) Borrower will pay all documentary stamp taxes attributable to the
initial issuance of this Note and the issuance of shares of Common Stock
upon conversion of this Note; provided, however, that Borrower shall not be
required to pay any tax or taxes which may be payable in respect of any
transfer involved in the issuance of this Note or any certificates for
shares of Common Stock in a name other than that of the registered holder
of this Note surrendered upon the exercise hereof, and Borrower shall not
be required to issue or deliver such Note unless or until the person or
persons requesting the issuance thereof shall have paid to Borrower the
amount of such tax or shall have established to the satisfaction of
Borrower that such tax has been paid.
(f) Borrower will at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued
shares of Common Stock, for the purpose of enabling it to satisfy any
obligation to issue shares of Common Stock upon conversion of this Note,
the maximum number of shares of Common Stock which may then be deliverable
upon the conversion of this Note. Borrower or the transfer agent for the
Common Stock (the "Transfer Agent") and every subsequent transfer agent for
any shares of Borrower's capital stock issuable upon the exercise of any of
the conversion rights aforesaid will be irrevocably authorized and directed
at all times to reserve such number of authorized shares as shall be
required for such purpose. Before taking any action which would cause an
adjustment pursuant to this Section 3 to reduce the Exercise Price below
the then par value (if any) of the shares issuable upon conversion of this
Note, Borrower will take any corporate action which may, in the opinion of
its counsel (which may be counsel employed by Borrower), be necessary in
order that Borrower may validly and legally issue fully paid and
nonassessable shares of Common Stock at the Exercise Price as so adjusted.
(g) At any such time as Common Stock is listed or quoted on any
national securities exchange or inter-dealer quotation system, Borrower
will, at its expense, obtain promptly and maintain the approval for listing
or quotation on each such exchange or inter-dealer quotation system, upon
official notice of issuance after notice of conversion of this Note, the
shares of Common Stock issuable hereunder and maintain the listing or
quotation of such shares after their issuance; and Borrower will also, upon
official notice of issuance after notice of conversion of this Note, list
or quote on such national securities exchange, will register under the
Securities Exchange Act of 1934, as
4
<PAGE>
amended, and will maintain such listing or quotation of, any Other
Securities (as defined below) that at any time are issuable upon conversion
of this Note, if and at the time that any securities of the same class
shall be listed or quoted on such national securities exchange or inter-
dealer quotation system by Borrower.
(h) The Exercise Rate is subject to adjustment from time to time upon
the occurrence of the events enumerated in this Section 3(h). For purposes
of this Section 3(h), "Common Stock" means the Common Stock and any other
stock of Borrower, however designated, issuable upon conversion of this
Note.
(i) Adjustment for Change in Capital Stock. If Borrower:
a. pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock;
b. subdivides its outstanding shares of Common Stock into
a greater number of shares;
c. combines its outstanding shares of Common Stock into a
smaller number of shares;
d. makes a distribution on its Common Stock in shares of
its capital stock other than Common Stock; or
e. issues by reclassification of its Common Stock any
shares of its capital stock,
then the Exercise Rate in effect immediately prior to such action
shall be proportionately adjusted so that the holder of this Note may
receive the aggregate number and kind of shares of capital stock of
Borrower which such holder would have owned immediately following such
action if this Note had been exercised immediately prior to such
action or immediately prior to the record date applicable thereto, if
any.
The adjustment shall become effective immediately after the
record date in the case of a dividend or distribution and immediately
after the effective date in the case of a subdivision, combination or
reclassification.
If, after an adjustment, a holder of this Note, upon conversion,
may receive shares of two or more classes of capital stock of
Borrower, the Exercise Rate of each class of capital stock shall
thereafter be subject to adjustment on terms comparable to those
applicable to Common Stock in this Section 3(h).
5
<PAGE>
Such adjustment shall be made successively whenever any event
listed above shall occur.
(ii) Adjustment for Rights Issue or Sale of Common Stock Below
Current Market Value. If Borrower (i) distributes any rights, warrants
or options to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price per share
less than 94% (100% if a stand-by underwriter is used and charges
Borrower a commission) of the Current Market Value at the Time of
Determination (each as defined in Section 4) or (ii) sells any Common
Stock or any securities convertible into or exchangeable or
exercisable for the Common Stock (other than pursuant to (1) the
exercise of this Note (or any other note issued by Borrower pursuant
to or in connection with that certain Merger and Distribution
Agreement dated of even date herewith among Lender Security Capital
Pacific Trust ("PTR"), Security Capital Group Incorporated ("SCG") and
Homestead Village Properties Incorporated ("Homestead") or (2) upon
exercise of outstanding warrants to acquire shares of Common Stock,
which warrants were issued pursuant to a Warrant Agreement executed in
connection with that certain Warrant Purchase Agreement of even date
herewith among Lender, PTR, SCG and Homestead or (3) any security
convertible into, or exchangeable or exercisable for, the Common Stock
as to which the issuance thereof has previously been the subject of
any required adjustment (whether or not actually made) pursuant to
this Section 3(h)) at a price per share less than the Current Market
Value, the Exercise Rate shall be adjusted in accordance with the
formula:
E' = E x (O + N)
---------------
(O + (N x P/M))
where:
E' = the adjusted Exercise Rate;
E = the current Exercise Rate;
O = the number of shares of Common Stock outstanding on the record
date for the distribution to which this subsection (ii) is being
applied or on the date of sale of Common Stock at a price per
share less than the Current Market Value to which this subsection
(ii) applies, as the case may be;
N = the number of additional shares of Common Stock issuable upon
exercise of all rights, warrants and options so distributed or
the number of shares of Common Stock so sold or the maximum
stated number of shares of Common Stock issuable upon the
conversion, exchange or exercise of any such convertible,
exchangeable or exercisable securities, as the case may be;
6
<PAGE>
P = the offering price per share of the additional shares of Common
Stock upon the exercise of any such rights, options or warrants so
distributed or pursuant to any such convertible, exchangeable or
exercisable securities so sold or the sale price of the shares so
sold, as the case may be; and
M = the Current Market Value as of the Time of Determination or at
the time of sale, as the case may be.
The adjustment shall be made successively whenever any such
rights, warrants or options are issued and shall become effective
immediately after the record date for the determination of
stockholders entitled to receive the rights, warrants or options. If
at the end of the period during which such rights, warrants or options
are exercisable, not all rights, warrants or options shall have been
exercised, the Exercise Rate shall be immediately readjusted to what
it would have been if "N" in the above formula had been the number of
shares actually issued.
No adjustment shall be made under this subsection (ii) if the
application of the formula stated above in this subsection (ii) would
result in a value of E' that is lower than the value of E.
(iii) Adjustment for Other Distributions. If Borrower
distributes to all holders of its Common Stock any of its assets or
debt securities or any rights, warrants or options to purchase any of
its debt securities or assets, the Exercise Rate shall be adjusted in
accordance with the formula:
E' = E x M
---
M-F
where:
E' = the adjusted Exercise Rate;
E = the current Exercise Rate;
M = the Current Market Value; and
F = the fair market value (on the record date for the distribution to
which this subsection (iii) applies) of the assets, securities,
rights, warrants or options to be distributed in respect of each
share of Common Stock in the distribution to which this
subsection (iii) is being applied (including, in the case of cash
dividends or other cash distributions giving rise to an
adjustment, all such cash distributed concurrently).
7
<PAGE>
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the
record date for the determination of stockholders entitled to receive
the distribution. If at the end of the period during which such
rights, warrants or options are exercisable, not all rights, warrants
or options shall have been exercised, the Exercise Rate shall be
immediately readjusted to what it would have been if such rights,
warrants or options which are not exercised had not been issued.
This subsection (iii) does not apply to cash dividends or cash
distributions paid out of consolidated retained earnings as shown on
the books of Borrower prepared in accordance with generally accepted
accounting principles other than any Extraordinary Cash Dividend (as
defined below). An "Extraordinary Cash Dividend" shall be that
portion, if any, of the aggregate amount of all cash dividends paid in
any fiscal year which exceeds the sum of (A) Borrower cumulative
undistributed earnings on the date of this Agreement, plus (B) the
cumulative amount of earnings, as determined by the Board of
Directors, after such date, minus (C) the cumulative amount of
dividends accrued or paid in respect of the Common Stock. In all
cases, Borrower shall give the holder of this Note advance notice of a
record date for any dividend payment on the Common Stock which notice
is delivered on a date at least as early as the date of notice to the
holders of Common Stock.
(iv) Consideration Received. For purposes of any computation
respecting consideration received pursuant to subsection (ii) of
Section 3(h), the following shall apply:
a. in the case of the issuance of shares of Common Stock
for cash, the consideration shall be the amount of such cash,
provided that in no case shall any deduction be made for any
commissions, discounts or other expenses incurred by Borrower for
any underwriting of the issue or otherwise in connection
therewith;
b. in the case of the issuance of shares of Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
market value thereof as determined in good faith by the Board of
Directors (irrespective of the accounting treatment thereof),
whose determination shall be conclusive, and described in a Board
resolution which shall be filed with the records of Borrower; and
c. in the case of the issuance of securities convertible
into or exchangeable for shares, the aggregate consideration
received therefor shall be deemed to be the consideration
received by Borrower for the issuance of such securities plus the
additional minimum consideration, if
8
<PAGE>
any, to be received by Borrower upon the conversion or exchange
thereof (the consideration in each case to be determined in the
same manner as provided in clauses (1) and (2) of this
subsection).
(v) When De Minimis Adjustment May Be Deferred. No adjustment
in the Exercise Rate need be made unless the adjustment would require
an increase or decrease of at least 1% in the Exercise Rate. Any
adjustments that are not made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this
Section 3(h) shall be made to the nearest 1/100th of a share.
(vi) When No Adjustment Required. No adjustment need be made
for a transaction referred to in subsections (i), (ii) or (iii) of
this Section 3(h) if the holder of this Note is offered the
opportunity to participate in the transaction on a basis and with
notice that the Board of Directors determines to be fair and
appropriate in light of the basis and notice on which holders of
Common Stock participate in the transaction. To the extent this Note
becomes convertible into cash, no adjustment need be made thereafter
as to the cash. Interest will not accrue on the cash.
(vii) Notice of Adjustment. Whenever the Exercise Rate is
adjusted, Borrower shall provide the notices required by Section 3(j)
hereof.
(viii) Voluntary Adjustment. Borrower from time to time may, as
the Board of Directors deems appropriate, increase the Exercise Rate
by any amount for any period of time if the period is at least 20 days
and if the increase is irrevocable during the period. Whenever the
Exercise Rate is increased, Borrower shall mail to the holder of this
Note a notice of the increase. Borrower shall mail the notice at least
15 days before the date the increased Exercise Rate takes effect. The
notice shall state the increased Exercise Rate and the period it will
be in effect. An increase of the Exercise Rate pursuant to this
Section 3(h)(viii), other than an increase which Borrower has
irrevocably committed will be in effect for so long as this Note is
outstanding, does not change or adjust the Exercise Rate otherwise in
effect for purposes of subsections (i), (ii) or (iii) of this Section
3(h).
(ix) Notice of Certain Transactions. If:
a. Borrower takes any action that would require an
adjustment in the Exercise Rate pursuant to subsections (i), (ii)
or (iii) of this Section 3(h) and if Borrower does not arrange
for the holder of this Note to participate pursuant to Section
3(h)(vi); or
9
<PAGE>
b. there is a liquidation or dissolution of Borrower,
Borrower shall mail to the holder of this Note a notice stating
the proposed record date for a dividend or distribution or the
proposed effective date of a subdivision, combination,
reclassification, consolidation, merger, transfer, lease,
liquidation or dissolution. Borrower shall mail the notice at
least 15 days before such date. Failure to mail the notice or any
defect in it shall not affect the validity of the transaction.
(x) Reorganization of Borrower. If Borrower consolidates or
merges with or into, or transfers or leases all or substantially all
its assets to, any Person, upon consummation of such transaction this
Note shall automatically become exercisable for the kind and amount of
securities, cash or other assets which the holder of this Note would
have owned immediately after the consolidation, merger, transfer or
lease if the holder had exercised this Note immediately before the
effective date of the transaction. Concurrently with the consummation
of such transaction, the corporation formed by or surviving any such
consolidation or merger if other than Borrower, or the Person to which
such sale or conveyance shall have been made (any such Person, the
"Successor Guarantor"), shall enter into a supplemental Note so
providing and further providing for adjustments which shall be as
nearly equivalent as may be practical to the adjustments provided for
in this Section 3(h). The Successor Guarantor shall mail to the
holder of this Note a notice describing the supplemental Note. If the
issuer of securities deliverable upon conversion of this Note under
the supplemental Note is an Affiliate of the formed, surviving,
transferee or lessee corporation, that issuer shall join in the
supplemental Note. If this subsection (x) applies, subsections (i),
(ii) or (iii) of this Section 3(h) do not apply.
(xi) Borrower Determination Final. Any determination that
Borrower or the Board of Directors must make pursuant to subsection
(i), (ii), (iii), (iv) or (vii) of this Section 3(h) is conclusive.
(xii) When Issuance or Payment May Be Deferred. In any case in
which this Section 3(h) shall require that an adjustment in the
Exercise Rate be made effective as of a record date for a specified
event, Borrower may elect to defer until the occurrence of such event
(i) issuing to the holder of this Note exercised after such record
date the shares of Common Stock and other capital stock of Borrower,
if any, issuable upon such conversion over and above the shares of
Common Stock and other capital stock of Borrower, if any, issuable
upon such conversion on the basis of the Exercise Rate and (ii) paying
to such holder any amount in cash in lieu of a fractional share
pursuant to Section 3(i) hereof; provided, however, that Borrower
shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional
shares of Common Stock, other capital stock and cash upon the
occurrence of the event requiring such adjustment.
10
<PAGE>
(xiii) Adjustments to Par Value. Borrower shall from time to time
make such adjustments to the par value of the Common Stock as may be
necessary so that at all times, upon conversion of this Note, the
shares of Common Stock will be fully paid and nonassessable.
(xiv) Priority of Adjustments. If this Section 3(h) requires
adjustments to the Exercise Rate under more than one of subsections
(i), (ii) or (iii), and the record dates for the distributions giving
rise to such adjustments shall occur on the same date, then such
adjustments shall be made by applying, first, the provisions of
subsection (i), second, the provisions of subsection (iii) and, third,
the provisions of subsection (ii).
(xv) Multiple Adjustments. After an adjustment to the Exercise
Rate under this Section 3(h), any subsequent event requiring an
adjustment under this Section 3(h) shall cause an adjustment to the
Exercise Rate as so adjusted.
(i) Fractional Interests; Accrued Interest. Borrower shall not be
required to issue fractional shares on the conversion of this Note. If any
fraction of a share would, except for the provisions of this Section 3(i),
be issuable on the conversion of this Note, Borrower shall pay to the
holder an amount in cash equal to the product of (i) such fraction of a
share and (ii) the Current Market Value of a share of Common Stock as of
the date of conversion of this Note. Upon any conversion of all or any
portion of the Adjusted Principal Amount in accordance with the terms
hereof, Borrower shall pay to the holder in cash all accrued but unpaid
interest to the effective date of conversion with respect to the portion of
the Adjusted Principal Amount of this Note being converted.
(j) Notices to Holder. Upon any adjustment of the Exercise Rate
pursuant to Section 3(h) hereof, Borrower shall promptly thereafter (i)
cause to be prepared a certificate of a firm of independent public
accountants of recognized standing selected by Borrower (who may be the
regular auditors of Borrower) setting forth the Exercise Rate after such
adjustment and setting forth in reasonable detail the method of calculation
and the facts upon which such calculations are based and setting forth the
number of shares (or portion thereof) issuable after such adjustment in the
Exercise Rate, upon conversion of this Note, which certificate shall be
conclusive evidence of the correctness of the matters set forth therein,
and (ii) cause to be given to the holder of this Note at such holder's
address appearing on the Note register written notice of such adjustments
by first-class mail, postage prepaid. Where appropriate, such notice may
be given in advance and included as a part of the notice required to be
mailed under the other provisions of this Section 3(j).
11
<PAGE>
In the event:
(i) Borrower shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for
or purchase shares of Common Stock or of any other subscription rights
or warrants (other than rights, options or warrants issued to all
holders of its Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share not less than 94%
(100% if a stand-by underwriter is used and charges Borrower
commission) of the Current Market Value); or
(ii) Borrower shall authorize the distribution to all holders
of shares of Common Stock of evidences of its indebtedness or assets
(other than cash dividends or cash distributions payable out of
consolidated earnings or earned surplus or dividends payable in shares
of Common Stock or distributions referred to in subsection (i) of
Section 3(h) hereof); or
(iii) of any consolidation or merger to which Borrower is a
party or of the conveyance or transfer of the properties and assets of
Borrower substantially as an entirety, or of any reclassification or
change of Common Stock issuable upon conversion of this Note (other
than a change in par value, or from par value to no par value, or from
no par value to par value, or as a result of a subdivision or
combination), or a tender offer or exchange offer for shares of Common
Stock; or
(iv) of the voluntary or involuntary dissolution, liquidation
or winding up of Borrower; or
(v) Borrower proposes to take any action (other than actions
of the character described in Section 3(h)(i) which would require an
adjustment of the Exercise Rate pursuant to Section 3(h);
then Borrower shall cause to be given to the registered holder of this Note
at its address appearing on the Note register, at least 20 days (or 15 days
in any case specified in clauses (i) or (ii) above) prior to the applicable
record date hereinafter specified, or promptly in the case of events for
which there is no record date, by first-class mail, postage prepaid, a
written notice stating (i) the date as of which the holders of record of
shares of Common Stock to be entitled to receive any such rights, options,
warrants or distribution are to be determined, or (ii) the initial
expiration date set forth in any tender offer or exchange offer for shares
of Common Stock, or (iii) the date on which any such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up is expected to become effective or consummated, and the date as
of which it is expected that holders of record of shares of Common Stock
shall be entitled to exchange such shares for securities or other property,
if any, deliverable upon such reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or
12
<PAGE>
winding up. The failure to give the notice required by this Section 3(j)
or any defect therein shall not affect the legality or validity of any
distribution, right, option, warrant, reclassification, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up, or
the vote upon any action.
Nothing contained in this Note shall be construed as conferring upon
the holder hereof the right to vote or to consent or to receive notice as
shareholders in respect of the meetings of shareholders or the election of
directors of Borrower or any other matter, or any rights whatsoever as
shareholders of Borrower.
4. Definitions. For purposes of Section 3 of this Note, the following
terms shall have the meanings indicated:
"Affiliate" means, with respect to another Person, any Person directly
or indirectly controlling or controlled by or under direct or indirect
common control with such other Person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), when used with respect to
any Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"Board of Directors" means the Board of Directors of Borrower.
"Business Day" shall mean any day other than a Saturday or a Sunday or
a day on which commercial banking institutions in The City of New York are
authorized by law to be closed.
"Current Market Value" per share of Common Stock or of any other
security at any date shall be the average of the daily market price, for
the twenty (20) consecutive trading days immediately preceding the day of
such determination. The market price for each such trading day shall be:
(i) the last reported sales price, regular way 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, regular way, in either case as reported on the New York
Stock Exchange ("NYSE") or, (ii) if such security is not listed or admitted
for trading on the NYSE, on the principal national securities exchange on
which such security is listed or admitted for trading or, (iii) 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 ("NASDAQ") or, (iv) 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
NASDAQ or, (v) if bid and asked prices for such security on such day shall
not have been reported through NASDAQ, the average of the bid and asked
prices on such day as furnished by any NYSE member firm regularly making a
market in such security selected for such purpose by the Chairman of the
Board or the Board of Directors or, (vi) if such bid and asked
13
<PAGE>
prices are not so furnished, then the fair market value of the security as
established by the Board of Directors acting in their good faith reasonable
judgment.
"Other Securities" means any stock (other than Common Stock) and other
securities of Borrower or any other Person (corporate or otherwise) which
the holder of this Note at any time shall be entitled to receive, or shall
have received, upon the conversion of this Note, in lieu of or in addition
to Common Stock, or which at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 3(h) hereof or otherwise.
"Person" means any individual, corporation, partnership, joint
venture, trust, estate, unincorporated organization or government or any
agency or political subdivision thereof.
"Time of Determination" means the time and date of the earlier of (i)
the determination of stockholders entitled to receive rights, warrants, or
options or a distribution, in each case, to which Sections 3(h)(ii) or
(iii) apply and (ii) the time ("Ex-Dividend Time") immediately prior to the
commencement of "ex-dividend" trading for such rights, warrants or
distribution on such national or regional exchange or market on which the
Common Stock is then listed or quoted.
5. Call Option.
Except as expressly set forth in this Section 5, Borrower is prohibited
from making any voluntary prepayment of this Note and shall not have any right
to cause the holder to convert any portion of the Adjusted Principal Amount
outstanding from time to time. From and after the fifth anniversary of the date
of this Note and on or prior to the Due Date, Borrower shall have the right (the
"Call Option") to repay the Adjusted Principal Amount then outstanding, in whole
but not in part, without premium or penalty (other than the imposition, if
applicable, of the Default Rate or "late charge" as provided herein). Borrower
may exercise the Call Option by giving the holder of this Note at any time upon
ninety (90) days' prior written notice of Borrower's intention to exercise the
Call Option, which notice shall state the date on which the Call Option is to be
consummated, the then current Adjusted Principal Amount and all accrued interest
and unpaid interest thereon, together with any other sums evidenced by this
Note, to be paid on such date. Upon the receipt of any such notice, the holder
shall have the right at any time prior to the date proposed for such repurchase
to convert any or all of the Adjusted Principal Amount of this Note in
accordance with the provisions of Section 3.
6. Default.
In the event that any one or more of the following events occur, this Note
shall become immediately due and payable at the option of Lender:
14
<PAGE>
(a) Borrower or the Partnership, as applicable, shall fail to pay
when due any sums required to be paid under this Note or any other Loan
Documents, and such failure is not cured within 10 days after receipt of
written notice from Lender.
(b) To the extent any such failure, breach or inaccuracy has a
Material Adverse Effect (as hereinafter defined), the failure by Borrower
or the Partnership to perform or observe, as and when required, any
covenant, agreement, obligation or condition required to be performed or
observed under this Note or any other Loan Documents, or the existence of
any breach or inaccuracy in any of the representations, covenants or
warranties set forth in the Loan Documents, provided, however, that (i) no
default shall exist hereunder on account of a breach of any representation,
covenant or warranty set forth in the Loan Documents (other than this Note)
until either Borrower or Partnership, as applicable, shall have failed to
cure such breach within any applicable notice and cure period therein
provided; and (ii) no default shall exist hereunder on account of a breach
of any representation, covenant or warranty set forth herein unless and
until Lender shall provide written notice of such breach to Borrower, and
Borrower shall fail to cure the same within 30 days after receipt of such
notice, provided if such breach is of such a nature that it cannot be cured
within such 30 day period, it shall not constitute a default hereunder so
long as Borrower commences its cure of such breach within such 30 day
period and thereafter diligently and continuously proceeds with the curing
of same within a reasonable period of time not to exceed 180 days.
"Material Adverse Effect" means any material and adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of Borrower and its affiliates,
subsidiaries and any parent entity, taken as a whole.
7. Default Rate; Late Charge.
Upon the maturity of any portion of this Note, whether by acceleration or
otherwise, Borrower further promises to pay interest at the rate per annum equal
to the sum of 2.0%, plus the Interest Rate, on the then outstanding past-due
amount of principal, until such amount is paid in full. In addition, a late
charge of four percent (4%) of the amount of any installment or the amount due
on the Due Date which is not paid when due shall be due and payable to the
holder of this Note to cover the extra expense involved in handling delinquent
payments. Said "late charge" shall be due and payable upon demand of the
Lender.
8. Security; Governing Law.
(a) This Note evidences indebtedness incurred for the purpose of
financing the acquisition and development of real property, and payment of
this Note is secured by the Loan Documents. It is agreed that, at the
election of the holder hereof, the principal sum remaining unpaid hereon,
together with accrued interest thereon, shall become at once due and
payable at the place of payment aforesaid in the event that a default has
occurred under any of the Loan Documents.
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<PAGE>
(b) This Note shall be governed by, and construed in accordance with,
the laws of the State of New Mexico, United States.
9. Controlling General Provisions.
The provisions in this Section 9 shall govern and control over any
irreconcilably inconsistent provision, the Loan Documents or any other
instrument contemplated hereunder or thereunder. In no event shall the
aggregate of all interest paid or payable by Borrower to Lender ever exceed the
maximum rate of interest which may lawfully be charged to (or payable by)
Borrower under applicable law on the Adjusted Principal Amount of this Note from
time to time remaining unpaid. In this connection, it is expressly stipulated
and agreed that it is the intent of Lender and Borrower in the execution and
delivery of this Note to contract in strict compliance with any applicable usury
laws. In furtherance of the foregoing, none of the terms of the Loan Documents
or any such other instruments contemplated hereunder or thereunder shall ever be
construed to create a contract to charge or pay for interest in excess of the
maximum interest rate permitted to be contracted for, charged to, or payable by
Borrower under applicable law. Borrower and any guarantors, endorsers or other
parties now or hereafter becoming liable for payment of this Note shall never be
liable for interest in excess of the maximum interest that may be lawfully
charged under applicable law, and the provisions of this Section 9 shall govern
over all other provisions of the Loan Documents, and any other instruments
evidencing or securing the Loan, should such provisions be in apparent conflict
herewith.
Specifically and without limiting the generality of the foregoing
paragraph, it is expressly agreed that:
(a) In the event of the payment of the principal of the
Adjusted Principal Amount of this Note, prior to the due date for
payment thereof, resulting from acceleration of maturity of this Note,
if the aggregate amounts of interest accruing hereunder prior to such
payment plus the amount of any interest accruing after such maturity
up to the date of payment and plus any other amounts paid or accrued
in connection with the Loan Documents, including, if applicable, all
or any portion of the value of any Common Stock issued to Lender under
Section 3 of this Note, which by law are deemed interest under such
Loan Documents and which aggregate amounts paid or accrued (if
calculated in accordance with the provisions of this Note other than
pursuant to this Section 9) would exceed the maximum lawful rate of
interest which could be charged on the principal balance of this Note
from the date hereof to the date of final payment thereof, then in
such event the amount of such excess shall be credited, as of the date
paid, toward the payment of principal of this Note so as to reduce the
amount of the final payments of Adjusted Principal Amount due on this
Note;
(b) If under any circumstances the aggregate amounts paid
under the Loan Documents prior to and incident to the final payment
hereof, including,
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<PAGE>
without limitation, if applicable, all or any portion of the value of
any Common Stock issued to Lender under Section 3 of this Note,
include amounts which by applicable law are deemed interest and which
would exceed the maximum amount of interest which could lawfully have
been charged or collected on this Note, Borrower stipulates that such
payment and collection will have been and will be deemed to have been
the result of a mathematical error on the part of both Borrower and
Lender, and Lender shall promptly refund the amount of such excess (to
the extent only of the excess of such payments above the maximum
amount which could lawfully have been collected and retained) upon the
discovery of such error by the party receiving such payment or notice
thereof from the party making such payment; and
(c) All calculations as to the rate of interest contracted
for, charged or received under this Note or the other Loan Document
which are made for the purposes of determining whether such rate
exceeds the maximum rate of interest which may lawfully be charged
shall be made, to the extent permitted by applicable usury laws, if
any, by amortizing, prorating, allocating and spreading, in equal
parts, during the period of the full stated term of the Loan evidenced
hereby, all interest any time contracted for, charged or received from
Borrower or otherwise by Lender in connection with such indebtedness.
Notwithstanding anything contained in this Note or the other Loan Documents
to the contrary, interest under this Note shall never exceed the lesser of (1)
the highest non-usurious rate allowed by applicable law or (2) seventeen percent
(17%) per annum on a compounded basis.
10. Invalidity.
The parties hereto intend and believe that each provision of this Note
comports with all applicable laws and judicial decisions. However, if any
provision or provisions, or if any portion of any provision or provision, in
this Note is found by a court of law to be in violation of any applicable
ordinance, statute, law, administrative or judicial decision, or public policy,
and if such court should declare such portion, provision or provisions of this
Note to be illegal, invalid, void or unenforceable as written, then it is the
intent of all parties hereto (i) that such portion, provision or provisions
shall be given force to the fullest possible extent that they are legal, valid
and enforceable, (ii) that the remainder of this Note shall be construed as if
such illegal, invalid, void or unenforceable portion, provision or provisions
were not contained therein, and (iii) that the rights, obligations and interest
of Borrower and the holder hereof under the remainder of this Note shall
continue in full force and effect.
11. Waiver; Expenses.
(a) Borrower hereby waives presentment, demand for payment, notice of
dishonor and all other notices or demands in connection with the delivery,
acceptance,
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<PAGE>
performance, default or enforcement of this Note and hereby consents to and
extensions of time, renewals, waivers or modifications that may be granted
or consented to by the holder of this Note in respect of the time of
payment or any other provision of this Note. Borrower hereby waives and
renounces for itself, its successors and assigns, all rights to the
benefits of any statute of limitations and any moratorium, reinstatement,
marshalling, forbearance, valuation, stay, extension, redemption,
appraisement, or exemption now provided, or which may hereafter be
provided, by the Constitution and laws of the United States and of any
state thereof, both as to itself and in and to all of its property, real
and personal against the enforcement and collection of the obligations
evidenced by this Note.
(b) In the event that the holder hereof shall institute any action
for the enforcement of the collection of this Note, there shall be
immediately due from Borrower in addition to the unpaid interest and
principal, all costs and expenses of such action, including but not limited
to attorneys' fees and expenses.
12. Miscellaneous.
(a) This Note and all provision hereof shall be binding upon Borrower
and its successors and assigns and shall inure to the benefit of Lender,
together with its successors and assigns, including each owner and holder
from time to time of this Note.
(b) Time is of the essence as to all dates set forth herein subject
to any applicable grace or cure period expressly provided herein or the in
the Loan Documents; provided, however, that unless otherwise stated,
whenever any payment to be made under this Note shall be stated to be due
on a day other than a business day, such payment may be made on the
immediately preceding business day. For purposes of this Note, a business
day shall be any day that is not a Saturday, Sunday or national bank
holiday.
(c) All notices, demands or requests relating to any matters set
forth herein shall be in writing and delivered as set forth, and shall be
effective in the time set forth, in the Funding Agreement.
(d) Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS
HEREIN PROVIDED FOR.
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<PAGE>
IN WITNESS WHEREOF, Borrower has executed this Note as of the date set
forth above.
ATLANTIC HOMESTEAD VILLAGE INCORPORATED
By: /s/ David C. Dressler, Jr.
_________________________________
Name: David C. Dressler, Jr.
Title: Managing Director
Address: 125 Lincoln Avenue
Santa Fe, New Mexico 87501
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EXHIBIT A
Form of Exercise Notice
(To Be Executed Upon Conversion of Note)
The undersigned hereby irrevocably elects to convert the entire outstanding
principal amount of the Note (currently $__________) into __________ shares of
Common Stock in accordance with the terms thereof. The undersigned requests
that a certificate for such shares be registered in the name of
________________, whose address is _____________________ and that such shares be
delivered to ________________________ whose address is __________________.
Date:___________________
____________________________
Name:_______________________
Title:______________________
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<PAGE>
EXHIBIT 4.6
CONSOLIDATED AMENDED AND RESTATED PROMISSORY NOTE
$80,073,117 May 28, 1996
This Consolidated Amended and Restated Promissory Note (this "Note") is
made and delivered as of May 28, 1996, to Security Capital Atlantic
Incorporated, a Maryland corporation ("Lender"), by Atlantic Homestead Village
Incorporated, a Maryland corporation ("Borrower"), under the following
circumstances:
RECITALS
A. Pursuant to that certain promissory note (the "Prior Corporate Note")
dated January 24, 1996 from Borrower to Lender, in the original principal amount
of $62,031,430 (the "Prior Corporate Loan Amount") and various deeds of trust
and mortgages (the "Prior Corporate Security Documents"), delivered by Borrower
to Lender to secure payment of the Prior Corporate Note and the Prior
Partnership Note (as defined below), prior to the date hereof, Lender has agreed
to advance funds to fund, among other matters, acquisition and construction
costs and expenses incurred by Borrower in connection with acquiring and
developing various real properties as Homestead Village projects. (The Prior
Corporate Note, the Prior Corporate Security Documents and all other instruments
delivered by Borrower in connection therewith to secure the Prior Corporate Note
and the Prior Partnership Note are herein called the "Prior Corporate Loan
Documents.")
B. Pursuant to that certain promissory note (the "Prior Partnership Note")
dated January 24, 1996 from Atlantic Homestead Village Limited Partnership (the
"Partnership") to Lender, in the original principal amount of $19,213,476 (the
"Prior Partnership Loan Amount") and various deeds of trust and mortgages (the
"Prior Partnership Security Documents"), delivered by the Partnership to Lender
to secure payment of the Prior Corporate Note and the Prior Partnership Note,
prior to the date hereof, Lender has also agreed to advance funds to fund, among
other matters, acquisition and construction costs and expense incurred by the
Partnership in connection with acquiring and developing various real properties
as Homestead Village projects. (The Prior Partnership Note, the Prior
Partnership Security Documents and all other instruments delivered by the
Partnership in connection therewith to secure the Prior Partnership Note and the
Prior Corporate Note are herein called the "Prior Partnership Loan Documents."
The Prior Corporate Loan Documents and Prior Partnership Loan Documents are
collectively referred to herein as the "Prior Loan Documents.")
C. Borrower, the Partnership and Lender desire to continue the funding
provided for under the Prior Loan Documents, to provide funds to Borrower and
the Partnership for the costs incurred in connection with the acquisition and
development of Homestead Village projects, and Borrower, the Partnership and
Lender have agreed to increase the Prior Corporate Loan Amount
<PAGE>
to $80,073,117 (the "Corporate Loan"), to decrease the Prior Partnership Loan
Amount to $17,955,354 (the "Partnership Loan"), and to amend and restate the
Prior Loan Documents in connection therewith (such loans being collectively
called the "Loans"). In connection with such amendment and restatement of the
Prior Loan Documents, prior to the execution and delivery of this Note to
Lender, Borrower executed and delivered to Lender that certain promissory note
in the amount of $18,041,687 (the "Additional Corporate Note"). This Note only
renews and consolidates the outstanding principal balance plus the amounts not
yet disbursed under (a) the Additional Corporate Note; and (b) the Prior
Corporate Note. Florida documentary stamp and intangible tax on the Prior
Corporate Note is affixed to the instrument recorded in ORB 8027, Page 484,
Hillsborough County Public Records, the instrument recorded in ORB 24449, Page
598, Broward County Public Records, and the instrument recorded in ORB 17194
Page 179, Dade County Public Records. Any Florida documentary stamp and
intangible tax due on account of the Additional Corporate Note is affixed to the
Amended and Restated Mortgages dated this date, from Borrower to Lender, being
recorded in the Public Records of Hillsborough County, Broward County and Dade
County.
D. Contemporaneously herewith, the Partnership is executing and delivering
that certain Amended and Restated Partnership Note in the principal amount of
$17,955,354 (the "Partnership Note") which amends and restates the Prior
Partnership Note, to provide, among other things, for the reduction in the Prior
Partnership Loan Amount. The aforesaid note and this Note and the amended and
restated Prior Loan Documents being executed and delivered contemporaneously
herewith, and any and all other agreements or instruments now or hereafter
executed by Borrower, the Partnership or any other person or entity to evidence
the Loans, or any portion thereof, or in connection with, or as security for the
payment or performance of, this Note or the Partnership Note and/or any other
note(s) delivered from time to time to Lender to evidence the Loans or any
portion thereof, are, together with such notes, herein collectively referred to
as the "Loan Documents."
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender agree to consolidate, amend and restate the
Additional Corporate Note and the Prior Corporate Note as follows:
1. Promise to Pay.
On or before October 31, 2006 (the "Due Date"), the undersigned Borrower,
hereby promises to pay to the order of Lender in lawful money of the United
States of America, the lesser of (i) EIGHTY MILLION SEVENTY THREE THOUSAND ONE
HUNDRED SEVENTEEN DOLLARS ($80,073,117) and (ii) the aggregate unpaid principal
amount of all advances made by Lender to Borrower under this Note (the amount so
determined being herein called the "Adjusted Principal Amount"), together with
interest on the Adjusted Principal Amount at a rate equal to 9.0% per annum (the
"Interest Rate"). Interest shall be calculated on the basis of a 360-day year
and shall be computed on the actual number of days elapsed.
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<PAGE>
2. Payments.
Accrued interest on the unpaid Adjusted Principal Amount shall be payable
in arrears every six months beginning with the date that is six months after the
date of this Note, in an amount equal to all of the interest accrued during the
immediately preceding six month period. Borrower shall make a payment of the
total Adjusted Principal Amount of advances then outstanding, together with
accrued and unpaid interest to such date, on the Due Date. Borrower shall have
no obligation to pay the Adjusted Principal Amount, or any portion thereof,
until the Due Date or such earlier date upon which the loan is accelerated.
Borrower shall make each payment hereunder not later than 11:00 a.m. (Mountain
Standard Time) on the day when due in U.S. dollars at Lender's office at 7777
Market Center Avenue, El Paso, Texas 79912. Each payment shall first be applied
to late charges, costs of collection or enforcement and other similar amounts
due, if any, under this Note, then to interest due and payable hereunder and the
remainder to the Adjusted Principal Amount due and payable hereunder. The
aggregate unpaid Adjusted Principal Amount shown on the records of Lender shall
be rebuttable presumptive evidence of the Adjusted Principal Amount owing and
unpaid on this Note.
3. Conversion. Subject to the terms of this Note, the holder of this Note
shall have the right, beginning on any Business Day (as defined below) on or
after March 31, 1997, (the "Exercisability Date") and on or prior to the date
on which this Note is fully paid, to convert to shares of Common Stock all or
any portion of the principal amount outstanding on this Note, on the basis of
one fully paid, registered and nonassessable share of Common Stock for each
$11.50 aggregate Adjusted Principal Amount outstanding on this Note. The number
of shares of Common Stock into which this Note may be converted, as adjusted
pursuant hereto, is referred to herein as the "Exercise Rate". For purposes of
this Note, certain capitalized terms used below are defined in Section 4 of this
Note.
(a) The conversion rights under this Section 3 of this Note may be
exercised from time to time on and after the Exercisability Date and on or
prior to the Due Date by surrendering this Note at the principal office of
Borrower with the form of conversion election set forth as Exhibit A hereto
(the "Conversion Exercise") duly completed and signed by the holder of this
Note.
(b) Except as otherwise provided in Section 3(h)(vi) no payment shall
be made on Common Stock issuable upon conversion of this Note on account of
any dividend or distribution declared on Borrower's Common Stock to holders
of such Common Stock of record as of a date prior to the Exercise Date.
(c) The "Exercise Date" shall be the date when all of the items
referred to in subsection (a) of this Section 3 are received by Borrower at
or prior to 2:00 p.m., New York, New York time, on a Business Day and the
conversion of this Note will be effective as of such Exercise Date. If any
items referred to in subsection (a) are received after 2:00 p.m., New York,
New York time, on a Business Day, the conversion of this Note will be
effective on the next succeeding Business Day. Notwithstanding the
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<PAGE>
foregoing, in the case of a conversion of this Note on the Expiration Date,
if all of the items referred to in the preceding subsection are received by
Borrower at or prior to 5:00 p.m. New York, New York time, on such
Expiration Date, the conversion of this Note will be effective on the
Expiration Date.
(d) Upon the conversion of this Note in accordance with the terms
hereof Borrower shall issue and cause to be delivered with all reasonable
dispatch to or upon the written order of the holder of this Note, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of this Note, in fully registered form,
registered in such name or names as may be directed by such holder pursuant
to the Conversion Exercise, together with cash as provided in Section 3(i)
hereof and shall deliver to holder a duly executed replacement note
representing the aggregate principal amount of this Note outstanding less
any amount previously converted (in each case, without the adjustment
provided for in Section 1 of this Note), but otherwise in the same form as
this Note; provided, however, that if any consolidation, merger or lease or
sale of assets is proposed to be effected by Borrower as described in
Section 3(h)(x) hereof, or a tender offer or an exchange offer for shares
of Common Stock of Borrower shall be made, upon such surrender of this Note
as aforesaid, Borrower shall, as soon as possible, but in any event not
later than two Business Days thereafter, issue and cause to be delivered
the full number of shares of Common Stock issuable upon the conversion of
this Note in the manner described in this sentence together with cash as
provided in Section 3(i) hereof. Such certificate or certificates shall be
deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record or such shares of Common
Stock as of the date of the surrender of this Note. No fractional shares
shall be issued upon conversion of this Note in accordance with Section
3(i) hereof.
(e) Borrower will pay all documentary stamp taxes attributable to the
initial issuance of this Note and the issuance of shares of Common Stock
upon conversion of this Note; provided, however, that Borrower shall not be
required to pay any tax or taxes which may be payable in respect of any
transfer involved in the issuance of this Note or any certificates for
shares of Common Stock in a name other than that of the registered holder
of this Note surrendered upon the exercise hereof, and Borrower shall not
be required to issue or deliver such Note unless or until the person or
persons requesting the issuance thereof shall have paid to Borrower the
amount of such tax or shall have established to the satisfaction of
Borrower that such tax has been paid.
(f) Borrower will at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued
shares of Common Stock, for the purpose of enabling it to satisfy any
obligation to issue shares of Common Stock upon conversion of this Note,
the maximum number of shares of Common Stock which may then be deliverable
upon the conversion of this Note. Borrower or the transfer agent for the
Common Stock (the "Transfer Agent") and every subsequent transfer agent for
any shares of Borrower's capital stock issuable upon the exercise of
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<PAGE>
any of the conversion rights aforesaid will be irrevocably authorized and
directed at all times to reserve such number of authorized shares as shall
be required for such purpose. Before taking any action which would cause
an adjustment pursuant to this Section 3 to reduce the Exercise Price below
the then par value (if any) of the shares issuable upon conversion of this
Note, Borrower will take any corporate action which may, in the opinion of
its counsel (which may be counsel employed by Borrower), be necessary in
order that Borrower may validly and legally issue fully paid and
nonassessable shares of Common Stock at the Exercise Price as so adjusted.
(g) At any such time as Common Stock is listed or quoted on any
national securities exchange or inter-dealer quotation system, Borrower
will, at its expense, obtain promptly and maintain the approval for listing
or quotation on each such exchange or inter-dealer quotation system, upon
official notice of issuance after notice of conversion of this Note, the
shares of Common Stock issuable hereunder and maintain the listing or
quotation of such shares after their issuance; and Borrower will also, upon
official notice of issuance after notice of conversion of this Note, list
or quote on such national securities exchange, will register under the
Securities Exchange Act of 1934, as amended, and will maintain such listing
or quotation of, any Other Securities (as defined below) that at any time
are issuable upon conversion of this Note, if and at the time that any
securities of the same class shall be listed or quoted on such national
securities exchange or inter-dealer quotation system by Borrower.
(h) The Exercise Rate is subject to adjustment from time to time upon
the occurrence of the events enumerated in this Section 3(h). For purposes
of this Section 3(h), "Common Stock" means the Common Stock and any other
stock of Borrower, however designated, issuable upon conversion of this
Note.
(i) Adjustment for Change in Capital Stock. If Borrower:
a. pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock;
b. subdivides its outstanding shares of Common Stock into a
greater number of shares;
c. combines its outstanding shares of Common Stock into a
smaller number of shares;
d. makes a distribution on its Common Stock in shares of
its capital stock other than Common Stock; or
e. issues by reclassification of its Common Stock any
shares of its capital stock,
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<PAGE>
then the Exercise Rate in effect immediately prior to such action
shall be proportionately adjusted so that the holder of this Note may
receive the aggregate number and kind of shares of capital stock of
Borrower which such holder would have owned immediately following such
action if this Note had been exercised immediately prior to such
action or immediately prior to the record date applicable thereto, if
any.
The adjustment shall become effective immediately after the
record date in the case of a dividend or distribution and immediately
after the effective date in the case of a subdivision, combination or
reclassification.
If, after an adjustment, a holder of this Note, upon conversion,
may receive shares of two or more classes of capital stock of
Borrower, the Exercise Rate of each class of capital stock shall
thereafter be subject to adjustment on terms comparable to those
applicable to Common Stock in this Section 3(h).
Such adjustment shall be made successively whenever any event
listed above shall occur.
(ii) Adjustment for Rights Issue or Sale of Common Stock Below
Current Market Value. If Borrower (i) distributes any rights,
warrants or options to all holders of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock at a price per
share less than 94% (100% if a stand-by underwriter is used and
charges Borrower a commission) of the Current Market Value at the Time
of Determination (each as defined in Section 4) or (ii) sells any
Common Stock or any securities convertible into or exchangeable or
exercisable for the Common Stock (other than pursuant to (1) the
exercise of this Note (or any other note issued by Borrower pursuant
to or in connection with that certain Merger and Distribution
Agreement dated of even date herewith among Lender Security Capital
Pacific Trust ("PTR"), Security Capital Group Incorporated ("SCG") and
Homestead Village Properties Incorporated ("Homestead") or (2) upon
exercise of outstanding warrants to acquire shares of Common Stock,
which warrants were issued pursuant to a Warrant Agreement executed in
connection with that certain Warrant Purchase Agreement of even date
herewith among Lender, PTR, SCG and Homestead or (3) any security
convertible into, or exchangeable or exercisable for, the Common Stock
as to which the issuance thereof has previously been the subject of
any required adjustment (whether or not actually made) pursuant to
this Section 3(h)) at a price per share less than the Current Market
Value, the Exercise Rate shall be adjusted in accordance with the
formula:
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<PAGE>
E' = E x (O + N)
------------------
(O + (N x P/M))
where:
E' = the adjusted Exercise Rate;
E = the current Exercise Rate;
O = the number of shares of Common Stock outstanding on the record
date for the distribution to which this subsection (ii) is being
applied or on the date of sale of Common Stock at a price per
share less than the Current Market Value to which this subsection
(ii) applies, as the case may be;
N = the number of additional shares of Common Stock issuable upon
exercise of all rights, warrants and options so distributed or
the number of shares of Common Stock so sold or the maximum
stated number of shares of Common Stock issuable upon the
conversion, exchange or exercise of any such convertible,
exchangeable or exercisable securities, as the case may be;
P = the offering price per share of the additional shares of Common
Stock upon the exercise of any such rights, options or warrants
so distributed or pursuant to any such convertible, exchangeable
or exercisable securities so sold or the sale price of the shares
so sold, as the case may be; and
M = the Current Market Value as of the Time of Determination or at
the time of sale, as the case may be.
The adjustment shall be made successively whenever any such
rights, warrants or options are issued and shall become effective
immediately after the record date for the determination of
stockholders entitled to receive the rights, warrants or options. If
at the end of the period during which such rights, warrants or options
are exercisable, not all rights, warrants or options shall have been
exercised, the Exercise Rate shall be immediately readjusted to what
it would have been if "N" in the above formula had been the number of
shares actually issued.
No adjustment shall be made under this subsection (ii) if the
application of the formula stated above in this subsection (ii) would
result in a value of E' that is lower than the value of E.
(iii) Adjustment for Other Distributions. If Borrower
distributes to all holders of its Common Stock any of its assets or
debt securities or any rights,
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<PAGE>
warrants or options to purchase any of its debt securities or assets,
the Exercise Rate shall be adjusted in accordance with the formula:
E' = E x M
-----
M-F
where:
E' = the adjusted Exercise Rate;
E = the current Exercise Rate;
M = the Current Market Value; and
F = the fair market value (on the record date for the
distribution to which this subsection (iii) applies) of the
assets, securities, rights, warrants or options to be
distributed in respect of each share of Common Stock in the
distribution to which this subsection (iii) is being applied
(including, in the case of cash dividends or other cash
distributions giving rise to an adjustment, all such cash
distributed concurrently).
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the
record date for the determination of stockholders entitled to receive
the distribution. If at the end of the period during which such
rights, warrants or options are exercisable, not all rights, warrants
or options shall have been exercised, the Exercise Rate shall be
immediately readjusted to what it would have been if such rights,
warrants or options which are not exercised had not been issued.
This subsection (iii) does not apply to cash dividends or cash
distributions paid out of consolidated retained earnings as shown on
the books of Borrower prepared in accordance with generally accepted
accounting principles other than any Extraordinary Cash Dividend (as
defined below). An "Extraordinary Cash Dividend" shall be that
portion, if any, of the aggregate amount of all cash dividends paid in
any fiscal year which exceeds the sum of (A) Borrower cumulative
undistributed earnings on the date of this Agreement, plus (B) the
cumulative amount of earnings, as determined by the Board of
Directors, after such date, minus (C) the cumulative amount of
dividends accrued or paid in respect of the Common Stock. In all
cases, Borrower shall give the holder of this Note advance notice of a
record date for any dividend payment on the Common Stock which notice
is delivered on a date at least as early as the date of notice to the
holders of Common Stock.
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(iv) Consideration Received. For purposes of any computation
respecting consideration received pursuant to subsection (ii) of
Section 3(h), the following shall apply:
a. in the case of the issuance of shares of Common Stock
for cash, the consideration shall be the amount of such cash,
provided that in no case shall any deduction be made for any
commissions, discounts or other expenses incurred by Borrower for
any underwriting of the issue or otherwise in connection
therewith;
b. in the case of the issuance of shares of Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
market value thereof as determined in good faith by the Board of
Directors (irrespective of the accounting treatment thereof),
whose determination shall be conclusive, and described in a Board
resolution which shall be filed with the records of Borrower; and
c. in the case of the issuance of securities convertible
into or exchangeable for shares, the aggregate consideration
received therefor shall be deemed to be the consideration
received by Borrower for the issuance of such securities plus the
additional minimum consideration, if any, to be received by
Borrower upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as
provided in clauses (1) and (2) of this subsection).
(v) When De Minimis Adjustment May Be Deferred. No adjustment in
the Exercise Rate need be made unless the adjustment would require an
increase or decrease of at least 1% in the Exercise Rate. Any
adjustments that are not made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this
Section 3(h) shall be made to the nearest 1/100th of a share.
(vi) When No Adjustment Required. No adjustment need be made for
a transaction referred to in subsections (i), (ii) or (iii) of this
Section 3(h) if the holder of this Note is offered the opportunity to
participate in the transaction on a basis and with notice that the
Board of Directors determines to be fair and appropriate in light of
the basis and notice on which holders of Common Stock participate in
the transaction. To the extent this Note becomes convertible into
cash, no adjustment need be made thereafter as to the cash. Interest
will not accrue on the cash.
(vii) Notice of Adjustment. Whenever the Exercise Rate is
adjusted, Borrower shall provide the notices required by Section 3(j)
hereof.
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<PAGE>
(viii) Voluntary Adjustment. Borrower from time to time may, as the
Board of Directors deems appropriate, increase the Exercise Rate by any
amount for any period of time if the period is at least 20 days and if the
increase is irrevocable during the period. Whenever the Exercise Rate is
increased, Borrower shall mail to the holder of this Note a notice of the
increase. Borrower shall mail the notice at least 15 days before the date
the increased Exercise Rate takes effect. The notice shall state the
increased Exercise Rate and the period it will be in effect. An increase of
the Exercise Rate pursuant to this Section 3(h)(viii), other than an
increase which Borrower has irrevocably committed will be in effect for so
long as this Note is outstanding, does not change or adjust the Exercise
Rate otherwise in effect for purposes of subsections (i), (ii) or (iii) of
this Section 3(h).
(ix) Notice of Certain Transactions. If:
a. Borrower takes any action that would require an adjustment in
the Exercise Rate pursuant to subsections (i), (ii) or (iii) of this
Section 3(h) and if Borrower does not arrange for the holder of this
Note to participate pursuant to Section 3(h)(vi); or
b. there is a liquidation or dissolution of Borrower,
Borrower shall mail to the holder of this Note a notice stating the
proposed record date for a dividend or distribution or the proposed
effective date of a subdivision, combination, reclassification,
consolidation, merger, transfer, lease, liquidation or dissolution.
Borrower shall mail the notice at least 15 days before such date. Failure
to mail the notice or any defect in it shall not affect the validity of the
transaction.
(x) Reorganization of Borrower. If Borrower consolidates or merges
with or into, or transfers or leases all or substantially all its assets
to, any Person, upon consummation of such transaction this Note shall
automatically become exercisable for the kind and amount of securities,
cash or other assets which the holder of this Note would have owned
immediately after the consolidation, merger, transfer or lease if the
holder had exercised this Note immediately before the effective date of the
transaction. Concurrently with the consummation of such transaction, the
corporation formed by or surviving any such consolidation or merger if
other than Borrower, or the Person to which such sale or conveyance shall
have been made (any such Person, the "Successor Guarantor"), shall enter
into a supplemental Note so providing and further providing for adjustments
which shall be as nearly equivalent as may be practical to the adjustments
provided for in this Section 3(h). The Successor Guarantor shall mail to
the holder of this Note a notice describing the supplemental Note. If the
issuer of securities deliverable upon conversion of this Note under the
supplemental Note
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<PAGE>
is an Affiliate of the formed, surviving, transferee or lessee corporation,
that issuer shall join in the supplemental Note. If this subsection (x)
applies, subsections (i), (ii) or (iii) of this Section 3(h) do not apply.
(xi) Borrower Determination Final. Any determination that Borrower or
the Board of Directors must make pursuant to subsection (i), (ii), (iii),
(iv) or (vii) of this Section 3(h) is conclusive.
(xii) When Issuance or Payment May Be Deferred. In any case in which
this Section 3(h) shall require that an adjustment in the Exercise Rate be
made effective as of a record date for a specified event, Borrower may
elect to defer until the occurrence of such event (i) issuing to the holder
of this Note exercised after such record date the shares of Common Stock
and other capital stock of Borrower, if any, issuable upon such conversion
over and above the shares of Common Stock and other capital stock of
Borrower, if any, issuable upon such conversion on the basis of the
Exercise Rate and (ii) paying to such holder any amount in cash in lieu of
a fractional share pursuant to Section 3(i) hereof; provided, however, that
Borrower shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares
of Common Stock, other capital stock and cash upon the occurrence of the
event requiring such adjustment.
(xiii) Adjustments to Par Value. Borrower shall from time to time make
such adjustments to the par value of the Common Stock as may be necessary
so that at all times, upon conversion of this Note, the shares of Common
Stock will be fully paid and nonassessable.
(xiv) Priority of Adjustments. If this Section 3(h) requires
adjustments to the Exercise Rate under more than one of subsections (i),
(ii) or (iii), and the record dates for the distributions giving rise to
such adjustments shall occur on the same date, then such adjustments shall
be made by applying, first, the provisions of subsection (i), second, the
provisions of subsection (iii) and, third, the provisions of subsection
(ii).
(xv) Multiple Adjustments. After an adjustment to the Exercise Rate
under this Section 3(h), any subsequent event requiring an adjustment under
this Section 3(h) shall cause an adjustment to the Exercise Rate as so
adjusted.
(i) Fractional Interests; Accrued Interest. Borrower shall not be required
to issue fractional shares on the conversion of this Note. If any fraction of a
share would, except for the provisions of this Section 3(i), be issuable on the
conversion of this Note, Borrower shall pay to the holder an amount in cash
equal to the product of (i) such fraction of a share and (ii) the Current Market
Value of a share of Common Stock as of the date of conversion of this Note. Upon
any conversion of all or any portion of the
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<PAGE>
Adjusted Principal Amount in accordance with the terms hereof, Borrower shall
pay to the holder in cash all accrued but unpaid interest to the effective date
of conversion with respect to the portion of the Adjusted Principal Amount of
this Note being converted.
(j) Notices to Holder. Upon any adjustment of the Exercise Rate pursuant
to Section 3(h) hereof, Borrower shall promptly thereafter (i) cause to be
prepared a certificate of a firm of independent public accountants of recognized
standing selected by Borrower (who may be the regular auditors of Borrower)
setting forth the Exercise Rate after such adjustment and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculations are based and setting forth the number of shares (or portion
thereof) issuable after such adjustment in the Exercise Rate, upon conversion of
this Note, which certificate shall be conclusive evidence of the correctness of
the matters set forth therein, and (ii) cause to be given to the holder of this
Note at such holder's address appearing on the Note register written notice of
such adjustments by first-class mail, postage prepaid. Where appropriate, such
notice may be given in advance and included as a part of the notice required to
be mailed under the other provisions of this Section 3(j).
In the event:
(i) Borrower shall authorize the issuance to all holders of shares of
Common Stock of rights, options or warrants to subscribe for or purchase
shares of Common Stock or of any other subscription rights or warrants
(other than rights, options or warrants issued to all holders of its Common
Stock entitling them to subscribe for or purchase shares of Common Stock at
a price per share not less than 94% (100% if a stand-by underwriter is used
and charges Borrower commission) of the Current Market Value); or
(ii) Borrower shall authorize the distribution to all holders of
shares of Common Stock of evidences of its indebtedness or assets (other
than cash dividends or cash distributions payable out of consolidated
earnings or earned surplus or dividends payable in shares of Common Stock
or distributions referred to in subsection (i) of Section 3(h) hereof); or
(iii) of any consolidation or merger to which Borrower is a party or
of the conveyance or transfer of the properties and assets of Borrower
substantially as an entirety, or of any reclassification or change of
Common Stock issuable upon conversion of this Note (other than a change in
par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or a tender offer
or exchange offer for shares of Common Stock; or
(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of Borrower; or
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<PAGE>
(v) Borrower proposes to take any action (other than actions of
the character described in Section 3(h)(i) which would require an
adjustment of the Exercise Rate pursuant to Section 3(h);
then Borrower shall cause to be given to the registered holder of this Note
at its address appearing on the Note register, at least 20 days (or 15 days
in any case specified in clauses (i) or (ii) above) prior to the applicable
record date hereinafter specified, or promptly in the case of events for
which there is no record date, by first-class mail, postage prepaid, a
written notice stating (i) the date as of which the holders of record of
shares of Common Stock to be entitled to receive any such rights, options,
warrants or distribution are to be determined, or (ii) the initial
expiration date set forth in any tender offer or exchange offer for shares
of Common Stock, or (iii) the date on which any such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up is expected to become effective or consummated, and the date as
of which it is expected that holders of record of shares of Common Stock
shall be entitled to exchange such shares for securities or other property,
if any, deliverable upon such reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up. The failure
to give the notice required by this Section 3(j) or any defect therein
shall not affect the legality or validity of any distribution, right,
option, warrant, reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up, or the vote upon any
action.
Nothing contained in this Note shall be construed as conferring upon
the holder hereof the right to vote or to consent or to receive notice as
shareholders in respect of the meetings of shareholders or the election of
directors of Borrower or any other matter, or any rights whatsoever as
shareholders of Borrower.
4. Definitions. For purposes of Section 3 of this Note, the following
terms shall have the meanings indicated:
"Affiliate" means, with respect to another Person, any Person directly
or indirectly controlling or controlled by or under direct or indirect
common control with such other Person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by"
and "under common control with"), when used with respect to any Person,
means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities,
by contract or otherwise.
"Board of Directors" means the Board of Directors of Borrower.
"Business Day" shall mean any day other than a Saturday or a Sunday or
a day on which commercial banking institutions in The City of New York are
authorized by law to be closed.
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<PAGE>
"Current Market Value" per share of Common Stock or of any other
security at any date shall be the average of the daily market price, for
the twenty (20) consecutive trading days immediately preceding the day of
such determination. The market price for each such trading day shall be:
(i) the last reported sales price, regular way 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, regular way, in either case as reported on the New York
Stock Exchange ("NYSE") or, (ii) if such security is not listed or admitted
for trading on the NYSE, on the principal national securities exchange on
which such security is listed or admitted for trading or, (iii) 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 ("NASDAQ") or, (iv) 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
NASDAQ or, (v) if bid and asked prices for such security on such day shall
not have been reported through NASDAQ, the average of the bid and asked
prices on such day as furnished by any NYSE member firm regularly making a
market in such security selected for such purpose by the Chairman of the
Board or the Board of Directors or, (vi) if such bid and asked prices are
not so furnished, then the fair market value of the security as established
by the Board of Directors acting in their good faith reasonable judgment.
"Other Securities" means any stock (other than Common Stock) and other
securities of Borrower or any other Person (corporate or otherwise) which
the holder of this Note at any time shall be entitled to receive, or shall
have received, upon the conversion of this Note, in lieu of or in addition
to Common Stock, or which at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 3(h) hereof or otherwise.
"Person" means any individual, corporation, partnership, joint
venture, trust, estate, unincorporated organization or government or any
agency or political subdivision thereof.
"Time of Determination" means the time and date of the earlier of (i)
the determination of stockholders entitled to receive rights, warrants, or
options or a distribution, in each case, to which Sections 3(h)(ii) or
(iii) apply and (ii) the time ("Ex-Dividend Time") immediately prior to the
commencement of "ex-dividend" trading for such rights, warrants or
distribution on such national or regional exchange or market on which the
Common Stock is then listed or quoted.
5. Call Option.
Except as expressly set forth in this Section 5, Borrower is prohibited
from making any voluntary prepayment of this Note and shall not have any right
to cause the holder to convert any portion of the Adjusted Principal Amount
outstanding from time to time. From and after the fifth anniversary of the date
of this Note and on or prior to the Due Date, Borrower shall
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<PAGE>
have the right (the "Call Option") to repay the Adjusted Principal Amount then
outstanding, in whole but not in part, without premium or penalty (other than
the imposition, if applicable, of the Default Rate or "late charge" as provided
herein). Borrower may exercise the Call Option by giving the holder of this
Note at any time upon ninety (90) days' prior written notice of Borrower's
intention to exercise the Call Option, which notice shall state the date on
which the Call Option is to be consummated, the then current Adjusted Principal
Amount and all accrued interest and unpaid interest thereon, together with any
other sums evidenced by this Note, to be paid on such date. Upon the receipt of
any such notice, the holder shall have the right at any time prior to the date
proposed for such repurchase to convert any or all of the Adjusted Principal
Amount of this Note in accordance with the provisions of Section 3.
6. Default.
In the event that any one or more of the following events occur, this Note
shall become immediately due and payable at the option of Lender:
(a) Borrower or the Partnership, as applicable, shall fail to pay when
due any sums required to be paid under this Note or any other Loan
Documents, and such failure is not cured within 10 days after receipt of
written notice from Lender.
(b) To the extent any such failure, breach or inaccuracy has a
Material Adverse Effect (as hereinafter defined), the failure by Borrower
or the Partnership to perform or observe, as and when required, any
covenant, agreement, obligation or condition required to be performed or
observed under this Note or any other Loan Documents, or the existence of
any breach or inaccuracy in any of the representations, covenants or
warranties set forth in the Loan Documents, provided, however, that (i) no
default shall exist hereunder on account of a breach of any representation,
covenant or warranty set forth in the Loan Documents (other than this Note)
until either Borrower or Partnership, as applicable, shall have failed to
cure such breach within any applicable notice and cure period therein
provided; and (ii) no default shall exist hereunder on account of a breach
of any representation, covenant or warranty set forth herein unless and
until Lender shall provide written notice of such breach to Borrower, and
Borrower shall fail to cure the same within 30 days after receipt of such
notice, provided if such breach is of such a nature that it cannot be cured
within such 30 day period, it shall not constitute a default hereunder so
long as Borrower commences its cure of such breach within such 30 day
period and thereafter diligently and continuously proceeds with the curing
of same within a reasonable period of time not to exceed 180 days.
"Material Adverse Effect" means any material and adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of Borrower and its affiliates,
subsidiaries and any parent entity, taken as a whole.
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<PAGE>
7. Default Rate; Late Charge.
Upon the maturity of any portion of this Note, whether by acceleration or
otherwise, Borrower further promises to pay interest at the rate per annum equal
to the sum of 2.0%, plus the Interest Rate, on the then outstanding past-due
amount of principal, until such amount is paid in full. In addition, a late
charge of four percent (4%) of the amount of any installment or the amount due
on the Due Date which is not paid when due shall be due and payable to the
holder of this Note to cover the extra expense involved in handling delinquent
payments. Said "late charge" shall be due and payable upon demand of the
Lender.
8. Security; Governing Law.
(a) This Note evidences indebtedness incurred for the purpose of
financing the acquisition and development of real property, and payment of
this Note is secured by the Loan Documents. It is agreed that, at the
election of the holder hereof, the principal sum remaining unpaid hereon,
together with accrued interest thereon, shall become at once due and
payable at the place of payment aforesaid in the event that a default has
occurred under any of the Loan Documents.
(b) This Note shall be governed by, and construed in accordance with,
the laws of the State of New Mexico, United States.
9. Controlling General Provisions.
The provisions in this Section 9 shall govern and control over any
irreconcilably inconsistent provision, the Loan Documents or any other
instrument contemplated hereunder or thereunder. In no event shall the
aggregate of all interest paid or payable by Borrower to Lender ever exceed the
maximum rate of interest which may lawfully be charged to (or payable by)
Borrower under applicable law on the Adjusted Principal Amount of this Note from
time to time remaining unpaid. In this connection, it is expressly stipulated
and agreed that it is the intent of Lender and Borrower in the execution and
delivery of this Note to contract in strict compliance with any applicable usury
laws. In furtherance of the foregoing, none of the terms of the Loan Documents
or any such other instruments contemplated hereunder or thereunder shall ever be
construed to create a contract to charge or pay for interest in excess of the
maximum interest rate permitted to be contracted for, charged to, or payable by
Borrower under applicable law. Borrower and any guarantors, endorsers or other
parties now or hereafter becoming liable for payment of this Note shall never be
liable for interest in excess of the maximum interest that may be lawfully
charged under applicable law, and the provisions of this Section 9 shall govern
over all other provisions of the Loan Documents, and any other instruments
evidencing or securing the Loan, should such provisions be in apparent conflict
herewith.
16
<PAGE>
Specifically and without limiting the generality of the foregoing
paragraph, it is expressly agreed that:
(a) In the event of the payment of the principal of the Adjusted
Principal Amount of this Note, prior to the due date for payment
thereof, resulting from acceleration of maturity of this Note, if the
aggregate amounts of interest accruing hereunder prior to such payment
plus the amount of any interest accruing after such maturity up to the
date of payment and plus any other amounts paid or accrued in
connection with the Loan Documents, including, if applicable, all or
any portion of the value of any Common Stock issued to Lender under
Section 3 of this Note, which by law are deemed interest under such
Loan Documents and which aggregate amounts paid or accrued (if
calculated in accordance with the provisions of this Note other than
pursuant to this Section 9) would exceed the maximum lawful rate of
interest which could be charged on the principal balance of this Note
from the date hereof to the date of final payment thereof, then in
such event the amount of such excess shall be credited, as of the date
paid, toward the payment of principal of this Note so as to reduce the
amount of the final payments of Adjusted Principal Amount due on this
Note;
(b) If under any circumstances the aggregate amounts paid under
the Loan Documents prior to and incident to the final payment hereof,
including, without limitation, if applicable, all or any portion of
the value of any Common Stock issued to Lender under Section 3 of this
Note, include amounts which by applicable law are deemed interest and
which would exceed the maximum amount of interest which could lawfully
have been charged or collected on this Note, Borrower stipulates that
such payment and collection will have been and will be deemed to have
been the result of a mathematical error on the part of both Borrower
and Lender, and Lender shall promptly refund the amount of such excess
(to the extent only of the excess of such payments above the maximum
amount which could lawfully have been collected and retained) upon the
discovery of such error by the party receiving such payment or notice
thereof from the party making such payment; and
(c) All calculations as to the rate of interest contracted for,
charged or received under this Note or the other Loan Document which
are made for the purposes of determining whether such rate exceeds the
maximum rate of interest which may lawfully be charged shall be made,
to the extent permitted by applicable usury laws, if any, by
amortizing, prorating, allocating and spreading, in equal parts,
during the period of the full stated term of the Loan evidenced
hereby, all interest any time contracted for, charged or received from
Borrower or otherwise by Lender in connection with such indebtedness.
Notwithstanding anything contained in this Note or the other Loan Documents
to the contrary, interest under this Note shall never exceed the lesser of (1)
the highest non-usurious
17
<PAGE>
rate allowed by applicable law or (2) seventeen percent (17%) per annum on a
compounded basis.
10. Invalidity.
The parties hereto intend and believe that each provision of this Note
comports with all applicable laws and judicial decisions. However, if any
provision or provisions, or if any portion of any provision or provision, in
this Note is found by a court of law to be in violation of any applicable
ordinance, statute, law, administrative or judicial decision, or public policy,
and if such court should declare such portion, provision or provisions of this
Note to be illegal, invalid, void or unenforceable as written, then it is the
intent of all parties hereto (i) that such portion, provision or provisions
shall be given force to the fullest possible extent that they are legal, valid
and enforceable, (ii) that the remainder of this Note shall be construed as if
such illegal, invalid, void or unenforceable portion, provision or provisions
were not contained therein, and (iii) that the rights, obligations and interest
of Borrower and the holder hereof under the remainder of this Note shall
continue in full force and effect.
11. Waiver; Expenses.
(a) Borrower hereby waives presentment, demand for payment, notice of
dishonor and all other notices or demands in connection with the delivery,
acceptance, performance, default or enforcement of this Note and hereby
consents to and extensions of time, renewals, waivers or modifications that
may be granted or consented to by the holder of this Note in respect of the
time of payment or any other provision of this Note. Borrower hereby
waives and renounces for itself, its successors and assigns, all rights to
the benefits of any statute of limitations and any moratorium,
reinstatement, marshalling, forbearance, valuation, stay, extension,
redemption, appraisement, or exemption now provided, or which may hereafter
be provided, by the Constitution and laws of the United States and of any
state thereof, both as to itself and in and to all of its property, real
and personal against the enforcement and collection of the obligations
evidenced by this Note.
(b) In the event that the holder hereof shall institute any action for
the enforcement of the collection of this Note, there shall be immediately
due from Borrower in addition to the unpaid interest and principal, all
costs and expenses of such action, including but not limited to attorneys'
fees and expenses.
12. Miscellaneous.
(a) This Note and all provision hereof shall be binding upon Borrower
and its successors and assigns and shall inure to the benefit of Lender,
together with its successors and assigns, including each owner and holder
from time to time of this Note.
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<PAGE>
(b) Time is of the essence as to all dates set forth herein subject to
any applicable grace or cure period expressly provided herein or the in the
Loan Documents; provided, however, that unless otherwise stated, whenever
any payment to be made under this Note shall be stated to be due on a day
other than a business day, such payment may be made on the immediately
preceding business day. For purposes of this Note, a business day shall be
any day that is not a Saturday, Sunday or national bank holiday.
(c) All notices, demands or requests relating to any matters set forth
herein shall be in writing and delivered as set forth, and shall be
effective in the time set forth, in the Funding Agreement.
(d) Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS
HEREIN PROVIDED FOR.
19
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this Note as of the date set
forth above.
ATLANTIC HOMESTEAD VILLAGE INCORPORATED
By: /s/ David C. Dressler, Jr.
------------------------------------
Name: David C. Dressler, Jr.
Title: Managing Director
Address: 125 Lincoln Avenue
Santa Fe, New Mexico 87501
20
<PAGE>
EXHIBIT A
Form of Exercise Notice
(To Be Executed Upon Conversion of Note)
The undersigned hereby irrevocably elects to convert the entire outstanding
principal amount of the Note (currently $__________) into __________ shares of
Common Stock in accordance with the terms thereof. The undersigned requests
that a certificate for such shares be registered in the name of
________________, whose address is _____________________ and that such shares be
delivered to ________________________ whose address is __________________.
Date:
----------------------
---------------------------------
Name:
----------------------------
Title:
---------------------------
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<PAGE>
Exhibit 4.7
AMENDED AND RESTATED PROMISSORY NOTE
$17,955,354 May 28, 1996
This Amended and Restated Promissory Note (this "Note") is made and
delivered as of May 28, 1996, to Security Capital Atlantic Incorporated, a
Maryland corporation ("Lender"), by Atlantic Homestead Village Limited
Partnership, a Delaware limited partnership ("Borrower"), under the following
circumstances:
RECITALS
A. Pursuant to that certain promissory note (the "Prior Partnership Note")
dated January 24, 1996 from Borrower to Lender, in the original principal amount
of $19,213,476 (the "Prior Partnership Loan Amount") and various deeds of trust
and mortgages (the "Prior Partnership Security Documents"), delivered by
Borrower to Lender to secure payment of the Prior Partnership Note and the Prior
Corporate Note (as defined below), prior to the date hereof, Lender has agreed
to advance funds to fund, among other matters, acquisition and construction
costs and expense incurred by Borrower in connection with acquiring and
developing various real properties as Homestead Village projects. (The Prior
Partnership Note, the Prior Partnership Security Documents and all other
instruments delivered in connection therewith to secure the Prior Partnership
Note and the Prior Corporate Note are herein called the "Prior Partnership Loan
Documents.")
B. Pursuant to that certain promissory note (the "Prior Corporate Note")
dated January 24, 1996 from Atlantic Homestead Village Incorporated (the
"Corporate Borrower") to Lender, in the original principal amount of $62,031,430
(the "Prior Corporate Loan Amount") and various deeds of trust and mortgages
(the "Prior Corporate Security Documents"), delivered by the Corporate Borrower
to Lender to secure payment of the Prior Corporate Note, prior to the date
hereof, Lender has also agreed to advance funds to fund, among other matters,
acquisition and construction costs and expenses incurred by the Corporate
Borrower in connection with acquiring and developing various real properties as
Homestead Village projects. (The Prior Corporate Note, the Prior Corporate
Security Documents and all other instruments delivered by the Corporate Borrower
in connection therewith to secure the Prior Corporate Note and the Prior
Partnership Note are herein called the "Prior Corporate Loan Documents." The
Prior Corporate Loan Documents and Prior Partnership Loan Documents are
collectively referred to herein as the "Prior Loan Documents.")
C. The Corporate Borrower, Borrower and Lender desire to continue the
funding provided for under the Prior Loan Documents, to provide funds to
Borrower and the Corporate Borrower for the costs incurred in connection with
the acquisition and development of
<PAGE>
Homestead Village projects, and Borrower, the Corporate Borrower and Lender has
agreed to increase the Prior Corporate Loan Amount to $80,073,117 (the
"Corporate Loan"), to decrease the Prior Partnership Loan Amount to $17,955,354
(the "Partnership Loan"), and to amend and restate the Prior Loan Documents in
connection therewith (such loans being collectively called the "Loans"). In
connection with such amendment and restatement of the Prior Loan Documents,
contemporaneously with the execution and delivery of this Note, the Corporate
Borrower is executing and delivering to Lender that certain promissory note in
the amount of $18,041,687 (the "Additional Corporate Note"). Subsequent to the
execution and delivery of the Additional Corporate Note, the Corporate Borrower
is executing and delivering that certain Consolidated Amended and Restated Note
in the principal amount of $80,073,117 (the "Corporate Note"), which Corporate
Note renews and consolidates the outstanding principal balance of the Prior
Corporate Note plus the amounts not yet disbursed under such note and the amount
not yet disbursed on the Additional Corporate Note. The amended and restated
Prior Loan Documents being executed and delivered contemporaneously herewith,
and any and all other agreements or instruments now or hereafter executed by
Borrower, the Corporate Borrower or any other person or entity to evidence, or
in connection with, or as security for the payment of this Note and/or the
Corporate Note are herein collectively, with such notes, referred to as the
"Loan Documents".
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender agree to amend and restate the Prior
Partnership Note as follows:
1. Promise to Pay.
On or before October 31, 2006 (the "Due Date"), the undersigned Borrower,
hereby promises to pay to the order of Lender in lawful money of the United
States of America, the lesser of (i) SEVENTEEN MILLION NINE HUNDRED FIFTY FIVE
THOUSAND THREE HUNDRED FIFTY FOUR DOLLARS ($17,955,354) and (ii) the aggregate
unpaid principal amount of all advances made by Lender to Borrower under this
Note (the amount so determined being herein called the "Adjusted Principal
Amount"), together with interest on the Adjusted Principal Amount at a rate
equal to 9.0% per annum (the "Interest Rate"). Interest shall be calculated on
the basis of a 360-day year and shall be computed on the actual number of days
elapsed.
2. Payments.
Accrued interest on the unpaid Adjusted Principal Amount shall be payable
in arrears every six months beginning with the date that is six months after the
date of this Note, in an amount equal to all of the interest accrued during the
immediately preceding six month period. Borrower shall make a payment of the
total Adjusted Principal Amount then outstanding, together with accrued and
unpaid interest to such date, on the Due Date. Borrower shall have no obligation
to pay the Adjusted Principal Amount, or any portion thereof, until the Due Date
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<PAGE>
or such earlier date upon which the loan is accelerated. Borrower shall make
each payment hereunder not later than 11:00 a.m. (Mountain Standard Time) on the
day when due in U.S. dollars at Lender's office at 7777 Market Center Avenue, El
Paso, Texas 79912. Each payment shall first be applied to late charges, costs of
collection or enforcement and other similar amounts due, if any, under this
Note, then to interest due and payable hereunder and the remainder to the
Adjusted Principal Amount due and payable hereunder. The aggregate unpaid
Adjusted Principal Amount shown on the records of Lender shall be rebuttable
presumptive evidence of the Adjusted Principal Amount owing and unpaid on this
Note.
3. Conversion. Subject to the terms of this Note, the holder of this Note
shall have the right, beginning on any Business Day (as defined below) on or
after March 31, 1997 (the "Exercisability Date") and on or prior to the date on
which this Note is fully paid, to convert to shares of Common Stock all or any
portion of the Adjusted Principal Amount outstanding on this Note, on the basis
of one fully paid, registered and nonassessable share of common stock $0.01 par
value per share (the "Common Stock"), of the Corporate Borrower, for each $11.50
aggregate Adjusted Principal Amount outstanding on this Note. The number of
shares of Common Stock into which this Note may be converted, as adjusted
pursuant hereto, is referred to herein as the "Exercise Rate". For purposes of
this Note, certain capitalized terms used below are defined in Section 4 of this
Note.
(a) The conversion rights under this Section 3 of this Note may be
exercised from time to time on and after the Exercisability Date and on or
prior to the Due Date by surrendering this Note at the principal office of
Borrower with the form of conversion election set forth as Exhibit A hereto
(the "Conversion Exercise") duly completed and signed by the holder of this
Note.
(b) Except as otherwise provided in Section 3(h)(vi) no payment shall
be made on Common Stock issuable upon conversion of this Note on account of
any dividend or distribution declared on the Corporate Borrower's Common
Stock to holders of such Common Stock of record as of a date prior to the
Exercise Date.
(c) The "Exercise Date" shall be the date when all of the items
referred to in subsection (a) of this Section 3 are received by Borrower at
or prior to 2:00 p.m., New York, New York time, on a Business Day and the
conversion of this Note will be effective as of such Exercise Date. If any
items referred to in subsection (a) are received after 2:00 p.m., New York,
New York time, on a Business Day, the conversion of this Note will be
effective on the next succeeding Business Day. Notwithstanding the
foregoing, in the case of a conversion of this Note on the Expiration Date,
if all of the items referred to in the preceding paragraph are received by
Borrower at or prior to 5:00 p.m. New York, New York time, on such
Expiration Date, the conversion of this Note will be effective on the
Expiration Date.
(d) Upon the conversion of this Note in accordance with the terms
hereof the Corporate Borrower shall issue and cause to be delivered with
all reasonable dispatch to
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<PAGE>
or upon the written order of the holder of this Note, a certificate or
certificates for the number of full shares of Common Stock issuable upon
the conversion of this Note, in fully registered form, registered in such
name or names as may be directed by such holder pursuant to the Conversion
Exercise, together with cash as provided in Section 3(i) hereof and shall
deliver to holder a duly executed replacement note representing the
aggregate principal amount of this Note outstanding less any amount
previously converted (in each case, without the adjustment provided for in
Section 1 of this Note), but otherwise in the same form as this Note;
provided, however, that if any consolidation, merger or lease or sale of
assets is proposed to be effected by the Corporate Borrower as described in
Section 3(h)(x) hereof, or a tender offer or an exchange offer for shares
of Common Stock of the Corporate Borrower shall be made, upon such
surrender of this Note as aforesaid, the Corporate Borrower shall, as soon
as possible, but in any event not later than two Business Days thereafter,
issue and cause to be delivered the full number of shares of Common Stock
issuable upon the conversion of this Note in the manner described in this
sentence together with cash as provided in Section 3(i) hereof. Such
certificate or certificates shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a
holder of record or such shares of Common Stock as of the date of the
surrender of this Note. No fractional shares shall be issued upon
conversion of this Note in accordance with Section 3(i) hereof.
(e) Borrower will pay all documentary stamp taxes attributable to the
initial issuance of this Note and the issuance of shares of Common Stock
upon conversion of this Note; provided, however, that Borrower shall not be
required to pay any tax or taxes which may be payable in respect of any
transfer involved in the issuance of this Note or any certificates for
shares of Common Stock in a name other than that of the registered holder
of this Note surrendered upon the exercise hereof, and Borrower shall not
be required to issue or deliver such Note unless or until the person or
persons requesting the issuance thereof shall have paid to Borrower the
amount of such tax or shall have established to the satisfaction of
Borrower that such tax has been paid.
(f) The Corporate Borrower will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its
authorized but unissued shares of Common Stock, for the purpose of enabling
it to satisfy any obligation to issue shares of Common Stock upon
conversion of this Note, the maximum number of shares of Common Stock which
may then be deliverable upon the conversion of this Note. The Corporate
Borrower or the transfer agent for the Common Stock (the "Transfer Agent")
and every subsequent transfer agent for any shares of the Corporate
Borrower's capital stock issuable upon the exercise of any of the
conversion rights aforesaid will be irrevocably authorized and directed at
all times to reserve such number of authorized shares as shall be required
for such purpose. Before taking any action which would cause an adjustment
pursuant to this Section 3 to reduce the Exercise Price below the then par
value (if any) of the shares issuable upon conversion of this Note, the
Corporate Borrower will take any corporate action which may, in the opinion
of its counsel (which
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<PAGE>
may be counsel employed by the Corporate Borrower), be necessary in order
that the Corporate Borrower may validly and legally issue fully paid and
nonassessable shares of Common Stock at the Exercise Price as so adjusted.
(g) At any such time as Common Stock is listed or quoted on any
national securities exchange or inter-dealer quotation system, the
Corporate Borrower will, at its expense, obtain promptly and maintain the
approval for listing or quotation on each such exchange or inter-dealer
quotation system, upon official notice of issuance after notice of
conversion of this Note, the shares of Common Stock issuable hereunder and
maintain the listing or quotation of such shares after their issuance; and
the Corporate Borrower will also, upon official notice of issuance after
notice of conversion of this Note, list or quote on such national
securities exchange, will register under the Securities Exchange Act of
1934, as amended, and will maintain such listing or quotation of, any Other
Securities (as defined below) that at any time are issuable upon conversion
of this Note, if and at the time that any securities of the same class
shall be listed or quoted on such national securities exchange or inter-
dealer quotation system by the Corporate Borrower.
(h) The Exercise Rate is subject to adjustment from time to time upon
the occurrence of the events enumerated in this Section 3(h). For purposes
of this Section 3(h), "Common Stock" means the Common Stock and any other
stock of the Corporate Borrower, however designated, issuable upon
conversion of this Note.
(i) Adjustment for Change in Capital Stock. If the Corporate
Borrower:
a. pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock;
b. subdivides its outstanding shares of Common Stock into a
greater number of shares;
c. combines its outstanding shares of Common Stock into a
smaller number of shares;
d. makes a distribution on its Common Stock in shares of
its capital stock other than Common Stock; or
e. issues by reclassification of its Common Stock any
shares of its capital stock,
then the Exercise Rate in effect immediately prior to such action
shall be proportionately adjusted so that the holder of this Note may
receive the aggregate number and kind of shares of capital stock of
the Corporate Borrower which such holder would have owned immediately
following such action if this Note had been
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<PAGE>
exercised immediately prior to such action or immediately prior to the
record date applicable thereto, if any.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or
reclassification.
If, after an adjustment, a holder of this Note, upon conversion, may
receive shares of two or more classes of capital stock of the Corporate
Borrower, the Exercise Rate of each class of capital stock shall thereafter
be subject to adjustment on terms comparable to those applicable to Common
Stock in this Section 3(h).
Such adjustment shall be made successively whenever any event listed
above shall occur.
(ii) Adjustment for Rights Issue or Sale of Common Stock Below Current
Market Value. If the Corporate Borrower (i) distributes any rights,
warrants or options to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price per share less
than 94% (100% if a stand-by underwriter is used and charges the Corporate
Borrower a commission) of the Current Market Value at the Time of
Determination (each as defined in Section 4) or (ii) sells any Common Stock
or any securities convertible into or exchangeable or exercisable for the
Common Stock (other than pursuant to (1) the exercise of this Note (or any
other note issued by the Corporate Borrower or one of its subsidiaries
pursuant to or in connection with that certain Merger and Distribution
Agreement dated of even date herewith among Lender, Security Capital
Pacific Trust ("PTR"), Security Capital Group Incorporated ("SCG") and
Homestead Village Properties Incorporated ("Homestead") or (2) upon
exercise of outstanding warrants to acquire shares of Common Stock, which
warrants were issued pursuant to a Warrant Agreement executed in connection
with that certain Warrant Purchase Agreement of even date herewith among
Lender, PTR, SCG and Homestead or (3) any security convertible into, or
exchangeable or exercisable for, the Common Stock as to which the issuance
thereof has previously been the subject of any required adjustment (whether
or not actually made) pursuant to this Section 3(h)) at a price per share
less than the Current Market Value, the Exercise Rate shall be adjusted in
accordance with the formula:
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<PAGE>
E' = E x (O + N)
---------------
(O + (N x P/M))
where:
E' = the adjusted Exercise Rate;
E = the current Exercise Rate;
O = the number of shares of Common Stock outstanding on the record date
for the distribution to which this subsection (ii) is being applied or
on the date of sale of Common Stock at a price per share less than the
Current Market Value to which this subsection (ii) applies, as the
case may be;
N = the number of additional shares of Common Stock issuable upon exercise
of all rights, warrants and options so distributed or the number of
shares of Common Stock so sold or the maximum stated number of shares
of Common Stock issuable upon the conversion, exchange or exercise of
any such convertible, exchangeable or exercisable securities, as the
case may be;
P = the offering price per share of the additional shares of Common Stock
upon the exercise of any such rights, options or warrants so
distributed or pursuant to any such convertible, exchangeable or
exercisable securities so sold or the sale price of the shares so
sold, as the case may be; and
M = the Current Market Value as of the Time of Determination or at
the time of sale, as the case may be.
The adjustment shall be made successively whenever any such rights,
warrants or options are issued and shall become effective immediately after
the record date for the determination of stockholders entitled to receive
the rights, warrants or options. If at the end of the period during which
such rights, warrants or options are exercisable, not all rights, warrants
or options shall have been exercised, the Exercise Rate shall be
immediately readjusted to what it would have been if "N" in the above
formula had been the number of shares actually issued.
No adjustment shall be made under this subsection (ii) if the
application of the formula stated above in this subsection (ii) would
result in a value of E' that is lower than the value of E.
(iii) Adjustment for Other Distributions. If the Corporate Borrower
distributes to all holders of its Common Stock any of its assets or debt
securities
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<PAGE>
or any rights, warrants or options to purchase any of its debt securities
or assets, the Exercise Rate shall be adjusted in accordance with the
formula:
E' = E x M
---
M-F
where:
E' = the adjusted Exercise Rate;
E = the current Exercise Rate;
M = the Current Market Value; and
F = the fair market value (on the record date for the distribution to
which this subsection (iii) applies) of the assets, securities,
rights, warrants or options to be distributed in respect of each
share of Common Stock in the distribution to which this
subsection (iii) is being applied (including, in the case of cash
dividends or other cash distributions giving rise to an
adjustment, all such cash distributed concurrently).
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the
distribution. If at the end of the period during which such rights,
warrants or options are exercisable, not all rights, warrants or options
shall have been exercised, the Exercise Rate shall be immediately
readjusted to what it would have been if such rights, warrants or options
which are not exercised had not been issued.
This subsection (iii) does not apply to cash dividends or cash
distributions paid out of consolidated retained earnings as shown on the
books of the Corporate Borrower prepared in accordance with generally
accepted accounting principles other than any Extraordinary Cash Dividend
(as defined below). An "Extraordinary Cash Dividend" shall be that portion,
if any, of the aggregate amount of all cash dividends paid in any fiscal
year which exceeds the sum of (A) the Corporate Borrower's cumulative
undistributed earnings on the date of this Agreement, plus (B) the
cumulative amount of earnings, as determined by the Board of Directors,
after such date, minus (C) the cumulative amount of dividends accrued or
paid in respect of the Common Stock. In all cases, Borrower shall give the
holder of this Note advance notice of a record date for any dividend
payment on the Common Stock which notice is delivered on a date at least as
early as the date of notice to the holders of Common Stock.
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<PAGE>
(iv) Consideration Received. For purposes of any computation
respecting consideration received pursuant to subsection (ii) of Section
3(h), the following shall apply:
a. in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided
that in no case shall any deduction be made for any commissions,
discounts or other expenses incurred by the Corporate Borrower for any
underwriting of the issue or otherwise in connection therewith;
b. in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors (irrespective of
the accounting treatment thereof), whose determination shall be
conclusive, and described in a Board resolution which shall be filed
with the records of the Corporate Borrower; and
c. in the case of the issuance of securities convertible into
or exchangeable for shares, the aggregate consideration received
therefor shall be deemed to be the consideration received by the
Corporate Borrower for the issuance of such securities plus the
additional minimum consideration, if any, to be received by the
Corporate Borrower upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as
provided in clauses (1) and (2) of this subsection).
(v) When De Minimis Adjustment May Be Deferred. No adjustment in the
Exercise Rate need be made unless the adjustment would require an increase
or decrease of at least 1% in the Exercise Rate. Any adjustments that are
not made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 3(h) shall be made to the
nearest 1/100th of a share.
(vi) When No Adjustment Required. No adjustment need be made for a
transaction referred to in subsections (i), (ii) or (iii) of this Section
3(h) if the holder of this Note is offered the opportunity to participate
in the transaction on a basis and with notice that the Board of Directors
determines to be fair and appropriate in light of the basis and notice on
which holders of Common Stock participate in the transaction. To the extent
this Note becomes convertible into cash, no adjustment need be made
thereafter as to the cash. Interest will not accrue on the cash.
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<PAGE>
(vii) Notice of Adjustment. Whenever the Exercise Rate is adjusted,
the Corporate Borrower shall provide the notices required by Section 3(j)
hereof.
(viii) Voluntary Adjustment. The Corporate Borrower from time to time
may, as the Board of Directors deems appropriate, increase the Exercise
Rate by any amount for any period of time if the period is at least 20 days
and if the increase is irrevocable during the period. Whenever the Exercise
Rate is increased, the Corporate Borrower shall mail to the holder of this
Note a notice of the increase. The Corporate Borrower shall mail the notice
at least 15 days before the date the increased Exercise Rate takes effect.
The notice shall state the increased Exercise Rate and the period it will
be in effect. An increase of the Exercise Rate pursuant to this Section
3(h)(viii), other than an increase which the Corporate Borrower has
irrevocably committed will be in effect for so long as any this Note is
outstanding, does not change or adjust the Exercise Rate otherwise in
effect for purposes of subsections (i), (ii) or (iii) of this Section 3(h).
(ix) Notice of Certain Transactions. If:
a. The Corporate Borrower takes any action that would require an
adjustment in the Exercise Rate pursuant to subsections (i), (i) or
(iii) of this Section 3(h) and if the Corporate Borrower does not
arrange for the holder of this Note to participate pursuant to Section
3(h)(vi); or
b. there is a liquidation or dissolution of the Corporate
Borrower,
The Corporate Borrower shall mail to the holder of this Note a notice
stating the proposed record date for a dividend or distribution or the
proposed effective date of a subdivision, combination, reclassification,
consolidation, merger, transfer, lease, liquidation or dissolution. The
Corporate Borrower shall mail the notice at least 15 days before such date.
Failure to mail the notice or any defect in it shall not affect the
validity of the transaction.
(x) Reorganization of the Corporate Borrower. If the Corporate
Borrower consolidates or merges with or into, or transfers or leases all or
substantially all its assets to, any Person, upon consummation of such
transaction this Note shall automatically become exercisable for the kind
and amount of securities, cash or other assets which the holder of this
Note would have owned immediately after the consolidation, merger, transfer
or lease if the holder had exercised this Note immediately before the
effective date of the transaction. Concurrently with the consummation of
such transaction, the corporation formed by or surviving any such
consolidation or merger if other than the Corporate Borrower, or the Person
to which such sale or conveyance shall have been made (any such Person, the
"Successor Guarantor"), shall enter into a supplemental
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<PAGE>
Note so providing and further providing for adjustments which shall be
as nearly equivalent as may be practical to the adjustments provided
for in this Section 3(h). The Successor Guarantor shall mail to the
holder of this Note a notice describing the supplemental Note. If the
issuer of securities deliverable upon conversion of this Note under
the supplemental Note is an Affiliate of the formed, surviving,
transferee or lessee corporation, that issuer shall join in the
supplemental Note. If this subsection (x) applies, subsections (i),
(ii) or (iii) of this Section 3(h) do not apply.
(xi) Corporate Borrower Determination Final. Any determination
that the Corporate Borrower or the Board of Directors must make
pursuant to subsection (i), (ii), (iii), (iv) or (vii) of this Section
3(h) is conclusive.
(xii) When Issuance or Payment May Be Deferred. In any case in
which this Section 3(h) shall require that an adjustment in the
Exercise Rate be made effective as of a record date for a specified
event, the Corporate Borrower may elect to defer until the occurrence
of such event (i) issuing to the holder of this Note exercised after
such record date the shares of Common Stock and other capital stock of
the Corporate Borrower, if any, issuable upon such conversion over and
above the shares of Common Stock and other capital stock of the
Corporate Borrower, if any, issuable upon such conversion on the basis
of the Exercise Rate and (ii) paying to such holder any amount in cash
in lieu of a fractional share pursuant to Section 3(i) hereof;
provided, however, that the Corporate Borrower shall deliver to such
holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares of Common Stock,
other capital stock and cash upon the occurrence of the event
requiring such adjustment.
(xiii) Adjustments to Par Value. The Corporate Borrower shall
from time to time make such adjustments to the par value of the Common
Stock as may be necessary so that at all times, upon conversion of
this Note, the shares of Common Stock will be fully paid and
nonassessable.
(xiv) Priority of Adjustments. If this Section 3(h) requires
adjustments to the Exercise Rate under more than one of subsections
(i)(4), (ii) or (iii), and the record dates for the distributions
giving rise to such adjustments shall occur on the same date, then
such adjustments shall be made by applying, first, the provisions of
subsection (i), second, the provisions of subsection (iii) and, third,
the provisions of subsection (ii).
(xv) Multiple Adjustments. After an adjustment to the Exercise
Rate under this Section 3(h), any subsequent event requiring an
adjustment under this Section 3(h) shall cause an adjustment to the
Exercise Rate as so adjusted.
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<PAGE>
(i) Fractional Interests; Accrued Interest. The Corporate Borrower
shall not be required to issue fractional shares on the conversion of this
Note. If any fraction of a share would, except for the provisions of this
Section 3(i), be issuable on the conversion of this Note, the Corporate
Borrower shall pay to the holder an amount in cash equal to the product of
(i) such fraction of a share and (ii) the Current Market Value of a share
of Common Stock as of the date of conversion of this Note. Upon any
conversion of all or any portion of the Adjusted Principal Amount in
accordance with the terms hereof, Borrower shall pay to the holder in cash
all accrued but unpaid interest to the effective date of conversion with
respect to the portion of the Adjusted Principal Amount of this Note being
converted.
(j) Notices to Holder. Upon any adjustment of the Exercise Rate
pursuant to Section 3(h) hereof, the Corporate Borrower shall promptly
thereafter (i) cause to be prepared a certificate of a firm of independent
public accountants of recognized standing selected by the Corporate
Borrower (who may be the regular auditors of the Corporate Borrower)
setting forth the Exercise Rate after such adjustment and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculations are based and setting forth the number of shares (or portion
thereof) issuable after such adjustment in the Exercise Rate, upon
conversion of this Note, which certificate shall be conclusive evidence of
the correctness of the matters set forth therein, and (ii) cause to be
given to the holder of this Note at such holder's address appearing on the
Note register written notice of such adjustments by first-class mail,
postage prepaid. Where appropriate, such notice may be given in advance
and included as a part of the notice required to be mailed under the other
provisions of this Section 3(j).
In the event:
(i) The Corporate Borrower shall authorize the issuance to all
holders of shares of Common Stock of rights, options or warrants to
subscribe for or purchase shares of Common Stock or of any other
subscription rights or warrants (other than rights, options or
warrants issued to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price per share
not less than 94% (100% if a stand-by underwriter is used and charges
the Corporate Borrower commission) of the Current Market Value); or
(ii) The Corporate Borrower shall authorize the distribution to
all holders of shares of Common Stock of evidences of its indebtedness
or assets (other than cash dividends or cash distributions payable out
of consolidated earnings or earned surplus or dividends payable in
shares of Common Stock or distributions referred to in subsection (i)
of Section 3(h) hereof); or
(iii) of any consolidation or merger to which the Corporate
Borrower is a party or of the conveyance or transfer of the properties
and assets of the Corporate Borrower substantially as an entirety, or
of any reclassification or
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<PAGE>
change of Common Stock issuable upon conversion of this Note (other
than a change in par value, or from par value to no par value, or from
no par value to par value, or as a result of a subdivision or
combination), or a tender offer or exchange offer for shares of Common
Stock; or
(iv) of the voluntary or involuntary dissolution, liquidation
or winding up of the Corporate Borrower; or
(v) The Corporate Borrower proposes to take any action
(other than actions of the character described in Section 3(h)(i)
which would require an adjustment of the Exercise Rate pursuant to
Section 3(h);
then the Corporate Borrower shall cause to be given to the registered
holder of this Note at its address appearing on the Note register, at least
20 days (or 15 days in any case specified in clauses (i) or (ii) above)
prior to the applicable record date hereinafter specified, or promptly in
the case of events for which there is no record date, by first-class mail,
postage prepaid, a written notice stating (i) the date as of which the
holders of record of shares of Common Stock to be entitled to receive any
such rights, options, warrants or distribution are to be determined, or
(ii) the initial expiration date set forth in any tender offer or exchange
offer for shares of Common Stock, or (iii) the date on which any such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up is expected to become effective or consummated,
and the date as of which it is expected that holders of record of shares of
Common Stock shall be entitled to exchange such shares for securities or
other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up. The failure to give the notice required by this Section 3(j)
or any defect therein shall not affect the legality or validity of any
distribution, right, option, warrant, reclassification, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up, or
the vote upon any action.
Nothing contained in this Note shall be construed as conferring upon
the holder hereof the right to vote or to consent or to receive notice as
shareholders in respect of the meetings of shareholders or the election of
directors of the Corporate Borrower or any other matter, or any rights
whatsoever as shareholders of the Corporate Borrower.
4. Definitions. For purposes of this Note, the following terms shall
have the meanings indicated:
"Affiliate" means, with respect to another Person, any Person directly
or indirectly controlling or controlled by or under direct or indirect
common control with such other Person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), when used with respect to
any Person, means the power to direct the management and
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<PAGE>
policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise.
"Board of Directors" means the Board of Directors of the Corporate
Borrower.
"Business Day" shall mean any day other than a Saturday or a Sunday or
a day on which commercial banking institutions in The City of New York are
authorized by law to be closed.
"Current Market Value" per share of Common Stock or of any other
security at any date shall be the average of the daily market price, for
the twenty (20) consecutive trading days immediately preceding the day of
such determination. The market price for each such trading day shall be:
(i) the last reported sales price, regular way 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, regular way, in either case as reported on the New York
Stock Exchange ("NYSE") or, (ii) if such security is not listed or admitted
for trading on the NYSE, on the principal national securities exchange on
which such security is listed or admitted for trading or, (iii) 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 ("NASDAQ") or, (iv) 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
NASDAQ or, (v) if bid and asked prices for such security on such day shall
not have been reported through NASDAQ, the average of the bid and asked
prices on such day as furnished by any NYSE member firm regularly making a
market in such security selected for such purpose by the Chairman of the
Board or the Board of Directors or, (vi) if such bid and asked prices are
not so furnished, then the fair market value of the security as established
by the Board of Directors acting in their good faith reasonable judgment.
"Other Securities" means any stock (other than Common Stock) and other
securities of the Corporate Borrower or any other Person (corporate or
otherwise) which the holder of this Note at any time shall be entitled to
receive, or shall have received, upon the conversion of this Note, in lieu
of or in addition to Common Stock, or which at any time shall be issuable
or shall have been issued in exchange for or in replacement of Common Stock
or Other Securities pursuant to Section 3(h) hereof or otherwise.
"Person" means any individual, corporation, partnership, joint
venture, trust, estate, unincorporated organization or government or any
agency or political subdivision thereof.
"Time of Determination" means the time and date of the earlier of (i)
the determination of stockholders entitled to receive rights, warrants, or
options or a distribution, in each case, to which Sections 3(h)(ii) or
(iii) apply and (ii) the time ("Ex-Dividend Time") immediately prior to the
commencement of "ex-dividend" trading
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for such rights, warrants or distribution on such national or regional
exchange or market on which the Common Stock is then listed or quoted.
5. Call Option. Except as expressly set forth in this Section 5,
Borrower is prohibited from making any voluntary prepayment of this Note and
shall not have any right to cause the holder to convert any portion of the
Adjusted Principal Amount outstanding from time to time. From and after the
fifth anniversary of the date of this Note and on or prior to the Due Date,
Borrower shall have the right (the "Call Option") to repay the Adjusted
Principal Amount then outstanding, in whole but not in part, without premium or
penalty (other than the imposition, if applicable, of the Default Rate or "late
charge" as provided herein). Borrower may exercise the Call Option by giving
the holder of this Note at any time upon ninety (90) days' prior written notice
of Borrower's intention to exercise the Call Option, which notice shall state
the date on which the Call Option is to be consummated, the then current
Adjusted Principal Amount and all accrued interest and unpaid interest thereon,
together with any other sums evidenced by this Note, to be paid on such date.
Upon the receipt of any such notice, the holder shall have the right at any time
prior to the date proposed for such repurchase to convert any or all of the
Adjusted Principal Amount of this Note in accordance with the provisions of
Section 3.
6. Default.
In the event that any one or more of the following events occur, this Note
shall become immediately due and payable at the option of Lender:
(a) Borrower or the Corporate Borrower, as applicable, shall fail to
pay when due any sums required to be paid under this Note or any other Loan
Documents, and such failure is not cured within 10 days after receipt of
written notice from Lender.
(b) To the extent any such failure, breach or inaccuracy has a
Material Adverse Effect (as hereinafter defined), the failure by Borrower
or the Corporate Borrower to perform or observe, as and when required, any
covenant, agreement, obligation or condition required to be performed or
observed under this Note or any other Loan Documents, or the existence of
any breach or inaccuracy in any of the representations, covenants or
warranties set forth in the Loan Documents, provided, however, that (i) no
default shall exist hereunder on account of a breach of any representation,
covenant or warranty set forth in the Loan Documents (other than this Note)
until either Borrower or the Corporate Borrower, as applicable, shall have
failed to cure such breach within any applicable notice and cure period
therein provided; and (ii) no default shall exist hereunder on account of a
breach of any representation, covenant or warranty set forth herein unless
and until Lender shall provide written notice of such breach to Borrower,
and Borrower shall fail to cure the same within 30 days after receipt of
such notice, provided if such breach is of such a nature that it cannot be
cured within such 30 day period, it shall not constitute a default
hereunder so long as Borrower commences its cure of such breach within such
30 day period and thereafter
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diligently and continuously proceeds with the curing of same within a
reasonable period of time not to exceed 180 days. "Material Adverse
Effect" means any material and adverse effect on the business, operations,
properties, assets, condition (financial or other), results of operations
or prospects of Borrower and its affiliates, subsidiaries and any parent
entity, taken as a whole.
7. Default Rate; Late Charge.
Upon the maturity of any portion of this Note, whether by acceleration or
otherwise, Borrower further promises to pay interest at the rate per annum equal
to the sum of (x) 2.0%, plus the Interest Rate, on the then outstanding past-due
Adjusted Principal Amount, until such amount is paid in full. In addition, a
late charge of four percent (4%) of the amount of any installment or the amount
due on the Due Date which is not paid when due shall be due and payable to the
holder of this Note to cover the extra expense involved in handling delinquent
payments. Said "late charge" shall be due and payable upon demand of the
Lender.
8. Security; Governing Law.
(a) This Note evidences indebtedness incurred for the purpose of
financing the acquisition and development of real property, and payment of
this Note is secured by the Loan Documents. It is agreed that, at the
election of the holder hereof, the principal sum remaining unpaid hereon,
together with accrued interest thereon, shall become at once due and
payable at the place of payment aforesaid in the event that a default has
occurred under any of the Loan Documents.
(b) This Note shall be governed by, and construed in accordance with,
the laws of the State of New Mexico, United States.
9. Controlling General Provisions. The provisions in this Section 9
shall govern and control over any irreconcilably inconsistent provision
contained in this Note or any of the other Loan Documents or any other
instrument contemplated hereunder or thereunder. In no event shall the
aggregate of all interest paid or payable by Borrower to Lender ever exceed the
maximum rate of interest which may lawfully be charged to (or payable by)
Borrower under applicable law on the Adjusted Principal Amount of this Note from
time to time remaining unpaid. In this connection, it is expressly stipulated
and agreed that it is the intent of Lender and Borrower in the execution and
delivery of this Note to contract in strict compliance with any applicable usury
laws. In furtherance of the foregoing, none of the terms of this Note, the Loan
Documents (other than this Note) or any such other instruments contemplated
hereunder or thereunder shall ever be construed to create a contract to charge
or pay for interest in excess of the maximum interest rate permitted to be
contracted for, charged to, or payable by Borrower under applicable law.
Borrower and any guarantors, endorsers or other parties now or hereafter
becoming liable for payment of this Note shall never be liable for interest in
excess of the maximum interest that may be lawfully charged under applicable
law, and the provisions of this Section 9 shall govern over all other provisions
of the Loan Documents, and any other
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<PAGE>
instruments evidencing or securing the Loan, should such provisions be in
apparent conflict herewith.
Specifically and without limiting the generality of the foregoing
paragraph, it is expressly agreed that:
(a) In the event of the payment of the Adjusted Principal Amount
of this Note, prior to the due date for payment thereof, resulting
from acceleration of maturity of this Note, if the aggregate amounts
of interest accruing hereunder prior to such payment plus the amount
of any interest accruing after such maturity up to the date of payment
and plus any other amounts paid or accrued in connection with the
other Loan Documents, including, if applicable, all or any portion of
the value of any Common Stock issued to Lender under Section 3 of this
Note, which by law are deemed interest under such Loan Documents and
which aggregate amounts paid or accrued (if calculated in accordance
with the provisions of this Note other than pursuant to this Section
9) would exceed the maximum lawful rate of interest which could be
charged on the principal balance of this Note from the date hereof to
the date of final payment thereof, then in such event the amount of
such excess shall be credited, as of the date paid, toward the payment
of principal of this Note so as to reduce the amount of the final
payments of Adjusted Principal Amount due on this Note;
(b) If under any circumstances the aggregate amounts paid under
the Loan Documents prior to and incident to the final payment hereof,
including, without limitation, if applicable, all or any portion of
the value of any Common Stock issued to Lender under Section 3 of this
Note, include amounts which by applicable law are deemed interest and
which would exceed the maximum amount of interest which could lawfully
have been charged or collected on this Note, Borrower stipulates that
such payment and collection will have been and will be deemed to have
been the result of a mathematical error on the part of both Borrower
and Lender, and Lender shall promptly refund the amount of such excess
(to the extent only of the excess of such payments above the maximum
amount which could lawfully have been collected and retained) upon the
discovery of such error by the party receiving such payment or notice
thereof from the party making such payment; and
(c) All calculations as to the rate of interest contracted for,
charged or received under this Note or the other Loan Document which
are made for the purposes of determining whether such rate exceeds the
maximum rate of interest which may lawfully be charged shall be made,
to the extent permitted by applicable usury laws, if any, by
amortizing, prorating, allocating and spreading, in equal parts,
during the period of the full stated term of the Loan evidenced
hereby, all interest any time contracted for, charged or received from
Borrower or otherwise by Lender in connection with such indebtedness.
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Notwithstanding anything contained in this Note or the other Loan Documents
to the contrary, interest under this Note shall never exceed the lesser of (1)
the highest non-usurious rate allowed by applicable law or (2) seventeen percent
(17%) per annum on a compounded basis.
10. Invalidity.
The parties hereto intend and believe that each provision of this Note
comports with all applicable laws and judicial decisions. However, if any
provision or provisions, or if any portion of any provision or provision, in
this Note is found by a court of law to be in violation of any applicable
ordinance, statute, law, administrative or judicial decision, or public policy,
and if such court should declare such portion, provision or provisions of this
Note to be illegal, invalid, void or unenforceable as written, then it is the
intent of all parties hereto (i) that such portion, provision or provisions
shall be given force to the fullest possible extent that they are legal, valid
and enforceable, (ii) that the remainder of this Note shall be construed as if
such illegal, invalid, void or unenforceable portion, provision or provisions
were not contained therein, and (iii) that the rights, obligations and interest
of Borrower and the holder hereof under the remainder of this Note shall
continue in full force and effect.
11. Waiver; Expenses.
(a) Borrower hereby waives presentment, demand for payment, notice of
dishonor and all other notices or demands in connection with the delivery,
acceptance, performance, default or enforcement of this Note and hereby
consents to and extensions of time, renewals, waivers or modifications that
may be granted or consented to by the holder of this Note in respect of the
time of payment or any other provision of this Note. Borrower hereby
waives and renounces for itself, its successors and assigns, all rights to
the benefits of any statute of limitations and any moratorium,
reinstatement, marshalling, forbearance, valuation, stay, extension,
redemption, appraisement, or exemption now provided, or which may hereafter
be provided, by the Constitution and laws of the United States and of any
state thereof, both as to itself and in and to all of its property, real
and personal against the enforcement and collection of the obligations
evidenced by this Note.
(b) In the event that the holder hereof shall institute any action for
the enforcement of the collection of this Note, there shall be immediately
due from Borrower in addition to the unpaid interest and the Adjusted
Principal Amount, all costs and expenses of such action, including but not
limited to attorneys' fees and expenses.
12. Miscellaneous.
(a) This Note and all provision hereof shall be binding upon Borrower
and its successors and assigns and shall inure to the benefit of Lender,
together with its successors and assigns, including each owner and holder
from time to time of this Note.
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(b) Time is of the essence as to all dates set forth herein subject to
any applicable grace or cure period expressly provided herein or the in the
Loan Documents; provided, however, that unless otherwise stated, whenever
any payment to be made under this Note shall be stated to be due on a day
other than a Business Day, such payment may be made on the immediately
preceding Business Day.
(c) All notices, demands or requests relating to any matters set forth
herein shall be in writing and delivered as set forth, and shall be
effective in the time set forth, in the Funding Agreement.
(d) Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS
HEREIN PROVIDED FOR.
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IN WITNESS WHEREOF, Borrower has executed this Note as of the date set
forth above.
ATLANTIC HOMESTEAD VILLAGE LIMITED PARTNERSHIP
By: Atlantic Homestead Village (1) Incorporated,
its sole general partner
By: /s/ David D. Dressler, Jr.
-----------------------------------------
Name: David C. Dressler, Jr.
Title: Managing Director
Address: 125 Lincoln Avenue
Santa Fe, New Mexico 87501
For purposes of Sections 3 and 4 only:
ATLANTIC HOMESTEAD VILLAGE INCORPORATED
By: /s/ David C. Dressler, Jr.
-----------------------------------------------
Name: David C. Dressler, Jr.
Title: Managing Director
Address: 125 Lincoln Avenue
Santa Fe, New Mexico 87501
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EXHIBIT A
Form of Exercise Notice
(To Be Executed Upon Conversion of Note)
The undersigned hereby irrevocably elects to convert the entire outstanding
principal amount of the Note (currently $__________) into __________ shares of
Common Stock in accordance with the terms thereof. The undersigned requests
that a certificate for such shares be registered in the name of
________________, whose address is _____________________ and that such shares be
delivered to ________________________ whose address is __________________.
Date:____________________
_______________________________
Name:__________________________
Title:_________________________
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees and Shareholders of Security Capital Pacific Trust
The Board of Trustees and Shareholders of Security Capital Atlantic
Incorporated
The Board of Trustees and Shareholders of Security Capital Group Incorporated
With respect to the accompanying Post-effective Amendment No. 1 on Form S-1
to the registration statement (No. 333-4455) on Form S-4 of Homestead Village
Incorporated, we consent to:
(i) the use of our report dated May 1, 1996 on the combined balance
sheets of the PTR-Homestead Village Group as of December 31, 1994 and 1995,
the related combined statements of operations, owner's equity and cash
flows for each of the years in the three-year period ended December 31,
1995, and the related combined schedule as of December 31, 1995, which
report is included herein;
(ii) the use of our report dated May 1, 1996 on the combined balance
sheet of the Atlantic-Homestead Village Group as of December 31, 1995, the
related combined statements of operations, owners' equity, and cash flows
for the period from April 3, 1995 (date of formation) through December 31,
1995 and the related combined schedule as of December 31, 1996, which
report is included herein;
(iii) the use of our report dated May 1, 1996 on the combined balance
sheets of SCG-Homestead Village Group as of December 31, 1994 and 1995 and
the related combined statements of operations, shareholder's equity and
cash flows for each of the years in the three-year period ended December
31, 1995, which report is included herein; and
(iv) the reference to our firm under the heading "independent public
accountants and experts" in the Registration Statement.
KPMG Peat Marwick LLP
Chicago, Illinois
October 9, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated August 22, 1996, in the Prospectus of Homestead
Village Incorporated that is made a part of the Post-Effective Amendment No. 1
on Form S-1 to the Registration Statement (Form S-4 No. 333-4455) of Homestead
Village Incorporated.
Ernst & Young LLP
Dallas, Texas
October 9, 1996
<PAGE>
EXHIBIT 23.7
CONSENT TO BE NAMED AS A DIRECTOR
I, Michael D. Cryan, hereby consent to be nominated as a director of
Homestead Village Incorporated and to be named as a nominated director in
Post-Effective Amendment No. 1 on Form S-1 to the Registration Statement on
Form S-4 (File No. 333-4455) of Homestead Village Incorporated to be filed
with the Securities and Exchange Commission by Homestead Village Incorporated.
/s/ Michael D. Cryan
_____________________________________
Michael D. Cryan
Dated: October 11, 1996
